TANZANIA: Orca Energy Provides Operational Update

OPERATIONAL

Production

• Gross sales of conventional natural gas, classified as Additional Gas (as defined in the PSA (as defined herein)) (“gas sales”) averaged 95.5 MMscfd during Q4 2022 which increased average gas sales to 86.8 MMscfd for the year 2022, representing a 42% increase from 2021. 
• Orca forecasts average gross gas sales of 95.0 MMscfd during 2023, representing a 9% increase over 2022 sales of 86.8 MMscfd and a 55% increase over 2021 sales of 61.1 MMscfd.  The increased gas demand forecast is primarily driven by the requirements of the Tanzanian Ministry of Energy, Tanzania Petroleum Development Corporation (TPDC) and Tanzanian Electric Supply Company Limited (TANESCO) for gas supply to support growing demand for gas to power, due in part to lower than normal rainfall in  Tanzanian and supply going to new generation facilities, which were commissioned during 2022.
• During the Q4 2022 further testing of the SS-4 well took place following completion of the well workover program. At year-end 2022 the SS-4 well was shut in due to pressure buildup, and further testing is expected to occur in 2023.

Demand Growth

• From Q2 2022 to the end of Q3 2022, overall demand from the Songo Songo gas field increased to 120-130 MMscfd from the previous historic highs of 100-110 MMscfd within days of commissioning the inlet compression at the Songas gas plant. This increased demand was sustained from Q2 2022 to the end of Q3 2022 due in part to drought conditions in 2022 in Tanzania.
• Early in Q4 2022 TPDC and TANESCO requested supply of a further 20 MMscfd to supply the Kinyerezi 1 power plant extension, bringing total field offtake close to the maximum deliverability of 150+MMscfd. Orca was pleased to support this request and as a result is now supplying approximately 71% total domestic gas production in Tanzania, supporting around 50% of total power generation in the country.
• We are currently discussing the sustainability of this increased demand with TPDC and TANESCO to evaluate options for further development of the Songo Songo gas field to meet this potential longer-term gas supply requirements.
• These options to increase sustainable demand include accelerated well workovers, infill wells to existing field compartments, new development wells in new areas of the field and the addition of further compression to the upstream plants.

Seismic Program

• The Company is currently carrying out a 3D seismic acquisition program, budgeted at $22.1 million in order to de-risk future development drilling and to evaluate the potential of prospective resources for 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 marine, transition zone and land based seismic over the Songo Songo license area. As at December 31, 2022 line cutting for the land portion of the survey was in progress and mobilization and commissioning of the marine equipment was ongoing; all in preparation for commencement of the acquisition program in early 2023.

Jay Lyons, Chief Executive Officer, commented:

“I am pleased to report that Orca continued to deliver operationally at the end of 2022 and into 2023. The Company increased gas sales by 42% over the course of 2022, compared with the previous year. We continue to respond to record high gas demand in Tanzania, which we are doing our best to supply. As such, we anticipate our gross gas sales to average between 90 and 100 MMscfd during 2023, with a midpoint of 95 MMscfd. In order to sustain this increased demand, further investment is required in addition to the $22.1 million the Company is currently spending on a 3D seismic acquisition program, which is designed to de-risk future drilling and field development. The Company prepared and approved an initial 2023 firm and contingent capital budget of $53.5 million to complete and process the 3D seismic, install additional compression, install additional sand control equipment, replace aging flow lines and prepare for a potential 2024 development drilling program including the procurement of long lead items.  However, with the emergence of longer term high levels of gas demand and discussions with our Tanzanian partners, we are currently revisiting the 2023 capital program to align with a potential longer term investment program including near term discussions on a development licence renewal. 

Financially, we continue to benefit from a strong balance sheet, with $96.3 million of cash and cash equivalents at year end and with increasing gas sales, our revenues will remain at elevated levels. This affords the Company the financial flexibility to fund longer term production growth opportunities at Songo Songo Island, to support Tanzania’s growing economy, while maintaining a strong balance sheet and shareholder returns.”