African gem – Tanzanian gas

ORC.B-TSXV | Price C$5.45  | Market Cap C$107.9M

Canaccord Genuity view

Orca has given particular attention to shareholder distributions over the past year or more. At the same time, it has continued to make significant investments into its Songo Songo gas field in Tanzania to provide the long-term capacity to meet anticipated domestic demand expansion, while still maintaining a very strong balance sheet.

That combination of demonstrable commitment to substantial shareholder returns, continued asset investment and balance sheet strength is rare in the E&P sector, and we believe it provides a compelling investment case. We expect the combination of a very robust balance sheet (cash of over $100m and net cash over $50m at YE20) together with continued FCF generation to provide sufficient financial resources for sustained and growing dividends and potentially for further buybacks.

Songo Songo gas field

Songo Songo: Orca operates the gas field (WI 92.1%) on/offshore Tanzania, which delivers gas to power and industrial customers in the Dar es Salaam area.

Reserves: Independently verified net 2P reserves of 229 bcf (to current licence expiry Oct 2026), giving a 2P reserve life of 11 years. Clearly there is ample scope to match higher demand levels, and the company also sees substantial resource potential beyond 2026.

Investment: Orca is in the midst of a $38m programme – c.$13m remaining – to support long-term capacity >100 mmcf/d through the Songas infrastructure.

Valuation and rating

We make small changes to our longer-term production outlook and balance sheet adjustment following the FY20 results. As a result, we reduce our risked NPV12.5 based valuation to C$10.1 (from C$10.5). Our target price continues to apply a 20% discount for the B shares related to the overall A/B shareholder structure. Consequently, we trim our target price to C$8.10 (from C$8.40) and we maintain our BUY rating.

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