Orchid Island Capital, Inc. Annual Report 2022

FY2022 Annual Report · Orchid Island Capital, Inc.

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Maximizing our
positive contribution
for all stakeholders
as a long term
partner to Tanzania

Annual Report & Accounts 2022

Welcome

Supporting
the growth of
Tanzania through
the development
of natural gas
resources

Our Purpose
We exist to enable Tanzania’s development
and economic growth by providing reliable
natural gas supply to the power and industrial
sectors in support of the transition towards a
lower carbon economy. This guides everything
we do and as such our main goal is to create
long-term sustainable value for our investors,
partners, communities, and employees. We
believe it is our responsibility to maximize
our positive contribution to our stakeholders
and the local communities that we serve and
to minimize the environmental impact of our
operations.

Responsibility:
We aim to play a pivotal role in Tanzania’s development
and achievement of its sustainability goals. We aspire to
leave Tanzania in a better condition for future generations
to inherit.

Authenticity:
We strive to be genuine and transparent about our
ambitions, We are open and honest about our decisions
and plans, communicating clearly, honestly and on time.

Ethics:
Strong business ethics is non-negotiable and is embedded
throughout all facets of the Company.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202201

Inside this Report

Strategic Report

Highlights

At a Glance

CEO’s Statement

History and Licensing

The Orca Difference

Company Operations

Gas Reserves

Sustainability & Responsibility

Board of Directors

Our Workforce

Management’s Discussion
& Analysis

Glossary

Financial Statements

Management’s Report to
Shareholders

Independent Auditors’ Report

Consolidated Statements
of Comprehensive Income

Consolidated Statements
of Financial Position

Consolidated Statements
of Cash Flows

Consolidated Statements
of Changes in Shareholders’ Equity

Notes to the Consolidated
Financial Statements

Corporate Information

Orca Energy Group Inc. Annual Report & Accounts 2022

Our Website

An updated corporate
website has recently
been published.

Find out more at
orcaenergygroup.com

Sustainability
Report

Orca was pleased
to publish its first
Sustainability Report
in 2021.

Find out more at
orcaenergygroup.com

Online Summary

An online summary of
this report can be found
on Orca’s website.

Find out more at
orcaenergygroup.com

History and Licensing
Orca has delivered gas to Tanzania since
2004 and plays a central role in ensuring
reliable gas supply for power generation,
supporting Tanzania’s industrial expansion.

The Orca Difference
A forward looking company with a track
record of investing in Tanzania. The Songo
Songo project has significantly increased
access to affordable energy, contributing
to the alleviation of energy poverty. Orca
sustains a number of industries, supporting
local manufacturing, employment, revenue
generation and prosperity.

Company Operations
A reliable and transparent partner whose
operations have led to significant benefits
in Tanzania. Orca is Tanzania’s first and
largest gas producer, meeting a significant
percentage of the country’s national energy
demand.

Sustainability & Responsibility
Continued progress is being made
integrating sustainability into Orca’s
operations, governance and wider
strategy. The Company produces and
supplies gas safely, and efficiently to
meet the needs of the nation and its
customers. As a producer of natural gas,
Orca’s operations have led to significant
reductions in CO2 emissions compared to
importation of alternative fuels.

Our Workforce
A workforce and leadership team that
reflects where the Company operates.
Orca has actively enabled and promoted
development of local skills to support
establishment of a growing national
oil and gas industry, recognizing and
developing local talent to lead and operate
across all aspects of its business.

Strategic ReportManagement’s Discussion & AnalysisFinancial Statements02

Highlights

Who we are
in numbers

Financial Highlights

Revenue

+37%

Continued investment, ensuring a sustainable
supply of gas from the Songo Songo gas field
continues to be a core focus for the Company.

Forward planning together with close and transparent
partnerships with stakeholders are key to ensuring that
affordable gas remains a significant proportion of the
energy mix for Tanzania’s expanding population and
industrial economy, fulfilling a vital role in enabling and
sustaining Tanzania’s power and industrial growth.

$118.1m

(2021: $86.0m)

Net income attributable
to shareholders

+69%

$27.7m

(2021: $16.4m)

Net income attributable to
shareholders per share

+72%

$1.39

(2021: $0.81)

Working capital(1)

+47%

$61.6m

(2021: $41.8m)

Net cash flows from
operating activities

+69%

$67.7m

(2021: $40.1m)

Cash and cash equivalents +32%

$96.3m

(2021: $73.0m)

Glossary

$
MMcfd
$m

US dollar
Million standard cubic feet per day
Million US dollar

(1)

“Working capital” is a non-GAAP financial
measure that does not have a standardized
meaning under IFRS and may not be comparable
to similar financial measures disclosed by other
issuers. See “Working Capital” and “Non-GAAP
Financial Measures and Ratios” in the 2022
Annual Management’s Discussion & Analysis for
information relating to this non-GAAP financial
measure, which information is incorporated by
reference into this document.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202203

Company Highlights

Gas sales

+42%

86.8MMcfd

(2021: 61.1MMcfd)

Orca and PanAfrican Energy
employees

110

Staff Turnover

Percentage of Tanzanian
employees

90%

(99% within Tanzania)

Experience operating the Songo
Songo gas field and related
infrastructure

18 years

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022Creating opportunity
in Tanzania

What makes
us different:

• Proactive
investor

• Fully integrated

operator

• Key contributor
to the national
energy mix

• Facilitator

of industrial
expansion

• Low carbon fuel

supplier

Read more on page 07.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202206

CEO’s Statement

During 2022 we witnessed
an improved macro-
economic backdrop, with
global energy markets
having recovered from the
COVID-19 pandemic.

In Tanzania, we saw demand
for domestic natural gas grow
significantly. This was in part due
to the increase in gas powered
generation capacity and the
continued strong growth of
Tanzania’s industrial economy.
Weather patterns also impacted
Tanzania’s energy mix with the
reduction in the country’s overall
hydro power output as a result
of drought conditions. In the
last three years we have seen
increased demand for natural
gas in Tanzania and, taking into
account the country’s rapid
growth trajectory, we expect this
trend to continue.

As a team, we continually plan ahead to
enable Orca to increase its gas output as new
demand appears.

I am pleased to report that in 2022 our total
production volumes were 42% higher than
in 2021, which shows our commitment to the
nation of Tanzania, but also demonstrates our
ability to execute projects to meet growing
demand. We continue to witness sustained
high and growing levels of demand and are
therefore targeting average gross gas sales
of 95.0MMcfd during 2023, a 9% increase on
our 2022 sales and a 55% increase over the
Company’s 2021 sales. In order to achieve this,
significant capital investments need to be
made on the Songo Songo natural gas field.
Due to the anticipated longer term high levels
of gas demand, we are currently reviewing this
plan as we believe a longer-term investment
program may be justified to meet further
increases in gas demand in the future.

In response to record gas demand and
sales during 2022, the Company is working
with TPDC to enable continued investment
in the Songo Songo Natural Gas field and
infrastructure prior to end of the current
license term in October 2026. The Company
has requested that TPDC initiate the process
of renewal of the Songo Songo Development
License.

A forward planning business
to provide for the future

Jay Lyons
Chief Executive Officer

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202207

Welcoming our new
Chief Operating Officer,
Ewen Denning

Ewen Denning brings over
35 years of international energy
industry experience to Orca
Energy Group.

During his career he has worked for BP, BG
Group and Glencore and had assignments
across five continents. Since 2011 he has
worked extensively in Africa on a variety
of projects in Cameroon, Chad, Equatorial
Guinea, Nigeria and Tunisia. Most recently
on the Logbaba integrated gas project
in Cameroon. He has wide technical and
commercial experience having held senior
positions managing operational assets in
established areas and commercializing new
ventures in frontier areas.

Ewen holds a B.Eng. in Mechanical
Engineering from Sheffield University and
an MBA from Heriot-Watt University in
the United Kingdom. He is a Chartered
Engineer and Fellow of the (UK) Institution
of Mechanical Engineers and also a Member
of the Society of Petroleum Engineers.

The Company works collaboratively with TPDC
to optimize near term investments to support
Tanzania’s growing economy and efficiently, as
seen by the work program which commenced
in the second half of 2022.

This initially features a $23.2 million 3D seismic
acquisition program, over an area of 180km2 of
marine, transition and land over Songo Songo
Island which is designed to de-risk future field
development activities. We anticipate that
the acquisition of data will be complete in
Q3 2023 to be followed by data processing
in Q4 2023. Following this, the Company will
prepare the future development plan for the
field with its partners in Tanzania to optimize
the exploitation of the asset for the benefit of
all stakeholders.

“Our total production
volumes were 42%
higher than in 2021,
which shows our
commitment to the
nation of Tanzania.”

A number of additional operational projects
were completed in 2022, including the first
inlet stage compression project at the Songas
Limited gas plant and the SS-3, SS-4 and
SS-10 well workover program.

I am pleased to report that Orca continues to
benefit from a robust balance sheet, and is
balancing investment in production growth
initiatives with achievement of good returns to
investors during the period. As at 31 December
2022, cash and cash equivalents balance were
$96.3 million and long-term loans of $49.8
million, of which $10.0 million is current. As
at April 26, 2023, the Company has in excess
of $93 million of cash and cash equivalents.
We maintained our quarterly dividend during
2022, which yielded 8% for our investors,
paying out $6.2 million during the year. In
addition, in July 2022, we commenced a
normal course issuer bid (“2022 NCIB”) to
purchase Class B Shares through the facilities
of the TSXV and alternative trading systems
in Canada, and this program continues to be
in place.

It is worth noting that in light of the potentially
significant capital investments needed to
sustain and increase production at the Songo
Songo natural gas field over the coming years,
our value returns program to shareholders
will be kept under constant review. While we
don’t envisage making any changes in the
immediate term, if a license renewal is agreed
and a more fulsome capital spending program
is required, this may be reviewed.

2022 saw the Company publish its first
Sustainability Report, which is available on
our website. Our main driver for creating this
document was to evidence to our stakeholders
the positive steps we have taken in recent
years around Environmental, Social, and
Corporate Governance (“ESG”) practices
and to map out the trajectory for the coming
years. While we are cognizant of the fact that
Orca is a producer of natural gas, the use
of which ultimately emits greenhouse gases
(“GHG”), we always strive to improve our
ESG approach. For Orca this means a focus
on the management of ESG issues within our
operations and by highlighting the role that
natural gas plays within the Tanzanian energy
mix, as a transition fuel to displace alternatives
with a higher carbon footprint. Later in this
document, and our subsequent Sustainability
Report, we will also detail the work we carried
out in 2022 and plan for 2023, to make sure
that the Sustainability Strategy we have put
in place is the right one for us as a business
going forward.

We have a track record of being a forward
thinking organization that has been able to
consistently increase production from the
Songo Songo natural gas field to meet the
needs of the growing Tanzanian economy. We
aim to continue to achieve this going forward
and as a Board and Management team, we
are highly focused on further developing the
asset to meet the real demand for sustainable
transition energy for the benefit of the people
of Tanzania. In closing, I would like to thank our
hosts, the Government of Tanzania, our team,
partners and shareholders for their continued
support and we look forward to updating the
market on further developments in 2023.

(signed) "Jay Lyons"

Jay Lyons
Chief Executive Officer
April 26, 2023

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022Our history of investment
in Tanzania

On the same date, the Songo Songo
Development License was granted to TPDC
for an initial period of 25 years, extendable for
a further twenty years. TPDC’s rights under
the Development License were transferred to
Songas and PAET via creation of the current
PSA. This included the right to conduct
exploration and development operations in the
development area, and to sell the petroleum
recovered including natural gas.

Since the Development License was awarded,
and following a short period of project
implementation and construction, the
Company has produced and supplied natural
gas without significant interruption. In doing
so it has developed a downstream market
comprising a number of Tanzania’s major
industries, as well as supporting the increased
availability of affordable energy through gas
supply that generates around 45% of all power
generated in Tanzania today.

“Since the Development
License was awarded,
and following a short
period of project
implementation and
construction, the
Company has produced
and supplied natural
gas without significant
interruption.”

History of
investment in
Tanzania

The Company has
played a central role
in ensuring reliable
gas supply for
power generation
and to support
industrial expansion
in Tanzania. This has
required proactive
investment and
mutual trust between
the Company and
its partners to
ensure demand is
met through timely
development,
while also ensuring
that the economic
requirements of the
PSA are met. The
following are recent
key investment
and development
milestones that have
enabled us to meet
our obligations.

Find out more at
orcaenergygroup.com

History and Licensing

Following the discovery of
the gas field by Azienda
Generale Italiana Petroli
(“AGIP”) in 1974, and seven
years of subsequent field
appraisal by TPDC, which
included the drilling of eight
more wells, Ocelot, the
corporate predecessor of
Orca, submitted proposals
to the then Ministry of
Water, Energy and Minerals
for the development of
Songo Songo natural gas.

At that time, the Government
of Tanzania was reviewing its
energy policy, with a desire to
diversify from hydro and
imported petroleum products
while encouraging more foreign
direct investment to boost
economic growth.

In 1992, 14 international energy companies
(including British Gas, BP, Enron, Exxon, Statoil
and Total) were invited to submit proposals
for implementing the envisaged project, so
that there would be competitive selection
of investors. Ocelot, which had previously
submitted an unsolicited proposal, formed a
consortium with TransCanada Pipelines and
the two companies jointly submitted a new
proposal. Ultimately, the bid from Ocelot/
TransCanada Pipelines was selected as the
best option for Tanzania and a period of
negotiations commenced.

The negotiations took five years, so the full
range of technical, economic, commercial,
political and stakeholder issues could be
addressed. This was followed by a similar
period of approvals and revisions, during
which TransCanada Pipelines withdrew from
the project. Ultimately, following cabinet
reviews and an independent review by the
Commonwealth Secretariat, the 18 agreements
that comprised the project were signed by
12 different parties on October 11, 2001.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202209

Latest decade of operational
investment in Tanzania

2013 to date

• Since 2013 investment of approximately $13m in establishing flowline

connections from new wells to the Songas and National Natural
Gas Infrastructure plants to ensure gas delivery for processing and
onward transportation and sales.

• Investment of almost $5m in capital projects to expand the downstream
distribution network, to efficiently connect gas supply to an increasing
number of customers.

2015

Workover of three offshore wells (SS-5, SS-7 and SS-9) at a cost of $33m to
address well safety issues, restore production potential and ensure project
production obligations could be met.

2016

Investment of approximately $33m to drill offshore well SS-12 to meet
increased demand as advised by TPDC and address declining reservoir
pressure and production potential.

2019

$8.5m spent to install closed loop refrigeration on the Songas gas
processing facility. This was necessary to overcome lost gas cooling effect
through the plant’s JT/LTS system due to feed gas pressure decline.
Refrigeration ensured gas could continue to be processed to requisite
specifications.

2022

• Completed installation and commissioning of feed gas compression

on the Songas processing facility, costing $43.3m. This was necessary
to overcome reduced reservoir and gas arrival pressure at the inlet
manifold. Compression restored the plant’s production potential
to nameplate capacity and ensured the Company could meet
significantly increased demand.

• $31.6m to workover three onshore wells (SS-3, SS-4 and SS-10) to
return the wells to production in a safe operating state to meet
increased demand.

• The Company commits $23.2m to an extensive 3D seismic acquisition
program across 180km2 of the Songo Songo field to inform future
field development activities.

• A further $1.4m is committed for the processing of the acquired 3D

seismic data.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 20221010

The Orca Difference

The value and impact of
the Songo Songo Gas to
Electricity Project can be
measured by much more
than just the revenues
generated and shared
between its stakeholders.

Its effects are far greater
and wider ranging including
employment generation,
revenues and taxes, positive
environmental impacts, training
and development of the local
workforce and extensive social
programs.

A long term commitment
to investing in Tanzania

01.
Proactive
investor
Over the last 20 years, the Company has
continuously invested in developing the
business.

This has resulted in access to a reliable and
affordable fuel source for Tanzania with a
stable price. This has significantly accelerated
industrialization and economic development.
Many industrial customers, whose products
make an impact in many people’s daily lives,
now use gas as a fuel or feedstock to run their
businesses in Tanzania.

The Company has made total investments
of over $300 million in the drilling of wells,
reservoir studies, offshore and onshore wells
workovers, installation of refrigeration and
compression equipment. This has increased
gas production to the current level of
140MMcfd and made it possible to supply a
range of additional customers.

The Company has, on average over the past 10
years, made further investment of $480,000
per annum contributing to social development
in the areas around its operations.
Programs have been focused on education
and healthcare, positively affecting many
thousands of residents in the Kilwa District.

02.
Key contributor to the
national energy mix
Utilization of its own natural resources for
power generation and industrial heating has
significantly reduced Tanzania’s dependency
on foreign imports.

Under the National Energy Policy formulated
in 2003, Tanzania had sought to diversify
from reliance on imported fossil fuels and
hydropower.

Songo Songo natural gas was first delivered to
the Songas owned power generation facility
in Dar es Salaam in July 2004, displacing
the four jet fueled turbines in use since
1995. The plant formed part of the first gas
to electricity project in East Africa, initially
generating around 145MW of reliable, clean
and affordable energy. This was expanded in
2005 to around 190MW through the addition
of two more turbines, and is today responsible
for generating a significant percentage of
Tanzania’s electricity needs.

Gas for electricity generation has increased
further in the past decade, with the
introduction of the Kinyerezi plants, adding
a further 400MW. Today, the amount of
power produced in Tanzania from natural gas,
although seasonally dependent, is estimated
to range from 50% to 75% of the c.1,600MW
of installed capacity. Songo Songo natural
gas currently contributes 60% to 70% of this
volume.

Total capital investment

>$300m

Since 2020

$78m

% of Tanzanian domestic gas being
produced from the Songo Songo
field

60% (approx.)

% of all power generated in the
country by the Songo Songo field

45% (approx.)

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 20221111

04.
Tanzania First
From the outset of the project it was
recognized that the key to success in
Tanzania was the early, deep and broad
development of local talent.

In the early years of the project this was not
straightforward as the local, relevant skill
sets were in short supply. In areas such as
accounting, HR and logistics, the experience
was not necessarily aligned to the Oil and
Gas industry and so considerable expatriate
oversight was necessary. Nonetheless, the
Company set about recruiting heavily and
investing in training and development to
ensure transition could take place as soon
as reasonable and safely as possible. The
Company devised a practical succession plan
with the following objectives:

• Develop skilled nationals to meet the

needs of the business

• Recruit, engage and retain national staff
in the private sector, industry and market

• Successfully align appropriate training with

the Company workforce requirements

• Deliver the nationalization program within

an acceptable period

• Continue to explore and develop career
and succession planning strategies

• Grow nationals as future leaders for the

Oil and Gas industry

• Attract nationals to a non-traditional

career within the Energy sector in Tanzania

The Company implemented plans to meet
the objectives defined above without
compromising personnel and operational
safety, or the efficient running of the gas
processing plant and the field. It required
however, considerable investment in training
and development, as well as skills transfer
from the expatriate workforce. Each year,
more than $200,000 is spent on staff training
at training establishments around the world.
This has included developmental training,
continuous education and compliance
training. The successful transition was made
from an expatriate workforce of 8% to less
than 1% today. Tanzanian staff are now in
leadership positions in all PAET departments
and the operations teams are entirely
Tanzanian.

03.
Facilitator of industrial expansion
Stable, affordable gas prices have undoubtedly supported industrial expansion.

The higher quality, lower cost cement
produced as a result of utilizing natural gas
for its kilns has undoubtedly enabled TPCPLC
to grow into the successful business it has
become today.

In line with increasing industrialization, gas
demand for other industries increased from
less than 0.25MMcfd in 2004, to around 8
to 10MMcfd in 2022. Alongside this the gas
distribution network was expanded from a
few kilometers to more than 55km as more
customers have required connection. This
mostly utilizes Low-Pressure High-Density
Polyethylene (HDPE) pipe, which today is also
manufactured locally.

CNG (Compressed Natural Gas) supply and
usage in Tanzania has also been a major
development in the local natural gas market.
The Company has developed and operates
a CNG mother station at Ubungo, to meet
demand which has grown exponentially
since 2008, and today supplies more than
300 NGVs/day. Additionally, three daughter
stations have been built to supply gas to
hospitality, industrial and motor vehicle
customers via virtual pipelines for process
heating and internal combustion engines.

Assisting the Government of Tanzania’s aim
of becoming a semi-industrialized country
by 2025 has been a key feature of the Songo
Songo project. Marketing and supplying gas
to industries was a core condition when the
project agreements were signed.

Following construction of the high pressure
transmission pipeline owned and operated by
Songas, the first gas reached Dar es Salaam
in July 2004 when the Songo Songo Gas to
Electricity Project commenced commercial
operations. Alongside the gas supplied
to Songas for power generation, the first
industrial customers added were a glass
bottle producer (Kioo Limited), and one of the
largest breweries in Tanzania (TBL Limited)
who had a large demand for locally produced
glass bottles. Other customers have been
steadily added to the network as the value of
the gas supply became apparent.

The Tanzania Portland Cement Company
(TPCPLC) was among the first large scale non-
power natural gas consumers in the country
having been connected to the high-pressure
transmission line in May 2004. Natural gas was
used to displace Heavy Fuel Oil (HFO) in the
factory’s kiln. The current gas consumption
at the factory is 12.5MMcfd making TPCPLC
the Company’s largest non-power natural gas
consumer. TPCPLC has supplied cement to
the majority of Tanzania’s national strategic
projects, including the Julius Nyerere Hydro
Power Project, the Tanzanite Bridge in Dar
es Salaam and numerous roads and major
infrastructure developments in Dodoma.

Downstream Network –
Number of Customers

9
26
43
49

(2004)

(2008)

(2016)

(2022)

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202212

Company Operations

Operational update

Operationally, 2022 was
another progressive year.
Although the effects of the
global pandemic had begun
to subside, it continued
to disrupt global logistics,
manufacturing, availability
of personnel and ultimately
the cost of doing business.

With major development work in progress
through the turn of the year, the team
has worked continuously to deliver. The
importance of the installation of low pressure
compression on the Songas gas plant, and the
workover of three onshore wells early in the
year was increased as Tanzania faced drought
conditions through the highly anticipated
seasonal periods of rain. This impacted hydro
power generation and demand for gas to meet
the power generation shortfall significantly
increased while TANESCO (Tanzanian Electric
Supply Company) brought on new gas fired
power generation facilities which increased
it further. With other gas suppliers at their
limits, the timing and effectiveness of our
development projects drew significant political
and domestic attention.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202213

Additionally, two well-head de-sanding
units and two acoustic sand detectors were
purchased as contingencies to measure any
sand being produced and protect the inlet to
the facilities in the event of an ongoing issue.

The smart pigging operation identified a
number of isolated areas in two flowlines
which required attention, and repairs were
carried out successfully without affecting
production or downstream gas supply. Further
limited work will be conducted through 2023
to replace several other less critically affected
sections. Through the year, extremely limited
amounts of sand have been produced and the
system’s overall integrity remains intact and
well protected.

In parallel with ongoing production and
maintenance operations, the Company
has embarked upon a 3D seismic project,
to acquire 180km2 of new data across the
full Songo Songo License area. African
Geophysical Services (AGS) was contracted
to execute the project, with mobilization
commencing in the final quarter of the year.
Several logistical and technical issues affected
mobilization, due to commence in 2022.
Mobilization is now largely complete and we
expect acquisition to commence in Q2 and
conclude in Q3 2023, with fast tracked process
data sets available in Q4 2023. The Company
has contracted Downunder Geosolutions
(DUG) to undertake processing of the
acquired data. This will be used to inform long
term field development planning.

Upstream
The upstream focus for 2022 was
the installation of low pressure
compression and the workover
of three onshore wells.

Having been asked by the Government of
Tanzania to delay mechanical tie-in and
commissioning from the end of 2021, the
environmental conditions and increased
demand saw renewed pressure to bring the
system on-line in early 2022. Ultimately, the
system was fully commissioned by March 18,
significantly ahead of the project’s original
schedule and demand soared from an average
of 108MMcfd to over 130MMcfd, ultimately
peaking above 153MMcfd. The coordination
and effort to achieve this significant milestone
was considerable and demonstrative of the
Company’s record of proactive development.

The onshore workovers were successful in
returning two of the three wells to production.
Logistical challenges and a service industry
coming out of a long period of inactivity led
to significant delays and increased costs for
the work, while down-hole technical issues
further complicated the project. Ultimately,
wells SS-3 and SS-10 were returned to
production, SS-3 having not produced since
2012. Importantly, SS-3 produces from the
Cenomanian layer in the Eastern compartment
of the field. The workover of SS-4 involved an
open hole sidetrack to a location 80m away
from the original well bore. This proved to be
a considerably more challenging operation
with the reservoir being encountered deep to
prognosis. On completion of the work, the well
appeared to be liquid loaded and, although
gas has been produced following a coiled
tubing nitrogen lift operation the well is not
able to flow stably to the production facility.
As a result, SS-4 remains shut in subject to
further testing and logging.

The Company also proceeded with a range of
maintenance activities to sustain and increase
deliverability through what turned out to be a
critical year. In recent years the facilities had
experienced a number of isolated pinhole leaks
due to corrosion or erosion in some of the
flowlines and valves. Recognizing the potential
impact of this on production and safety, the
Company implemented a range of mitigation
measures, including smart pigging of the
flowlines to evaluate wall thickness and define
repair requirements.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022Downstream CNG operations are rapidly
becoming a critical service we provide to
the citizens of Dar es Salaam. With an ever
increasing number of domestic and industrial
transportation customers, as well as a number
of off-network industries supported through
virtual pipelines, the demand for CNG has
increased considerably.

Russia’s invasion of Ukraine, and the
subsequent and significant rise in Tanzanian
domestic fuel prices, coupled with an increase
in awareness of CNG as a vehicular fuel,
has resulted in rapid growth of Natural Gas
Vehicles (NGVs) and by extension a 400%
increase in revenues generated from the
CNG station over the past five years. To
ensure system availability to meet demand,
the Company has continued its program of
preventative maintenance and improvement
at its sole service station in Ubungo. This
included a 20,000 hour CNG compressor
overhaul. However, system availability and
increased demand also necessitated an
increase in personnel to operate the facility
24/7, and the Company hired three new CNG
operators to ensure that the service for which
we have become known is not impacted.

Alongside downstream development and
realignment, the Company continued to ensure
the operational integrity of the downstream
infrastructure which is vital to power demand
and industrial efficiency. Cathodic protection
testing, leakage testing and odorant
concentration measurements were carried
out throughout the year and found to be
within the specified operational limits defined
in national and international legislation and
guidelines.

Company Operations cont.

Downstream
Downstream demand continued
to increase through 2022, driven
primarily by increased power
generation requirements and low
hydropower production.

Notwithstanding this, and despite the time
remaining on the current development license
and PSA, industrial demand for Songo Songo
gas continued to grow. Over the course of
the year, two new customers were connected
to the downstream distribution network.
The downstream team, supported by our
legal and compliance departments worked
with various stakeholders and regulators to
ensure contracts were in place, approvals
attained and construction completed to satisfy
customer requirements. By the end of the year,
one customer was connected and consuming
gas, while the second was connected but
completing its own internal piping works prior
to commencing consumption. Discussions and
negotiations were held, and in some cases Gas
Sales Agreements (GSAs) signed with several
other customers seeking Piped Natural Gas
(PNG) and CNG, and we expect to connect
them in 2023.

One of the GSAs entered into was with an
Egypt based company called TAQA ARABIA
for the supply of PNG for the generation of
CNG for vehicles. This contract will increase
the CNG to vehicle services in Tanzania by
around 30%, further underpinning the value
and availability of the service to customers,
which in turn is expected to accelerate an
already growing market. The Company is
currently working on the wayleaves from
the relevant Government authorities. It
is envisaged that this connection will be
completed by end of Q2 2023.

As ever, in a municipality that is growing
and developing at extraordinary rates,
the Company has worked effectively with
Government partners and private companies
to relocate its downstream facilities to
pave the way for Government construction
projects, particularly the ongoing Standard
Gauge Railway (SGR) and the Bus Rapid
Transportation Systems which will bring
considerable congestion relief to Dar
es Salaam, while increasing access to
Tanzania’s regions. Three major relocations
of the downstream network were carried
out, achieved without gas curtailment to
customers.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202215

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022Company Conventional
Natural Gas Reserves (Bcf)

Independent reserves evaluation

Proved producing

Proved developed non-producing

Proved undeveloped

Total proved (1P)

Probable

Total proved and probable (2P)

2022

2021

Gross1

Net2 Gross

Net

123.8

74.7

159.8

97.3

–

16.8

15.3

–

140.6

90.0

159.8

26.8

16.9

167.4

106.9

28.3

188.1

–

97.3

18.3

115.6

1 Gross equals the gross reserves that are available for the Company based on its effective ownership interest.

2 Net equals the economic allocation of the gross reserves to the Company as determined in accordance with the PSA.

Company share of Net
Present Value ($’millions)

Proved producing

2022

2021

10%

15%

162.6

149.6

138.4

201.4

10%

177.8

15%

158.4

Proved developed non-producing

–

Proved undeveloped

(0.4)

(2.4)

(3.9)

–

Gas Reserves

2022 Independent
Evaluation
The Company’s natural gas
reserves as at December 31,
2022 for the period to the end
of its license in October 2026
were evaluated by McDaniel
& Associates Consultants Ltd.
(“McDaniel”) in accordance
with the definitions, standards
and procedures contained in
the Canadian Oil and Gas
Evaluation Handbook and
National Instrument 51-101 –
Standards of Disclosure for Oil
and Gas Activities (“NI 51-101”).
The 2022 independent reserves
evaluation prepared by
McDaniel (the “McDaniel
Report”) is dated February 24,
2023 with the effective date
of December 31, 2022.

On a gross Company basis there has been a
12% decrease in 1P reserves, and a 11% decrease
in the 2P reserves compared to 2021. Total gas
production in 2022 was 29.2Bcf and taking
this into account results in a 5% increase in 1P
reserves and a 3% increase in 2P reserves.

There has been a 19% decrease in the 2P
present value at a 10% discount basis from
$209.9 million to $170.7 million compared
to 2021. The decrease is predominately a
consequence of production in 2022 which
leads to lower 2P reserves to the end of the
license.

Reserves included herein are stated on a
Company gross basis (92.07%) unless noted
otherwise.

All the Company’s reserves are conventional
natural gas reserves and are located in
Tanzania. Additional reserves information
required under NI 51-101 are included in Orca’s
reports relating to reserves data and other
oil and gas information under NI 51-101, which
have been filed on its profile on SEDAR at
www.sedar.com and can also be found on our
website www.orcaenergygroup.com.

The Reserves Committee of the Board of
Directors has reviewed the qualifications and
appointment of the independent reserves
evaluator and the procedures for providing
information to the evaluators.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202217

2P
Gross Gas
Volumes
MMcfd

109.93

122.32

148.49

150.92

Forecast Gas Prices and Sales Volumes1

1P
Weighted
Average Gas Price
$/mcf

1P
Gross Gas
Volumes
MMcfd

2P
Weighted
Average Gas Price
$/mcf

2023

2024

2025

20262

3.91

3.96

4.05

4.02

97.15

111.34

121.57

113.37

3.83

3.89

3.92

3.86

1 The weighted average gas price, reflects the well head price received for power generation the delivered price for

industrial customers after the processing and transportation tariffs.

2 2026 is a partial year expiring on October 11, 2026

Background to the
2022 year end reserves
evaluation
The Company continued the
comprehensive review of the
Songo Songo subsurface field
mapping, reservoir simulation
modeling and well performance
in 2022, which was initiated in
2020 to better understand the
remaining potential of the Songo
Songo natural gas field to the
end of the license and assess
the remaining resource potential
beyond October 2026.

The 2022 studies included a slick line
campaign, to monitor sand production and to
retrieve downhole pressure data, a Multi Well
Pressure Test Analysis (“PTA”) to match the
well pressure data with the well performance
up to 2022, together with the development of
a multi tank reservoir model.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202218

Strategic Report

Sustainability & Responsibility

Committed
to ongoing
and consistent
engagement with
our stakeholders

We believe that engagement is fundamental for
transparency, and that our strategy considers what
our stakeholders’ needs and priorities are.

We regularly engage with different stakeholder groups to address
these in the best way possible.

r s

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nity
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Investor s

Environ

o
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e
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s

& R egulators
o vernme

Orca Energy Group Inc. Annual Report & Accounts 2022
19

Progress we would like to highlight:

• Establishing an on the ground
ESG Oversight Team within
Tanzania.

• Providing ESG training sessions
for the team on the Company’s
Sustainability Strategy.

• Updating all of Orca’s policies,

in September 2022, pertinent to
the Sustainability Strategy.

• Recruitment of an

Environmental Officer in
Tanzania.

• Conducting an Environmental
Impact Assessment as part of
the firm’s seismic acquisition
program.

• Reporting in line with the

Taskforce on Climate-Related
Financial Disclosures (TCFD)
Framework, to be released in
our 2022 Sustainability Report.

• Developing a formalized

community grievance policy for
Songo Songo Island locals.

• Working on a Company mental

health program.

• Running the Company’s

internship program, with five
full-time jobs offered and
accepted.

Sustainable
activities roadmap

Stakeholder
Engagement

2. Materiality

Analysis

3. Strategy

Definition

4. Objective &

Target Setting

5. Progress

Review

Our approach to
sustainability
Since the beginning
of our Sustainability
Strategy formalization
and our inaugural 2021
Sustainability Report,
the Company has made
progress integrating
sustainability into its
operations, governance
and strategy.

Our sustainability strategy and
performance is reviewed on an
ongoing basis.

It is important to highlight that
our Sustainability Strategy is a
long-term endeavor, with the
Company still at the beginning of
implementation. We look to make
progress wherever possible, whilst
also remaining realistic with what
can be achieved. We also continue
to monitor and better understand
the needs of and the impact of
our business on our stakeholders
and the environment, with our
approach being reviewed on an
ongoing basis. We are currently
in the process of updating our
materiality analysis in light of
domestic and international
developments that have occurred
in 2022.

Sustainability Report

Find out more at
orcaenergygroup.com

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202220

Sustainability & Responsibility cont.

Environment
The Company remains committed
to maximizing the socio-
economic potential of its asset,
whilst operating it in a manner
which reduces its negative
environmental impact.

In 2022, we hired an Environmental Officer,
with the primary focus on supporting the
Company to understand, manage and report
on our material environmental topics.

Overview of Representative Concentration Pathways (RCP)

RCP

2.6

4.5

6.0

8.5

Description

Low-emissions or “optimistic” scenario, which
requires emissions to be falling from 2020.

Intermediate scenario with higher levels of mitigation

Intermediate scenario with low levels of mitigation

Assumes the highest emission concentration without
serious policy interventions.

Predicted Temperature
Rise (2046-2065) °C

1.0 (0.4-1.6)

1.4 (0.9-2.0)

1.3 (0.8-1.8)2

2.0 (1.4-2.6)

Physical Risks
As part of our commitment to ensuring all
infrastructure is assessed for their ability to
withstand extreme weather events by 2026,
we looked to better understand Tanzanian
specific climate-related risks, temperature rise,
sea level rise and increased precipitation, each
of which can occur concurrently and carry
risk implications for the Company. Physical
climate risks have been assessed based on
representative concentration pathways (RCPs).
These are used by the International Panel
on Climate Change (IPCC) and specify the
“concentrations of GHG that will result in total
radiative forcing increasing by a target amount
by 2,100, relative to pre-industrial levels1”.

As some of the Company owned or utilized
infrastructure is located in the ocean close
to Songo Songo Island, or in the littoral on
mainland Tanzania, in places it is vulnerable
to coastal erosion, flooding, and saltwater
intrusion, all of which combine to increase the
degradation of pipelines and infrastructure,
increasing equipment breakdown, repair costs
and the overall asset lifetime. It may therefore
require investments in mitigation measures
such as strengthening coatings, improving
drainage systems or raising the elevation of
critical infrastructure. There is also a view that
rainfall is likely to become erratic and heavier
over a fewer number of days. The impact
of such heavy precipitation can also lead to
increased likelihood of flooding and storm
surges. Again, this can impact the Company’s
natural gas assets through soil saturation,
impacting the integrity of natural gas pipelines.

SDG 13: Climate action

• 13.1 Strengthen resilience and adaptive
capacity to climate related disasters

• 13.2 Integrate climate change measures into

policies and planning

• 13.3 Build knowledge and capacity to meet

climate change

Climate Change

When we think about climate change as a
business, we understand both how our natural
gas production and operational activities
impact on climate change, and how climate
change has the potential to impact our
business activities. We have assessed our
business in further depth against physical
and transition risks, which have been tailored
around our ‘Tanzania first’ lens.

https://www.metoffice.gov.uk/binaries/content/assets/
metofficegovuk/pdf/research/ukcp/ukcp18-guidance--
-representative-concentration-pathways.pdf

2 The reason why RCP 6.0 has a lower predicted

temperature rise is that RCP4.5 assumes a greater total
anthropometric forcing occur during the predicted time
period, whilst RCP6.0 expects this to continue increasing.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 2022
21

Tanzania has stated that it aims to use more
natural gas and renewable energy sources
such as solar, hydro, geothermal and wind to
meet its NDC. Even though natural gas is a
fossil fuel, Tanzania’s energy is dominated by
charcoal, which in 2020, accounted for 82% of
the country’s total energy supply and 83% of
the country’s total final energy consumption.
This is something also recognized in Tanzania’s
NDC, which states that “whilst natural gas
contributes to increasing climate change, it
results in half the CO2 emissions as charcoal,
which is a current large fuel source”. Other
higher emitting carbon fuel sources that our
product helps to alleviate include coal and
heavy liquid fuels.

However, we understand the debate around
natural gas’s status as a transitional fuel
source. Here, our Tanzania first lens, through
the Company supplying natural gas to the
Tanzanian domestic market, means we feel
it is appropriate to be guided in line with
the Tanzanian Government’s interpretation
on natural gas. Tanzania’s context may even
present an opportunity for the Company’s
natural gas product, as physical climate risks
may also present threats to other renewable
sources of energy. For example, the previously
discussed temperature rises and unpredictable
rainfall will impact the ability for Tanzania to
meet its growing energy demands through
hydropower. This is an ever-evolving field, and
we are committed to continuing monitoring
Tanzanian sentiment around natural gas.

Transition Risks
Tanzania only accounts for 0.01% of global
cumulative CO2 emissions. However,
Tanzania has committed to setting GHG
emission reduction targets, as part of their
Paris Agreement Nationally Determined
Contributions (NDCs). Tanzania’s NDC
states that it will “reduce GHG emissions
economy-wide between 30-35% relative to
the Business-As-Usual (BAU) scenario by
2030”. This was an increase from the previous
10-20% reduction aim, with the current target
equating to “138-153 Million tons of Carbon
dioxide equivalent (MtCO2e)-gross emissions”
being reduced. Tanzania’s reduction scenarios
are split into “low” (30% relative to BAU) and
“high” (35% relative to BAU) ambition.

Tanzania’s NDCs identified four priority
sectors: energy, transport, forestry and waste,
which contribute the most to Tanzania’s GHG
emissions, and will be critical for Tanzania to
“embark on a low emission growth pathway,
while achieving the desired sustainable
development”.

Within the Energy sector, Tanzania has
committed to the following targets:

• Exploring options for improved clean power
inter connection with neighboring countries.

• Promoting clean technologies for power

generation and diverse renewable sources
such as geothermal, wind, hydro, solar and
bioenergy.

• Expanding the use of natural gas for power
production, cooking, transportation and
thermal services through improvement of
natural gas supply systems throughout the
country.

• Promoting climate-smart rural electrification,
including development of micro and mini-
grid renewable generation for improved
rural electrification.

• Reducing the consumption of charcoal
in urban and rural areas by promoting
affordable alternative energy sources
through a regulation policy for charcoal
production and use.

• Promoting climate proofing of existing

and new critical infrastructure for energy,
transport, water supply, health, and other
relevant sectors.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022“Staff at PanAfrican
Energy are very
supportive, they are
willing to help you get
something on your
résumé. Everyone is
amazing, helping me to
bring out the best of my
skills and experiences.”

Sustainability & Responsibility cont.

People
Firmly focused that our workforce
and leadership teams reflect the
community where we operate.

We are proud of the progress that we have
made to diversify our workforce, having
successfully adapted the Company from a
broad expatriate management organization
to one that is largely founded on Tanzanians.
Our employees are our core asset, we inspire,
protect, and nurture our team.

SDG 8: Decent Work and Economic Growth

• 8.4 Improve resource efficiency in

consumption and production

• 8.5 Full employment and decent work

with equal pay

• 8.6 Promote youth employment, education

and training

• 8.7 End modern slavery, trafficking and

child labor

• 8.8 Protect labor rights and promote safe

working environments

Our key priorities

• Employee engagement

• Safe work environment

Graduate Intern Program

The Company recognizes not only the
importance of developing staff for progression,
but giving opportunities to future generations
to be exposed to the industry and help
prepare them for future careers, be that either
nationally or internationally.

The Company runs a graduate intern program
for up to ten students each year to gain vital
exposure to the industry, improve their skills,
explore their fields of study and hone talents
ready to enter the market and pursue future
careers.

The program, lasting 12 months, focused
on engineering graduates, and particularly
petroleum engineers. However, more recently
the program has been opened up to graduates
in the other disciplines that are vital to
sustaining oil and gas companies, such as HR,
and legal functions. Greater emphasis has
also been placed on opportunities for female
graduates with an interest in the industry,
seeking to rebalance the gender ratios where
possible.

The internship program has helped to
develop not only the traditional skills sets but
also the mental strength of interns through
teamwork, exposure to real life challenges,
and operating in different conditions. The
intent of the program is to develop people
that can compete for appropriate roles in the
industry, and immediately start adding value
on employment.

• Right to form or join trade unions

Developing Local Tanzanian Talent Expatriate/Local Talent

• Training and development

• Tanzanian first

• Employee health and wellbeing

• Inclusive work culture

In 2010, the Company committed to its
stakeholders to implement a succession
plan to replace some expatriate roles
with Tanzanians, the ratio of expatriates
to local staff was 1:12. After meeting its
commitments in full, the Company took the
transition further and offered the Deputy
Managing Directors role and the hugely
significant, Operations Manager role to
local employees. Ten years after PAET
made its commitment to the Government,
the ratio of expatriates to local employees
is less than 1%.

120

100

e
n
n
o
s
r
e
P

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
0
2

1
1

0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

1
2
0
2

2
2
0
2

Total Expatriates

Total Local Staff

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 2022
23

Employee Wellbeing

Physical Health
To ensure the physical wellbeing of our
employees, we continued to conduct a
variety of safety related training programs for
all personnel, such as a First Aid Refresher
and Fire Fighting Refresher Training. Other
specialized training for key personnel included
an “Asset Management in the Oil and Gas
industry” session. Despite the increase in
operating activity, we are glad to report on
another year without any fatalities, lost time
incidents, first aid incidents, whilst the number
of medical treatment cases stayed the same
as 2021.

We also take the health & safety procedures
of our contractors seriously, and throughout
2022, engaged with them to ensure that they
were operating in a manner aligned with our
own expectations.

Mental Health
Mental health is a topic that we take seriously
and is something that has been identified as
being a strategic priority of ours. In 2022, we
worked on a mental health program and we
are looking to onboard an external vendor
to provide mental health services to PAET
employees.

We will look to provide more granular data on
employee wellbeing in the 2022 Sustainability
Report.

“The support I have
always received from
everyone I work with
is incredible. My career
path is promising and I
look forward to it with
great anticipation.”

Despite his obvious talents and appetite
for hard work, the Company was unable to
retain Christopher in a fully technical role
on completion of his internship. However, a
job opportunity arose for an operator at the
Company’s Compressed Natural Gas filling
station in Ubungo, Dar es Salaam.

“Although I had higher academic credentials
than were required for the job, I still applied
as I knew it was an opportunity for me to
demonstrate my ability and potential” he said.

Following a number of interviews, it was clear
Christopher was an individual the Company
wished to retain, seeing considerable potential
in him. He was offered the position and happily
for both parties he accepted the role.

Despite his ambitions to achieve more,
Christopher worked as a CNG operator for
three years, hoping an opportunity would
arise. In 2022, his time came when the
Company created several trainee positions to
start the development of the next generation
of technical experts. The Company was
seeking a trainee Reservoir Engineer,
Facilities Engineer, Production Engineer
and importantly for Christopher, a drilling
engineer.

“I knew it was my time to go for my dream
job” said Christopher. “More importantly, it
was an opportunity to be trained by and work
with senior drilling engineers, where I knew a
combination of my ambition, appetite and the
mentoring they would offer would lead
to shared success.” he said.

He went on to say “I wanted to work for
PanAfrican Energy because I believed it
was a place I could get practical skills of
various sectors in the petroleum industry, and
could fulfill my dream of becoming a drilling
engineer as it is unfolding today.”

Despite rigorous competition for the role,
Christopher demonstrated in the interview,
and through his internship and recent
employment, that he had the drive, intellect
and commitment to succeed, and was offered
the opportunity which he readily accepted.

Today, Christopher works alongside other
technical staff in the head office in Dar es
Salaam, with mentoring provided by an array
of experienced industry personnel from
within the Group, and additional training to be
provided from highly respected institutions.
His story is one of determination, fixed
goals and a recognition that opportunities
do not come without hard work and
commitment.

Christopher MwaminiMungu

Christopher MwaminiMungu, was born in the
Kibondo district in Kigoma region, located in
the far North West of Tanzania and close to
the border with Burundi. After several moves,
he now resides in the Geita region on the
southern shores of Lake Victoria. Educated
in Musangila and Namonge primary and
secondary schools in Bukombe district, he
attained a place at the Tabora boys secondary
school for advanced secondary education,
an institution that can boast several senior
political figures amongst its alumni. Later,
Christopher attended the University of Dar es
Salaam for undergraduate studies, majoring in
petroleum engineering.

It was following high school pre-graduation
career awareness sessions that Christopher
developed a passion for the oil and gas
industry, with a particular interest in drilling.
A determined young man with a clear vision,
it was this moment which ultimately led him
to pursue the path he finds himself on today.

Christopher’s talents were recognized
early by the Company, nearing graduation
from University, he won a final year project
presentation competition organized by the
Society of Petroleum Engineers – University
of Dar es Salaam chapter. The Company seeks
to attract this sort of talent and Christopher
was immediately offered a six-month
internship.

The opportunity this presented to Christopher
set out a clear pathway to what he considers
to be his dream career. “Considering
PanAfrican Energy is the leading producer
of natural gas in Tanzania with operations
across all aspects of the oil and gas industry,
it was an opportunity I could not ignore” said
Christopher.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202224

Sustainability & Responsibility cont.

Community Focus
The Company continues to ensure
that the benefits of its operations
are not only for customers
and employees, but also to
communities surrounding the
operational area.

Songo Songo Island and its ever increasing
community, is at the heart of the Company’s
operations, with many community members
fully integrated into the Company. Recognizing
the importance of returning value to the
Songo Songo Island community, and also
their separation from many of the benefits
of mainland living in Tanzania, the Company
invests regularly in social projects to enhance
health and education.

Education

Songo Songo Island
Kindergarten

Cost: $47,000

Constructed: 2011

Capacity: 135

Attendees: Over 1,200 to date

Facilities: 2 classrooms, toilets, office, library
and a play area

Ongoing Support: Educational materials and
books

Impact: Delivering a significant increase
in the availability of pre-school education
in key remote communities, providing
the fundamental first step in improving
educational prospects for the children living
on Songo Songo Island.

Scholarship Program

Commenced: 2011

Total Number of Scholarships Awarded: 65
(31 Female, 34 Male)

Support Provided: traveling costs, school
fees, boarding costs, uniform, textbooks, and
all other school requirements

Invested in community projects

$5.5m

Amount Invested in Community Related Development Projects

$
S
U

1,000,000

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

2012

2013

2014

2015

2016

2017

2018

2019 2020 2021

2022

Year

Pupils enrolled at the Songo Songo Island Kindergarten

s
l
i

p
u
P
f
o
r
e
b
m
u
N

200

150

100

2011

2012

2013 2014 2015 2016 2017

2018 2019 2020 2021 2022

Year

Scholarships Awarded to Songo Songo Island Students

2011

2012

2013

2014

2019

2021

2022

Male

Female

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 2022

Girls Dormitory

The construction of the girls
dormitory on Songo Songo
Island in 2012, provides a valuable
opportunity for young girls on
the Island to remain in a learning
environment, focus on their
studies and attain qualifications
that may open up new
employment opportunities.

It also relieved the distractive burden of family
responsibilities that they would normally face if
they returned home each evening after school.

In 2022, the Company carried out a review
of the facility, which resulted in the funding
for improvement works to take place of the
dormitory’s toilet and washing areas. It is
imperative to the Company that the conditions
offered by the project, are well maintained and
are conducive to good health and a happy
learning environment.

Total invested in the
Girls Dormitory

$73,000

“The presence of this dormitory
in our school has brought many
great benefits. Students get a
good time of calm and rest after
the lessons and their mind calms
down and they can study well and
understand the lessons well. Also,
the presence of the dormitory
makes the students get time to
learn freely and ask questions to
everyone while they are in school
and after school because the
teachers are there most of the
time.

“The dormitory also enables
students to build a sense of
independence by being aware of
their study time and taking care
of their study materials such as
notebooks, pens and books.

“A student who lives in a boarding
school has more discipline than
a student who lives at home/
day school because boarding
students live under the rules and
procedures of the respective place
all the time they are at school.”

Mr. Mohamed Issa Dadi
Songo Songo Island’s Village
Chairman, Mr. Mohamed Issa Dadi

Number of students using Science
Lab at the Songo Songo Island
Secondary School

114

193

194

133

919

Number of female students
using the Songo Songo Island
Girls Dormitory

Year

2015

2016

2017

2018

2019

2020

2021

2022

Total

Year

2015

2016

2017

2018

2019

2020

2021

2022

Total

Our four focus areas

Educatio

l
a
r
s

hips

288

I n ternships

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202226

Sustainability & Responsibility cont.

Health
The Company continues to
support the Government of
Tanzania’s efforts to improve
health service delivery and has
played an important role in
developing and implementing
health programs that support
communities on Songo Songo
Island and in the Kilwa District.

The Company invests to develop accessible,
clean, well equipped and well-staffed
medical facilities in the areas surrounding
its operations, working with community
and district leaders to identify and prioritize
sustainable health projects in locations where
the maximum benefit will be felt.

Songo Songo Island Health Center

Investment has been made in the
construction of a health centre on
Songo Songo Island, which will
be completed and handed over to
the community in May, 2023. The
new facility will serve an estimated
population of 7,000 people.

Until the Health Centre is completed, medical
facilities on the island currently comprise of a
dispensary providing limited primary health
care services. Specialists such as surgeons,
cardiologists, dermatologists, and urologists
cannot be accessed at the dispensary, and the
nearest referral facility is 27km away at Kinyonga
District Hospital.

It was clear to the Company and local leadership
on Songo Songo Island, that this construction
was essential to deliver more accessible medical
services to the community.

Following successful implementation in other
parts of Kilwa District, the Company and local
leaders agreed upon the construction of an
outpatient department, maternity ward, surgical
theatre, laboratory, mortuary, and laundry, funded
by the Company ensuring the residents on the
Island and other surrounding islands would have
greater access to quality health services.

The aim of this project is to transform the
range of healthcare available, and the way such
services are delivered on the island, enhancing
considerably the local’s quality of life while
dramatically increasing the ability to provide to
them, lifesaving medical support when required.
There is little doubt in the view of all stakeholders
involved that the project will have a positive,
lasting impact on the island and its inhabitants.

‘’We consider ourselves to be
incredibly fortunate to have a
health center built right here in
our village. For too long, we’ve
had to travel long distances to
Mtwara, Lindi, and Dar es Salaam
to access quality health services.
Pregnant women have all too
often been forced to travel to
Kinyonga hospital for specialist
care, due to the lack of services
in our dispensary. Now, with
the presence of a health center,
we have faith that medical
professionals and equipment will
arrive. This way, we will be able
to access superior health services
from the comfort of our village.
We look forward to the day that
this health center is handed over.
Not only will our own community
benefit, but also our colleagues
from nearby islands, such as
Nyuni, Njovi, and Ukuza.
The construction of this
magnificent health center will be
life-changing for all of us.”

Mr. Mohamed Issa Dadi
Songo Songo Island’s Village
Chairman, Mr. Mohamed Issa Dadi

People who will benefit from
the enhanced medical facilities

7,000

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 202227

Chumo Health Center

Chumo is one of the most densely
populated wards in Kilwa District,
with five villages and a population
of approximately 30,000.

In order to provide community members with
high-quality health care, construction of the
health center commenced in 2022. The project
was contracted locally, utilizing local artisans
and materials during the construction. The
facility is expected to be handed over to the
Kilwa District Council for use in Q2, 2023.

The facility has an outpatient department,
maternity ward, surgical theater, laboratory,
mortuary, and laundry provide more
immediate medical support to community
members, and have the same capabilities as
the major health center constructed by the
Company in Somanga. It is hoped that this will
also benefit surrounding communities, who
may be able to access the center.

The availability of a health center in a remote
area such as the Chumo Ward will provide
numerous benefits such as easy access to
medical services, prompt diagnosis, treatment
of illnesses and improved health outcomes,
reduced travel time and costs for patients,
increased productivity due to better health,
and a boost to the local economy by creating
jobs for healthcare professionals.

Chumo Ward Executive, Mr. Marachius
Mutalemwa said ’’the availability of a health
center in Chumo area will have far-reaching
positive impacts on both individual and
community health, as well as on the social and
economic development of the ward. This can
ultimately contribute to the achievement of
universal health coverage and the Sustainable
Development Goals related to health’’.

Total Investment in the
Chumo Health Center

$445,000

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202228

Board of Directors

1. David W. Ross
Chairman
Non-Executive Director and
Chair of Remuneration/
Compensation Committee

Appointed 2004

Experience
David Ross has extensive
experience in international
tax law and is a partner in the
Calgary-based law firm of Burnet
Duckworth & Palmer. He has
served as Secretary to the Board
since the Company was formed
in 2004.

2. Jay Lyons
Executive Director
Chief Executive Officer and
Chair of Reserves Committee

Appointed 2019

Experience
Jay Lyons joined the Company
in May 2019 as a Non-Executive
Director and took on the role of
Interim Chief Executive Officer
in 2020 and Chief Executive
Officer in June 2021. Jay is a
private investor with considerable
experience in the oil and gas
industries in both Canada and the
United States. He has worked in a
range of roles for both private and
public companies in the upstream
and downstream sectors. Jay
Lyons has a strong familiarity
and understanding of the Songo
Songo project and the Tanzanian
operating environment.

3. Lisa Mitchell
Executive Director
Chief Financial Officer

Appointed

2022

Experience
Lisa Mitchell joined the Company
as Chief Financial Officer in
November, 2021. Lisa was the
CFO and Executive Director of
San Leon Energy plc (AIM: LSE),
a Nigeria focused oil and gas
company listed in London, and
previously the CFO and Executive
Director of Lekoil Limited (AIM:
LEK), an Africa focused oil and
gas Company with interests in
Nigeria. Lisa has also held senior
roles at Ophir Energy plc (LSE:
OPHR), a former FTSE 250 energy
Company, CSL Limited (ASX top
50) and Mobil Oil Australia. Lisa
is a FCPA (Australia) and holds a
Bachelor of Economics from La
Trobe University, Melbourne and
a Graduate Diploma in Applied
Corporate Governance from the
Governance Institute of Australia.

Dr Frannie Léautier

4.
Non-Executive Director
Chair of ESG Committee

Appointed 2019

Experience
Dr Léautier is a globally respected
development expert and has
extensive African and global
experience in the public and
private sectors. Dr Léautier is a
Senior Partner at SouthBridge
Group, she is also the Founder and
Managing Partner of the Fezembat
Group and was previously Senior
Vice President of the African
Development Bank, where she
led efforts to improve the bank’s
overall operational effectiveness.
Other roles include: Chief
Operating Officer for the Trade
and Development Bank based in
Nairobi, Infrastructure Director,
World Bank, Vice President and
Head of the World Bank Institute.

Dr Léautier holds a PhD in
Infrastructure Systems and a
Master’s in Transportation from
the Massachusetts Institute of
Technology.

5. Linda Beal
Non-Executive Director
Chair of Audit and Risk
Committee

Appointed 2019

Experience
Linda Beal was a tax partner
with PricewaterhouseCoopers
in the UK for 16 years and then
with Grant Thornton UK LLP.
Linda has significant experience
of advising natural resources
groups operating in Africa and
internationally.

Board Diversity

Male

Female

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 2022

How we manage our Company

The Board

Executive Management

• Provides independent oversight that
ensures the integrity of the business

• Responsible for managing the Company’s
core operations at the Songo Songo field

• Provides the Company with strategic

• Delivering value for all stakeholders

direction

• Ensure the successful implementation of the

• Responsible for monitoring risk

Company’s corporate strategy

management framework for the Company

Remuneration/
Compensation
Committee

• Reviews and

decides the overall
remuneration
of Executive
Management
and other key
employees

ESG Committee

• Ensures ESG
principles are
adopted

• Provides

guidance for the
implementation of
ESG principles

• Provides a systems
check on safety,
environmental
and governance
associated risks

Audit and Risk
Committee

• Responsible
for providing
oversight of the
financial reporting
process

• Provide

independent
assessment of
audit process

• Ensure compliance

with laws and
regulations

• Responsible for
overseeing the
management
of internal
controls and risk
management

Reserves
Committee

• Reviews the
Company’s
procedures to
ensure that
disclosure of
reserves complies
with security
regulation

• Meets with the
independent
reserves evaluator
to determine there
have been no
restrictions placed
by management
on the ability to
report the reserves
and associated
valuations

• Ensure oversight
of the Songo
Songo gas field
reserves and to
review associated
reservoir and
technical risk
associated with
extraction of
reserves and the
ability to report
the reserves
and associated
valuations

ESG oversight
A critical element of the
Company’s ESG approach
lies within our ESG Oversight.
Previously, our ESG Oversight
existed only at the Board
level, with the ESG Committee
comprising of the following Board
personnel:

Frannie Léautier
Non-Executive Director (Chair)

Jay Lyons
Chief Executive Officer

However, given daily operations
are carried out, we recognize that
there are multiple stakeholder
groups, across different verticals,
responsible for the implementation
of the Sustainability Strategy.
Therefore, we felt it was
appropriate to also institute a
Group ESG Committee.

The ESG Committee comprises of:

Rebecca Framp
ESG Manager

Shuli Mrengo
Health & Safety/ESG Manager

Rehema Shija
Local Content & Compliance
Manager

Andrew Kashingaki
Corporate Social Responsibility
Manager

Doreen Rwelamila
Environmental & ESG Specialist

The primary role of the ESG
Committee is to develop,
communicate, refine, and ensure
implementation of the Company’s
sustainability strategy. The
Committee meet regularly, and
report to senior management on
a monthly basis. All members
of the ESG Committee are
currently undergoing specialized
ESG Training.

The purpose of instituting
this committee is to support
facilitating the implementation
of the Company’s Sustainability
Strategy, whilst ensuring that
all relevant stakeholders are
kept informed, thereby creating
a truly Group-wide approach
towards sustainability and its
implementation.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202230

Our Workforce

Executive Management Team

Jay Lyons
Chief Executive Officer
Executive Director

Lisa Mitchell
Chief Financial Officer
Executive Director

Ewen Denning
Chief Operating Officer

Appointed 2019

Appointed 2021

Appointed 2022

Experience
Jay Lyons joined the Company
in May 2019 as a Non-Executive
Director and took on the role of
Interim Chief Executive Officer
in 2020 and Chief Executive
Officer in June 2021. Jay is a
private investor with considerable
experience in the oil and gas
industries in both Canada and the
United States. He has worked in a
range of roles for both private and
public companies in the upstream
and downstream sectors. Jay
has a strong familiarity and
understanding of the Songo
Songo project and the Tanzanian
operating environment.

Lisa is a FCPA (Australia) and
holds a Bachelor of Economics
from La Trobe University,
Melbourne and a Graduate
Diploma in Applied Corporate
Governance from the Governance
Institute of Australia.

Experience
Ewen Denning brings over 35
years of international energy
industry experience to Orca
Energy Group. During his career
has he has worked for BP,
BG Group and Glencore and
had assignments across five
continents. Since 2011 he has
worked extensively in Africa on a
variety of projects in Cameroon,
Chad, Equatorial Guinea, Nigeria
and Tunisia. Most recently on
the Logbaba integrated gas
project in Cameroon. He has
wide technical and commercial
experience having held senior
positions managing operational
assets in established areas and
commercializing new ventures in
frontier areas.

Ewen holds a B.Eng. in
Mechanical Engineering from
Sheffield University and an MBA
from Heriot-Watt University. He is
a Chartered Engineer and Fellow
of the Institute of Mechanical
Engineers and also a Member
of the Society of Petroleum
Engineers.

Andy Hanna MBE
Managing Director
PanAfrican Energy Tanzania
Limited

Appointed to
Managing Director 2019

Experience
Andy Hanna has worked with
Orca and PAET in various
management roles for the past
ten years, being appointed
Managing Director of PAET in
2019. He joined the Company
following a career in the public
sector where he led engineering,
logistics and security projects
around the world. Since joining,
he has played an integral role in
the development and delivery of
strategic and operational plans
for PAET, while taking a lead role
in the management of complex
senior stakeholder issues in
Tanzania.

Andy has a strong background in
electronic and civil engineering
and has a Master’s Degree in
Military Science from Cranfield
University. He is a Fellow of the
Chartered Management Institute
and a Member of the Institute of
Royal Engineers.

Andy is pursuing a Master’s
in Business Administration,
specializing in Oil and Gas
Management, through Robert
Gordon University, Aberdeen.

Strategic ReportOrca Energy Group Inc. Annual Report & Accounts 2022
31

Welcoming
Revocatus Kasheshi
to the Management Team

For the past eight years, Revocatus
Kasheshi has been PanAfrican Energy’s
local Reservoir Engineer, leading
management and supporting development
of the Songo Songo gas field.

Revocatus has used his skills and ever
increasing experience to monitor wells and
reservoir performance, advise management
on asset development planning and
supporting the annual reserve and resource
audits through modeling and analysis.

Revocatus is highly respected amongst his
peers, with his standing enhanced through
his participation in panels and provision of
technical presentations at various meetings
and congresses.

Recognizing Revocatus’ professional and
technical capability, but also his innate
personal skills, the Company recently
promoted him to the role of ‘Head of
Technical’, where he has taken responsibility
for the in-county leadership of a growing
technical team, charged with the delivery
of a range of technical support work
required to enable efficient development
of the field on a short to long-term basis.
As the team leader he is responsible for
allocation of work, prioritization, verification
and ensuring the work is carried out to
recognized industrial standards. His role
involves ensuring the technical team
collaborate closely with other technical
support functions, including various
consultants both inside and outside
Tanzania.

Revocatus’ promotion demonstrates the
Company’s commitment to recognizing,
developing and rewarding local talent. As a
highly motivated, highly capable engineer,
Revocatus’ work ethic, professionalism and
commitment has rightly earned him this
promotion. We wish him luck in his new
role and we look forward to supporting him
through his continued career progression.

Tanzanian Management Team
The Company aspires to provide all employees with long
term and rewarding careers, The majority of our Tanzanian
management team have been trained and promoted from
roles within the Company. It is through their professionalism,
skill and diligence that the Company is able to continually
raise its standards and quality.

Senior Management

1. Andy Hanna
Managing Director

2. Bizimana Ntuyabaliwe
Deputy Managing Director

3. Mwinshehe Said
Finance Director

Our operational workforce in 2022 remained at 99% local staff,
with 20% of our in-country management team being female.

4. Peter Sololo
Operations Manager

Management

5. Andrew Kashangaki
CSR Manager

6. Brown Mollel
IT Manager

7. Gasper Mkomba
HR/Office Manager

8. John Samwel
Downstream Stakeholder
Relations Manager

9. Obeid Kitalima
Finance Manager

10. Rehema Shija
Local Content Compliance Manager

11. Revocatus Kashesi
Head of Technical

12. Ritha Mohele
Legal and Document Control Manager

13. Sabas Oisso
Downstream Manager

14. Shuli Mrengo
HSE Manager

15. Stella Ndossi
Logistics Manager

Management Team
Diversity

Male

Female

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202232

Management’s Discussion & Analysis

THIS MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”) OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED
DECEMBER 31, 2022. THIS MD&A IS BASED ON THE INFORMATION AVAILABLE ON April 26, 2023. ALL AMOUNTS ARE REPORTED IN
US DOLLARS (“$”) UNLESS OTHERWISE NOTED.

THIS MD&A CONTAINS NON-GAAP FINANCIAL MEASURES AND RATIOS AND FORWARD-LOOKING INFORMATION. READERS ARE
CAUTIONED THAT THIS MD&A SHOULD BE READ IN CONJUNCTION WITH THE DISCLOSURE BELOW UNDER THE HEADINGS “NON-GAAP
FINANCIAL MEASURES AND RATIOS”, “FORWARD-LOOKING STATEMENTS” AND “GLOSSARY” INCLUDED AT THE END OF THIS MD&A.

Nature of Operations
The principal asset of Orca Energy Group Inc. (“Orca” or the “Company”) is its interest in the Production Sharing Agreement (“PSA”) with the
Tanzanian Petroleum Development Corporation (“TPDC”) and the Government of Tanzania (“GoT”) in the United Republic of Tanzania. This PSA
covers the production and marketing of natural gas from the Songo Songo license offshore of Tanzania. The PSA defines the gas produced
from the Songo Songo gas field as “Protected Gas” and “Additional Gas”. The Protected Gas is owned by TPDC and is sold under a 20-year
gas agreement (until July 31, 2024) to Songas Limited (“Songas”) and Tanzania Portland Cement PLC (“TPCPLC”). Songas is the owner of the
infrastructure that enables the gas to be treated and delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island
(collectively, the “Songas Infrastructure”).

Songas utilizes the Protected Gas as fuel for its gas turbine electricity generators and for onward sale to customers while TPCPLC uses the
Protected Gas to fire kilns for the production of cement. A small amount of Protected Gas is also reserved for village electrification. The Company
receives no revenue for the Protected Gas delivered to Songas or other recipients and operates the original wells and gas processing plant on a
‘no gain no loss’ basis. Under the PSA, the Company has the right to produce and market all gas in the Songo Songo gas field in excess of the
Protected Gas requirements set forth in the PSA (“Additional Gas”) until the PSA expires in October 2026.

The Tanzanian Electric Supply Company Limited (“TANESCO”) is a parastatal organization wholly owned by the GoT with oversight by the
Ministry of Energy (“MoE”). TANESCO is responsible for the majority of electricity generation, transmission and distribution throughout Tanzania.
Natural gas has become an integral component of TANESCO’s power generation fuel mix as a more reliable source of supply over seasonal
hydropower as well as a more cost-effective and lower CO2 intensive alternative to liquid fuels. The Company and TPDC as joint sellers currently
supply Additional Gas directly to TANESCO by way of the Portfolio Gas Supply Agreement (“PGSA”) and indirectly through the supply of
Protected Gas and Additional Gas to Songas, which in turn generates and sells power to TANESCO. The Company also supplies Additional Gas to
TPDC through a long-term gas sales agreement (“LTGSA”) utilizing the National Natural Gas Infrastructure (“NNGI”).

In addition to supplying gas to TPDC, Songas and TANESCO, the Company has developed 49 contracts to supply gas to Dar es Salaam’s industrial
market.

Outlook – COVID-19
There has been no significant change in the Company’s business during the year ended December 31, 2022 as a result of the ongoing coronavirus
pandemic (“COVID-19”). Tanzanian government restrictions and vaccination program appear to have largely controlled the spread of COVID-19.
Given the steps already taken by the Company, no significant impact on our operations or business results has occurred a result of COVID-19.
However, COVID-19 has been a contributing factor in a reduction of foreign currency flowing into the country and the risk remains that in the future
the Company may not be able to convert Tanzanian shillings to United States dollars as and when required.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202233

Financial and Operating Highlights for the Three Months and Year Ended December 31, 2022

(Expressed in $’000 unless indicated otherwise)
OPERATING

Daily average gas delivered and sold (MMcfd)

Industrial

Power

Average price ($/mcf)

Industrial

Power

Weighted average

Operating netback ($/mcf)1

FINANCIAL

Revenue

Net income attributable to shareholders

per share – basic and diluted ($)

Net cash flows from operating activities

per share – basic and diluted ($)1

Capital expenditures1

Weighted average Class A and Class B shares (’000)

Working capital (including cash)1

Cash and cash equivalents

Long-term loan

Outstanding shares (‘000)

Class A

Class B

Total shares outstanding

RESERVES2

Gross Reserves (Bcf)

Proved

Probable

Proved plus probable

Net Present Value, discounted at 10% ($ million)2,3

Proved

Proved plus probable

Three Months ended
December 31

2022

2021

% Change

Year ended December 31

% Change

Q4/22 vs
Q4/21

2022

2021

Ytd/22 vs
Ytd/21

95.5

15.0

80.5

8.21

3.60

4.33

2.42

31,877

2,325

0.12

15,438

0.78

3,615

19,893

71.1

14.9

56.2

8.58

3.41

4.50

3.08

24,819

1,548

0.08

18,521

0.93

12,496

19,969

34%

43%

(4)%

(21)%

28%

50%

(17)%

(16)%

(71)%

86.8

14.0

72.8

8.52

3.59

4.38

2.62

118,089

27,726

1.39

67,660

3.40

22,406

19,923

61.1

13.4

47.7

8.09

3.47

4.48

2.93

86,022

16,370

0.81

40,110

1.97

26,610

20,317

December 31,
2022
61,553

As at
December 31,
2021
41,776

96,321

39,762

1,750

18,126

19,876

141

167

147

171

72,985

49,603

1,750

18,203

19,953

160

188

178

210

42%

53%

(2)%

(11)%

37%

69%

72%

69%

73%

(16)%

(2)%

% Change
47%

32%

(20)%

(12)%

(7)%

(11)%

(17)%

(19)%

1 Please refer to the Non-GAAP Financial Measures and Ratios section of the MD&A for additional information.
2 Please refer to the Oil and Gas Advisory section of the MD&A for additional information.
3

In accordance with the PSA with the TPDC and the GoT in the United Republic of Tanzania, the Company is able to recover income tax and consequently there is no significant
difference between the NPV of reserves on a before and after tax basis. Any capitalized terms otherwise not defined within the Financial and Operating Highlights are defined
in the MD&A.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Management’s Discussion & Analysis cont.

Financial and Operating Highlights for 2022 and Q4 2022

• Revenue increased by 28% for Q4 2022 and by 37% for the year ended December 31, 2022 compared to the same prior year periods.

The increases were primarily a result of increased sales to customers in the power sector. Gas deliveries increased by 34% for Q4 2022
and by 42% for the year ended December 31, 2022 compared to the same prior year periods. The increase in gross sales volume was
primarily due to the increase in gas deliveries to the power sector customers, TPDC and TANESCO.

• Net income attributable to shareholders increased by 50% for Q4 2022 and by 96% for the year ended December 31, 2022 compared to the

same prior year periods, primarily a result of the increased revenues and increased reversal of loss allowances related to the higher collection
of arrears from TANESCO.

• Net cash flows from operating activities decreased by 17% for Q4 2022 and increased by 69% for the year ended December 31, 2022

compared to the same prior year periods. The decrease for Q4 2022 over the comparable prior year period was primarily a result of changes
in non-cash working capital. The increase for the year ended December 31, 2022 was primarily a result of the increased revenue.

• Capital expenditures decreased by 71% for Q4 2022 and by 16% for the year ended December 31, 2022 compared to the same prior year

periods. The capital expenditures in 2022 primarily related to completion of the well workover program for the SS-3, SS-4 and SS-10 wells,
the compression project and the commencement of the 3D seismic acquisition program.

• The Company completed installation and commissioning of feed gas compression on the Songas gas processing plant in March 2022. This
extended the Company’s ability to supply current demand at the maximum capacity of the Songas Infrastructure (being the infrastructure
that enables the gas to be delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island) of approximately 100
MMcfd. The sustainability of this deliverability will be impacted by ongoing total demand including any additional volumes flowing through
the NNGI plant.

•

In April 2022, the drilling rig was released having completed the planned well workover program on wells SS-3, SS-4 and SS-10. The $31.6
million program included the reactivation of the SS-3 well and the sidetrack of the SS-4 well to a new bottom hole location, along with the
installation of corrosion resistant production tubing on all three of the wells. The SS-3 well was placed on production on February 15, 2022
and the SS-10 well was returned to production on April 18, 2022. The SS-4 well was unable to flow naturally due to liquid loading. A coiled
tubing nitrogen lift and further testing was conducted on SS-4, however as of year end it remains shut in pending further analysis of reservoir
conditions.

• The installation of compression facilities and conduct of the workovers increased short term field production potential to approximately 155
MMcfd by routing some production through the adjacent NNGI facilities also located on the Songo Songo Island. This enabled the Company
to meet higher average demand levels in excess of 130 MMcfd from Q2 2022.

• The Company is currently carrying out a 3D seismic acquisition program, budgeted at $23.2 million in order to further evaluate the current
reserves and contingent resources as well as the potential of prospective resources. This will be used to de-risk future development drilling
opportunities and to evaluate the potential for future exploration drilling. The Company awarded and signed a contract with African
Geophysical Services LLP on July 7, 2022, to acquire approximately 181 square kilometers of 3D shallow marine, transition zone and land
based seismic over the Songo Songo license area. We anticipate that the acquisition of data will be completed by Q3 2023 and fast track
data processing will be completed by Q4 2023.

• The Company successfully completed smart pigging of the SS-3, SS-4, SS-5, SS-7 and SS-9 flowlines, identifying a number of areas of

corrosion and/or erosion. Immediate, low cost repairs of sections of flowline have been conducted and wells returned to operations with
minimal impact on overall production. Further work will be conducted throughout 2023 to replace several other less critically affected
sections.

• The Company exited the period in a strong financial position with $61.6 million in working capital (December 31, 2021: $41.8 million), cash and
cash equivalents of $96.3 million (December 31, 2021: $73.0 million) and long-term debt of $39.8 million (December 31, 2021: $49.6 million).
The decrease in long-term debt was related to reclassification of $10.0 million of long-term debt into current liabilities as it becomes due
in April and October 2023. Subsequent to December 31, 2022 the Company made a payment of $5.0 million, representing the second
semi-annual repayments of its long-term debt.

• As at December 31, 2022 the current receivable from TANESCO was $3.7 million (December 31, 2021: $2.0 million). TANESCO’s long-

term trade receivable as at December 31, 2022 was $22.0 million with a provision of $22.0 million (December 31, 2021: $26.5 million with a
provision of $26.5 million). Subsequent to December 31, 2022 TANESCO paid the Company $11.1 million and the Company invoiced TANESCO
$6.9 million for 2023 gas deliveries. In addition, subsequent to December 31, 2022 TANESCO paid the Company $3.3 million against the 2020
take or pay invoice.

• On February 24, 2022, May 20, 2022, September 28, 2022 and November 16, 2022 the Company declared dividends of CDN$0.10 per share
on each of its Class A common voting shares (“Class A Shares”) and Class B subordinate voting shares (“Class B Shares”) for a total of
$6.2 million to the holders of record as of March 31, 2022, June 30, 2022, October 14, 2022 and December 31, 2022 (paid on April 15, 2022,
July 15, 2022, October 28, 2022 and January 13, 2023, respectively). Subsequent to December 31, 2022, on February 24, 2023 the Company
declared a dividend of CDN$0.10 per share on each of its Class A Shares and Class B Shares for a total of $1.5 million to holders of record as
of March 31, 2023 paid on April 14, 2023.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202235

Financial and Operating Highlights for 2022 and Q4 2022 cont.

• On July 11, 2022 the Company commenced a normal course issuer bid (“2022 NCIB”) to purchase Class B Shares through the facilities of
the TSXV and alternative trading systems in Canada. As at December 31, 2022 the Company had repurchased 47,200 Class B shares at a
weighted average price of CDN$4.87 per share pursuant to the 2022 NCIB.

• On August 8, 2022, the Company issued a redemption notice to Swala Oil & Gas (Tanzania) plc (“Swala TZ”), requesting that Swala TZ

redeem 20% of the outstanding Swala TZ convertible preference shares (“Preference Shares”) by August 23, 2022, which were issued to the
Company in accordance with the investment agreement dated December 29, 2017 (the “Investment Agreement”), between the Company,
the Company’s subsidiary PAE PanAfrican Energy Corporation (“PAEM”) and Swala’s TZ subsidiary, Swala (PAEM) Limited (“Swala UK”).
Swala TZ has responded to the Company’s redemption notice and is disputing its obligation to redeem the Preference Shares. On January
31, 2023, the Company issued a further redemption notice to Swala TZ, requesting that Swala TZ redeem a further 20% of the outstanding
Preference Shares by February 15, 2023. As at December 31, 2022 and April 26, 2023, the redemption notice requests of the Company remain
outstanding.

• On April 3, 2023, Swala TZ announced that a meeting of its creditors held on March 31, 2023, resolved that Swala TZ be placed into
liquidation. Also, on March 31, 2023, Apex Corporate Trustees (UK) Limited appointed representatives of Grant Thornton UK LLP as
administrators of Swala UK. The Company is evaluating its rights and options in response to Swala TZ being put into liquidation and Swala
UK being put into administration.

• On August 5, 2022, the Fair Competition Commission of the United Republic of Tanzania (“FCC”) issued Provisional Findings with respect an
investigation the FCC initiated against Orca, PAEM, PanAfrican Energy Tanzania Limited (“PAET”) and Swala UK and Swala TZ in response
to a letter Swala TZ sent the FCC on March 31, 2022. In the Provisional Findings, the FCC claims that Orca’s sale of investment shares
held in PAEM to Swala UK pursuant to the Investment Agreement amounted to a notifiable merger whose non-notification infringed the
provisions of the Fair Competition Act, 2003 and the Fair Competition Rules, 2018. In September 2022, the Company responded to the FCC’s
Provisional Findings submitting that the transactions did not amount to a prohibited merger and that, if the transactions were notifiable, it
was Swala UK who had the obligation to notify the authorities of the merger and not Orca, PAEM and PAET. On November 11, 2022, the FCC
issued another letter to Orca, PAEM and PAET requesting a settlement plan to be submitted to the FCC. The Company is optimistic that there
is no merit to the allegations of the FCC against the Company and that the matter can be settled soon.

• Total proved conventional natural gas reserves (“1P”) and total proved plus probable conventional natural gas reserves (“2P”) decreased by

12% and 11%, respectively, at December 31, 2022 compared to the prior year. The decrease is predominantly due to gross property Additional
Gas production in 2022 of 31.7 Bcf (2021: 22.3 Bcf). The net present value of estimated future cash flows from 2P reserves at a 10% discount
rate decreased by 19% compared to the previous year. This is mainly the result of the shorter time period remaining to the end of the Songo
Songo license together with an increase in forecasted capital costs. Under the terms of the PSA, the Company is required to pay Tanzanian
income tax which is fully recovered through the profit sharing arrangements with TPDC. Income tax has no material impact on the cash flows
emanating from the PSA and accordingly there is no significant difference between the net present value of reserves on a before and after
tax basis.

• 2023 production started strongly, with gross gas sales averaging 94 MMcfd in Q1 2023. We anticipate our gross gas sales to average between

90 and 100 MMcfd during 2023, with a midpoint of 95 MMcfd.

• With the emergence of longer term high levels of gas demand, we are currently reforecasting our capital program to align with a potential

longer term investment program. In the short term the 2023 forecast capital expenditure has been reduced to circa $38 million.

Oil and Gas Advisory
The Company’s conventional natural gas reserves as at December 31, 2022 disclosed herein were evaluated by McDaniel & Associates Consultants
Ltd. (“McDaniel”), independent petroleum engineering consultants, in accordance with the definitions, standards and procedures contained in the
Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities
(“NI 51-101”).

The independent reserves evaluations prepared by McDaniel had an effective date of December 31, 2022 and December 31, 2021 and preparation
date of February 24, 2023 and February 24, 2022 respectively. All of the reserves presented herein are conventional natural gas reserves. The
net present value of future net revenue attributable to the Company’s reserves is stated without provision for interest costs and out of country
general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income and future capital
expenditures for only those wells assigned reserves by McDaniel. It should not be assumed that the undiscounted or discounted net present
value of future net revenue attributable to the Company’s reserves estimated by McDaniel represent the fair market value of those reserves. Such
amounts do not represent the fair market value of the Company’s reserves. The recovery and reserve estimates of the Company’s conventional
natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves
may be greater than or less than the estimates provided herein. All of the reserves referenced herein are based on McDaniel’s forecast pricing as at
December 31, 2022 and December 31, 2021, as applicable.

All the Company’s reserves are located in Tanzania. Reserves included herein are stated on a Company gross reserves basis unless noted otherwise.
Company gross reserves are the total of the Company’s working interest share in reserves before deduction of royalties owned by others and
without including any royalty interests of the Company, and are based on the Company’s 92.07% ownership interest in the reserves following the
transaction with Swala TZ. Additional reserves information required under NI 51-101 is included in Orca’s reports relating to reserves data and other
oil and gas information under NI 51-101, which are filed on its profile on SEDAR at www.sedar.com.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202236

Management’s Discussion & Analysis cont.

Financial and Operating Highlights for 2022 and Q4 2022 cont.
Oil and Gas Advisory cont.
“BOEs” may be misleading, particularly if used in isolation. A BOE conversion ratio of 6,000 cubic feet of natural gas to one barrel of oil equivalent
(6Mscf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. As the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is
significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

For certainty, all references herein to “production”, “gross daily sales”, “gas sales” and “Additional Gas sales” are references to conventional natural
gas production, conventional natural gas daily sales, conventional natural gas sales and conventional natural gas sales, which are classified as
Additional Gas in accordance with the PSA, respectively.

Operating Volumes
The average gross daily sales volume increased by 34% for Q4 2022 and by 42% for the year ended December 31, 2022 over the comparable prior
year periods. The increase in gross sales volume was primarily due to increased sales to the power sector.

The Company’s gross sales volumes were split between the Industrial and Power sectors as detailed in the table below:

Gross sales volume (MMcf)

Industrial sector

Power sector

Total volumes

Gross daily sales volume average (MMcfd)

Industrial sector

Power sector

Gross daily sales volume average total

Three Months ended
December 31

Year ended
December 31

2022

2021

2022

2021

1,384

7,402

8,786

15.0

80.5

95.5

1,371

5,168

6,539

14.9

56.2

71.1

5,098

26,579

31,677

14.0

72.8

86.8

4,882

17,430

22,312

13.4

47.7

61.1

Industrial Sector
Industrial sector gross daily sales volumes increased by 1% for Q4 2022 and by 4% for the year ended December 31, 2022 over the comparable prior
year periods. The increases were a result of increased consumption by industrial customers due to a higher demand for services and products.

Power Sector
Power sector gross daily sales volumes increased by 43% for Q4 2022 and by 53% for the year ended December 31, 2022 over the comparable
prior year periods. The increases were primarily due to increased gas sales to TPDC through the NNGI and to TANESCO.

Protected Gas Volumes
Protected Gas volumes increased by 1% to 3,890 MMcf (42.3 MMcfd) for Q4 2022 compared to 3,854 MMcfd (41.9 MMcfd) for Q4 2021 and by 5%
to 13,883 MMcfd (38.0 MMcfd) for the year ended December 31, 2022 compared to 13,255 MMcfd (36.3 MMcfd) for the year ended December 31,
2021. The Company receives no revenue for Protected Gas volumes, however the volumes are required to calculate total gas produced from the
reservoir and the allocation of certain production, distribution and transportation expenses between Protected Gas and Additional Gas.

Commodity Prices
The commodity prices achieved in the different sectors during the year are detailed in the table below:

$/mcf

Average sales price

Industrial sector

Power sector

Weighted average price

Three Months ended
December 31

Year ended
December 31

2022

2021

2022

2021

8.21

3.60

4.33

8.58

3.41

4.50

8.52

3.59

4.38

8.09

3.47

4.48

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202237

Commodity Prices cont.
Industrial Sector
The average industrial sales price decreased by 4% for Q4 2022 and increased by 5% for the year ended December 31, 2022 over the comparable
prior year periods. The decrease in prices for Q4 2022 is primarily due to the underlying decrease in the price of heavy fuel oil against which most
of the industrial customer contracts are priced. Similarly, the increase in prices for the year ended December 31, 2022 is due to the increase in the
price of heavy fuel oil for the year.

Power Sector
The average power sector sales price increased by 6% for Q4 2022 and by 3% for the year ended December 31, 2022 compared to the same
prior year periods. The average power sector sales price varies depending on whether gas is delivered and sold through the NNGI or the Songas
Infrastructure. Sales through the NNGI are to TPDC and do not include processing and transportation tariffs which are included in gas delivered
through the Songas Infrastructure.

Revenue
Under the terms of the PSA the Company is responsible for invoicing, collecting and allocating the revenue from Additional Gas sales (see
“Principal Terms of the PSA and Related Agreements”).

The Company is entitled to recover all costs incurred on the exploration, development and operations of the project (“Cost Gas revenue”) up to
a maximum of 75% of the net field revenue (gross field revenue less the tariff for processing and pipeline infrastructure) prior to allocating the
remaining net field revenue between TPDC and the Company (“Profit Gas revenue”). Any costs not recovered in a period are carried forward
for recovery out of future revenues. Once the Cost Gas revenue has been recovered, TPDC is able to recover any pre-approved marketing costs.
Currently there are no pre-approved marketing costs for TPDC.

The Company is liable for income tax in Tanzania, but under the terms of the PSA, TPDC’s share of revenue is reduced by the current tax payable
grossed up at 30% (“income tax adjustment”). Revenue as presented on the Company’s Consolidated Statements of Comprehensive Income is
calculated by adjusting the Company’s operating revenue by the income tax adjustment.

The reconciliation of gross field revenue to Company operating revenue and revenue is detailed below:

$’000

Industrial sector

Power sector

Gross field revenue

TPDC share of revenue

Company operating revenue

Current income tax adjustment

Three Months ended
December 31

Year ended
December 31

2022

11,356

26,659

38,015

(11,921)

26,094

5,783

31,877

2021

11,764

17,649

29,413

2022

43,437

95,388

138,825

2021

39,477

60,445

99,922

(6,010)

(37,841)

(22,285)

23,403

1,416

24,819

100,984

17,105

118,089

77,637

8,385

86,022

Revenue increased by 28% for Q4 2022 and by 37% for the year ended December 31, 2022 over the comparable prior year periods. The increases
are primarily a result of increased sales to the power sector partially offset by a higher TPDC share of revenue as a result of increased gross field
revenue.

The average Additional Gas sales volumes for the quarters and for the years ended December 31, 2022 and December 31, 2021 were above 50
MMcfd which entitled the Company to a 55% share of Profit Gas revenue. The Company was allocated a total of 66% of the Additional Gas net field
revenue for Q4 2022 (Q4 2021: 76%) and a total of 70% of the Additional Gas net field revenue for the year ended December 31, 2022 (year ended
December 31, 2021: 75%).

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202238

Management’s Discussion & Analysis cont.

Production, Distribution and Transportation Expenses
The production, distribution and transportation costs are detailed in the table below:

$’000

Operating costs

Tariff for processing and pipeline infrastructure

Ring-main distribution costs

Three Months ended
December 31

Year ended
December 31

2022

916

3,270

613

4,799

2021

560

2,437

259

3,256

2022

3,218

12,140

2,653

18,011

2021

2,042

8,222

1,989

12,253

Operating costs include well maintenance costs, PSA license costs, regulatory fees, insurance, certain costs associated with evaluation of the
reserves and the costs of personnel not recoverable from Songas. Operating costs are allocated between Protected Gas (recoverable from Songas)
and Additional Gas in proportion to their respective volumes during the period. Operating costs increased by 64% for Q4 2022 and by 58% for the
year ended December 31, 2022 compared to the same prior year periods, primarily as a result of a reclassification of insurance costs from ring-
main distribution costs from Q1 to Q4 2022 and following the completion of smart pigging in Q2 and Q3 2022. The amount paid under the tariff
for processing and pipeline infrastructure increased by 34% for Q4 2022 and by 48% for the year ended December 31, 2022 compared to the same
prior year periods, primarily as result of increased gas volumes processed and delivered through the Songas Infrastructure. Ring-main distribution
costs increased by 137% for Q4 2022 and by 33% for the year ended December 31, 2022 compared to the same prior year periods, primarily as a
result of a tariff adjustment in Q4 2021 and higher maintenance costs for the distribution network which transports the gas to industrial customers.
This was partially offset by reclassification of insurance costs from ring-main distribution costs to operating costs.

Operating Netback
The operating netback per mcf before general and administrative expenses, tax and additional profits tax (“APT”) is detailed in the table below (see
“Non-GAAP financial measures and ratios”):

$/mcf

Gas price – Industrial

Gas price – Power

Weighted average price for gas

TPDC Profit Gas entitlement

Production, distribution and transportation expenses

Operating netback

Three Months ended
December 31

Year ended
December 31

2022

8.21

3.60

4.33

(1.36)

(0.55)

2.42

2021

8.58

3.41

4.50

(0.92)

(0.50)

3.08

2022

8.52

3.59

4.38

(1.19)

(0.57)

2.62

2021

8.09

3.47

4.48

(1.00)

(0.55)

2.93

The operating netback decreased by 21% for Q4 2022 and by 11% for the year ended December 31, 2022 over the comparable prior year periods.
The decreases are mainly due to the decrease in the weighted average price for natural gas as a result of an increased share of sales to the power
sector as well as the increases in TPDC’s Profit Gas revenue as a result of increased revenues.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202239

General and Administrative Expenses
General and administrative expenses are split between the Company’s head office and Tanzania. A significant percentage of general and
administration expenses relate to office and management costs that support the Company’s operations in Tanzania and are cost recoverable
under the PSA.

$’000

Tanzania

Corporate

General and administrative expenses are detailed in the table below:

$’000

Employee and related costs

Office costs

ESG, marketing and business development costs

Reporting, regulatory and corporate

Three Months ended
December 31

Year ended
December 31

2022

2,356

1,464

3,820

2021

1,891

1,423

3,314

2022

8,029

5,519

13,548

Three Months ended
December 31

Year ended
December 31

2022

1,996

913

137

774

3,820

2021

1,833

785

327

369

3,314

2022

7,408

3,668

472

2,000

13,548

2021

6,946

5,042

11,988

2021

6,919

2,716

967

1,386

11,988

General and administrative expenses averaged $1.3 million per month during Q4 2022 (Q4 2021: $1.1 million) and $1.1 million per month for the
year ended December 31, 2022 (year ended December 31, 2021: $1.0 million). The 7% increase in employee and related costs for the year ended
December 31, 2022 over the comparable prior year period was mainly a result of additions in the headcount. The 35% increase in office costs for
the year ended December 31, 2022 over the comparable prior year period was a result of increased costs related to business travel and logistical
services in Tanzania. The 51% decrease in ESG, marketing and business development costs for the year ended December 31, 2022 over the
comparable prior year period was a result of higher ESG expenditures incurred in 2021 in relation to the construction of the Chumo Health Centre
and the NAHAMA dispensary in Tanzania. The 44% increase in reporting, regulatory and corporate costs for the year ended December 31, 2022
over the comparable prior year period was due to increase in costs related to professional and legal services.

Stock-Based Compensation
The breakdown of the costs incurred in relation to stock based compensation is detailed in the table below:

$’000

Stock appreciation rights (“SARs”)

Restricted stock units (“RSUs”)

Three Months ended
December 31

Year ended
December 31

2022

–

(1)

2021

(123)

(99)

2022

(143)

(120)

2021

(585)

(576)

As at December 31, 2022 a total of 14,000 SARs were outstanding (December 31, 2021: 746,166). No new SARs were issued, 54,000 SARs were
forfeited, and 678,166 SARs were exercised during 2022. As at December 31, 2022 a total of 2,833 RSUs were outstanding (December 31, 2021:
76,366 RSUs). No new RSUs were issued or forfeited, and 73,533 RSUs were exercised during 2022.

As SARs and RSUs are settled in cash, they are revalued at each reporting date using the Black-Scholes option pricing model with the resulting
liability being recognized in trade and other liabilities. In the valuation of stock appreciation rights and restricted stock units as at December 31,
2022, the following assumptions have been made: a risk free rate of interest of 1.0% (December 31, 2021: 1.0%), stock volatility of 25.4% (December
31, 2021: 24.6% to 37.8%), 5% forfeiture (December 31, 2021: 5%) and a closing stock price of CDN$4.68 (December 31, 2021: CDN$5.40) per Class
B share. The valuation of the SARs and RSUs awards is increased to reflect the amount of dividends paid between the award date to the time of
exercise.

As at December 31, 2022 a total accrued liability of $0.02 million (December 31, 2021: $1.1 million) has been recognized in relation to SARs and
RSUs which is included in other payables. In 2022, the Company recognized a recovery for the year of $0.1 million (2021: $0.6 million) on stock
based compensation.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202240

Management’s Discussion & Analysis cont.

Depletion and Depreciation
Natural gas properties are depleted using the unit of production method based on the production for the period as a percentage of the total future
production from the Songo Songo proved reserves. As at December 31, 2022 the estimated proved reserves remaining to be produced over the
term of the PSA as determined by McDaniel in their report dated February 24, 2023 with an effective date of December 31, 2022 and prepared in
accordance with NI 51-101 and the COGE Handbook were 141 Bcf (December 31, 2021: 160 Bcf). The average depletion rate was $0.91/mcf for the
year ended December 31, 2022 compared to $0.71/mcf for the comparable prior year.

$’000

Oil and natural gas interests

Office and other

Right-of-use assets

Three Months ended
December 31

Year ended
December 31

2022

9,886

2021

4,646

2022

29,174

284

2021

15,779

290

9,980

4,724

29,528

16,106

The depletion charge for natural gas interests increased by 113% for Q4 2022 and by 85% for the year ended December 31, 2022 over the
comparable prior year periods. The increases were due to increased gas produced and sold, additional capital expenditure, and a reduction in
estimated proved reserves.

Finance Income and Expense
Finance income is detailed in the table below:

$’000

Interest income

Finance expense is detailed in the table below:

$’000

Base interest expense

Participation interest expense

Lease interest expense

Interest expense

Net foreign exchange loss

Interest on tax assessment

Indirect tax

Three Months ended
December 31

Year ended
December 31

2022

300

2021

2022

613

Three Months ended
December 31

Year ended
December 31

2022

1,276

1,150

2,430

157

–

331

2,918

2021

1,476

372

1,857

274

588

212

2,931

2022

5,678

2,936

8,637

470

–

1,103

10,210

2021

133

2021

5,982

920

6,945

628

588

1,826

9,987

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 2022
41

Finance Income and Expense cont.
Base interest expense and participation interest expense relate to the long-term loan (“Loan”) from the International Finance Corporation (“IFC”)
to PAET, the Company’s subsidiary operating in Tanzania. Base interest on the Loan is payable quarterly in arrears at 10% 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. The participation
interest expense is paid annually in arrears. It equates to 6.4% of PAET’s net cash flows from operating activities less the net cash flows used in
investing activities for the year. Such participation interest will continue until October 15, 2026 regardless of whether the Loan is repaid prior to its
contractual maturity date. The increase in participation interest expense is primarily a result of the increase in PAET’s net cash flows from operating
activities, less the net cash used in investing activities, for the three and twelve months ended December 31, 2022 over the comparable prior year
periods.

Net foreign exchange losses are the result of transactions in foreign currencies recorded at the rate of exchange prevailing on the date of such
transactions. Monetary assets and liabilities in foreign currencies are translated at period-end rates. Non-monetary items are translated at historic
rates, unless such items are carried at market value, in which case they are translated using the exchange rates that existed when the values were
determined. These foreign exchange gains and losses are recorded in finance expense.

The indirect tax includes value added tax (“VAT”) on the invoices to TANESCO under the take or pay provisions within PGSA and on the invoices
to TANESCO for interest on late payments. No take or pay invoice was issued in 2022 whereas the take or pay invoice for the net amount of $6.7
million was issued in 2021 resulting in a higher indirect tax expense during the year ended December 31, 2021. The interest on tax assessment in
2021 represents the Company’s share of the amount in dispute with respect to interest on depreciation disallowed by the Tanzanian Revenue
Authority (“TRA”) for expenditures in relation to completing well SS-10 in 2009 and 2010 and well SS-12 in 2015 and 2016.

Reversal of Loss Allowance

$’000

Reversal of loss allowance

Loss allowance

Three Months ended
December 31

Year ended
December 31

2022

(2,528)

3,240

712

2021

–

1,188

2022

(10,150)

3,435

(6,715)

2021

(3,762)

1,188

(2,574)

The reversal of loss allowance in 2022 follows: (i) collection of TANESCO arrears of $5.6 million (2021: $1.1 million) which had been previously
allowed for and represents the excess of receipts over gas sales invoiced during the year; and (ii) indirect taxation of $4.6 million related to
the TANESCO 2017 and 2018 take or pay invoices that were paid in 2022 and had not previously been recognized (2021: $0.8 million related to
TANESCO 2016 take or pay invoice). In addition, the reversal of loss allowance in 2021 includes collection of Songas operatorship arrears of
$1.9 million which had been previously allowed for.

The loss allowance of $3.4 million in 2022 represents (i) $3.2 million with respect to impairment of Swala TZ Preference Shares; and (ii) the net
amount of $0.5 million previously allowed for in Q4 2021 with respect to the dispute with the TRA on the issue of withholding tax on services
performed outside Tanzania by non-resident persons in 2010 and 2015-16; and (ii) $0.7 million representing the settlement amount with respect to
the above withholding tax dispute. In 2022 the Company, with advice from its legal counsel, agreed to settle the dispute and made the payment to
TRA on August 24, 2022. The loss allowance of $1.2 million in 2021 is for: (i) $0.7 million with respect to impairment of Swala TZ Preference Shares;
and (ii) $0.5 million being the amount in dispute with the TRA with respect to withholding tax on services performed outside Tanzania by non-
resident persons in 2010 and 2015-16.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202242

Management’s Discussion & Analysis cont.

Tax
Income Tax

$’000

Current tax

Deferred tax (recovery) expense

Three Months ended
December 31

Year ended
December 31

2022

5,752

(993)

4,759

2021

3,736

2,743

6,479

2022

15,488

1,213

16,701

2021

10,192

6,534

16,726

Under the terms of the PSA with TPDC and the GoT, the Company is liable for income tax in Tanzania at the corporate tax rate of 30%.
However, the PSA provides a mechanism by which income tax payable is recovered from TPDC by reducing TPDC’s share of Profit Gas revenue
and increasing the allocation to the Company. This is reflected in the accounts by increasing the Company’s share of revenue by an amount
equivalent to current year income taxes payable grossed up by 30%.

As at December 31, 2022 there were temporary differences between the carrying value of the assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes under the Income Tax Act 2004. Applying the 30% Tanzanian tax rate, the Company has recognized
a deferred tax liability of $26.3 million (December 31, 2021: $25.0 million). The deferred tax has no impact on cash flow until it becomes a current
income tax, at which point the tax is paid and recovered from TPDC’s share of Profit Gas revenue.

Additional Profits Tax

$’000

APT

Three Months ended
December 31

Year ended
December 31

2022

2,270

2021

1,214

2022

7,613

2021

4,609

Under the terms of the PSA, APT is payable when the Company has recovered its costs plus a specified return out of Cost Gas revenue and Profit
Gas revenue. As a result: (i) no APT is payable until the Company recovers its costs out of Additional Gas revenue plus an annual operating return
under the PSA of 25% plus the percentage change in the United States Industrial Goods Producer Price Index (“PPI”); and (ii) the maximum APT
rate is 55% of the Company’s Profit Gas revenue when costs have been recovered with an annual return of 35% plus the percentage change in PPI.

The timing and the effective rate of APT depends on the realized value of Profit Gas revenue which in turn depends on the level of expenditure.
The Company provides for APT by annually forecasting the total APT payable in the future as a proportion of the forecast Profit Gas revenue over
the term of the PSA. The forecast takes into account the timing of future development capital spending. As at December 31, 2022 the current
portion of APT payable was $13.1 million (December 31, 2021: $8.5 million) with a long-term APT payable of $15.3 million (December 31, 2021:
$20.9 million). APT of $8.5 million was paid in Q1 2022 based on the 2021 results (Q1 2021: $11.5 million based on 2020 results).

The effective APT rate of 15.6% (Q4 2021: 17.3%) has been applied to the Company’s share of Profit Gas revenue of $14.6 million for Q4 2022 (Q4
2021: $6.8 million), and an average effective rate of 16.8% (2021: 17.3%) has been applied to the Company’s share of Profit Gas revenue of $45.4
million for the year ended December 31, 2022 (year ended December 31, 2021: $26.7 million). Accordingly, $2.3 million for the quarter ended
December 31, 2022 (Q4 2021: $1.2 million) and $7.6 million for the year ended December 31, 2022 (year ended December 31, 2021: $4.6 million) of
APT has been recorded in the Consolidated Statements of Comprehensive Income.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202243

Working Capital
Working capital as at December 31, 2022 was $61.6 million (December 31, 2021: $41.8 million) and is detailed in the table below (also see
“Non-GAAP financial measures and ratios”):

$’000

Cash and cash equivalents

Trade and other receivables

Songas

TPDC

TANESCO

Industrial customers and other receivables

Loss allowance

Prepayments

Trade and other liabilities

TPDC share of Profit Gas revenue1

Songas

Deferred income – take or pay contracts2

Other trade payables and accrued liabilities

Current portion of long-term loan

Current portion of APT

Tax payable

Working capital

As at December 31

2022

96,321

2021

72,985

12,640

4,694

3,736

15,207

8,776

5,603

2,042

15,487

(1,177)

35,100

(1,177)

19,440

2,933

10,665

10,154

10,000

13,146

1,551

132,972

66,338

5,081

71,419

61,553

21,911

1,899

5,215

17,751

5,000

8,461

30,731

1,133

104,849

60,237

2,836

63,073

41,776

1 The balance of $19.4 million payable to TPDC is the liability for TPDC’s share of Profit Gas revenue, primarily related to unpaid gas deliveries to TANESCO. The majority of the

settlement of this liability is dependent on receipt of payment from TANESCO for arrears. For their allocation of Profit Gas revenue, the Company paid TPDC $23.9 million in 2022
(2021: $15.6 million).
In Q2 2022 TANESCO paid the take or pay invoice of $13.4 million for the 2016-2017 contract year for gas to be taken by June 30, 2022. In 2022 the Company reached an agreement
with TANESCO to extend by 12 months the time period for the previously untaken gas to be taken prior to the end of Q2 2023. The deferred income amount was fully released to
the Company’s Statements of Comprehensive Income as revenue in 2022 as the contractual volumes were consumed by TANESCO in full.

In Q4 2022 TANESCO paid the take or pay invoice of $16.6 million for the 2017-2018 contract year for gas to be taken by June 30, 2023. The Company agreed to extend by 12
months the time period for the previously untaken gas to be taken prior to the end of Q2 2024. The deferred income amount will be released to the Company’s Statements of
Comprehensive Income as revenue either as gas is taken or in Q2 2024 should TANESCO be unable to take sufficient gas volumes to recover the full take or pay amount.

Financial Instruments
Current financial instruments of the Company include cash and cash equivalents, trade and other receivables, trade and other liabilities and
tax payable. The carrying values of the financial instruments approximate fair values due to their relatively short periods to maturity. The risks
associated with the Company’s financial instruments are primarily attributed to the inherent riskiness of cash, and the risk that trade and other
receivables may not be paid when due. The Company mitigates these risks by (i) holding the majority of its cash outside of Tanzania in reputable
international financial institutions primarily in Jersey and Mauritius which reduces geo-political risk; and (ii) monitoring and reviewing the trade and
other receivables on a regular basis to determine if allowances are required for overdue amounts or action is required to restrict deliveries on past
due accounts to reduce exposure on outstanding receivables. There are no restrictions on the movement of cash from Jersey, Mauritius or Tanzania.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022
44

Management’s Discussion & Analysis cont.

Working Capital cont.
Working Capital Requirements
The Company expects to have sufficient cash flow from operating activities to maintain adequate working capital to cover both short-term and
long-term obligations, including forecasted debt and interest payments ($18.1 million) and capital expenditure ($38 million) for 2023. The Company
has not incurred any losses from debtors in 2022. The Company maintains adequate cash and cash equivalents on hand to ensure it can meet all
its capital expenditure obligations and deal with possible fluctuations in liquidity from operational problems. The Company does not anticipate any
circumstances that are reasonably likely to occur that could significantly impact the Company’s cash flows and liquidity, however, it has been more
difficult for the Company to convert Tanzanian shillings to United States dollars as of Q4 2022, and there is a risk that in the future the Company
may not be able to convert Tanzanian shillings to United States dollars as and when required. It is unknown how long the difficultly of the Company
converting Tanzanian shillings to United States dollars will continue.

TANESCO Receivable
As at December 31, 2022 the current receivable from TANESCO was $3.7 million (December 31, 2021: $2.0 million). During 2022 the Company
invoiced TANESCO $29.8 million (2021: $23.9 million) for gas deliveries and received $33.7 million (2021: $22.9 million) in payments. Based on the
consistent payments from TANESCO, the Company: (i) recognized all amounts invoiced for gas deliveries in 2022 and 2021 as revenue; and (ii)
recognized $5.6 million during the year (2021: $1.1 million) as a reversal of loss allowance relating to the amounts collected during the year that were
applied towards the long-term TANESCO receivables previously allowed for. In addition, during 2022 TANESCO paid the Company $30.0 million
against the 2017 and 2018 take or pay invoices. $14.7 million of this amount was released to the Company’s Statements of Comprehensive Income
as revenue in 2022; the remaining $10.7 million of the deferred income amount will be released to the Company’s Statements of Comprehensive
Income as revenue either as gas is taken in 2023 or in Q2 2024 should TANESCO be unable to take sufficient gas volumes to recover the full take or
pay amount. $4.6 million, being the VAT component of the 2017 and 2018 take or pay invoices, was reversed out of loss allowance in 2022.

The TANESCO long-term receivable as at December 31, 2022 was $22.0 million with a provision of $22.0 million compared to $26.5 million (with a
provision of $26.5 million) as at December 31, 2021. Subsequent to December 31, 2022 the Company has invoiced TANESCO $6.9 million for 2023
gas deliveries and TANESCO has paid the Company $11.1 million. In addition, subsequent to December 31, 2022 TANESCO paid the Company $3.3
million against the 2020 take or pay invoice.

Capital Expenditures
The capital expenditures (see “Non-GAAP financial measures and ratios”) in 2022 primarily related to the well workover program and the initial
costs of the 3D seismic acquisition program. The capital expenditures in 2021 primarily related to the installation of compression facilities and well
workover planning and design.

$’000

Pipelines, well workovers and infrastructure

Other capital expenditures

Three Months ended
December 31

Year ended
December 31

2022

3,604

3,615

2021

12,494

2022

22,125

281

2021

26,596

12,496

22,406

26,610

Capital Requirements
Except as described below, there are no contractual commitments for exploration or development drilling or other field development, either in
the PSA or otherwise agreed, which would give rise to significant capital expenditure at Songo Songo Island. Any additional significant capital
expenditure in Tanzania is discretionary.

As at the date of this report, the Company’s only significant contractual commitment is in relation to the 3D seismic acquisition and processing
program to acquire approximately 181 square kilometers of 3D marine, transition and land based seismic over the Songo Songo license area. This
program is intended to de-risk future development drilling and to evaluate the prospective resource potential for future exploration drilling. The
Company is currently mobilizing to carry out a 3D seismic acquisition program in Q2 and Q3 2023, budgeted at $23.2 million including associated
management, support and QA/QC costs, estimated to be approximately $1.9 million. As of December 31, 2022, $1.9 million of the seismic contracts
has been paid, the remaining capital expenditures of $21.3 million is forecasted to be paid by Q3 2023. Seismic processing contracts in the amount
of $1.4 million are expected to be paid by Q4 2023.

The Company concluded the onshore well remediation program comprising three wells (SS-3, SS-4 and SS-10) in April 2022. The SS-3 well was
shut-in in 2012 due to excessive corrosion and sustained annulus pressure. Having returned to production on February 15, 2022, the SS-3 well is now
producing at rates up to 10 MMcfd. The SS-4 well was suspended in 2019 after it started producing sand. Following a well sidetrack, a coiled tubing
unit was mobilized to lift liquids from the wellbore to in an effort to return the SS-4 well to production. The SS-10 well was affected by progressive
corrosion of its production tubing which would have ultimately threatened its safe operation and was worked over to replace the corroded tubing.
The workover of the SS-10 well was completed on April 7, 2022, and the SS-10 well was returned to production on April 18, 2022. The total gross
cost for the workover program was $31.6 million; this was fully paid by Q4 2022.

Low pressure compression was installed on the Songas processing plant and commissioned in March 2022, restoring the plant’s gas production
potential to maximum capacity. The total cost for the low pressure compression was $43.4 million; this was fully paid by Q4 2022.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202245

Capital Expenditures cont.
Capital Requirements cont.
The Company also successfully completed smart pigging of the SS-3, SS-4 SS-5, SS-7 and SS-9 flowlines, identifying a number of areas of corrosion
or erosion in accordance with the Company’s integrity management system. Low cost repairs of sections of flowlines have been conducted and
wells returned to operations with minimal impact on overall production. Further work is planned to be conducted through 2023 to replace several
other less critically affected sections.

In 2020, the Company undertook modeling to predict sand production from the Songo Songo gas field, with some wells predicted to produce
sand as early as 2022. To mitigate this the Company installed downhole sand control in the SS-4 and SS-10 wells during their recent workovers.
It also purchased and installed one fixed acoustic detector at the inlet manifold of the Songas gas plant, and one mobile acoustic detector which
can be aligned to individual wells as necessary. The Company undertook a sand production testing program, individually aligning all wells, with
the exception of the SS-12 well which is permanently aligned to the NNGI plant, and the SS-4 and SS-7 wells, which are currently not producing,
to the test separator to assess each for sand production. All wells aligned and tested produced some sand over the course of their 10-day tests.
Consequently, a cyclonic de-sanding unit was installed at the SS-10 wellhead, with a second unit ready for installation should sand production occur
in significant volumes in another well. Although the current assessment indicates that significant sand production is unlikely to occur, the Company
has also proposed the purchase of an additional desanding units in 2023 to mitigate the risk of future sand production from the Songo Songo gas
field.

Long-term Receivables

$‘000

VAT – Songas workovers

Lease deposit

As at December 31

2022

2,205

2,215

2021

2,205

2,215

In 2017, based on agreement with TPDC, $12.3 million relating to the Songas share of workover costs of the SS-5 and SS-9 wells was transferred
to the cost pool enabling the Company to recover the costs via the PSA cost recovery mechanism. This resulted in $2.2 million relating to VAT on
the workovers that had already been paid being reclassified as a long-term receivable. Following implementation of measures to recover workover
costs from Songas, Songas proposed a settlement agreement which was recently approved by the Company and the GoT. The details of the
settlement are now being finalized between Songas and the Company.

The following table details the amounts receivable from TANESCO that do not yet meet revenue recognition criteria and therefore are not recorded
in the consolidated financial statements:

$‘000

Total amounts invoiced to TANESCO

Trade receivable – TANESCO

Unrecognized amounts not meeting revenue recognition criteria1

Loss allowance

As at December 31

2022

92,547

2021

119,168

(3,736)

(2,042)

(66,793)

(90,634)

(22,018)

(26,492)

–

1 The amount includes invoices for interest on late payments and invoices relating to differences between gas contracted for delivery versus gas taken by TANESCO. In May and June
2022 TANESCO paid the take or pay invoice of $13.4 million for the 2016-2017 contract year for gas to be taken by June 30, 2022 which the Company has extended by 12 months
to June 30, 2023. TANESCO took all the gas related to the 2016-2017 contract year by 31 December 2022. In Q4 2022 TANESCO paid the take or pay invoice of $16.6 million for the
2017-2018 contract year for gas to be taken by June 30, 2023 which the Company has extended by 12 months to June 30, 2024.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202246

Management’s Discussion & Analysis cont.

Long-term Loan
In 2015 PAET took out the Loan with the IFC, a member of the World Bank Group, for $60 million. The Loan was fully drawn down in 2016.

The Loan is to be paid out through six semi-annual payments of $5.0 million starting October 15, 2022, for which initial payment was paid by the
Company subsequent to October 15, 2022, and one final payment of $25.2 million will be due on October 15, 2025. The Company may voluntarily
prepay all or part of the Loan but must simultaneously pay any accrued base interest costs related to the principal amount being prepaid. The Loan
is an unsecured subordinated obligation of PAET and was guaranteed by the Company to a maximum of $30.0 million. The guarantee may only be
called upon by IFC at maturity in 2025 and, subject to IFC approval and receipt of all required regulatory approvals, the Company, at its discretion,
may issue shares in fulfillment of all or part of its guarantee obligation in 2025. Pursuant to the sale of a non-controlling interest in PAEM, the parent
company of PAET, the Company agreed with the IFC to reduce the outstanding amount of the Loan by the percentage interest sold of 7.9%
($4.8 million) before the fourth anniversary of the first drawdown. PAET made this payment on October 16, 2019.

Dividends and distributions from PAET to PAEM are restricted at any time whenever amounts of interest, principal or participating interest are due
and outstanding. All amounts under the Loan have been paid when due.

Outstanding Shares
The Class A Shares are convertible at any time at the option of the holder into Class B Shares on a one-for-one basis. Subject to the terms and
conditions of conversion specified in the memorandum of association and articles of association of the Company, the Class B Shares are convertible
into Class A Shares on a one for one basis if an offer is made to purchase Class A Shares that: (i) must, by reason of applicable securities legislation
or the requirements of a stock exchange on which the Class A Shares are listed, be made to all or substantially all of the holders of Class A Shares;
and (ii) is not made concurrently with an offer to purchase Class B Shares that is identical to the offer to purchase Class A Shares and that has
no condition attached other than the right not to take up and pay for shares tendered if no shares are purchased pursuant to the offer for Class
A Shares. The conversion right does not come into effect under certain events specified in the memorandum of association of the Company,
including, without limitation, the prior delivery to the Company’s transfer agent and to the Secretary of the Company of a certificate signed by one
or more shareholders owning more than 50% of the then outstanding Class A Shares.

Pursuant to the substantial issuer bid of CDN$40.0 million completed in January 2021 (“2021 SIB”) the Company purchased and canceled 6,153,846
Class B Shares. Pursuant to the normal course issuer bid commenced on June 21, 2021 (“2021 NCIB”), the Company repurchased and canceled a
total of 60,900 Class B Shares at a weighted average price of CDN$5.18.

On July 11, 2022 the Company commenced a normal course issuer bid (“2022 NCIB”) to purchase Class B Shares through the facilities of the TSXV
and alternative trading systems in Canada. As at December 31, 2022 the Company had repurchased 47,200 Class B Shares at a weighted average
price of CDN$4.87 per share pursuant to the 2022 NCIB. As at April 26, 2023 the Company had repurchased 81,000 Class B Shares at a weighted
average price of CDN$4.89 per share pursuant to the 2022 NCIB. 1,750,495 Class A Shares and 18,125,514 Class B Shares were outstanding as at
December 31, 2022; 1,750,495 Class A Shares and 18,091,714 Class B Shares were outstanding as at April 26, 2023. See “Substantial Issuer Bid,
Normal Course Issuer Bid and Dividends” in this MD&A.

Cash Flow Summary

$’000

Operating activities

Net income

Non-cash adjustments

Interest expense

Changes in non-cash working capital1

Net cash flows from operating activities

Net cash used in investing activities

Net cash used in financing activities

Increase (decrease) in cash

1 See Consolidated Statements of Cash Flows

Three Months ended
December 31

Year ended
December 31

2022

2021

2022

2021

3,014

15,018

2,430

(5,024)

15,438

(4,082)

(8,136)

3,220

1,915

12,016

1,857

2,733

18,521

(13,629)

(3,269)

30,280

42,342

8,637

17,963

30,074

6,945

(13,599)

(14,872)

67,660

40,110

(25,731)

(24,985)

(18,690)

(45,949)

1,623

23,239

(30,824)

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202247

Cash Flow Summary cont.
The Company’s net cash flows from operating activities decreased by 17% for Q4 2022 and increased by 69% for the year ended December 31,
2022 over the comparable prior year periods. The decrease for Q4 2022 over the comparable prior year period was primarily a result of changes
in non-cash working capital. The increase for the year ended December 31, 2022 over the comparable prior year period was primarily a result of
increased revenue. The decrease in net cash used in investing activities for the three months ended December 31, 2022 over the comparable prior
year period were mainly a result of higher expenditure in Q4 2021 in relation to the installation of compression facilities. The increase in net cash
used in financing activities for Q4 2022 over the comparable prior year period was mainly a result of the repayment of the initial installment of the
long-term loan in Q4 2022. The decrease in net cash used in financing activities for the year ended December 31, 2022 over the comparable prior
period was primarily a result of the 2021 SIB of CDN$40.0 million.

Related Party Transactions
The Chair of the Company’s Board of Directors is counsel to Burnet, Duckworth & Palmer LLP, a law firm that provides legal advice to the Company
and its subsidiaries. Fees for services provided by this firm totaled $0.1 million for the quarter ended December 31, 2022 (Q4 2021: $0.1 million) and
$0.5 million for the year ended December 31, 2022 (year ended December 31, 2021: $0.3 million).

As at December 31, 2022 the Company had a total of $0.1 million (December 31, 2021: $0.1 million) recorded in trade and other liabilities in relation
to related parties.

Substantial Issuer Bid, Normal Course Issuer Bid and Dividends
During Q1 2021 the Company repurchased and canceled 6,153,846 Class B Shares at a weighted average price of CDN$6.50 per Class B Share
under the 2021 SIB. This resulted in an aggregate purchase of CDN$40.0 million of Class B Shares representing 25.2% of the Company’s issued and
outstanding Class B Shares and 23.5% of the total number of the Company’s issued and outstanding shares. Total cash payments of $31.9 million
were applied to the capital stock and accumulated income accounts.

On June 21, 2021 the Company commenced the 2021 NCIB to purchase Class B Shares through the facilities of the TSXV and alternative trading
systems in Canada. Purchases pursuant to the 2021 NCIB were made by Research Capital Corporation (“Research Capital”) on behalf of the
Company and were not to exceed 500,000 Class B Shares, representing approximately 2.74% of the total outstanding Class B Shares. The 2021
NCIB was in effect until June 21, 2022. As of July 7, 2022, an aggregate of 60,900 Class B Shares were repurchased by the Company pursuant to
the 2021 NCIB at an average price per Class B Share of CDN$5.18. Shareholders may obtain a copy of the notice regarding the 2021 NCIB filed with
the TSXV from the Company without charge.

On July 5, 2022 the Company announced the 2022 NCIB to purchase Class B Shares through the facilities of the TSXV and alternative trading
systems in Canada. Purchases pursuant to the 2022 NCIB will be made by Research Capital on behalf of the Company and will not exceed 500,000
Class B Shares, representing approximately 2.75% of the total outstanding Class B Shares as of July 4, 2022. The 2022 NCIB will be in effect from
July 11, 2022 until July 11, 2023 (or until such time as the maximum number of Class B Shares have been purchased). Purchases of Class B Shares
will be made by Research Capital based on the parameters prescribed by the TSXV and applicable securities laws. The acquisition price of Class B
Shares under the 2022 NCIB will not exceed the market price of the Class B Shares at the time of acquisition and the funds available to acquire the
Class B Shares will come from the Company’s working capital and cash flow. All Class B Shares purchased under the 2022 NCIB will be canceled.
As at December 31, 2022 the Company had repurchased 47,200 Class B Shares at a weighted average price of CDN$4.87 per share pursuant to the
2022 NCIB. As at April 26, 2023 the Company had repurchased 81,000 Class B Shares at a weighted average price of CDN$4.89 per share pursuant
to the 2022 NCIB. Shareholders may obtain a copy of the notice regarding the 2022 NCIB filed with the TSXV from the Company without charge.

All issued capital stock is fully paid.

Dividend Summary

Declaration date
February 24, 2023

Record date
March 31, 2023

November 16, 2022

December 31, 2022

September 28, 2022

October 14, 2022

May 20, 2022

February 24, 2022

November 9, 2021

September 9, 2021

June 4, 2021

February 23, 2021

June 30, 2022

March 31, 2022

December 31, 2021

September 29, 2021

June 30, 2021

March 31, 2021

Payment date
April 14, 2023

January 13, 2023

October 28, 2022

July 15, 2022

April 15, 2022

January 15, 2022

October 15, 2021

July 15, 2021

April 15, 2021

Amount per share (CDN$)
0.10

0.10

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202248

Management’s Discussion & Analysis cont.

Consolidation
The companies which are being consolidated for the purposes of this MD&A are:

Subsidiary
Orca Energy Group Inc.

Orca Exploration UK Services Limited

PAE PanAfrican Energy Corporation (“PAEM”)

PanAfrican Energy Tanzania Limited

Incorporated
British Virgin Islands

United Kingdom

Mauritius

Jersey

Holding
Parent Company

100%

92%

Non-Controlling Interest
The Company sold 7.9% (7,933 Class A common shares) of PAEM to a wholly owned subsidiary of Swala TZ in 2018 for $15.4 million cash and $4.0
million of Swala TZ’s Preference Shares pursuant to a share purchase agreement. The Preference Shares entitle the Company to a 10% per annum
distribution payable 15 days after each quarter end commencing from the closing date, January 16, 2018. Payment of the quarterly distributions is at
the discretion of Swala TZ based on funds available, however, the liability accrues if any amount is unpaid when due. For any distributable amount
remaining unpaid at December 31, 2021, the Company may demand settlement and Swala TZ is obligated to comply by transferring and returning
the Class A common shares of PAEM sold to Swala TZ. The aggregate value of these shares will equal the amount of the outstanding distributions.
As at December 31, 2022, the Company has not received any distributions or recorded any amount receivable related to the Preference Shares.

Swala TZ is obligated to redeem 20% of the Preference Shares for cash annually starting from December 31, 2021 until all shares are redeemed. If
at any time Swala TZ does not redeem in cash the required number of Preference Shares, Swala TZ is obligated to redeem the Preference Shares
by transferring and returning the Class A common shares of PAEM sold to Swala TZ. The aggregate value of these Class A common shares will
equal the amount of any outstanding redemption. On August 8, 2022, the Company issued a redemption notice to Swala TZ, requesting that Swala
TZ redeem 20% of the outstanding Preference Shares by August 23, 2022. Swala TZ has responded to the Company’s redemption notice and is
disputing its obligation to redeem Swala TZ’s Preference Shares. As at December 31, 2022, this matter remains in dispute between Swala TZ and
the Company and the redemption notice request remains outstanding. As of December 31, 2021, the Company had recorded $0.7 million as a loss
allowance with respect to Preference Shares. In Q4 2022, the Company fully impaired the $3.9 million investment recording an additional $3.2
million as a loss allowance. On January 31, 2023 the Company issued a further redemption notice to Swala TZ, requesting that Swala TZ redeem a
further 20% of the outstanding Swala TZ’s Preference Shares by February 15, 2023.

A reconciliation of the non-controlling interest is detailed below:

$’000

Balance, beginning of year

Net income attributable to non-controlling interest

Balance, end of year

As at December 31

2022

3,116

2,554

5,670

2021

1,523

1,593

3,116

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202249

Contingencies
Taxation

Amounts in $’millions

Area
Income tax

Period
2008-09,
2011-20

Tax on repatriated
income

VAT

2012-21

2012-18

Withholding tax
(“WHT”)

Pay-As-You-Earn
(“PAYE”) tax

2005-09

2008-10

Reason for dispute
Deductibility of capital expenditures and
expenses (2012, 2015 and 2016), additional
income tax (2008, 2011 and 2012), foreign
exchange rate application (2013 to 2015,
2018 to 2020), underestimation of tax due
(2014, 2016 and 2020) and methodology
of grossing up income taxes paid (2015 to
2017).

Applicability of withholding tax on
repatriated income (2012 to 2021).

VAT already paid (2012 to 2014), VAT on
imported services (2015 and 2016); interest
on VAT decreasing adjustments and input
VAT on services (2017 and 2018).

WHT on services performed outside of
Tanzania by non-resident persons.

PAYE tax on grossed-up amounts in staff
salaries which are contractually stated as net.

Principal

Interest and
penalties

As at December 31

2022

Total

2021

Total

19.9

21.9

0.3

–

14.3

3.0

1.3

–

34.2(1)

24.9(2)

1.6(3)

–

42.1

18.6

60.7

32.7

19.0

1.4

1.6(4)

0.3(5)

55.0

In Q4 2022, the TRA issued seven assessments for tax on repatriated income ($10.6 million) for the years of 2015 to 2021. The Company objected
to the assessments on the grounds of the assessments lacking merit; additionally, the assessments for the years of 2015 and 2016 were time-barred.
The Company is awaiting TRA’s response. In Q4 2022, the Company also recorded an additional provision of approximately $1.1 million (Q4 2021:
$2.2 million).

In Q4 2022, the TRA issued six assessments for income tax and for ensuing interest on deemed delayed payments ($0.5 million) for the years of
2018 to 2020. The Company objected to the assessments on the grounds of incorrect disallowance of expenses and use of exchange rates. The
Company is awaiting TRA’s response.

In Q4 2022, the Company also recorded an additional provision of approximately $1.1 million (Q4 2021: $2.2 million).

In Q3 2022, TRA and the Company agreed to settle outstanding WHT disputes for the years of income of 2010 and 2015-16. The Company agreed
to pay the principal amount of $0.7 million of the assessments foregoing the interest component of $0.5 million. Pursuant to the legal procedures,
deeds of settlement signed by both parties were accepted by the Tanzania Revenue Appeals Board (“TRAB”) and the Tax Revenue Appeals
Tribunal (“TRAT”), the payment was made by the Company to the TRA, and such matters are now formally closed.

During Q1 2022, following the expiry of the statutory deadline for the TRA to respond to the Company’s objections, the Company filed notices of
intention to appeal to the TRAB against the corporate income tax assessments for the years of 2012-16, tax on repatriated income for the years of
2012-14, and VAT for the years of 2015-16. On several occasions during 2022, these matters came for hearing and, at the request from the TRA, the
TRAB granted an order that these matters be withdrawn to allow the TRA to further review and issue determination letters. The matters are now
expected to appear for status review on May 17, 2023.

During 2021 the Company paid the TRA $1.8 million as a deposit against the disputed taxes including PAYE tax, WHT, income tax and VAT for the
years 2012-16, an amount agreed upon in order for TRA to admit the outstanding tax objections. In 2021, the Court of Appeal of Tanzania (“CAT”)
delivered its judgment on an appeal instituted by the Company on the appealability of a one-third deposit required to admit objections for the
2012 year of income. The CAT decided that the matters were not tax decisions and were therefore not appealable. Aggrieved by the decision, the
Company filed a notice of motion for review of the decision at the same court. In Q3 2022, the CAT agreed with the Company and the matter was
resolved and withdrawn from the CAT.

During 2021 the TRA issued a new assessment with regards to 2017 income tax ($6.4 million). The Company objected to the TRA’s incorrect
methodology of grossing up income taxes already paid ($6.4 million) and the issue of imposing interest on deemed delayed payment ($0.1 million)
and is awaiting a TRA response.

Management, with advice from its legal counsel, has reviewed the Company’s position on the objections and appeals related to the disputed
amounts and has concluded that no further provision is required. However, if the TRA reassesses the Company’s tax returns for open taxation years
on a similar basis, the Company may be required to make future deposits to object such assessments.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022
50

Management’s Discussion & Analysis cont.

Contingencies cont.
Taxation cont.
The process of appealing assessments issued by the TRA starts by initially filing an appeal with the TRA. If this is not successful, claims can be
taken to higher authorities starting with the TRAB, followed by an appeal to the TRAT and finally to the CAT. Below is a summary of the status of
the various assessments:

(1) (a) 2008 ($0.6 million): The Company objected to the TRA assessment that did not recognize a tax loss carried forward and is awaiting a response;

(b) 2009 ($0.8 million): The Company objected to an amended assessment from the TRA for being time-barred and arbitrary and is awaiting a TRA response;

(d) 2012 ($10.6 million): The Company appealed to the TRAB objecting to the TRA assessment with respect to understated revenue, timing of deductibility of capital

expenditures and expenses;

(e) 2013 ($2.0 million): The Company appealed to the TRAB objecting to the TRA assessment as being time-barred and without merit;

(f) 2014 ($5.1 million): The Company appealed to the TRAB objecting to the TRA assessment on the ground that the TRA assessment incorrectly disallowed certain expenses

and applied erroneous foreign exchange rates;

(g) 2015-16 ($6.1 million): The Company appealed to the TRAB as to TRA’s assessments on the ground that the TRA assessments failed to recognize provisional tax payments,

incorrectly disallowed certain expenses and applied erroneous foreign exchange rates;

(h) 2017 ($6.8 million): The TRA issued an assessment for corporation tax which questioned the Company’s methodology of grossing up already paid corporation tax ($6.7

million) and raised the issue of imposing interest on deemed delayed payment ($0.1 million). The Company filed an objection and is awaiting the TRA’s response;

(i) 2018 ($0.02 million): The TRA issued an assessment for corporation income tax in respect of disallowed expenses. The Company filed an objection and is awaiting the TRA’s

response;

(j) 2018-20 ($0.5 million): The TRA issued a series of assessments for corporation income tax in respect of disallowed expenses and for interest on deemed delayed payment

of the taxes. The Company filed an objection and is awaiting the TRA’s response;

(2) (a) 2012 ($3.1 million): The Company objected to the TRA assessment as being without merit and, following expiry of the statutory deadline for the TRA to respond, filed an

appeal at the TRAB;

(b) 2013 ($7.8 million): The Company objected to the TRA assessment as being time-barred and without merit and, following expiry of the statutory deadline for the TRA to

respond, filed an appeal at the TRAB;

appeal at the TRAB;

(d) 2015-16 ($3.6 million): New assessments issued in Q4 2022 for the years of income of 2015 and 2016 have overridden the existing assessments for $5.3 million. The Company

objected to the TRA assessments and is awaiting the admission of the objections;

(e) 2017-21 ($6.9 million): The Company objected to the TRA assessments for the year of income of 2017 ($1.6 million), 2018 ($1.2 million), 2019 ($1.6 million), 2020 ($1.1 million)

and 2021 ($1.4 million) and is awaiting the admission of the objections;

(3) (a) 2012-16 ($0.2 million): The Company filed an objection to a TRA assessment with respecting to disallowing VAT on certain services and is awaiting a response;

(b) 2017-18 ($1.3 million): The Company filed an objection to a TRA assessment and is awaiting a response. The Company objected to incorrect imposition of interest on VAT

decreasing adjustments in respect of delayed TANESCO payment ($1.2 million) and disallowing input VAT claimed in certain services ($0.1 million);

(4) (a) 2005-2009 ($nil; 2021: $1.6 million): In 2018 the CAT ruled in favor of the Company that no WHT was required on services performed outside Tanzania by non-resident

persons. The Company, with advice from its legal counsel, assessed that there is a remote chance for the TRA to successfully file an application for review of judgment and,
as a consequence, the dispute is no longer represented in the table above;

(5) (a) 2008-10 ($nil; 2021: $0.3 million): In 2020, the Company lost an appeal with CAT on the principal amount of PAYE tax and filed an application for judicial review at CAT.

The TRA instructed PAET’s commercial bank to transfer the full principal amount in dispute to TRA. Subsequent to December 31, 2022, the Company, with advice from its
legal counsel, successfully applied to remove the matter from the CAT registry. Consequently, the dispute is no longer represented in the table above.

In 2016 the TRA introduced significant changes in relation to the income tax treatment of the extractive sector with separate new chapters in Part
V of the Income Tax Act 2004 (“ITA, 2004”) for mining and for petroleum to be effective commencing in 2018. Further changes were subsequently
made by the Written Laws (Miscellaneous Amendments) Act, 2017 (“WLMAA, 2017”) and in particular section 36(a)(ii) of the WLMAA, 2017.
The WLMAA, 2017 amended section 65M and 65N of the ITA 2004 to exclude cost oil/cost gas from inclusion in both income and expenditure.
The Company continues to review the tax effects of the changes as there are a number of uncertainties and ambiguities as to the interpretation
and application of certain provisions of the WLMAA, 2017. In the absence of guidance on these matters, the Company has used what it believes
are reasonable interpretations and assumptions in applying the WLMAA, 2017 for purposes of determining its tax liabilities and the results of
operations, which may change as it receives additional clarification and implementation guidance. The Company does not expect a significant
impact from the changes as it is able to recover taxes payable from the TPDC Profit Gas revenue entitlement under the terms of the PSA.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 2022

Accounting Changes
The following pronouncements from the International Accounting Standards Board (the “IASB”) became effective or were amended for financial
reporting periods beginning on or after January 1, 2022. There has been no impact on the Company.

• COVID-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16).

• Onerous contracts – Cost of fulfilling a contract (Amendments to IAS 37).

• Annual Improvements to IFRS Standards 2018-2020.

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).

• Reference to the Conceptual Framework (Amendments to IFRS 3).

The following standards have been issued but are not yet effective:

•

IFRS 17 Insurance Contracts.

• Amendments to IFRS 17.

• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2).

• Definition of Accounting Estimate (Amendments to IAS 8).

• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12).

•

Initial Application of IFRS 17 and IFRS 9 Comparative Information (Amendments to IFRS 17).

The Company intends to adopt these standards when they become effective and is currently evaluating the potential impact.

Disclosure Controls and Procedures and Internal Controls over Financial Reporting
The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have designed, or caused to be designed under their
supervision, disclosure controls and procedures (“DC&P”) for Orca. DC&P, as defined in National Instrument 52-109, Certification of Disclosure
in Issuers’ Annual and Interim Filings, are designed to provide reasonable assurance that information required to be disclosed in reports filed
with, or submitted to, securities regulatory authorities is recorded, processed, summarized and reported within the time periods specified under
Canadian securities law and include controls and procedures designed to ensure that information required to be so disclosed is accumulated and
communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The CEO and
CFO of Orca evaluated the effectiveness of the design and operation of the Company’s DC&P. Based on the evaluation, the officers concluded that
Orca’s DC&P were effective as at December 31, 2022.

Quarterly Results Summary
The following is a summary of key results for the Company for the last eight quarters:

Figures in $’000
except where otherwise stated

Revenue

Net income attributable to shareholders

Earnings per share

– basic and diluted ($)

Net cash flows from operating activities

Capital expenditures

31,877

2,325

0.12

15,438

3,615

2022

30,537

28,223

27,452

11,443

6,567

7,391

0.57

0.33

19,544

28,601

0.37

4,077

24,819

1,548

0.08

18,521

1,222

3,306

14,263

12,496

2021

22,271

20,301

7,613

3,246

0.38

12,132

3,715

0.17

10,251

10,167

18,631

3,963

0.18

(794)

232

Revenue increased during Q2 2021 as a result of increased sales to the industrial sector and lower TPDC share of revenue as an outcome of
increased capital expenditures and higher Cost Gas revenue recoveries by the Company. Revenue increased during Q3 2021 as a result of increased
sales to the power sector which was partially offset by increased TPDC share of revenue as an outcome of reduced capital expenditures and
lower Cost Gas revenue recoveries by the Company. Revenue increased during Q4 2021 as a result of increased sales to the industrial sector.
Revenue increased in Q1 2022 as a result of increased sales to the power sector and decreased TPDC share of revenue as a result of increased
capital expenditures. Revenue increased in Q2 2022 as a result of increased sales to the power sector. Revenue increased in Q3 2022 as a result of
increased sales to the power sector and a higher current income tax adjustment. Revenue increased in Q4 2022 as a result of a further increase in
sales to both industrial and the power sector and a higher current income tax adjustment.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202252

Management’s Discussion & Analysis cont.

Quarterly Results Summary cont.
Net income attributable to shareholders was affected by several factors, other than changes in revenue, including:

• the decrease in Q2 2021 was a result of a lower collection of TANESCO arrears;

• the increase in Q3 2021 was a result of lower general and administrative expenses and lower indirect tax as compared to Q2 2021;

• the decrease in Q4 2021 was a result of higher general and administrative expenses and higher loss allowance for receivables compared

to Q3 2021;

• the increase in Q1 2022 was a result of recording loss allowance for receivables in Q4 2021;

• the decrease in Q2 2022 was a result of increased finance expense;

• the increase in Q3 2022 was a result of a collection of TANESCO arrears and;

• the decrease in Q4 2022 was a result of no collection of TANESCO arrears compared to Q3 2022 and the impairment of the investment in

Swala TZ in Q4 2022.

In addition to the factors impacting net income attributable to shareholders, net cash flows from operating activities were primarily affected by the
timing and amount of payments received from TANESCO. The increases in Q2, Q3 and Q4 2021 were mainly a result of the annual 2020 current
liability associated with APT paid in Q1 2021. The decrease in Q1 2022 was primarily a result of the payment of the annual 2021 current APT liability.
Correspondingly, the increase in Q2 2022 was a result of the payment of the current APT liability in the previous quarter and changes in non-cash
working capital. The decrease in Q3 2022 was primarily a result of the changes in non-cash working capital, namely the decrease in accounts
payable related to deferred income on take or pay contracts. The decrease in Q4 2022 was primarily a result of the changes in the non-cash
working capital, namely the decrease in tax payable.

Capital expenditures in Q1 2021 were mainly related to well workover planning and design. Capital expenditures in Q2 2021 mainly relate to the
installation of compression. Capital expenditures in Q3 and Q4 2021 and Q1 and Q2 2022 were mainly related to the well workover program. Capital
expenditures in Q3 2022 were mainly related to the well workover program and the 3D seismic acquisition program. Capital expenditures in Q4
2022 were mainly related to the 3D seismic acquisition program.

Selected Annual Financial Information
Selected annual financial information derived from the audited consolidated financial statements for the years ended December 31, 2022, 2021 and
2020 is set out below:

Figures in $’000 except per share amount

Revenue

Net income attributable to shareholders

Earnings – basic and diluted ($ per share)

Cash dividends declared (CDN$ per Class A and B Shares)

Net cash flows from operating activities

Total non-current liabilities

Total assets

2022

118,089

27,726

1.39

0.40

67,660

81,378

248,083

2021

86,022

16,370

0.81

0.40

40,110

95,744

230,271

2020

77,874

27,761

1.00

0.28

46,505

98,008

242,612

The 10% increase of revenue in 2021 compared to 2020 was a result of increased sales to TANESCO, TPDC and industrial customers as well as a
higher current income tax adjustment. The 37% increase of revenue in 2022 compared to 2021 was primarily a result of increased sales to the power
sector partially offset by a higher TPDC share of revenue as a result of increased gross field revenue.

The decrease in net income attributable to shareholders in 2021 was primarily a result of decreased reversal of loss allowances related to the
collection of TANESCO arrears. The increase in net income attributable to shareholders in 2022 was a result of higher revenue and increased
reversal of loss allowances related to the collection of TANESCO arrears.

In 2020 the Company approved quarterly dividends, CDN$0.06 per share for Q1 and Q2 and CDN$0.08 per share for Q3 and Q4. In 2021 the
Company approved quarterly dividends, CDN$0.10 per share for Q1, Q2, Q3 and Q4. In 2022 the Company approved quarterly dividends, CDN$0.10
per share for Q1, Q2, Q3 and Q4. Please refer to the table in the Substantial Issuer Bid, Normal Course Issuer Bid and Dividends section of this MD&A.

The changes in net cash flows from operating activities are primarily related to the changes in non-cash working capital primarily associated with
variations in prepayments, trade and other receivables and trade and other liabilities.

The $2.3 million decrease in total non-current liabilities in 2021 compared to 2020 and the $14.4 million decrease in total non-current liabilities in
2022 compared to 2021 were primarily a result of the repayment of a portion of the APT and the reclassification of $5.0 million of the long-term
loan as a current liability in 2021 and the reclassification of another $5.0 million of the long-term loan as a current liability in 2022.

Total assets decreased by 5% in 2021 compared to 2020. The decrease was mainly a result of the 2021 SIB. Total assets increased by 8% in 2022

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202253

compared to 2021. The increase was primarily a result of increases in cash and cash equivalents and trade and other receivables.

Non-GAAP Financial Measures and Ratios
In this MD&A, the Company has disclosed the following non-GAAP financial measures, non-GAAP ratios and supplementary financial measures:
capital expenditures, operating netback, operating netback per mcf, working capital, net cash flows from operating activities per share and
weighted average Class A and Class B Shares.

These non-GAAP financial measures and ratios disclosed in this MD&A do not have any standardized meaning under IFRS and may not be
comparable to similar financial measures disclosed by other issuers. These non-GAAP financial measures and ratios should not, therefore, be
considered in isolation or as a substitute for, or superior to, measures and ratios of Company’s financial performance defined or determined in
accordance with IFRS. These non-GAAP financial measures and ratios are calculated on a consistent basis from period to period.

Non-GAAP Financial Measures
Capital expenditures
Capital expenditures is a useful measure as it provides an indication of our investment activities. The most directly comparable financial measure is
net cash from (used in) investing activities. A reconciliation to the most directly comparable financial measure is as follows:

$’000

Pipelines, well workovers and infrastructure

Other capital expenditures

Capital expenditures

Right of use

Change in non-cash working capital

Net cash used by investing activities

Three Months ended
December 31

Year ended
December 31

2022

3,604

3,615

–

467

2021

12,494

12,496

1,133

4,082

13,629

2022

22,125

281

22,406

3,274

25,731

2021

26,596

26,610

(1,625)

24,985

Operating netback
Operating netback is calculated as revenue less processing and transportation tariffs, TPDC’s revenue share, and operating and distribution costs
(see “Operating Netback”). The operating netback summarizes all costs that are associated with bringing the gas from the Songo Songo Gas field
to the market, and is a measure of profitability. A reconciliation to the most directly comparable financial measure is as follows:

$’000

Revenue

Production, distribution and transportation expenses

Net Production Revenue

Less current income tax adjustment (recorded in revenue)

Operating netback

Sales volumes MMcf

Netback $/mcf

Three Months ended
December 31

Year ended
December 31

2022

31,877

(4,799)

27,078

(5,783)

21,295

8,786

2.42

2021

24,819

(3,256)

21,563

(1,416)

20,147

6,539

3.08

2022

118,089

(18,011)

100,078

(17,105)

82,973

31,677

2.62

2021

86,022

(12,253)

73,769

(8,385)

65,384

22,312

2.93

Non-GAAP Ratios
Operating netback per mcf
Operating netback per mcf represent the profit margin associated with the production and sale of Additional Gas and is calculated by taking the
operating netback and dividing it by the volume of Additional Gas delivered and sold. This is a key measure as it demonstrates the profit generated
from each unit of production.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202254

Management’s Discussion & Analysis cont.

Supplementary Financial Measures
Working capital
Working capital is defined as current assets less current liabilities, as reported in the Company’s Consolidated Statements of Financial Position.
It is an important measure as it indicated the Company’s ability to meet its financial obligations as they fall due.

Net cash flows from operating activities per share
Net cash flows from operating activities per share is calculated as net cash flows from operating activities divided by the weighted average number
of shares, similar to the calculation of earnings per share. Net cash flow from operations is an important measure as it indicates the cash generated
from the operations that is available to fund ongoing capital commitments.

Weighted average Class A and Class B Shares
In calculating the weighted average number of shares outstanding during any period the Company takes the opening balance multiplied by the
number of days until the balance changes. It then takes the new balance and multiplies that by the number of days until the next change, or until
the period end. The resulting multiples of shares and days are then aggregated and the total is divided by the total number of days in the period.

Use of Estimates and Judgments
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The reader is referred to
Orca’s December 31, 2022 audited consolidated financial statements for a description of estimates and judgments.

Business Risks
Industry and Business Conditions

Competition and operational risk
The natural gas industry is intensely competitive and the Company competes with other companies which possess greater technical and financial
resources. Natural gas drilling and production operations are subject to all the risks typically associated with such operations, including but not
limited to risks of fires, blowouts, spills, cratering and explosions, mechanical and equipment problems, uncontrolled flows or leaks of oil, well
fluids, natural gas, brine, toxic gas or other pollutants or hazardous materials, marine hazards with respect to offshore operations, formations
with abnormal pressures, adverse weather conditions, natural or man-made disasters, premature decline of reservoirs and invasion of water into
producing formations.

Drilling wells is speculative and involves significant costs that may be more than estimated and may not result in any discoveries or additions to
our future production or reserves. Operational activities have numerous inherent risks and our license area is located on an island, 25 km offshore
mainland Tanzania, and partially in shallow water. This generally increases the operating costs, chances of delay, planning time, technical challenges
and risks associated with production activities. Our inability to access appropriate equipment and infrastructure in a timely manner may hinder our
access to natural gas markets or delay our natural gas production.

The development of oil and natural gas projects, including the availability and cost of drilling rigs, equipment, supplies, personnel and oilfield
services, is subject to delays and cost overruns. The Company may be affected by the inability to respond to changing technological developments
and remain competitive. Slower economic growth rates may materially adversely impact our operating results and financial position. Any material
inaccuracies in drilling costs, estimates or underlying assumptions will materially affect our business.

COVID-19
The emergence of COVID-19 resulted in travel bans, mandatory and self-imposed quarantines and isolations, social distancing and the closing
of non-essential businesses which has had a negative impact on economies worldwide, including more volatile commodity prices, currency
exchange rates, interest rates and inflation rates. The Company originally took appropriate action to protect employees such as social distancing,
working from home where possible and ensuring staff who work on rotation at our operational site on Songo Songo Island were tested for
COVID-19, and placed into quarantine prior to receiving their results and before resuming regular duties. The Company has since returned to
office based working. The Company’s business, operations and financial condition have not been significantly adversely affected by COVID-19 and
without a further escalation in the severity of the virus do not anticipate there being a significant adverse impact in the future.

Russian-Ukraine Conflict
Russia’s invasion of Ukraine in February 2022 has had wide-ranging consequences on the peace and stability of the region and the world economy.
Certain countries, have imposed strict financial and trade sanctions against Russia which may have far reaching effects on the global economy.
Disruption of supplies of commodities from Russia had and may continue to have a significant impact on worldwide commodity prices. The long-
term impacts of the conflict and the sanctions imposed on Russia remain uncertain. Any negative impact on economic conditions and global
markets from these developments could adversely affect our business, financial condition and liquidity. The conflict has not directly impacted the
Company’s operations. Nevertheless, the ongoing war induces greater uncertainties in global financial markets and supply chain systems which
could lead to volatility in oil and gas prices, inflation rates, interest rates, financing costs, and shortage or delays for certain goods or services. The
Company continues assessing its exposure.

Key staff
Our performance and success are largely dependent on the ability, expertise, judgment and discretion of our management and the ability of our
technical team to identify, discover, evaluate and develop reserves. We are dependent on members of our management and technical team that
may not be easily replaced.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202255

Business Risks cont.

Industry and Business Conditions cont.

Effects of climate change
Risks related to climate change may have an impact on the Company’s operations and the Company may be subject to additional disclosure
requirements in the future. The International Sustainability Standards Board issued an IFRS Sustainability Disclosure Standard with the objective to
develop a global framework for environmental sustainability disclosure. In addition, the Canadian Securities Administrators also issued a proposed
National Instrument 51-107 Disclosure of Climate-related Matters which sets forth additional reporting requirements for Canadian reporting issuers.
We continue to monitor developments on these reporting requirements and the impact they may have on the Company’s financial position and
results of operating activities in future periods.

The oil and natural gas industry is subject to varying environmental regulations and evolving views on climate change in each of the jurisdictions
in which the Company may operate. Environmental regulations place restrictions and prohibitions on emissions of various substances produced
concurrently with oil and natural gas and can impact the selection of drilling sites and facility locations, potentially resulting in increased capital
expenditures.

The Company operates in Tanzania, where extreme hot weather, heavy rains and floods or other severe weather conditions may cause operational
difficulties, including downtime and increased costs of maintenance and construction. Extreme weather conditions may also impact workovers of
existing wells and drilling of new wells.

As of the date of this report, it is difficult to estimate the effect of the climate change-related legislations on our business or whether additional
evolving climate-change legislation, regulations or other measures will be adopted in Tanzania. There are uncertainties regarding timing and effects
of the emerging climate-change regulations, making it difficult to accurately determine the cost impacts and effects on the Company’s operations.

Contractual
We operate in a litigious environment which could result in title or contractual disputes during the ordinary course of business. The inability of one
or more third parties who contract with us to meet their obligations to us may adversely affect our financial results.

Marketability and pricing
The marketability and price of natural gas which may be acquired, discovered or marketed by the Company will be affected by numerous factors
beyond its control. The natural gas market in Tanzania is developing and there is currently limited access to infrastructure with which to serve
potential new markets beyond that being constructed by the Company, Songas and TPDC. The ability of the Company to market any natural gas
from current or future reserves in Tanzania may depend upon its ability to develop natural gas markets in Tanzania and the surrounding region,
obtain access to the necessary infrastructure to process gas and to deliver sales gas volumes, including acquiring capacity on pipelines which
deliver natural gas to commercial markets. The Company is also subject to market fluctuations in the prices of natural gas, uncertainties related
to the delivery and proximity of its reserves to pipelines and processing facilities and extensive government regulation relating to prices, taxes,
royalties, land tenure, allowable production, the export of oil and gas and many other aspects of the oil and gas business.

The prices that the Company receives for its natural gas affect the Company’s revenue, profitability, access to capital and future growth rate.
Historically, the oil and natural gas markets have been volatile and will likely continue to be volatile in the future. Oil prices have experienced
significant and sustained declines in the past and may continue to be volatile in the future; though gas prices are less volatile, they may also be
significantly affected in the longer run.

The natural gas prices the Company receives from its industrial customers fluctuate with the price of heavy fuel oil against which most of the
Company’s industrial customer contracts are priced. Prices can also be affected by gas on gas competition from other producers in Tanzania.
There have been significant onshore and offshore discoveries of gas in Tanzania over the last ten years and it is expected that the development of
these discoveries will increase competition in the future. There is also scope for greater government intervention on gas prices as TPDC owns and
operates the majority of the gas processing and pipeline infrastructure in Tanzania.

A substantial or extended decline in both global and local oil and natural gas prices may adversely affect our business, financial condition and
results of operations. Localized competition with other gas producers and alternative power sources such as hydropower could adversely impact
our financial results.

Cyber attack
The oil and gas industry has become increasingly dependent on digital technologies to conduct day-to-day operations including certain
exploration, development and production activities. For example, software programs are used to interpret seismic data, manage drilling rigs,
conduct reservoir modeling and reserves estimation, and to process and record financial and operating data. A cyber incident could result in
information theft, data corruption, operational disruption, and/or financial loss. There can be no assurance that we will not be the target of
cyber attacks in the future or suffer such losses related to any cyber incidents.

Financial

Cost of capital
Our business plan requires substantial additional capital that we may be unable to fund out of working capital and cash flow generated from
operations or raise on acceptable terms or at all in the future and which may in turn limit our ability to develop our appraisal, development and
production activities. The Company’s ability to meet its financing obligations or to arrange financing in the future will depend in part upon the
prevailing capital market conditions as well as the Company’s business performance. There can be no assurance that the Company would be
successful in its efforts to meet its current commitments or arrange additional financing on terms satisfactory to the Company.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202256

Management’s Discussion & Analysis cont.

Business Risks cont.
Financial cont.

Collectability of receivables
The Company evaluates the collectability of its receivables on the basis of payment history, frequency and predictability, as well as Management’s
assessment of the customer’s willingness and ability to pay. In the past, the Company has recorded loss allowances for receivables that did not
meet the criteria for revenue recognition however no allowances have been recorded for the past three years relating to revenue.

Foreign exchange
The Company operates internationally and is exposed to foreign exchange risk arising from currency fluctuations against the US dollar when
transactions and recognized assets and liabilities of the Company are denominated in a currency that is not the US dollar functional currency.
The main currencies to which the Company has an exposure are Tanzanian shillings, Euros, British pounds sterling, and Canadian dollars.

The majority of the expenditure associated with the operation of the gas distribution system is denominated in Tanzanian shillings. Whilst
conversion of Tanzanian shillings into US dollars or Euros is unrestricted, the foreign exchange market for Tanzanian shillings is limited and not
highly liquid, reducing the Company’s ability to convert large amounts of Tanzanian shillings into US dollars or Euros at any given time. To mitigate
the risk of Tanzanian shilling devaluation, the Company regularly converts Tanzanian shilling receipts into US dollars or Euros to the extent
practicable. Capital stock, equity financing and any associated stock based compensation are denominated in Canadian dollars. The operational
revenue and the majority of capital expenditures are denominated in US dollars.

Fluctuations in currency exchange rates could adversely impact the Company’s financial results.

Debt financing
From time to time the Company may enter into transactions to acquire assets or the shares of other companies. These transactions may be
financed in part or in whole with debt, which may temporarily increase the Company’s debt levels above industry standards. PAET, the Company’s
subsidiary operating in Tanzania, currently has a long-term loan that includes covenants that, among other things, restrict the incurrence of
additional indebtedness, payment of dividends under certain conditions, granting of liens, mergers and sale of all or a substantial part of our
business or license.

Foreign operations and concentration risk

Asset concentration
The Company’s natural gas reserves are currently limited to one producing property, the Songo Songo gas field, and the productive potential from
this field is limited. There is no assurance that the Company will have sufficient deliverability through the existing wells to provide Protected and
Additional Gas volumes, and there may be significant capital expenditures associated with any remedial work, workovers, or new drilling required
to achieve optimal deliverability. In addition, any difficulties relating to the operation or performance of the Songo Songo gas field would have
a material adverse effect on the Company. A loss or material reduction in production capabilities will have a material adverse effect on the total
production and funds flow from operating activities of the Company.

Access to infrastructure
The Company is dependent upon access to the Songas Infrastructure and the GoT owned NNGI to deliver gas to customers. The Company
operates the Songas Infrastructure however Songas is the owner of the facilities including the 12-inch subsea and the 16-inch surface pipeline
systems which transport natural gas from Songo Songo Island to Dar es Salaam. There are agreements in place to allow the Company to process
and transport gas, but there is no assurance that these rights could not be challenged or access curtailed. The inability to access infrastructure
would materially impair the Company’s ability to realize revenue from natural gas sales.

Reputational
Our Tanzanian operations are anticipated to be the sole source of the Company’s near-term revenue earnings. Due to our asset concentration, the
success of our operations is dependent on positive commercial relationships with a small number of organizations (including states and parastatal
organizations) and certainty with respect to our rights and obligations arising from those relationships. Any damage to our reputation due to the
actual or perceived occurrence of any number of events, such as environmental incidents, could negatively impact the Company. Reputation loss
may result in negative publicity and diminished or adversarial stakeholder relationships, which could lead to increased challenges in developing
and maintaining community relations, decreased investor confidence, and would likely impede our overall ability to advance our projects, thereby
having a material adverse impact on financial performance, cash flows and growth prospects.

Country risk
The geographic location of the Songo Songo license offshore Tanzania exposes us to an increased risk of loss of revenue or curtailment of
production as a result of factors generally associated with foreign operations or arising from factors specifically affecting the area in which we
operate or may operate. Tanzania may be considered to be politically and/or economically unstable. Development and operational activities in
Tanzania may require protracted negotiations with host governments, national oil companies and third parties, and are frequently subject to
economic and political considerations, such as, the risks of war, actions by terrorist or insurgent groups, expropriation, nationalization, emerging
nationalization, renegotiation or nullification of existing contracts and production sharing agreements, taxation policies, foreign exchange
restrictions, changing political conditions, international monetary fluctuations, currency controls and foreign governmental regulations that favor
or require the award of drilling and construction contracts to local contractors or require foreign contractors to employ citizens of, or purchase
supplies from, a particular jurisdiction. In addition, if a dispute arises with foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts.

In Tanzania the state retains ownership of its minerals and consequently retains control of the exploration and production of hydrocarbon reserves.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202257

Business Risks cont.
Foreign operations and concentration risk cont.

Country risk cont.
The GoT has historically been supportive of foreign investment in resource development projects in Tanzania however it has recently adopted
a more conservative approach toward foreign involvement in the extractive sector, including the production, transmission, processing and
marketing of natural gas. Factors such as changes in government, an increased nationalist sentiment and pressure to preserve development
opportunities for local enterprises can result in legal and regulatory changes that can impact our ability to maintain our business operations.

Countries in Africa are susceptible to outbreaks of disease and may lack the resources to effectively contain such an outbreak quickly. Such
outbreaks may impact our ability to explore for natural gas, develop or produce our license areas by limiting access to qualified personnel, increase
costs associated with ensuring the safety and health of our personnel, restricting transportation of personnel, equipment, supplies and natural
gas production to and from our areas of operation and diverting the time, attention and resources of government agencies which are necessary
to conduct our operations. In addition, any losses we experience as a result of such outbreaks of disease which impact sales or delay production
may not be covered by our insurance policies. If travel bans are implemented or extended to the countries in which we operate, or contractors or
personnel refuse to travel to such locations, we could be adversely affected. If services are obtained, costs associated with those services could be
significantly higher than planned which could have a material adverse effect on our business, results of operations, and future cash flow.

Corruption
Tanzania ranks 94 out of 180 on the 2022 Transparency International Corruption Index (2021: 93 out of 180). Having assessed the Company’s
exposure to corruption in Tanzania, it has been concluded that the risk of the Company and/or its subsidiaries violating applicable laws prohibiting
corrupt activities are mitigated or unlikely given the Company’s controls relating to such risks and their effective operation. However, there
is exposure to liabilities under anti-money laundering and/or anti-corruption laws, and any determination that we violated such laws could
have a material adverse effect on our business. There can be no assurance that corruption may not indirectly affect or otherwise impair the
Company’s ability to operate in Tanzania and effectively pursue its business plan in that country.

Contractual, regulatory and legislation risk

Contracts and regulations
The Company’s operations are subject to regulation and control by the GoT (see “Principal Terms of the PSA and Related Agreements”). The
Company has operated in Tanzania for a number of years and believes that it has had reasonably good relations with the current GoT. Under the
principal agreements the Company has the right to market and sell Additional Gas provided that such sales do not jeopardize the priority right of
Songas to sell or otherwise dispose of Protected Gas. There is a risk that Songas could exercise its contractual rights, which may curtail our ability
to sell Additional Gas if there is insufficient natural gas available for the required volumes of Protected Gas. There can be no assurance that present
or future administrations in Tanzania will honor all principal agreements which could materially adversely affect the Company’s operations or future
cash flows.

PSA operations are regulated by national and parastatal organizations including the energy regulators (the Petroleum Upstream Regulatory
Authority (“PURA”), the Energy and Water Utilities Regulatory Authority (“EWURA”), and TPDC). Under the terms of the Gas Agreement (as
defined below) with the GoT, TPDC and Songas, the Company has the right to market and sell Additional Gas. The ARGA (as defined below)
provided clarification of the Protected Gas volumes and removes all terms dealing with the security of the Protected Gas. The ARGA was initialed
by all parties but remains unsigned as at the date of this report. In certain respects, the parties thereto are conducting themselves as though the
ARGA is in effect. In 2017 the AGP2 (as defined below) was signed further delineating the rights of the Company to market and sell Additional
Gas. If our relationships with these counterparties were to deteriorate, they might choose to exercise their contractual rights under our agreements
differently and in a manner that is adverse to our interests. Management does not foresee a material risk with the conduct of the Company’s
business with an unsigned ARGA at this time (see “Principal Terms of the PSA and Related Agreements”).

We have had, and continue to have, disagreements with TPDC and the GoT regarding certain of our rights and responsibilities under the
PSA. Pursuant to the PSA, the Company plans for development and is required to submit annual work programs to TPDC for comment and
subsequently to PURA who, under the Petroleum Act, 2015 (“Petroleum Act”), insist on the right to approve the budget. TPDC has also challenged
our rights to cost recover a number of items under the PSA including the costs of our downstream operations; however, there are currently no
disagreements that have risen to the level of a formal dispute.

There can be no assurance that all of these disagreements will be resolved in our favor or that future disagreements will not arise in Tanzania or
with any host government and/or national oil companies in future projects elsewhere that may have a material adverse effect on our exploration or
development activities, ability to operate, rights under our licenses and local laws or rights to monetize our interests.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202258

Management’s Discussion & Analysis cont.

Business Risks cont.
Contractual, regulatory and legislation risk cont.

Legislation
The GoT has passed several new laws in the past seven years impacting the Company’s operation in Tanzania.

The National Energy Policy (2015) and the Petroleum Act, passed in 2015 provided regulatory framework over upstream, mid-stream and
downstream gas activity. The Petroleum Act created PURA, a new regulator to oversee the upstream sectors and conferred upon TPDC the status
of “National Oil Company” as the sole aggregator of natural gas in the country. Article 260(3) of the Petroleum Act preserves the Company’s
pre-existing right with TPDC to market and sell Additional Gas together or independently on terms and conditions (including prices) negotiated
with third party natural gas customers. There remain differences of opinion between the Company and TPDC on the effect of certain provisions
within the Petroleum Act and their application to the Company.

On October 7, 2016, the GoT issued the Petroleum (Natural Gas Pricing) Regulation made under Sections 165 and 258(I) of the Petroleum Act,
which may give rise to additional uncertainty. Changes resulting from this regulation could impact the Company’s ability to set gas pricing and the
introduction of regulated gas pricing could result in operations becoming uneconomical and anticipated revenues could be materially affected.
While the PSA has been grandfathered under the Petroleum Act, we can provide no assurances that this situation will remain unchanged in the
future.

On July 15, 2017 the GoT passed into law the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017, the WLMAA 2017, and the Natural
Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act, 2017 (“NWRCA”). The first and second of these acts
are forward looking and only apply to agreements entered into on or after July 15, 2017. The GoT may argue that the NWRCA has retrospective
effect in terms of its ability to renegotiate pre-existing contracts. On January 31, 2020, the government released the Natural Wealth and Resources
Contracts (Review and Renegotiation of Unconscionable Terms) Regulations, 2020 which set out further guidance as to how contracts may
be renegotiated. These acts contain new regulations including but not limited to regulations that all arbitration processes must be heard within
Tanzania and potentially restrict the ability to move funds out of Tanzania.

In 2016, the TRA introduced significant changes to the income tax treatment of the extractive sector with separate new chapters in Part V of the
ITA, 2004 for mining and for petroleum to be effective commencing in 2018. Subsequent to this, further changes were made by the WLMAA, 2017
to exclude cost oil/cost gas from inclusion in both income and expenditure. We are still evaluating the tax effects of the changes as there are a
number of uncertainties and ambiguities as to the interpretation and application of certain provisions of the WLMAA, 2017 as there is an absence
of regulations and guidance from TRA on the implementation of the changes. In the absence of guidance on these matters, we will continue to
use what we believe are reasonable interpretations and assumptions in applying the WLMAA, 2017 for purposes of determining our tax liabilities
and filing our tax returns, which interpretations and assumptions may change as we receive additional clarification and implementation guidance.
As necessary, we will seek adjustments to the PSA to preserve our economic benefits. In addition, the Natural Wealth and Resources (Permanent
Sovereignty) Act, 2017 (the “Permanent Sovereignty Act, 2017”) and the WLMAA 2017 restrict the ability of companies to repatriate funds out of
Tanzania and it is possible that the GoT will seek to argue at some stage that these provisions apply to the Company even though the Company’s
contracts with the GoT permit the repatriation of funds out of Tanzania.

Intervening policy and legislative changes such as those described above may conflict with our pre-existing rights under the PSA and other
agreements, though it remains unclear how such legislative actions will be implemented and whether and to what extent they will impact us.
We are unable to predict what legislation may be proposed that might affect our business or when any such proposals, if enacted, might become
effective. Such changes could require increased capital and operating expenditure and could prevent or delay certain of our operations. If, for
reasons beyond our control, we are unable to maintain compliance with any legislative changes, whether in the future or past, we may have to
cease operations in certain locations.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202259

Principal Terms of the PSA and Related Agreements
The principal terms of the PSA and related agreements are as follows:

Obligations and Restrictions
(a) The PSA covers two blocks within the Songo Songo gas field where there are gas reserves (“Discovery Blocks”). The Company has the right to
conduct petroleum operations on the Discovery Blocks, market and sell all Additional Gas produced and share the net revenue with TPDC for a
term of 25 years, expiring in October 2026.

(b) No sale of Additional Gas may be made from the Discovery Blocks if in the Company’s reasonable judgment such sales would jeopardize

the supply of Protected Gas. Any Additional Gas contracts entered into are subject to interruption. Songas has the right to request that the
Company and TPDC obtain security reasonably acceptable to Songas prior to making any sales of Additional Gas from the Discovery Blocks to
secure the Company’s and TPDC’s obligations in respect of Insufficiency (as defined in (c) below).

(c) “Insufficiency” occurs if there is insufficient gas from the Discovery Blocks to supply the Protected Gas requirements or if the gas is so

expensive to develop that its cost exceeds the market price of alternative fuels at Ubungo.

Where there have been third party sales of Additional Gas by the Company and TPDC from the Discovery Blocks prior to the occurrence of
the Insufficiency, the Company and TPDC shall be jointly liable for the Insufficiency and shall satisfy their related liability by either replacing
the Indemnified Volume (as defined in (d) below) at the price for Protected Gas with natural gas from other sources; or by paying monetary
damages equal to the difference between: (a) the market price for a quantity of alternative fuel that is appropriate for the five gas turbine
electricity generators at Ubungo without significant modification together with the costs of any modification; and (b) the sum of the price for
such volume of Protected Gas (at $0.55/MMbtu escalated) and the amount of transportation revenues previously credited by Songas to the
state electricity utility, TANESCO, for the gas volumes.

(d) The “Indemnified Volume” means the lesser of the total volume of Additional Gas sales supplied from the Discovery Blocks prior to an

Insufficiency and the Insufficiency Volume. “Insufficiency Volume” means the volume of natural gas determined by multiplying the average of
the annual Protected Gas volumes for the three years prior to the Insufficiency by 110% and multiplied by the number of remaining years (initial
term of 20 years) of the power purchase agreement entered into between Songas and TANESCO in relation to the five gas turbine electricity
generators at Ubungo from the date of the Insufficiency.

Access and Development of Infrastructure
(e) The Company is able to utilize the Songas Infrastructure including the gas processing plant and main pipeline to Dar es Salaam. Access to the

Songas Infrastructure is open and can be utilized by any third party that wishes to process or transport gas.

Revenue Sharing Terms and Taxation
(f) 75% of the gross field revenues derived from the Discovery Blocks, less processing and pipeline tariffs and direct sales taxes in any year (“field

net revenue”), can be used to recover past costs incurred. Costs recovered out of field net revenue are termed “Cost Gas”.

The Company pays and recovers costs of exploring, developing and operating the Additional Gas with two exceptions: (i) TPDC may recover
reasonable market and market research costs as defined under the PSA; and (ii) TPDC has the right to elect to participate in the drilling of
at least one well for Additional Gas in the Discovery Blocks for which there is a development program as detailed in an Additional Gas plan
(“Additional Gas Plan”) as submitted to the MoE, provided that TPDC may to elect to participate in a development program only once and
TPDC pays a proportion of the costs of such development program by committing to pay between 5% and 20% of the total costs (“Specified
Proportion”). If TPDC does not notify the Company within 90 days of notice from the Company that the MoE has approved the Additional Gas
Plan, then TPDC is deemed not to have elected to participate. If TPDC elects to participate, then it will be entitled to a ratable proportion of the
Cost Gas and their profit share percentage increases by the Specified Proportion for that development program.

To date, TPDC has neither elected to back in within the prescribed notice period nor contributed any costs associated with backing in.
The Company has therefore determined that to date there has been no working interest earned by TPDC. For the purpose of the reserves
certification as at December 31, 2022, there are no planned drilling activities to the end of the license.

(g) The Company’s long-term gas price to the Power sector as set out in the ARGA between the GoT, TPDC and Songas and the PGSA is based
on the price of gas at the wellhead. As at the date of this report, the ARGA remains an initialed agreement only and the parties are not in
agreement with all the terms in the ARGA, however the parties are conducting themselves in terms of pricing as though the ARGA is in force.

In Q3 2017 the Company received approval of the Additional Gas Plan 2 (“AGP2”) from the MoE to produce and sell increased volumes of
Additional Gas. Currently the SS-10, SS-11 and SS-12 wells are connected to the NNGI and the SS-12 well started flowing gas through the NNGI in
December 2018.

In May 2019 the Company and TPDC signed the LTGSA, initially for volumes up to 20 MMcfd which was increased subsequently to 30 MMcfd
on a best endeavors basis. In 2020 the parties established a 12-month renewable agreement for the supply of volumes above 30 MMcfd on an
ad hoc basis, allowing TPDC to meet fluctuating demand and compensate for shortfalls in production from their Madimba plant without being
penalized due to a higher, fixed contractual limit and the subsequent take-or-pay penalties should the demand reduce again. The agreement
has allowed the Company to supply volumes in excess of 50 MMcfd on occasion, increasing average sales volumes and revenues.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Management’s Discussion & Analysis cont.

Principal Terms of the PSA and Related Agreements cont.
Revenue Sharing Terms and Taxation cont.
(h) Profits on sales from the Proven Section (“Profit Gas”) are shared between TPDC and the Company, the proportion of which is dependent on

the average daily volumes of Additional Gas sold or cumulative production.

The Company receives a higher share of the field net revenue after cost recovery, based on the higher of the cumulative production or the
average daily sales. The Profit Gas share available to the Company is a minimum of 25% and a maximum of 55%.

Average daily sales of
Additional Gas
MMcfd

0 – 20

> 20 <= 30

> 30 <= 40

> 40 <= 50

> 50

Cumulative sales of
Additional Gas
Bcf

TPDC’s share of
Profit Gas
%

Company’s share of
Profit Gas
%

0 – 125

> 125 <= 250

> 250 <= 375

> 375 <= 500

> 500

For Additional Gas produced outside of the Proven Section, the Company’s Profit Gas share is 55%.

Where TPDC elects to participate in a development program, its profit share percentage increases by the Specified Proportion (for that

development program) with a corresponding decrease in the Company’s percentage share of Profit Gas.

The Company is liable for income tax in Tanzania. Where income tax is payable, the Company pays the tax and there is a corresponding
deduction in the amount of the Profit Gas payable to TPDC.

(i) APT is payable when the Company recovers its costs out of Additional Gas revenues plus an annual operating return under the PSA of 25%,
plus the percentage change in the PPI. The maximum APT rate is 55% of the Company’s Profit Gas when costs have been recovered with an
annual return of 35% plus PPI return. The PSA is, therefore, structured to encourage the Company to develop the market and the gas fields with
the knowledge that the Profit Gas share can increase with larger daily gas sales and that the costs will be recovered with a 25% plus PPI annual
return before APT becomes payable. APT can have a significant negative impact on project economics if only limited capital expenditure is
incurred.

(j) The Company is appointed to develop, produce and process Protected Gas and operate and maintain the Songas Infrastructure, including the

staffing, procurement, capital improvements, contract maintenance, maintenance of books and records, preparation of reports, maintenance
of permits, waste handling, liaison with the GoT and taking all necessary safety, health and environmental precautions, all in accordance with
good oilfield practices. In return, the Company is paid or reimbursed by Songas so that it neither benefits nor suffers a loss as a result of its
performance.

(k) In the event of loss arising from Songas’ failure to perform, and the loss is not fully compensated by Songas or through insurance coverage,

then the Company is liable to a performance and operational guarantee of $2.5 million when (i) the loss is caused by the gross negligence or
willful misconduct of the Company, its subsidiaries or employees, and (ii) Songas has insufficient funds to cure the loss and operate the project.

Protected Gas
Under the terms of the Gas Agreement for the Songo Songo project (“Gas Agreement”), in the event that there is a shortfall/insufficiency in
Protected Gas as a consequence of the sale of Additional Gas, the Company is liable to pay the difference between the price of Protected Gas
($0.55/MMbtu escalated) and the price of an alternative feedstock multiplied by the volumes of Protected Gas up to a maximum of the volume of
Additional Gas sold (289 Bcf as at December 31, 2022). The Company did not have a shortfall during the reporting period and does not anticipate a
shortfall arising during the term of the Protected Gas delivery obligation to July 2024.

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 2022

Principal Terms of the PSA and Related Agreements cont.
Re-Rating Agreement
In 2011 the Company, TPDC and Songas signed the Re-Rating Agreement which evidenced an increase to the gas processing capacity of the
Songas Infrastructure to a maximum of 110 MMcfd (the pipeline and delivery pressure requirements at the Ubungo power plant restrict the
infrastructure capacity to a maximum of 102 MMcfd). Under the terms of the Re-Rating Agreement, the Company paid additional compensation
of $0.30/mcf for sales between 70 MMcfd and 90 MMcfd and $0.40/mcf for volumes above 90 MMcfd by issuing credit notes to TANESCO. This
was in addition to the tariff of $0.59/mcf payable to Songas as set by the energy regulator, EWURA.

Although Songas notified the Company in 2014 that the Re-Rating Agreement was terminated, the parties have continued to produce, transport
and sell gas volumes in line with the re-rated plant capacity. In May 2016 the Company notified TANESCO and Songas that the additional
compensation for sales over 70 MMcfd would no longer be paid effective June 2016. The additional compensation was always intended to be
temporary in nature until the expansion of the Songas Infrastructure, at which time Songas would apply to EWURA to obtain approval of a new
tariff for the processing of volumes over 70 MMcfd. The PGSA provides for passing on to TANESCO any tariff charged to the Company should
a new tariff be approved.

The parties to the Re-Rating Agreement are in the process of negotiating a replacement agreement which may address the additional
compensation paid. In the interim, the processing capacity at the Songas Infrastructure remains unaltered and is fully available for utilization
by the Company. This capacity is in addition to the capacity available within the NNGI.

Portfolio Gas Supply Agreement
In June 2011 the PGSA was signed (term to June 30, 2023) between TANESCO (as the buyer) and the Company (through its subsidiary PAET) and
TPDC (collectively as the seller). TANESCO requested a change to the PGSA maximum daily quantity (“MDQ”) which PAET and TPDC approved
effective January 29, 2018. In accordance with the PGSA, when calculating aggregate excess, extra and overtake gas through the supply period,
the MDQ was reduced and the seller is now obligated, subject to infrastructure capacity, to sell a maximum of approximately 16 MMcfd (previously
26 MMcfd) for use in any of TANESCO’s current power plants, except those operated by Songas at Ubungo. Under the agreement, the basic
wellhead price of approximately $2.98/mcf increased to $3.04/mcf on July 1, 2018, to $3.10/mcf on July 1, 2019, $3.14/mcf on July 1, 2020, $3.20/mcf
on July 1, 2021 and $3.32/mcf on July 1, 2022.

Long-term Gas Sales Agreement
On May 14, 2019 the Company and TPDC signed the LTGSA for an initial delivery of 20 MMcfd through the NNGI, at a price of $3.10/MMbtu as
at January 1, 2019, (escalating 2% per annum) exclusive of any processing and transportation tariff associated with the NNGI. The LTGSA was
amended on September 24, 2019 to increase the volumes supplied through the NNGI up to a MDQ of 30 MMcfd. In 2020 the parties established
a 12-month renewable agreement for the supply of volumes above 30 MMcfd on an ad hoc basis, allowing TPDC to meet fluctuating demand
and compensate for shortfalls in production from their Madimba plant without being penalized due to a higher, fixed contractual limit and the
subsequent take-or-pay penalties should the demand reduce again. The agreement has allowed the Company to supply volumes in excess of
50 MMcfd on occasion, increasing average sales volumes and revenues. All volumes above 20 MMcfd are supplied on a best endeavors basis until
compression facilities are added to the Songas Infrastructure.

TPDC Back-in
TPDC has the rights under the PSA to “back in” to the Songo Songo field development and to convert this into a carried working interest in the
PSA. The current terms of the PSA require TPDC to provide formal notice in a defined period and contribute a proportion of the costs of any
development, sharing in the risks in return for an additional share of the gas. To date, TPDC has neither provided notice nor contributed any costs
and the definition period has closed.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202262

Management’s Discussion & Analysis cont.

Forward-Looking Statements
This MD&A contains forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable
securities legislation. All statements, other than statements of historical fact included in this MD&A, which address activities, events or
developments that Orca expects or anticipates to occur in the future, are forward-looking statements. Forward-looking statements often contain
terms such as may, will, should, anticipate, expect, continue, estimate, believe, project, forecast, plan, intend, target, outlook, focus, could and
similar words suggesting future outcomes or statements regarding an outlook. More particularly, this MD&A contains, without limitation, forward-
looking statements pertaining to the following: anticipated production for 2023 including midpoint production; the Company’s average gross sale
volume forecasts; the ability for short-term production through the Songas Infrastructure to be sustained as a result of the installation of feed
gas compression; the ability for the SS-4 well to flow following further testing; anticipated production volumes and increased well deliverability
as a result of the installation of compression on the Songas Infrastructure and the completion of the well workover program; the Company’s
expectations regarding timing and cost for the completion of the 3D seismic acquisition program, including the completion of data acquisition and
fast track data processing and the payment of seismic contracts and seismic processing contracts; the availability of suitable weather windows to
conduct the 3D seismic acquisition program; the Company’s expectation that further work will be conducted on flowline of applicable wells; the
timing and cost associated with the full flowline repairs required on the applicable wells; the timing and results of the test separator’s assessment
of sand production on the applicable wells; the Company’s proposal to acquire additional de-sanding units in 2023; the timing of payment for the
remaining balance owing in connection with the well workover program; the Company’s expectations regarding supply and demand of natural gas;
the Company’s expectations as to the efficacy of the compression and its ability to maintain gas production at existing levels to the end of Orca’s
license; the requirement to further develop the Songo Songo gas field to sustain production to the end of Orca’s license; current and potential
production capacity of the Songo Songo gas field, including the Company’s expectation that there will be no shortfall of Protected Gas during
the term of the Protected Gas delivery obligation; the possibility that increased production rates will result in additional reserves being upgraded
from contingent resources; the receipt of the payment of arrears from TANESCO and the reflection of such receivables on the Company’s future
Statement of Comprehensive Income; the Company’s expectation that there will continue to be no restrictions on the movement of cash from
Jersey, Mauritius or Tanzania; the Company’s expectations that it will be able to convert Tanzanian shillings into US dollars; all planned capital
expenditures can be funded from cash flow generated by current operations; the Company’s expectations that no circumstances will significantly
impact the Company’s cash flow or liquidity; the Company’s expectation that it will maintain adequate working capital to cover the Company’s
long-term and short-term obligations; the timing and effective rate of the APT payable by the Company; the Company’s ability to produce
additional volumes; the potential impact on the Company resulting from the further spread of COVID-19; the Company’s expectation that its
Tanzania operations will be the sole source of the Company’s near term revenue earnings; the Company’s assessment of the merits of the FCC
claim; the Company’s expectations regarding changes to its tax liabilities and the results of its operations as a result of amendments made to the
ITA, 2004, the WLMAA, 2017 and the implementation of further legislation; the Company’s obligation to make future deposits to object the TRA’s
assessments; and expectations in respect of the timing and results of its appeals on, and responses to, the decisions of the TRA and TRAB and
other statements under “Contingencies – Taxation” in this MD&A. In addition, statements relating to “reserves” are by their nature forward-looking
statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be produced
profitably in the future. The recovery and reserve estimates of the Company’s reserves provided herein are estimates only and there is no guarantee
that the estimated reserves will be recovered. As a consequence, actual results may differ materially from those anticipated in the forward-looking
statements. Although management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee
future results, levels of activity, access to resources and infrastructure, performance or achievement since such expectations are inherently subject
to significant business, economic, operational, competitive, political and social uncertainties and contingencies.

These forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company’s
control, and many factors could cause the Company’s actual results to differ materially from those expressed or implied in any forward-looking
statements made by the Company, including, but not limited to: production for 2023 including midpoint production are lower than anticipated;
the Company’s gross gas sale volumes are lower than forecasted; failure to receive payments from TANESCO; risks related to the implementation
of potential financing solutions to resolve the TANESCO arrears; risk of a lack of access to Songas processing and transportation facilities; risk
that the Company may be unable to complete additional field development to support the Songo Songo production profile through the life of the
license; risk that the Company may be unable to develop additional supply or increase production volumes; risk of reduced current and potential
production capacity of the Songo Songo gas field; risks associated with the Company’s ability to complete sales of Additional Gas; inaccuracies
respecting the assessment of sand production on the applicable wells; the Company’s inability to obtain additional de-sanding units in 2023;
negotiations with potential industrial customers for Additional Gas contracts are not successful; negative effect on the Company’s rights under the
PSA and other agreements relating to its business in Tanzania as a result of recently enacted legislation, as well as the risk that such legislation will
create additional costs and time connected with the Company’s business in Tanzania; risks regarding the uncertainty around evolution of Tanzanian
legislation; incorrect assessment by the Company of the merits of the FCC claim; risk that the Company will not be successful in appealing claims or
decisions made by the TRA or TRAB and may be required to pay additional taxes and penalties; the risk of unanticipated effects regarding changes
to the Company’s tax liabilities and its operations as a result of amendments made to the ITA, 2004, the WLMAA, 2017, the implementation of
further legislation and the Company’s interpretation of the same; the impact of general economic conditions in the areas in which the Company
operates; civil unrest; the susceptibility of the areas in which the Company operates to outbreaks of disease; industry conditions; changes in
laws and regulations including the adoption of new environmental laws and regulations, impact of local content regulations and variances in
the interpretation and enforcement of such regulations; increased competition; the lack of availability of qualified personnel or management;
fluctuations in commodity prices, foreign exchange or interest rates; the lack of availability of US dollars; the Company’s inability to convert
Tanzanian shillings into US dollars as and when required; occurrence of circumstance or events which significantly impact the Company’s cash flow
and liquidity and the Company’s ability cover its long-term and short-term obligations; stock market volatility; competition for, among other things,
capital, oil and gas field services and skilled personnel; failure to obtain required equipment for field development; delays in development plans;
failure to obtain expected results from the drilling or workover of wells and the installation of compression on the Songas Infrastructure;

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 202263

Forward-Looking Statements cont.
effect of changes to the PSA on the Company as a result of the implementation of new government policies for the oil and gas industry; changes
in laws; imprecision in reserve estimates; incorrect forecasts in production and growth potential of the Company’s assets; obtaining required
approvals of regulatory authorities; failure to recommence production from SS-4; failure to complete the 3D seismic acquisition program, including
the completion of data acquisition and fast track data processing and the payment of seismic contracts and seismic processing contracts, on
the timeline or at the cost anticipated; not having an appropriate weather window in which to conduct the 3D seismic program; further work
not conducted on flowline of applicable wells as planned; risks associated with negotiating with foreign governments; inability to satisfy debt
conditions of financing; failure to successfully negotiate agreements; risk that the Company will not be able to fulfill its contractual obligations; risk
that trade and other receivables may not be paid by the Company’s customers when due; the risk that the Company’s Tanzanian operations will not
provide near term revenue earnings; reduced global economic activity as a result of the continuing impacts of COVID-19, including lower demand
for natural gas and a reduction in the price of natural gas; incorrect assessment that there will be no material adverse impacts on the Company
resulting from future spread of COVID-19 and any incorrect assumptions regarding potential future impact of continuing effects of COVID-19 on
the health of the Company’s employees, contractors, suppliers, customers and other partners and the risk that the Company and/or such persons
are or may be restricted or prevented (as a result of quarantines, closures or otherwise) from conducting business activities for undetermined
periods of time; and the impact of actions taken by governments to reduce any potential future spread of COVID-19, including declaring states of
emergency, imposing quarantines, border closures, temporary business closures for companies and industries deemed non-essential, significant
travel restrictions and mandated social distancing, and the effect on the Company’s operations, access to customers and suppliers, availability of
employees and other resources; and such additional risks listed under “Business Risks” in this report. In addition, there are risks and uncertainties
associated with oil and gas operations, therefore the Company’s actual results, performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by
these forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Readers are
cautioned that the foregoing list of factors is not exhaustive.

Such forward-looking statements are based on certain assumptions made by the Company in light of its experience and perception of historical
trends, current conditions and expected future developments, as well as other factors the Company believes are appropriate in the circumstances,
including, but not limited to, the Company’s anticipated production for 2023 are in line with the forecasts; the Company’s average gross gas sale
volumes are in line with forecasts; the ability of the Company to negotiate Additional Gas contracts with industrial customers; the ability of the
Company to complete additional developments and increase its production capacity; forecasts of the current and potential production capacity
of the Songo Songo gas field; the timeline and actual costs to complete the Company’s 3D seismic acquisition program, including the acquisition
of data and fast track data processing and the payment of seismic contracts and seismic processing contracts, are in line with estimates; further
work will be conducted on flowline of applicable wells as planned; the accuracy and timeliness of test programs and modelling on sand production
on applicable wells; the Company’s ability to acquire additional de-sanding units; the Company will receive payment of arrears from TANESCO
and record such receivables on the Company’s future Statement of Comprehensive Income as anticipated; correct assessment of the merits of the
FCC claim by the Company; the Company’s assessment of the merits of its appeal or claims before the TRA and TRAB regarding tax assessments
and penalties; the Company’s interpretation and prediction of the effects regarding changes to the Company’s tax liabilities and its operations
as a result of amendments made to the ITA, 2004, the WLMAA, 2017, the implementation of further legislation; that there will continue to be no
restrictions on the movement of cash from Mauritius, Jersey or Tanzania; the Company will continue to be able to convert Tanzanian shillings into
US dollars; absence of circumstances or events that significant impact the Company’s cash flow and liquidity; 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;
the Company’s ability to obtain revenue earnings from its operations, particularly its Tanzanian operations; the continuing impact of COVID-19 on
the demand for and price of natural gas, volatility in financial markets, disruptions to global supply chains and the Company’s business, operations,
access to customers and suppliers, availability of employees to carry out day-to-day operations, and other resources; that the Company will
successfully negotiate agreements; receipt of required regulatory approvals; the ability of the Company to increase production as required to meet
demand; infrastructure capacity; commodity prices will not deteriorate significantly; the ability of the Company to obtain equipment and services
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’s appeal of various tax assessments will be successful;
current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated as described herein; the
effect of new environmental and climate-change related regulations will not negatively impact the Company; the Company’s ability to maintain
strong commercial relationships with the GoT and other state and parastatal organizations; the current and future administration in Tanzania
continues to honor the terms of the PSA and the Company’s other principal agreements; the IASB pronouncements will not have any impact on
the Company’s consolidated financial statements; and other matters.

The forward-looking statements contained in this MD&A are made as of the date hereof and the Company 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.

Additional Information
Additional information relating to the Company is available on SEDAR at www.sedar.com

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202264

Glossary

mcf

Thousand standard cubic feet

MMcf

Million standard cubic feet

Bcf

Tcf

Billion standard cubic feet

Trillion standard cubic feet

MMcfd

Million standard cubic feet per day

kWh

Proven reserves

Proven and probable reserves

Kilowatt hour

Megawatt

US dollars

MMbtu

Million British thermal units

CDN$

Canadian dollars

Management’s Discussion & AnalysisOrca Energy Group Inc. Annual Report & Accounts 2022Management’s Report to Shareholders

The accompanying consolidated financial statements of Orca Energy Group Inc. are the responsibility of Management. The financial and operating
information presented in this Annual Report is consistent with that shown in the consolidated financial statements.

The consolidated financial statements have been prepared by Management, on behalf of the Board, in accordance with the accounting policies
disclosed in the notes to the consolidated financial statements. Where necessary, management has made informed judgments and estimates
in accounting for transactions which were not complete at the balance sheet date. In the opinion of management, the consolidated financial
statements have been prepared within acceptable limits of materiality and are in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the International Accounting Standards Board (“IASB”) appropriate in the circumstances.

Management maintains appropriate systems of internal controls. Policies and procedures are designed to give reasonable assurance that
transactions are properly authorised, assets are safeguarded and financial records are properly maintained to provide reliable information for the
preparation of financial statements. An independent firm of Chartered Professional Accountants, as appointed by the Shareholders, audited the
consolidated financial statements in accordance with the Canadian Generally Accepted Auditing Standards to enable them to express an opinion
on the fairness of the consolidated financial statements in accordance with IFRS as adopted by the IASB.

The Board of Directors carries out its responsibility for the financial reporting and internal controls of the Company principally through an
Audit Committee. The committee has met with the independent auditors and Management in order to determine if Management has fulfilled its
responsibilities in the preparation of the consolidated financial statements. The consolidated financial statements have been approved by the Board
of Directors on the recommendation of the Audit Committee.

(signed) "Jay Lyons"

Jay Lyons
Chief Executive Officer
April 26, 2023

(signed) "Lisa Mitchell"

Lisa Mitchell
Chief Financial Officer
April 26, 2023

XLisa MitchellStrategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202266

Independent Auditors’ Report

To the Shareholders of Orca Energy Group Inc.

Opinion
We have audited the consolidated financial statements of Orca Energy Group Inc. (the Entity), which comprise:

•

the consolidated statements of financial position as at December 31, 2022 and December 31, 2021

the consolidated statements of comprehensive income for the years then ended

the consolidated statements of changes in shareholders’ equity for the years then ended

the consolidated statements of cash flows for the years then ended

• and notes to the consolidated financial statements, including a summary of significant accounting policies

(Hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at
December 31, 2022 and December 31, 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further
described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our auditor’s report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada
and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the
year ended December 31, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matters below to be the key audit matters to be communicated in our auditor’s report.

Assessment and recognition of income tax provision related to positions taken in tax filings in Tanzania
Description of the matter
We draw your attention to note 3, note 4 (c), note 5(h), and note 21 to the financial statements.

The Entity operates in Tanzania where tax authorities may audit income tax filings and the resolution of such audits may span multiple years. Tax
law in Tanzania is complex and often subject to changes and to varied interpretations; accordingly, the ultimate outcome with respect to positions
taken on income tax filings may differ from the amounts recognized. The Entity has taken certain positions in its tax filings and these tax filings are
subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax impact may differ significantly
from that estimated and recorded by management.

The Entity’s assessment of whether it is probable that the position taken by the Entity will be accepted by tax authorities in Tanzania is a significant
management judgment. The Entity will record a tax provision where management concludes it is probable the filing position taken by the Entity
will not be accepted by the relevant taxing authority. At December 31, 2022, the Entity estimated that the total unrealized tax contingencies related
to uncertain income tax filing positions with Tanzanian tax authorities is $60.7 million.

Why the matter is a key audit matter
We identified the assessment and recognition of income tax provision related to positions taken in tax filings in Tanzania as a key audit matter.
This matter represented an area of significant risk of material misstatement. In addition, significant auditor judgment and specialized skills and
knowledge were required to evaluate the Entity’s assessment of the probability of the taxation authorities accepting the tax filing positions taken
by the Entity.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202267

How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:

We involved income tax professionals in Canada and Tanzania with specialized skills and knowledge who assisted in evaluating the Entity’s tax filing
positions including interpretation of income tax legislation by:

• Developing an independent assessment of the Entity’s tax filing positions based on their understanding and interpretation of tax laws in

Tanzania and comparing it to the Entity’s assessment

•

Inspecting the Entity’s correspondence with Tanzanian tax authorities and evaluating the implications of the matters raised by such
authorities

•

Inspecting evaluations and opinions provided by the Entity’s legal counsel

We assessed whether it was probable that the tax filing positions taken by the Entity would be accepted by the Tanzanian tax authorities by
obtaining legal enquiry letter responses from law firms engaged by the entity related to identified tax claims and contingencies.

Assessment of the impact of estimated proven natural gas reserves on depletion expense
Description of the matter
We draw attention to note 3, note 4 and note 13 to the financial statements. The Entity amortizes its costs associated with tangible natural gas
assets using the unit of production method by reference to the ratio of production in the period to the related proven gas reserves, taking into
account estimated forecasted future development costs necessary to bring those reserves into production. The Entity recorded depletion expense
related to its tangible natural gas assets of $29.2 million for the year ended December 31, 2022.

The estimated proven gas reserves includes significant assumptions related to:

• Forecasted natural gas prices

• Forecasted production rates

• Forecasted operating costs

• Forecasted future development costs

• Forecasted cost recovery provisions and royalties

The Entity engages independent petroleum engineers to evaluate the proven natural gas reserves and the related cash flows.

Why the matter is a key audit matter
We identified the assessment of the impact of estimated proven natural gas reserves on depletion expense as a key audit matter. Significant auditor
judgement was required to evaluate the results of our audit procedures regarding the estimate of proven natural gas reserves.

How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter include the following:

We assessed the depletion expense calculation for compliance with IFRS as issued by the IASB.

With respected to the estimate of proven natural gas reserves:

• We evaluated the competence, capabilities and objectivity of the independent petroleum engineers engaged by the Entity

• We compared the 2022 actual production rates, operating costs, royalties, and future development costs of the Entity to those estimates

used in the prior year’s estimate of proven natural gas reserves to assess the Entity’s ability to accurately forecast

• We evaluated the appropriateness of forecasted natural gas prices, forecasted production rates, forecasted operating costs, forecasted cost
recovery provisions and royalties, and forecasted future development cost assumptions by comparing to 2022 actual results. We took into
account changes in conditions and events affecting the Entity to assess the adjustments or lack of adjustments made by the Entity in arriving
at the assumptions.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202268

Other Information
Management is responsible for the other information. Other information comprises the information included in Management’s Discussion & Analysis
and in the document entitled “Annual Report” filed with the relevant Canadian Securities Commissions.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion
thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain
alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management’s Discussion & Analysis and in the Annual Report filed with the relevant Canadian Securities
Commissions as at the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that fact in the auditor’s report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the
Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit.

We also:

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

• The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as
a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a
going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial

statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and

significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202269

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity
to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.

• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit
of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our auditor’s report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this auditor’s report is Jason Grodziski.

Chartered Professional Accountants
Calgary, Canada
April 26, 2023

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202270

Consolidated Statements of Comprehensive Income

$’000

Revenue

Production, distribution and transportation

Net production revenue

Operating expenses

General and administrative

Stock-based compensation recovery

Depletion

Reversal of loss allowance

Finance income

Finance expense

Income before tax

Income tax expense – current

Income tax expense – deferred

Additional Profits Tax

Net income

Net income attributable to non-controlling interest

Net income attributable to shareholders

Foreign currency translation loss from foreign operations

Comprehensive income

Net income attributable to shareholders per share ($)

Basic and diluted

See accompanying notes to the consolidated financial statements.

Years ended December 31

Note

2022

118,089

18,011

100,078

13,548

(120)

29,174

(6,715)

(613)

10,210

54,594

15,488

1,213

7,613

30,280

2,554

27,726

2021

86,022

12,253

73,769

11,988

(576)

15,779

(2,574)

(133)

9,987

39,298

10,192

6,534

4,609

17,963

1,593

16,370

(95)

(6)

27,631

16,364

1.39

0.81

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022Consolidated Statements of Financial Position

$’000
ASSETS

Current assets

Cash and cash equivalents

Trade and other receivables

Prepayments

Non-current assets

Long-term receivables

Investments

Capital assets

Total assets

EQUITY AND LIABILITIES

Current liabilities

Trade and other liabilities

Tax payable

Current portion of long-term loan

Current portion of Additional Profits Tax

Non-current liabilities

Deferred income taxes

Lease liabilities

Long-term loan

Additional Profits Tax

Total liabilities

SHAREHOLDERS’ EQUITY

Capital stock

Accumulated other comprehensive loss

Accumulated income

Non-controlling interest

Total equity and liabilities

As at December 31

Note

2022

2021

96,321

35,100

1,551

72,985

30,731

1,133

132,972

104,849

2,215

–

112,896

115,111

248,083

43,192

5,081

10,000

13,146

71,419

26,256

39,762

15,347

81,378

152,797

47,257

(272)

42,631

5,670

95,286

248,083

2,215

3,240

119,967

125,422

230,271

46,776

2,836

5,000

8,461

63,073

25,043

176

49,603

20,922

95,744

158,817

47,454

(177)

21,061

3,116

71,454

230,271

See accompanying notes to the consolidated financial statements.

Nature of operations (Note 1); Contractual obligations (Note 20); Contingencies (Note 21); Subsequent events (Note 25). The consolidated financial
statements were approved by the Board on April 26, 2023.

(signed) "Jay Lyons"

Jay Lyons
Chief Executive Officer
April 26, 2023

(signed) "Lisa Mitchell"

Lisa Mitchell
Chief Financial Officer
April 26, 2023

XLisa MitchellStrategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202272

Consolidated Statements of Cash Flows

$’000

OPERATING ACTIVITIES

Net Income

Adjustment for:

Depletion and depreciation

Indirect tax

Stock based compensation recovery

Deferred income taxes

Additional Profits Tax

Loss allowance

Unrealized (gain) loss on foreign exchange

Interest expense

Change in non-cash operating working capital

Net cash flows from operating activities

INVESTING ACTIVITIES

Capital expenditures

Net used in from investing activities

FINANCING ACTIVITIES

Lease payments

Substantial issuer bid

Normal course issuer bid

Long-term loan repayment

Interest paid

Dividends paid to shareholders

Net cash used in financing activities

Increase (decrease) in cash

Cash and cash equivalents at the beginning of the year

Effect of change in foreign exchange on cash for the year

Cash and cash equivalents at the end of the year

See accompanying notes to the consolidated financial statements.

Years ended December 31

Note

2022

2021

30,280

17,963

29,528

1,103

(120)

1,213

7,613

3,240

(235)

8,637

16,106

1,826

(576)

6,534

4,609

1,188

387

6,945

(13,599)

(14,872)

67,660

40,110

(25,731)

(24,985)

(312)

–

(298)

(5,000)

(6,904)

(6,176)

(18,690)

23,239

72,985

(319)

(31,872)

(131)

–

(7,198)

(6,429)

(45,949)

(30,824)

104,190

(381)

96,321

72,985

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022Consolidated Statements of Changes in Shareholders’ Equity

$’000

Note

Balance as at December 31, 2021

Share repurchase

Dividends declared

Foreign currency translation adjustment on foreign operations

Net income

Balance as at December 31, 2022

$’000

Note

Balance as at December 31, 2020

Share repurchase

Share repurchase costs

Dividends declared

Foreign currency translation adjustment on foreign operations

Net income

Capital
stock

47,454

(197)

–

47,257

Capital
stock

63,243

(15,789)

–

Balance as at December 31, 2021

47,454

See accompanying notes to the consolidated financial statements

Accumulated
other
comprehensive
loss

Accumulated
income

Non-
controlling
Interest

(177)

–

(95)

–

(272)

21,061

(101)

(6,055)

–

27,726

42,631

3,116

–

2,554

5,670

Accumulated
other
comprehensive
loss

Accumulated
income

(171)

–

(6)

–

(177)

27,277

(16,012)

(202)

(6,372)

–

16,370

21,061

Non-
controlling
Interest

1,523

–

1,593

3,116

Total

71,454

(298)

(6,055)

(95)

30,280

95,286

Total

91,872

(31,801)

(202)

(6,372)

(6)

17,963

71,454

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Notes to the Consolidated Financial Statements

General Information
Orca Energy Group Inc. was incorporated on April 28, 2004 under the laws of the British Virgin Islands with its registered office located at Vistra
Corporate Service Centre, Wickhams Cay II, Road Town, Tortola, British Virgin Islands, VG110. The Company produces and sells natural gas to the
power and industrial sectors in Tanzania.

The consolidated financial statements of the Company as at and for the year ended December 31, 2022 comprise accounts of the Company
and its subsidiaries (collectively, the “Company” or “Orca Energy”) and were authorized for issue in accordance with a resolution of the directors
on April 26, 2023. The Company is controlled by Shaymar Limited who is the registered holder of 24.8% of the equity and controls 71.6% of the total
votes of the Company. The shares are held in a trust that is independently managed for the beneficiaries.

1. Nature of Operations
The Company’s principal operating asset is an interest held by a subsidiary, PanAfrican Energy Tanzania Limited (“PAET”) in a Production Sharing
Agreement (“PSA”) with the Tanzania Petroleum Development Corporation (“TPDC”) and the Government of Tanzania (“GoT”) in the United
Republic of Tanzania. This PSA covers the production and marketing of certain gas from the Songo Songo Block offshore Tanzania.

The PSA defines gas in the Songo Songo field as “Protected Gas” and “Additional Gas”. The “Protected Gas” is owned by TPDC and is sold under a
20-year gas agreement until July 2024 (“Gas Agreement”) to Songas Limited (“Songas”) and Tanzania Portland Cement PLC. Songas is the owner
of the infrastructure that enables the gas to be delivered to Dar es Salaam, which includes a gas processing plant on Songo Songo Island (“Songas
Infrastructure”). The Company operates the gas processing plant and field on a “no gain no loss” basis and receives no revenue for the Protected
Gas delivered to Songas.

Under the PSA, the Company has the right to produce and market all gas in the Songo Songo Block in excess of the Protected Gas requirements
(“Additional Gas”) until the PSA expires in October 2026.

The Tanzania Electricity Supply Company Limited (“TANESCO”) is a parastatal organization which is wholly-owned by the Government of Tanzania,
with oversight by the Ministry for Energy (“MoE”). TANESCO is responsible for the majority of electricity generation, transmission and distribution
throughout Tanzania. The Company and TPDC as joint sellers currently supply Additional Gas directly to TANESCO by way of a Portfolio Gas
Supply Agreement (“PGSA”) and indirectly through the supply of Protected Gas and Additional Gas to Songas. The Company also delivers gas to
TPDC through a long-term gas sales agreement (“LTGSA”) to the TPDC operated National Natural Gas Infrastructure (“NNGI”) on Songo Songo
Island where the natural gas is processed before being transported to Dar es Salaam for power and industrial use.

In addition to gas supplied to TPDC, Songas and TANESCO, the Company has developed and supplies an industrial gas market in the Dar es
Salaam area.

2. Basis of Preparation
Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).

Basis of Measurement
These consolidated financial statements have been prepared on a historical cost basis using the accrual basis of accounting. The consolidated
financial statements are presented in US dollars (“$”) unless otherwise stated.

Basis of Consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company. The following companies have been consolidated within the Orca Energy
financial statements:

Subsidiary

Orca Energy Group Inc.

Registered

Holding

Functional currency

British Virgin Islands

Parent Company

Orca Exploration UK Services Limited

United Kingdom

PAE PanAfrican Energy Corporation (“PAEM”)

PanAfrican Energy Tanzania Limited

Mauritius

Jersey

100%

92%

US dollar

British pound

US dollar

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202275

2. Basis of Preparation cont.
Transactions Eliminated Upon Consolidation
Inter-company balances and transactions and any unrealized gains or losses arising from inter-company transactions are eliminated in preparing
the consolidated financial statements.

Foreign Currency
i) Foreign Currency Transactions
Transactions in foreign currencies are recorded at the rate of exchange prevailing at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at period-end rates. Non-monetary items are translated at historic rates, unless such items are carried at market
value, in which case they are translated using the exchange rates that existed when the values were determined. Any resulting exchange rate
differences are recognized in earnings.

ii) Foreign Currency Translation
Foreign currency differences are recognized in comprehensive income and accumulated in the translation reserve. The assets and liabilities of these
companies are translated into the functional currency at the period-end exchange rate. The income and expenses of the companies are translated
into the functional currency at the average exchange rate for the period. Translation gains and losses are included in other comprehensive income.

COVID-19
There has been no significant change in the Company’s business during the year ended December 31, 2022 as a result of the ongoing coronavirus
pandemic (“COVID-19”). Tanzanian government restrictions and vaccination program appear to have largely controlled the spread of COVID-19.
Given the steps already taken by the Company, no significant impact on our operations or business results has occurred a result of COVID-19.
However, COVID-19 has been a contributing factor in a reduction of foreign currency flowing into the country and the risk remains that in the future
the Company may not be able to convert Tanzanian shillings to United States dollars as and when required.

Climate change regulations
Risks related to climate change may have an impact on the Company’s operations and the Company may be subject to additional disclosure
requirements in the future. The International Sustainability Standards Board issued an IFRS Sustainability Disclosure Standard with the objective to
develop a global framework for environmental sustainability disclosure. In addition, the Canadian Securities Administrators also issued a proposed
National Instrument 51-107 Disclosure of Climate-related Matters which sets forth additional reporting requirements for Canadian Public Companies.
We continue to monitor developments on these reporting requirements and the impact they may have on the Company’s financial position and
results of operating activities in future periods.

3. Summary of Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Capital Assets
i) Capital Assets
Capital assets comprises the Company’s tangible natural gas assets, development wells, leasehold improvements, computer equipment, motor
vehicles and fixtures and fittings carried at cost, right-of-use assets less any accumulated depletion, depreciation and accumulated impairment
losses. Cost includes purchase price and construction costs for qualifying assets. Depletion of these assets commences when the assets are
ready for their intended use. Only costs that are directly related to the discovery and development of specific oil and gas reserves are capitalized.
The cost associated with tangible natural gas assets are amortized on a unit of production method based on commercial proven reserves. The
calculation of the unit of production amortization takes into account the estimated future development cost associated with proven reserves.

ii) Impairment of Property, Plant and Equipment
At each balance sheet date, the Company reviews the carrying amounts of its property, plant and equipment to determine if indicators of
impairment exist. Individual assets are grouped together as a cash generating unit (“CGU”) for impairment assessment purposes at the lowest
level at which there are identifiable cash flows that are independent from other group assets. If any such indication of impairment exists, the
Company makes an estimate of its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Where
the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down to its recoverable amount. In
assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the CGU and are discounted to their present value
with a pre-tax discount rate that reflects the current market indicators. The fair value less costs to sell is the amount that would be obtained from
the sale of a CGU in an arm’s length transaction between knowledgeable and willing parties. Where an impairment loss subsequently reverses, the
carrying amount of the asset CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been recognized for the CGU in prior years. A reversal
of an impairment loss is recognized in earnings.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202276

Notes to the Consolidated Financial Statements cont.

3. Summary of Significant Accounting Policies cont.
Operatorship
The Company operates the Songo Songo Gas Field, flowlines and gas processing plant. The Songas wells, flowlines and gas plant are operated
by the Company on behalf of Songas on a “no gain no loss” basis. The cost of operating and maintaining the wells and flowlines is paid for by the
Company and Songas in proportion to the respective volumes of Protected Gas and Additional Gas sales. The costs of operating and maintaining
the wells and flowlines are reflected in the accounts to the extent that the costs were incurred to accomplish Additional Gas sales. The cost of
operating the gas processing plant and pipeline to Dar es Salaam is paid by Songas. Costs incurred by the Company in connection with the
operatorship of the Songas plant are recorded as receivables which are recharged to Songas. Subsequent payments received from Songas are
credited to receivables. When there are Additional Gas sales, a tariff is paid to Songas as compensation for using the gas processing plant
and pipeline.

Employment Benefits
i) Pension
The Company does not operate a pension plan, but it does make contributions to the individual pension funds for employees in the United
Kingdom and Tanzania. Obligations for contributions to the statutory pension fund are recognized as an expense as incurred.

ii) Stock Appreciation Rights and Restricted Stock Units
Stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) are issued to certain key managers, officers, directors and employees. This
has effectively paused at the end of 2022. The fair value of SARs and RSUs are recorded in earnings in accordance with the service period. The fair
value of the SARs and RSUs is revalued every reporting date with the change in the value recognized in earnings.

Asset Retirement Obligations
No provision has been made for future site restoration costs in Tanzania because the Company currently has no legal or contractual or constructive
obligation under the PSA to restore the fields at the end of their commercial lives, should such occur within the term of the PSA. If an amendment
to the PSA is agreed requiring the Company to restore the fields at the end of the commercial lives, a provision will be made for future site
restoration costs.

Revenue Recognition, Production Sharing Agreements and Royalties
Pursuant to the terms of the PSA, the Company has exclusive rights (i) to carry on Exploration Operations in the Songo Songo Gas Field; (ii) to
carry on Development Operations in the Songo Songo Gas Field and (iii) jointly with TPDC, to sell or otherwise dispose of Additional Gas.

The Company recognizes revenue related to Additional Gas sales to all customers at specified delivery points at benchmark and contractual prices.

A good or service is transferred when the customer obtains control of that good or service. The transfer of control of natural gas occurs at the
metering points at the inlet to the customer’s facility. Under the terms of the PSA, the Company pays both its share and TPDC’s share of operating,
administrative and capital costs. The Company recovers all reasonably incurred operating, administrative and capital costs including TPDC’s share
of these costs from future revenues over several years (“Cost Gas”). TPDC’s share of operating and administrative costs is recorded in operating
and general and administrative costs when incurred and capital costs are recorded in capital assets. All recoveries are recorded as Cost Gas revenue
in the year of recovery.

The Company has gas sales contracts under which the customers are required to take, or pay for, a minimum quantity of gas. In the event that
a customer has paid for gas that was not delivered, the additional income received by the Company is carried on the balance sheet as deferred
revenue. If the customer consumes volumes in excess of the minimum, it will be charged at the current rate, but may receive a credit for volumes
paid but not delivered. At the end of each reporting period the Company reassesses the volumes for which the customer may receive credit, any
remaining balance is credited to income. As at December 31, 2022, future revenues from take or pay provisions of the PGSA extending through
2026 are approximately $10.7 million, of which $10.7 million is expected to be recognized in 2023.

In any given year, the Company is entitled to recover as Cost Gas up to 75% of the net revenue (gross revenue less processing and pipeline tariffs).
Any net revenue in excess of the Cost Gas (“Profit Gas”) is shared between the Company and TPDC in accordance with the terms of the PSA.
Under the PSA the Profit Gas payable to TPDC is adjusted by the amount necessary to fully pay and discharge the Company’s liability for taxes on
income. Revenue represents the Company’s share of Profit Gas and Cost Gas during the period.

The Company records revenues for sales to TANESCO based on the expected amount to be collected, which represents a percentage of the
amounts invoiced to TANESCO determined by comparison of TANESCO’s payment history to the amounts invoiced by the Company. Management
believes this approach provides the best estimate of TANESCO’s ability to pay and remain reasonably current; it also reflects the economic reality
of the situation (see Notes 4 and 7).

The estimated percentage used to recognize TANESCO revenue will be reviewed periodically as circumstances require. If there is a significant
difference between the amount of revenue recorded and amounts received, the percentage used to record revenue as well as any existing
receivable or deferred revenue balance will be revised accordingly. The Company recognized 100% of amounts invoiced for deliveries to TANESCO
as revenue during 2022 and 2021. During 2022 the Company invoiced TANESCO $29.8 million (2021: $23.9 million) for gas deliveries and received
$33.7 million (2021: $22.9 million) in payments. Based on the consistent payments from TANESCO, the Company: (i) recognized all amounts
invoiced for gas deliveries in 2022 and 2021 as revenue; and (ii) recognized $5.6 million during the year (2021: $1.1 million) as a reversal of loss
allowance relating to the amounts collected during the year that were applied towards the long-term TANESCO receivables previously allowed for.
In addition, during 2022 TANESCO paid the Company $30.0 million against the 2017 and 2018 take or pay invoices. As of December 31, 2022, the
Company had $3.7 million of TANESCO current receivables which was settled in Q1 2023.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202277

3. Summary of Significant Accounting Policies cont.
Revenue Recognition, Production Sharing Agreements and Royalties cont.
The Company sells its natural gas to power customers (TANESCO, TPDC and Songas) and one industrial customer (a cement manufacturer)
pursuant to fixed-price contracts. Sales to other industrial customers are at fixed-price discounts (subject to certain floors and ceilings) to the
lowest alternative fuel source in Dar es Salaam, Heavy Fuel Oil (“HFO”) and coal. Under all contracts, the Company is required to deliver volumes
of natural gas to the contract counterparty. Natural gas revenue is recognized when the Company gives up control of the natural gas which occurs
at metering points located at the inlets of customers’ facilities. The amount of production revenue recognized is based on the agreed transaction
price and the volumes delivered.

The Company has entered into contracts with customers with terms of four years.

Additional Profits Tax
Under the terms of the PSA, in the event that all costs have been recovered with an annual return from the PSA of 25% plus the percentage
change in the United States Industrial Goods Producer Price Index, an Additional Profits Tax (“APT”) is payable to the Government of Tanzania.
APT is provided for by forecasting the total APT payable in the future as a proportion of the forecast Profit Gas over the term of PSA license.
The actual APT that will be paid is dependent on the achieved value of the Additional Gas sales and the quantum and timing of the operating
costs and capital expenditure program.

The PSA states that APT shall be calculated for each year and shall vary with the real rate of return earned by the Company on the net cash flow
from the Contract Area (as defined in the PSA). The calculation of APT includes a working capital adjustment reflecting the effect of the timing of
actual receipt of amounts owing from TANESCO on net cash flow.

Income Taxes
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to extent they relate to items recognized directly in
equity, in which case the tax is recognized in equity.

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustments to the tax payable or
receivable in respect to previous years. Where current income tax is payable, this is shown as a current tax liability. The amount of the current tax
payable is the best estimate of the tax amount expected to be paid that reflects uncertainty related to income taxes, if any. It is measured using tax
rates enacted or substantively enacted at the reporting date.

Deferred tax is recognized using the asset and liability method, providing for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the
expected manner of realization or settlement of carrying amounts of assets and liabilities using tax rates substantively enacted at the balance sheet
date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available, against which the asset can
be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realized.

Uncertainties over positions taken in income tax filings are evaluated on the basis of whether it is probable the position taken by the Company in the
tax filing will be accepted upon examination by the relevant taxing authorities. These uncertainties impact the amount of income taxes recognized.

Depreciation
Depreciation for non-natural gas properties is charged to earnings on a straight-line basis over the estimated useful economic lives of each class of
asset. The estimated useful lives are as follows:

Leasehold improvement

Over remaining life of the lease

Computer equipment

Vehicles

Fixtures and fittings

3 years

Leased assets and right-of-use assets

Over the remaining life of the lease

Financial Instruments
All financial instruments are initially recognized at fair value on the Consolidated Statements of Financial Position. The Company has classified each
financial instrument into one of the following categories: (i) fair value through the statement of comprehensive income (loss), (ii) loans and receivables,
and (iii) other financial liabilities. Measurement in subsequent periods depends on the classification of the financial instrument as described below:

• Fair value through profit or loss: financial instruments under this classification include cash and cash equivalents and derivative assets and

liabilities.

• Amortized cost: financial instruments under this classification include accounts receivable, investments in bonds, investments, accounts

payable and accrued liabilities, dividends payable, finance lease obligations, and long-term debt.

Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets
are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred
substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported on the statement of
financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or
realize the asset and settle the liability simultaneously.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202278

Notes to the Consolidated Financial Statements cont.

3. Summary of Significant Accounting Policies cont.
Financial Instruments Classification and Measurement
The Company’s financial instruments include trade and other receivables, long-term receivables, trade and other liabilities and long-term loan.
The Company classifies the fair value of these financial instruments according to the following hierarchy based on the amount of observable inputs
used to value the instrument.

• Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in

which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly

observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and
volatility factors, which can be substantially observed or corroborated in the marketplace.

• Level 3 – Valuation in this level are those with inputs for the asset or liabilities that are not based on observable market data.

The fair value of trade and other receivables and trade and other liabilities approximate their carrying amount due to the short-term nature of those
instruments. The fair value of long-term receivables also approximates their carrying amount.

The Company’s long-term loan is classified as Level 2 measurements. The long-term loan bears interest at a fixed rate which is close to the current
market rates and accordingly the fair market value of the long-term loan approximates the carrying value.

Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, term deposits and short-term highly liquid investments with the original term to maturity of three
months or less, which are convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of
changes in value. The fair value of cash and cash equivalents approximates their carrying amount. There are no restrictions on the movement of
funds out of Tanzania.

Impairment of Financial Assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is
considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of
that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the
present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested
for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in earnings. An impairment loss is reversed if the reversal can be related objectively to an event occurring after
the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in earnings.

Leases
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any
initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.

The right-of-use asset is depreciated using the straight-line method from its commencement date to the earlier of the end of the useful life of
the right-of-use asset or end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of
property, plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-
measurements of the lease liability.

The lease liability is initially measured at the present value of the minimum lease payments that are not yet paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for that
asset. Generally, the Company uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest
cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a
change in an index or rate, a change in estimate of the amount expected to be payable under a residual value guarantee, changes in the assessment
of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202279

3. Summary of Significant Accounting Policies cont.
Short-Term Leases and Leases of Low Value Assets
The Company has elected not to recognize right-of-use assets and lease liabilities for short term leases that have a term of 12 months or less and
leases of low value assets defined as less than $5,000 or less. The Company recognizes the lease payments associated with these leases as an
expense when incurred, over the lease term.

Accounting Changes
The following pronouncements from the IASB became effective or were amended for financial reporting periods beginning on or after January 1,
2022. There has been no impact on the Company.

• COVID-19 Related Rent Concessions beyond June 30, 2021 (Amendment to IFRS 16).

• Onerous contracts – Cost of fulfilling a contract (Amendments to IAS 37).

• Annual Improvements to IFRS Standards 2018-2020.

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).

• Reference to the Conceptual Framework (Amendments to IFRS 3).

The following standards have been issued but are not yet effective:

•

IFRS 17 Insurance Contracts.

• Amendments to IFRS 17.

• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2).

• Definition of Accounting Estimate (Amendments to IAS 8).

• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12).

•

Initial Application of IFRS 17 and IFRS 9 Comparative Information (Amendments to IFRS 17).

The Company intends to adopt these standards when they become effective and is currently evaluating the potential impact.

4. Use of Estimates and Judgments
The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying
the Company’s accounting policies and that have the most significant effect on the accounts recognized in these consolidated financial statements.

Critical Judgments in Applying Accounting Policies:
A. Natural gas assets
The Company assesses its natural gas assets for impairment when events or circumstances indicate that the carrying amount of its assets may
not be recoverable. If any indication of impairment exists, the Company performs an impairment test on the CGU, which is the lowest level at
which there are identifiable cash flows. The carrying amount of the CGU is compared to its recoverable amount which is defined as the greater of
its fair value less cost to sell and value in use and is subject to management estimates. These estimates include quantities of reserves and future
production, future commodity pricing, development costs, operating costs, and discount rates. Any changes in these estimates may have an impact
on the recoverable amount of the CGU.

B. Collectability of receivables
The Company evaluates the collectability of its receivables on the basis of payment history, frequency and predictability, as well as Management’s
assessment of the customer’s willingness and ability to pay. Management performs impairment tests each period on the Company’s current and
long-term receivables.

C. Statutory taxes
The Company operates in a jurisdiction with complex tax laws and regulations, which are evolving over time. The Company has taken certain tax
positions in its tax filings and these filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the
actual income tax impact may differ significantly from that estimated and recorded by management.

The recognition or reversal of deferred tax assets requires judgment as to whether or not there will be sufficient taxable profits available to offset
the tax assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202280

Notes to the Consolidated Financial Statements cont.

4. Use of Estimates and Judgments cont.
Key Sources of Estimation of Uncertainty
A. Reserves
There are numerous uncertainties inherent in estimating quantities of proved and probable reserves and cash flows to be derived therefrom,
including many factors beyond the control of the Company. The reserves and estimated future net cash flow from the Company’s properties
have been evaluated by independent petroleum engineers. These evaluations include a number of assumptions relating to factors such as initial
production rates, production decline rates, ultimate recovery of reserves, timing and amount of capital expenditures, marketability of production,
crude oil price differentials to benchmarks, future prices of oil and natural gas, operating costs, transportation costs, cost recovery provisions
and royalties, TPDC “back-in” methodology and other Government levies that may be imposed over the producing life of the reserves. These
assumptions were based on price forecasts in use at the date the relevant evaluations were prepared and many of these assumptions are subject
to change and are beyond the control of the Company. To date, TPDC has neither elected to back in within the prescribed notice period nor
contributed any costs associated with backing in.

Reserves are integral to the amount of depletion and impairment test.

B. Cost Recovery
The Company is able to recover reasonable costs incurred on the development of the Songo Songo project out of 75% of the gross field revenue
less processing and pipeline tariffs (“field net revenue”). There are inherent uncertainties in estimating when costs have been recovered as these
costs are subject to Government audit and under certain circumstances a potential reassessment after the lapse of a considerable period of time.

5. Risk Management
The Company, by its activities in oil and gas exploration, development and production, is exposed to the risk associated with the unpredictable
nature of the financial markets as well as political risk associated with conducting operations in an emerging market. The Company seeks to
manage its exposure to these risks wherever possible.

A. Foreign Exchange Risk
Foreign exchange risk arises when transactions and recognized assets and liabilities of the Company are denominated in a currency that is not the
US dollar functional currency.

The Company operates internationally and is exposed to foreign exchange risk arising from currency exposures to US dollars. The main currencies
to which the Company has an exposure are: Tanzanian shillings, British pounds sterling, Euros and Canadian dollars.

The majority of contracts with customers are based on US dollar prices for gas delivered however the majority of invoices and receipts are in
Tanzanian shillings. Invoices are priced and then converted to Tanzanian shillings at the time of invoicing however payments are based on the
US dollar invoiced amount translated to shillings at the time of payment. While conversion of Tanzanian shillings into US dollars is unrestricted,
the foreign exchange market for Tanzanian shillings is limited and not highly liquid, reducing the Company’s ability to convert large amounts
of Tanzanian shillings into US dollars at any given time. To mitigate the risk of Tanzanian shilling devaluation, the Company regularly converts
Tanzanian shilling receipts into US dollars and Euros to the extent practicable taking into consideration that the majority of operating expenditures
are denominated in Tanzanian shillings.

The majority of capital expenditures are denominated in US dollars. Capital stock, equity financing and any associated stock based compensation
are denominated in Canadian dollars.

There are no forward exchange rate contracts in place.

A 10% increase in the US dollar against the relevant foreign currency would result in an overall increase in working capital (defined as current assets
less current liabilities) of $2.2 million from $61.6 million to $63.8 million and an increase in the income before tax from $54.6 million to $56.8 million.

The sensitivity includes only outstanding foreign currency denominated monetary items and adjusts their translation at period end for a 10%
change in the foreign currency rates. A 10% sensitivity rate is used when reporting foreign currency risk internally to key management personnel
and represents management’s assessment of the reasonable possible change in foreign exchange rates.

The following balances are denominated in foreign currency (stated in US dollars at period end exchange rates):

Balances as at December 31, 2022

$’millions

Cash

Trade and other receivables

Trade and other liabilities

Net

Tanzanian
shillings

Euros

Canadian
dollars

British
pounds

37.0

16.2

(31.6)

21.6

1.2

–

1.2

0.1

–

(1.5)

(1.4)

0.1

–

0.1

Total

38.4

16.2

(33.1)

21.5

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022
81

5. Risk Management cont.
B. Commodity Price Risk
The Company negotiated industrial gas sales contracts with gas prices which, subject to certain floors and ceilings, are determined as a discount
to the lowest cost alternative fuels in Dar es Salaam, namely Heavy Fuel Oil (“HFO”) and coal. The price of HFO is exposed to the volatility in the
market price of crude oil.

C. Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company has minimal exposure
to interest rates as the long-term loan has a fixed interest rate, interest rates on short-term investments are fixed and interest received on cash
balances is not significant.

D. Concentration Risk
All the Company’s sales are currently made in Tanzania. The sales are made to the Power sector and the Industrial sector. In relation to sales to the
Power sector, the Company has a contract with Songas for the supply of gas to the Ubungo power plant, a contract with TANESCO to supply gas
to some of the TANESCO power plants, and a contract with TPDC to supply gas through NNGI. The contracts with Songas, TANESCO and TPDC
accounted for 69% of the Company’s gross field revenue operating revenue during 2022 and $20.3 million of the short and long-term receivables
at December 31, 2022.

E. Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations
and arises principally from the Company’s receivables from TANESCO, Songas and TPDC. The carrying amount of accounts receivable and the
long-term receivable represents the maximum credit exposure. As at December 31, 2022 and 2021, loss allowance exists against all of the long-term
TANESCO receivable, gas plant operations and capital expenditure receivables from Songas, and a receivable of $0.5 million from one industrial
customer. No write-off of any receivables occurred in 2022 or 2021 (see Note 12).

The Company manages the credit exposure related to cash and cash equivalents by selecting counterparties based on credit ratings and
monitoring all investments to ensure a stable return, avoiding complex investment vehicles with higher risk such as asset backed commercial paper.
The Company’s cash resources are placed with reputable financial institutions with no history of default.

F. Liquidity Risk
Liquidity risk is the risk that the Company will not have sufficient funds to meet its liabilities. Cash forecasts identifying liquidity requirements of
the Company are produced on a regular basis. These are reviewed to ensure sufficient funds exist to finance the Company’s current operational
and investment cash flow requirements. At December 31, 2022 the Company has working capital, defined as total current assets less total current
liabilities, of $61.6 million which is net of $71.4 million of financial liabilities with regards to trade and other liabilities of which $56.6 million is due
within one to three months, $9.8 million is due within three to six months, and $5.0 million is due within six to twelve months (see Note 14).

At the end of the year approximately 27% of the current liabilities relate to TPDC (see Note 14). The amounts due to TPDC represent its share of
Profit Gas. In accordance with the terms of the PSA, TPDC is entitled to the payment of its share of Profit Gas on a quarterly basis proportional
to the cash receipts during the quarter. A substantial proportion of the TPDC liability is associated with the long-term TANESCO arrears and
payments to TPDC are made when cash is received for the arrears.

COVID-19 has reduced travel throughout the world in 2022 and 2021. Tourism is a major source of revenue and foreign currency for Tanzania and
the decrease in travel has resulted in a reduction of foreign currency flowing into the country. It has been more difficult for the Company to convert
Tanzanian shillings to United States dollars compared to prior years, however, as at the date of this report, this has not significantly impacted
PAET’s ability to meet its United States dollar obligations. There is a risk that in the future the Company may not be able to convert Tanzanian
shillings to United States dollars or Euros as and when required. It is unknown how long this risk will continue.

G. Capital Risk Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to achieve an optimal capital structure to reduce the cost of capital.

H. Country Risk
The Company has unresolved disputes with TPDC related to Cost Gas revenue, TANESCO and Songas regarding unpaid invoices, and the Tanzanian
Revenue Authority (“TRA”) in relation to tax disputes (see Note 21). The Company continues to rely upon its rights under the existing PSA and has
initiated notices of disputes as required under the PSA and by local tax regulations to resolve outstanding issues.

6. Segment Information
The Company has one reportable industry segment which is international exploration, development and production of petroleum and natural gas.
During 2022 and 2021 the Company’s producing assets were entirely located in Tanzania.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202282

Notes to the Consolidated Financial Statements cont.

7. Revenue

$’000

Industrial sector

Power sector

Gross field revenue

TPDC share of revenue

Company operating revenue

Current income tax adjustment

Years ended December 31

2022

43,437

95,388

138,825

2021

39,477

60,445

99,922

(37,841)

(22,285)

100,984

17,105

118,089

77,637

8,385

86,022

The Company recognized 100% of amounts invoiced for deliveries to TANESCO as revenue during 2022 and 2021. During 2022 the Company
invoiced TANESCO $29.8 million (2021: $23.9 million) for gas deliveries and received $33.7 million (2021: $22.9 million) in payments. These amounts
are inclusive of value added tax (“VAT”). Based on the consistent payments from TANESCO, the Company: (i) recognized all amounts invoiced for
gas deliveries in 2022 and 2021 as revenue; and (ii) recognized $5.6 million during the year (2021: $1.1 million) as a reversal of loss allowance relating
to the amounts collected during the year that were applied towards the long-term TANESCO receivables previously allowed for (see Note 12). In
addition, during 2022 TANESCO paid the Company $30.0 million against the 2017 and 2018 take or pay invoices. Subsequent to December 31, 2022
the Company has invoiced TANESCO $6.9 million for 2023 gas deliveries and TANESCO has paid the Company $11.1 million. In addition, subsequent
to December 31, 2022 TANESCO paid the Company $3.3 million against the 2020 take or pay invoice.

8. Personnel Expenses

$’000

Employee and related costs included in:

Production, distribution and transportation

General and administrative

Stock-based compensation recovery (Note 17)

Years ended December 31

2022

2021

3,000

7,139

10,139

(120)

10,019

2,932

7,032

9,964

(576)

9,388

Personnel expenses include Company employees who operate the Songas facilities on behalf of Songas; these expenses are recharged to Songas.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

9. Finance Income and Expense
Finance Income

$’000

Interest income

Finance Expense

$’000

Base interest expense

Participation interest expense

Lease interest expense

Interest expense

Net foreign exchange loss

Interest on tax assessment

Indirect tax

Years ended December 31

2022

613

2021

133

Years ended December 31

2022

5,678

2,936

8,637

470

–

1,103

10,210

2021

5,982

920

6,945

628

588

1,826

9,987

Base interest expense and participation interest expense relate to the long-term loan (“Loan”) with the International Finance Corporation (“IFC”).
Base interest on the Loan is payable quarterly in arrears at 10% 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. The participation interest expense is paid annually in arrears and equates to
6.4% of PAET’s net cash flows from operating activities net of net cash flows used in investing activities for the year. Such participation interest will
continue until October 15, 2026 regardless of whether the Loan is repaid prior to its contractual maturity date (see Note 16).

The indirect tax includes VAT on the invoices to TANESCO under the take or pay provisions within PGSA and on the invoices to TANESCO for
interest on late payments. No take or pay invoice was raised to TANESCO in 2022; in 2021 a take or pay invoice of $6.7 million was raised but not
recognized in the financial statements as it did not meet the revenue recognition criteria with respect to assurance of collectability. The interest on
tax assessment in 2021 represents the Company’s share of the amount in dispute with respect to interest on depreciation disallowed by the TRA for
expenditures in relation to completing well SS-10 in 2009 and 2010 and well SS-12 in 2015 and 2016.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202284

Notes to the Consolidated Financial Statements cont.

10. Income Taxes
The tax charge is as follows:

$’000

Current income tax expense

Deferred income tax expense

Years ended December 31

2022

15,488

1,213

16,701

2021

10,192

6,534

16,726

Tax of $0.7 million was paid during 2022 in relation to the settlement of the prior year’s tax liability (2021: $2.0 million). Installment tax payments
totaling $12.5 million were made in respect of 2022 (2021: $7.3 million). These are presented as a reduction in tax payable on the Consolidated
Statements of Financial Position.

Tax Rate Reconciliation

$’000

Income before tax per Consolidated Statements of Comprehensive Income

Less Additional Profits Tax

Income before statutory tax

Provision for income tax calculated at the statutory rate of 30%

Effect on income tax of:

Administrative and operating expenses

Foreign rate difference

Foreign exchange loss

Stock-based compensation

TANESCO interest not recognized as interest income

Change in unrecognized tax asset

Changes in estimates related to prior years

Years ended December 31

2022

54,594

2021

39,298

(7,613)

(4,609)

46,981

14,094

34,689

10,407

1,492

1,022

(23)

1,839

(2,714)

990

16,701

328

651

(68)

1,342

905

3,160

16,726

As at December 31, 2022 the loss allowance for TANESCO had resulted in a $19.2 million unrecognized deferred tax asset (December 31, 2021:
$18.6 million). If this debt is ultimately not recovered, the Company will also be entitled to a $13.5 million (2021: $18.7 million) refund of VAT. As at
December 31, 2022, the Company has not recognized the benefit of unused trading loss carryforwards of $9.5 million (2021: $7.5 million), which do
not expire, as it is not probable that future taxable profits will be available against which the benefit can be utilized.

In respect of each type of temporary difference the amounts of deferred tax assets/(liabilities) recognized in the consolidated balance sheet were
as follows:

$’000

Differences between tax base and carrying value of property, plant and equipment

Tax recoverable from TPDC

Loss allowances

Additional Profits Tax

Unrealized exchange losses/other provisions

As at December 31

2022

(31,740)

(6,166)

3,069

8,603

(22)

2021

(33,244)

(3,449)

2,847

8,884

(81)

(26,256)

(25,043)

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202285

11. Additional Profits Tax
Under the terms of the PSA, APT is payable when the Company has recovered its costs plus a specified return out of Cost Gas revenue and
Profit Gas revenue. As a result: (i) no APT is payable until the Company recovers its costs out of Additional Gas revenues plus an annual operating
return under the PSA of 25% plus the percentage change in the United States Industrial Goods Producer Price Index (“PPI”); and (ii) the maximum
APT rate is 55% of the Company’s Profit Gas when costs have been recovered with an annual return of 35% plus the percentage change in PPI.

The timing and the effective rate of APT depends on the realized value of Profit Gas which in turn depends on the level of expenditure. The
Company provides for APT by annually forecasting the total APT payable in the future as a proportion of the forecast Profit Gas over the term
of the PSA. The forecast takes into account the timing of future development capital spending. As at December 31, 2022 the current portion of
APT payable was estimated at $13.1 million (December 31, 2021: $8.5 million) with a long-term APT payable of $15.3 million (December 31, 2021:
$20.9 million).

The effective APT rate of 16.8% (2021: 17.3%) has been applied to the Company’s Profit Gas of $45.4 million (2021: $26.7 million). Accordingly,
$7.6 million of APT has been recorded as APT in Consolidated Statements of Comprehensive Income for the year ended December 31, 2022
(2021: $4.6 million).

12. Current Trade and Other Receivables

$’000

Trade receivables

Songas

TPDC

TANESCO

Industrial customers

Loss allowance

Other receivables

Songas gas plant operations

Songas well workover program

Other

Loss allowance

Trade Receivables Aged Analysis

$’000

As at December 31

2022

2021

2,511

4,694

3,736

11,072

(452)

21,561

2,304

7,825

4,135

(725)

13,539

35,100

2,502

5,603

2,042

11,840

(452)

21,535

2,827

3,447

3,647

(725)

9,196

30,731

As at December 31, 2022

Current

>30 <60

>60 <90

19,263

529

–

>90

1,769

Total

21,561

As at December 31, 2021

Current

19,442

>30 <60

>60 <90

812

302

>90

979

Total

21,535

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Notes to the Consolidated Financial Statements cont.

12. Current Trade and Other Receivables cont.
Songas
As at December 31, 2022 Songas owed the Company $12.6 million (December 31, 2021: $8.8 million), while the Company owed Songas $2.9 million
(December 31, 2021: $1.9 million). The amounts due to the Company are mainly for sales of gas of $2.5 million (December 31, 2021: $2.5 million), the
well workover program of $7.8 million (December 31, 2021; $3.5 million) and for the operation of the gas plant of $2.3 million (December 31, 2021:
$2.8 million) against which the Company has made a loss allowance of $0.7 million (December 31, 2021: $0.7 million). The amounts due to Songas
primarily relate to pipeline tariff charges of $2.4 million (December 31, 2021: $1.5 million). The operation of the gas plant is conducted at cost and
the charges are billed to Songas on a flow through basis.

TPDC
The current receivable from TPDC is for gas deliveries through the NNGI pursuant to the signing of the LTGSA. In accordance with the LTGSA, any
unpaid, overdue amounts are offset against TPDC profit share.

Reversal of loss allowance

$’000

Reversal of loss allowance

Loss allowance

Years ended December 31

2022

(10,150)

3,435

(6,715)

2021

(3,762)

1,188

(2,574)

The loss allowance of $3.4 million in 2022 represents: (i) $3.2 million with respect to impairment of Swala Oil & Gas (Tanzania) plc (“Swala TZ”)
convertible preference shares (“Preference Shares”) (see Note 24); and (ii) the net amount of $0.5 million previously allowed for in Q4 2021 with
respect to the dispute with the TRA on the issue of withholding tax on services performed outside Tanzania by non-resident persons in 2010 and
2015-16; and $0.7 million representing the settlement amount with respect to the above withholding tax dispute. In 2022 the Company, with advice
from its legal counsel, agreed to settle the dispute and made the payment to the TRA on August 24, 2022. The loss allowance of $1.2 million in 2021
is for: (i) $0.7 million with respect to impairment of Swala (TZ) Preference Shares (see Note 24); and (ii) $0.5 million being the amount in dispute
with the TRA with respect to withholding tax on services performed outside Tanzania by non-resident persons in 2010 and 2015-16.

13. Capital Assets

$’000

Costs

As at December 31, 2021

Additions

As at December 31, 2022

Accumulated depletion and depreciation

As at December 31, 2021

Additions

As at December 31, 2022

Net book values

As at December 31, 2022

Natural gas
interests

Office

and other Right-of-use

Total

267,876

22,125

290,001

148,367

29,174

177,541

2,908

281

3,189

2,901

2,971

1,084

271,868

22,457

1,135

294,325

633

284

917

151,901

29,528

181,429

112,460

218

112,896

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202213. Capital Assets cont.

$’000

Costs

As at December 31, 2020

Additions

As at December 31, 2021

Accumulated depletion and depreciation

As at December 31, 2020

Additions

As at December 31, 2021

Net book values

As at December 31, 2021

Natural gas
interests

Office

and other Right-of-use

Total

241,280

26,596

267,876

132,588

15,779

148,367

2,894

2,908

2,864

2,901

1,084

245,258

–

26,610

1,084

271,868

343

290

633

135,795

16,106

151,901

119,509

451

119,967

In determining the depletion charge the Company takes into account an estimate of future development costs, the capital expenditure required to
ensure the Company can produce the required gas volumes to meet its contractual obligations for the remaining life of the license. As at December
31, 2022 the estimated future development costs required to bring the total proved reserves to production were $59.2 million (December 31, 2021:
$26.8 million). The increase in estimated future development costs is a result of upward revision of the future cost estimates. During the year the
Company recorded depreciation of $0.4 million (2021: $0.3 million) in general and administrative expenses.

Right-of-use assets

$’000

As at December 31, 2021

Additions

Depreciation

As at December 31, 2022

As at December 31, 2020

Depreciation

As at December 31, 2021

Lease liabilities

$’000

As at December 31, 2021

Additions

Lease interest expense

Lease payments

As at December 31, 2022

As at December 31, 2020

Lease interest expense

Lease payments

As at December 31, 2021

451

(284)

218

741

(290)

451

408

(312)

170

684

(319)

408

Right-of-use assets are presented as part of capital assets on the Company’s balance sheet. Of the total lease liability of $0.2 million (2021:
$0.4 million), $0.2 million (2021: $0.2 million) is current and is presented in trade and other liabilities.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202288

Notes to the Consolidated Financial Statements cont.

14. Trade and Other Liabilities

$’000

Songas

Other trade payables

Trade payables

TPDC Profit Gas entitlement, net

Deferred income – take or pay contracts

Accrued liabilities

TPDC share of Profit Gas

$’000

TPDC share of Profit Gas

Less “Adjustment Factor”

TPDC share of Profit Gas entitlement

As at December 31

2022

2,933

2,738

5,671

19,440

10,665

7,416

43,192

2021

1,899

3,179

5,078

21,911

5,215

14,572

46,776

As at December 31

2022

28,677

(9,237)

19,440

2021

27,994

(6,083)

21,911

Under the PSA revenue sharing mechanism, the Company adjusts TPDC’s Profit Gas share by the “Adjustment Factor”. The Adjustment Factor is
equal to the amount necessary to fully pay and discharge the PAET liability for taxes on income derived from petroleum operations. A significant
percentage of the settlement of the $19.4 million liability to TPDC is dependent on receipt of payment from TANESCO for long-term arrears that
have been fully allowed for.

15. Long-term Receivables

$’000

Amounts invoiced to TANESCO

Trade receivables – TANESCO

Unrecognized amounts not meeting revenue recognition criteria1

Loss allowance

Net TANESCO receivable

VAT – Songas workovers

Lease deposit

As at December 31

2022

92,547

2021

119,168

(3,736)

(2,042)

(66,793)

(90,634)

(22,018)

(26,492)

–

2,205

2,215

–

2,205

2,215

The amount includes invoices for interest on late payments and invoices relating to differences between gas contracted for delivery versus gas taken by TANESCO.

The Company recognized 100% of amounts invoiced for deliveries to TANESCO as revenue during 2022 and 2021. During 2022, the amounts
received from TANESCO were in excess of the revenue recognized for gas sales to TANESCO and $5.6 million of cumulative excess cash receipts
over sales invoiced were recorded (2021: $1.1 million), reducing the long-term arrears and allowing the reversal of the associated loss allowances.
No take or pay invoice was raised to TANESCO in 2022; in 2021 a take or pay invoice of $6.7 million was raised but not recognized in the financial
statements as it did not meet the revenue recognition criteria with respect to assurance of collectability.

In 2017, based on agreement with TPDC, $12.3 million relating to the Songas share of workover costs of the wells SS-5 and SS-9 was transferred
to the cost pool to recover the costs via the PSA cost recovery mechanism. This resulted in $2.2 million relating to VAT on the workovers that had
already been paid being reclassified as a long-term receivable. The Company continues to take action to collect the workover costs through the
mechanisms provided in the agreements with Songas.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022
89

16. Long-term Loan
In 2015 PAET took out the Loan with the IFC, a member of the World Bank Group, for $60 million. The Loan was fully drawn down in 2016.

The Loan is to be paid out through six semi-annual payments of $5.0 million starting October 15, 2022 and one final payment of $25.2 million due
on October 15, 2025. The Company may voluntarily prepay all or part of the Loan but must simultaneously pay any accrued base interest costs
related to the principal amount being prepaid. The Loan is an unsecured subordinated obligation of PAET and was initially guaranteed by the
Company to a maximum of $30.0 million. The guarantee may only be called upon by IFC at maturity in 2025 and, subject to IFC approval and
receipt of all required regulatory approvals, the Company, at its discretion, may issue shares in fulfillment of all or part of its guarantee obligation in
2025. Pursuant to the sale of the non-controlling interest in PAEM, the parent company of PAET, the Company agreed with the IFC to reduce the
outstanding amount of the Loan by the percentage interest sold of 7.9% ($4.8 million) before the fourth anniversary of the first drawdown. PAET
made this payment on October 16, 2019.

Dividends and distributions from PAET are restricted, if at any time amounts of interest, principal or participating interest are due and outstanding.
All amounts due under the Loan have been paid when due.

$’000

Loan principal

Financing costs

Current portion of long-term loan

As at December 31

2022

50,240

2021

55,240

(478)

(637)

(10,000)

(5,000)

39,762

49,603

17. Capital Stock
Authorized
50,000,000

Class A common shares (“Class A Shares”)

No par value

100,000,000

Class B subordinate voting shares (“Class B Shares”)

No par value

100,000,000

First preference shares

No par value

The Class A and Class B Shares rank pari passu in respect of dividends and repayment of capital in the event of winding-up. Class A Shares carry
twenty (20) votes per share and Class B Shares carry one (1) vote per share. The Class A Shares are convertible at the option of the holder at any
time into Class B Shares on a one-for-one basis. The Class B Shares are convertible into Class A Shares on a one-for-one basis in the event that a
take-over bid is made to purchase Class A Shares which must, by reason of a stock exchange or legal requirements, be made to all or substantially
all of the holders of Class A Shares and which is not concurrently made to holders of Class B Shares.

Changes in the capital stock

Number of shares

Class A Shares

Class B Shares

First preference shares

Total

Authorized
(000)

50,000

100,000

2022

Issued
(000)

1,750

18,126

–

As at December 31

Amount
($’000)

983

46,274

–

Authorized
(000)

50,000

100,000

2021

Issued
(000)

1,750

18,203

–

Amount
($’000)

983

46,471

–

250,000

19,876

47,257

250,000

19,953

47,454

On June 21, 2021 the Company commenced a normal course issuer bid (“2021 NCIB”) to purchase Class B Shares through the facilities of the
TSXV and alternative trading systems in Canada. The Company repurchased and canceled 10,300 Class B shares at a weighted average price of
CDN$5.30 per share in Q1 2022 and 19,700 Class B shares at a weighted average price of CDN$5.13 per share in Q2 2022 under the 2021 NCIB.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022
90

Notes to the Consolidated Financial Statements cont.

17. Capital Stock cont.
Changes in Stock Appreciation Rights (“SARs”)

Outstanding as at January 1

Exercised

Forfeited

Outstanding as at December 31

2022

2021

SARs
(000)

Exercise price
(CDN$)

746

3.87 to 6.65

(678) 3.87 to 5.32

(54)

6.65

5.02

SARs
(000)

Exercise price
(CDN$)

1,242

3.87 to 6.65

(413)

(83)

5.00

746

3.87 to 6.65

The number outstanding, the weighted average remaining life and weighted average exercise prices of SARs at December 31, 2022 were as follows:

Exercise price (CDN$)

5.02

Change in Restrictive Stock Units (“RSUs”)

Outstanding as at January 1

Exercised

Forfeited

Outstanding as at December 31

Weighted
average
remaining
contractual
life
(years)

1.00

Number
outstanding
(000)

Number
exercisable
(000)

Weighted
average
exercise price
(CDN$)

–

5.02

2022

2021

RSUs
(000)

Exercise price
(CDN$)

RSUs
(000)

Exercise price
(CDN$)

(73)

–

0.01

–

0.01

133

(48)

(9)

0.01

The number outstanding, the weighted average remaining life and weighted average exercise prices of RSUs at December 31, 2022 were as follows:

Exercise price (CDN$)

0.01

Number
outstanding
(000)

Number
exercisable
(000)

Weighted
average
remaining
contractual life
(years)

–

1.00

As SARs and RSUs are settled in cash, they are re-valued at each reporting date using the Black-Scholes option pricing model with the resulting
liability being recognized in trade and other liabilities. In the valuation of stock appreciation rights and restricted stock units as at December 31,
2022, the following assumptions have been made: a risk free rate of interest of 1.0% (December 31, 2021: 1.0%), stock volatility of 25.4% (December
31, 2021: 24.6% to 37.8%), 5% forfeiture (December 31, 2021: 5%) and a closing stock price of CDN$4.68 (December 31, 2021: CDN$5.40) per Class
B share. The valuation of the SARs and RSUs awards is increased to reflect the amount of dividends paid between the award date to the time of
exercise.

$’000

SARs

RSUs

As at December 31

2022

2021

727

326

1,053

As at December 31, 2022 a total accrued liability of $0.02 million (December 31, 2021: $1.1 million) has been recognized in relation to SARs and
RSUs which is included in other payables. The Company recognized a recovery for the year of $0.1 million (2021: $0.6 million) as stock-based
compensation.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202217. Capital Stock cont.
Dividend Summary

Declaration date
February 24, 2023

Record date
March 31, 2023

November 16, 2022

December 31, 2022

September 28, 2022

October 14, 2022

May 20, 2022

February 24, 2022

November 9, 2021

September 9, 2021

June 4, 2021

February 23, 2021

June 30, 2022

March 31, 2022

December 31, 2021

September 29, 2021

June 30, 2021

March 31, 2021

18. Earnings Per Share

(000)

Outstanding shares

Weighted average number of Class A and Class B Shares, basic

Weighted average number of Class A and Class B Shares, diluted

Payment date
April 14, 2023

January 13, 2023

October 28, 2022

July 15, 2022

April 15, 2022

January 15, 2022

October 15, 2021

July 15, 2021

April 15, 2021

Amount per share (CDN$)
0.10

0.10

As at December 31

2022

2021

19,923

20,317

The calculation of basic earnings per share is based on a net income attributable to shareholders for the year of $27.7 million (2021: $16.4 million)
and a weighted average number of Class A and Class B Shares outstanding during the period of 19,923,039 (2021: 20,317,407).

19. Related Party Transactions
The Chair of the Company’s Board of Directors is counsel to Burnet, Duckworth & Palmer LLP, a law firm that provides legal advice to the Company
and its subsidiaries. During the year ended December 31, 2022 fees for services provided by this firm totalled $0.5 million (2021: $0.3 million).

As at December 31, 2022 the Company had a total of $0.1 million (December 31, 2021: $0.1 million) recorded in trade and other liabilities in relation
to related parties.

20. Contractual Obligations
Protected Gas
Under the terms of the Gas Agreement for the Songo Songo project (“Gas Agreement”), in the event that there is a shortfall/insufficiency in
Protected Gas as a consequence of the sale of Additional Gas, the Company is liable to pay the difference between the price of Protected Gas
($0.55/MMbtu escalated) and the price of an alternative feedstock multiplied by the volumes of Protected Gas up to a maximum of the volume of
Additional Gas sold which was 289 Bcf as at December 31, 2022 (December 31, 2021: 257 Bcf). The Company did not have a shortfall during the
reporting period and does not anticipate a shortfall arising during the term of the Protected Gas delivery obligation to July 2024.

Terms of the Gas Agreement were modified by the Amended and Restated Gas Agreement (“ARGA”) which was initialled by all parties but remains
unsigned. In certain respects, the parties thereto are conducting themselves as though the ARGA is in effect. Management does not foresee a
material risk with the conduct of the Company’s business with an unsigned ARGA at this time.

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Notes to the Consolidated Financial Statements cont.

20. Contractual Obligations cont.
Re-Rating Agreement
In 2011 the Company, TPDC and Songas signed a Re-Rating Agreement which evidenced an increase to the gas processing capacity of the Songas
Infrastructure to a maximum of 110 MMcfd (the pipeline and delivery pressure requirements at the Ubungo power plant restrict the infrastructure
capacity to a maximum of 102 MMcfd). Under the terms of the Re-Rating Agreement, the Company paid additional compensation of $0.30/mcf for
sales between 70 MMcfd and 90 MMcfd and $0.40/mcf for volumes above 90 MMcfd by issuing credit notes to TANESCO. This was in addition to
the tariff of $0.59/mcf payable to Songas as set by the energy regulator, EWURA.

The parties to the Re-Rating Agreement are in the process of negotiating a replacement agreement which may address the additional
compensation paid. In the interim, the processing capacity at the Songas Infrastructure remains unaltered and is fully available for utilization by the
Company. This capacity is in addition to the capacity available within the NNGI.

Portfolio Gas Supply Agreement (“PGSA”)
On June 17, 2011, the PGSA was signed (term to June 2023) between TANESCO (as the buyer) and the Company and TPDC (collectively as the
seller). TANESCO requested a change to the PGSA maximum daily quantity (“MDQ”) in accordance with clause 7.6(b) which PAET and TPDC
approved effective January 29, 2018. In accordance with the PGSA, when calculating aggregate excess, extra and overtake gas through the
supply period, the MDQ was reduced and the seller is now obligated, subject to infrastructure capacity, to sell a maximum of approximately
16 MMcfd (previously 26 MMcfd) for use in any of TANESCO’s current power plants, except those operated by Songas at Ubungo. Under the
agreement, the basic wellhead price of approximately $2.98/mcf increased to $3.04/mcf on July 1, 2017, to $3.10/mcf on July 1, 2019, $3.14/mcf on
July 1, 2020, $3.20/mcf on July 1, 2021 and $3.32/mcf on July 1, 2022. Previously under the PGSA any sales in excess of 36 MMcfd were subject
to a 150% increase in the basic wellhead gas price. On December 22, 2018 a side letter amendment to the PGSA was agreed with TPDC to allow
PGSA volumes up to a maximum monthly average volume of 35 MMcfd to temporarily flow through the NNGI. The temporary arrangement was
terminated in September 2019 once the refrigeration unit became fully operational and all PGSA volumes were again processed through the
Songas Infrastructure.

Long-term Gas Sales Agreement (“LTGSA”)
On May 14, 2019 the Company and TPDC signed the LTGSA for an initial delivery of 20 MMcfd through the NNGI, at a price of $3.10/MMbtu as
at January 1, 2019, (escalating 2% per annum) exclusive of any processing and transportation tariff associated with the NNGI. The LTGSA was
amended on September 24, 2019 to increase the volumes supplied through the NNGI up to a MDQ of 30 MMcfd. In 2020 parties established
a 12-month renewable agreement for the supply of volumes above 30 MMcfd on an ad hoc basis, allowing TPDC to meet fluctuating demand
and compensate for shortfalls in production from their Madimba plant without being penalized due to a higher, fixed contractual limit and the
subsequent take-or-pay penalties should the demand reduce again. The agreement has allowed the Company to supply volumes in excess of
50 MMcfd on occasion, increasing average sales volumes and revenues.

Leases
The Company has three office rental agreements, two in Dar es Salaam, Tanzania, and one in London, England. An agreement for the office in Dar
es Salaam was entered into on November 1, 2019 and expires on October 31, 2023 at an annual rent of $0.3 million. Another agreement for the
downstream office in Dar es Salaam was entered into on July 1, 2022 and expires on June 30, 2024 at an annual rent of $0.03 million. On November
15, 2021 the Company leased new office premises in London for a period of 12 months at a cost of $0.1 million per annum. The lease was extended
on November 15, 2022 for a period of 12 months at a cost of $0.1 million per annum. The cost of the London office lease is recognized in the general
and administrative expenses.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202293

21. Contingencies
Upstream and Downstream Activities
The Petroleum Act, 2015 (the “Petroleum Act”) provides TPDC with exclusive rights over the distribution of gas in Tanzania. The Petroleum Act has
grandfathering provisions upholding the rights of the Company to develop and market natural gas produced under the PSA as it was signed prior
to the Petroleum Act coming into effect in 2015.

On October 7, 2016 the Government of Tanzania issued the Petroleum (Natural Gas Pricing) Regulation made under Sections 165 and 258 (I) of
the Petroleum Act. Article 260 (3) of the Petroleum Act preserves the Company’s pre-existing right with TPDC to market and sell Additional Gas
together or independently on terms and conditions (including prices) negotiated with third party Natural Gas customers. To date there has been
no impact on the Company as a result of the Natural Gas Pricing Regulation, however, any future impact cannot be determined at this time.

TPDC Back-in
TPDC has the right under the PSA to “back in” to the Songo Songo field development and convert this into a carried working interest in the
PSA. The current terms of the PSA require TPDC to provide formal notice in a defined period and contribute a proportion of the costs of any
development, sharing in the risks in return for an additional share of the gas. To date, TPDC has not contributed towards any costs.

Cost Recovery
TPDC conducted an audit of historical costs (the “Cost Pool”) and in 2011 disputed approximately $34.0 million of costs that had been recovered
from the Cost Pool from 2002 through to 2009. In 2014 a portion of the disputed costs were agreed to be cost recoverable by TPDC with $25.4
million remaining in dispute. Under the dispute mechanism outlined in the PSA, parties are to agree the appointment of an independent specialist
to assist the parties in reaching agreement on costs that are still subject to dispute. In 2014, prior to appointing an independent specialist, TPDC
suspended the process. From 2010 to 2015 TPDC rejected a further $16.8 million of costs. In 2016 the Tanzanian Petroleum Upstream Regulatory
Authority (“PURA”) assumed the role of auditing the PSA cost pool from TPDC and for 2016 to 2020 have rejected all costs pertaining to
downstream development amounting to $15.0 million and a further $9.5 million of other costs. In 2022 the Company and PURA negotiated a
settlement on certain rejections with respect to 2016 to 2018 audits. As a result of this, $2.7 million were credited to the Cost Pool in Q2 2022. To
date there remains a total of $64.0 million of costs that have been queried or rejected by TPDC or PURA through the cost pool audit process.

During 2019, discussions on the disputed amounts briefly resumed with TPDC. At the time of writing this report no independent specialist has
been appointed and neither TPDC nor PURA have issued a formal dispute regarding cost recovery. If the matter is not resolved to the Company’s
satisfaction, the Company intends to proceed to arbitration via the International Centre for Settlement of Investment Disputes pursuant to the
terms of the PSA. The Company’s view is that all costs have been correctly included in the Cost Pool however should any of the costs be rejected
as not being cost recoverable, the Company would be required to retroactively adjust its share of revenue for the period under dispute.

Taxation
The following table provides a summary of the Company’s unrecognized tax contingencies that are outstanding with the Tanzanian tax authorities:

Period

Reason for dispute

Principal

Interest and
penalties

As at December 31

2022

Total

2021

Total

Amounts in $’millions

Area

Income tax

2008-09,
2011-20

Tax on repatriated
income

VAT

2012-21

2012-18

Withholding tax
(“WHT”)

Pay-As-You-Earn
(“PAYE”) tax

2005-09

2008-10

Deductibility of capital expenditures and
expenses (2012, 2015 and 2016), additional
income tax (2008, 2011 and 2012), foreign
exchange rate application (2013 to 2015,
2018 to 2020), underestimation of tax due
(2014, 2016 and 2020) and methodology
of grossing up income taxes paid (2015 to
2017).

Applicability of withholding tax on
repatriated income (2012 to 2021).

VAT already paid (2012 to 2014), VAT on
imported services (2015 and 2016); interest
on VAT decreasing adjustments and input
VAT on services (2017 and 2018).

WHT on services performed outside of
Tanzania by non-resident persons.

PAYE tax on grossed-up amounts in staff
salaries which are contractually stated as net.

19.9

21.9

0.3

–

14.3

3.0

1.3

–

34.2(1)

24.9(2)

1.6(3)

–

42.1

18.6

60.7

32.7

19.0

1.4

1.6(4)

0.3(5)

55.0

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 202294

Notes to the Consolidated Financial Statements cont.

21. Contingencies cont.
Taxation cont.
In Q4 2022, the TRA issued six assessments for income tax and for ensuing interest on deemed delayed payments ($0.5 million) for the years
of 2018 to 2020. The Company objected to the assessments on the grounds of incorrect disallowance of expenses and use of exchange rates.
The Company is awaiting TRA’s response.

In Q4 2022, the Company also recorded an additional provision of approximately $1.1 million (Q4 2021: $2.2 million).

During 2021 the Company paid the TRA $1.8 million as a deposit against the disputed taxes including PAYE tax, WHT, income tax and VAT for the
years 2012-16, an amount agreed upon in order for TRA to admit the outstanding tax objections. In 2021, the Court of Appeal of Tanzania (“CAT”)
delivered its judgment on an appeal instituted by the Company on the appealability of a one-third deposit required to admit objections for the 2012
year of income. The CAT decided that the matters are not tax decisions and are therefore not appealable. Aggrieved by the decision, the Company
filed a notice of motion for review of the decision at the same court. In Q3 2022, the CAT agreed with the Company and the matter has now been
resolved and withdrawn from the CAT.

During 2021 the TRA issued a new assessment with regards to 2017 income tax ($6.4 million). The Company has objected TRA’s incorrect
methodology of grossing up income taxes already paid ($6.4 million) and the issue of imposing interest on deemed delayed payment ($0.1 million)
and is awaiting a TRA response.

The process of appealing assessments issued by the TRA starts by initially filing an appeal with the TRA. If this is not successful, claims can be
taken to higher authorities starting with the TRAB, followed by an appeal to the TRAT and finally to the CAT. Below is a summary of the status of
the various assessments:

(1)

(a) 2008 ($0.6 million): The Company objected to the TRA assessment that did not recognize a tax loss carried forward and is awaiting a response;

(b) 2009 ($0.8 million): The Company objected to an amended assessment from the TRA for being time-barred and arbitrary and is awaiting a TRA response;

(d) 2012 ($10.6 million): The Company appealed to the TRAB objecting to the TRA assessment with respect to understated revenue, timing of deductibility of capital

expenditures and expenses;

(e) 2013 ($2.0 million): The Company appealed to the TRAB objecting to the TRA assessment as being time-barred and without merit;

(f) 2014 ($5.1 million): The Company appealed to the TRAB objecting to the TRA assessment on the ground that the TRA assessment incorrectly disallowed certain expenses

and applied erroneous foreign exchange rates;

(g) 2015-16 ($6.1 million): The Company appealed to the TRAB as to TRA’s assessments on the ground that the TRA assessments failed to recognize provisional tax payments,

incorrectly disallowed certain expenses and applied erroneous foreign exchange rates;

(h) 2017 ($6.8 million): The TRA issued an assessment for corporation tax which questioned the Company’s methodology of grossing up already paid corporation tax ($6.7

million) and raised the issue of imposing interest on deemed delayed payment ($0.1 million). The Company filed an objection and is awaiting the TRA’s response;

(i) 2018 ($0.02 million): The TRA issued an assessment for corporation income tax in respect of disallowed expenses. The Company filed an objection and is awaiting the TRA’s

response;

(j) 2018-20 ($0.5 million): The TRA issued a series of assessments for corporation income tax in respect of disallowed expenses and for interest on deemed delayed payment

of the taxes. The Company filed an objection and is awaiting the TRA’s response;

(2) (a) 2012 ($3.1 million): The Company objected to the TRA assessment as being without merit and, following expiry of the statutory deadline for the TRA to respond, filed an

appeal at the TRAB;

(b) 2013 ($7.8 million): The Company objected to the TRA assessment as being time-barred and without merit and, following expiry of the statutory deadline for the TRA to

respond, filed an appeal at the TRAB;

appeal at the TRAB;

(e) 2015-16 ($3.6 million): New assessments issued in Q4 2022 for the years of income of 2015 and 2016 have overridden the existing assessments for $5.3 million. The Company

objected to the TRA assessments and is awaiting the admission of the objections;

(f) 2017-21 ($6.9 million): The Company objected to the TRA assessments for the year of income of 2017 ($1.6 million), 2018 ($1.2 million), 2019 ($1.6 million), 2020 ($1.1 million)

and 2021 ($1.4 million) and is awaiting the admission of the objections;

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

21. Contingencies cont.
Taxation cont.

(3) (a) 2012-16 ($0.2 million): The Company filed an objection to a TRA assessment with respecting to disallowing VAT on certain services and is awaiting a response;

(b) 2017-18 ($1.3 million): The Company filed an objection to a TRA assessment and is awaiting a response. The Company objected to incorrect imposition of interest on VAT

decreasing adjustments in respect of delayed TANESCO payment ($1.2 million) and disallowing input VAT claimed in certain services ($0.1 million);

(4) (a) 2005-2009 ($nil; 2021: $1.6 million): In 2018 the CAT ruled in favor of the Company that no WHT was required on services performed outside Tanzania by non-resident

(5) (a) 2008-10 ($nil; 2021: $0.3 million): In 2020, the Company lost an appeal with CAT on the principal amount of PAYE tax and filed an application for judicial review at CAT.

22. Directors’ and Officers’ Emoluments

$’000

Directors

Officers

Base

500

1,250

1,316

Bonus

–

243

259

Stock-based
compensation
expense

–

196

Total

500

1,493

1,771

Year

2022

2021

2022

2021

The table above provides information on compensation relating to the Company’s officers and directors. Four officers (year ended December 31,
2021: three) and three non-executive directors (year ended December 31, 2021: three) comprised the key management personnel during the year
ended December 31, 2022.

23. Change in Non-Cash Operating Working Capital

$’000

Increase in trade and other receivables

Increase in prepayments

(Decrease)/increase in trade and other liabilities

Decrease in APT

Increase in tax payable

Increase in long-term receivables

As at December 31

2022

(5,463)

(418)

(1,460)

(8,503)

2,245

–

2021

(11,143)

(235)

7,172

(11,545)

880

(1)

(13,599)

(14,872)

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Notes to the Consolidated Financial Statements cont.

24. Non-Controlling Interest
The Company sold 7.9% (7,933 Class A common shares) of PAEM to a wholly owned subsidiary of Swala TZ in 2018 for $15.4 million cash and
$4.0 million of Swala TZ’s Preference Shares pursuant to a share purchase agreement. The Preference Shares entitle the Company to a 10%
per annum distribution payable 15 days after each quarter end commencing from the closing date, January 16, 2018. Payment of the quarterly
distributions is at the discretion of Swala TZ based on funds available, however, the liability accrues if any amount is unpaid when due. For any
distributable amount remaining unpaid at December 31, 2021, the Company may demand settlement and Swala TZ is obligated to comply by
transferring and returning the Class A common shares of PAEM sold to Swala TZ. The aggregate value of these shares will equal the amount of the
outstanding distributions. As at December 31, 2022, the Company has not received any distributions or recorded any amount receivable related to
the Preference Shares.

Swala TZ is obligated to redeem 20% of the Preference Shares for cash annually starting from December 31, 2021 until all shares are redeemed.
If at any time Swala TZ does not redeem in cash the required number of Preference Shares, Swala TZ is obligated to redeem the Preference Shares
by transferring and returning the Class A common shares of PAEM sold to Swala TZ. The aggregate value of these Class A common shares will
equal the amount of any outstanding redemption. On August 8, 2022, the Company issued a redemption notice to Swala TZ, requesting that Swala
TZ redeem 20% of the outstanding Preference Shares by August 23, 2022. Swala TZ has responded to the Company’s redemption notice and is
disputing its obligation to redeem Swala TZ’s convertible preference shares. As at December 31, 2022, this matter remains in dispute between Swala
TZ and the Company and the redemption notice request remains outstanding. As of December 31, 2021, the Company had recorded $0.7 million as
a loss allowance with respect to Preference Shares. In Q4 2022, the Company fully impaired the $3.9 million investment recording an additional
$3.2 million as a loss allowance. On January 31, 2023 the Company issued a further redemption notice to Swala TZ, requesting that Swala TZ
redeem a further 20% of the outstanding Swala TZ’s Preference Shares by February 15, 2023.

A reconciliation of the non-controlling interest is detailed below:

$’000

Balance, beginning of year

Net income attributable to non-controlling interest

Balance, end of year

As at December 31

2022

3,116

2,554

5,670

2021

1,523

1,593

3,116

25. Subsequent Events
On February 24, 2023 the Company declared a dividend of CDN$0.10 per share on each of its Class A Shares and Class B Shares for a total of
$1.5 million to holders of record as of March 31, 2023 paid on April 14, 2023.

On April 3, 2023, Swala TZ announced that a meeting of its creditors held on March 31, 2023, resolved that Swala TZ be placed into liquidation.
Also, on March 31, 2023, Apex Corporate Trustees (UK) Limited appointed representatives of Grant Thornton UK LLP as administrators of Swala UK.
The Company is evaluating its rights and options in response to Swala TZ being put into liquidation and Swala UK being put into administration.

Financial StatementsOrca Energy Group Inc. Annual Report & Accounts 202297

Engineering Consultants
McDaniel & Associates Consultants Ltd.
Calgary, Canada

Auditors
KPMG LLP
Calgary, Canada

Website
orcaenergygroup.com

Lawyers
Burnet, Duckworth & Palmer LLP
Calgary, Canada

Transfer Agent
TSX Trust Company
Calgary, Canada

Operating Office
PanAfrican Energy Tanzania Limited Oyster
Plaza Building, 5th Floor,
Haile Selassie Road
P.O. Box 80139,
Dar es Salaam, Tanzania
Tel: + 255 22 2138737
Fax: + 255 22 2138938

Registered Office
Orca Energy Group Inc.
Vistra Corporate Service Centre
Wickhams Cay II,
Road Town Tortola
British Virgin Islands, VG110

Investor Relations
Jay Lyons
Chief Executive Officer
jlyons@orcaenergygroup.com

Lisa Mitchell
Chief Financial Officer
lmitchell@orcaenergygroup.com

International Subsidiaries
PanAfrican Energy Tanzania Limited Oyster
Plaza Building, 5th Floor,
Haile Selassie Road
P.O. Box 80139,
Dar es Salaam, Tanzania
Tel: + 255 22 2138737
Fax: + 255 22 2138938

PAE PanAfrican Energy Corporation
3rd Floor, Rogers House,
5 President John Kennedy Street
Port Louis, Mauritius
Tel: + 230 207 8888
Fax: + 230 207 8833

Corporate Information

Board of Directors
Jay Lyons
Executive Director and
Chief Executive Officer
Vancouver, Canada

Lisa Mitchell
Executive Director and
Chief Financial Officer
London, UK

David W. Ross
Chairman and Non-Executive Director
Calgary, Canada

Dr Frannie Léautier
Non-Executive Director
Washington DC, United States

Linda Beal
Non-Executive Director
London, UK

Advisor to the Board and PAET
Lloyd Herrick
Director, PAET
Calgary, Canada

Officers
Jay Lyons
Chief Executive Officer
Vancouver, Canada

Lisa Mitchell
Chief Financial Officer
London, UK

Ewen Denning
Chief Operating Officer
Gloucester, UK

Andrew Hanna
Managing Director, PAET
Surrey, UK

Design and Production
www.carrkamasa.co.uk

Strategic ReportManagement’s Discussion & AnalysisFinancial StatementsOrca Energy Group Inc. Annual Report & Accounts 2022

Orca Energy Group Inc.
Wickhams Cay II
Road Town, Tortola
VG1110
British Virgin Islands
orcaenergygroup.com