Orca Energy Group Inc. Announces Completion of Q3 2022 Interim Filings

In addition to accelerated capital programs we continue to return value to our investors, which can be seen with the quarterly dividend we paid in October 2022 and the ongoing NCIB program. While the Board of Directors of the Company intends to maintain the current level of returns for the foreseeable future, we are also cognizant of the need to continue investing in the Songo Songo field, to ensure that the high level of demand we are currently witnessing can be met. Supporting the growth of the Tanzanian economy and its move away from more carbon intensive energy sources remains a top priority for Orca, so we can continue realizing further value from the Songo Songo field going forward.”

Highlights

• Revenue increased by 37% for Q3 2022 and by 41% for the nine months ended September 30, 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 43% for Q3 2022 and by 45% for the nine months ended September 30, 2022 compared to the same prior year periods. The increase in gross sales volume was primarily due to the increase in gas deliveries to customers in the power sector as a result of increased deliveries to the Tanzanian Petroleum Development Corporation (“TPDC”) and the Tanzanian Electric Supply Company Limited (“TANESCO”). It is expected that average gross gas sales volumes will be at the high end of the Company’s current forecast for 2022 of 80-86 MMcfd.
• Net income attributable to shareholders increased by 50% for Q3 2022 and by 71% for the nine months ended September 30, 2022 compared to the same prior year periods, primarily a result of the increased revenues.
• Net cash flows from operating activities increased by 61% for Q3 2022 and by 142% for the nine months ended September 30, 2022 compared to the same prior year periods. This was primarily a result of the increased revenue and non-cash adjustments and decreases in volumes of trade and other receivables.
• Capital expenditures decreased by 67% for Q3 2022 and increased by 33% for the nine months ended September 30, 2022 compared to the same prior year periods. The capital expenditures in Q1, Q2 and Q3 2022 primarily related to completion of the well workover program for the SS-3, SS-4 and SS-10 wells, the compression project and the 3D seismic acquisition program.
• The Company completed installation and commissioning of feed gas compression on the Songas gas processing plant in March 2022. This maintains 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. The $31.6 million program included the reactivation of the SS-3 and SS-4 wells, 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. The Company has now carried out a nitrogen gas lift of the SS-4 well with a coiled tubing unit to lift excess liquid from the well bore and the well has again flowed gas naturally. Work is now ongoing to set the optimal operating parameters in order to have the well available for production.
• The workovers and compression facilities provide the opportunity to increase short term field production potential to approximately 155 MMcfd with some production through the adjacent NNGI facilities also on Songo Songo Island.
• The Company is currently carrying out a 3D seismic acquisition program, budgeted at $22.7 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 and land based seismic over the Songo Songo license area. The Company is targeting completion of the seismic acquisition program in Q1 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 advancing corrosion or erosion. Immediate, low cost repairs of sections of flowline have been conducted and wells returned to operations with minimal impact on overall production. The Company is now planning a program of full flowline repairs on two flowlines in 2023 in accordance with the Company’s integrity management plan.
• The Company has conducted a range of sand monitoring operations following recent sand production modelling and limited sand production through several wells.  Sand mitigation measures have also been implemented, including: down hole sand control in two of the recent well workovers; the installation of one fixed acoustic detector at the inlet manifold of the Songas gas processing plant, and one mobile acoustic detector which can be aligned to individual wells as necessary; and the installation of a cyclonic de-sanding unit at the SS-10 wellhead, with a second ready for installation on the next well, to be prioritized through further testing.  All wells, with the exception of the SS-12 well which is permanently aligned to the NNGI plant, and the SS-4 and SS-7 wells which are currently not on production, have been individually aligned to the test separator to assess each for sand production.  The Company has also proposed the purchase of an additional five wellhead de-sanding units in 2023.
• The Company exited the period in a strong financial position with $57.6 million in working capital (December 31, 2021: $41.8 million), cash and cash equivalents of $93.1 million (December 31, 2021: $73.0 million) and long-term debt of $44.8 million (December 31, 2021: $49.6 million). The decrease in long-term debt was related to reclassification of $5.0 million of long-term debt into current liabilities as it becomes due in April 2023. Subsequent to September 30, 2022 the Company made a payment of $5.0 million, representing the first semi-annual repayments of its long-term debt.
• As at September 30, 2022 the current receivable from TANESCO was $ nil (December 31, 2021: $2.0 million). TANESCO’s long-term trade receivable as at September 30, 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 September 30, 2022 TANESCO paid the Company $4.1 million and the Company invoiced TANESCO $4.8 million for October 2022 gas deliveries. Subsequent to September 30, 2022 TANESCO also paid the Company $4.3 million against the 2018 take or pay invoice.
• On September 28, 2022, the Company declared a dividend of CDN$0.10 per share on each of its Class A common 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 October 14, 2022, which was paid on October 28, 2022.
• 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 September 30, 2022 the Company had repurchased 22,000 Class B shares at a weighted average price of CDN$4.96 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 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 September 30, 2022 and November 15, 2022 this matter remains in dispute between Swala TZ and the Company and the redemption notice request remains outstanding.
• On August 5, 2022, the Fair Competition Commission of the United Republic of Tanzania (“FCC”) issued Provisional Findings with respect an investigation it initiated againstOrca, PAEM, PanAfrican Energy Tanzania Limited (“PAET“) and Swala UKandSwala 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 . The Company is confident that there is no merit to the allegations of the FCC against it.