Orca Exploration announces Q1 2014 results

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

• 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: 61.6MMcfd) 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.

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