Orca Exploration confirms discussions with Swala Oil & Gas (Tanzania) plc regarding a possible minority investment in the Orca Group

TORTOLA, British Virgin Islands 14 August 2017: Orca Exploration Group Inc. (“Orca” or “the Company”) announces that it has filed its condensed consolidated interim financial statements and management’s discussion and analysis for the three and six month periods ended June 30, 2017 with the Canadian securities regulatory authorities.

Operating and Financial Highlights

• Revenue for the quarter decreased by 1% to US$14.4 million from US$14.6 million in Q2 2016 and decreased 1% to US$30.0 million over the six months ended June 30, 2017 compared to US$30.4 million for the comparable prior year period. Additional Gas deliveries and sales for the quarter averaged 39.5 million of standard cubic feet per day (“MMcfd”) a decrease of 2% over 40.3 MMcfd in Q2 2016 and decreased 4% to 41.4 MMcfd for the six months ended June 30, 2017 compared to 43.4 MMcfd for the comparable prior year period. The decrease in Additional Gas volumes for the quarter and the six months ended June 30, 2017 to the comparable prior year periods is primarily the result of reduced nominations of natural gas volumes by TANESCO. The decrease in volumes having been offset by a 1% rise in the weighted average price for the quarter to US$4.90/mcf from US$4.83/mcf in Q2 2016 and a 2% rise to US$4.79/mcf for the six months ended June 30, 2017 from US$4.71/mcf for the comparable prior year period.
• There was a net loss for the quarter of US$0.6 million (US$0.02 loss per share diluted) compared to net income of US$1.5 million in Q2 2016 (US$0.04 per share diluted) and US$2.2 million net income (US$0.06 per share diluted) for the six months ended June 30, 2017 compared to a net loss of US$4.2 million (US$0.12 loss per share diluted) for the comparable prior year period. The net loss for the six months ended June 30, 2017 was primarily a consequence of recording a provision for doubtful accounts of US$11.5 million against the TANESCO receivable, which was partially offset by lower interest associated with the IFC Loan. The interest associated with servicing the IFC loan for the six months ended June 30, 2017 was US$4.6 million compared to US$2.6 million for the six months ended June 30, 2016.
• Cash flows from operations for the quarter decreased by 32% to US$4.6 million (US$0.13 per share diluted) from US$6.8 million (US$0.19 per share diluted) in Q2 2016 and decreased by 33% to US$10.5 million (US$0.30 per share diluted) for the six months ended June 30, 2017 from US$15.6 million (US$0.44 per share diluted) for the comparable prior year period. The decrease for the quarter and the six months ended June 30, 2017 from the comparable prior year periods is primarily due to the fall in the Company’s operating revenue due to the change in the TANESCO revenue recognition criteria, the lower Additional Gas volumes and associated Profit Gas entitlement and the increase in the costs associated with servicing the IFC loan.
• Total capital expenditures for the quarter were US$0.4 million compared to US$2.8 million in Q2 2016 and US$7.8 million for the six months ended June 2017 compared to US$16.9 million for the comparable prior year period. The capital expenditure in the quarter relates to flow line and platform expenditure related to the SS-12 well, the capital expenditure in Q2 2016 relates to the final demobilization cost associated with the 2015/2016 Offshore Development Program. The capital expenditure for the six months ended June 30, 2017 includes the transfer of US$7.4 million of the Songas share of workover costs originally incurred in 2015 from accounts receivable to property, plant and equipment.
• Working capital as at June 30, 2017 was US$69.7 million compared to US$72.0 million as at December 31, 2016. The decrease in the Songas receivable relating to the Songas workover program being offset by the increase in cash balances due to the continued receipts from TANESCO. The closing cash at June 30, 2017 was US$98.5 million (December 31, 2016: US$80.9 million).
• At June 30, 2017 the current receivable from TANESCO was US$ nil (December 31, 2016: US$5.7 million). During the quarter the amounts received from TANESCO were in excess of the revenue recognized for gas sales to TANESCO resulting in a deferred revenue balance of US$4.1 million (December 31, 2016: US$ nil). The long-term trade receivable at June 30, 2017 was US$74.4 million (provision of US$74.4 million) compared to US$80.1 million (provision of US$74.4 million) as at December 31, 2016. Since the quarter end, TANESCO has paid the Company US$5.3 million. As at the date of this report the TANESCO current receivable balance is US$ nil and the deferred revenue balance is US$6.8 million with no change in the long-term receivable or provision.

For further information please contact:

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release contains forward-looking information. More particularly, this news release contains statements and information concerning, but not limited to, the impact the proposed transaction would have on the management or operation of the Company’s operating subsidiary, PanAfrican Energy Tanzania Limited, and the continuation of ongoing benefits accruing to Tanzania from the Orca Group’s involvement in the Songo Songo Project. Although management believes that the expectations reflected in the forward-looking information are reasonable, it cannot guarantee future agreement, levels of activity, performance or achievements since such expectations are inherently subject to significant uncertainties and contingencies. As a consequence, actual results may differ materially from those anticipated in the forward-looking information.

Forward-looking information involves substantial known and unknown risks and uncertainties, certain of which are beyond Orca’s control, and many factors could cause the actual results to differ materially from those expressed or implied in the forward-looking information presented by Orca. Actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits Orca will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. Such forward-looking information is based on certain assumptions made by Orca in light of its experience and current knowledge of the circumstances, as well as other factors that Orca believes are appropriate in the circumstances. The forward-looking information contained in this news release is made as of the date hereof and Orca undertakes no obligation to update publicly or revise forward-looking information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.