Orca Energy Group Inc. Announces 2022 Year End Audited Financial Results
Posted on 26 April 2023
ORCA ENERGY GROUP INC.
ANNOUNCES 2022 YEAR END AUDITED FINANCIAL RESULTS
For Immediate Release
TORTOLA, BRITISH VIRGIN ISLANDS – April 26, 2023: Orca Energy Group Inc. (“Orca” or “the Company” and includes its subsidiaries and affiliates) (TSX-V: ORC.A, ORC.B) today announced its audited financial results for the fourth quarter (“Q4 2022“) and year ended December 31, 2022. All dollar amounts are in United States dollars unless otherwise stated.
- Revenue increased by 28% for Q4 2022 and by 37% for the year ended December 31, 2022 compared to the same prior year periods. The increases were primarily a result of increased sales to customers in the power sector. Gas deliveries increased by 34% for Q4 2022 and by 42% for the year ended December 31, 2022 compared to the same prior year periods. The increase in gross sales volume was primarily due to the increase in gas deliveries to the power sector customers, Tanzanian Petroleum Development Corporation (“TPDC“) and Tanzania Electric Supply Company Limited (“TANESCO“).
- Net income attributable to shareholders increased by 50% for Q4 2022 and by 69% for the year ended December 31, 2022 compared to the same prior year periods, primarily a result of the increased revenues and increased reversal of loss allowances related to the higher collection of arrears from TANESCO.
- Net cash flows from operating activities decreased by 17% for Q4 2022 and increased by 69% for the year ended December 31, 2022 compared to the same prior year periods. The decrease for Q4 2022 over the comparable prior year period was primarily a result of changes in non-cash working capital. The increase for the year ended December 31, 2022 was primarily a result of the increased revenue.
- Capital expenditures decreased by 71% for Q4 2022 and by 16% for the year ended December 31, 2022 compared to the same prior year periods. The capital expenditures in 2022 primarily related to completion of the three well workover program, the compression project and the commencement of the 3D seismic acquisition program.
- The Company completed installation and commissioning of feed gas compression on the Songas Limited (“Songas“) gas processing plant in March 2022. This extended the Company’s ability to supply current demand at the maximum capacity of the Songas Infrastructure (being the infrastructure that enables the gas to be delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island) of approximately 100 MMcfd. The sustainability of this deliverability will be impacted by ongoing total demand including any additional volumes flowing through the National Natural Gas Infrastructure (“NNGI”) plant.
- In April 2022, the drilling rig was released having completed the planned well workover program on wells SS-3, SS-4 and SS-10. The $31.6 million program included the reactivation of the SS-3 well and the sidetrack of the SS-4 well to a new bottom hole location, along with the installation of corrosion resistant production tubing on all three of the wells. The SS-3 well was placed on production on February 15, 2022 and the SS-10 well was returned to production on April 18, 2022. The SS-4 well was unable to flow naturally due to liquid loading. A coiled tubing nitrogen lift and further testing was conducted on SS-4, however as of year-end it remains shut in pending further analysis of reservoir conditions.
- The installation of compression facilities and conduct of the workovers increased short term field production potential to approximately 155 MMcfd by routing some production through the adjacent NNGI facilities also located on Songo Songo Island. This enabled the Company to meet higher average demand levels in excess of 130 MMcfd from Q2 2022.
- The Company is currently carrying out a 3D seismic acquisition program, budgeted at $23.2 million in order to further evaluate the current reserves and contingent resources as well as the potential of prospective resources. This will be used to de-risk future development drilling opportunities and to evaluate the potential for future 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 shallow marine, transition zone and land based seismic over the Songo Songo license area. We anticipate that the acquisition of data will be completed by Q3 2023 and fast track data processing will be completed by Q4 2023.
- The Company successfully completed smart pigging of the SS-3, SS-4, SS-5, SS-7 and SS-9 flowlines, identifying a number of areas of corrosion and/or erosion. Immediate, low cost repairs of sections of flowline have been conducted and wells returned to operations with minimal impact on overall production. Further work will be conducted throughout 2023 to replace several other less critically affected sections.
- The Company exited the period in a strong financial position with $61.6 million in working capital(1) (December 31, 2021: $41.8 million), cash and cash equivalents of $96.3 million (December 31, 2021: $73.0 million) and long-term debt of $39.8 million (December 31, 2021: $49.6 million). The decrease in long-term debt was related to reclassification of $10.0 million of long-term debt into current liabilities as it becomes due in April and October 2023. Subsequent to December 31, 2022 the Company made a payment of $5.0 million, representing the second semi-annual repayments of its long-term debt.
- 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 $22.0 million with a provision of $22.0 million (December 31, 2021: $26.5 million with a provision of $26.5 million). Subsequent to December 31, 2022 TANESCO paid the Company $11.1 million and the Company invoiced TANESCO $6.9 million for 2023 gas deliveries.
- On February 24, 2022, May 20, 2022, September 28, 2022 and November 16, 2022 the Company declared dividends of CDN$0.10 per share on each of its Class A common voting shares (“Class A Shares”) and Class B subordinate voting shares (“Class B Shares”) for a total of $6.2 million to the holders of record as of March 31, 2022, June 30, 2022, October 14, 2022 and December 31, 2022 (paid on April 15, 2022, July 15, 2022, October 28, 2022 and January 13, 2023, respectively). Subsequent to December 31, 2022, on February 24, 2023 the Company declared a dividend of CDN$0.10 per share on each of its Class A Shares and Class B Shares for a total of $1.5 million to holders of record as of March 31, 2023 paid on April 14, 2023.
- 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.
- 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 (“Preference Shares”) by August 23, 2022, which were issued to the Company in accordance with the investment agreement dated December 29, 2017 (the “Investment Agreement”), between the Company, the Company’s subsidiary PAE PanAfrican Energy Corporation (“PAEM”) and Swala’s TZ subsidiary, Swala (PAEM) Limited (“Swala UK”). Swala TZ has responded to the Company’s redemption notice and is disputing its obligation to redeem the Preference Shares. On January 31, 2023, the Company issued a further redemption notice to Swala TZ, requesting that Swala TZ redeem a further 20% of the outstanding Preference Shares by February 15, 2023. As at December 31, 2022 and April 19, 2023, the redemption notice requests of the Company remain outstanding.
- On April 3, 2023, Swala TZ announced that a meeting of its creditors held on March 31,2023 resolved that Swala TZ be placed into liquidation. Also, on March 31,2023, Apex Corporate Trustees (UK) Limited appointed representatives of Grant Thornton UK LLP as administrators of Swala UK. The Company is evaluating its rights and options in response to Swala TZ being put into liquidation and Swala UK being put into administration.
- On August 5, 2022, the Fair Competition Commission of the United Republic of Tanzania (“FCC”) issued Provisional Findings with respect an investigation the FCC initiated against Orca, PAEM, PanAfrican Energy Tanzania Limited (“PAET”) and Swala UK and Swala TZ in response to a letter Swala TZ sent the FCC on March 31, 2022. In the Provisional Findings, the FCC claims that Orca’s sale of investment shares held in PAEM to Swala UK pursuant to the Investment Agreement amounted to a notifiable merger whose non-notification infringed the provisions of the Fair Competition Act, 2003 and the Fair Competition Rules, 2018. In September 2022, the Company responded to the FCC’s Provisional Findings submitting that the transactions did not amount to a prohibited merger and that, if the transactions were notifiable, it was Swala UK who had the obligation to notify the authorities of the merger and not Orca, PAEM and PAET. On November 11, 2022, the FCC issued another letter to Orca, PAEM and PAET requesting a settlement plan be submitted to the FCC. The Company is optimistic that there is no merit to the allegations of the FCC against the Company and the matter can be settled soon.
- 2023 production started strongly, with gross gas sales averaging 94 MMcfd in Q1 2023. We anticipate our gross gas sales to average between 90 and 100 MMcfd during 2023, with a midpoint of 95 MMcfd.
- With the emergence of longer term high levels of gas demand, we are currently reforecasting our capital program to align with a potential longer term investment program. In the short term the 2023 forecast capital expenditure has been reduced to circa $38m.