THE WOODLANDS,
TX, April 29, 2014 /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 three and six months ended
February 28, 2014. All amounts are
stated in US dollars unless otherwise noted by C$ for Canadian
dollars or € for Euros.
Selected Recent Highlights
During the six month period ended and subsequent
to February 28, 2014 the Company:
- Entered into a non-binding term sheet with Integrity Growth
Capital LLC on behalf of accredited investors, for a private
placement of senior unsecured convertible promissory notes in the
principal minimum amount of US$10.0
million and up to US$15.0
million. Porto is no longer
pursuing the non-brokered private placement of Porto stock in Canada as was previously mentioned in its
fiscal Q1 filings. See "$1.5
Million Non-brokered Private Placement" below.
- Reached agreement to terms under an arrangement with
Norway-based TGS-NOPEC Geophysical
Company ASA (OSLO: TGS) for the licensing and marketing of four
sets of survey data including one 3D offshore survey spanning
approximately 1,100 square kilometers, two 3D onshore surveys
totaling 358 square kilometers, and one 24,000 square kilometer
aeromagnetic survey which could bring in up to $1.5 million net to Porto.
"Given the Company has not yet received approval
of the TGS-NOPEC seismic data sale from the Portuguese government,
we are focusing our efforts on closing on the convertible
promissory note as expeditiously as possible," said Joseph Ash, President and CEO of Porto Energy
Corp. "We continue to conserve capital in an effort to provide
enough time to bring the convertible financing to a successful
close."
Financial Review
Three Months Ended February 28, 2014 compared with the Three Months
Ended February 28, 2013
Revenues
Revenue during the three months ended
February 28, 2014, was $2,141 compared with $58 for the corresponding period ended
February 28, 2013. Revenue
consists primarily of interest income from cash on hand. The
Company has not yet established commercial oil and gas production
from its Concessions and 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 $429,602 from $892,935 for the three months ended February 28, 2013 to $463,333 for the corresponding period in
2014. The decrease in G&A expense for the three months
ended February 28, 2014 was primarily
a result of decreased salaries and wages, consulting and
professional fees, partially offset by increased insurance
expenses.
Share-based Compensation
Share-based payments expense for the three
months ended February 28, 2014 was
$2,695, compared with $19,957 for the three months ended February 28, 2013. Share-based payment
expense during the three month period ended February 28, 2014 was due to 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 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 three
month period ended February 28, 2013
was due to 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.
Finance Cost
Finance cost for the three months ended
February 28, 2014, was $38 compared with $146 for the comparative period in 2013.
Finance expense includes the non-cash accretion of decommissioning
obligations for future abandonment costs for prior wells drilled in
Portugal for the period.
Interest Expense
Interest expense for the three months ended
February 28, 2014, was $1,125 compared with $nil for the comparative
period in 2012. Interest expense primarily reflects the
interest incurred on outstanding payables.
Foreign Currency Translation
Foreign currency translation losses for the
three months ended February 28, 2014,
were $22,451 in comparison to
translation gains of $34,153 in the
comparative period of 2013. 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 period ends.
Depreciation
Depreciation expense of $4,455 was recorded during the three month period
ended February 28, 2014 as compared
to $9,052 recorded during the three
months ended February 28, 2013.
These amounts are primarily due to the depreciation of furniture
and fixtures. The decline in the current year is due to some assets
becoming fully depreciated.
Impairment on Exploration and Evaluation
Assets
For the three months ended February 28, 2014 and 2013, no additional
impairment provision was recorded as there were no further
indicators of impairment other than what was reported at
November 30, 2013 and 2012,
respectively.
Net Loss Before Income Taxes
The Company recorded net losses before income
taxes for the three months ended February
28, 2014 of $491,956, compared
with $887,879 for the comparative
period in 2013. As the Company is in the exploration phase of
operations, there are currently no oil and natural gas producing
properties generating revenues. The Company's net losses for these
periods 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 periods.
Income Taxes
The Company recorded no income tax expense on
net losses before income tax of $491,956 and $887,879 for the three months ended February 28, 2014 and 2013, respectively. 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 February
28, 2014 were approximately $38.6
million.
Comprehensive Income (Loss)
The Company recorded a comprehensive loss for
the three months ended February 28,
2014 of $491,956, compared
with a comprehensive loss of $887,879
for the corresponding period ended February
28, 2013. The difference between net loss and
comprehensive loss between the periods is primarily due to a
decrease in general and adminisitrative expenses the three months
ended February 28, 2014.
Six Months Ended February
28, 2014 compared with the Six Months Ended February 28, 2013
Revenues
Revenue during the six months ended Feberuary
28, 2014, was $2,166 compared with
$468 for the corresponding period
ended February 28, 2013.
Revenue consists primarily of interest income from cash on
hand. The Company has not yet established commercial oil and
gas production from its Concessions and 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 $1,058,277 from $2,102,709 for the six months ended February 28, 2013 to $1,044,432 for the corresponding period in
2014. The decrease in G&A expense for the six months
ended February 28, 2014 was primarily
a result of decreased salaries and wages, consulting and
professional fees, partially offset by increased insurance
costs.
Share-based Compensation
Share-based payments expense for the six months
ended February 28, 2014 was
$6,718, compared with $55,350 for the six months ended February 28, 2013. Share-based payment
expense during the six month period ended February 28, 2014 was due to 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 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 six month
period ended February 28, 2013 was
due to 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.
Finance Cost
Finance cost for the six months ended
February 28, 2014, was $38 compared with $664 for the comparative period in 2013.
Finance expense includes the non-cash accretion of decommissioning
obligations for future abandonment costs for prior wells drilled in
Portugal for the period.
Interest Expense
Interest expense for the six months ended
February 28, 2014, was $1,125 compared with $3,033 for the comparative period in 2013.
Interest expense primarily reflects the interest incurred on
outstanding payables.
Foreign Currency Translation
Foreign currency translation gains for the six
months ended February 28, 2014, were
$33,428 in comparison to translation
losses of $94,646 in the comparative
period of 2013. 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 period ends.
Depreciation
Depreciation expense of $13,507 and $18,104
was recorded during the six month periods ended February 28, 2014 and 2013, respectively.
These amounts are primarily due to the depreciation of furniture
and fixtures. The decline in the current year period is due to some
assets becoming fully depreciated.
Impairment on Exploration and Evaluation
Assets
Impairments of $641,594 were recorded during the three month
period ended November 30, 2013, as a
result of an impairment review on the carrying value of the
exploration and evaluation assets. The impairment amount was based
on comparing the carrying value of the assets to their recoverable
amounts estimated using the greater of their value in use or the
fair market value. The value in use was determined based on a third
party evaluation report of Porto's
resources using a discount rate of 26%. The value in use 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 Cash Generating Units ("CGU's") within
the exploration and evaluation assets. The fair market value of the
assets was based on the Company's closing market price of its
common stock as of November 30, 2013,
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 which was recorded against
the Onshore Gas CGU.
Impairments of $20,535,000 were recorded during the three month
period ended November 30, 2012, as a
result of an impairment review on the carrying value of the
exploration and evaluation assets. The impairment amount was based
on the methodology as described above. The value in use was
determined based on a third party evaluation report of Porto's our resources using a discount rate of
26% and the 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 which was recorded against each CGU
proportionately.
Net Loss Before Income Taxes
The Company recorded net losses before income
taxes for the six months ended February 28,
2014 of $1,671,820, compared
with $22,809,038 for the comparative
period in 2013. As the Company is in the exploration phase of
operations, there are currently no oil and natural gas producing
properties generating revenues. The net loss for the 2013
period was primarily due to the impairment of exploration and
evaluation assets. The Company's net losses for these periods 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
periods.
Income Taxes
The Company recorded an income tax expense of
$676 on a net loss before income tax
of $1,671,820 for the six months
ended February 28, 2014. During the
corresponding period ended February 28,
2013, the Company recorded an income tax benefit of
$8,148,175, on a net loss before
income tax of $22,809,038. The income
tax benefit during the six months ended February 28, 2013 is primarily due to the
impairment loss of $20,535,000 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
February 28, 2014 were approximately
$38.6 million.
Comprehensive Income (Loss)
The Company recorded a comprehensive loss for
the six months ended February 28,
2014 of $1,672,496, compared
with a comprehensive loss of $14,660,863 for the corresponding period ended
February 28, 2013. The
difference between net loss and comprehensive loss between the
periods is primarily due to the impairment on the exploration and
evaluation assets recorded during the six months ended February 28, 2013.
Operational Review and Outlook
Although Porto
has continued to refine its data models over the basin, it has not
drilled a well since the ALC-1 which was declared non-economic
during the second fiscal quarter ended February 28, 2013. In June 2013 the Company received approval of its
original 2013 work program from Divisão para a Pesquisa e
Exploração de Petróleo ("DPEP") which constituted the fulfillment
of the Company's 2012 work program commitments by the Portuguese
government. However, as of the date of this filing, the
Company continues to work with DPEP to renegotiate the original
work to be performed under its initial 2013 work program
commitments as well as to extend the due date of those commitments
to the end of 2014. The Company believes the key to bringing
this activity to a successful conclusion largely depends on the
governments pending approval regarding the TGS-NOPAC seismic data
sale as referred to below. However, to date, the Company has
been unable to secure approval of this sales contract from the
Portuguese Government, casting doubt as to whether the contract
will ultimately be approved. See "2014 Work Program"
section below.
TGS Seismic Data Sales Contract
In January 2014,
the Company entered in an agreement with Norway-based TGS-NOPEC Geophysical Company ASA
(OSLO:TGS) for the licensing and marketing of four sets of survey
data including one 3D offshore survey spanning approximately 1,100
square kilometers, two 3D onshore surveys totaling 358 square
kilometers, and one 24,000 square kilometer aeromagnetic
survey. Each single license for the entire data set has the
potential to bring in up to $1.5
million net to Porto, which
would provide enough funding for the Company to meet its working
capital obligations for 12 months or more while it continues to
market its assets to interested parties.
$1.5 Million
Non-brokered Private Placement
In November 2013,
the Company launched a non-brokered private placement of up to 150
Units (the "Offering") of the Company at a price of CDN$10,000 per Unit to raise gross proceeds of up
to CDN$1,500,000 on a reasonable
commercial best efforts basis. Due to the one-cent price of the Company's stock and other
market factors around the lack of success of the Company, the
marketing of the private placement was unsuccessful.
Porto is no longer pursuing the
non-brokered private placement of Porto stock in Canada.
$10.0 to $15.0
Million Convertible Promissory Note Financing
In March 2014 the
Company entered into a non-binding term sheet (the "Agreement")
with Integrity Growth Capital LLC (the "Lead Investor
Representative") on behalf of accredited investors, for a private
placement of senior unsecured convertible promissory notes (the
"Notes") in the principal minimum amount of US$10.0 million and up to US$15.0 million (the "Financing"). The
proceeds from the Financing will be used to drill, test and
complete one Lias unconventional resource well and for other
corporate purposes as determined by a Committee of the holders of
Notes.
The Notes will be convertible into the common
stock of the Company's subsidiary, Mohave Oil and Gas Corporation's
("Mohave"). The applicable conversion rate of each Note shall
be determined in a manner such that the holders of the Notes, in
the aggregate, will own ninety percent (90%) of the outstanding
voting capital stock of Mohave at the time of the conversion.
The remaining 10% of Mohave at the time of the conversion will be
owned by Porto.
The closing of the Financing is expected to
occur on or before May 31, 2014 and,
if successful, is subject the negotiation and execution of
definitive agreements, board approval, the approval of Porto shareholders and regulatory approval
including the satisfaction of customary conditions of the
TSXV. To mitigate the impact on working capital due to the
issues as described above in the "TGS Seismic Data Sales Contract"
section, the Company may be able to secure a non-refundable
security deposit in the amount of 1% of the principle amount that
would then be applied against any future funding.
Drilling Operations
Porto has
suspended ground operations in Portugal to help conserve capital. As a
result, it has not drilled a well since the ALC-1 well in November
of 2012 as mentioned above.
Drilling Outlook
2014 Work Program
Porto is in
discussions with the DPEP to amend the original 2013 work program
commitments to concentrate on environmental studies necessary
before the Company begins its Lias development plan and to extend
the completion deadline to the end of 2014. The original 2013
well program, consisted 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 on shore 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. The original 2013 work
program was approved by DPEP in June
2013, successfully concluding the Company's 2012 drilling
program requirements. Based on the working interests of the
Company and the obligations of its joint venture partner as set out
in the farm-out agreement and governed by the joint operating
agreement, the Company anticipated 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.
As of the date of this filing, the Company
continues to negotiate the details of the amended work program
going forward with DPEP and expects a successful conclusion to
these discussions during the second calendar quarter 2014.
The amended work program is expected to significantly reduce the
Company's capital commitments in 2014. Until financing is
sourced, it will allow the Company to continue to carry out
operational activities that fulfill its future work program
commitments with limited funding. The amended program is expected
to be funded through seismic data sales, joint venturing efforts or
private debt and/or equity.
To view the Company's three and six month
periods ended February 28, 2014
Consolidated Financial Statements, related Notes to Consolidated
Financial Statements, and Management's Discussion and Analysis,
please see the Company's 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.
Cautionary Statements
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.