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 for the three month periods ended March 31, 2024 ("Q1 2024") with the Canadian securities regulatory authorities. All amounts are in United States dollars (“$”) unless otherwise stated.
Jay Lyons, Chief Executive Officer, commented:
“Despite the early onset of the wet season reducing demand from power customers this quarter and the impact of the devaluation of the Tanzanian shilling, I am pleased with Orca's performance on the business workstreams that are within the Company's control. Operationally, mobilization has commenced for the production logging program, targeting SS-3, SS-5, and SS-10, alongside with the planning of the well intervention for SS-7, subject to the availability of US dollars in Tanzania, contract agreements on the extension of the PGSA and contracting new gas sales from August 1, 2024. The success of these programs, coupled with other low-cost efficiency projects that are underway, are expected to maintain the Company's production levels, ensuring gas contracts are met.
As noted in our recent communications, this time remains a critical juncture for Orca, as we continue to strive towards agreeing to a framework and timeline for a license extension on the Songo Songo field. Orca has proven itself as a committed investor in Tanzania, and the extension of the license would allow the Company to plan for and execute a longer-term development solution, which enables Tanzania’s anticipated increased gas demands to be met for the foreseeable future, for the benefit of all stakeholders.”
Highlights
Revenue for Q1 2024 decreased by 18% compared to the same prior year period, primarily as a result of lower sales to the power sector.
Total gross conventional natural gas production, including fuel gas, averaged 113.1 MMcfd for Q1 2024, of which 74.3 MMcfd was Additional Gas. Gas deliveries decreased by 22% for Q1 2024 compared to the same prior year period. After 20 years of continuous production, natural gas deliverability from current producing wells and reservoir compartments in the Songo Songo field is declining. As a result of meeting significantly higher than forecasted demand in 2022 and early 2023, the concomitant reservoir pressure decline and the early onset of the wet season in 2024 (leading to increased availability of hydro power), liftings by power customers have been significantly lower in Q1 2024.
We currently forecast average Additional Gas sales for 2024 to be in the range of 80-90 MMcfd for the full year, based on current contracted volumes continuing and the end of the Protected Gas regime on July 31, 2024.
Discussions are ongoing with Songas Limited (“Songas”) and Tanzania Portland Cement PLC (“TPCPLC”) to negotiate new gas sales contracts from August 1, 2024 to sell the volumes which are currently supplied as Protected Gas under the Gas Agreement (as defined herein). The obligation to supply Protected Gas ends on July 31, 2024.
Discussions are also ongoing with the Tanzania Electricity Supply Company Limited (“TANESCO”) to extend the Portfolio Gas Supply Agreement (“PGSA”) between PanAfrican Energy Tanzania Limited (“PAET”), the Tanzania Petroleum Development Corporation (“TPDC”) and TANESCO. TANESCO has confirmed its intent to extend the PGSA to October 2026, however the timing of formal execution of the PGSA extension is not known at this stage.
Net income attributable to shareholders decreased by 72% for Q1 2024 compared to the same prior year period, primarily as a result of the decreased revenue and higher net foreign exchange loss due to the devaluation of the Tanzanian shilling and exchange conversions.
Net cash flows from operating activities decreased by 183% for Q1 2024 compared to the same prior year period, primarily as a result of negative changes in non-cash working capital, particularly increase in trade and other receivables.
Capital expenditures decreased by 14% for Q1 2024 compared to the same prior year period. The capital expenditures in Q1 2024 primarily related to the costs of the planned SS-7 well workover program. The capital expenditures in Q1 2023 primarily related to the 3D seismic acquisition program.
Mobilization has commenced for the production logging program planned in conjunction with the SS-7 intervention. Operations will commence early June 2024, at an estimated cost of $1.1 million. This work program will provide detailed reservoir information, in addition to annual pressure surveys, to improve the accuracy of forecasting future reservoir performance. The key targeted wells under this program are wells SS-3, SS-5 and SS-10.
An intervention in the offshore well SS-7 is planned to take place in 2024, subject to the continued ability to convert Tanzanian shillings to US dollars in Tanzania, and further subject to extension of the PGSA and contracting of new gas sales from August 1, 2024. Mobilization orders to Mombasa, Kenya have been issued to all suppliers and service providers. Following mobilization to Songo Songo Island, well site operations are expected to commence in Q3 2024, with a forecast return to production for the well in early Q4 2024. The total expected project cost has increased to $13.9 million from $8.5 million. The work program is designed to shut off water production which caused the well to die and be shut in from 2019. The cause of the water production is interpreted to be a failed cement bond outside the production liner which created a flow path for water into the well. If successful, the SS-7 well is expected to increase field deliverability by 20-25 MMcfd from the currently non-producing southern reservoir compartment.
The Company continues to carry out front-end engineering on the new common inlet manifold, which is designed to optimise gas flow between the Songas gas plant and the NNGI plant, both of which are supplied with gas from the Songo Songo gas field. This project is subject to final investment decision and stakeholder approvals, at an estimated cost of $5-6 million. If sanctioned to proceed, construction and installation is expected to occur in Q4 2024 - Q1 2025.
The Company successfully installed positive chokes on all wells, which increased field deliverability by 3-4 MMcfd. The Company continues to carry out studies to identify opportunities to improve the efficiency of operations at the Songas plant.
Funding of capital projects will be from working capital. All capital allocation decisions will be based upon access to US dollars and prudent economic evaluation to achieve the necessary return given the short time remaining on the PSA, which expires in October 2026.
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 Government Negotiating Committee held a preliminary meeting with the Company in March 2024 to discuss timing around negotiations. We await confirmation of these timings for negotiations. The Company continues to seek dialogue with TPDC and the Ministry of Energy to expedite license extension discussions and will maintain gas sales contract discipline going forward by operating in line with our gas supply agreements.
The Company exited the period with $73.0 million in working capital1 (December 31, 2023: $67.3 million), cash and cash equivalents of $93.9 million (December 31, 2023: $101.6 million) and long-term debt of $30.0 million (December 31, 2023: $30.0 million).
As at March 31, 2024, the current receivable from TANESCO was $10.0 million (December 31, 2022: $5.9 million). The TANESCO long-term receivable as at March 31, 2024 and as at December 31, 2023 was $22.0 million with a provision of $22.0 million. Subsequent to March 31, 2024 the Company has invoiced TANESCO $3.8 million for April 2024 gas deliveries and TANESCO has paid the Company $9.1 million to date.
In Q4 2023, the Company terminated the contract with the contractor responsible for the 3D seismic acquisition program on the basis that the contractor suspended its operations. On March 20, 2024 PAET received a summons from the Tanzanian High Court (Commercial Division) to file a written statement of defense against a claim made by the contractor for losses arising from PAET’s termination of the contract on October 25, 2023. The contractor seeks to claim $30.0 million for losses incurred plus legal costs, interest and general damages. The Company in consultation with its legal advisors believes that there are limited merits to the claim. In early May, the Company lodged its own counterclaim for specific damages of $5.5 million and general damages of $25.8 million.