Tlou Energy Limited is an ASX, AIM and BSE listed company focused on delivering power in Botswana and southern Africa through the exploration and development of gas and solar.
Power Purchase Agreement (PPA)
Just after the end of the quarter, the Company announced that an interim 2MW CBM Pilot PPA has been agreed between the Company and Botswana Power Corporation (BPC) with the interim PPA now undergoing final regulatory formalities. The commercial terms of the agreement remain confidential. This PPA is seen as a major step forward for the Company.
The interim PPA facilitates connection to the power grid and first revenue for the Company. A pathway to revenue generation is key for the Company and once connected to the grid, expansion of the project is expected to be relatively straightforward.
The project has been largely de-risked following the granting of the PPA.
Regulatory approvals are in place that facilitate project development including:
· A Mining Licence for gas development valid until 2042;
· Environmental Impact Assessment (EIA) approval for upstream development comprising production wells, water handling, seismic, gas gathering pipelines and a gas processing facility;
· EIA approval for downstream development comprising 20MW of gas fired power generation and 20MW of solar generation;
· EIA approval for power station site and transmission line;
· Generation Licence approval from Botswana Energy Regulatory Authority (BERA). The Company is awaiting detailed licence terms;
· Serowe Sub-Land Board approval for transmission line wayleave application (subject to compensation agreements). In addition the route survey has been completed.
The Company submitted a proposal to Botswana’s Ministry of Mineral Resources Green Technology and Energy Security (MMGE) in 2018 for the development of a 10MW CBM Gas-to-Power plant. The 10MW proposal is separate to the 2MW interim PPA. BPC and MMGE continue to assess the 10MW proposal and will advise the Company in due course.
Response to Prevailing Financial Market Conditions
The Covid-19 outbreak and the impact on financial markets is challenging for many companies including Tlou and the government of Botswana has declared a State of Emergency. It is difficult to predict just how long the impact of Covid-19 will last and the ultimate effect it may have on the Company.
Therefore, Tlou considers it to be prudent to significantly reduce overheads so that existing funds last longer and to enable the Company more time to conclude commercial and project finance negotiations. Cost reductions will remain in place for the foreseeable future, with further reductions possible if considered necessary at a later date.
Lesedi 3 & 4 Production Pods
The Lesedi 3 and 4 production pods have been flowing gas for many months with sustained gas flow rates having been achieved from both pods.
Increased sustained gas flow rates are anticipated to take some considerable time, based on the currently available data, unless additional wells are drilled to facilitate the dewatering process. A decision to drill additional wells is being considered but no decision has yet been made.
During the quarter, the Company proposed to shut-in one or possibly both of the production pods as sufficient data has now been gathered indicating the presence of potentially commercial gas in the coal seams. Shutting-in the wells reduces unnecessary expenditure and stops flaring of gas that could otherwise be converted to electricity and sold once the project is connected to the grid. Bringing the pods back on-line should not take too long given the current understanding of the production process gleaned from the comprehensive data base acquired.
The Company is advancing its plans for development of solar power. Solar generation can work as a standalone project or in addition to the planned gas fired generation. Both solar and gas can be used together to provide reliable base load power, with solar generation during daylight hours and gas fired power used when solar is unavailable. This approach would further reduce carbon dioxide emissions compared to Botswana’s existing coal and diesel fired generation.
The Company has engaged with potential suppliers and consultants to prepare the design of the solar project and will provide further details to the market in the near term.
While on-the-ground access is restricted, the Company can constructively advance project finance and the 10MW PPA negotiations.
In relation to project finance, discussions with potential project finance partners progressed during the quarter with the Company evaluating debt or equity funding or a mix of both. Tlou’s objective is to source the lowest cost of capital with the least risk going forward.
The Company currently plans to secure the funds required for the electrical transmission lines over the next few months with work ideally able to commence on the ground in the second half of 2020 (subject to current travel restrictions being lifted). Initial focus will be on construction of the transmission lines given that this is currently the principal next step in the continuum of project risk reduction.
The Company has three project areas in Botswana:
· Lesedi Project – Development, Exploration
· Mamba Project – Exploration
· Boomslang Project – Exploration
Lesedi CBM Project Area, Botswana
Licences: Mining Licence 2017/18L, Prospecting Licences 001 & 003/2004 and 35 & 37/2000
Ownership: Tlou Energy Limited 100%
The Lesedi project covers an area of approximately 3,800 Km2 and consists of four Coal and CBM Prospecting Licences (PL) and a Mining Licence. The Mining Licence area is currently the focal point for the Company’s operations and includes the Lesedi 3 and 4 production wells or ‘pods’.
The Lesedi project is the Company’s most advanced project, with plans in place to install gas-fired electricity generators and connect to the power grid in Botswana. The project has full environmental approval which includes gas extraction, electricity generation and construction of transmission lines. In addition, the Company has approval for 20MW of solar generation. CBM power is ideal for use in conjunction with solar projects.
Tlou has the only CBM Mining Licence in Botswana. A mining licence is required by an operator to develop a CBM asset. This licence spans a large 900 Km2 area and is valid until 2042 so the Company has security of tenure over the project.
Tlou has the only independently certified CBM gas reserves in Botswana, with 252 Billion Cubic Feet (BCF) of 3P gas Reserves certified in the Lesedi project area. In addition, the 3C Contingent Gas Resources are approximately 3 Trillion Cubic Feet (TCF). The potential upside from further successful development of this area is substantial.
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