Orca Energy Group Inc. (“Orca” or the “Company” and includes PanAfrican Energy Tanzania Limited (“PAET”) and its other subsidiaries, and affiliates) announces an operational update. All amounts are in United States dollars (“$”) unless otherwise stated.
Jay Lyons, Chief Executive Officer, commented:
“I am pleased to report that Orca continued to deliver operationally at the end of 2022 and into 2023. The Company increased gas sales by 42% over the course of 2022, compared with the previous year. We continue to respond to record high gas demand in Tanzania, which we are doing our best to supply. As such, we anticipate our gross gas sales to average between 90 and 100 MMscfd during 2023, with a midpoint of 95 MMscfd. In order to sustain this increased demand, further investment is required in addition to the $22.1 million the Company is currently spending on a 3D seismic acquisition program, which is designed to de-risk future drilling and field development. The Company prepared and approved an initial 2023 firm and contingent capital budget of $53.5 million to complete and process the 3D seismic, install additional compression, install additional sand control equipment, replace aging flow lines and prepare for a potential 2024 development drilling program including the procurement of long lead items. However, with the emergence of longer term high levels of gas demand and discussions with our Tanzanian partners, we are currently revisiting the 2023 capital program to align with a potential longer term investment program including near term discussions on a development licence renewal.
Financially, we continue to benefit from a strong balance sheet, with $96.3 million of cash and cash equivalents at year end and with increasing gas sales, our revenues will remain at elevated levels. This affords the Company the financial flexibility to fund longer term production growth opportunities at Songo Songo Island, to support Tanzania’s growing economy, while maintaining a strong balance sheet and shareholder returns.”
OPERATIONAL
Production
, classified as Additional Gas (as defined in the PSA (as defined herein)) (“gas sales”) averaged 95.5 MMscfd during Q4 2022 which increased average gas sales to 86.8 MMscfd for the year 2022, representing a 42% increase from 2021.
Demand Growth
- From Q2 2022 to the end of Q3 2022, overall demand from the Songo Songo gas field increased to 120-130 MMscfd from the previous historic highs of 100-110 MMscfd within days of commissioning the inlet compression at the Songas gas plant. This increased demand was sustained from Q2 2022 to the end of Q3 2022 due in part to drought conditions in 2022 in Tanzania.
- Early in Q4 2022 TPDC and TANESCO requested supply of a further 20 MMscfd to supply the Kinyerezi 1 power plant extension, bringing total field offtake close to the maximum deliverability of 150+MMscfd. Orca was pleased to support this request and as a result is now supplying approximately 71% total domestic gas production in Tanzania, supporting around 50% of total power generation in the country.
- We are currently discussing the sustainability of this increased demand with TPDC and TANESCO to evaluate options for further development of the Songo Songo gas field to meet this potential longer-term gas supply requirements.
- These options to increase sustainable demand include accelerated well workovers, infill wells to existing field compartments, new development wells in new areas of the field and the addition of further compression to the upstream plants.
Seismic Program
The Company is currently carrying out a 3D seismic acquisition program, budgeted at $22.1 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 zone and land based seismic over the Songo Songo license area. As at December 31, 2022 line cutting for the land portion of the survey was in progress and mobilization and commissioning of the marine equipment was ongoing; all in preparation for commencement of the acquisition program in early 2023.
FINANCIAL
- In accordance with the Company’s dividend policy, Orca anticipates maintaining its quarterly dividend.
- During 2022, Orca paid total dividends on its Class A Common Voting Shares and Class B Subordinate Voting Shares of $6.2 million.
- 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 December 31, 2022 the Company had repurchased 47,200 Class B shares at a weighted average price of CDN$4.87 per share pursuant to the 2022 NCIB.
- 30.0 million for the 2016-2017 and 2017-2018 gas contract years (2021: $5.0 million for the take or pay invoice for the 2015-2016 contract year).
- 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 December 31, 2022 and this matter remains in dispute between Swala TZ and the Company and the redemption notice request remains outstanding.
- On January 31, 2023, the Company issued a redemption notice to Swala TZ requesting that Swala TZ redeem an additional 20% of the outstanding Swala TZ convertible preference shares by February 15, 2023, that were issued to the Company in accordance with the investment agreement dated December 29, 2017, between the Company, PAEM and Swala UK. This additional redemption is without prejudice to the August 8, 2022, and is in addition to such request. As of the date hereof, the Company has not received any communications from Swala TZ regarding this additional redemption request.
