Orca Energy Group Inc. has filed its condensed consolidated interim financial statements and management’s discussion and analysis for the three and six month periods ended June 30, 2022 (“Q2 2022“) with the Canadian securities regulatory authorities. All amounts are in United States dollars (“$”) unless otherwise stated.
Jay Lyons, Chief Executive Officer, commented:
“We continue to deliver operationally, which can be seen by the robust financial performance Orca achieved during the quarter. We were able to increase our revenue significantly year-on-year, leaving the business in a strong financial position and able to capitalize on the investment opportunities we have identified for the Songo Songo gas field. We have a number of important workstreams planned for the second half of 2022, including the 3D seismic acquisition planned for the second half of 2022, which is expected to provide greater clarity on the contingent and prospective resource potential in the first half of 2023.”
- Revenue increased by 39% for Q2 2022 and by 43% for the six months ended June 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 71% for Q2 2022 and by 46% for the six months ended June 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 within the Company’s current forecast for 2022 of 80-86 MMcfd.
- Net income attributable to shareholders increased by 102% for Q2 2022 and by 94% for the six months ended June 30, 2022 compared to the same prior year periods, primarily a result of the increased revenues.
- Net cash flows from operating activities increased by 179% for Q2 2022 and by 246% for the six months ended June 30, 2022 compared to the same prior year periods. This was primarily a result of the increased revenue and non-cash adjustments.
- Capital expenditures decreased by 67% for Q2 2022 and increased by 69% for the six months ended June 30, 2022 compared to the same prior year periods. The capital expenditures in Q1 and Q2 2022 primarily related to completion of both the well workover program for the SS-3, SS-4 and SS-10 wells and the compression project. The Company installed feed gas compression on the Songas gas processing facility to allow production volumes through the Songas Infrastructure to be sustained at approximately 102 MMcfd in the near term (2-4 years). 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 is currently unable to flow naturally due to liquid loading, the cause of which is yet to be established. The Company has sourced a coiled tubing nitrogen unit to lift excess liquid from the well bore, potentially allowing the well to flow naturally. The coiled tubing unit is currently undergoing refurbishment in Poland. A vessel for mobilisation to Tanzania has been booked and the unit is expected to be on location in Songo Songo Island in Q4 2022. The workovers and compression facilities provide the opportunity to initially increase current total field production potential to approximately 155 MMcfd by also producing through the adjacent the National Natural Gas Infrastructure (“NNGI”) facilities on Songo Songo Island. The Company intends to carry out a 3D seismic acquisition program in Q4 2022, budgeted at $21.6 million including associated management, support and QA/QC costs estimated to be approximately $850,000, in order to de-risk both future development drilling and potential exploration drilling 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 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 program in Q4 2022 to align with the optimum weather window and assure highest quality data acquisition. The Company also 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. However, the Company is planning a program of full flowline repairs on two flowlines in 2023 in accordance with the Company’s integrity management plan.
- The Company exited the period in a strong financial position with $44.3 million in working capital (December 31, 2021: $41.8 million), cash and cash equivalents of $82.4 million (December 31, 2021: $73.0 million) and long-term debt of $44.7 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.
- As at June 30, 2022 the current receivable from TANESCO was $4.3 million (December 31, 2021: $2.0 million). TANESCO’s long-term trade receivable as at June 30, 2022 and December 31, 2021 was $26.5 million with a provision of $26.5 million. Subsequent to June 30, 2022 TANESCO paid the Company $5.6 million and the Company invoiced TANESCO $5.3 million for July 2022 gas deliveries.
- On May 20, 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 $1.6 million to the holders of record as of June 30, 2022, which was paid on July 15, 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. To date, no shares have been purchased by the Company pursuant to the 2022 NCIB.
- On August 8, 2022, the Company issued a redemption notice to Swala Oil & Gas (Tanzania) plc (“Swala“), requesting that Swala redeem 20% of the outstanding Swala convertible preference shares that were issued to the Company in accordance with the investment agreement dated December 29, 2017, among the Company, the Company’s subsidiary PAE PanAfrican Energy Corporation and Swala’s subsidiary Swala (PAEM) Limited.