A Sustainable Tanzanian Natural Gas Business
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Management’s Discussion & Analysis Discussion & Management’s Orca Energy Group Inc. Group Energy Orca Annual Report & Accounts 2020 Accounts & Report Annual A Sustainable Tanzanian Natural Gas Business Orca Energy Group Inc. Annual Report & Accounts 2020 Providing reliable domestic natural gas to support Tanzania’s growth Financial Highlights Revenue Net cash flow $m $m 77.9 -9% 46.5 +33% 2020 $77.9m 2020 $46.5m 2019 $85.6m 2019 $34.9m Adjusted funds flow1 Net income attributable to shareholders $m $m 39.1 -9% 27.8 +12% 2020 $39.1m 2020 $27.8m 2019 $43.2m 2019 $24.7m Cash and short-term investments Earnings per share $m $ 104.2 -25% 1.00 +41% 2020 $104.2m 2020 $1.00 2019 $138.7m 2019 $0.71 Working capital Gas sales (average) (including cash) MMcfd $m 57.7 -9% 74.2 -31% 2020 57.7MMcfd 2020 $74.2m 2019 63.1MMcfd 2019 $107.0m Company gross conventional Net present value (2P) natural gas reserves (2P) discounted at 10% Bcf $m 230 -13% 241 -15% 2020 230 Bcf 2020 $241m 2019 265 Bcf 2019 $283m Glossary $ US dollar MMcfd Million standard cubic feet per day Bcf Billion standard cubic feet $m Million US dollar 2P Proved plus probable 1 Please refer to Non-GAAP measures section of the MD&A for additional information. Orca Energy Group Inc. Annual Report & Accounts 2020 In this report Strategic Report At a Glance 02 Management’s Discussion & Analysis Discussion & Management’s CEO’s Statement 04 Sustainability & Responsibility 06 Our Approach 08 Our Stakeholders 09 Company Operations 16 Gas Reserves 24 Our Workforce 26 Board of Directors 28 Forward Looking Information Statement 30 Management’s Discussion & Analysis 32 Glossary 59 Financial Statements Management’s Report to Shareholders 60 Independent Auditors’ Report 61 Consolidated Statements of Comprehensive Income 63 Consolidated Statements of Financial Position 64 Consolidated Statements of Cash Flows 65 Consolidated Statements of Shareholder Equity 66 Notes to the Consolidated Financial Statements 67 Corporate Information 92 For more information visit our website: www.orcaenergygroup.com 01 Orca Energy Group Inc. Annual Report & Accounts 2020 At a Glance Partnering to create opportunity in Tanzania Orca Energy Inc. (“Orca”, or the “Company”) operates a license in Tanzania which has a total area of approximately 170 km2. The license is located on or in shallow water around Songo Songo Island (“SSI”) which lies 25 km off the coast of mainland Tanzania and 200 km south of Dar es Salaam. Read more on page 10 1. Significant underlying resource potential Tanzania An independent evaluation of the Songo Songo field affirms that the license contains 230 billion Size cubic feet (“Bcf”), Proved plus Probable (2P) 2 conventional natural gas reserves giving the 950,000 km asset a 2P net present valuation (discounted at 10%) of more than $240 million. Population 60,000,000 2. Enabling Tanzania to meet its energy demands Highlights Tanzania Gas production from our facilities continues Producing wells to play a significant role in Tanzania’s energy infrastructure, with the Company’s output (Songo Songo license) delivering approximately 39% of all the 5 electrical power generated in Tanzania. Employees 111 3. Percentage of Tanzanian employees Firmly focused on Tanzania 90% (99% within Tanzania) Following a strategic change in direction during the year, the Company is firmly focused on Experience operating the optimizing value at Songo Songo. The license has Songo Songo gas field and upside potential which has yet to be unlocked. related infrastructure 16 years 02 Orca Energy Group Inc. Annual Report & Accounts 2020 Strategic Report Strategic Management’s Discussion & Analysis Discussion & Management’s Mangement’s Discussion & Analysis Discussion & Mangement’s Financial Statements Financial 4. Successfully navigated the COVID-19 downturn The Company took decisive action in Tanzania, safeguarding the welfare of its workforce and ensuring safe and reliable operations could continue. We have continued to adopt a prudent approach to capital discipline, ensuring the Company’s strong liquidity Songo Songo position was protected. 5. Generating value for stakeholders Providing a reliable source of natural gas to the Tanzanian energy market to underpin a sustainable return to stakeholders. 6. Supporting local communities in Tanzania The Company continues to take its role as being a sustainable and best in class corporate citizen very seriously. As such, we remain in close dialogue with the communities local to Songo Songo and continue to train, develop and retain a high level of local workers and professionals, in addition to further charitable initiatives the business is involved within country. 03 Orca Energy Group Inc. Annual Report & Accounts 2020 CEO’s Statement Building a business that provides for the future Despite the challenges presented by the global pandemic, the Company successfully maintained safe and reliable operations at the world class Songo Songo gas field. The Company’s response to the coronavirus pandemic (“COVID-19”) was to ensure the welfare of our team in-country and those we work with, whilst allowing us to continue meeting the demand for natural gas from Songo Songo. We also chose to invest further in this important Tanzanian gas business for the benefit of all our local and international stakeholders. Although our average sales volumes for 2020 were marginally down year-on-year at 57.7 million standard cubic feet (“MMcfd”) compared to 63.1 MMcfd for 2019, we supplied natural gas for approximately 39% of all electrical power generated in Tanzania. The fall in sales was due to prolonged and heavy rainfall early in the year resulting in an increase in hydropower generation and a lower demand for gas fired power generation as well as COVID-19 impacting industrial customers’ demand for natural gas in Tanzania. In September 2020 the Board determined that as a result of the challenges facing the global oil & gas industry combined with Songo Songo’s significant To have a successful business, we believe potential the Company should remain focused on the optimization and value maximization of its you need to clearly understand your core current operations. assets, and from that knowledge, focus your Driven by Tanzania’s continuing rapid growth trajectory, the country’s need for cleaner energy energy on optimizing the value realized for all such as natural gas, has never been greater. Over the past decade, the country has stakeholders. By incorporating good corporate experienced 7% growth per annum. Over the same timeframe, the population has increased by governance, mechanisms can be installed 35%, and is predicted to continue to expand at this rate. Dar es Salaam is now the second-fastest whereby meaningful stakeholder engagement growing city in the world. Tanzania has the stated objective of building a more industrialized country can happen, resulting in value realization. in which the contribution of manufacturing to the economy is set to reach at least 40% of GDP over the next four years. To a great extent, this Jay Lyons transformation is currently powered by natural Interim Chief Executive Officer gas which accounts for more than half of the country’s power generation. The demand for natural gas is only set to increase and will be central in meeting future electricity demand. Alongside hydropower and solar PV, use of natural gas will continue to expand. Natural gas generates approximately 60% of Tanzania’s electricity and is therefore integral to the country’s ambitious growth plans. 04 Orca Energy Group Inc. Annual Report & Accounts 2020 Strategic Report Strategic Management’s Discussion & Analysis Discussion & Management’s The Songo Songo gas project is very well placed The importance stakeholders increasingly place to support Tanzania’s journey of economic on strong Environmental, Social and Governance Welcoming Lloyd Herrick industrialization, both through energy production, (“ESG”) protocols running through the business as well as fuelling the country’s transportation remains high, and we are pleased with our We are delighted to welcome Lloyd Herrick to network. It is widely recognized that natural gas ongoing ESG performance. The Company is the Company. He brings more than 40 years’ will remain an integral component of the energy deeply committed to making a positive social experience to Orca, including 20 years in transition, the route to a low carbon economy and economic contribution, to working safely senior roles at TransGlobe Energy Corporation Financial Statements Financial for the foreseeable future, and that gas will play and responsibly and having a minimal impact (“TransGlobe”). a central role in the development of Tanzania’s on the environment. Throughout 2020, Orca significant infrastructure projects. deepened its strong track record in Tanzania as Lloyd is highly aligned with Orca’s strategy to a good corporate citizen, building on our history focus on the optimal development of the Songo To be able to support Tanzania’s energy demand, of supporting critically important education and Songo gas field in Tanzania. He will play an we continue to invest a significant amount of health projects, not only on Songo Songo Island, important advisory and oversight role supporting capital into the business, with 2020 capital but also across the wider region. our operations team and working closely with expenditure of $27.1 million. A significant portion Orca’s management as we continue to capture the of our ongoing investment is on the compression Since 2004, it is estimated the gas from the Songo value from our flagship asset in Tanzania for the project, which has a total forecast of $38 million, Songo field has helped to displace expensive liquid benefit of all stakeholders. of which $24.7 million has been incurred to date. fuel imports, generating savings of $10 billion for The Company remains on track for installation and Tanzania. The Company is also a major employer in commissioning to occur in 2022.