Kinetiko Energy Ltd (ASX:KKO) is about to produce its first gas from the Amersfoort Project in South Africa, a country that is hungry for energy having experienced regular and widespread blackouts in recent years.
The revitalised company has been on a fast-track towards production and cash flow since being reinstated to the ASX last May.
In a short period of time, it has achieved a number of key milestones, including a 227 per cent lift in resources, and production is imminent after completing the workover of its own pilot well while negotiations with offtakers are in the advanced stage.
Just the start
And the story is only just beginning with first production from the pilot program to generate revenue that will assist in delivering a maiden gas reserve and further developing the Amersfoort project into an important energy player in southern Africa.
What’s more, there is plenty of additional upside at Amersfoort with the current independently certified 2C resource of 4.9 trillion cubic feet just from a small portion of the 7,000 square kilometre project in the country’s heavily populated and industrialised northeast.
Survey reveals new potential
The latest milestone that indicates this upside is the completion of a third high-resolution aeromagnetic survey that confirms the continuity of gas prospective geology.
This 6,011-line-kilometre survey covering 273 square kilometres over a selected portion of ER271 and ER38 that form part of the project, has linked three previous survey areas.
The total surveyed area of unprecedented geological detail now covers 965 square kilometres of gas-prone Main Karoo Basin sediments and while extensive, it represents only 21 per cent of granted exploration tenure being explored.
Kinetiko is highly encouraged as the major geological features visible in the data define six potentially gas-charged compartments in the survey area ranging in size from 5.7 to 22.5 square kilometres for a total of 77 square kilometres. This brings to 37 the number compartments covering 257 square kilometres.
These findings will guide the sequence of drilling evaluation of the gas compartment targets with the aim of bringing them progressively up to pilot field compartment status.
A similar approach has been used in ER56 to establish where pilot production is about to begin from the first two of 10 compartments in well KA-03PTR.
In mid-February JV company Afro, completed a workover program at well KA-03PTR along with well KA-03PT2.
After being granted a bulk gas production and removal permit by the Minister of Mineral Resources and Energy, JV company Afro Energy (Pty) Ltd, which is 49% held by Kinetiko and 51% by Badimo Gas (Pty) Ltd of South Africa began planning and preparing a short-term pilot gas production program.
This incorporates the production of up to 500 million standard cubic feet (MMscf) of gas annually for a two-year period from exploration rights ER56 and ER38.
It was also determined that the two wells should undergo workovers to maximise gas flow rates and recovery.
Advanced offtake discussions
Following the successful workovers in mid-February, Afro Energy has progressed negotiations with gas traders for potential offtake of small and intermittent gas production from KA-03PTR and possibly KA-03PT2.
It is proposed that they will purchase gas at an onsite transfer point, compress the gas to the required pressure utilising their own compression equipment and transfer this to their CNG trailers for transportation to existing gas-based industries in the Johannesburg and Witbank regions.
Flow rate and equipment testing of well KA-03PTR began immediately following the workover with the company intending to seek full production rights for ER56 as soon as possible after the start of production, which is expected this month.
Kinetiko will also seek certification of maiden gas reserves.
Achieving these operational milestones and imminent cashflow have been enhanced by the revitalisation of Kinetiko, including a recently refreshed board with the appointment of Tom Fontaine as a non-executive director adding coal bed methane (CBM) experience and strong technical skills.
This has also seen previous non-executive chairman Adam Sierakowski appointed executive chairman to reflect his increased role in operational and financial activities for the company.
The company is also well-funded to achieve its production and exploration aims in the next 12 months following a fundraising process in the December quarter where a majority of the unlisted A$0.03 options were exercised well before their expiry date of December 31, 2021.
A total of $1.26 million was raised following the conversion of options representing around 81% of all options exercised in that class.
First mover in region
Kinetiko is a first mover in the region and has a dominant exploration ground package with advantages including:
- 20 exploration core holes drilled to-date show gas shows in all holes;
- Seven gas flow permeability test wells have been completed with strong flow rates achieved;
- Low exploration costs with shallow drilling (around USD$200,000/well);
- Easy access with long-standing landowner relations and support;
- No fracking, and environmental approvals have been obtained; and
- Nominal amount of water production with potential agriculture uses.
Existing funds and cashflow from production will support the company’s aims to help serve southern Africa’s urgent need for new energy sources by focusing on advanced shallow conventional gas and CBM opportunities.
The project is uniquely positioned to capitalise on growing energy demand.
Growing gas demand
South Africa has extensive gassy coal basins, extensive energy infrastructure and growing gas demand, making it an attractive area for investment.
Domestic gas prices in South Africa are among the highest in the world at between US$7-10 per gigajoule and the country’s energy crisis has been deepened by no capacity to increase gas imports.
Kinetiko’s strategy and plans are also enhanced by stronger global gas market fundamentals which are set to see improved prices.
Amersfoort is strategically positioned close to gas pipelines, high voltage transmission lines, road and rail as well as end-users (mining, industry, manufacturing, transport and domestic customers) as well as 10 major power stations within 300 kilometres.