Orca Exploration has announced its focused strategy to grow an integrated gas business in Africa. Outcome of Strategic Review Process with the assistance of its financial advisor, RBC Capital Markets, the special committee of the Board of Directors have completed a thorough review of the options available to the Company to maximize shareholder value.
As part of the strategic review, board considered and evaluated a substantial issuer bid, a secondary listing of the Company’s shares on another exchange, a reorganization of the Company’s share capital, a secondary offering of the Company’s outstanding shares, and the acquisition of the Company or other arrangement, merger transaction or business combination with another company resulting in asset and/or jurisdiction diversification and a larger, more liquid market, for the equity of the combined company.
Based on the alternatives available to the Company, the Special Committee has recommended, and the Board of Directors has concluded, that it is in the best interests of the Company and its shareholders to continue operating as an independent company with a view to enhancing value to its shareholders through a balanced approach, focused on:
- Return of Capital: The return of retained cash to shareholders in the form of share repurchases and/or dividends.
- Value Maximization of the Songo Songo Production Licence: The continued value maximization and monetization of the Company’s rights to develop the Songo Songo natural gas field in Tanzania; and
- Sustainable Growth: Strategic reinvestment utilizing the Company’s core competency to develop a sustainable, integrated gas business in Africa with accretive returns.
“We believe that the decision to focus on generating material returns for shareholders via organic growth and strategic reinvestment of retained capital into other African gas opportunities, will enable the Board of Directors and management to deliver accretive value to shareholders going forward,” said Nigel Friend, Chief Executive Officer.
In conjunction with the announcement of this strategy, the Company said it intends to return a portion of its excess cash to shareholders through a substantial issuer bid. The Company also plans to introduce a dividend policy in the first half of 2020 providing for regular dividends determined on an annual basis, and will assess from time-to-time incremental returns of capital to shareholders relative to the merits of available investment opportunities.
“We are pleased to have concluded the strategic review process. On the back of our strong performance in 2019, it is now the right time to return a portion of our retained cash back to shareholders through a substantial issuer bid. The prudent management of capital and regular distributions to our shareholders will continue to be a core part of our strategy. Given the strength of Orca’s operations and the Company’s balance sheet, we are well placed to deliver on the agreed mandate outlined by the strategic review process.”
At the same time Orca has announced that a Letter of Instruction was signed with an international contractor on 23rd December 2019 with significant presence and experience in Tanzania for the commencement of detailed engineering and design for the compression project. Orca adds that a definitive agreement for the project is expected to be signed by the end of February 2020 on a fixed price, turnkey basis with a forecast that compression will be operational by the end of 2021 and cost approximately US$38 million of which US$34.2 million is forecasted to be spent in 2020
“To sustain current levels of production beyond 2020, it will be necessary to install compression facilities to optimize throughput capacity of the Songas facilities over the remaining term of the PSA and underlying licence. Failure to incorporate compression would lead to a significant loss in production through the Songas facilities as field pressure declines below the level required to deliver gas to the power sector in Dar es Salaam and our industrial customers over time,: reads the announcement.
At the same time the Board of Directors has approved debottlenecking the flow-line infrastructure to increase production potential from the SS-10 and SS-11 wells (both of which are owned by the Company) at an estimated cost of US$1.3 million to be incurred in 2020.
It is estimated that Orca will need to invest approximately US$80.2 million in debottlenecking, compression and workovers to sustain and meet the anticipated gas demand profile over the remaining term of the PSA. The Board of Directors has approved US$39.3 million of this forecasted capital expenditure amount (US$35.5 million for 2020 and US$3.8 million for 2021). Orca says it intends to recover investments of sustaining capital from net revenues under the cost recovery mechanism in the PSA.
The Government of Tanzania is currently reviewing for potential renegotiation the terms of all existing licences and related production sharing agreements for the exploration, development and production of oil and gas in Tanzania with its conclusions and plans expected during the first half of 2020. According to pundits this may result in the Government seeking to re-negotiate the terms of our existing PSA.