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Orca Energy Group Inc. Announces Completion of its Q3 2020 Interim Filings

TORTOLA, British Virgin Islands, Nov. 18, 2020 (GLOBE NEWSWIRE) — Orca Energy Group Inc. (“Orca” or “the Company” and includes its subsidiaries and affiliates) (TSX-V: ORC.A, ORC.B) today announces it has filed its condensed consolidated interim financial statements and management’s discussion and analysis for the three and nine month periods ended September 30, 2020 with the Canadian securities regulatory authorities. All amounts are in United States dollars (“$”) unless otherwise stated. On August 3, 2020 the Company signed a contract for installation of compression on the Songas Limited (“Songas”) gas processing facility for a total value of $38 million, of which $13.3 million has been spent to date. Compression is currently planned for installation prior to the end of Q2 2022 and will allow maximum production volumes of approximately 102 MMcfd to be sustained through the Songas plant, with the possibility to expand well deliverability to 172 MMcfd by increasing the amount of gas currently being delivered through the National Natural Gas Infrastructure (“NNGI”). The forecasted expenditures under this contract are $11.4 million in Q4 2020 to initiate the purchase of long-lead items, $9.5 million in 2021 upon delivery and inspection of the equipment and $3.8 million in 2022 upon completion of installation and testing.During Q3 2020, the Company announced its intention to focus solely on maximizing value for stakeholders by optimizing and monetizing the Company’s rights to develop the Songo Songo gas field in Tanzania and to suspend ongoing efforts to acquire and develop an integrated gas business in other African countries. Since February 2018, the Company has distributed approximately CDN$92 million in dividends and share buybacks and maximizing shareholder returns and regular distributions will continue to be a core part of our strategy moving forward.Revenue decreased by 3% for Q3 2020 to $20.9 million and by 10% for the nine months ended September 30, 2020 to $55.9 million compared to the same prior year periods. The decrease is primarily a result of decreased sales to the Tanzanian Electric Supply Company Limited (“TANESCO”) under the Portfolio Gas Sales Agreement (“PGSA”) and a smaller current income tax adjustment due to lower gross field revenues. Gas deliveries decreased by 4% for Q3 2020 and by 7% for the nine months ended September 30, 2020 compared to the same prior year periods. The decrease in gas delivery volumes was primarily due to the increase in hydro power generated during the first eight months of the year as a result of higher than normal rainfall in 2020 compared to 2019. Gas delivery volumes returned to normal levels in September 2020 with the beginning of the dry season and corresponding reduction in available hydro power.Net income attributable to shareholders decreased 42% for Q3 2020 to $1.5 million but increased 65% for the nine months ended September 30, 2020 to $20.4 million compared to the same prior year periods. The decrease for Q3 2020 was primarily a consequence of the decrease in revenue and an increase in finance expense. The finance expense increase is primarily a result of the Tanzanian Revenue Authority (“TRA”) issuing an Agency Notice for $5.3 million obligating the Company’s bank to release funds from the Company’s bank account to the TRA. The Company’s view, supported by its legal advisors, is that this action was inappropriate as the dispute is still in process. Based on the opinion of the legal advisors that the Company has better than a 50% chance of winning the dispute associated with the Agency Notice, the Company has recorded a receivable from TRA for the amount taken from our bank account. This receivable has been fully provided for as the timing for collecting the receivable is uncertain. The increase in net income for the nine months ended September 30, 2020 was primarily due to the collection of $16.4 million of TANESCO ($1.6 million in the current quarter) and $1.0 million of Songas arrears previously provided for offsetting the decrease in revenue during the period.Net cash flows from operating activities increased 68% for Q3 2020 to $12.8 million but decreased by 9% for the nine months ended September 30, 2020 to $27.1 million compared to the same prior year periods. The fluctuations are primarily a result of changes in non-cash operating working capital. The increase in Q3 2020 is primarily a consequence of the decrease in trade and other receivables while the decrease for the nine months ended September 30, 2020 was primarily due to the payment of Additional Profit Tax (“APT”) of $11.9 million in Q1 2020.Adjusted funds flow from operations1 increased by 16% for Q3 2020 to $11.8 million and decreased by 10% for the nine months ended September 30, 2020 to $26.8 million compared to the same prior year periods. The increase in Q3 2020 is primarily a result of the 19% increase in operating netback1 over Q3 2019 which offset the 3% decrease in revenue during the same periods. The decrease between the nine month periods is primarily related to the decrease in revenue.Capital expenditures for Q3 2020 were $9.4 million (Q3 2019: $0.7 million) and $10.9 million for the nine months ended September 30, 2020 (nine months ended September 30, 2019: $3.2 million). The capital expenditures in 2020 primarily relate to the flowline decoupling construction and payments under the compression contract. The capital expenditures in 2019 primarily relate to the refrigeration project for the Songas plant infrastructure.The Company exited the period in a stable financial position with $79.2 million in working capital (December 31, 2019: $107.0 million), cash and cash equivalents of $98.5 million (December 31, 2019: $93.9 million), short-term investments of $ nil (December 31, 2019: $44.8 million) and long-term debt of $54.2 million (December 31, 2019: $54.1 million). The decrease in working capital and short-term investments was primarily related to the substantial issuer bid (“SIB”) completed in March 2020.As at September 30, 2020 the current receivable from TANESCO was $ nil (December 31, 2019: $ nil). TANESCO’s long-term trade receivable as at September 30, 2020 was $31.0 million with a provision of $31.0 million compared to $47.5 million (provision of $47.5 million) as at December 31, 2019. Subsequent to September 30, 2020 the Company has invoiced TANESCO $2.7 million for October 2020 gas deliveries and TANESCO has paid the Company $3.7 million.The Company declared dividends of CDN$0.06 per share on each of its Class A common voting shares (“Class A Shares”) and Class B subordinate voting shares (“Class B Shares”) for a total of $2.5 million to the holders of record as of March 31, 2020 and June 30, 2020 (paid on April 30, 2020 and July 15, 2020 respectively). On September 17, 2020 the Company declared a dividend of CDN$0.08 per share on each of its Class A Shares and Class B Shares for a total of $1.6 million to the holders of record as of September 30, 2020 paid on October 15, 2020.On March 12, 2020 the Company announced the results of the substantial issuer bid (“SIB”) where it took up and paid for 7,692,297 Class B Shares at CDN$6.50 per Class B Share. The aggregate purchase of Class B Shares totalled CDN$50.0 million representing 23.6% of the Company issued and outstanding Class B Shares and 22.4% of the total number of the Company issued and outstanding shares.On April 6, 2020 Orca received approval from the TSX Venture Exchange (“TSXV”) to amend its normal course issuer bid (“NCIB”) commenced on June 14, 2019 to allow it to purchase additional Class B Shares through the facilities of the TSXV and alternative trading systems in Canada. On June 19, 2020 Orca announced the completion of the NCIB under which Orca repurchased 477,500 Class B Shares at a weighted average price of CDN$5.32 per Class B Share for aggregate consideration of approximately CDN$2.5 million. 1 Operating netback and adjusted funds flow from operations are non-GAAP financial measures. See Non-GAAP Measures. Jay Lyons, Interim Chief Executive Officer, commented: “Despite the challenging backdrop, we are very pleased with Orca’s performance to date in 2020. Due to the higher than normal rainfall for the first eight months of the year, Orca was marginally impacted by the increase in hydro power generation due to the higher than normal rainfall. However, production in September returned to normal levels and we expect cash flow and revenues to remain strong for the remainder of the year. We are nearing completion of the engineering phase for our $38 million compression project and expect to make the next payment of $11.4 million for long-lead items before year end. We are working closely with our partner, the Tanzanian Petroleum Development Corporation, to ensure that production continues to meet demand going forward.  The continued maintenance of a reliable gas supply from our Songo Songo field will be critical to sustaining economic growth in Tanzania, and we are proud of our role in ensuring the country’s energy security. Finally, in connection with the Company’s change in strategic direction, the Board of Directors accepted the resignation of Pierre Raillard as Head of Business Development during Q3 2020. Pierre was involved in managing the Company’s business in Tanzania and made significant contributions to Orca’s strategic thinking since rejoining the Company in 2018. On behalf of the Board of Directors, we thank Pierre for his contributions and wish him every success in his future endeavours.” Financial and Operating Highlights for the Three and Nine Months Ended September 30, 2020  Three monthsended September 30% ChangeNine monthsended September 30% Change(Expressed in $’000 unless indicated otherwise)20202019Q3/20 vsQ3/1920202019Ytd/20 vsYtd/19OPERATING      Daily average gas delivered and sold (MMcfd)60.963.4(4)%56.060.5(7)%Industrial13.415.1(11)%12.813.3(4)%Power47.548.3(2)%43.247.2(8)%Average price ($/mcf)      Industrial7.417.84(5)%7.418.03(8)%Power3.463.48(1)%3.453.421%Weighted average4.334.52(4)%4.364.44(2)%Operating netback ($/mcf)12.982.5019%2.702.604%FINANCIAL      Revenue20,85921,453(3)%55,89462,383(10)%Net income attributable to shareholders1,4872,583(42)%20,38612,35565%per share – basic and diluted ($)0.060.07(14)%0.720.35106%Net cash flows from operating activities12,7937,60368%27,13629,822(9)%per share – basic and diluted ($)0.480.22118%0.950.8512%Adjusted funds flow from operations111,84710,18016%26,79629,734(10)%per share – basic and diluted ($)0.440.2952%0.930.859%Capital expenditures9,4126521,344%10,9063,157245%Weighted average Class A and Class B Shares (‘000)26,13834,914(25)%28,38134,931(19)%           September 30,As at December 31,     20202019% ChangeWorking capital (including cash)   79,236106,972(26)%Cash and cash equivalents   98,53493,8995%Investments in short-term bonds   -44,756(100)%Long-term loan   54,19154,0570%Outstanding shares (‘000)      Class A   1,7501,7500%Class B   24,38832,557(25)%Total shares outstanding   26,13834,307(24)% 1Adjusted funds flow from operations and operating netback are non-GAAP financial measures which may not be comparable to other companies. Please refer to non-GAAP financial measures below. Certain prior year amounts for adjusted funds flow from operations have been reclassified to conform with the current year presentation. Abbreviations Mcfthousand standard cubic feetMMcfdmillion standard cubic feet per day The complete Interim Consolidated Financial Statements and Notes and Management’s Discussion & Analysis may be found on the Company’s website www.orcaenergygroup.com or on the Company’s profile on SEDAR at www.sedar.com. Orca Energy Group Inc. Orca Energy Group Inc. is an international public company engaged in natural gas exploration, 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. For further information please contact: Jay LyonsBlaine KarstInterim Chief Executive OfficerChief Financial Officer+44-7798-502316  +44-7471-902734jlyons@orcaenergygroup.combkarst@orcaenergygroup.com  For media enquiries please contact: Mark Antelme Jimmy Lea +44 (0)20 8434 2754 orca@celicourt.uk  Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. Non-GAAP Measures The Company evaluates its performance using a number of non-GAAP (generally accepted accounting principles) measures. These non-GAAP measures are not standardized and therefore may not be comparable to similar measurements of other entities. Adjusted funds flow from operations represents net cash flows from operating activities less interest expense and before changes in non-cash working capital. Management uses this as a performance measure that represents the company’s ability to generate sufficient cash flow to fund capital expenditures and/or service debt.  Three months endedSeptember 30Nine months endedSeptember 30$’0002020 2019 2020 2019 Net cash flows from operating activities12,793 7,603 27,136 29,822 Interest expense(1,361)(2,279)(5,517)(6,658)Finance income – collection of TANESCO arrears(1,567)– (16,427)(3,498)Finance income – collection of disputed Songas receivables– – (1,046)– Changes in non-cash working capital1,982 4,856 22,650 10,068 Adjusted funds flow from operations11,847                 10,180 26,796 29,734  Operating netbacks represent the profit margin associated with the production and sale of gas and is calculated as revenues less processing and transportation tariffs, TPDC’s revenue share, operating and distribution costs per one thousand standard cubic feet of Additional Gas. This is a key measure as it demonstrates the profit generated from each unit of production.Adjusted funds flow from operations per share is calculated on the basis of the adjusted funds flow from operations divided by the weighted average number of shares, similar to the calculation of earnings per share.Net cash flows from operating activities per share is calculated as net cash flows from operating activities divided by the weighted average number of shares, similar to the calculation of earnings per share. FORWARD LOOKING INFORMATION This press release contains forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation. More particularly, this press release contains, without limitation, forward-looking statements pertaining to the following: timing of installation of compression on the Songas gas processing facility; expectations regarding production volumes through the Songas gas processing facility; expanding well deliverability and the amount of gas being delivered through the NNGI; expectations regarding the Company’s chances of winning the dispute associated with the Agency Notice; expectations and assumptions regarding installation of compression, production volumes and expanded well deliverability through the NNGI as a result of compression; expectations regarding cash flow and revenues; timing of payments for the compression project; the commitment to ensuring undisrupted gas production operations; and the Company’s role in providing a reliable gas supply in Tanzania. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Although management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement 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, the ability of the Company to complete developments and increase its production capacity; the actual costs to complete the Company’s projects; that there will continue to be no restrictions on the movement of cash from Jersey, Mauritius or Tanzania; there will be no further action taken by TRA through the use of Agency Notices to seize funds; infrastructure capacity and uninterrupted access to infrastructure; reduced global economic activity as a result of the COVID-19 pandemic, including lower demand for natural gas and a reduction in the price of natural gas; the potential impact of the COVID-19 pandemic on the health of the Company’s employees, contractors, suppliers, customers and other partners and the risk that the Company and/or such persons are or may be restricted or prevented (as a result of quarantines, closures or otherwise) from conducting business activities for undetermined periods of time; the impact of actions taken by Governments to reduce the spread of COVID-19, including declaring states of emergency, imposing quarantines, border closures, temporary business closures for companies and industries deemed non-essential, significant travel restrictions and mandated social distancing, and the effect on the Company’s operations, access to customers and suppliers, availability of employees and other resources; risk that contract counterparties are unable to perform contractual obligations; the impact of general economic conditions in the areas in which the Company operates; civil unrest; the susceptibility of the areas in which the Company operates to outbreaks of disease; industry conditions; lack of availability of qualified personnel or management; fluctuations in commodity prices, foreign exchange rates and/or interest rates; stock market volatility; competition for, among other things, capital, drilling equipment and skilled personnel; failure to obtain required equipment for drilling; delays in drilling plans; failure to obtain expected results from drilling of wells; changes in laws and regulations including the adoption of new environmental laws and regulations; impact of new local content regulations and changes in how they are interpreted and enforced; imprecision in reserve estimates; obtaining required approvals from regulatory authorities; risks associated with negotiating with foreign governments; and unanticipated changes to legislation and the effect on the Company’s operations. In addition, there are risks and uncertainties associated with oil and gas operations. 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 impact of the COVID-19 pandemic on the demand for and price of natural gas, volatility in financial markets, disruptions to global supply chains and the Company’s business, operations, access to customers and suppliers, availability of employees to carry out day-to-day operations, and other resources; commodity prices will not further deteriorate significantly; availability of skilled labour; conditions in general economic and financial markets; and other matters. The forward-looking statements contained in this news release are made as of the date hereof 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.



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