Orca Exploration Group Inc. Updates Status in Tanzania and Italy
TSX-V: ORC.A, ORC.B
TORTOLA, British Virgin Islands, July 4, 2012 /CNW/ – Orca Exploration
Group Inc. (“Orca” or the “Company”) announces the successful
completion of its SS-11 development well in Tanzania, provides an
update on the Company’s operations and announces a bridge loan
facility.
SS-11 successfully completed
On the 30 May 2012, the SS-11 development well in the Songo Songo field
was successfully completed. Orca estimates that the well will be tied
in and on stream by September 2012 and management’s expectation is that
the well will be highly productive. It is expected to be initially
infrastructure constrained to a maximum of approximately 40 MMcfd. The
total cost of SS-11 is estimated at US$38 million. The increased cost
is primarily due to additional rig time and the fact that the rig was
mobilized from Syria specifically for this one well.
SS-11 was drilled towards the crest of the reservoir structure
encountering 352 metres of high quality Neocomian reservoir at a 40
degree inclination and was completed with a large 5-1/2″ chrome
completion. While the Company believes that the well may be capable of
producing up to 70 million standard cubic feet per day (MMcfd)
unconstrained, actual productive capacity and production rates cannot
be determined until the well is tied in and flow tested. The well will
be tied in through the flow line of SS-5, which well has been formerly
shut-in and now being suspended due to the gradual deterioration in
wellbore integrity.
SS-12 development well deferred
Mounting unpaid TANESCO receivables and unresolved negotiations with the
Government Negotiating Team (“GNT”) have resulted in a decision by Orca
to defer drilling the SS-12 development well at this time. The
Company’s initial plan was to move the rig to drill SS-12 immediately
following the completion of SS-11. The Company intends to return to
SS-12 and drill the well when additional deliverability is required and
the issues with TANESCO and the GNT have been resolved.
Tanzania Government secures financing for Infrastructure Expansion
Project
In late June the Government of Tanzania announced that it had entered
into a lending agreement with the Export-Import Bank of China to fund
approximately US$1.2 billion in energy infrastructure expansion. The
majority of the funds will be used to construct a new 24- to 36-inch
pipeline to be laid between Mnazi Bay and Somanga Funga, and to twin
the existing 16-inch pipeline between Somanga Funga, the onshore tie-in
to Songo Songo, and Dar es Salaam with a new 36-inch pipeline. This is
designed to increase pipeline capacity allowing transport in excess of
210 MMcfd.
“Orca Exploration and PanAfrican Energy Tanzania would like to
congratulate the government of President Kikwete on recently achieving
this important milestone in infrastructure expansion to meet the
growing energy needs of Tanzania,” said Orca Chairman and CEO W. David
Lyons. “As the first and principal natural gas producer in Tanzania, we
have been solid partners with the Government of Tanzania for over a
decade. Our company has spent in excess of $200 million over this
period building a natural gas industry in Tanzania in good faith and on
the strength of our contracts and PSAs and we are committed to provide
a sustained, secure supply of natural gas. Orca and PanAfrican Energy
are very conscious of the potential for natural gas to contribute to
Tanzania’s energy needs, and we look forward to continuing to play our
part in realizing this potential.”
No increase in SS-9 corrosion levels
Corrosion testing was completed on SS-9 as of 1st June 2012. The test
did not show any material increase in corrosion levels in the
production tubing at critical locations and SS-9 has been confirmed
safe to continue production for another nine months, subject to
successful integrity pressure tests. The plan is to shut in SS-9,
currently producing 30 MMcfd, when SS-11 is brought onstream. Following
shut-in SS-9 will still be available to provide spare capacity and
redundancy allowing more thorough testing of all production wells
during the remainder of the year.
Offshore rig for Songo Songo West drilling released
Orca had earlier announced its intention to secure a jack-up rig,
expected to arrive in Mozambique in Q3 2012, to drill the Songo Songo
West exploration well in Q4 2012. The Company will not proceed with the
drilling of Songo Songo West until the TANESCO receivables are brought
current and GNT issues are successfully resolved. In the interim Orca
will be actively seeking a more cost effective method to test the
resource potential of Songo Songo West.
Government Negotiating Team status of discussions
As reported in the Company’s 2011 Annual Report, in February 2012, the
Government of Tanzania announced that it was setting up a Government
Negotiation Team to discuss a number of issues in relation to the
Company’s Songo Songo Production Sharing Agreement (“PSA”) with the
Tanzania Petroleum Development Corporation (“TPDC”) that was signed in
October 2001.
The scope of the GNT is to discuss a number of points that were raised
by the Parliamentary Committee for Energy and Minerals into the
workings of the PSA. This includes, but is not limited to, TPDC back in
rights, profit sharing arrangements, the divestment of the downstream
assets, cost recovery and Orca’s management of the upstream operations.
Orca has been and will continue to discuss these matters in good faith
with the GNT, but reserves its rights to vigorously defend its position
in accordance with Tanzanian and International law should no
satisfactory agreement be reached.
TPDC has indicated that they wish to exercise their right to ‘back in’
to the field development by contributing 20% of the costs of the future
new wells, including SS-10 and SS-11, in return for a 20% increase in
the profit share percentage for the production emanating from these
wells. The implications and workings of the ‘back in’ will be discussed
with the GNT and there may be the need for additional reserve and
accounting modifications once these discussions are concluded. For the
purpose of the reserves certification, it has been assumed that they
will ‘back in’ for 20% for all future new drilling activities and other
developments and this is reflected in the Company’s net reserve
position.
The Company’s cost pool in Tanzania was recovered early in Q2 2011. This
resulted in a reduction in the percentage of net revenue attributable
to the Company. The level of cost gas increased during 2012 as a result
of significant expenditure on the drilling activities. TPDC is still in
the process of auditing the historic cost recovery pool and is
currently disputing US$34 million of costs that have been allocated to
the cost pool for the period 2002 through to 2009. The Company contends
that the disputed costs were appropriately incurred on the Songo Songo
project in accordance with the terms of the PSA.
Negotiations with the GNT are ongoing. In this regard, Orca submitted a
proposal in mid-May, which was subsequently rejected by the GNT. The
Company has today received a counter proposal which it requested and
now intends to assess and subsequently meet with the GNT thereafter to
further discussions. To the extent that it is not possible to
satisfactorily resolve the differences with the GNT, the Company will
utilise the extensive dispute mechanisms outlined in the PSA which
include international arbitration.
Italy drilling programme on track
Drilling of the La Tosca farm-in well is scheduled to commence in August
2012. Northern Petroleum Plc, as operator, plans to drill the well in
the Longastrino Block in the Po Valley region of Northern Italy. Under
the terms of the farm-in agreement, Orca will pay 100% of the costs of
the La Tosca 1 well up to EUR4.3 million and 70% thereafter for the
drilling phase, together with back-in costs of EUR0.6 million to earn a
70% interest in the block.
If the well is tested and completed, Orca will earn an additional 5%
(taking it to 75%) by paying 100% of the testing costs up to EUR1.3
million and 75% thereafter. There are a number of other prospects on
the Longastrino block that will be evaluated following the finalisation
of the drilling of the La Tosca well.
Offshore Italy, the Elsa appraisal opportunity is potentially moving
ahead following an announcement by the Italian Government on 26(th) June 2012 proposing certain changes to the offshore drilling
restrictions imposed in mid-2010. The new decree states that the
drilling ban will now apply to activities up to 12 miles offshore
(previously the exclusion zone was 12 miles from marine parks and 5
miles from other coastal areas), but importantly the restrictions no
longer apply to existing licences (both exploration and production). In
addition, the decree includes a provision for a 3% hike in royalty
rates payable on offshore production (to 7%) which will be allocated to
state budgets to support environmental oversight. Although this
represents a degree of fiscal tightening, the Company notes that
Italy’s tax regime for oil and gas producers remains amongst the most
favourable worldwide.
The decree is effective immediately and must be ratified by Parliament
within 60 days. During this process the decree can be amended, but
major changes are generally seen as unlikely. It is expected that this
will have positive implications for the Elsa appraisal project,
currently on hold. Assuming the decree is passed into law as stated, it
is expected that drilling could commence mid-2013 following the
completion of an environmental assessment study by Orca’s partner and
operator Petroceltic International plc.
Bridge Loan Facility to fund Tanzania operations
The Company has entered into a loan agreement with Stanbic Bank Tanzania
Limited, a subsidiary of Standard Bank, for a senior secured bridge
loan facility of US$10 million. The loan is repayable six months after
drawdown amortized over the ensuing 12 months. The loan attracts
interest at 3-month LIBOR plus 8% per annum, with an additional 2%
interest premium should TANESCO payments exceed 240 days overdue.
Proceeds will be used to fund the Company’s ongoing operations and
working capital requirements in Tanzania, including payment of current
corporate taxes due. The Company has withheld remittance of VAT
relating to overdue TANESCO payments until said payments are received.
Orca Exploration Group Inc. is an international public company engaged
in natural gas exploration, development and supply in Tanzania and oil
and gas appraisal in Italy. Orca trades on the TSXV under the trading
symbols ORC.B and ORC.A.
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.
Forward Looking Statements
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning, but
not limited to, timing of S-11 development well being tied in and
expectations of management regarding production from the well;
infrastructure constraints in respect of the SS-11 development well;
estimated cost for the S-11 development well; expected drilling results
from the S-11 development well; the Company’s plans with respect to the
SS-12 development well; planned infrastructure expansion in Tanzania;
the Company’s plans with respect to the S-9 well and future testing of
other wells; anticipated increase to plant capacity as a result of the
Songo Songo plant expansion; the reserve potential of Songo Songo West;
discussions with TPDC and the GNT regarding the PSA and the Company’s
plans to defend its position, including the use of dispute mechanisms;
discussions regarding disputed costs in respect of the PSA; timing of
drilling of wells in Italy and the Company’s anticipated earnings from
such wells; the Company’s plans for the Longastrino block; the status
of the Elsa appraisal opportunity; terms of decree issued by the
Italian Government and anticipated implications on the Elsa appraisal
opportunity and expected timing of drilling; terms of loan agreement
with Stanbic Bank Tanzania Limited; and the Company’s strategic plans.
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. Many factors could cause Orca’s actual results to differ
materially from those expressed or implied in any forward-looking
statements made by Orca.
These forward-looking statements involve substantial known and unknown
risks and uncertainties, certain of which are beyond Orca’s control,
including, but not limited to, the impact of general economic
conditions in the areas in which Orca operates; civil unrest; industry
conditions; changes in laws and regulations including the adoption of
new environmental laws and regulations and changes in how they are
interpreted and enforced; increased competition; the lack of
availability of qualified personnel or management; fluctuations in
commodity prices; foreign exchange 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; effect of changes to the PSA on the
Company; changes in laws; imprecision in reserve estimates; the
production and growth potential of the Company’s assets; obtaining
required approvals of regulatory authorities; risks associated with
negotiating with foreign governments; ability to access sufficient
capital; and risk that the Company will not be able to fulfill its
obligations. In addition there are risks and uncertainties associated
with oil and gas operations, therefore Orca’s actual results,
performance or achievement could differ materially from those expressed
in, or implied by, these forward-looking estimates and, accordingly, no
assurances can be given that any of the events anticipated by the
forward-looking estimates will transpire or occur, or if any of them do
so, what benefits that Orca will derive therefrom.
Such forward-looking statements are based on certain assumptions made by
Orca in light of its experience and perception of historical trends,
current conditions and expected future developments, as well as other
factors Orca believes are appropriate in the circumstances, including,
but are not limited to, the ability of Orca to add production at a
consistent rate; infrastructure capacity; commodity prices will not
deteriorate significantly; the ability of Orca to obtain equipment in a
timely manner to carry out exploration, development and exploitation
activities; future capital expenditures; availability of skilled
labour; timing and amount of capital expenditures; uninterrupted access
to infrastructure; the impact of increasing competition; conditions in
general economic and financial markets; effects of regulation by
governmental agencies; that the Company will have sufficient cash flow,
debt or equity sources or other financial resources required to fund
its capital and operating expenditures and requirements as needed;
current or, where applicable, proposed industry conditions, laws and
regulations will continue in effect or as anticipated as described
herein; and other matters.
The forward-looking statements contained in this press release are made
as of the date hereof and Orca 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.
SOURCE Orca Exploration Group Inc.
