TORTOLA, British Virgin Islands, April 29 /CNW/ - Orca Exploration Group Inc ("Orca Exploration" or the "Company") announces its results for the year ended 31 December 2007.
Highlights
- Increased 2P Additional Gas reserves by 14% from 415 Bcf to 474 Bcf.
- Sold 7.7 Bcf (21.2 Mmscf/d) of Additional Gas, an increase of 59%
over 2006. This resulted in operating revenue of US$18.7 million.
- Generated funds from operations before working capital changes of
US$8.7 million, an increase of 46% over 2006.
- Successfully completed the drilling of the SS-10 development well
adding an estimated 55 Mmscf/d to field deliverability.
- Successfully performed remedial work on the SS-9 well adding
25 Mmscf/d to field deliverability.
- Completed the installation of an additional 8 kilometers of low
pressure distribution pipeline to improve security of supply and to
connect new industrial customers.
- Connected four new gas-fired power plants with an installed capacity
of 220 MWs.
- Advanced negotiations with the electricity utility, TANESCO, for the
supply of approximately 200 Bcf of Additional Gas over the next
16 years.
- Advanced negotiations with Songas Limited for the supply of
approximately 47 Bcf of Additional Gas over the period to July 2024.
- Negotiated an option to enter a high potential oil play in the
Albertine Graben sedimentary basin in Uganda and acquired
300 kilometers of 2 D seismic.
Financial and Operating Highlights
Years ended 31 December 2007 2006 Change
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Financial (US$'000 except where
otherwise stated)
Revenue 18,777 13,828 36%
Profit before taxation 3,775 4,261 (11%)
Operating netback (US$/mcf) 2.31 2.45 (6%)
Cash and cash equivalents 16,515 20,678 (20%)
Working capital 7,299 20,430 (64%)
Shareholders' equity 71,544 37,889 89%
Profit per share - basic (US$) 0.06 0.11 (45%)
Profit per share - diluted (US$) 0.06 0.10 (40%)
Funds from operations before working
capital changes 8,696 5,969 46%
Funds per share from operations before
working capital changes - basic (US$) 0.31 0.26 19%
Funds per share from operations before
working capital changes - diluted (US$) 0.29 0.24 21%
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Outstanding Shares ('000)
Class A shares 1,751 1,751 0%
Class B shares 27,863 25,023 11%
Options 2,847 2,022 41%
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Operating
Additional Gas sold - industrial (Mmscf) 1,504 1,466 3%
Additional Gas sold - power (Mmscf) 6,227 3,371 85%
Average price per mcf - industrial (US$) 9.31 8.22 13%
Average price per mcf - power (US$) 2.19 1.90 15%
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Gross Recoverable Reserves to end
of licence (Bcf)
Proved 309 266 16%
Probable 165 149 11%
Proved plus probable 474 415 14%
Present Value, discounted at 10% (US$ million)
Proved 183 109 68%
Proved plus probable 255 159 60%
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President & CEO's Letter to Shareholders
Orca Exploration continues to add to its natural gas reserves and increase cash flow from the Company's operations in Tanzania.
Since the Company's incorporation in 2004 independent evaluation of the Songo Songo field's Additional Gas reserve has increased proven and probable ("2P") reserves 86% from 255 Bcf to 474 Bcf. The rapidly expanding Tanzanian markets for natural gas has driven the increase in cash flow seen from the sale of Additional Gas. In 2007 Orca generated cash flows before working capital changes of US$8.7 million an increase of 46% over 2006.
In the past 18 months, 310 MWs of new gas-fired generation has been installed in the Dar es Salaam area, operating on Additional gas supplied by Orca. During Q4 2007, 23.4 Mmscf/d was sold to these units and the Company anticipates that 38 to 45 Mmscf/d will be sold to the power sector under long-term contracts once infrastructure capacity has been increased. It is forecast that Tanzania's electricity demand will increase by approximately 50 MWs per annum for the foreseeable future absorbing all recoverable gas production from the Songo Songo development licence that is not sold to the higher margin industrial markets.
The Company remains committed to exploration for new oil and gas reserves. Orca is excited by its Songo Songo West exploration prospect that could add approximately 350 Bcf of reserves if gas is discovered. The Company intends to drill a vertical well on this prospect once a suitable jack-up rig can be contracted.
Reserve Increases
At year end 2007, Orca's independent reserve evaluator, McDaniel & Associates Consultants Ltd., increased its 2P estimate of Songo Songo recoverable reserves on a life of licence basis from 415 Bcf at year end 2006 to 474 Bcf. In addition McDaniel included a proven, probable and possible ("3P") category on a life of licence basis of 783 Bcf of recoverable Additional Gas reserves.
Provided the Songo Songo field pressure declines remain consistent with historical trends, and there is a successful drilling of an appraisal well at Songo Songo North, Orca anticipates that the 2P reserve estimates will increase to the level of the 3P number over time. Confirmation of Songo Songo's increased reserves has been achieved through diligent monitoring of the sub surface. The drilling of SS-10 has provided extensive data has on the field for the first time in 25 years as well as adding 80 Mmscf/d of deliverability when combined with the remedial work undertaken on SS-9. The well also contributed the major portion of the increase in reserves in 2007.
Gas Market Additions
The Tanzanian market for natural gas has expanded rapidly. Orca now supplies Additional Gas to 310 MWs of generation.
During 2007, detailed discussions have taken place with the electricity utility, TANESCO, the owners of the Ubungo power plant, Songas Limited and the Ministry of Energy and Minerals ("MEM") to secure two long term contracts for this expanded generation capacity. The first contract covers the supply of gas to the sixth turbine at the Ubungo power plant and has a maximum daily quantity of approx 9.2 Mmscf/d and is expected to be run at a utilisation rate of approximately 85% until July 2024. A further contract covers the sales to the remaining plants and has a maximum daily quantity of approximately 36 Mmscf/d and a take or pay quantity of 32 Mmscf/d until July 2023. Actual utilisation depends on the availability of the 561 MWs of Tanzania's hydro generation and infrastructure capacity. It is expected that hydro utilisation will be high in Q2 2008 dropping thereafter, consistent with seasonal trends in Tanzania.
The contract price is expected to be the same for both contracts at an estimated US$2.32/mcf based on the existing tariff rates. These prices are forecast to increase 2% per annum until July 2012 at which point there will be a step change to US$3.43/mcf based on existing tariff rates. These prices will then increase at 2% per annum.
The demand for electricity is currently increasing at 8% per annum and is forecast to increase at 12% over the course of the next two years. This will lead to additional gas-fired plants being brought into the country.
To meet the growing industrial demand for access to natural gas, the Company has constructed 35 kilometers of low pressure pipeline since 2004 in and around Dar es Salaam. Current industrial Additional Gas sales of approximately 5 Mmscf/d are forecast to double by the end of 2009. A large part of that increase is expected to come from the cement industry whose installed production capacity in Dar es Salaam will increase significantly during the second half of 2009.
During 2008 Orca expects to begin the sale of compressed natural gas ('CNG'). The introduction of CNG will create 'virtual pipelines' and open the prospect of selling Additional Gas to industrials in Morogoro and Tanga, and to hotels and vehicles in Dar es Salaam and Zanzibar. A CNG market development team is in place. A compressor and CNG dispensing system are scheduled to be operational in Q4 2008. With equipment additions, Orca could serve a 4 to 8 Mmscf/d CNG market by the end of 2009. Around the clock transportation would be able to move CNG to markets up to 200 kilometers from Dar es Salaam.
With further drilling success, additional new markets could be developed including the export of electricity to Uganda and Kenya where average generation costs are significantly higher than in Tanzania.
Infrastructure
During Q4 2007, current infrastructure capacity limited sales of Additional Gas on a few occasions. The current gas processing plant configuration on Songo Songo Island limits the supply of gas to Dar es Salaam to 70 Mmscf/d.
The two trains on Songo Songo Island are currently being upgraded and two new Joule-Thomson valves will be installed at the end of May. The insurers are working alongside the team to assess the allowable operating throughput volume for these units. It is expected that this would add 20 Mmscf/d to capacity, raising it to 90 Mmscf/d.
During Q3 2007, Orca submitted a proposal to Songas (the owners of the infrastructure) to enable the Songo Songo Island gas processing capacity to be increased by a further 15 Mmscf/d by utilising a bypass system. It is planned that this work be completed in the second half of 2008 so that infrastructure doesn't continue to be a limiting factor.
Both the electricity utility TANESCO and Songas are seeking confirmation from the turbine manufacturers that their units can consume gas that commingles 15 Mmscf/d of non-processed gas with processed gas as a precursor for the installation of the by pass system.
To address long-term growth Songas has submitted a second application to the Tanzanian regulatory authority, EWURA, for the installation of two new gas processing trains to increase throughput capacity to more than 140 Mmscf/d. The tenders for the engineering, procurement and construction contract were received in Q3 2007 and all parties are working on the project agreements to enable Songas to give the 'notice to proceed'. It is expected that construction will take 15 months from the time of awarding the tender until the new trains are operational. It is expected that the facility upgrades will allow full supply to projected gas markets during the period that the installation of the new trains is in process.
Additional studies are currently being undertaken to determine the best means of increasing the capacity of the pipeline infrastructure from its current estimated capacity of 105 Mmscf/d to the full capacity of the gas processing trains (once the third and fourth train are operational). This should be possible in the short term with some compression.
Adding New Interests
The Company's strategy to acquire two new oil interests in Africa was initiated in 2007 with the negotiation of an option to enter a high potential oil play in the Albertine Graben sedimentary basin in Uganda.
300 kilometers of seismic was acquired in the Uganda Rhino Camp basin area of Exploration Area 5 ("EA 5") during Q4 2007 and Q1 2008. Some modest delays were experienced during the campaign caused principally by the prolonged and unseasonable wet-season that affected the whole of the central African belt. Processing of this seismic data has now commenced, and is due to be completed in the coming weeks. The initial evaluation of the data has indicated that a number of potential structures exist. Technical analysis is still on going with particular attention being paid to the relationship of these structures and any potential hydrocarbon maturation that could have occurred within the basin. As yet it is too early to indicate the level of prospectivity. However initial analysis indicates that the block is more risky than initially thought. As the processing of the seismic data continues, the details of the prospectivity will become clearer. The Company has until June 2008 to determine whether to commit to drill two exploration wells to secure a 50% interest in EA 5.
The Company's exploration and acquisitions team is working to identify a suitable prospect in Africa that can be developed within a two year time period. The main area of focus is West Africa.
Financial Results
Orca's revenues increased 36% to US$18.8 million during the year. Profit before taxation decreased by 11% to US$3.8 million primarily as a result of the additional costs of strengthening and expanding the Company's business development team and the costs of negotiating the long term power contracts.
In 2007 Orca's operations generated cash flows before working capital changes of US$8.7 million, an increase of 46% on 2006. This is forecast to grow in 2008 as gas sales increase and marketing costs decrease.
During the year Orca raised net proceeds of Cdn$30.5 million through a private placement of 2.5 million Class B shares. At year end, the Company had cash of approximately US$16.5 million on hand after financing the Uganda seismic programme in Q4 2007. It is anticipated that a further US$1.5 million will be required to complete the seismic programme in 2008.
Outlook
Orca's increasingly valuable Tanzanian asset base continues to offer excellent growth opportunities that will generate strong cash flows through to 2026. Once long-term contracts are signed for the supply of gas to the power sector, the Company plans to seek a term loan facility to continue to grow its Tanzanian asset base and to pursue additional opportunities in Africa.
The increase in the Songo Songo reserves is extremely encouraging and demonstrates the long-term value that your Company has already unlocked in East Africa. There is increasing confidence that Songo Songo will ultimately be able to produce at a level that equates to the 3P reserves. This would generate excellent cash flows.
This is absolutely the right time to be developing oil and gas resources in Africa. There are many excellent opportunities for smaller companies like Orca. Management continues to evaluate opportunities to acquire an interest in oil properties that fit our financial and human resources capabilities.
Management is mindful that our Company's continued growth and vitality are always dependent on an exceptional team of skilled employees and our loyal shareholders. We thank both for their support. The future glows even more brightly as Orca's reserves increase and markets continue to grow.
Consolidated Income Statement
ORCA EXPLORATION GROUP INC.
YEAR ENDED 31 DECEMBER 2007 2006
(thousands of US dollars except per share amounts)
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Revenue 18,777 13,828
Cost of sales
Production and distribution expenses (1,193) (793)
Depletion expense (4,476) (2,027)
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13,108 11,008
Administrative expenses (10,708) (6,724)
Net financing income/(charges) 1,375 (23)
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Profit before taxation 3,775 4,261
Taxation (2,030) (1,684)
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Profit after taxation 1,745 2,577
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Profit per share
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Basic (US$) 0.06 0.11
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Diliuted (US$) 0.06 0.10
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Consolidated Balance Sheet
ORCA EXPLORATION GROUP INC.
AS AT 31 DECEMBER 2007 2006
(thousands of US dollars)
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ASSETS
Current assets
Cash and cash equivalents 16,515 20,678
Trade and other receivables 8,236 4,275
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24,751 24,953
Exploration and evaluation assets 6,881 -
Property, plant and equipment 61,157 18,951
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68,038 18,951
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92,789 43,904
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LIABILITIES
Current liabilities
Trade and other payables 17,452 4,523
Non current liabilities
Deferred income taxes 3,205 1,229
Deferred additional profits tax 588 263
SHAREHOLDERS' EQUITY
Capital stock 66,538 34,469
Capital reserve 1,023 1,182
Accumulated income 3,983 2,238
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71,544 37,889
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92,789 43,904
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Consolidated Statements of Cash Flows
ORCA EXPLORATION GROUP INC.
YEAR ENDED 31 DECEMBER 2007 2006
(thousands of US dollars)
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CASH FLOWS FROM OPERATING ACTIVITIES
Profit after taxation 1,745 2,577
Adjustments for:
Depletion and depreciation 4,630 2,129
Stock-based compensation 1,062 418
Deferred income taxes 1,976 723
Deferred additional profits tax 325 183
Interest income (628) (61)
Foreign exchange gain (414) -
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8,696 5,969
Increase in trade and other receivables (3,961) (1,413)
Increase in trade and other payables 6,032 540
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Net cash flows from operating activities 10,767 5,096
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CASH FLOWS USED IN INVESTING ACTIVITIES
Exploration and evaluation expenditures (6,322) -
Property, plant and equipment expenditures (46,836) (6,043)
Interest income 628 61
Increase in trade and other payables 6,897 134
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Net cash used in investing activities (45,633) (5,848)
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CASH FLOWS FROM FINANCING ACTIVITIES
Normal course issuer bid (220) -
Shares issued 30,366 18,087
Foreign exchange gain 414 -
Proceeds from exercise of options 143 145
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Net cash flow from financing activities 30,703 18,232
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(Decrease)/increase in cash and cash equivalents (4,163) 17,480
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Cash and cash equivalents at the beginning of the year 20,678 3,198
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Cash and cash equivalents at the end of the year 16,515 20,678
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Statement of Changes in Shareholders' Equity
ORCA EXPLORATION GROUP INC.
Accumulated
(thousands of US dollars) Capital Capital Income/
stock reserve (loss) Total
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Balance as at 31 December 2005 16,237 764 (339) 16,662
Rights issue 18,087 - - 18,087
Options exercised 145 - - 145
Stock-based compensation - 418 - 418
Profit for the year - - 2,577 2,577
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Balance as at 31 December 2006 34,469 1,182 2,238 37,889
Stock issued 31,971 (675) - 31,296
Options exercised 143 - - 143
Stock-based compensation - 691 - 691
Normal course issuer bid (45) (175) - (220)
Profit for the year - - 1,745 1,745
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Balance as at 31 December 2007 66,538 1,023 3,983 71,544
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Forward Looking Statements
This disclosure contains certain forward-looking estimates that involve substantial known and unknown risks and uncertainties, certain of which are beyond Orca Exploration's control, including the impact of general economic conditions in the areas in which Orca Exploration operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition there are risks and uncertainties associated with oil and gas operations, therefore Orca Exploration's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking estimates and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking estimates will transpire or occur, or if any of them do so, what benefits, including the amounts of proceeds, that Orca Exploration will derive therefrom.