Orca Energy Group Inc. Announces Completion of Q3 2023 Interim Filings

Source: www.gulfoilandgas.com 11/15/2023, Location: Africa

Orca Energy Group Inc. (“Orca” or the “Company” and includes its subsidiaries and affiliates) announces that it has filed its condensed consolidated interim financial statements and management's discussion and analysis (“MD&A”) for the three and nine month periods ended September 30, 2023 ("Q3 2023") with the Canadian securities regulatory authorities. All amounts are in United States dollars (“$”) unless otherwise stated. Any terms not defined herein have the meanings given to such terms in the Q3 2023 MD&A.

Jay Lyons, Chief Executive Officer, commented:

“During the first three quarters of 2023, Orca has seen a slight decrease in production of 0.5% year on year, however we remain confident in achieving our revised guidance range of 85–90 MMcfd for 2023. Our additional gas average production guidance for 2024 continues to be set within the range of 80–90 MMcfd.

We continue to look forward to engaging with the Government of Tanzania and TPDC to advance the matter of license extension, which we believe will be of great benefit to Tanzania and a key enabler for sustainable and reliable power supply.

Orca exited the period in a strong financial position with $64.3 million in working capital, cash and cash equivalents of $101.7 million, and long-term debt of $34.9 million.

We value the ongoing support of our stakeholders and look forward to providing further updates in due course.”

Highlights

- Revenue decreased by 10% for Q3 2023 and by 0.5% for the nine months ended September 30, 2023 over the comparable prior year periods. The decrease for Q3 2023 is primarily a result of lower sales to the power sector. The decrease for the nine months ended September 30, 2023 is primarily a result of higher TPDC share of revenue due to decreased capital expenditures and lower Cost Gas revenue.

- Gross conventional natural gas production was lower than forecast for the quarter and averaged 124.8 MMcfd for Q3 2023, of which 82.9 MMcfd was Additional Gas. Gas deliveries decreased by 10% for Q3 2023 and increased by 4% for the nine months ended September 30, 2023 compared to the same prior year periods. The decrease for Q3 2023 was primarily due to declining production from the currently producing wells and reservoir compartments in the Songo Songo field. The increase for the nine months ended September 30, 2023 was primarily due to increased gas sales to the power sector.

- Despite declining production, increased gas demand is now seen as part of a long term requirement of the MoE, TPDC and TANESCO for gas supply to support growing power demand, following the commissioning in late 2022 of new gas fired generation capacity and increased power distribution through the national grid. As a result of less consistent rainfall in Tanzania in recent years causing lower average output of hydropower, this new gas fired capacity is being used on a more continuous base load basis than had been expected.

- We currently forecast average Additional Gas sales for 2023 to be within the revised range of 85–90 MMcfd, compared to full year sales for 2022 of 86.8 MMcfd. Average production guidance (Additional Gas) for 2024 is forecast to be in the range of 80–90 MMcfd for the full year, based on current contracted volumes and the end of the Protected Gas regime on July 31, 2024.

- Discussions have commenced with Songas and TPCPLC to agree requirements and negotiate new commercial terms for the sale of gas from August 1, 2024, replacing volumes currently supplied as Protected Gas (PG) under the gas agreement between the Government of Tanzania, TPDC, Songas and the Company (the “Gas Agreement”).

- Net income attributable to shareholders decreased by 98% for Q3 2023 and by 71% for the nine months ended September 30, 2023 compared to the same prior year periods, primarily as a result of the increased depletion expense and net foreign exchange loss in Q3 2023 and for the nine months ended September 30, 2023, as well as higher reversal of loss allowance in the comparable periods as a result of collection of TANESCO arrears in Q3 2022 and for the nine months ended September 30, 2022.

- Net cash flows from operating activities decreased by 23% for Q3 2023 and by 26% for the nine months ended September 30, 2023 compared to the same prior year periods. This was primarily a result of the reversal of loss allowance following collection of TANESCO arrears of $5.6 million for Q3 2022 and for the nine months ended September 30, 2022.

- Capital expenditures increased by 140% for Q3 2023 and decreased by 68% for the nine months ended September 30, 2023 compared to the same prior year periods. The capital expenditures in Q1, Q2 and Q3 2023 primarily related to the 3D seismic acquisition program. The capital expenditures in Q1, Q2 and Q3 2022 primarily related to the well workover program.

- The third party contractor responsible for the 3D seismic acquisition program suspended its operations in Q3 2023. Subsequently, following the recall of acquisition equipment by the contractor’s suppliers, PanAfrican Energy Tanzania Limited ("PAET") issued a breach of contract notice to the contractor. The contractor has failed to remedy the breach under its agreement with PAET. The Company therefore terminated the contract on October 25, 2023.

- The Company has commenced detailed planning work to carry out a number of projects in Q4 2023 and 2024. Subject to equipment availability and necessary approvals, an intervention in the offshore well SS-7 is planned to take place in Q1 2024. The total expected cost of the project is $8.5 million which is subject to confirmation on receipt of final bids from suppliers. If successful, SS-7 is expected to initially deliver 20-25 MMcfd from the non-producing southern compartment. The Company is also planning to install a new common inlet manifold on the Songas processing plant at an estimated cost of $5.1 million during 2024 to improve the flow efficiency of wells to both the Songas and the National Gas Infrastructure ("NNGI") plants.

- Optimization studies have identified opportunities to improve production efficiencies at the Songas plant. A work program to deliver the initial benefits of this is now being planned for implementation during Q4 2023 and is estimated to cost $0.1 million. Production improvement of 5-10 MMcfd is forecasted to be achievable from this work. Furthermore, a production logging programme is being planned for Q1 2024 at an estimated cost of $1.0 million. This programme is currently targeting the SS-3, SS-5, SS-7 and SS-10 wells, where SS-4 may also be included at a later stage, and is expected to provide additional information to enable improved accuracy of forecasting future reservoir performance.

- Funding of capital projects will be from working capital. All capital allocation decisions will be based upon prudent economic evaluations and returns given the timeline of the existing license through to October 2026.

- The Company exited the period in a strong financial position with $64.3 million in working capital (December 31, 2022: $61.6 million), cash and cash equivalents of $101.7 million (December 31, 2022: $96.3 million) and long-term debt of $34.9 million (December 31, 2022: $39.8 million). Subsequent to September 30, 2023 the Company made a payment of $5.0 million, representing the third semi-annual repayments of the long-term debt.

- As at September 30, 2023 the current receivable from TANESCO was $0.1 million (December 31, 2022: $3.7 million). During Q3 2023 TANESCO paid the Company $3.4 million against the 2021 take or pay invoice. TANESCO have now settled all outstanding principal take or pay invoices (related interest balances remain outstanding). The TANESCO long-term receivable as at September 30, 2023 and as at December 31, 2022 was $22.0 million with a provision of $22.0 million. Subsequent to September 30, 2023 the Company has invoiced TANESCO $5.6 million for October 2023 gas deliveries and TANESCO has paid the Company $3.3 million to date.

- On February 24, 2023, the Company declared dividends of CDN$0.10 per share on each of its Class A common voting 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 March 31, 2023 paid on April 14, 2023. On May 17, 2023, the Company declared dividends of CDN$0.10 per share on each of its Class A Shares and Class B Shares for a total of $1.5 million to the holders of record as of June 30, 2023 paid on July 14, 2023.

- On August 16, 2023, the Company declared dividends of CDN$0.10 per share on each of its Class A Shares and Class B Shares for a total of $1.5 million to the holders of record as of September 29, 2023 paid on October 13, 2023.

- On November 1, 2023 the Company announced a normal course issuer bid (“2023 NCIB”) commencing on November 6, 2023, to purchase Class B Shares through the facilities of the TSXV and alternative trading systems in Canada. As at November 15, 2023 the Company has repurchased a total of 11,400 Class B Shares at a weighted average price of CDN$4.70 pursuant to the 2023 NCIB.

- During Q2 2023, the Company formally requested TPDC to initiate the process of extending the development license in accordance with the terms of the PSA. The Company continues to wait on a response from TPDC and is actively engaging with the GoT and TPDC to progress this matter and will maintain gas sale contract discipline going forward by operating in line with our gas supply agreements.

- On July 21, 2023, the Company has repurchased the 7.9% shares in the Company’s subsidiary, PAE PanAfrican Energy Corporation (“PAEM”), previously held by Swala (PAEM) Limited (“Swala UK”) for $7.5 million and the non-controlling interest was eliminated in Q3 2023.

- On August 5, 2022, the Fair Competition Commission of the United Republic of Tanzania (“FCC”) issued Provisional Findings with respect to an investigation the FCC initiated against Orca, PAEM, PAET and Swala UK and Swala Oil & Gas (Tanzania) plc (“Swala 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. In Q3 2023, the Company, PAEM and PAET entered into settlement negotiations with the FCC to settle allegations made under the Provisional Findings.


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