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 €4.3 million and 70% thereafter for the drilling phase,
together with back-in costs of €0.6 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 €1.3 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
26th 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.