Posted on 01 February 2023
For Immediate Release
TORTOLA, BRITISH VIRGIN ISLANDS – January 31, 2023: Orca Energy Group Inc. (“Orca” or the “Company” and includes PanAfrican Energy Tanzania Limited (“PAET”) and its other subsidiaries, and affiliates) (TSX-V: ORC.A, ORC.B) today announces an operational update. All amounts are in United States dollars (“$”) unless otherwise stated.
Jay Lyons, Chief Executive Officer, commented:
“I am pleased to report that Orca continued to deliver operationally at the end of 2022 and into 2023. The Company increased gas sales by 42% over the course of 2022, compared with the previous year. We continue to respond to record high gas demand in Tanzania, which we are doing our best to supply. As such, we anticipate our gross gas sales to average between 90 and 100 MMscfd during 2023, with a midpoint of 95 MMscfd. In order to sustain this increased demand, further investment is required in addition to the $22.1 million the Company is currently spending on a 3D seismic acquisition program, which is designed to de-risk future drilling and field development. The Company prepared and approved an initial 2023 firm and contingent capital budget of $53.5 million to complete and process the 3D seismic, install additional compression, install additional sand control equipment, replace aging flow lines and prepare for a potential 2024 development drilling program including the procurement of long lead items. However, with the emergence of longer term high levels of gas demand and discussions with our Tanzanian partners, we are currently revisiting the 2023 capital program to align with a potential longer term investment program including near term discussions on a development licence renewal.
Financially, we continue to benefit from a strong balance sheet, with $96.3 million of cash and cash equivalents at year end and with increasing gas sales, our revenues will remain at elevated levels. This affords the Company the financial flexibility to fund longer term production growth opportunities at Songo Songo Island, to support Tanzania’s growing economy, while maintaining a strong balance sheet and shareholder returns.”
Gross sales of conventional natural gas, classified as Additional Gas (as defined in the PSA (as defined herein)) (“gas sales”) averaged 95.5 MMscfd during Q4 2022 which increased average gas sales to 86.8 MMscfd for the year 2022, representing a 42% increase from 2021.
Orca forecasts average gross gas sales of 95.0 MMscfd during 2023, representing a 9% increase over 2022 sales of 86.8 MMscfd and a 55% increase over 2021 sales of 61.1 MMscfd. The increased gas demand forecast is primarily driven by the requirements of the Tanzanian Ministry of Energy, Tanzania Petroleum Development Corporation (“TPDC“) and Tanzanian Electric Supply Company Limited (“TANESCO“) for gas supply to support growing demand for gas to power, due in part to lower than normal rainfall in Tanzanian and supply going to new generation facilities, which were commissioned during 2022.
During the Q4 2022 further testing of the SS-4 well took place following completion of the well workover program. At year-end 2022 the SS-4 well was shut in due to pressure buildup, and further testing is expected to occur in 2023.
From Q2 2022 to the end of Q3 2022, overall demand from the Songo Songo gas field increased to 120-130 MMscfd from the previous historic highs of 100-110 MMscfd within days of commissioning the inlet compression at the Songas gas plant. This increased demand was sustained from Q2 2022 to the end of Q3 2022 due in part to drought conditions in 2022 in Tanzania.
Early in Q4 2022 TPDC and TANESCO requested supply of a further 20 MMscfd to supply the Kinyerezi 1 power plant extension, bringing total field offtake close to the maximum deliverability of 150+MMscfd. Orca was pleased to support this request and as a result is now supplying approximately 71% total domestic gas production in Tanzania, supporting around 50% of total power generation in the country.
We are currently discussing the sustainability of this increased demand with TPDC and TANESCO to evaluate options for further development of the Songo Songo gas field to meet this potential longer-term gas supply requirements.
These options to increase sustainable demand include accelerated well workovers, infill wells to existing field compartments, new development wells in new areas of the field and the addition of further compression to the upstream plants.
The Company is currently carrying out a 3D seismic acquisition program, budgeted at $22.1 million in order to de-risk future development drilling and to evaluate the potential of prospective resources for exploration drilling. The Company awarded and signed a contract with African Geophysical Services LLP on July 7, 2022, to acquire approximately 181 square kilometers of 3D marine, transition zone and land based seismic over the Songo Songo license area. As at December 31, 2022 line cutting for the land portion of the survey was in progress and mobilization and commissioning of the marine equipment was ongoing; all in preparation for commencement of the acquisition program in early 2023.
Orca continues to benefit from a robust balance sheet, with cash and cash equivalents of $96.3 million (unaudited) and long-term debt of $49.8 million (unaudited) as at December 31, 2022.
In accordance with the Company’s dividend policy, Orca anticipates maintaining its quarterly dividend.
During 2022, Orca paid total dividends on its Class A Common Voting Shares and Class B Subordinate Voting Shares of $6.2 million.
On July 11, 2022 the Company commenced a normal course issuer bid (“2022 NCIB”) to purchase Class B Shares through the facilities of the TSXV and alternative trading systems in Canada. As at December 31, 2022 the Company had repurchased 47,200 Class B shares at a weighted average price of CDN$4.87 per share pursuant to the 2022 NCIB.
As at December 31, 2022 the current receivable from TANESCO was $3.7 million (December 31, 2021: $2.0 million). TANESCO’s long-term trade receivable as at December 31, 2022 was $20.9 million with a provision of $20.9 million (December 31, 2021: $26.5 million with a provision of $26.5 million). Subsequent to December 31, 2022 TANESCO paid the Company $3.0 million. During 2022, TANESCO also paid take or pay invoices totaling $30.0 million for the 2016-2017 and 2017-2018 gas contract years (2021: $5.0 million for the take or pay invoice for the 2015-2016 contract year).
On August 8, 2022, the Company issued a redemption notice to Swala Oil & Gas (Tanzania) plc (“Swala TZ“), requesting that Swala TZ redeem 20% of the outstanding Swala TZ convertible preference shares by August 23, 2022, that were issued to the Company in accordance with the investment agreement dated December 29, 2017, between the Company, the Company’s subsidiary PAE PanAfrican Energy Corporation (“PAEM”) and Swala TZ’s subsidiary, Swala (PAEM) Limited (“Swala UK“). Swala TZ has responded to the Company’s redemption notice and is disputing its obligation to redeem the Swala TZ convertible preference shares. As at December 31, 2022 and this matter remains in dispute between Swala TZ and the Company and the redemption notice request remains outstanding.
On January 31, 2023, the Company issued a redemption notice to Swala TZ requesting that Swala TZ redeem an additional 20% of the outstanding Swala TZ convertible preference shares by February 15, 2023, that were issued to the Company in accordance with the investment agreement dated December 29, 2017, between the Company, PAEM and Swala UK. This additional redemption is without prejudice to the August 8, 2022, and is in addition to such request. As of the date hereof, the Company has not received any communications from Swala TZ regarding this additional redemption request.
Orca Energy Group Inc.
Orca Energy Group Inc. is an international public company engaged in natural gas exploration, development and supply in Tanzania through its subsidiary PAET. Orca trades on the TSX Venture Exchange under the trading symbols ORC.B and ORC.A.
*The principal asset of Orca is its indirect interest in the Production Sharing Agreement (“PSA”) with TPDC and the Government of Tanzania in the United Republic of Tanzania. This PSA covers the production and marketing of certain gas from the Songo Songo licence offshore Tanzania. The PSA defines the gas produced from the Songo Songo gas field as “Protected Gas” and “Additional Gas”. The Protected Gas is owned by TPDC and is sold under a 20-year gas agreement (until July 31, 2024) to Songas Limited (“Songas“) and Tanzania Portland Cement PLC. Songas is the owner of the infrastructure that enables the gas to be processed and delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island. Additional Gas is all gas that is produced from the Songo Songo gas field in excess of Protected Gas.
For further information please contact:
Chief Executive Officer
+44 (0)20 8434 2754
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FORWARD LOOKING INFORMATION
This news release contains forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation. All statements, other than statements of historical fact included in this news release, which address activities, events or developments that Orca expects or anticipates to occur in the future, are forward-looking statements. Forward-looking statements often contain terms such as may, will, should, anticipate, expect, continue, estimate, believe, project, forecast, plan, intend, target, outlook, focus, could and similar words suggesting future outcomes or statements regarding an outlook. More particularly, this news release contains, without limitation, forward-looking statements pertaining to the following: the Company’s ability to maintain or increase the production capacity of the Songo Songo gas field; the Company’s expectations regarding timing and required expenditures for the completion of installation of the well workover program and inlet compression project; the Company’s ability to play an important role in assisting Tanzania’s growing industrial and commercial sectors as a result of the inlet compression project; the Company’s ability to expand production at the further development of the Songo Songo gas field; the Company’s expectations that no additional planned shutdowns for maintenance will be required in 2023; the Company’s expectations for when the SS-4 well will be placed on production; the data acquired from the 3D seismic program and the benefit obtained therefrom; the Company’s expectations regarding timing and expenditures required to commence the 3D seismic program; Orca’s average gas production forecasts and the reasoning behind such forecasts; and Orca’s expectations regarding maintaining its quarterly dividend. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. 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 business, economic, operational, competitive, political and social uncertainties and contingencies.
These forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company’s control, and many factors could cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements made by the Company, including, but not limited to, reduced global economic activity as a result of the COVID-19 pandemic, including lower demand for natural gas and a reduction in the price of natural gas; natural reservoir pressure declines and associated well performance; the potential impact of the COVID-19 pandemic on the health of the Company’s employees, contractors, suppliers, customers and other partners and the risk that the Company and/or such persons are or may be restricted or prevented (as a result of quarantines, closures or otherwise) from conducting business activities for undetermined periods of time; the impact of actions taken by governments to reduce the spread of COVID-19, including declaring states of emergency, imposing quarantines, border closures, temporary business closures for companies and industries deemed non-essential, significant travel restrictions and mandated social distancing, and the effect on the Company’s operations, access to customers and suppliers, availability of employees, and other resources; risk that contract counterparties are unable to perform contractual obligations; the uncertain expenditure for expanding production at the Songo Songo gas field and the need for increased longer-term supply requirements; the potential negative effect on the Company’s rights under the PSA and other agreements relating to its business in Tanzania as a result of the Petroleum Act, passed in 2015 (the “Act“), and other recently enacted and future legislation, as well as the risk that such legislation will create additional costs and time connected with the Company’s business in Tanzania; risks regarding the uncertainty around evolution of Tanzanian legislation; the impact of general economic conditions in the areas in which the Company operates; continued drought in Tanzanian; civil unrest; the susceptibility of the areas in which the Company operates to outbreaks of disease; industry conditions; lack of availability of qualified personnel, contractors or management; fluctuations in commodity prices, foreign exchange rates and/or interest rates; stock market volatility; competition for, among other things, capital, drilling equipment and skilled personnel; failure to obtain required equipment for drilling; delays in drilling plans; failure to obtain expected results from drilling of wells; changes in laws and regulations including the adoption of new environmental laws and regulations; impact of new local content regulations and changes in how they are interpreted and enforced; imprecision in reserve estimates; the production and growth potential of the Company’s assets; obtaining required approvals from regulatory authorities; risks associated with negotiating with foreign governments; failure to increase production volumes and capabilities through the Songo Songo gas plant; risk that the 3D seismic program is delayed or more expensive than anticipated; risk that the results of the 3D seismic program are not as lucrative or instructive as anticipated; inability to meet production targets; risks that additional planned shutdowns of the Songo Songo gas plant for maintenance will be required in 2023; inability to place the SS-4 well on production on the timeline anticipated; and unanticipated changes to legislation and the effect on the Company’s operations. In addition, there are risks and uncertainties associated with oil and gas operations. Therefore the Company’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by these forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. Future dividend payments, if any, and the level thereof is uncertain. The Company’s dividend policy and any decision to pay further dividends, will be subject to the discretion of the Board of Directors and may depend on a variety of factors, including, without limitation the Company’s business performance, financial condition, financial requirements, growth plans, expected capital requirements and other conditions existing at such future time including, without limitation, satisfaction of the solvency tests imposed on the Company under applicable corporate law. The actual amount, the declaration date, the record date and the payment date of any dividend are subject to the discretion of the Board of Directors. There can be no assurance that dividends will be paid at the intended rate or at any rate in the future. Such forward-looking statements are based on certain assumptions made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors the Company believes are appropriate in the circumstances, including, but not limited to, that the Company is able to increase production volumes and capabilities through the Songo Songo gas plant; no additional planned shutdowns for maintenance will be required in 2023; the SS-4 well will be placed on production on the timeline anticipated; the ability of the Company to increase production as required to meet forecasted demand; the ability of the Company to complete developments and increase its production capacity; reservoir pressure declines, and demand for natural gas are in line with the Company’s estimates; the Company is able to negotiate an extension of the Songo Songo license; the impact of the COVID-19 pandemic on the demand for and price of natural gas, volatility in financial markets, disruptions to global supply chains and the Company’s business, operations, access to customers and suppliers, availability of employees to carry out day-to-day operations, and other resources; infrastructure capacity; commodity prices will not deteriorate significantly; the ability of the Company to obtain equipment and services in a timely manner to carry out exploration, development and exploitation activities; availability of skilled labour; timing and amount of capital expenditures; uninterrupted access to infrastructure; the impact of increasing competition; conditions in general economic and financial markets; receipt of government and other regulatory approvals; effects of regulation by governmental agencies; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated as described herein; and other matters.
The forward-looking statements contained in this news release are made as of the date hereof and the Company 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.
This news release contains information that may be considered a financial outlook under applicable securities laws about the Company’s anticipated capital expenditures for 2023. Such financial information has been prepared by management to provide an outlook of the Company’s activities and may not be appropriate for other purposes. This information has been prepared based on a number of assumptions, risk factors, limitations and qualifications including those discussed in this news release. The actual results of operations of the Company and the resulting financial results and expenditures may vary from the amounts set forth herein, and such variations may be material. The Company and management believe that the financial outlook has been prepared on a reasonable basis, reflecting management’s best estimates and judgments. The financial outlook contained in this news release was made as of the date of this news release and the Company disclaims any intent or obligation to update publicly the news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law.
Certain financial and operating results included in this news release, including cash and cash equivalents and long-term debt as at December 31, 2022 are based on unaudited estimated results. These estimated results are subject to change upon completion of the Company’s audited financial statements for the year ended December 31, 2022, and any changes could be material. Orca anticipates filing its audited financial statements and related management’s discussion and analysis for the year ended December 31, 2022 on SEDAR on or before April 20,2023.
References in this news release to initial production results are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which the SS-3 well will continue production and decline thereafter and are not indicative of long term performance or of ultimate recovery. Readers are cautioned not to place reliance on such rates in calculating the aggregate production for Orca or any of its wells. A pressure transient analysis or well-test interpretation has not been carried out in respect of the SS-3 well. Accordingly, Orca cautions that the production results for the SS-3 well should be considered to be preliminary.