Orca Energy Group Inc. Announces 2022 Year End Audited Financial Results

TORTOLA, British Virgin Islands, April 26, 2023 (GLOBE NEWSWIRE) -- Orca Energy Group Inc. ("Orca" or "the Company" and includes its subsidiaries and affiliates) (TSX-V: ORC.A, ORC.B) today announced its audited financial results for the fourth quarter ("Q4 2022") and year ended December 31, 2022. All dollar amounts are in United States dollars unless otherwise stated.

• Revenue increased by 28% for Q4 2022 and by 37% for the year ended December 31, 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 34% for Q4 2022 and by 42% for the year ended December 31, 2022 compared to the same prior year periods. The increase in gross sales volume was primarily due to the increase in gas deliveries to the power sector customers, Tanzanian Petroleum Development Corporation ("TPDC") and Tanzania Electric Supply Company Limited ("TANESCO").
• Net income attributable to shareholders increased by 50% for Q4 2022 and by 69% for the year ended December 31, 2022 compared to the same prior year periods, primarily a result of the increased revenues and increased reversal of loss allowances related to the higher collection of arrears from TANESCO.
• Net cash flows from operating activities decreased by 17% for Q4 2022 and increased by 69% for the year ended December 31, 2022 compared to the same prior year periods. The decrease for Q4 2022 over the comparable prior year period was primarily a result of changes in non-cash working capital. The increase for the year ended December 31, 2022 was primarily a result of the increased revenue.
• Capital expenditures decreased by 71% for Q4 2022 and by 16% for the year ended December 31, 2022 compared to the same prior year periods. The capital expenditures in 2022 primarily related to completion of the three well workover program, the compression project and the commencement of the 3D seismic acquisition program.
• The Company completed installation and commissioning of feed gas compression on the Songas Limited ("Songas") gas processing plant in March 2022. This extended the Company’s ability to supply current demand at the maximum capacity of the Songas Infrastructure (being the infrastructure that enables the gas to be delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island) of approximately 100 MMcfd. The sustainability of this deliverability will be impacted by ongoing total demand including any additional volumes flowing through the National Natural Gas Infrastructure (“NNGI”) plant.
• In April 2022, the drilling rig was released having completed the planned well workover program on wells SS-3, SS-4 and SS-10. The $31.6 million program included the reactivation of the SS-3 well and the sidetrack of the SS-4 well to a new bottom hole location, 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 was unable to flow naturally due to liquid loading. A coiled tubing nitrogen lift and further testing was conducted on SS-4, however as of year-end it remains shut in pending further analysis of reservoir conditions.
• The installation of compression facilities and conduct of the workovers increased short term field production potential to approximately 155 MMcfd by routing some production through the adjacent NNGI facilities also located on Songo Songo Island. This enabled the Company to meet higher average demand levels in excess of 130 MMcfd from Q2 2022.
• The Company is currently carrying out a 3D seismic acquisition program, budgeted at $23.2 million in order to further evaluate the current reserves and contingent resources as well as the potential of prospective resources. This will be used to de-risk future development drilling opportunities and to evaluate the potential for future 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 shallow marine, transition zone and land based seismic over the Songo Songo license area. We anticipate that the acquisition of data will be completed by Q3 2023 and fast track data processing will be completed by Q4 2023.
• The Company successfully completed smart pigging of the SS-3, SS-4, SS-5, SS-7 and SS-9 flowlines, identifying a number of areas of corrosion and/or erosion. Immediate, low cost repairs of sections of flowline have been conducted and wells returned to operations with minimal impact on overall production. Further work will be conducted throughout 2023 to replace several other less critically affected sections.
• The Company exited the period in a strong financial position with $61.6 million in working capital⁽¹⁾ (December 31, 2021: $41.8 million), cash and cash equivalents of $96.3 million (December 31, 2021: $73.0 million) and long-term debt of $39.8 million (December 31, 2021: $49.6 million). The decrease in long-term debt was related to reclassification of $10.0 million of long-term debt into current liabilities as it becomes due in April and October 2023. Subsequent to December 31, 2022 the Company made a payment of $5.0 million, representing the second semi-annual repayments of its long-term debt.
• As at December 31, 2022 the current receivable from TANESCO was $3.7 million (December 31, 2021: $2.0 million). TANESCO’s long-term trade receivable as at December 31, 2022 was $22.0 million with a provision of $22.0 million (December 31, 2021: $26.5 million with a provision of $26.5 million). Subsequent to December 31, 2022 TANESCO paid the Company $11.1 million and the Company invoiced TANESCO $6.9 million for 2023 gas deliveries.
• On February 24, 2022, May 20, 2022, September 28, 2022 and November 16, 2022 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 $6.2 million to the holders of record as of March 31, 2022, June 30, 2022, October 14, 2022 and December 31, 2022 (paid on April 15, 2022, July 15, 2022, October 28, 2022 and January 13, 2023, respectively). Subsequent to December 31, 2022, on February 24, 2023 the Company declared a dividend 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 holders of record as of March 31, 2023 paid on April 14, 2023.
• 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.
• 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 (“Preference Shares”) by August 23, 2022, which were issued to the Company in accordance with the investment agreement dated December 29, 2017 (the “Investment Agreement”), between the Company, the Company’s subsidiary PAE PanAfrican Energy Corporation (“PAEM”) and Swala’s TZ subsidiary, Swala (PAEM) Limited (“Swala UK”). Swala TZ has responded to the Company’s redemption notice and is disputing its obligation to redeem the Preference Shares. On January 31, 2023, the Company issued a further redemption notice to Swala TZ, requesting that Swala TZ redeem a further 20% of the outstanding Preference Shares by February 15, 2023. As at December 31, 2022 and April 19, 2023, the redemption notice requests of the Company remain outstanding.
• On April 3, 2023, Swala TZ announced that a meeting of its creditors held on March 31,2023 resolved that Swala TZ be placed into liquidation. Also, on March 31,2023, Apex Corporate Trustees (UK) Limited appointed representatives of Grant Thornton UK LLP as administrators of Swala UK. The Company is evaluating its rights and options in response to Swala TZ being put into liquidation and Swala UK being put into administration.
• On August 5, 2022, the Fair Competition Commission of the United Republic of Tanzania (“FCC”) issued Provisional Findings with respect an investigation the FCC initiated against Orca, PAEM, PanAfrican Energy Tanzania Limited (“PAET”) and Swala UK and 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. On November 11, 2022, the FCC issued another letter to Orca, PAEM and PAET requesting a settlement plan be submitted to the FCC. The Company is optimistic that there is no merit to the allegations of the FCC against the Company and the matter can be settled soon.
• 2023 production started strongly, with gross gas sales averaging 94 MMcfd in Q1 2023. We anticipate our gross gas sales to average between 90 and 100 MMcfd during 2023, with a midpoint of 95 MMcfd.
• With the emergence of longer term high levels of gas demand, we are currently reforecasting our capital program to align with a potential longer term investment program. In the short term the 2023 forecast capital expenditure has been reduced to circa $38m.

Note: (1) See Non-Gaap Financial Measures and Ratios.

¹ See Non-GAAP Financial Measures and Ratios.

Jay Lyons, Chief Executive Officer, commented:

"2022 saw Orca increase its gas production volumes by 42% year-on-year, with revenue also growing by 37% during the period. This level of output growth satisfied the growing demand for domestic gas in Tanzania, supporting the country’s industrial and economic expansion. This is also demonstrative of the Company’s ability to plan ahead and deliver operationally.

We have commenced the $23 million 3D seismic acquisition program, which is an important workstream as it will further enhance our understanding of the asset, de-risking future exploration and development opportunities.

Orca continues to benefit from its strong financial position, ending the period with close to $100 million of cash and cash equivalents. The Company is committed to returning value to its shareholders and maintained its quarterly dividend payments in 2022, we currently expect to continue with this level of return in 2023.

We are busy with a number of operational workstreams that will guide us on how to optimally develop the field for the benefit of Tanzania, the local communities in and around where we operate, and our wider stakeholders. I look forward to updating the market on future developments over the coming months.”

The Company's complete Audited Consolidated Financial Statements and Notes and Management's Discussion & Analysis for the year ended December 31, 2022 may be found on the Company’s website www.orcaenergygroup.com or on the Company's profile on SEDAR at www.sedar.com.

Orca Energy Group Inc.

Orca Energy Group Inc. is an international public company engaged in natural gas development and supply in Tanzania through its subsidiary PanAfrican Energy Tanzania Limited. Orca trades on the TSX Venture Exchange under the trading symbols ORC.B and ORC.A.

*The principal asset of Orca is its indirect interest in the Production Sharing Agreement (“PSA”) with TPDC and the Government of Tanzania ("GoT") in the United Republic of Tanzania. This PSA covers the production and marketing of certain gas from the Songo Songo licence offshore Tanzania. The PSA defines the gas produced from the Songo Songo gas field as “Protected Gas” and “Additional Gas”. The Protected Gas is owned by TPDC and is sold under a 20-year gas agreement (until July 31, 2024) to Songas and Tanzania Portland Cement PLC. Songas is the owner of the infrastructure that enables the gas to be processed and delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island. Additional Gas is all gas that is produced from the Songo Songo gas field in excess of Protected Gas.

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Abbreviations

Non-GAAP Financial Measures and Ratios
In this press release, the Company has disclosed the following non-GAAP financial measures, non-GAAP ratios and supplementary financial measures: capital expenditures, operating netback, operating netback per mcf, working capital, net cash flows from operating activities per share and weighted average Class A and Class B Shares.

These non-GAAP financial measures and ratios disclosed in this press release do not have any standardized meaning under IFRS and may not be comparable to similar financial measures disclosed by other issuers. These non-GAAP financial measures and ratios should not, therefore, be considered in isolation or as a substitute for, or superior to, measures and ratios of Company’s financial performance defined or determined in accordance with IFRS. These non-GAAP financial measures and ratios are calculated on a consistent basis from period to period.

Non-GAAP Financial Measures

Capital expenditures
Capital expenditures is a useful measure as it provides an indication of our investment activities. The most directly comparable financial measure is net cash from (used in) investing activities. A reconciliation to the most directly comparable financial measure is as follows:   

Operating netback

Operating netback is calculated as revenue less processing and transportation tariffs, TPDC’s revenue share, and operating and distribution costs. The operating netback summarizes all costs that are associated with bringing the gas from the Songo Songo gas field to the market, it is a measure of profitability. A reconciliation to the most directly comparable financial measure is as follows:

Non-GAAP Ratios

Operating netback per mcf

Operating netback per mcf represent the profit margin associated with the production and sale of Additional Gas and is calculated by taking the operating netback and dividing it by the volume of Additional Gas delivered and sold. This is a key measure as it demonstrates the profit generated from each unit of production.

Supplementary Financial Measures

Working capital

Working capital is defined as current assets less current liabilities, as reported in the Company’s Consolidated Statements of Financial Position. It is an important measure as it indicated the Company’s ability to meet its financial obligations as they fall due.

Net cash flows from operating activities per share

Net cash flows from operating activities per share is calculated as net cash flows from operating activities divided by the weighted average number of shares, similar to the calculation of earnings per share. Net cash flow from operations is an important measure as it indicates the cash generated from the operations that is available to fund ongoing capital commitments.

Weighted average Class A and Class B Shares

In calculating the weighted average number of shares outstanding during any period the Company takes the opening balance multiplied by the number of days until the balance changes. It then takes the new balance and multiplies that by the number of days until the next change, or until the period end. The resulting multiples of shares and days are then aggregated and the total is divided by the total number of days in the period.

Forward-Looking Statements

This press release contains forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation. All statements, other than statements of historical fact included in this press release, which address activities, events or developments that Orca expects or anticipates to occur in the future, are forward-looking statements. Forward-looking statements often contain terms such as may, will, should, anticipate, expect, continue, estimate, believe, project, forecast, plan, intend, target, outlook, focus, could and similar words suggesting future outcomes or statements regarding an outlook. More particularly, this press release contains, without limitation, forward-looking statements pertaining to the following: anticipated gross gas sales for 2023 including midpoint sales; the ability for short-term production through the Songas Infrastructure to be sustained as a result of the installation of feed gas compression; the ability for the SS-4 well to flow following further analysis of reservoir conditions; anticipated production volumes and increased well deliverability as a result of the installation of compression on the Songas Infrastructure and the completion of the well workover program; the Company’s expectations regarding timing and cost for the completion of the 3D seismic acquisition program, including the completion of data acquisition and fast track data processing; the Company’s expectation that further work will be conducted on flowline of applicable wells; the timing and cost associated with the full flowline repairs required on the applicable wells; the Company’s proposal to acquire additional de-sanding units in 2023; the Company’s expectations regarding supply and demand of natural gas; the requirement to further develop the Songo Songo gas field to sustain production; current and potential production capacity of the Songo Songo gas field; the possibility that increased production rates will result in additional reserves being upgraded from contingent resources; the receipt of the payment of arrears from TANESCO; the Company’s ability to produce additional volumes; the potential impact on the Company resulting from the further spread of COVID-19; the Company’s assessment of the merits of the FCC claim and the timing for its resolution; the Company's forecast regarding the its capital program in 2023; the outcome of Swala TZ being put into liquidation and Swala UK being put into administration and the Company's options in connection therewith. In addition, statements relating to “reserves” are by their nature forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be produced profitably in the future. The recovery and reserve estimates of the Company’s reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Although management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, access to resources and infrastructure, performance or achievement since such expectations are inherently subject to significant business, economic, operational, competitive, political and social uncertainties and contingencies.

These forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company’s control, and many factors could cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking statements made by the Company, including, but not limited to: gross gas sales for 2023 including midpoint sales are lower than anticipated; failure to receive payments from TANESCO; risks related to the implementation of potential financing solutions to resolve the TANESCO arrears; risk of a lack of access to Songas processing and transportation facilities; risk that the Company may be unable to complete additional field development to support the Songo Songo production profile; risk that the Company may be unable to develop additional supply or increase production volumes; risk of reduced current and potential production capacity of the Songo Songo gas field; the Company’s expectations regarding the supply and demand of natural gas is incorrect; risks associated with the Company’s ability to complete sales of Additional Gas; negotiations with potential industrial customers for Additional Gas contracts are not successful; negative effect on the Company’s rights under the PSA and other agreements relating to its business in Tanzania as a result of recently enacted legislation, as well as the risk that such legislation will create additional costs and time connected with the Company’s business in Tanzania; risks regarding the uncertainty around evolution of Tanzanian legislation; incorrect assessment by the Company of the merits of the FCC claim; the risk of unanticipated effects regarding changes to the Company’s tax liabilities and its operations as a result of amendments made to existing legislation, the implementation of further legislation and the Company’s interpretation of the same; the impact of general economic conditions in the areas in which the Company operates; civil unrest; the susceptibility of the areas in which the Company operates to outbreaks of disease; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations, impact of local content regulations and variances in the interpretation and enforcement of such regulations; increased competition; the lack of availability of qualified personnel or management; fluctuations in commodity prices, foreign exchange or interest rates; the lack of availability of US dollars; occurrence of circumstance or events which significantly impact the Company’s cash flow and liquidity and the Company’s ability cover its long-term and short-term obligations; stock market volatility; competition for, among other things, capital, oil and gas field services and skilled personnel; failure to obtain required equipment for field development; delays in development plans; failure to obtain expected results from the drilling or workover of wells and the installation of compression on the Songas Infrastructure; effect of changes to the PSA on the Company as a result of the implementation of new government policies for the oil and gas industry; changes in laws; imprecision in reserve estimates; incorrect forecasts in production and growth potential of the Company’s assets; obtaining required approvals of regulatory authorities; failure to recommence production from SS-4; failure to complete the 3D seismic acquisition program, including the completion of data acquisition and fast track data processing on the timeline or at the cost anticipated; further work not conducted on flowline of applicable wells as planned; risks associated with negotiating with foreign governments; inability to satisfy debt conditions of financing; failure to successfully negotiate agreements; risk that the Company will not be able to fulfil its contractual obligations; risk that trade and other receivables may not be paid by the Company’s customers when due; the risk that the Company’s Tanzanian operations will not provide near term revenue earnings; reduced global economic activity as a result of the continuing impacts of COVID-19, including lower demand for natural gas and a reduction in the price of natural gas; incorrect assessment that there will be no material adverse impacts on the Company resulting from future spread of COVID-19 and any incorrect assumptions regarding potential future impact of continuing effects of COVID-19 on the health of the Company’s employees, contractors, suppliers, customers and other partners and the risk that the Company and/ or such persons are or may be restricted or prevented (as a result of quarantines, closures or otherwise) from conducting business activities for undetermined periods of time; the impact of actions taken by governments to reduce any potential future spread of COVID-19, including declaring states of emergency, imposing quarantines, border closures, temporary business closures for companies and industries deemed non-essential, significant travel restrictions and mandated social distancing, and the effect on the Company’s operations, access to customers and suppliers, availability of employees and other resources; and risk that the Company is unable to reacquire PAEM shares currently held by Swala UK and other negative consequences of the Swala TZ liquidation and Swala UK administration. In addition, there are risks and uncertainties associated with oil and gas operations, therefore the Company’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by these forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive.

Future shareholder returns, including but not limited to the payment of dividends or other distributions to shareholders, if any, and the level thereof is uncertain. Any decision to pay further distributions on the Class A Shares and Class B Shares (including the actual amount, the declaration date, the record date and the payment date in connection therewith) will be subject to the discretion of the Board of Directors of the Company and may depend on a variety of factors, including, without limitation the Company's business performance, financial condition, financial requirements, growth plans, expected capital requirements and other conditions existing at such future time including, without limitation, contractual restrictions and compliance with applicable laws. There can be no assurance that the Company will pay any distributions in the future.

Such forward-looking statements are based on certain assumptions made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors the Company believes are appropriate in the circumstances, including, but not limited to, the ability of the Company to negotiate Additional Gas sales contracts; the ability of the Company to complete additional developments and increase its production capacity; the actual costs to complete the Company’s workover program is in line with estimates; the impact of COVID-19 on the demand for and price of natural gas, volatility in financial markets, disruptions to global supply chains and the Company’s business, operations, access to customers and suppliers, availability of employees to carry out day-to-day operations, and other resources; that the Company will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that the Company will successfully negotiate agreements; receipt of required regulatory approvals; the ability of the Company to increase production as required to meet demand; infrastructure capacity; commodity prices will not deteriorate significantly; the ability of the Company to obtain equipment and services in a timely manner to carry out exploration, development and exploitation activities; future capital expenditures; availability of skilled labor; timing and amount of capital expenditures; uninterrupted access to infrastructure; the impact of increasing competition; conditions in general economic and financial markets; effects of regulation by governmental agencies; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated as described herein; the effect of new environmental and climate-change related regulations will not negatively impact the Company; the Company is able to maintain strong commercial relationships with the GoT and other state and parastatal organizations; the current and future administration in Tanzania continues to honor the terms of the PSA and the Company's other principal agreements; and other matters.

The forward-looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

For further information please contact:

Jay Lyons
Chief Executive Officer
+44 (0)20 8434 2754
jlyons@orcaenergygroup.com

Lisa Mitchell
Chief Financial Officer
+44 (0)20 8434 2754
lmitchell@orcaenergygroup.com

For media enquiries please contact: 

Mark Antelme
Jimmy Lea
+44 (0)20 8434 2754
orca@celicourt.uk