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Orca Exploration announces its results for the quarter ended 30 June 2012

August 28, 2012

TSX-V: ORC.A, ORC.B

TORTOLA, British Virgin Islands, Aug. 28, 2012 /CNW/ – Orca Exploration
Group Inc (“Orca Exploration” or the “Company”) announces its results
for the quarter ended 30 June 2012.

Highlights

        --  Additional Gas sales continued at system capacity up 4% over Q1
            to 54.9 MMcfd being an increase of 37% over the prior year (Q2
            2011: 40.2 MMcfd).  This resulted in operating revenue of
            US$16.9 million (Q2 2011: US$8.3 million).

        --  Funds from operations before working capital changes unchanged
            over Q1 at US$9.9 million (US$0.28 per share diluted), being
            triple the prior year (Q2 2011: US$3.3 million or US$0.09 per
            share diluted).

        --  Working capital decreased by 16% in Q2 from Q1 to US$38.7
            million (US$56.0 million as at 31 December 2011) as a
            consequence of significant capital expenditure on drilling
            operations.

        --  Accounts Receivable continue to increase due to delayed
            payments for gas deliveries to the state utility, TANESCO
            however constructive discussions are ongoing with recently
            appointed senior management and proposals for scheduled
            payments are being actively discussed.

        --  Completed drilling the SS-11 development well on Songo Songo
            Island and flowline connected - expected to be commissioned by
            September.

        --  Deferred the drilling of the exploration well SSW pending
            normalisation of the utility's payment arrears and resolution
            of Songo Songo Production Sharing Agreement ("PSA") issues
            raised by the government of Tanzania..
        --  In May, a new Minister was appointed to the Tanzania Ministry
            of Energy and Mines ("MEM") who has since taken a leadership
            role in resolving TANESCO payments and issues raised by the
            GNT. In July, government dissolved the Parliamentary Committee
            for Energy and Minerals and the TANESCO senior management were
            dismissed. Constructive discussions are ongoing with government
            officials.

        --  Reached an agreement in principle on a number of major points
            with the Government Negotiation Team ("GNT") to resolve the
            issues raised in 2011 by the Parliamentary Committee for Energy
            and Minerals in respect of the Company's PSA. The GNT having
            completed its mandate has been dissolved and the responsibility
            for finalisation, documentation and implementation has moved
            back to MEM.

        --  With a rapidly deteriorating hydro power supply in country,
            following a communication from TPDC on 25 August 2012, on 27
            August 2012, the Ministry of Energy and Minerals issued an
            order to the Company to redirect all gas volumes (including
            from Industrial Gas buyers) to TANESCO until 31 December 2012
            to aid in emergency power generation. The Company is in active
            discussions with TPDC, MEM and other affected parties to assess
            the implications of complying with this order.

        --  Drilling of the La Tosca well (Orca 70% to 75% earned interest)
            in the Longastrino exploration block in the Po Valley, northern
            Italy (operated by Northern Petroleum Plc) commenced 7th
            August; operations are expected to be complete by the beginning
            of September.

.


    Financial and
    Operating
    Highlights

                    Three months ended or as at   Six months ended or as at

                     30-Jun  30-Jun                30-Jun  30-Jun        

                       2012    2011    Change        2012    2011   Change

    Financial
    (US$'000 except
    where otherwise
    stated)

    Revenue          16,915   8,296      104%      34,121  17,936     90%

    Profit before     8,672   1,341      547%      18,825   5,371    250%
    taxation

    Operating          2.56    1.80       42%        2.54    1.98    (28%)
    netback
    (US$/mcf)

    Cash and cash    20,194  48,993     (59%)      20,194  48,993    (59%)
    equivalents

    Working capital  38,689  57,070     (32%)      38,689  57,070    (32%)

    Shareholders'   118,938 100,956       18%     118,938 100,956     18%
    equity

    Earnings per       0.15    0.01      100%        0.34    0.08    379%
    share - basic
    (US$)

    Earnings per       0.15    0.01     1272%        0.33    0.08    366%
    share - diluted
    (US$)

    Funds flow from   9,982   3,292      201%      19,871   8,239    141%
    operating
    activities

    Funds per share    0.29    0.09      203%        0.57    0.24    142%
    from operating
    activities  -
    basic  (US$)

    Funds per share    0.28    0.09      206%        0.56    0.23    143%
    from operating
    activities  -
    diluted (US$)

    Net cash flows    5,689   2,142      166%      12,342   5,638    119%
    from operating
    activities

    Net cash flows     0.16    0.06      166%        0.36    0.16    120%
    per share from
    operating
    activities -
    basic (US$)

    Net cash flows     0.16    0.06      169%        0.35    0.16    121%
    per share from
    operating
    activities -
    diluted (US$)

    Outstanding
    Shares ('000)

    Class A shares    1,751   1,751       0%        1,751   1,751      0%

    Class B shares   32,743  32,939       0%       32,743  32,939    (1%)

    Options           2,172   2,557     (15%)       2,172   2,557    (15%)

    Additional Gas      829     688       21%       1,664   1,237     35%
    sold(MMcf) -
    industrial

    Additional Gas    4,172   2,965       41%       8,145   5,759     41%
    sold(MMcf) -
    power

    Additional Gas      9.1     7.6       20%         9.1     6.8     35%
    sold(MMcfd) -
    industrial

    Additional Gas     45.8    32.6       40%        44.8    31.8     41%
    sold(MMcfd) -
    power

    Additional Gas     54.9    40.2       37%        53.9    38.6     40%
    sold(MMcfd) -
    total

    Average price     10.14   10.28      (1%)        9.88    9.90      0%
    per mcf (US$) -
    industrial

    Average price      2.80    2.64       5%         2.76    2.63      5%
    per mcf (US$) -
    power

Chairman & CEO’s Letter to Shareholders

2012 has become a pivotal year for both Orca Exploration Group and the
power sector in Tanzania.  For Orca there have been solid
accomplishments but also very serious challenges.  For Tanzania energy
self-sufficiency and power security are in sight but getting there as
quickly as the economy demands will still take a concerted effort by
all stakeholders.

Orca’s financial and operations performance continued strong over the
quarter. During Q2 2012 Orca continued to produce natural gas at
maximum capacity, delivering Additional Gas sales volumes of 54.9 MMcfd
(52.9 MMcfd Q1 2012). Funds from operations before working capital
changes were unchanged over Q1 at $9.9 million ($0.28 per share),
triple Q2 2011 ($3.3 million or $0.09 per share). The Company’s
Accounts Receivable has increased due to continued delayed payments for
gas deliveries to our major customer, the state utility. We are,
however, in constructive discussions with the relevant authorities and
proposals are being received and actively discussed.

For its part, Tanzania is vigorously addressing its power generation
issues. To eliminate persistent power interruptions and shortfalls in
capacity Tanzania is accelerating the pace of developing its natural
gas infrastructure. At the end of the second quarter of 2012, the
Government of Tanzania announced a lending agreement with the
Export-Import Bank of China to fund approximately US$1.2 billion in
energy infrastructure expansion.  The government announced its
intention to utilize the majority of the funds to construct a new 24
inch to 36-inch pipeline to be laid between Mnazi Bay and Somanga
Funga, and to twin the existing 16-inch pipeline between Somanga Funga
(the onshore tie-in to Songo Songo) and Dar es Salaam with a new
36-inch pipeline. This infrastructure expansion will provide Orca with
much needed process and pipeline capacity expansion at Songo Songo.

In the near term, power supply has become an acute issue for Tanzania.
Very recently, the government was apprised of rapidly falling hydro
power generation resulting from critically low levels of water in the
country’s reservoirs. Seeking to avert a serious power shortage, on 27
August 2012, the Ministry of Energy and Minerals issued an order to the
Company to redirect all gas volumes (including from Industrial Gas
buyers) to TANESCO until 31 December 2012 to aid in emergency power
generation. The Company is in active discussions with TPDC, MEM and
other affected parties to assess the implications of complying with
this order. As the situation unfolds the Company will issue further
details.

Advancing Cooperation and Collaboration

Orca still has much to accomplish in Tanzania – both for the people and
businesses of Tanzania and for our own shareholders. But first we need
to overcome the uncertainties which hang over our company.

Despite continued strong funds flow, Orca’s net cash position has
deteriorated with the continued delays in payments from its largest gas
buyer, the state electric utility TANESCO.  As at the date of this
report Orca is owed US$28.2 million for the Additional Gas sold to the
state utility. The Ministry of Mines and Energy (“MEM”) has been taking
steps to restore the viability of TANESCO and, in the wake of
allegations over corruption and abuse of power within the utility, a
new Managing Director has been appointed and an auditor appointed. Orca
is actively working with MEM and the new TANESCO management to
normalise payments. Based on some recent proposals advanced by TANESCO
and being discussed, Orca management is cautiously optimistic that
arrears can be brought current in a reasonable time frame, at which
time Orca plans to resume its capital programme.  To finance day-to-day
activities while the payments are being brought current, the Company is
closing a short-term US$10 million bank facility in Tanzania. Further
external funding will be required if TANESCO continues to be
significantly in arrears with its payments and management is actively
pursuing additional sources of funding as a contingency.

Orca is continuing to work closely with our partners and the government
to remove the financial risks that impair the Company’s growth.  At the
same time we are very mindful of the fact that these challenges must
not interfere with the production of natural gas from Songo Songo which
fuels roughly 70% of the electricity in Dar es Salaam.  This is a
significant responsibility and we take it very seriously.

We are working hard every day to resolve uncertainties, to clear the way
to growth and contribute to energy self-sufficiency in Tanzania. During
the quarter, Orca continued good faith negotiations with the Government
Negotiation Team (“GNT”) on various issues in Orca’s Production Sharing
Agreement (“PSA”) including, but not limited to, TPDC back in rights,
profit sharing arrangements, the unbundling of the downstream assets,
cost recovery and Orca’s management of the upstream operations.  To
date, we have reached an agreement in principle on a number of major
points with the GNT to resolve the issues. The GNT, having completed
its mandate, has been dissolved and the responsibility for
finalisation, documentation and implementation has moved back to MEM.
Orca believes that the new leadership in MEM has the vision and the
commitment for a successful completion of this process, with a common
view of implementation by the end of 2012.

FINANCIAL RESULTS

The Company continued to produce at maximum capacity during Q2 2012,
delivering Additional Gas sales volumes of 54.9 MMcfd (52.9 MMcfd Q1
2012). Funds from operations before working capital changes was
unchanged over Q1 at $9.9 million ($0.28 per share), triple that of Q2
2011 ($3.3 million or $0.09 per share), largely as a result of a 37%
increase in Additional Gas sales over Q1 2011 combined with the Company
continuing in a cost recovery mode in turn a result of capital
spending.  Average Power Gas sales prices were up 3% over Q1 to
$2.80/Mcf from $2.72/Mcf.  Stronger liquids fuels prices contributed to
a 5% increase in Industrial Gas sales prices of $10.14/Mcf over
$9.63/Mcf in Q1. Working capital at the end of the quarter was $38.7
million, with cash of $20.2 million, down 18% and 33% respectively over
Q1 primarily the result of drilling SS-11 and the continued delay in
TANESCO payments.

TANZANIA OPERATIONS

Orca has been able to establish significant additional deliverability
from Songo Songo with the completion of the SS-11 development well. 
The Company has recently tied in the well and estimates that the well
will be available for production by September 2012. While the well is
expected to be highly productive, it is expected to be initially
infrastructure constrained to a maximum of approximately 40 MMcfd. The
total cost of SS-11 is estimated at US$38 million, higher than
originally estimated.  The increased cost is primarily due to
additional rig and associated services time incurred with cementing
operations and the fact that the rig was mobilized from Syria
specifically for this one well.

The Company intends to return to the SS-11 location at a future date to
drill the SS-12 well when additional deliverability is required.  By
that time Orca expects that the payment issues with TANESCO and the
finalisation of negotiations with the GNT on other issues will have
been successfully concluded.

Corrosion testing completed on SS-9 during the quarter confirmed that
the well continued to be able to be safely produced for another nine
months, subject to successful integrity pressure tests. The test did
not show any material increase in corrosion levels in the production
tubing at critical locations. The plan is to shut in SS-9, currently
producing 30 MMcfd, when SS-11 is brought onstream. With the new well
onstream, SS-9 will remain available to provide spare capacity and
redundancy allowing more thorough testing of all production wells
during the remainder of the year.

The timing for the drilling of Songo Songo West has also been stretched
out by the as yet unresolved issues. In Q1 2012 the Company reported
that it was planning to drill the Songo Songo West (“SSW”) exploration
well in Q4 and was negotiating to secure a jack-up rig. However by the
end of the second quarter the Company had taken the decision to defer
the drilling of Songo Songo West until the TANESCO and GNT issues were
resolved. The reserve-backed lending facility, required to fund the SSW
drilling, is also expected to be completed when these issues are
resolved.

ITALIAN OPERATIONS

In the Longastrino Block in the Po Valley region of northern Italy the
La Tosca farm-in well was spud by Northern Petroleum, as operator, on 7(th) August 2012. Operations are expected to be complete by the beginning of
September.

Subsequent to the quarter, the Elsa offshore Italy opportunity cleared
an important regulatory hurdle. Legislative Decree 83/2012 (the
“Decree”), published on 26 June 2012 was approved by both houses of the
Italian Parliament with no substantial modifications. On 12 August
2012, the Decree became law following publication in the Italian
Official Journal. The new law modifies restrictions on offshore oil and
gas exploration and production originally introduced by DLGS 128/2010
in August 2010. Petroceltic plc, the operator of the permit has stated
that the new legislation removes the existing uncertainty concerning
exploration, development and production activities in Italian waters.

TOWARDS A BRIGHTER FUTURE

The past 12 months have been trying ones for Orca’s management and our
shareholders.  However the positive developments of the past few months
give us reason to believe that a mutually satisfactory resolution of
all outstanding financial and contractual issues can now be achieved,
allowing Orca to move forward with confidence. Both Orca and the
Government of Tanzania have re-committed to a closely cooperative
relationship in moving towards our common interests.

Tanzania is in sight of energy self sufficiency and prosperity over the
next decade and Orca is proud to play a role in contributing to the
country’s drive to achieve energy self-reliance. Orca was the first
company to develop natural gas production in East Africa and remains
the only significant producer of natural gas in the region. We
committed capital and took risks at a time when there was no assurance
of gas production from Songo Songo. Together, with our partners, we are
delivering on our promises.

Condensed Consolidated Interim Statement of Comprehensive Income
(unaudited)

ORCA EXPLORATION GROUP INC.


                                    Three months ended   Six months ended

                                     30-Jun     30-Jun    30-Jun   30-Jun

    Figures in US$'000 except per      2012       2011      2012     2011
    share amounts

    Revenue                          16,915      8,296    34,121   17,936

    Cost of sales                                                        

    Production and distribution     (1,813)    (1,183)   (3,127)  (2,209)
    expenses

    Depletion expense               (2,017)    (1,728)   (3,955)  (3,310)

                                     13,085      5,385    27,039   12,417

    General and administrative      (4,362)    (3,487)   (8,026)  (6,337)
    expenses

    Net finance costs                  (51)      (557)     (188)    (709)

    Profit before taxation            8,672      1,341    18,825    5,371

    Taxation                        (3,505)      (958)   (7,266)  (2,598)

    Profit after taxation and         5,167        383    11,559    2,773
    comprehensive income

    Earnings per share                                                   

    Basic  (US$)                       0.15       0.01      0.34     0.08

    Diluted (US$)                      0.15       0.01      0.33     0.08

Condensed Consolidated Interim Statement of Financial Position
(unaudited)

ORCA EXPLORATION GROUP INC


    AS AT                                 30-Jun  31-Dec

    Figures in US$'000                      2012    2011

    ASSETS                                              

    Current Assets                                      

    Cash and cash equivalents             20,194  34,680

    Trade and other receivables           51,807  40,348

    Taxation Receivable                   12,785   5,880

    Prepayments                              842     302

                                          85,628  81,210

    Non- Current Assets                                 

    Exploration and evaluation assets      7,478   2,921

    Property, plant and equipment         96,213  67,713

                                        103, 691  70,634

    Total Assets                         189,319 151,844

    EQUITY AND LIABILITIES                              

    Current Liabilities                                 

    Trade and other payables              40,165  22,801

    Taxation payable                       6,774   2,403

                                          46,939  25,204

    Non-Current Liabilities                             

    Deferred income taxes                 17,266  15,194

    Deferred additional profits tax        6,176   4,787

                                          23,442  19,981

    Total Liabilities                     70,381  45,185

    Equity                                              

    Capital stock                         84,610  84,610

    Contributed surplus                    6,988   6,268

    Accumulated income                    27,340  15,781

                                         118,938 106,659

    Total Equity and Liabilities         189,319 151,844

Condensed Consolidated Interim Statement of Cash Flows (unaudited)

ORCA EXPLORATION GROUP INC


                                      Three months ended   Six months ended

                                        30-Jun    30-Jun     30-Jun  30-Jun

    US$'000                               2012      2011       2012    2011

    CASH FLOWS FROM OPERATING
    ACTIVITIES

    Profit after taxation                5,167       383     11,559   2,773

    Adjustment for :                                                       

      Depletion and depreciation         2,136     1,776      4,156   3,406

      Gain on disposal of vehicle            -         -          -     (5)

      Stock-based compensation             615     (163)        621    (90)

      Deferred income taxes              1,350       150      2,072     688

      Deferred additional profits          717       595      1,389     788
      tax

      Interest income                      (1)       (1)        (2)     (4)

      Unrealised foreign exchange          (2)       552         76     683
      loss

                                         9,982     3,292     19,871   8,239

    (Increase) in trade and other      (9,373)   (4,431)   (11,491) (5,318)
    receivables

    (Increase)/decrease in taxation    (3,077)       846    (6,905)   (616)
    receivable

    (Increase) in prepayments            (500)     (408)      (540)   (380)

    Increase in trade and other          6,503     4,035      7,036   3,803
    payables

    Increase/(decrease) in taxation      2,154   (1,192)      4,371    (90)
    payable

    Net cash flows from operating        5,689     2,142     12,342   5,638
    activities

    CASH FLOWS USED IN INVESTING
    ACTIVITIES

    Exploration and evaluation         (2,978)     (314)    (4,557)   (538)
    expenditures

    Property, plant and equipment     (15,486)   (1,279)   (32,656) (2,411)
    expenditures

    Interest received                        1         1          2       4

    Proceeds from sale of vehicle            -         -          -       5

    Increase in trade and other          2,332       754     10,405     860
    payables

    Net cash used in investing        (16,131)     (838)   (26,806) (2,080)
    activities

    CASH FLOWS USED IN FINANCING
    ACTIVITIES

    Net cash flow used in financing          -         -          -       -
    activities

    Increase in cash and cash         (10,442)     1,304   (14,464)   3,558
    equivalents

    Cash and cash equivalents at        30,634    47,776     34,680  45,519
    the beginning of the period

    Effect of change in foreign              2      (87)       (22)    (84)
    exchange

    Cash and cash equivalents at        20,194    48,993     20,194  48,993
    the end of the period

Condensed Consolidated Interim Statement of Changes in Shareholders’
Equity (unaudited)

ORCA EXPLORATION GROUP INC


    US'000              Capital      Contributed  Accumulated
                         stock         surplus      income         Total

    Balance as at          85,100           5,288       7,795
    1 January
    2011                                                            98,183

    Total
    comprehensive               -               -       2,773
    income for
    the period                                                       2,773

    Balance as at                                      10,568
    30 June 2011           85,100           5,288                  100,956

    US$'000             Capital      Contributed  Accumulated
                         stock         surplus      income         Total

    Balance as at          84,610           6,268      15,781
    1 January
    2012                                                           106,659

    Total                                     720      11,559
    comprehensive
    income for
    the period                                                      12,279

    Balance as at          84,610           6,988      27,340
    30 June 2012                                                   118,938

Orca Exploration is an international public company engaged in natural
gas exploration, development and supply in Tanzania and oil appraisal
and gas exploration in Italy. Orca Exploration trades on the TSXV under
the trading symbols ORC.B and ORC.A.

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.

Forward Looking Statements
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning, but
not limited to, ongoing discussions with TANESCO regarding delayed
payments for gas delivery and expected outcome therefrom; expected
timing of commissioning the SS-11 development well on Songo Songo
Island; anticipated timing of bringing the SS-11 development well on
Songo Songo Island on production; expected production, costs and
infrastructure constraints of the SS-11 development well; terms of the
order issued by the Ministry of Energy and Minerals to redirect all gas
volumes to TANESCO and the status of the Company complying with such
order; expected timing of completion of drilling operations on the La
Tosca well; expectations that payments from TANESCO can be brought
current and the anticipated timing thereof and the effect on the
Company’s capital program; the Company’s plans to finalize a short-term
bank facility; future funding requirements; the status of the Company’s
negotiations with the GNT in respect of the PSA and the expected timing
of completion thereof; expected timing of drilling of the SS-12 well;
the Company’s plans with respect to the SS-9 well; expected timing of
drilling of the Songo Songo West well; and the Company’s strategic
plans.

These forward-looking statements involve substantial known and unknown
risks and uncertainties, certain of which are beyond Orca Exploration’s
control, including, but not limited to, risk that the Company will not
be able to fulfill its obligations; failure of counterparties to
perform on contracts; failure to successfully negotiate contracts; 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; competition for, among other
things, capital, drilling equipment and skilled personnel; failure to
obtain required equipment for drilling; delays in drilling plans;
failure to obtain expected results from drilling of wells; changes in
laws; imprecision in reserve estimates; the production and growth
potential of the Company’s assets; obtaining required approvals of
regulatory authorities; risks associated with negotiating with foreign
governments; failure to obtain short-term bank facility; impact of
changes to the PSA on the Company; impact of the order issued by the
Ministry of Energy and Minerals to redirect all gas volumes to TANESCO
on the Company, its operations and its financial condition; and ability
to access sufficient capital. 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 that
Orca Exploration will derive therefrom.

Such forward-looking are based on certain assumptions made by Orca
Exploration in light of its experience and perception of historical
trends, current conditions and expected future developments, as well as
other factors Orca Exploration believes are appropriate in the
circumstances, including, but are not limited to, infrastructure
capacity; commodity prices will not deteriorate significantly; the
ability of Orca Exploration to obtain equipment in a timely manner to
carry out exploration, development and exploitation activities; future
capital expenditures; availability of skilled labour; timing and amount
of capital expenditures; uninterrupted access to infrastructure; the
impact of increasing competition; conditions in general economic and
financial markets; effects of regulation by governmental agencies; that
the Company will have sufficient cash flow, debt or equity sources or
other financial resources required to fund its capital and operating
expenditures and requirements as needed; current or, where applicable,
proposed industry conditions, laws and regulations will continue in
effect or as anticipated as described herein; and future capital
expenditures.

The forward-looking statements contained in this press release are made
as of the date hereof and Orca Exploration undertakes no obligation to
update publicly or revise any forward-looking statements or
information, whether as a result of new information, future events or
otherwise, unless so required by applicable securities laws.

SOURCE Orca Exploration Group Inc.


Source: PR Newswire