Orca Exploration Group Inc. announces its results for the quarter ended 31 March 2014

Orca Exploration is an international public company engaged in hydrocarbon exploration, development and supply of natural gas in Tanzania

TORTOLA, British Virgin Islands, May 30, 2014/ — Orca Exploration Group Inc. (“Orca” or “the Company”) (http://www.orcaexploration.com), an international public company engaged in hydrocarbon exploration, development and supply of natural gas in Tanzania, announces its results for the quarter ended 31 March 2014.

• Orca operated its Tanzania Songo Songo gas field in the first quarter of 2014 near its productive capacity delivering Additional Gas sales volumes averaging 57.4 MMcfd, a decrease of 7% over the same period in 2013 (Q1 2013: 61.6 MMcfd) and a decrease of 4% over Q4 2013 (60.1 MMcfd). Overall production of Protected Gas and Additional Gas was down 2% over Q1 2013 at 94 MMcfd (Q1 2013: 96 MMcfd). Current average production is approximately 94 MMcfd with current volumes down to approximately 82 MMcfd due to seasonally high hydro usage by TANESCO.

• The situation with respect to the outstanding accounts receivable from TANESCO remains urgent. In the event that the Company does not collect from TANESCO the balance of the receivables and TANESCO continues to be unable to pay the Company for subsequent gas deliveries, the Company will need additional funding for its ongoing operations by the end of the 2014 fiscal year.

• Working capital was US$19.1 million at 31 March 2014, down 65% over Q1 2013 (US$54.8 million), a result of reclassifying US$59.3 million (prior to discount) of TANESCO debt as a long-term receivable. As at 31 March 2014, TANESCO owed the Company US$68.6 million of which US$63.9 million was in arrears.

• TANESCO currently owes the Company US$60.9 million, of which US$57.6 million is in arrears. During the quarter, the Company served notice to TANESCO and is actively pursuing legal and contractual options available to collect the arrears and arrest the increase in TANESCO receivables, including but not limited to the suspension of gas deliveries to TANESCO.

• TANESCO has made some effort to arrest the growth of arrears. The Tanzania Ministry of Energy and Minerals (“MEM”), which oversees TANESCO, directed the state utility to seek to establish a regular basis of payments to its creditors given the increased cash flow from higher power tariffs which came into effect in January 2014. TANESCO has stated an intention to pay TZsh 3 billion (US$1.8 million) weekly. Management is currently negotiating a formalized arrangement with TANESCO to repay the arrears and ensure payment for ongoing gas deliveries remains current.

• Q1 earnings were US$1.6 million or US$0.04 per share diluted, down 47% from the prior year period (Q1 2013: US$2.9 million or US$0.08 per share) and compared with a loss of US$3.9 million or US$0.11 per share in Q4 2013, again reflecting the cost of carrying the TANESCO receivable and provisioning a further US$2.6 million (Q4 2013: US$2.2 million) against doubtful debts, primarily Songas.

• Average gas prices were up 2% in Q1 to US$4.55/mcf over the prior year period (Q1 2013: US$4.45/mcf), Industrial gas prices were up 4% in Q1 to US$8.11/mcf (Q1 2013: US$7.78/mcf) and down 3% from Q4 2013 (US$8.38/mcf) from changes in the sales mix. Average Power sector gas prices decreased 1% over the prior year period to US$3.52/mcf (Q1 2013: US$3.55/mcf) and down 4% compared to the Q4 2013 price of US$3.68/mcf, a result of a reduced take at higher marginal prices.

• Gross revenue for the quarter was US$23.9 million, down 3% from the prior year period (Q1 2013: US$24.6 million), with the Company’s share of revenue down 5% from US$12.7 million to US$12.1 million. Cost Pool recoveries contributing to operating revenue remained low at US$2.3 million (Q1 2013: US$3.6 million) due to minimal capital spending during the quarter.

• Funds flow from operating activities was down 20% to US$7.1 million or US$0.20 per share diluted (Q1 2013: US$8.9 million or US$0.25 per share), a result of lower net revenues.

• As at 31 March 2014, the Company had US$31.1 million in cash (31 December 2013: US$32.6 million) and no debt, more than double the cash balances of the prior year. Notwithstanding the stronger cash position, the continued TANESCO and Songas non-payment still threatens the Company’s viability and the Company has maintained a going concern note in its Q1 2014 Interim Consolidated Financial Statements. The Company currently has US$40 million in cash and no debt.

• During the quarter, Company ended negotiations on potential amendments to the Songo Songo Production Sharing Agreement (the “PSA”) and on Government Negotiating Team issues having obtained a full retraction by the Tanzania Petroleum Development Corporation (“TPDC”) of the alleged over-recovery of US$21 million in Cost Pools and TPDC having confirmed that the matter was now closed. The claim was the cornerstone of Parliament’s 2011 resolution advising the Government that the Company should repay the monies and that the PSA be terminated. The Company continues to use the dispute resolution mechanisms in its agreements to address any and all pertinent issues going forward.

• Establishing commercial terms for future incremental gas sales remains a key condition to the Company’s commitment to Songo Songo development – again there were no substantive developments in negotiations during the quarter. In the absence of an agreement in the near future, the Company intends to pursue its rights under the PSA to develop other markets for Songo Songo gas.

• Despite the stalled efforts to reach agreement on commercial terms, the Company continued planning the full development of Songo Songo to reach 190 MMcfd deliverability by mid-2015, and commenced detailed engineering work on potential workovers of two of the more prolific producing wells currently suspended, SS-5 and SS-9. The Company continues to work with the International Finance Corporation of the World Bank Group to finance the development programme. All development work remains contingent upon (i) satisfactory resolution of TANESCO arrears; (ii) acceptable commercial terms for future gas sales to TPDC; and (iii) payment guarantees for future gas deliveries to TPDC.

• The Tanzania National Natural Gas Infrastructure Project (“NNGIP”) made significant progress, as reported by TPDC during 2013, with the pipeline currently 72% complete and gas processing facilities 58% complete. Expected onstream date remains mid-2015.


For further information click on: http://www.orcaexploration.com/pdfs/2014_ORCA_Q1_release.pdf