TSX-V: ORC.A, ORC.B
TORTOLA, British Virgin
Islands, April 14, 2015 /CNW/
- Orca Exploration Group Inc. ("Orca" or the "Company") today
announced that it will restate its 2013 audited consolidated
financial statements and 2014 unaudited consolidated interim
financial statements for the three, six and nine month periods, due
principally to computational errors involving Tanzania income tax from 2005 and through to
the third quarter of 2014. The errors were discovered in the course
of preparing the Company's consolidated financial statements for
the year ended 31 December 2014. As
the Songo Songo Production Sharing Agreement ("PSA") keeps the
Company whole against any income tax paid in Tanzania, there is no effect on the Company's
day-to-day operations as a result of the restatement. On the
recommendation of management and the Audit Committee, the Board of
Directors made the decision to (i) restate the results for
the year ended 31 December 2013 in
conjunction with the upcoming release of the consolidated financial
statements for the year ended 31 December
2014 which it expects to file on or before 30 April 2015, and (ii) restate the condensed
consolidated interim financial statements for the three, six, and
nine month periods ended 31 March, 30
June and 30 September 2014 in
conjunction with the filing of condensed consolidated interim
financial statements for the corresponding periods in 2015 which it
expects to file on or before the deadlines for such filings. All
amounts stated in this news release are in US dollars (US$).
The PSA, which governs substantially all of the Company's
business in Tanzania, provides a
mechanism to keep the Company whole for income taxes paid in
Tanzania. Pursuant to the PSA, the
Company is reimbursed for all income tax payable on income derived
from Petroleum Operations by way of an "adjustment factor", under
which the Company is allocated additional Profit Gas of a value
equal to the taxes paid/payable, thus reducing the allocation to
the Company's partner in the field, the Tanzania Petroleum
Development Corporation ("TPDC"). The additional Profit Gas
is recovered from TPDC's share of revenues as the tax is paid.
Income tax paid in respect of the previous year is added to taxable
income and included in the calculation of income tax for the
current year. This adjustment factor is determined by grossing up
tax payable on the current year income only, prior to inclusion of
previous year's taxes paid, to that level of revenue necessary for
the Company to remain neutral in the payment of income tax. The
computations in question incorrectly included previous year's taxes
paid in the gross up calculation, the net effect of which was to
overstate reported revenue, deferred tax expense, net profit/(loss)
after tax and funds flow from operating activities, as well as tax
receivable and deferred income taxes payable. In addition, in
Tanzania taxpayers are required to
pay at least 80% of the estimated year's taxes in four quarterly
installments during the year, with a final tax payment for
the balance owing made the following year after financial
statements are completed. The calculation of taxable income
incorrectly only included this final payment, rather than the
sum of all of the five payments made for the tax year. The combined
effect of these errors was an understatement of taxable income and
a cumulative underpayment of tax from 2005 to 31 December 2013 of $3.5
million, which the Company has reported and intends to pay
forthwith. The Tanzania Revenue Authority has the right to assess
penalties and interest on overdue taxes, which if assessed could be
up to $1.6 million and would not be
recoverable under the PSA. An estimate of these penalties and
interest has been included in the summary of restatement reflected
in the periods for which they relate.
In addition, the Company will be correcting reported finance
income and finance costs previously recognized on overdue trade
receivables for 2013 and 2014. Finance income and finance costs in
the amount of $2.6 million
respectively for the year ended 31 December
2013 and $1.7 million
respectively for the nine months ended 30
September 2014 will be eliminated. As the finance
income was fully provided for as finance cost, there is no impact
on net profit/(loss) after tax, accounts receivable or cash flows
from operating activities for 2013 or the nine months ended
30 September 2014. The Company
determined that the recognition of finance income, reflecting
interest on amounts overdue from TANESCO, coupled with a full
provision of the same amount was in error, as collection was not
probable.
The cumulative impact of the income tax errors, including
applicable penalties and interest, as at January 1, 2013 results in a decrease in
accumulated income from $34.1 million to
$31.5 million, a decrease in tax receivable (recoverable
from TPDC) from $14.7 million to $12.2
million, an increase in tax payable from $6.3 million to $7.8
million and a decrease in deferred income taxes payable from
$20.4 million to $19.0 million.
The cumulative impact of the combined income tax and finance
income errors, including applicable penalties and interest, on the
2013 consolidated financial statements results in a decrease of
revenue from $54.7 million to $53.5
million, an increase in general and administrative expenses
from $15.4 million to $16.2 million, an increase in income tax expense
from $1.7 million to $2.2 million, an increase in net loss after tax
from $5.5 million to $7.9 million, a decrease in tax receivable
(recoverable from TPDC) from $14.6
million to $10.9 million, an
increase in the tax payable from $2.0
million to $7.0 million, a
decrease in deferred income taxes payable from $12.1 million to $8.3
million, and a decrease in accumulated income from
$28.6 million to $23.7 million. In addition, the errors have
no impact on cash flows from operating activities but do result in
a decrease in funds flow from operating activities from
$39.8 million to $32.4 million and
funds flow from operating activities per share from $1.15 to $0.93 basic and diluted
respectively.
The cumulative impact of the combined income tax and finance
income errors, including applicable penalties and interest,
as at 30 September 2014 and for
the nine months then ended results in a decrease of revenue from
$47.6 million to $47.0 million, an
increase in general and administrative expense from $14.6 million to $14.7
million, an increase in income tax expense from $7.9 million to $8.2
million, a decrease in net profit after tax from
$8.5 million to $7.4 million, a decrease in tax receivable
(recoverable from TPDC) from $16.0
million to $11.6 million, an
increase in tax payable (including penalties and interest)
from $nil to $7.7 million, a
decrease in deferred income taxes payable from $12.3 million to $6.3
million, and a decrease in accumulated income from
$37.1 million to $31.1 million. In addition, the errors have
no impact on cash flows from operating activities but do result in
a decrease in funds flow from operating activities from
$28.7 million to $23.6 million and
funds flow from operating activities per share from $0.82 to $0.68 basic and diluted
respectively.
Summary of
restatement (unaudited)
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9 months ended 30
September 2014
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Year ended 31
December 2013
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As at 1 January
2013
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(US$000s except as
noted)
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As
reported
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Adjustment
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Restated
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As
reported
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Adjustment
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Restated
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As
reported
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Adjustment
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Restated
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Revenue
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47,624
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(662)
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46,962
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54,718
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(1,236)
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53,482
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General and
administrative expenses
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(14,626)
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(100)
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(14,726)
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(15,428)
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(735)
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(16,163)
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Finance
Income
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1,747
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(1,747)
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2,646
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(2,636)
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10
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Finance
Costs
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(4,142)
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1,747
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(2,395)
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(28,908)
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2,636
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(26,272)
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Income
taxes
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(7,872)
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(326)
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(8,198)
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(1,743)
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(420)
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(2,163)
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Net profit/(loss)
after tax
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8,476
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(1,087)
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7,389
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(5,465)
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(2,391)
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(7,856)
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per share basic
and diluted
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0.24
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(0.03)
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0.21
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(0.16)
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(0.07)
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(0.23)
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Tax
receivable
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15,975
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(4,381)
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11,594
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14,585
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(3,719)
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10,866
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14,692
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(2,483)
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12,209
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Tax
payable
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-
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7,716
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7,716
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1,958
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5,059
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7,017
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6,322
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1,485
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7,807
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Deferred income
taxes
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12,313
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(6,037)
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6,276
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12,132
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(3,806)
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8,326
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20,399
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(1,387)
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19,012
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Accumulated
income
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37,121
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(6,059)
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31,062
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28,645
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(4,972)
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23,673
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34,110
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(2,581)
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31,529
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Working
capital
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49,618
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(12,097)
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37,521
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27,756
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(8,778)
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18,978
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46,820
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(3,968)
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42,852
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Funds flow from
operating activities
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28,658
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(5,066)
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23,592
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39,840
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(7,446)
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32,394
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per share basic
and diluted
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0.82
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(0.14)
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0.68
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1.15
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(0.22)
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0.93
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Cash flows from
operating activities
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31,993
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-
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31,993
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22,491
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-
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22,491
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per share basic
and diluted
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0.92
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-
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0.92
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0.65
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-
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0.65
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Management and the Audit Committee have concluded that the
Company's consolidated financial statements as at and for the year
ended 31 December 2013 and as at and
for the three and nine month periods ended 30 September 2014 as previously published can
still be relied upon when read together with this news release. The
financial information set out in the table above represents
management's best estimate of the effects of the restatement,
however, the amounts have yet to be audited. The Company expects to
release the restated consolidated financial statements for the year
ended 31 December 2013 in connection
with the filing of the consolidated financial statements for the
year ended 31 December 2014, which it
expects to do on or before 30 April
2015. The Company will also restate its 2014 condensed
consolidated interim financial statements in connection with the
filing of the corresponding 2015 interim periods ended March 31, June 30
and September 30, 2015 which it
expects to do on or before the deadline for such filings.
Management's Discussion and Analysis ("MD&A") will also be
prepared reflecting these changes.
TANESCO net long-term receivable
Unrelated to the 2013 and 2014 restatement items noted above, in
connection with the preparation of its 2014 consolidated financial
statements, the Company has reassessed the net long-term receivable
from TANESCO in light of recent events and circumstances and due to
the increased uncertainty associated with the timing and amount of
ultimate collection, the Company intends to make a provision
against the entire remaining net long-term receivable outstanding
which was $27.9 million as at 31
December 2014. Amounts collected with respect to the
long-term receivable in the future will be reflected in earnings
when payment is received. Notwithstanding this
provision, the Company and TANESCO continue to operate in
accordance with the terms of the Portfolio Gas Supply
Agreement whereby natural gas continues to be delivered by the
Company and TANESCO payments remain current on current deliveries.
This provision against the TANESCO net long-term receivable will
not prejudice the Company's rights to payment in full or its
ability to pursue collection in accordance with the terms of the
agreement with TANESCO.
In conjunction with the filing of consolidated financial
statements for the year ended 31 December
2014 and related MD&A, the Company will also file a
certification related to its annual filings by each of its Chief
Executive Officer and its Chief Financial Officer, as required by
National Instrument 52-109 for the year ended 31 December 2014.
Non-GAAP measures
The Company discloses in this news release financial measures
that do not have any standardized meaning prescribed under GAAP.
These financial measures include "funds flow from operating
activities", which is defined for these purposes as cash flows from
operating activities (as defined by GAAP) before working capital
changes. Funds flow from operating activities per share basic
and diluted is calculated on the basis of the funds flow from
operating activities divided by the weighted average number of
shares, consistent with the calculation of net income (loss) per
share. These are key measures as they demonstrate the Company's
ability to generate cash necessary to achieve growth through
capital investments. Investors should be cautioned that these
measures should not be construed as an alternative to other
measures of financial performance as determined in accordance with
GAAP. Orca's method of calculating these measures may differ from
other companies, and accordingly, they may not be comparable to
similar measures used by other companies. Funds flow from operating
activities reconciled to cash flows from operating activities is as
follows:
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9 months ended 30
September 2014
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Year ended 31
December 2013
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(US$000s)
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As
reported
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Adjustment
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Restated
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As
reported
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Adjustment
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Restated
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Funds flow from
operating activities
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28,658
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(5,066)
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23,592
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39,840
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(7,446)
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32,394
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Working capital
changes
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3,335
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5,066
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8,401
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(17,349)
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7,446
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(9,903)
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Cash flows from
operating activities
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31,993
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-
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31,993
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22,491
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-
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22,491
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Orca Exploration Group Inc.
Orca Exploration Group Inc. is an international public company
engaged in natural gas exploration, development and supply in
Tanzania through the wholly-owned
subsidiary PanAfrican Energy Tanzania Limited ("PanAfrican
Energy"), as well as oil and gas appraisal in Italy. Orca trades on the TSX Venture Exchange
under the trading symbols ORC.A and ORC.B. PanAfrican Energy is
party to the PSA with respect to the Songo Songo Block in
Tanzania with TPDC and the
Government of Tanzania, and is
party to a gas sales agreement, the Portfolio Gas Supply Agreement,
respecting Songo Songo natural gas
production with TANESCO and TPDC.
Financial reports and other corporate information concerning
Orca may be found on the Company's website at
www.orcaexploration.com or on the Company's profile on SEDAR at
www.sedar.com.
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 Information
This news release contains forward-looking statements and
information. More particularly, this news release contains
statements and information concerning, but not limited to, the
Company's intention to take the steps necessary to correct the
31 December 2013 consolidated
financial statements and 2014 consolidated interim financial
statements; the Company's intention to pay forthwith the additional
taxes due and payable to the Tanzania Revenue Authority; the
Company's estimate of potential penalties and interest that could
be assessed by the Tanzania Revenue Authority on overdue taxes; the
Company's best estimate of the effects of the restatement on the
Company's financial statements as at January
1, 2013 and as at and for the periods ended December 31, 2013 and September 30, 2014; the anticipated timing of
release of the Company's consolidated financial statements for the
year ended 31 December 2014 and the
three, six and nine month periods ended in 2015, and related
MD&A; and the Company's intention to make a provision in its
consolidated financial statements for the year ended 31 December 2014 against the entire remaining net
long-term receivable from TANESCO. Although management
believes that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievement 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
statements.
These forward-looking statements involve substantial known
and unknown risks and uncertainties, certain of which are beyond
Orca's control, and many factors could cause Orca's actual results
to differ materially from those expressed or implied in any
forward-looking statements made by Orca, including, but not limited
to: the possibility that the audit of the impact of the combined
errors results in the magnitude of such errors being different than
currently expected; that the Company is unable to file its
consolidated financial statements for the year ended 31 December 2014 and the three, six and nine
month periods ended in 2015 and related MD&A by the requisite
deadlines, which could result in the Company applying for a
management cease trade order, or if such an order is not granted,
an order is issued ceasing trading in Orca's securities; risk
that the Company will be required to pay additional taxes and
penalties; failure to obtain adequate financing; failure to receive
current payments from TANESCO; the impact of general
economic conditions in the areas in which Orca operates; changes in
laws and regulations including changes in how they are interpreted
and enforced; the lack of availability of qualified personnel or
management; obtaining required approvals of regulatory authorities;
risks associated with negotiating with foreign governments;
inability to access sufficient capital; failure to successfully
negotiate agreements; and risk that the Company will not be able to
fulfill its obligations. Orca'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 will derive therefrom. Readers
are cautioned that the foregoing list of factors is not
exhaustive.
Such forward-looking statements are based on certain
assumptions made by Orca in light of its experience and current
knowledge of the circumstances, as well as other factors Orca
believes are appropriate in the circumstances, including, but not
limited to: the nature and magnitude of the combined errors
to be remedied in the Company's financial statements; that the
final results of the audit of the impact of the combined errors do
not result in the magnitude of such errors being different than
currently expected; that the Company will have sufficient cash
flow, debt or equity sources or other financial resources required
to fund its expenditures and requirements as needed; and other
matters. In addition, many of the forward-looking statements
contained in this news release are located proximate to assumptions
that are specific to those forward-looking statements, and such
assumptions should be taken into account when reading such
forward-looking statements.
The forward-looking statements contained in this news release
are made as of the date hereof and Orca 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.