A strong head start won Tlou Energy valuable CBM tenements in Botswana, through which it hopes to provide gas for a cleaner and cheaper power choice
Coalbed methane (CBM) is a comparatively ‘new’ resource, particularly in developing countries such as those in southern Africa. Of the region’s few CBM projects, an explorer called Tlou Energy – founded by Australians in 2009 – owns the most advanced. Its 100% owned Karoo Central project in Botswana has an independently certified contingent resource of up to 2.3 trillion cubic feet (TCF), with a further prospective resource totalling 8.6 TCF. The explorer aims to have certified gas reserves within the next 12 months, and has targeted additional CBM tenements in Zimbabwe, Tanzania and Mozambique. But Tlou didn’t get this far, this fast, through luck.
To understand how Tlou Energy reached this point, you really need to look at the past experience of its Board of Directors – particularly that of its Managing Director and Chief Executive Anthony Gilby. In 2001, he co-founded unconventional gas explorer Sunshine Gas, in which one of Tlou’s Non-Executive Directors, Chris Pieters, served as Chief Commercial Officer.
Sunshine Gas was a pioneer in the eastern Australian CBM industry, which, although highly successful now, barely existed around the time Sunshine Gas was founded. “There was very little coal seam gas, or CBM, being produced at that stage – that was clear from the lack of infrastructure – yet it had all the hallmarks of being a great industry in the future,” says Gilby.
“We were already exploring in Queensland when the government began to reduce the regulatory hurdles, pipelines began to be built and the gas price began to rise. The market built up around us, enabling us to accelerate our exploration and move into late-stage appraisal – and that’s when the company was taken over.”
BG Group acquired Sunshine Gas as part of an AU$5.2 billion takeover of Queensland Gas Company Limited (ASX: QGC) in 2008. “The price was very good for our shareholders,” comments Gilby, “so we weren’t complaining.”
Following the sale of Sunshine Gas, Gilby and his team immediately began scouring the world for a new project. Africa, particularly Botswana, stood out for having “attractive geology”, a “need for new energy supplies” and a government “doing everything it can to encourage the gas industry,” says Gilby.
He co-founded Tlou Energy in 2009, using capital raised from ex-Sunshine Gas shareholders to help fund initial exploration in central Botswana. The start-up spent AU$40 million on drilling and infrastructure before making its IPO, achieving a valuable head start. It drilled 70 wells and established a modern field camp in the middle of the Kalahari Desert, training up and employing local people.
“With our 70-well database we’re very advanced – beyond the exploration stage and into early appraisal,” Gilby explains. “Our IPO in April raised an additional $10 million for carrying out the appraisal well drilling. That is a really big uplift stage for these sorts of projects because they result in gas flows and reserves, which will be very valuable in southern Africa.”
Tlou expects to achieve its first commercial gas flows towards the end of this year, and its first reserve booking in the first half of 2014. The company hopes to begin producing gas there in 2015.
Elsewhere in Africa
Tlou Energy also has interest in the African countries of Zimbabwe, Tanzania and Mozambique. The company selected these countries for their attractive geologies, but none of them can match Botswana’s low risk. “Botswana has the best geology combined with the best economics for commercial development, and that comes from having a very supportive and Western-style, democratic government,” says Gilby. “Evidence points to Botswana being lower risk than Australia.”
Tanzania boasts a huge population with a substantial need for new energy sources, but is a more bureaucratic country with which to do business, he explains. Zimbabwe has huge potential but has political issues at the moment. Mozambique’s geology is stunning, but its history as a Portuguese colony makes the legal system more challenging to navigate.
“Botswana, Zimbabwe and Tanzania all have government regulations that use the same wording and approach as those in Australia – it’s like I’m dealing with Queensland 10 years ago,” Gilby remarks. “In comparison, Mozambique has a different language, a different legal system, a different governmental system, and had a civil war for many years.
“So it’s necessarily more difficult, logistically, to do business there. But the prize is very great in Mozambique so we would like to produce gas there eventually, helping it meet its energy requirements.”
In terms of progress, Tlou has two awarded permits and one pending in Zimbabwe; applications in Tanzania; and is still identifying acreage positions in Mozambique.
Tlou has a clear view of where it’s heading next. Achieving commercial gas flows and a reserve booking within the next 12 months will prove its real value to the market. After that, it seeks to go into production in Botswana to supply gas to the Orapa power station. “Orapa supplies electrical power for diamond production, which is Botswana’s biggest export,” Gilby explains. “It’s currently running 100% on diesel, which is very expensive for the country.
“Achieving that near-term objective in Botswana will make us a very large company,” he adds. “Our shareholders will do very well out of the achievement of the near-term objective alone.”
Longer term, Tlou seeks to establish further gas reserves and continue to grow the country’s supply of gas-generated electricity. Eventually, it hopes to replicate in another country what it achieves in Botswana, which, at this point, looks set to be a revolution in power generation.