Tlou Energy, a Botswana Stock Exchange listed junior exploration company developing Botswana’s first coal bed methane (CBM) natural gas project has signaled limited funds as an impediment to desired progress in archiving its commercial gas flow targets.
The company shared this update through its business update for the last quarter of 2019, released this week. During 2019, Tlou commenced production testing at two Pods in the Lesedi project, namely Lesedi 3 and Lesedi 4. The aim of the production testing was to establish a commercial gas flow rate from one or both of these pods.
Tlou announced at end of second quarter 2019 that initial gas flow rates of approximately 20 Mscfd (thousand standard cubic feet per day) from each of Lesedi 3 and Lesedi 4 were archived. The Company‘s targets are a minimum sustained gas flow rate in the region of 80-100 Mscfd from each production pod.
In this latest operation reports the energy outfit which is also listed on the Australia Securities Exchange and London‘s Alternative Investment Market( AIM) revealed that gas flow rates have continued to fluctuate both up and down with periodic short-term rates observed which have been much higher than those initially announced.
“We will not be in a position to announce an increased rate until such time that higher levels are sustained and confirmed by our advisors, we are operating in a region where commercial CBM had not been produced before so there is no comparable data from this operating environment regarding how long it may take, or if it is even possible, for a commercial gas flow to be achieved,” shared Tlou Directors.
However the company says based on information to date, the Company has no reason to believe that the targeted commercial gas flow rates will not be achieved noting that they are generally pleased with well performance to date. Tlou Energy Managing Director Anthony Gilby says as junior exploration and Development Company, Tlou’s funds are limited and therefore caution is being taken by the Company to try and ensure that the production wells are managed without risking damage to, or loss of, either production pod. “This impacts the length of time taken to produce a commercial gas flow,” he said.
CBM gas production testing involves the extraction of water and gas from a coal seam. Typically, the water rate starts high and as this reduces, the gas rate increases. The reports states that since the Lesedi 3 and 4 pods have been in production, water rates have reduced with the aim of taking as much water as possible out of the underground coal seam reservoir. “Once this is achieved, the coal is expected to be more gas saturated and therefore the gas flow rate should increase significantly.”
Anthony Gilby reiterated that to achieve increased gas saturation is not a simple process as it requires careful management of pressure levels within the wells noting that each of the Lesedi 3 and 4 production pods consist of three wells – one vertical production well and two intersecting lateral wells.
“The Lesedi 3 and 4 pods are producing water in isolation which makes dewatering a slower and more difficult exercise than would otherwise be the case in a full field development. In a field development scenario, an array of wells would be located adjacent to each other which would serve to facilitate dewatering,” he said.
To further finance the project and ensure smooth exploration works towards achieving target commercial gas rates Tlou Energy has turned to wholly government owned investment arm Botswana Development Corporation (BDC) for funding. “We are in continuous negotiations with Botswana Development Corporation (BDC) to fund development of this watershed project, the first 10MW of the Lesedi CBM Gas-to-Power project in Botswana and we have received an indicative non-binding term sheet as the negotiations have progressed,” revealed Tlou MD.
Gilby stated that the initial proposal forms the basis for further discussion and negotiation prior to finalization and thus remains confidential. “Further details will be provided if and when a binding term sheet is agreed,” he said. BDC is owned by the Government of Botswana with a mandate to provide financial assistance to commercially viable projects. Tlou says it is also in discussions with other parties interested in funding the Company though debt, equity and mezzanine finance.
SUPPLYING POWER TO GOVERNMENT
Tlou Energy‘s end goal is to deliver Gas-to-Power solutions in Botswana and southern Africa to alleviate some of the chronic power shortage in the region. In 2019 the company submitted a tender to Ministry of Minerals Resources, Green Technology and Energy Security (MMGE) for the Development of a CBM-fueled power plant in Botswana and was subsequently selected as a preferred bidder.
If successful, ongoing negotiations will result in the Company agreeing a Power Purchase Agreement (PPA) with the Government of Botswana, whereby Botswana Power Corporation (BPC), the national electricity utility would purchase the power produced by Tlou at the Lesedi CBM project. According to the report Government has taken additional time to assess their proposal including appointing qualified persons to assess the project. This was done to insure proper due diligence as CBM gas-to-power projects are new in Botswana,
To prevent further delays and allow Tlou to secure finance, Tlou has requested an interim PPA so that development of the Lesedi CBM gas-to-power project can commence sooner rather than later. Tlou Executives explained that the initial PPA could then be superseded by the final PPA once the MMGE has completed its assessment and negotiation.
In addition to the planned CBM development, Tlou also has environmental approval for 20MW of solar power generation. The company says Solar and CBM electricity generation can work extremely well together, with CBM providing base load power when solar is not available.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”