Mr. W. David Lyons reports

ORCA EXPLORATION ANNOUNCES Q2 2014 RESULTS

Orca Exploration Group Inc. has released its results for the quarter and six months ended June 30, 2014.

Highlights

The highest seasonal rainfall in several years allowed Tanesco to increase the use of hydro power in Tanzania and reduced nominations for the company's Songo Songo gas production during the second quarter of 2014. Total field production averaged 84.2 million standard cubic feet per day down 11 per cent from the prior-year period, and down 10 per cent from 93.9 million cubic feet per day in first quarter 2014.

Additional gas sales volumes averaged 50.0 million cubic feet per day, a decrease of 14 per cent over the same period in 2013 (second quarter 2013: 58.4 million cubic feet per day) and a decrease of 13 per cent over first quarter 2014 (57.4 million cubic feet per day).

The situation with respect to the outstanding accounts receivable from Tanesco began to stabilize with regular weekly payments, which commenced during the quarter. The company will continue to draw attention to the going-concern issue until discernable progress has been made in reducing arrears. In the event that the company does not collect from Tanesco the balance of the receivables and Tanesco continues to be unable to pay the company for subsequent gas deliveries, the company may be unable to undertake the level of capital expenditure required to increase well deliverability to the expansion target of 190 million cubic feet per day.

Working capital was $37.2-million (U.S.) at June 30, 2014, up 95 per cent from March 31, 2014 ($19.1-million (U.S.)) and up 34 per cent over Dec. 31, 2013 ($27.8-million (U.S.)), a result of cash received from Tanesco against the long-term portion of the receivable. As at June 30, 2014, Tanesco owed the company $63.8-million (U.S.) of which $53.4-million (U.S.) was in arrears.

Tanesco currently owes the company $50.4-million (U.S.), of which $45.2-million (U.S.) is in arrears. The company continues to review legal and contractual options available to collect the arrears and arrest the increase in Tanesco receivables, including but not limited to the suspension of gas deliveries to Tanesco.

Second quarter income was $6.5-million (U.S.) or 18 U.S. cents per share diluted, as opposed to a loss in the prior-year period (second quarter 2013: $6.6-million (U.S.) loss or 19 U.S. cents per share) and compared with income of $1.6-million (U.S.) or four U.S. cents per share in first quarter 2014, with increased net revenues offsetting the cost of carrying the Tanesco receivable.

Average gas prices were up 7 per cent in second quarter to $4.94 (U.S.) per thousand cubic feet over the prior-year period (second quarter 2013: $4.62 (U.S.) per thousand cubic feet). Industrial gas prices were up 8 per cent in second quarter to $9.27 (U.S.) per thousand cubic feet (second quarter 2013: $8.60 (U.S.) per thousand cubic feet) and up 14 per cent from first quarter 2014 ($8.11 (U.S.) per thousand cubic feet) from changes in the sales mix. Average power sector gas prices increased 1 per cent over the prior-year period to $3.65 (U.S.) per thousand cubic feet (second quarter 2013: $3.63 (U.S.) per thousand cubic feet) and were up 4 per cent compared with the first quarter 2014 price of $3.52 (U.S.) per thousand cubic feet. The increase over first quarter 2014 was the result of a greater proportion of sales volumes being priced at the higher excess gas price, as volumes in excess of 36 million cubic feet per day are sold at a 150-per-cent premium to the base price.

Gross revenue was $21.0-million (U.S.), up 1 per cent from the prior-year period (second quarter 2013: $20.7-million (U.S.)), with the company's share of revenue up 13 per cent to $13.3-million (U.S.) from $11.8-million (U.S.) in the prior-year period. The recovery of prior years downstream costs, together with an adjustment for agreed non-recoverable costs, resulted in the recognition of a further $3.0-million (U.S.) increase in the company share of revenue during the quarter. There was no capital spending during the quarter.

Funds flow from operating activities was up 26 per cent to $13.3-million (U.S.) or 37 U.S. cents per share diluted (second quarter 2013: $10.5-million (U.S.) or 30 U.S. cents per share) and up 87 per cent from first quarter 2014 ($7.1-million (U.S.) or 20 U.S. cents per share), a result of higher net revenues.

As at June 30, 2014, the company had $38.7-million (U.S.) in cash (Dec. 31, 2013: $32.6-million (U.S.)) and no debt, more than double the cash balances of the prior-year period. The company currently has $60.2-million (U.S.) in cash and no debt.

During the quarter, company continued to advance its efforts to resolve the $34-million (U.S.) cost pool dispute with TPDC. An international auditing firm appointed by the Tanzania controller Auditor General to review the costs under dispute has completed its work and reported back to TPDC. The company has reviewed the work and agreed to $1.0-million (U.S.) in disputed costs as non-recoverable and has further agreed with TPDC to appoint a third party expert to provide a non-binding opinion on the fairness of the remaining costs under dispute.

Discussions with TPDC and the Ministry of Energy and Minerals on commercial terms for future incremental gas sales have ground to a halt with no engagement from either party since the end of first quarter 2014. Commercial terms remain a key condition to the company's commitment to Songo Songo development. The company has recently served notice that in the absence of an agreement in the near future, the company intends to pursue its rights under the PSA to develop other markets for Songo Songo gas.

Despite the stalled efforts to reach agreement on commercial terms, the company continues planning the full development of Songo Songo to reach 190-million-cubic-foot-per-day deliverability by mid-2015, and advanced engineering on the workovers of wells SS-5 and SS-9, which are currently suspended. The company continues to work with the International Finance Corp. of the World Bank group to finance the development program. Completion of the full development program remains contingent upon: (i) satisfactory resolution of Tanesco arrears; (ii) acceptable commercial terms; and (iii) payment guarantees for future gas deliveries to Tanesco.

The Tanzania national natural gas infrastructure project made significant progress, as reported by TPDC during 2013, with the pipeline currently 80 per cent complete and gas processing facilities 37 per cent complete. Expected on stream date remains mid-2015.

In response to speculation regarding a potential sale of the company or a significant transaction, in mid-July, Orca issued a press release advising that the company was in discussions with a number of third parties, which have made unsolicited approaches to the company relating to the sale of the company, a significant asset disposal, investment or other transaction involving the company. As at the date hereof, the company has nothing to report.

                           FINANCIAL AND OPERATING HIGHLIGHTS                                                        
                                                                 Three months ended/as at    
                                                             June 30,     June 30,    March 31,
                                                                2014         2013         2014
Financial ($000 (U.S.) except where otherwise stated)
Revenue                                                      $19,074      $11,996      $13,698
Profit/(loss) before tax                                      10,387       (8,509)       3,246
Operating netback ($ (U.S.)/Mcf)                                3.03         2.10         2.03

Operating
Additional gas sold (MMcf) -- industrial                       1,046        1,067        1,164
Additional gas sold (MMcf) -- power                            3,503        4,250        4,008
Additional gas sold (MMcf/d) -- industrial                      11.5         11.7         12.9
Additional gas sold (MMcf/d) -- power                           38.5         46.7         44.5
Additional gas sold (MMcf/d)                                    50.0         58.4         57.4
Average price per Mcf (U.S.$) -- industrial                     9.27         8.60         8.11
Average price per Mcf (U.S.$) -- power                          3.65         3.63         3.52

             CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
                        ($000 (U.S.) except per-share amounts)

                                                        Three months ended        Six months ended        
                                                       June 30,    June 30,    June 30,    June 30,
                                                          2014        2013        2014        2013

Revenue                                                $19,074     $11,996     $32,772     $25,193
Expenses
Production and distribution expenses                    (1,386)       (620)     (2,646)     (1,414)
Depletion expense                                       (3,214)     (2,612)     (6,777)     (5,335)
Total                                                   14,474       8,764      23,349      18,444
General and administrative expenses                     (3,357)     (3,430)     (7,151)     (6,960)
Finance income                                             635       1,865       1,282       1,865
Finance costs                                           (1,365)    (15,708)     (3,847)    (17,198)
Profit/(loss) before tax                                10,387      (8,509)     13,633      (3,849)
Income taxes                                            (3,860)      1,943      (5,520)         57
Profit/(loss) after tax                                  6,527      (6,566)      8,113      (3,792)
Foreign currency translation gain/(loss) from
foreign operations                                         176        (251)        163         (75)
Total comprehensive income/(loss) for the period         6,703      (6,817)      8,276      (3,867)
Earnings per share
Basic (U.S.$)                                             0.19       (0.19)       0.23       (0.11)
Diluted (U.S.$)                                           0.18       (0.19)       0.23       (0.11)

We seek Safe Harbor.