Settlement Agreement Could Boost Oil & Gas Co.'s Cash Flow
Research Report

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Disclosures for Research Capital Corp., Orca Energy Group Inc., April 16, 2025

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Orca Energy Group Inc. (ORC.B:TSXV; ORXGF:OTCMKTS) subsidiary Pan African Energy Tanzania signed a settlement agreement with the Tanzania Electric Supply Co. Ltd. (TANESCO) and Tanzania Petroleum Development Corp. (TPDC) to resolve outstanding payments and interest TANESCO owes Orca for the natural gas it supplied from the Songo Songo field, reported Research Capital Corp. Analyst Bill Newman in an April 16 research note.

"The TANESCO settlement is expected to boost 2025 cash flow and may signal a more  constructive relationship with the government of Tanzania, though it remains too early to draw definitive conclusions," Newman wrote.

36.4% Return Implied

On the news, Research Capital reiterated its Hold recommendation and CA$3.75 per share target price on the Tanzanian oil and gas explorer-producer, trading at the time of the report at about CA$2.75 per share. From this price, the return to target is 36.4%.

Orca Energy has 19.8 million shares outstanding. Its market cap is CA$54.40. Its 52-week range is CA$2.49–$4.09 per share.

Portfolio Supply Agreement

Newman explained that Orca Energy produces and supplies natural gas to TANESCO and Songas for power generation, and to several industrial customers in the Dar es Salaam area in Tanzania.

According to its portfolio supply agreement (PSA) with TANESCO and TPDS, valid for 25 years, Orca may conduct petroleum operations on two blocks in the Songo Songo gas field, called the Discovery Blocks. Any gas produced beyond the amount determined in the agreement, Orca may market and sell, but it must share the net revenue with TPDC.

Details of Settlement

TANESCO fell behind in its payments to Orca Energy to the amount of US$104.2 million (US$104.2M). Of this total, principal amounts to US$33.7M and default interest is US$70.5M.

According to the recent settlement agreement, TANESCO, to resolve its outstanding debt with Orca, is to make weekly payments in Tanzanian shillings to Orca between April and October 2025 for a total of US$52M, half the debt. This agreed to amount represents US$33.7M of principal plus US$18.3M of interest.

Should TANESCO not abide by the payment schedule outlined in the settlement agreement, it will be terminated then Orca and TPDC may pursue full recovery of the US$104.2M.

Of the settlement amount, Orca Energy expects to retain about US$29.4M, noted Newman. The remainder will go to TPDC.  

To reflect these expected after-tax proceeds from TANESCO, Research Capital increased its 2025 funds flow forecast on Orca to US$62.15M from US$40.1M.

What To Watch For

Newman noted two upcoming catalysts for Orca. One is the release of the company's Q4/24 and year-end 2024 financial and operational results, due out on April 28, 2025.

Another expected event, to happen further out, in October 2026, is the expiration of Orca's PSA.

"We continue to see substantial resource potential in the Songo Songo field, which could be unlocked if Orca secures a license extension, an outcome that remains uncertain at this time," wrote Newman.