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Orca Energy: Impasse in gas negotiations with Tanzania

Orca Energy, via PanAfrican Energy Tanzania, has not found a solution to the negotiations with Tanzania Petroleum Development Corporation concerning the gas sales contract and the Songo Songo license extension.

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Orca Energy Group, through its subsidiary PanAfrican Energy Tanzania Limited (PAET), is encountering difficulties in its gas sales contract and development license extension discussions with Tanzania Petroleum Development Corporation (TPDC).
These negotiations are essential for PAET’s operations on the Songo Songo gas field in Tanzania, governed by the Production Sharing Agreement (PSA) and Gas Agreement (GA) signed in 2001.
Since April 2023, PAET has officially requested TPDC to renew the Songo Songo development license, a request that remains unanswered to this day.
Under the terms of the GA, protected gas production was due to end on July 31, 2024, after which any gas produced would become additional gas, for which PAET holds exclusive development and sales rights.

Contested extension of Protected Gas

On April 15, 2024, the Permanent Secretary to the Tanzanian Minister of Energy ordered TPDC to extend protected gas production until October 10, 2026, contrary to the terms of the original agreement.
PAET and its legal advisors, including Boies Schiller Flexner LLP, are currently examining possible remedies if no agreement is reached by July 31, 2024.
At the same time, demand for natural gas has fallen due to a temporary increase in hydroelectric production, caused by abundant rainfall in Tanzania, which has reduced Songo Songo’s gas production levels below forecasts.

Revised Forecasts and Investments

As a result of falling demand, Orca has revised its forecast for additional gas sales in 2024 downwards, from 80-90 MMcfd to 70-80 MMcfd.
This revision assumes that the protected gas regime ends on July 31, 2024.
Orca plans capital expenditures of $22 million for 2024, including an intervention on the SS-7 well and production testing.
Deliveries of equipment for the SS-7 well intervention are progressing despite a slight delay caused by social unrest in Kenya.
The start of this intervention is now scheduled for the third quarter of 2024, subject to the signature and extension of the gas sales agreement with TANESCO until October 10, 2026.

Financial position

At June 30, 2024, Orca had working capital of $68.6 million and cash of $97.2 million.
TANESCO’s current receivable is $6.3 million, with an expected billing of $3.5 million for July 2024 gas deliveries.
Orca is currently reviewing all discretionary costs to conserve cash.

Impact and prospects

The current situation between Orca and TPDC raises questions about the stability of energy agreements in Tanzania.
The unilateral extension of protected gas production by the Tanzanian government could affect the confidence of international investors in the country’s energy sector.
Resolving this impasse is crucial for the future of PAET’s operations in Tanzania.
Decisions taken in the coming months will determine the company’s strategic direction and its role in the Tanzanian gas market.

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