Orca Exploration Group Inc. (Orca or the Company) announced Thursday that it has entered into a loan agreement with International Finance Corporation (IFC), a member of the World Bank Group, for a $60 million investment (the Loan) in the Company's operating subsidiary, PanAfrican Energy Tanzania Limited (PAET).
Proceeds of the Loan will be used to fund part of an estimated $120 million first phase of a Songo Songo Main Field development program (the Off-Shore Program) currently being undertaken using the Paragon M826 drilling rig (commenced in September 2015). The Off-Shore Program is designed to (i) put safe existing suspended and operating production wells; (ii) restore and increase the current productive capacity of the Songo Songo Main Field to ensure the continued delivery of Protected and Additional gas into the existing Songas infrastructure; and (iii) provide additional operational redundancy and deliverability for future additional gas sales, by way of the workover and recompletion, abandonment or sidetrack drilling of three existing offshore wells, and/or the drilling of additional production gas wells at locations to be determined in the region of the existing offshore wells depending on the outcome of the workovers. Since program commencement, previously suspended production wells SS-5 and SS-9 have been successfully worked over and recompleted, and have been restored to full productive capacity estimated to be approximately 35 million standard cubic feet per day (MMscf/d) per well.
The Off-Shore Program is intended to restore and expand field productive capacity from approximately 83 MMscf/d prior to the programme to approximately 190 MMscf/d on completion of the program. When completed, the field is expected to be capable of both filling the existing Songas infrastructure to capacity of approximately 102 MMscf/d, as well as providing additional gas volumes to the newly commissioned National Natural Gas Infrastructure Project (NNGIP) as and when contracted.
The term of the Loan is 10-years, with no repayment of principal for the first seven years, followed by a three-year amortization period. The Loan is an unsecured subordinated obligation of PAET and is guaranteed by Orca to a maximum of $30 million. The guarantee may only be called upon by IFC at maturity in 2025 and, subject to (among others) IFC approval, Orca may issue shares in fulfillment of all or part of the guarantee obligation in 2025, subject to receipt of all required regulatory approvals.
Base interest on the Loan is payable quarterly at 10 percent per annum on a 'pay-if-you-can-basis' using a formula to calculate the net cash available for such payments as at any given interest payment date. In addition, an annual variable participatory interest equating to 7 percent of the cash flow of PAET net of capital expenditures is payable in respect of any given year, commencing with 2016. Such participatory interest survives the repayment and/or maturity of the Loan until Oct. 15, 2026. It is also detachable from the Loan and accordingly can be transferred independently. Dividends and distributions from PAET to Orca are restricted during the term of the Off-Shore Program and at any time that any amounts of unpaid interest, principal or participating interest are outstanding.
The Loan is available subject to the fulfilment of certain conditions, which include attending to the registration of the Loan with the Bank of Tanzania and W. David Lyons entering into arrangements, satisfactory to IFC, whereby he will commit (directly or indirectly) not to reduce his beneficial ownership in Orca in a way that would result in him having less than 51 percent of the voting rights therein.
"The conclusion of the IFC financing is a significant achievement for Orca and an important endorsement of the Company's continuing commitment to Tanzania," commented W. David Lyons, Orca chairman and chief executive officer. "It allows us to raise finance and manage risk in the face of a challenging business environment, and to undertake urgently needed development of the Songo Songo field. It further safeguards Songo Songo's future as an important part of Tanzania's energy security. The World Bank was instrumental in bringing the Songo Songo gas-to-electricity project to reality some 20 years ago and Orca is pleased to continue this long-term relationship, now directly with IFC, in support of the sustainable development of Tanzania's energy resources."
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