Orca Energy Group’s 2024 Financials Reveal Deepening Reserves Crisis and Regulatory Risks

Orca Energy Group Inc. has released its 2024 audited financial results, painting a stark picture of declining reserves, mounting legal disputes, and a looming regulatory deadline that threatens its core operations. The report underscores the challenges facing the company as it grapples with Tanzania’s evolving energy landscape, contractual conflicts, and the expiration of its critical Songo Songo gas field license in 2026.

Reserves Collapse and Regulatory Timebomb

The most striking figure in Orca’s report is the 53% decline in proved reserves (1P) to 40 billion cubic feet (Bcf) as of December 31, 2024, from 85 Bcf in 2023. Similarly, probable reserves (2P) fell 56% to 41 Bcf. These drops stem from production depletion, technical revisions (including the failed SS-7 well intervention), and the expiration of Tanzania’s Songo Songo Production Sharing Agreement (PSA) in October 2026.

The

underscores the company’s reliance on this single asset. With no extension yet secured for the PSA, Orca faces the risk of halting production entirely in less than two years.

Operational and Financial Strains

Despite a 51% surge in Q4 2024 revenue to $36.9 million (driven by higher gas prices and volumes), annual revenue rose only 1% to $111.6 million due to unresolved disputes over $6.2 million in unpaid gas deliveries to Songas Limited. The company also reported a $21.6 million net loss for 2024, compared to a $7.0 million profit in 2023. Key factors include:
- A $25.9 million impairment charge for the failed SS-7 well project, which aimed to restore production but instead exacerbated water intrusion issues.
- A $21.7 million provision for legal claims, including a $23.1 million court judgment against the company in a dispute over a terminated seismic contract.

Gas deliveries fell 15% annually, with power-sector demand plummeting 21% after the Songas Power Plant shutdown in October 2024. Meanwhile, capital expenditures surged 244% to $27.5 million in 2024, driven by the SS-7 write-off and production-logging costs.

Legal and Regulatory Battles

Orca’s challenges extend beyond financials. The company is embroiled in:
1. Contractual disputes with Tanzania’s government: The GoT’s directive to continue producing “Protected Gas” beyond its contractual July 2024 end date has led to unresolved receivables and a Bilateral Investment Treaty (BIT) claim alleging breaches of the PSA.
2. Licensing uncertainty: The Songo Songo Development License expires in October 2026, and Orca has yet to secure an extension despite submitting an application in April 2023. A revised application by Tanzania’s state-owned TPDC was rejected by Orca as “uneconomical,” leaving negotiations deadlocked.
3. Legal judgments: A $23.1 million ruling against Orca in a seismic contract dispute has been appealed but remains a cash flow pressure point.

Liquidity and Strategic Shifts

Orca’s liquidity remains precarious despite $90.1 million in cash reserves. Working capital fell 67% to $21.9 million due to reduced receivables and rising liabilities. The company has halted non-essential capital spending, focusing only on safety and maintenance to preserve cash until regulatory clarity emerges.

CEO Jay Lyons emphasized that further investment hinges on resolving the license extension and contractual disputes:
> “Without a viable commercial framework, we cannot justify development expenditures.”

Investor Considerations

1. Risk Factors:
2. License expiration: A non-renewal would end Orca’s core operations.
3. Legal outcomes: The BIT claim and seismic lawsuit could sway cash flow and valuation.

4. Gas demand: Hydroelectric competition (e.g., the Julius Nyerere Hydropower Project) may limit gas sales even if the license is extended.

5. Valuation:

6. The net present value (NPV) of 2P reserves fell 45% to $65 million (at a 10% discount rate), reflecting reduced volumes and shorter reserve life.

Conclusion

Orca Energy Group’s 2024 results reveal a company at a crossroads. Its reserves and NPV have plummeted, while legal and regulatory risks loom large. Investors must weigh its remaining liquidity ($90M) and cost-discipline strategy against the existential threats of license expiration and unresolved disputes.

While Orca’s $27.1 million operating cash flow (down 44% annually) and $90.1M cash reserves provide a short-term buffer, long-term survival hinges on:
- Securing the Songo Songo license extension.
- Resolving the BIT and seismic litigation.
- Reaching contractual terms for gas sales post-2024.

Without these, Orca’s valuation—already pressured by declining reserves—could face further erosion. For now, investors should proceed with caution, monitoring developments in Tanzania’s regulatory arena and the company’s ability to navigate its legal quagmire.

In the words of the management: “The path forward depends on resolving the uncertainties that have defined 2024.” Until then, Orca’s story remains one of high risk and low reward.