Orca Energy Group Inc. ("Orca" or the "Company" and includes PanAfrican Energy Tanzania Limited ("PAET") and its other subsidiaries and affiliates) (TSX-V: ORC.A, ORC.B) announces the approval of its Independent Reserves Evaluation as at December 31, 2023. All currency amounts in this news release are in United States Dollars ($) unless otherwise stated.
INDEPENDENT RESERVES EVALUATION
The Company's conventional natural gas reserves as at December 31, 2023 for the period to the end of the primary 25-year term of the production sharing agreement (the "Songo Songo PSA") with the Tanzanian Petroleum Development Corporation (the "TPDC") have been evaluated by independent petroleum engineering consultants McDaniel & Associates Consultants Ltd. ("McDaniel") in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). The Songo Songo PSA expires upon the expiry of TPDC's Songo Songo licence in respect of the Songo Songo gas field (the "Songo Songo Licence") in October 2026. The preparation date of the independent reserves evaluation prepared by McDaniel is February 1, 2024 and the effective date of the evaluation is December 31, 2023 (the "McDaniel Report").
All of the Company's reserves are located in Tanzania. Reserves included herein are stated on a Company gross reserves basis unless noted otherwise. Company gross reserves are the total of the Company’s working interest share in reserves before deduction of royalties owned by others and without including any royalty interests of the Company, and are based on the Company's 100 percent ownership interest in the reserves following the 2023 transaction with Swala Oil & Gas (Tanzania) plc ("Swala") described in Note 3 to the tables below.
The Company's Board of Directors has reviewed and approved the McDaniel Report. Additional reserves information required under NI 51-101 is included in Orca's reports relating to reserves data and other oil and gas information under NI 51-101, which will be filed on its profile on SEDAR+ at www.sedarplus.ca. The following discussion is subject to a number of cautionary statements, assumptions, contingencies, and risks as set forth in this news release.
Total Proved (“1P”) Gross Company conventional natural gas reserves at year ended December 31, 2023, were 85 billion standard cubic feet ("Bcf") compared to 141 Bcf at year end 2022, representing a 40% decrease.
Total Proved plus Probable (“2P”) Gross Company conventional natural gas reserves at year ended December 31, 2023, were 94 Bcf compared to 167 Bcf at year end 2022, representing a 44% decrease.
The reduction in Gross Company 1P reserves from year end 2022 to year end 2023 was primarily attributed to 2023 production, declining reservoir pressures, removal of development capital and the number of years remaining on the current term of the Songo Songo Licence.
The reduction in Gross Company 1P reserves was partially offset by the 2023 acquisition of a 7.933% interest from Swala which increased the Company’s working interest share to 100% in the Songo Songo reserves.
The Company estimated gas sales of 31 Bcf in 2023, representing an increase of approximately 7% compared to year end 2022. This level of sales has resulted in accelerated natural pressure declines in the core compartments of the Songo Songo gas field over what was forecasted at the beginning of 2023.
In April 2023 PAET requested TPDC to apply for an extension to the Songo Songo Licence, as they are obliged to do under the terms of the Songo Songo PSA. Grant of an extension will enable ongoing investment to continue which will sustain production from existing compartments and bring additional pools in the field into production. Unfortunately, it appears as though TPDC has not made the application as at the date of the press release. Given the uncertainty associated with the extension of the Songo Songo Licence, it has been necessary to remove approximately US$55million of future development capital from the 2023 year end 1P reserve evaluation, as the associated projects are no longer economic in time remaining on the development licence (2.8 years from year end 2023). On this basis, the respective reserves associated with the removal of development capital have been reclassified as contingent resources pending receipt of a licence extension beyond October 2026 as provided for in The Petroleum Act, 2015 (the "Act").
Net present value of 1P future net revenue discounted at 10% was $108.4 million at year end 2023, compared to $147.2 million at year end 2022, representing a 26% decrease.
Net present value of 2P future net revenue discounted at 10% was $118.7 million at year end 2023, compared to $170.7 million at year end 2022, representing a 30% decrease.
The 26% reduction in net present value of 1P future net revenues from year end 2022 to year end 2023 was primarily attributed to lower reserves at year end 2023 and the associated 26% reduction in the number of years outstanding on the current Songo Songo Licence. The net present value impact of reserves reclassified to contingent resources was minimal due to the reduction in associated future development capital.
The following tables outline the Company's conventional natural gas reserves as at December 31, 2023 and the net present value of future net revenue attributable to such reserves as evaluated in the McDaniel Report utilizing McDaniel’s forecast price and cost assumptions to the end of the Songo Songo Licence term in October 2026.
McDaniel employed the following gas sales, pricing and inflation rate assumptions as of December 31, 2023 in estimating the Company's reserves data using forecast prices and costs. The Company received an average gas price of $4.52/Mcf in 2023 and $4.16/Mcf net of the transportation tariff imposed by Songas Limited as determined by the energy regulator, EWURA.
The price of gas for the Industrial sector is based on a formula related to discounts to heavy fuel oil prices and includes caps and floors. This has been reflected in the above pricing.