Gas-to-power specialist Tlou Energy Limited (LON:TLOU, ASX:TOU) said the process of connecting to the regional electricity grid in Botswana is well advanced.
In its interim results statement covering the second half of 2017, managing director Tony Gilby said the period had been a very productive one for the company.
Recent highlights included securing a 25-year coal-bed methane (CBM) licence in Botswana; independent certification of its CBM gas reserves in Botswana; production of gas from the Selemo pilot for more than 18 months.
As a result, Tlou asserted it is the most advanced gas-to-power developer in Botswana.
The geological data collected in the last six months of 2017 included a seismic survey and core-hole drilling campaign. This new data has resulted in a very significant increase in certified gas Reserves, as recently announced.
Along with increased reserves, the seismic survey and core-holes have provided additional geological data, including the identification of an area of high potential by the company's independent geological consultants. This area was identified as an optimum location for new lateral gas production pods to be drilled, and additional development drilling is planned for mid-2018.
In order to make money from its gas reserves, Tlou will need to connect to the regional electricity grid in Botswana, and this process is already well advanced.
Gilby noted the company could also sell power to neighbouring countries by 'wheeling' electricity through the existing Southern African Power Pool (SAPP) transmission network.
“Entry to the grid is planned at the town of Serowe, a relatively short distance away from the proposed Lesedi gas processing and power generation facility,” he said.
In addition, the company is assessing the possibility of installing solar power generation at the proposed Lesedi gas processing and power generation facility.
“Solar can work very efficiently in combination with baseload power such as gas. This could also serve to attract wider investor interest to the project” Gilby suggested.
Subject to results in the field, rig availability and funding, the company's targets for 2018 include: commencement of initial development drilling in mid-2018; the potential purchase of drilling rigs to provide more operational control; additional core-holes and a new seismic survey; further gas reserves upgrades; agreeing a power purchase agreement with either the Botswana Government or a third party; approvals for commencement of transmission line and central processing facility construction.
All of that will cost money, and at present Tlou is not earning revenue. It ended 2017 with A$7.45mln in cash and cash equivalents, up from A$6.3mln a year earlier.
The company made a loss of A$1.68mln in the half-year period, compared to a loss of A$1.15mln the year before. The deeper loss is partly a result of the work conducted in relation to the company's response to a proposal for a CBM power project submitted to the Government of Botswana during the period.
Costs relating to the proposal response include engineering expenses, technical assessments, and a project feasibility report.
Shore Capital, joint broker to Tlou, said the company has successfully established itself as the most advanced gas-to-power developer in Botswana and has proved itself to be a forerunner in several respects, including as the first operator in the country to possess a CBM mining licence, environmental approval for field development and independently assessed CBM gas reserves.
“With a very considerable increase in 2P reserves (as assessed by consultants SRK) now in the bag, it seems clear to us that recent seismic data acquisition and core-hole drilling activities have been most successful and we see excellent scope for further reserves upgrades as work continues,” the broker said.
“The Botswanan authorities' planned re-tender to RFP bidders (as previously announced) admittedly creates a mild frustration, to our minds, although Tlou today outlines a clear near term roadmap, including potential rig purchases to provide more operational control, additional core hole drilling and seismic data acquisition, and the targeted commencement of initial development drilling in mid-2018.
“In addition, Tlou is actively pursuing monetisation and grid connection options (such as the sale of power into the Southern African Power Pool and potentially including an element of solar generation to complement the company's gas),” said Shore, which described the statement as “a very encouraging update”.
Shares in Tlou were outperforming the market in early deals, down 0.5% at 10.15p.