Kinetiko Energy Limited, listed on the Australian stock exchange, announced on the 21st August 2023 its maiden reserves and resources report. Therein, Kinetiko’s CEO comments as follows:
“This is one of the most significant and exciting moments in Kinetiko’s corporate journey to date in South Africa. It should be well understood that the maiden gas reserve was issued on the basis of a very small project. The area considered is minute by comparison to our overall geography (about 0.2%) and yet the economics work out to be substantially positive with 2P certification for the project at about 6.4 BCF of gas.
Each time Kinetiko adds commercial production plans within its exploration rights, it will be able to grow Reserve Certifications by eventual orders of magnitude, with assumptions based on increasingly positive economics driven by deeper wells in the south with potentially higher flow rates, and larger gas contents and better geophysical properties of the sediments to the north.
The Company also requested an updated resource assessment due to the results and consistency of recent exploration. The new resource assessment has reflected the upside of the sand-driven gassy reservoirs and returned a substantial 20% increase in 2C Contingent Resources to just over 6 TCF. It has also added a similar level of Prospective Resources (2U ~ 5.8 TCF) which will move into the Contingent category as further exploration confirms the geological potential.”
The potential of South Africa’s unique coal bed methane gas geology is now finally being understood. More exploration and development activity must be encouraged to achieve the scale and gas reserve numbers that benefit our country as a whole.
What does Kinetiko’s reserves and resources report mean for ordinary South African investors?
(For purposes of assisting with terminology herewith a link to the Petroleum Resources Management System (PRMS) website for various definitions and categories)
Kinetiko’s 2P gas reserves of 6.4 BCF may not sound like much without context. Let me explain. Firstly, it must be understood that reserves cannot be certified in the absence of a specific development and production project. Prior to a full-scale gas development project, Kinetiko decided to first conduct a small-scale pilot gas development and production project. This is not uncommon in the industry. This places Kinetiko in a position to immediately book, as it has now done, its maiden reserves and potentially gain access to reserve-based debt from specialist financing institutions that require independently certified reserves as the minimum criteria.
The process of Kinetiko having a portion of their contingent resources independently certified as reserves is not dependent on their proven geology exclusively. Also relevant, is the scale and size of the proposed project presented to the reserve certifiers based on the volume of gas Kinetiko intends to produce and sell. Reserves are only certified once the certifier is satisfied that Kinetiko has complied with stringent internationally accepted criteria which include amongst other inputs, recoverable gas volumes, development plan, gas production profiles and cashflows derived from capital expenditures, gas sales and operating costs over the life of the production project. Kinetiko specifically mentions in their announcement that the economics of their pilot production project are positive with a gas price base of $9.5/MMbtu. This is also checked and confirmed by the certifier. As Kinetiko upscales their gas development project with further projects Kinetiko will have further gas reserves certified and achieve economies of scale that could result in gas price reductions and/or increased rates of returns.
We consider Kinetiko’s announcement as extremely positive. Kinetiko now has coal bed methane gas reserves certified by Sproule (a leading petroleum engineering and certification firm based in Calgary) for its pilot production project assessed over an extremely small project area being 0.2% of Kinetiko’s total acreage position. In our opinion this bodes well for the accelerated development and production of onshore gas supporting South Africa’s dire energy deficit with cheaper and cleaner energy.
MST Access in their report dated May 2023 “Success Continues –Gas Where It’s Needed” states with regard to Kinetiko’s pilot gas production project as follows:
“The gas field development will be undertaken in two phases. The first will be the development of approximately 10 wells in each project with the construction of infield LNG plants with the capacity of about 5,000 tons per annum (approx. 30,000 GJ/month) and building from there to production volumes of 2 million GJ/a.”
All of the aforesaid aligns with Bastion’s internal resource estimates of its own acreage alongside that of Kinetiko sharing the same geology. What is exciting for the future is the independently certified 2C contingent resource assessment of 1,6 TCF and 2U prospective resources of 0,6 TCF within Kinetiko’s Block ER 272 that is adjacent to Bastion’s acreage in the Ermelo area and in the vicinity of Sasol’s Secunda operations.
As Bastion continues to de-risk its onshore gas opportunities through intelligent exploration, we look forward to partnering with like-minded companies, development finance institutions and industry as joint venture partners, financiers, contractors and gas off-takers who like us consider this a worthwhile endeavor.
For more information please contact the undersigned at barrisford@bastionoil.com or info@bulwarkoil.co.za
Barrisford Petersen
Founder and Managing Director
Bastion Oil and Gas South Africa (Pty) Ltd
Bulwark Oil And Gas SA (Pty) Ltd
Rockit Energy (Pty) Ltd
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