Press release from CNW Group
Porto Energy Corp. Reports Results for Fiscal Year End 2013
Wednesday, November 27, 2013
Porto Energy Corp. Reports Results for Fiscal Year End 201319:21 EST Wednesday, November 27, 2013
THE WOODLANDS, TX, Nov. 27, 2013 /CNW/ - Porto Energy Corp., ("Porto" or the "Company") (TSXV:PEC), a company focused on oil and gas exploration, appraisal and development in Portugal, today announced its financial results for the year ended August 31, 2013. All amounts are stated in US dollars unless otherwise noted by C$ for Canadian dollars or € for Euros.
Selected Highlights for Fiscal 2013 and the Period Subsequent to Year-End
In the last fiscal year the Company has announced:
- Successful negotiation of the terms of its 2013 work program with the Portuguese government marking the conclusion of its 2012 work program;
- Drilling of the ALC-1 well with Petróleos de Portugal - Petrogal ("Galp") carrying Porto for 50% of the well costs. The well reached a total measured depth of approximately 3,000 meters and encountered a 300 metre gas column trapped below salt, but did not find sufficient reservoir sands to be a commercial success. The salt sealing mechanism was shown to be in place and the Presalt charge and migration was confirmed as the sands were found to be gas bearing. Reservoir containment was also demonstrated since there was no breach. All of which warrants the need for further exploration drilling; and
- Galp's exercise of its option to become the operator of the Aljubarrota-3 concession, pursuant to the terms of the definitive farmout agreement signed by the two companies in June 2012.
Subsequent to the end of the fiscal year the Company announced:
- Entry into a strategic review process whereby a Special Committee of independent directors will work to identify, examine and consider a range of strategic alternatives available to Porto, with a view to preserving and maximizing shareholder value. This process could result in a sale of the Corporation, a private placement or public financing through the issuance of debt, equity or a combination of both, a sale of a material portion of the Corporation's assets, a merger, business combination or a corporate reorganization, among other alternatives; and
- Launch of a non-brokered private placement of up to 150 Units of the Company (the "Units") at a price of CDN$10,000 per Unit (the "Offering Price") to raise gross proceeds of up to CDN$1,500,000 on a reasonable commercial best efforts basis (the "Offering"). Each Unit issued under the Offering will consist of one senior secured convertible debenture with a par value of CDN$10,000 (the "Debenture") and one common share purchase warrant (the "Warrant"). Each Warrant will entitle the holder to acquire up to 200,000 common shares of the Company ("Common Shares") at a price of CDN$0.05 per Common Share for a period of up to 36 months from the closing date of the Offering. The Debentures will be direct and senior obligations of the Company secured by the common shares of Company's wholly-owned subsidiary Mohave Oil and Gas Corporation, which holds the Company's interest in seven oil and gas concessions in Portugal and, effective May 31, 2013, USD$130 million in tax pools. The Debentures will bear interest at a rate of 8.00% per annum, payable quarterly in arrears, and will mature on November 30, 2016.
"While the strategic review proceeds ahead, our near-term focus is on conserving capital and attracting additional funding through a recently announced private placement," said Joseph Ash, President and CEO of Porto Energy Corp. "Our goal is to strengthen the balance sheet while we continue the marketing and negotiations process with several parties who are currently interested in our assets in Portugal. Given overall market conditions, the marketing process is expected to last longer than originally anticipated, although we are optimistic we will have more information before year-end. Assuming the private placement is successful, our goal is to consummate a transaction with those interested parties we are currently in discussions with within the next year. Should we be unable to complete a transaction, we will consider further alternatives."
Year Ended August 31, 2013 as compared to the Year Ended August 31, 2012
Revenue during the year ended August 31, 2013 was $7,078 compared with $21,732 for the year ended August 31, 2012. Revenue consists primarily of interest income from cash on hand. The Company has not yet established commercial oil and gas production from its Concessions. As a result, its sources of revenue are not of a recurring consistent nature.
General and Administrative Expense ("G&A")
G&A expense decreased by $498,485 from $4,624,594 for the year ended August 31, 2012 to $4,126,109 for the year ended August 31, 2013. The decrease in G&A expense was primarily a result of a decrease in salaries and wages, and lower consulting fees. In general, the decrease in overall G&A is mainly as a result of implementing measures to cut costs in order to conserve capital.
Share-based payments expense for the year ended August 31, 2013 was $76,008, compared with $1,463,740 for the year ended August 31, 2012. Share-based payment expense during both year ends was due to the graded vesting of 11,600,000 stock options granted to directors, officers, employees and consultants of the Company in August 2011, of which 950,000 options expired due to the Company's reorganization efforts (not including the 598,208 options granted prior to August 2011 that expired as a result of the Company's reorganization efforts), the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company to certain contract personnel hired on full time, the graded vesting of the 3,110,000 stock options granted in December 2011 (one-half of which vested immediately), and the August 2012 vesting of the 1,000,000 options to acquire common shares that were previously granted to a consultant of the Company.
Share-based payment expense during the year ended August 31, 2012 was due to the graded vesting of 11,600,000 stock options granted to directors, officers, employees and consultants of the Company in August 2011, of which 950,000 options expired due to employment terminations, and the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company previously granted to certain contract personnel hired on full time.
There are now options outstanding to purchase a total of 15,660,000 common shares of the Company.
Finance cost for the year ended August 31, 2013 was $896 compared with $1,446 for the year end August 31, 2012. Finance cost includes the non-cash accretion of decommissioning obligations for future abandonment costs for prior wells drilled in Portugal during the year.
Interest expense for the year ended August 31, 2013 was $3,616 compared with $33 for the year end August 31, 2012. Interest expense reflects the interest incurred on outstanding payables.
Foreign Exchange (Gain)/Loss
Foreign currency translation gains for the year ended August 31, 2013 were $314,608 in comparison to translation gains of $1,486 for the year end August 31, 2012. The foreign currency unrealized gains and losses reflect the changing value of the Canadian dollar/Euro versus the US dollar in which the Company maintains its accounts at the respective year ends. The current year difference is mainly as a result of the collection of most of the Company's outstanding value-added tax receivable.
Depreciation expense of $36,208 was recorded during the year ended August 31, 2013 compared with $36,831 during the year end August 31, 2012. These amounts are largely due to the depreciation of furniture and fixtures.
Impairment on Exploration and Evaluation Assets
Impairments of $20,819,592 were recorded during the year ended August 31, 2013 and of $81,021,000 during the year ended August 31, 2012 as a result of an impairment review of the carrying value of the exploration and evaluation assets. The impairment amount was based on comparing the carrying value of the assets using the greater of their value in use or the fair market value.
Due to the Company's going concern issue, as well as the negative results of the ALC-1 onshore Presalt well, the Company completed an impairment review on the exploration and evaluation assets as of November 30, 2012. The impairment review compared the carrying value of the different CGU's within the exploration and evaluation assets to their recoverable amounts. Carrying value was calculated for each CGU as the deemed cost at the statement of financial position date. The recoverable amounts were estimated using the greater of their value in use ("VIU") and their fair market value. VIU was calculated based on a third party valuation report of the Company's resources taking into consideration the expected outcomes and using a discount rate of 26% which approximates the weighted average cost of capital for the Company. VIU was significantly impacted due to the increased risks associated with the funding requirements necessary to realize and generate future cash flows from all of the CGU's within the exploration and evaluation assets. Fair market value of the assets was based on the Company's closing market price of its common stock as of November 30, 2012, adjusted for net working capital items. As a result, it was determined that under fair market value, there was an impairment on the carrying value of all of the CGU's within the exploration and evaluation assets of approximately $20,535,000. The Company updated the analysis during the year and recorded an additional $284,592 of impairment related to additional costs on the ALC-1 onshore Presalt well incurred after November 30, 2012 for a total impairment expense of $20,819,592 during the year ended August 31, 2013
During the year ended August 31, 2012, due to the final drilling results of the SPC-1 and SPC-2 dry holes in the Carbonates CGU during the second quarter ended February 28, 2012, the Company completed an impairment review on the exploration and evaluation assets in this CGU. The impairment review compared the carrying value of the Carbonate CGU to the recoverable amount. Carrying value was calculated for each CGU as the deemed cost at the statement of financial position date plus any adjustments such as unprocessed seismic interpretation. The recoverable amount of the CGU was estimated using its value in use ("VIU") which was determined based on a third party valuation report of the Company's resources taking into consideration the expected outcomes and using a discount rate of 16% which approximates the weighted average cost of capital for the Company and takes into consideration current market conditions. As a result, it was determined that there was impairment on the carrying value of the Carbonates of approximately $23,594,000 which was recorded during the second quarter ended February 29, 2012.
Additionally, due to the Company's going concern issue as well as the negative results of the ALC-1 onshore Presalt well subsequent to year end, the Company completed an impairment review on the exploration and evaluation assets as of August 31, 2012. The impairment review compared the carrying value of the different CGU's within the exploration and evaluation assets to their recoverable amounts. Carrying value was calculated for each CGU as the deemed cost at the statement of financial position date. The recoverable amounts were estimated using the greater of their VIU and their fair market value. VIU was calculated based on a third party valuation report of the Company's resources taking into consideration the expected outcomes and using a discount rate of 26% which approximates the weighted average cost of capital for the Company. VIU was significantly impacted due to the increased risks associated with the funding requirements necessary to realize and generate future cash flows from all of the CGU's within the exploration and evaluation assets. Fair market value of the assets was based on the Company's closing market price of its common stock as of August 31, 2012, adjusted for net working capital items. As a result, it was determined that under fair market value, there was an impairment on the carrying value of all of the CGU's within the exploration and evaluation assets of approximately $57,427,000 which was recorded against each CGU proportionately during the fourth quarter and year ended August 31, 2012. No amounts were capitalized for general and administrative expense or interest expense as at August 31, 2012.
Net Loss Before Income Taxes
The Company recorded net losses for the year ended August 31, 2013 of $24,740,743 compared with $87,294,402 for the year end August 31, 2012. As the Company is in the exploration phase of operations, there are currently no oil and natural gas producing properties generating revenues. The net losses for the 2013 and 2012 years ended were primarily due to the impairment of exploration and evaluation assets. The Company's net losses for these year ends were additionally impacted by general and administrative expenses including salaries, office costs and travel costs in addition to professional fees and share-based payments. The fair value of the share-based payments was a non-cash expense in these year ends.
The Company recorded an income tax benefit of $8,124,853 on a net loss before income tax of $24,740,743 for the year ended August 31, 2013. During the year ended August 31, 2012 the Company recorded an income tax expense of $227,135, on a net loss before income tax of $87,294,402. The income tax benefit during the year ended August 31, 2013 was primarily due to the impairment loss of $20,819,592, which reduced the book value of the Company's assets below the associated tax book value. As a result, the associated deferred tax liability pool is reversed as the presumption of future taxable income being generated from these assets is no longer valid. The difference between the effective tax rate recognized and the blended statutory rates of its various taxing jurisdictions in which the Company operates is primarily due to it applying a valuation allowance for the full amount of its gross future tax asset as it believes, based on the weight of available evidence, that it is more likely than not that the future tax asset will not be realized prior to the expiration of net operating loss carryforwards in various amounts at 2026 through 2032. Net operating loss carry forwards as of August 31, 2013 were approximately $38,574,662 million.
Comprehensive Income (Loss)
The Company recorded a comprehensive loss for the year ended August 31, 2013 of $16,615,890, compared with a comprehensive loss of $87,521,537 for the year ended August 31, 2012. The difference between net loss and comprehensive loss between the years ended is primarily due to the impairment on the exploration and evaluation assets recorded.
Operational Review and Outlook
(Aljubarrota-3 - 50% Working Interest, Zambujal - 100% Working Interest, Cabo Mondego-2 - 100% Working Interest and São Pedro de Muel-2 - 100% Working Interest)
Sorgenia and Rag Joint Venture Activity
The Company along with its former joint venture partners, Sorgenia and Rag concluded a 23 well stratigraphic drilling program in the third calendar quarter of 2012 to jointly evaluate the unconventional resource potential of the Lower Jurassic ("Lias") stratigraphic interval. The cores show encouraging results with the completion of rock mechanics and geochemical analysis. In April 2013, Sorgenia and Rag elected not to proceed into the second phase of the work program as defined under the terms of the original Farmout Agreement dated May 31, 2012 as they were unable to come to an agreement on financial terms with the Company. As a result, the farm-in parties' acreage interest reverted back to the Company in all concessions except for their Lias Interest in the Aljubarrota-3 concession in which case the interests reverted evenly back to both the Company and Galp.
(Aljubarrota-3 - 50% Working Interest and Torres Vedras-3 - 100% Working Interest)
In June 2012, the Company entered into a definitive farmout agreement (the "Agreement") with Galp. Galp agreed to pay the Company $4.3 million in back costs in addition to their portion of the drilling of the Alcobaça #1 ("ALC-1") well, which cost them approximately $5.4 million to earn 50% of the Company's rights on the Aljuabarrota-3 concession, comprising approximately 300,000 acres, onshore Portugal. The payment of the $4.3 million was subject to conditions precedent, which required that the assignment of interest be approved by the Portuguese oil and gas authority, DPEP. Additionally, upon reaching total depth in the ALC-1 well and within six months thereafter, Galp was given the option to acquire a 25% working interest in each of the Company's other concessions in exchange for payments totaling no more than 25% of the Company's sunk costs in each concession. Galp was also given the option to become operator of the Aljubarrota concession once the ALC-1 well had been completed.
The approval of the assignment of interest to Galp and the receipt of the $4.3 million occurred in September 2012 and was offset against the Company's exploration and evaluation asset basis. The six month option to acquire a 25% interest in each of the Company's other concessions was allowed to expire on April 30, 2013. Galp, however, exercised its option to become operator of the Aljubarrota-3 concession in June 2013 and both Galp and the Company are currently working through the transfer process with the Portuguese government.
The Company commenced the drilling of the ALC-1, its first Presalt well in its Aljubarrota-3 concession onshore Portugal under its joint venture with Galp in late August 2012. Using interpreted 3-D seismic data acquired from the 160 km2 Aljubarrota 3-D seismic survey completed in 2011, the ALC-1 well targeted a large mapped Triassic four-way closure within the Presalt sandstones beneath the gas charged Lower Jurassic ("Lias") stratigraphic interval and is approximately 800 meters high to the ALJ-2 well. Additional shallower targets had also been identified within the mapped four-way closure. The ALC-1 well was drilled to a total depth of approximately 3,000 meters and drilling and testing took approximately 60 days to complete following the setting of a liner per regulatory requirements. The well penetrated approximately 50 net meters of sand and saw good reservoir properties in several intervals, but much of the sands were near the base of the trapped gas column and as such, were deemed non-commercial. The well was plugged and abandoned and the rig was released in December 2012. The total gross well cost was approximately $10.7 million for which Galp was responsible for half, or approximately $5.4 million.
The salt sealing mechanism was shown to be in place and the Presalt charge and migration was confirmed as the sands were found to be gas bearing. Reservoir containment was also demonstrated since there was no breach. All of these factors demonstrated to the partnership that further exploration drilling is necessary in the basin. The Company is continuing technical discussions with Galp regarding the best path forward. As a result, the Company has turned its near term focus to its Lias unconventional resource oil play while Porto and Galp evaluate other parts of the basin within the Aljubarrota-3 concession where the Presalt is potentially productive.
2013 Work Program
The 2013 well program, which consists of drilling one deep well (terminal depth greater than 3,000 metres) and possibly one horizontal well, contingent upon the results of the deep well, both within the Lias interval; drilling up to seven stratigraphic wells to advance the exploration and development of the Lias stratigraphic interval; the acquisition of 150 km of 2-D seismic data onshore that may also partially benefit the offshore prospects; and further acquisition and analysis of geologic data to expand the Company's understanding of the basin in general, was approved by DPEP in June 2013. Based on the working interests of the Company and the obligations of its joint venture partner as set out in the farmout agreement and governed by the joint operating agreement, the Company anticipates its portion of the costs to be between $7.1 million and $11.2 million depending on the results of the initial Presalt well and whether or not the drilling of a horizontal well is warranted. Approval of the 2013 program by DPEP successfully concludes the Company's 2012 drilling program requirements. Given the timing of the work program approval by DPEP, the Company is in the process of renegotiating its 2013 work program with DPEP to allow for more time for completion. The Company, with the full support of its JV partner Galp, believes it will bring these discussions to a successful conclusion.
To view the Company's Year End August 31, 2013 Consolidated Financial Statements, related Notes to Consolidated Financial Statements, and Management's Discussion and Analysis, please see the Company's annual filings which will be available on www.sedar.com and at www.portoenergy.com.
About Porto Energy Corp.
Porto Energy Corp. is an international oil and gas company engaged in the exploration of crude oil and natural gas in Portugal, including the appraisal of a gas discovery. Through its wholly owned subsidiary, Mohave Oil And Gas Corporation (a Texas corporation with branch offices in Portugal), the Company holds working interests in seven concessions in Portugal's Lusitanian Basin totaling 1.6 million net acres. Through its exploration efforts to date, the Company has identified seven major exploration trends over its concessions and generated more than 45 prospects and leads. Porto Energy's shares trade on the TSX Venture Exchange under the ticker symbol "PEC". For more information on Porto Energy visit www.portoenergy.com.
No proved, probable or possible reserves have been assigned by the Company at this time. Undiscovered resources are those quantities of oil and gas estimated on a given date to be contained in accumulations yet to be discovered. Estimates of resources always involve uncertainty, and the degree of uncertainty can vary widely between accumulations/projects and over the life of a project. There is no certainty that it will be commercially viable to produce any portion of the resources.
Estimates with respect to resources that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and upon analogy to similar types of resources, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same resources based upon production history will result in variations, which may be material, in the estimated resources. Resource estimates may require revision based on actual production experience.
Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.
Best Estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. Using probabilistic methods, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.
This press release contains certain forward-looking statements. These statements relate to future events or the Company's future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "predict" and "potential" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. These forward-looking statements are made as of the date of this press release and the Company does not undertake to update any forward-looking statements that are contained in this press release, except in accordance with applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Porto Energy Corp.
For further information:
Heath Cleaver - Chief Financial Officer