Canadian junior Orca Energy, the largest producer of natural gas in Tanzania, has initiated divestment of its assets in the country, citing on-going high risks and constrained future prospects.
The company reports that it has entered into a definitive Share Purchase Agreement (SPA) with Taifa Gas Tanzania Limited and Amber Energy Investment L.L.CFZ , and together with Taifa, pursuant to which Orca will sell all of the outstanding shares of PanAfrican Energy Corporation (PAEM), its wholly-owned Mauritian holding subsidiary through which it operates its Tanzanian asset .
Upon closing of the Proposed Transaction, Taifa will acquire 49% of PAEM and Amber will acquire 51%.
This exit is significant: Orca supplied the first gas to Songas power generation plant in Dar es Salaam in 2004 and thereby birthed the domestic gas market in Tanzania. Orca’s natural gas output has peaked at 105Million standard cubic feet per day, supplying industries and power plants over the last 20 years.
Between the two of them, Orca’s Songo Songo project and M&P’s Mnazi Bay facility produce around 200MMscf/d, entirely utilised in the country, making Tanzania one of sub-Saharan Africa’s top five domestic gas markets.
The sale to Taifa Gas and Amber Energy represents a handover of an international, Toronto listed company to local Tanzanian players.
Orca says that its Board of Directors’ decision to exit the Tanzanian business follows a lengthy and comprehensive assessment of the risks and challenges Orca faces regarding its Tanzanian operations and the future of its business, including ongoing disputes and claims and the prospects of extending the Songo Songo development license and production sharing agreement.
“While discussions to extend the license and production sharing contract continue, there is significant uncertainty on the outcome and terms of any such extension”, Orca explains in a statement.
In that context, the Board determined that retaining the business would require Orca to maintain significant cash balances to address highly uncertain future commitments and contingent tax liabilities, including potentially material capital expenditures, development-related obligations and the costs of arbitration and other litigation, the timing and outcome of which are years away and uncertain.
The Songo Songo gas field is located on and offshore Songo Songo Island, approximately 15 kilometres from the Tanzanian mainland and around 200 kilometres south of Dar es Salaam. It was Tanzania’s first natural gas development and remains one of the country’s most important energy assets, currently accounting for approximately 54% of the country’s daily gas output, according to Tanzaniainvest, a business portal. The field holds total proved and probable reserves of 293Billion cubic feet, with a productive capacity of approximately 165MMscf/d. The infrastructure includes a gas processing facility with a capacity of 110MMscf/d, a 25-kilometre 12-inch offshore pipeline, and a 207-kilometre 16-inch onshore pipeline that transports processed gas to Dar es Salaam, where it supplies power generation plants and industrial customers. In 2001, Tanzania granted the Songo Songo Development License to the TPDC for an initial term of 25 years, expiring in 2026. Orca Energy has operated the field through PAET since 2004.
Details of the Transaction
The SPA provides for a nominal cash price of $10.00 for the PAEM shares, which is in addition to the other covenants, warranties, representations and obligations of the Purchasers under the agreement and the strategic and commercial benefits that would accrue to Orca by exiting its Tanzanian business.
Under the Share Purchase Agreement, Orca may cause its subsidiaries to repay any amounts owing to it prior to closing and, subject to applicable solvency requirements, to declare and pay dividends or other distributions prior to closing. Orca also retains the right to receive 50% of certain extraordinary income realized between signing and closing.
Following closing of the Proposed Transaction, Orca will cease to own PAEM and its wholly-owned subsidiary PanAfrican Energy Tanzania Limited (PAET), and will not retain any ongoing ownership interest in the Tanzanian business, other than the specific pre-closing economic entitlements provided for in the Share Purchase Agreement.
Accordingly, Orca will not have any further interest or obligation in any favourable or adverse outcomes associated with the extension of the Songo Songo development license and production sharing agreement or arbitrations with the Government of Tanzania (the GoT).
PAEM, through its subsidiary PAET, holds Orca’s entire interest in the Songo Songo gas field in Tanzania, including PAET’s rights and obligations under the production sharing agreement among PAET, the Tanzania Petroleum Development Corporation (TPDC), and the GoT, and related gas marketing, project agreements and other assets .
The Tanzania Assets represent 100% of Orca’s operating assets and business at this time.
The Board has determined that based on the net asset position of PAEM and PAET in the near term, the Tanzania Assets have no material residual value given:
- all geological data and information are the property of the GoT;
- all fixed assets owned by PAET in connection with its operations become the property of the TPDC
upon expiry or termination of the Songo Songo license and production sharing agreement;
- the fair market value of PAET’s moveable assets is nominal; and
- PAET’s contingent tax and other Tanzanian liabilities are significant
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