Orca Energy Group Provides Operational Update

Source: www.gulfoilandgas.com 7/11/2022, Location: Africa

Orca Energy Group Inc. announces an operational update.

Jay Lyons, Chief Executive Officer, commented:
“We are very pleased with Orca’s strong operational performance year-to-date and the wider operational progress being made on a range of proactive investment opportunities, that will underpin our current production and our increased production capacity in the near to medium term. We remain focused on maintaining a strong liquidity position, while also balancing the attractive growth opportunities at Songo Songo field and returning value to our stakeholders. The second half of 2022 will be an intense period operationally, with the acquisition of 3D seismic over the Songo Songo licence to provide greater clarity on the contingent and prospective resource potential in the first half of 2023. With record additional gas sales, increased market share and accelerating gas demand into 2023, we have initiated a number of projects to potentially accelerate and sustain production potential to align with the burgeoning Tanzanian economy.”

OPERATIONAL
• Record conventional natural gas (which will be classified as Additional Gas, as defined in the PSA (as defined herein) ("gas sales")) sale volumes averaging ~ 80 million cubic feet per day (“MMcfd”) year to date 2022, due to the installation of inlet compression at the Songas Limited (“Songas”) gas plant which aligned with significantly increased market share of gas demand associated with new gas to power projects and lower than anticipated hydropower generation during the seasonal ‘Long Rains’ in Q2, 2022.
• The Company averaged gas sales of 85.5 MMcfd in Q2 2022 as compared to gas sales of 50.1 MMcfd in Q2 2021, which increased gas sales were primarily to customers in the power sector. The Company forecasts average gross gas sales of 80- 86 MMcfd during 2022 representing a 10 MMcfd (14% increase) from the Company's prior forecasts of 70-76 MMCfd.
• Current total Songo Songo field production (Additional Gas and Protected Gas) is ~ 125-130 MMcfd with anticipated increased Additional Gas demand in the second half of 2022 ("H2, 2022"), largely due to the announced phased startup of the Kinerezi 1 power plant extension, combined with seasonal hydropower declines.
• Orca continues to invest in its Songo Songo operations to keep pace with Tanzania’s growth in power generation and industrial expansion. These include:
o US$42.5 million (2020-2022) first stage inlet compression project at the Songas Limited ("Songas") gas plant, which became operational in March 2022. With the addition of inlet compression, it is estimated that total connected peak deliverability through the Songas gas plant and the National Natural Gas Infrastructure (“NNGI”) gas plant is currently ~ 155 MMcfd.
o US$31.6 million (2021-22) three well workover program (SS-3, SS-4 and SS-10 wells) completed in April 2022.
o US$1.0 million (2022) coil tubing program to evaluate the production potential of the SS-4 well is planned for Q3/Q4, 2022. The SS-4 well is currently unable to flow naturally, due to suspected liquid loading incurred during the workover program.
o US$20.0+ million (2022) 3D seismic acquisition program to better image the emerging complexities for the Songo Songo main field and future exploration and development of prospective resources. Following technical and commercial evaluation of three seismic acquisition proposals, the Company awarded and signed a contract with African Geophysical Services LLP on July 7, 2022, to acquire ~ 200 square kilometers of 3D marine, transition and land based seismic over the Songo Songo license area. Subject to receipt of final environmental approvals, the Company is targeting completion of the program in H2 2022 to align with the optimum weather window and assure highest quality data acquisition.
o US$1.0 million "smart pigging" program to identify potential flow line repair/replacements in accordance with the Company’s integrity management system. Additional budget approved to replace or repair flow lines that are identified to have corrosions/erosion issues associated with 18 years of continuous production.
o Sand production mitigation investments targeting potential downtime due to increasing sand production associated with declining reservoir pressures.
• In response to the anticipated future demand of gas sales, the Company has accelerated a number of initiatives (subject to government and partner approvals) which include:
o Investigating the potential for fast track seismic data processing and interpretation in H1 2023, to align with increased market share of new gas demand in Tanzania and the potential need for additional offshore drilling in the Songo Songo main field prior to October 2026.
o Commenced evaluation of several options to meet and sustain accelerated gas demand increases from the Songo Songo main field and associated reservoir pressure declines. Evaluations include accelerated infill drilling (2024) in the Songo Songo main field and the potential fast track installation of second stage inlet gas compression at the Songas gas plant. Infill drilling could include a sidetrack of the existing, currently non-producing SS-7 offshore well or replacement well in the southern compartment of the Songo Songo field at an estimated cost of US$40+ million.

Second stage inlet gas compression is anticipated to cost in the $40+ million range (similar to recent first stage compression project) and take 2-3 years from final investment decision/approval. It is anticipated that either option would be funded from working capital.

FINANCIAL
• Progress continues with Tanzania Electric Supply Company Limited (“TANESCO”) to resolve payments for outstanding receivables and take or pay volumes.
o As at 30 June 2022, the current receivables owed by TANESCO were US$3.5 million (March 31, 2022: US$0.3 million). TANESCO’slong-term trade receivable as at June 30, 2022 was US$26.5 million with a provision of US$26.5 million, representing no change from the prior quarter.
o During Q2, 2022 TANESCO paid the Company US$13.4 million for the 2016/2017 invoice under the take or pay provision of the Portfolio Gas Supply Agreement, being the agreement under which the Company supplies Additional Gas directly to TANESCO.

o The Company initiated discussions with TANESCO regarding the extension of the Gas Sales Agreement (“GSA”) past the current deadline of 2023.
• The Company continues to review its ongoing and future liquidity requirements which include:
o The Company's ability to maintain the quarterly dividend of C$0.10 per Class A Common Share ("Class A Share") and C$0.10 per Class B Subordinate Voting Share ("Class B Share").
o Principal repayments of the long-term-loan from the International Finance Corporation to the Company's subsidiary operating in Tanzania, PanAfrican Energy Tanzania Limited, with US$5.0 million being due in October 2022.
o Potential future capital programs to sustain and expand gas production from the Songo Songo gas field.

CORPORATE
In accordance with the investment agreement dated December 29, 2017 (the "Investment Agreement"), on an annual basis commencing December 31, 2021, Swala Oil & Gas (Tanzania) plc ("Swala Parent") is required to, among other things, redeem 20% of the Swala Parent preferred shares (the "Swala Parent Preferred Shares") held by the Company (or if the outstanding amount is less than 20% of the original amount of US$20 million, the entire amount) either in cash or by transferring and returning a proportionate share of the Class A common shares of PAE PanAfrican Energy Corporation, a subsidiary of Orca, that were issued to Swala Parent's wholly owned subsidiary, Swala (PAEM) Limited. The Company is currently pursuing enforcement of these redemption rights.


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