Orca Energy Group Inc. ("Orca" or the "Company") and includes its subsidiaries and affiliates, including PanAfrican Energy Tanzania Limited ("PAET") and Pan African Energy Corporation (Mauritius) ("PAEM") announces an operational update.
Unless otherwise stated, all amounts referred to herein are expressed in United States dollars ("$").
Songas Update
On October 30, 2024, PAET was advised by Songas Limited (“Songas”) that the Interim Power Purchase Agreement (“PPA”) will expire on October 31, 2024. At midnight on October 31, 2024, Songas shutdown the Songas Power Plan and it is unknown how long this will be in force. In the event that a new PPA is not entered into, there is a risk the Songas Power plant will shutdown indefinitely. This would adversely impact demand for production volumes from the Songo Songo gas field. At this time, it is unknown if a new PPA will be entered into.
Production guidance for the annual average Additional Gas (as defined below) sales is now forecast to be 65 - 68 MMcfd (100% conventional natural gas). This range incorporates the exclusion of all volumes previously forecast to be supplied to Songas for November and December, and certain volumes lifted but disputed by a major industrial customer as a consequence of the position taken by the Tanzania Petroleum Development Corporation ("TPDC") and Government of Tanzania in relation to the cessation of Protected Gas (as detailed and defined below). The Songo Songo gas field continues to operate as normal.
Following cessation of Protected Gas on July 31, 2024, despite the absence of a contract to do so, Songas continued to lift volumes of gas in August and September, at an average rate of 17.8 MMcfd. On September 23, 2024, the Company was notified by Songas that it acknowledges it had lifted this volume, but due to TPDC’s refusal to approve a Gas Sales Agreement for this Additional Gas, they would elect to pay only 19.5% of such volumes. This accords with the payment arrangements for Complex Additional Gas under the contracted payment terms for Protected Gas which ended on July 31, 2024. Payment was made on this basis by Songas on October 10, 2024, in the amount equivalent to USD $410,000, representing 19.5% of the total invoiced amount of USD $2.1 million.
Only Additional Gas attracted a Processing and Transportation ("P&T") tariff up to July 31, 2024, (when Protected Gas was active), while Protected Gas did not. In contradiction of their position regarding payment above, Songas has invoiced PAET for the P&T tariff consistent with all gas volumes shipped to Songas during August as being AG. This amount has been fully accounted for and paid by PAET in accordance with the terms of the current agreements.
Operations
During Q3-2024, the Company successfully completed a production and saturation logging program in three wells. Initial results indicate that the wells and field are performing in line with expectations, with final interpretation of results continuing in order to update longer term reservoir management plans.
The workover program on SS-7 has completed a complex mobilization to Songo Songo Island, and the operational well intervention phase has commenced. Operations, including further logging, are expected to last for approximately three weeks. The objective of the work is to restore the mechanical integrity of the well to shutoff water production in order to restart production from the southern compartment of the gas field. On conclusion of the intervention, SS-7 is forecast to return to production in November 2024. The total expected project cost has increased to $22.0 million from $16.6 million primarily as a result of vendor logistical delays and more recently weather delays during both the mobilization from the Mombasa to Songo Songo Island and positioning the barges and jackup platform on the offshore SS-7 well.
Commercial
In August 2024, the Company issued a notice of dispute (“Notice of Dispute”), in respect of an investment treaty claim against the Government of Tanzania for breach of the Agreement on Promotion and Reciprocal Protection of Investment between the Government of the Republic of Mauritius and the Government of Tanzania, and a contractual dispute against the Government of Tanzania and TPDC, for breaches of the: (i) PSA, and (ii) GA (as defined herein). Initial meetings with both the Advisory and Coordinating Committees were held during the week of October 14, 2024, without any resolution on the key issues in dispute. The matters have now been referred to relevant entity's chief executive officers in accordance with the dispute resolution process. These meetings have been proposed for November or December. Further updates on this matter will be made as appropriate.
PAET has continued to supply gas to Tanzania Portland Cement PLC (“TPCPLC”) during August 2024 and September 2024. As a consequence of the position taken by TPDC, PAET was unable to invoice TPCPLC for volumes anticipated to have been supplied under the Supplementary Gas Agreement ("SGA"). The SGA had been agreed to by TPCPLC and was due to commence on August 1, 2024, but TPDC refused to approve the agreement. Therefore, PAET has invoiced all volumes lifted as Additional Gas under the Gas Sales Agreement which was established in 2008. It is not known if TPCPLC will pay all or any element of these invoices. As of the date of hereof, the August invoice for $2.64 million was outstanding, with the September invoice of $2.75 million being due on November 5, 2024. The Company will provide further updates in due course on this matter.
Financial
The Company exited September 30, 2024, with cash and cash equivalents of $101.7 million (June 30, 2024: $97.2 million) and no change to long-term debt of $25.1 million (June 30, 2024: $25.1 million). Cash held in hard currencies (USD, Euro, GBP, CDN) was $93.2 million at September 30, 2024 (June 30, 2024: $86.1 million).
Following the extension to the Portfolio Gas Supply Agreement (“PGSA”) with the Tanzania Electricity Supply Company Limited (“TANESCO”) between PAET, TPDC and TANESCO, TANESCO has taken delivery of approximately 26.7 MMcfd in September 2024. As of September 30, 2024, the receivable from TANESCO was $8.1 million, and the TANESCO long-term receivable was $22.0 million.
