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Tlou Energy Ltd provides production update

Published by , Editor
World Coal,

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. The company's first proposed development is the Lesedi Power Project.

Key points

  • Timetable for the 10 MW tender negotiations received.
  • 2 MW power purchase agreement (PPA) and grid connection agreement signed.
  • Project finance discussions are progressing.
  • Tenders have gone out for construction of transmission line and substations.
  • Gas continues to flow at Lesedi 4P and displaying a gradual increase over time.

Tender timetable

In 2018, Botswana's Ministry of Mineral Resources Green Technology and Energy Security (MMGE) issued a request for proposal for development of up to 100 MW of coal-bed methane (CBM) fuelled power plants in Botswana (tender).

The company submitted a comprehensive response to the tender which included a staged development commencing with up to 10 MW of generation as well as outlining project feasibility, proposed field development, installation of power generation facilities and supply of power into the grid in Botswana. Upon successful completion of the initial project, the company would look to expand.

Tlou was selected as a preferred bidder and MMGE was approved to engage in negotiations with Tlou in respect of the tender. The company have now received a timetable from MMGE for tender negotiation which will commence in January 2021. The company is looking forward to the advancement of this important milestone and successful conclusion ideally in the near term.

Signed agreements

Formalities having been completed for a 2 MW PPA with Botswana Power Corp. (BPC) with the company having received the signed PPA and grid connection agreement. These agreements represent further significant progress for the Lesedi Power Project.

Project finance

The company is currently seeking funding for development of Lesedi. The project is proposed to be developed in two phases.

Phase one involves transmission line construction, transformers, grid connection, electricity generators and potentially the drilling of additional gas wells. The ~100 km transmission line will run from the Lesedi project to the town of Serowe where it will connect to the existing power grid. Initial generation is proposed to be up to 2 MW of electricity. Funding required for phase one is approximately US$10 million which can be staged if necessary or prudent to do so.

Phase two funding is for the expansion of electricity generation up to 10 MW. This will involve drilling gas wells and the purchase of additional electricity generation assets. Funding required for phase two is approximately US$20 million. Upon successful completion of phase one and two, the company plans to expand the project beyond 10 MW.

Project finance discussions continue to progress although this process is taking considerable time. A number of potential financiers would like to see the tender process (as mentioned above) come to a successful conclusion before committing funds to the project. In the event of a successful outcome to the tender negotiations, the company expects to have additional funding options available.

It is worth noting however, that not all groups require the tender to be completed first. Some financiers are looking at the potential upside once the project is connected to the grid regardless of the size on the initial 2 MW pilot PPA. Discussions are ongoing and Tlou has recently conducted a field trip with one of these groups.

The company is aware that the length of time these funding negotiations are taking may cause concern for some shareholders. While some issues out-side the control of the company have had an impact, management are focused on getting the best deal for the company and this takes time given the variables involved.

Transmission line detailed design

Detailed design and engineering of the 100 km transmission line and associated infrastructure to connect Lesedi to the electricity grid has been completed by the company's engineers Mott MacDonald. This work included selecting qualified parties to tender for construction of the transmission line and associated infrastructure. The qualified parties include groups from Botswana, India, China and South Africa.

Requests to tender were sent to the qualified parties in December, with responses to be received in 1Q21, with evaluation of bids and award of contracts planned to follow as soon as possible. Thereafter, construction can commence subject to finance.

Lesedi Gas production

Gas continues to flow at the Company's production well Lesedi 4P. The Lesedi 4P gas rate has shown a steady increase over time while water rates are progressively decreasing. The continuous nature of the gas flow throughout the year with the steady incline being observed is very encouraging.

Gas flow rates are not anticipated to increase significantly until further drilling is carried out to assist with dewatering of the reservoir. Once further water can be removed from the system by additional wells, the gas should start to increase substantially.

The continuous gas flow reinforces the significant upside potential for shareholders and along with Tlou's plans for solar power, could create a new cleaner power opportunity for the region. Only the deeper gas target horizon (Morupule coal seam) has been explored to date with at least one other shallower potentially productive zone (Serowe coal seam) yet to be evaluated.

Forward plan

While the past year has been challenging, the company looks forward to a much more successful period ahead. Key areas that need to be advanced include:

  1. Securing funds to advance the Lesedi power project. This will allow work to commence on transmission lines and set the company towards initial generation and first revenue.
  2. Completion of the tender process and signing of a 10 MW PPA.
  3. Progressing solar development plans.
  4. Drilling additional gas wells in the Lesedi project.
  5. Completing further operations across the Mamba and Boomslang project areas.

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