Orca Energy Group Inc. Announces Completion of Q1 2023 Interim Filings

PRESS RELEASE

ORCA ENERGY GROUP INC.

ANNOUNCES COMPLETION OF Q1 2023 INTERIM FILINGS

For Immediate Release

TORTOLA, BRITISH VIRGIN ISLANDS – May 17, 2023: Orca Energy Group Inc. (“Orca” or the “Company” and includes its subsidiaries and affiliates) (TSX-V: ORC.A, ORC.B) today announces that it has filed its condensed consolidated interim financial statements and management’s discussion and analysis for the three month periods ended March 31, 2023 (“Q1 2023“) with the Canadian securities regulatory authorities. All amounts are in United States dollars (“$”) unless otherwise stated.

Jay Lyons, Chief Executive Officer, commented:

“Following a year of considerable production and revenue growth, I am pleased to report that the Company delivered a strong performance in Q1 2023. Due to increased sales in the power sector during the period, gas deliveries were 29% higher year-on-year, with revenues up 11% compared to Q1 2022.

We continue with the preparation of the 3D seismic acquisition and processing program on the Songo Songo gas field. This is an important workstream for Orca, as it will further increase our understanding of the asset, de-risk future exploration,  optimize development plans and ensure sustainable gas supplies for the increasing gas demand we continue to experience. The seismic project timelines continue to extend, and we are working closely with our Tanzanian based Omani backed contractor to address deficiencies in equipment in a timely fashion. I look forward to updating the market on further developments over the coming months.”

Highlights

• Revenue for Q1 2023 increased by 11% compared to the same prior year period. The increase is primarily a result of increased sales to the power sector and was partially offset by the increase in Tanzanian Petroleum Development Corporation’s (“TPDC”) share of revenue as an outcome of decreased capital expenditures and lower recovery of costs incurred on the exploration, development and operations of projects under the PSA (defined below). Gas deliveries for the quarter increased by 29% compared to the same prior year period, primarily due to increased sales of natural gas to the power sector.
• Gross conventional natural gas production was in line with forecasts during Q1 2023 and in April 2023 averaged 119.8 MMcfd (total), of which 86.9 MMcfd was Additional Gas (defined below), which is historically consistent with the seasonal rains and increased hydro-power.
• We anticipate our gross additional gas sales to average between 90 and 100 MMcfd during 2023, with a midpoint of 95 MMcfd.
• Net income attributable to shareholders decreased by 53% for Q1 2023 compared to the same prior year period, primarily as a result of the increased depletion expense compared to Q1 2022 counteracting the increase in revenue.
• Net cash flows from operating activities for Q1 2023 increased by 83% compared to the same prior year period, primarily as a result of positive changes in non-cash working capital.
• Capital expenditures decreased by 88% for Q1 2023 compared to the same prior year period. The capital expenditures in Q1 2023 primarily related to the 3D seismic acquisition program. The capital expenditures in Q1 2022 primarily related to the well workover program.
• The Company is currently carrying out a 3D seismic acquisition and processing program, budgeted at $24.6 million in order to further evaluate the current reserves and contingent resources as well as the potential of prospective resources. In 2022, the Company awarded and signed a contract with African Geophysical Services LLP to acquire approximately 181 square kilometres of 3D shallow marine, transition zone and land based seismic over the Songo Songo license area. We anticipate that acquisition of data will be completed in Q3 2023. The processing of the data will be carried out by DUG Ltd with fast track processing expected to produce initial results during Q4 2023.
• With the emergence of longer term high levels of gas demand, our short-term 2023 forecast capital expenditure remains at approximately $38 million. We continue to work with the Government of Tanzania (“GoT”) on an alternative development plan for the longer term field development.
• In 2022 the Company completed smart pigging of the SS-3, SS-4 SS-5, SS-7 and SS-9 flowlines. Low cost repairs of sections of flowlines have been conducted and wells returned to operations. 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 $68.4 million in working capital¹ (December 31, 2022: $61.6 million), cash and cash equivalents of $99.5 million (December 31, 2022: $96.3 million) and long-term debt of $39.8 million (December 31, 2022: $39.8 million). The increase in working capital was primarily related to the release of $13.1 million representing the current portion of additional profits tax (“APT”) in Q1 2023. Subsequent to March 31, 2023 the Company made a payment of $5.0 million, representing the second semi-annual repayment of its long-term debt.
• As at March 31, 2023 the current receivable from the Tanzanian Electric Supply Company Limited (“TANESCO”) was $ nil (December 31, 2022: $3.7 million). TANESCO’s long-term trade receivable as at March 31, 2023 and December 31, 2022 was $22.0 million with a provision of $22.0 million. Subsequent to March 31, 2023 the Company has invoiced TANESCO $2.2 million for April 2023 gas deliveries. Subsequent to March 31, 2023 TANESCO paid the Company $6.5 million against the 2020 take or pay invoice.
• On February 24, 2023, 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 $1.5 million to the holders of record as of March 31, 2023 paid on April 14, 2023.
• On May 17, 2023, the Company declared dividends 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 the holders of record as of June 30, 2023 payable on July 14, 2023.
• 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 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 May 17, 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 claimed 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 to be submitted to the FCC. The Company is optimistic that there is no merit to the allegations of the FCC against the Company.