In the last year, Australian coalbed methane (CBM) gas company Tlou Energy (ASX: TOU; AIM: TLOU) achieved its first gas flow, increased its contingent resources and listed on London Stock Exchange’s AIM market. All of which sets the pioneering junior in good stead for becoming Botswana’s first natural gas producer in 2016.
I catch up with Tlou’s Chief Financial Officer Colm Cloonan, Executive Director Gabaake Gabaake and downstream power financial advisor George Rogers shortly after the ceremony marking the company’s AIM listing. George describes the decision to list in London as the logical “next step” for the Botswana-focused company.
“While our Australian shareholders have been supportive over the years, the interest and appetite for African projects is traditionally greater in London,” he says.
“We wanted to reach a new group of shareholders who otherwise may have been less inclined to invest in an Australian company. It opens up a much larger market than we had access to in Australia, and gives us a platform from which to push into larger developments in the years ahead.”
One of the lead speeches at the ceremony was given by Gabaake, an accomplished former Botswana Government Senior Public Servant who headed the country’s Ministry of Minerals, Energy and Water Resources for two and a half years. He joined Tlou this year, following 24 years of working within government.
“I’ve always been passionate about monetising Botswana’s large coal resource, so my aims complement Tlou’s,” he says.
“I was brought in to strengthen the company’s focus and presence in Botswana, and because I’m dealing with processes that I used to manage, it makes them easier to navigate.”
The Lesedi CBM project got off to a good start in January 2015, achieving gas flows during short term testing at the Selemo 1 pilot well of approximately 400,000 cubic feet per day (cfd) peak and 200,000 cfd average. Tlou became the first company in Botswana to flow CBM gas at such rates. The results from the short-term test indicated that commercial development may be possible.
In June Tlou began drilling two flanking lateral pods, Selemo 2 and Selemo 4, either side of Selemo 1 to assist with dewatering and enhance gas deliverability. CFO Colm explains:
“Selemo 2 and 4 are actually horizontal pods incorporating one vertical and one horizontal well, and sit about 125 metres to the north and south of Selemo 1. These shielding wells were completed in September, dewatering operations began later that month, and they’ve reached critical desorption point.”
Tlou recommenced gas flows in January 2016 and plans to carry out longer-term flow tests at the Selemo project. These tests will build on the current data and help to show how much gas can be flowed from the Selemo wells over a sustained period of time, giving Tlou an indication of the gas available from this field. This will enable the project’s current contingent resources – bumped up from 2.3 trillion cubic feet (tcf) in 2011 to 3.2 tcf in 2015 – to be upgraded to bankable reserves.
“Once we’ve booked the reserves, it’ll then be a case of talking to interested parties, a process that we’ve begun already, and working towards securing investment for an initial 10-megawatt pilot project,” says Colm.
“This project will involve drilling out extra wells, obtaining our environmental impact assessment, agreeing on a power purchase agreement with a preferred off-taker and installing the relevant infrastructure to bring the gas and power to market.”
Beyond this pilot project, Tlou is looking at providing gas to the 90-megawatt Orapa Power Station, set to convert from diesel to gas-fired generation. Gabaake says that Tlou has pre-qualified as one of the tender partners and is optimistic about its chances of being selected as the preferred party.
He adds: “The government sent representatives to the site and they saw the progress we have made and the gas being flared at the Lesedi project, so are very encouraged regarding our capabilities. We’re currently discussing possibilities with them.”
The benefit of starting out with a small, 10-megawatt pilot project is that it will hopefully make production and commercialisation possible in the near term. But the company’s eventual aim is to produce enough gas from Lesedi to facilitate 300 megawatts of power generation.
“The processes for such a large operation are much more substantial, and it may take time for us to get there,” says Colm.
“But we believe this field has more than enough gas for 300 megawatts of power production, and that’s something we expect to be working on from 2017 onwards. In addition, the partners we’re talking to now are all very interested in being part of that larger-scale financing as it progresses.”
The ultimate vision is that Tlou’s 300-megawatt project will help to meet Botswana’s power demand, which currently exceeds domestic generation by a long way. This goal holds particular prominence for Gabaake, a Botswana native with a strong connection to the country’s resources management.
“The more power we can feed into the country the better, and once domestic need has been met the government is very keen to see us exporting power into the southern African region,” he says.
“Ultimately, it surmounts to the development of a new industry in Botswana, and that comes with employment and economic development. This could be a valuable development for us, the government, and the country as a whole.”