Kinetiko Energy: an imminent gas producer at the heart of energy-hungry South Africa

Kinetiko Energy Ltd (ASX:KKO) is preparing to move into a new era as a producer in the all-important South African gas market. The ASX-listed energy stock is on the cusp of commercial production, prepared to use its extensive landholding and unmatched 4.9 trillion cubic feet contingent gas resource to help power energy-hungry South Africa. As it readies to enter a new phase, Kinetiko has released an investor presentation, outlining its current activities and future plans at the wholly-owned Amersfoort Project. With commercialisation and a new financial year right around the corner, Kinetiko is prepared to take the South African gas market by storm. The Amersfoort Project Kinetiko is the largest continuous landholder in the heart of South Africa’s Permian Age Coal Fields, with a project area that spans 7,000 square kilometres and 4,604 square kilometres worth of granted exploration rights. A map indicating Kinetiko’s holding in the Permian Age Coal Fields. The extensive holding affords the company access to critical energy, mining and transport infrastructure as it prepares the Amersfoort Project to enter production. A 2018 gas flow testing study, conducted by an independent contractor, proved Amersfoort had a 95% gas recovery rate, with low levels of groundwater produced. The flow test also indicated Kinetiko might be able to eliminate the gas treatment step due to the high-quality nature of the project’s gas, with further evidence of strong gas reservoir recharge over time. Overall, Amersfoort boasts significant exploration upside, with only 15% of the asset’s total land package explored to date. The company understands the project’s Karoo coal formation deepens and thickens, providing a suite of high-priority targets to follow up. With this in mind, Kinetiko believes Amersfoort bears a key advantage: near-term production opportunities and long-term development potential. Accelerating towards production As it prepares to become a producer in a gas-hungry market, Kinetiko has outlined its near-term vision. So far, the company has completed a pilot well workover program and executed a production well flow test at its KA-03PTR well, confirming its commercial scalability. Currently, Kinetiko is looking for potential offtakers with the ASX-lister in advanced negotiations with some promising candidates. It comes as there are no further costs required to take the KA-03PTR well into production. Moving forward, Kinetiko will work to establish maiden gas reserves, moving its current 4.9 trillion cubic feet of gross gas from contingent to certified reserve status. The company also intends to grow the region’s gas resources via exploration. Finally, Kinetiko hopes to secure South African institutional funding for a 20-well production gas field with the ability to scale. Kinetiko's timeline to production at the Amersfoort Project. A strategic acquisition Just last month, Kinetiko inked an integral deal that strengthened its position in the South African gas market. On May 7, the company announced it had signed a binding term sheet with Badimo Gas Pty Ltd to acquire the remaining 51% of Afro Energy Pty Ltd, providing Kinetiko with 100% of all exploration rights and production approvals. The move further streamlined exploration and development by making Kinetiko the sole owner of the Amersfoort Project. Kinetiko issued 595 million consideration shares to secure the 100% stake in the South African gas project. Speaking to the deal, Kinetiko executive chairman Adam Sierakowski said: “This union between the historic joint venture partners represents the achievement of a major milestone for the derisking of the development of what is potentially the largest onshore gas project in South Africa. “Years of significant cooperation between the Badimo and Kinetiko teams have enabled this acquisition to be realised and will result in delivering substantial shareholder value.” Badimo executive chairman Don Ncube said: “We have worked for over a decade to explore and develop a significant onshore non-fracking gas project in the Mpumalanga, Orange Free State and Kwazulu-Natal regions of South Africa. “This merged entity will now be able to raise capital for accelerated exploration, production and downstream development in international markets. “Such foreign direct investment was previously not available to Badimo and this merger facilitates and reinforces the foreign direct investment initiative of our President. “It will provide new employment opportunities and development of technical skills in the regions where such gas production is established and contribute to the reduction of harmful polluting carbon dioxide emissions.” The South African market There’s a growing need for energy of all forms in South Africa, with country-wide power outages fuelling unprecedented supply instability. South African residents can be without power for up to 10 hours a day as electricity company Eskom struggles to keep pace with growing demand. Mounting necessity has also led to a spike in gas pricing. According to Kinetiko, the approved maximum retail prices for gas traders set by the National Energy Regulator of South Africa (NERSA) range between US$7 and US$10 per gigajoule — some of the highest gas prices for domestic markets anywhere in the world. While it’s yet to transition to commercial production, Kinetiko is preparing for the future by advancing discussions with a range of potential customers and government agencies. The company has already received several expressions of interest from key potential offtakers, with this demand-driven enquiry driving Kinetiko’s production vision.