618 – The Weekend Podcast and 3 Reasons to put Tlou Energy (TLOU) on your Watchlist

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618 – The Weekend Podcast and 3 Reasons to put Tlou Energy (TLOU) on your Watchlist

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ON TODAY’S PODCAST:
618 – The Weekend Podcast and 3 Reasons to put Tlou Energy (TLOU) on your Watchlist

TLOU ENERGY

Tlou Energy (TLOU)
Share Price: 9.5p
Market Capitalisation: £25m
Shares in Issue: 237m

Final Results for the year ended 30th June 2016:
Revenue: A$27,857
Loss: A$3,065,583
Cash: A$1,224,404 plus A$3m raised via a placing of 31,578,947 at 0.55p on 31st August.

What Do They Do?
Tlou Energy is an AIM and ASX listed company, focused on delivering power in Botswana and the broader southern African region through the development of coalbed methane (CBM) projects.

They are the 100% owners of the most advanced gas project in the country, the Lesedi CBM Project.

3 Reasons to put Tlou Energy (TLOU) on your Watchlist

1. Management

tony-gilby

Tony Gilby – Managing Director and CEO

Tony Gilby has extensive experience in coal bed methane projects. He was instrumental in establishing successful Coal Seam Methane at Arrow Energy in Australia.

Arrow Energy listed on the ASX on 17 August 2000 at $0.20 valuing the company at A$25.6m. At the time of it’s takeover, 9 years later, Arrow was valued at $5 billion with a share price of $5.87.

After his time at Arrow Energy, Tony went on to become Managing Director of Sunshine Gas.

In August 2006 Sunshine Gas had a market cap of $98m. In 2008 BG Group acquired Sunshine Gas as part of an AU$5.2 billion takeover of Queensland Gas Company Limited in 2008. “The price was very good for our shareholders,” comments Gilby, “so we weren’t complaining.”

This valued Sunshine Gas at around $1.1billion.

gabaake

Gabaake Gabaake – Executive Director

Gabaake is a former Botswana Government Senior Public Servant.

For the last two and half years of his public service career headed the key Ministry of Minerals, Energy and Water Resources and led it to become the No.1 ministry in terms of performance in the Botswana Public Service.

He has served in various private company boards such as De Beers, Debswana and DTC in various capacities. Authored two chapters in the Botswana National Atlas and has presented many technical papers at various international conferences.

Gabaake Gabaake plays a pivotal role in making Tlou a success.

He not only knows how the system works but understands Botswana’s needs from an administrator’s point of view.

Gabaake’s appointment, to Tlou, is also a positive reflection on the company.  In order to smooth the course of business in Botswana, you need a person, experienced and well connected within country. Gabaake is that person.

2. Assets

lesedi-cbm-project

The Lesedi CBM Project is the most advanced project in Tlou’s portfolio. The project’s Prospecting Licenses extend for approximately 8,500km2 (2.1 million acres) in the Karoo Kalahari Basin, southeastern Botswana.

Operations have been ongoing since 2007. Numerous exploration and appraisal work programmes have resulted in an independently certified 3.3 TCF of 3C, 239 BCF of 2C and 5 BCF of 1C contingent gas resources.

tlou-reseerves-002

 

Selemo

The Selemo area consists of three well pods, each consisting of a vertical well intersected by a lateral well.

Selemo 1 is the central pod, with Selemo 2 to the south and Selemo 4 to the north. Selemo 2 and 4 were drilled as shielding wells to keep water out of the central area, around Selemo 1, allowing it to produce economic levels of gas.

solemo

A sustained gas flow was achieved at Selemo 1 initially and later at Selemo 4. This is a significant milestone and a key step in the process of achieving an economic flow rate. Gas rates are expected to grow over the coming months.

Selemo 4, although drilled as a shielding well to keep water out of the central area, having demonstrated sustained gas flows, is a very favourable outcome for the company and exceeded Tlou’s expectations and could potentially be a second key gas producing well in addition to Selemo 1.

 

Environmental Impact Statement

On the 29th September, Tlou announced that Botswana’s Department of Environmental Affairs had approved the Environmental Impact Statement (EIS) submitted by the Company, in December 2015, for its Lesedi CBM Project.

This environmental approval now facilitates application for a Production Licence for a 50MW project at Lesedi, moving the Company through the exploration phase into development.

 

Independent Reserve Certification

On 12th October 2016, Tlou received an initial Independent Reserve Certification from, SRK Consulting, for the Lesedi CBM Project, located in prospecting licence PL002/2004 in Botswana.

Tlou Energy is the First Company to receive independent gas reserve certification in Botswana. In my recent interview, Tony Gilby said, they’re the first company to receive this certification across all of southern Africa.

Gabaake Gabaake said, “Initial reserve certification is a major milestone and demonstrates the commerciality of the Lesedi CBM Project. These are significant steps in our aim to become a mid-tier gas to power producer in southern Africa”

tlou-p-resources

Whilst the 1P reserves seem relatively modest, Tony Gilby stated on the podcast, that achieving initial 1p gas reserves certification was the most difficult part. Increasing the reserves is less difficult.

Gabaake commented, “Our plan is to now continue to build reserves and upgrade the category of these reserves as further production data from Lesedi is collected.”

Whilst no operations have been conducted at their adjacent Mamba project, it consists of five CBM permits, which could provides Tlou further with considerable upside. Tlou are also in on-going discussions with a number of relevant stakeholders with a view to securing additional prospective CBM acreage to further enhance this upside, although their current focus is on Lesedi.

 

3. Location

The management conducted a global search, before embarking on this project.

The destination had to, effectively, possess 4 traits, in order to be conducive to a commercially viable coal bed methane project:

– Geological Viability

– Political Stability

– Governmentally Supportive

– Commercially Sustainable

botswana

 

1. Geological Viability

cbm-cross-section

Botswana possesses the correct geological make up to produce coal bed methane: coal resources in Botswana are estimated at 17 billion tons.

Between 2001 and 2003 the Department of Geological Survey undertook and successfully completed a preliminary CBM exploration study. The main objective of the study was to assess the availability and the potential for development of natural gas resources associated with the coal-bearing sequences of the Kalahari Karoo Basin (Tlou licence lies within this area).

The drilling, coring, and testing works conducted during this project indicate that the coal beds within the study area contain an estimated gas-in-place resource of 60 trillion cubic feet (Tcf).

 

2. Political Stability

botswana-govt

Botswana is one of Africa’s most stable countries and is the continent’s longest continuous multi-party democracy. It is relatively free of corruption and has a good human rights record.

Formerly one of the poorest countries in the world, with a GDP per capita of about US$70 per year in the late 1960s, Botswana has since transformed itself into one of the fastest-growing economies in the world. The economy is dominated by mining, cattle, and tourism.

botswana-gdp

Botswana is the world’s largest producer of diamonds and the trade has transformed it into a middle-income nation.

 

3. Governmentally Supportive

botswana-govt-motif

Under a government initiative to investigate the possibility of alternative ways of obtaining maximum benefits from the country’s coal resources, other than the direct use of coal as a source of energy, coal bed methane was considered as the best option.

On 21st June 2016, the Government of Botswana proposed that the delivery of 100 MW of CBM power be incorporated into its future generation supply plans.

On the 5th July 2016, Tlou received confirmation that it has been selected to develop a 50MW CBM power plant at the Company’s 100% owned Lesedi CBM Project, five times larger than the 10MW power plant originally applied for, demonstrating the strength of the government’s support for the development of domestic sources of power.

 

4. Commercially Sustainable

botswana-energy

In November 2015 Botswana’s Government Ministry of Minerals, Energy and Water Resources issued a request to submit technical information for the supply of emergency power to address the country’s chronic power deficiency and to assist fast tracking the development of the gas industry in the country.

This is due to the fact that the country relies on expensive imported power and diesel generation to deliver its requirements. This is compounded by continued and still unsuccessful remedial work taking place at Botswana’s Morupule A and B coal fired power stations.

Botswana’s energy demand is set to increase 37% to 1,017MW by 2025. Based on 2015 data, there will be a shortfall of 5,994MW of energy in Southern Africa alone.

As a result of the energy supply shortfall, Tlou have already identified, 3 routes to market:

1. A new 50MW power generation facility

Which Tlou has been approved for, by the Government of Botswana to negotiate gas supply, construction and operation.

tlou-3-routes-to-market

 

2. Gas supply to the existing 90MW Orapa power station

Owned by Botswana Power Corporation. Presently it is a diesel fired power station, which comes at a significant cost to government, with the two turbines at the plant estimated to consume up to 17,000 litres of diesel per hour at peak use.

orapa-power-station

 

3. A proposed 300MW gas-fired power project

To be developed by IK Holdings and GE.

GE is a world-leader in the design, construction, operation and maintenance of power generation facilities. It has a material portfolio of gas compression, CNG plants, LNG plants and water treatment as well as operating and maintenance experience. GE is currently known to be involved in every LNG project in production in Australia.

IK Holdings is an Australian company established with the primary purpose of developing new sources of gas-fired power in Botswana.

tlou-2016

 

 

Summary

tlou-investment-case

Botswana have a chronic energy shortage, not satisfied by it’s currently solution of costly coal / diesel fired power stations or expensive imported power. As a result they’ve identified and prioritised coal bed methane as a cleaner, cheaper more sustainable alternative.

The most advanced coal bed methane developers in Botswana are Tlou Energy. Tlou is a company, run by an experienced team, headed by Tony Gilby who was one of the CBM pioneers (and who made a lot of money for themselves and shareholders) in Australia.

Tony himself, in a recent podcast, suggested Tlou’s potential outstrips that of his previous successes at Arrow Energy and Sunshine Gas.

Owning 7.5% of the issued share capital, also suggest that he’s prepared to put his money where his mouth is.

 

tlou-shares

 

How Do You Value Tlou Energy?

ev-comparison-chart

In July 2015, assuming the 10MW power station was going ahead, Brandon Hill Capital (Financial Adviser and Joint broker) had a buy recommendation and a A$0.42 target price on the company. The exchange rate at the time, translated this to 24p (now 26p).

This was before:
– Tlou had been selected to develop a 50MW CBM power plant.
– The Botswana Government approved Tlou’s Environmental Impact Statement.
– Tlou achieved Initial Independent Gas Reserve Certification.

Your guess is as good as mine but I’d say that target must now be materially higher. The current share price, at close on Friday 21st October 2016, was 9.25p, giving them a market capitalisation of £25m.

The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.

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