Orca Energy Group Inc. ("
Orca" or the
"
Company" and includes its subsidiaries and
affiliates) (TSX-V: ORC.A, ORC.B) announces an update that its 100%
wholly-owned subsidiary PanAfrican Energy Tanzania Limited
("
PAET") has failed to reach a commercial
resolution of the outstanding gas sales contract negotiations and
license extension with Tanzania Petroleum Development Corporation
("
TPDC"), a petroleum corporation owned and
controlled by the United Republic of Tanzania
("
Tanzania"), and the Government of the United
Republic of Tanzania ("
Government of Tanzania")
under the (i) the Production Sharing Agreement between the
Government of Tanzania, TPDC, and PAET dated October 11, 2001 (the
"
PSA"), and (ii) the terms and conditions set
forth in the Gas Agreement between the Government of Tanzania,
TPDC, Songas Limited ("
Songas") and PAET dated
October 11, 2001 (the "
GA"). All amounts set forth
herein are in United States dollars ("
$") unless
otherwise stated.
Update on Negotiations
On April 14, 2023, PAET formally requested TPDC
to apply for an extension of the Songo Songo Development License
(the "License"), which as of the date of this news
release TPDC has not done.
In 2001, TPDC assigned to Songas the exclusive
right to explore for and develop "Protected Gas" (as defined below)
from certain specified blocks within the Field (the
"Discovery Blocks"). Under the terms of the GA,
Protected Gas ceases on July 31, 2024, with all gas produced from
the Songo Songo field after that date being treated as “Additional
Gas” (as defined below) which PAET enjoys the exclusive right to
develop and sell (jointly with TPDC) on commercial terms.
On April 15, 2024, contrary to the terms of the
GA and PSA and in violation of PAEM and PAET's legitimate
expectations, the Permanent Secretary of the Minister of Energy of
Tanzania wrote to TPDC, copying PAET and Songas, directing TPDC to
"ensure that Protected Gas continue to be produced to the end of
the Development Licence on 10th October 2026". Consistent with that
instruction, TPDC has taken the position that Protected Gas should
continue and despite the parties' contractual agreement that
Protected Gas would end on July 31, 2024.
On July 26, 2024, TPDC sent several letters to
PAET and Songas in which it clearly indicated that it will continue
to treat any natural gas produced from the Discovery Blocks after
July 31, 2024 as Protected Gas, including its stated intention to
extend the transfer and assignment to Songas of the right to
explore for and develop Protected Gas. PAET has confirmed that it
will not consent to such an amendment.
The Company is actively engaged with its legal
counsel, Boies Schiller Flexner LLP, Gowling WLG, and Burnet,
Duckworth & Palmer LLP, on its various legal remedies if the
stakeholders fail to reach a commercial resolution by July 31,
2024.
Updated Guidance
Operations
- Following high levels of rainfall
in Tanzania, the country has witnessed a short-term spike in
hydropower generation, which has impacted demand for natural gas.
Low demand downstream due to ongoing testing of the third turbine
at the Julius Nyerere Hydro Dam has also impacted natural gas
demand. This has led to lower than anticipated natural gas
production levels from the Songo Songo gas field from April 1, 2024
to date.
- In light of this, Orca is lowering
its forecast average Additional Gas sales for 2024 from the range
of 80-90 MMcfd to 70-80 MMcfd for the full year. This revised
forecast assumes the Protected Gas regime ends on July 31, 2024 and
all gas from August 1, 2024 is Additional Gas.
- Vendor shipments for equipment
relating to the SS-7 well intervention continue to progress. Social
unrest in Kenya caused a minor delay to the shipments, but the
expected start date for the intervention is now early Q3 2024.
Proceeding with this project assumes the TANESCO Power Gas Sales
Agreement (“PGSA”) is signed and extended from July 31,2024 to
October 10, 2026.
- Discussions are also ongoing with
the Tanzania Electricity Supply Company Limited
(“TANESCO”) to extend the Portfolio Gas Supply
Agreement (“PGSA”) between PAET, the Tanzania
Petroleum Development Corporation (“TPDC”) and
TANESCO. The existing PGSA expires on July 31, 2024. TANESCO has
confirmed its intent to extend the PGSA to October 2026, however,
the timing of formal execution of the PGSA extension is still
unknown. We are hopeful the extension to the contract will be
executed before this date.
- Total forecast capital spend for
2024 is $$22 million comprising the SS-7 well intervention ($16.8
million), production logging testing ($1.2 million ), and $3.2
million on flowline replacement.
Financial
- As at June 30 2024, Orca's working
capital was $68.6 million and cash and cash equivalents was $97.2
million.
- As at June 30, 2024, the current
receivable from TANESCO was $6.3 million (December 31, 2022: $5.9
million). The TANESCO long-term receivable as at June 30, 2024 and
as at December 31, 2023 was $22.0 million with a provision of $22.0
million. Subsequent to June 30, 2024, the Company is expected to
invoice TANESCO $3.5 million for July 2024 gas deliveries; TANESCO
has paid the Company $4.0 million to date.
- The Company will review all
discretionary costs during the current budget process to conserve
cash as an interim measure.
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 PSA with TPDC and the Government of Tanzania in the
United Republic of Tanzania. This PSA covers the production and
marketing of certain conventional natural gas from the Songo Songo
license offshore Tanzania. The PSA defines the gas produced from
the Field as "Protected Gas" and "Additional Gas". The Protected
Gas is owned by TPDC and is sold under the GA (until July 31, 2024)
to Songas and Tanzania Portland Cement PLC. Protected
Gas production ceases following July 31, 2024. 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 Field in excess of Protected Gas.
For further information please contact:
Jay Lyonsir@orcaenergygroup.com
Lisa Mitchellir@orcaenergygroup.com
For media enquiries:Celicourt (PR)Jimmy LeaMark
AntelmeOrca@celicourt.uk +44 (0)20 7770 6424
Forward-Looking Information
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:
forecast average Additional Gas sales for 2024; expected start date
for the SS-7 well intervention; total forecast capital spending for
2024; and expectations regarding the execution of the PGSA.
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, results of
negotiation, results from arbitration, amount of damages or costs
incurred by the Company relating to negotiations and/or
arbitration, 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: uncertainties involving the
negotiation of new commercial terms under the GA and PSA and
necessary requirements; various uncertainties involved in the
extension of the License and execution of material contracts
expiring on July 31, 2024; negative effect on the Company's rights
under the PSA and other agreements relating to its business in
Tanzania; changes in laws and regulations; impact of local content
regulations and variances in the interpretation and enforcement of
such regulations; uncertainty regarding results through
negotiations and/or exercise of legally available remedies; failure
to successfully negotiate agreements, including new commercial
terms under the GA and PSA; risks of non-payment by recipients of
natural gas supplied by the Company; changes in national and local
government legislation, taxation, controls, or regulations and/or
changes in the administration of laws, policies, and practices,
expropriation or nationalization of property and political or
economic developments in Tanzania; lack of certainty with respect
to foreign legal systems, corruption, and other factors that are
inconsistent with the rule of law; risk of loss due to acts of war,
terrorism, sabotage and civil disturbances; timing of receipt of,
or failure to comply with, necessary permits and approvals; and
potential damage to the Company’s reputation due to the actual or
perceived occurrence of any number of events, including negative
publicity with respect to the Company’s dealings with the
Government of Tanzania, TPDC and TANESCO, whether true or not.
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.
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 Company's relationship with TPDC and the Government
of Tanzania; the current status of negotiations in respect of the
GA and PSA; accurate assessment by the Company of the merits of its
rights and obligations in relation to TPDC and the Government of
Tanzania and other stakeholders in the Songo Songo gas field;
receipt of required regulatory approvals; the Company's ability to
maintain strong commercial relationships with the Government of
Tanzania and other state and parastatal organizations and other
stakeholders in the Songo Songo gas field; 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 of this news release 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.