Kinetiko Energy (ASX:KKO): Interview with Chairman Adam Sierakowski

April 12, 2022

Kinetiko Energy, KKO

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Kinetiko Energy (ASX:KKO)

We spoke to with Kinetiko Energy Chairman, Adam Sierakowski, about the company’s recent progress with its Amersfoort Coalbed Methane Gas Project in South Africa and the recent joint development agreement with the Industrial Development Corporation, a South African government agency, to begin substantial development of the project with its 4.5 TCF of contigenct resources.

Read our most recent analysis on Kinetiko Energy HERE.

See full transcription below.

 

 

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Transcription

 

Stuart: Hello, and welcome to Stocks Down Under. My name is Stuart Roberts, and I’m one of the co-founders of our publication. And joining me once again from Perth is Mr. Adam Sierakowski, who’s the executive chairman of Kinetiko, ASX:KKO. Adam, good morning.

Adam: Yeah, good morning, Stuart.

Stuart: It’s Thursday, the 7th of April, 2022. I last had you on the line, enjoying that little picture of Sir Don Bradman there on your right-hand side, exactly six months ago. It was early November 2021. Now, at that time, you already had a great story to tell. We’re talking 1300 square kilometers of some of the best coalbed methane territories you could find anywhere in the industrialized world. You’d just upgraded your resource to 4.5 trillion cubic feet of gas, contingent resource. Not long after that, you found your first offtake partner.

Adam: Yeah, look, that’s right. You know, we think we’ve done a lot since we last spoke, Stuart. The offtake partner came because we were active drilling three new wells, which we’ve called the Korhaan Project, near our headquarters at Amersfoort there, in South Africa. And those three wells are now completed, and excitedly, we wait for flow rates over the next few weeks.

Stuart: The project has matured to the point where…and this is really exciting. You’ve just been able to
announce that the Industrial Development Corporation of South Africa, which is a government instrumentality, is
actually going to invest heavily in this project, buying 45% for, I think, 85 million Rand.

Adam: Been a little while in the making, and some substantial negotiations there, as you say, Stuart. A government instrumentality, they don’t place their funds very loosely. Excitingly for us, though, they recognize the potential of our project, they recognize the immediate need for an energy solution in South Africa, and that project, a SPV that we’ve signed with them, we get to co-invest with them to develop a 20-well pilot field not that far away from the three wells we’ve just drilled.

Stuart: A lot of people who aren’t familiar with South Africa. We need to fill them in on how dire the energy situation is there. You’ve got Eskom, the state-owned generator, is basically straining at the seams, to the point where there’s regular, the term in South Africa is “load shedding.” Blackouts, basically, that deny industry, as well as the public, the power they need. You’ve got the next-best solution to a situation where, at the moment, South Africa’s getting all its electricity from burning coal. You can provide the transition fuel over, to a clean, green South African future, where there’s actually a bit more energy for the public.

Adam: Stuart, it’s exciting times. I mean, the world of decarbonization is well-known. South Africa’s not very different to the rest of the world, you know. They’re very environmentally conscious. At COP26 last year, there was billions of dollars pledged by France, Germany, the UK, and the USA to help South Africa decarbonize. Their coal-fired power system is in decay. It really can’t be corrected. No one wants to correct it. They have to find an energy solution. You know, our nearly 5 trillion cubic feet of gas resource, which we hope to soon take into our main reserves, sits right in the middle of their existing energy infrastructure.

So, what this all means is that many government initiatives are being made in South Africa now to fast-track the ability of companies like ours to bring our gas and put it into the market. And that one example, that is the freeing up of the selling of electricity, and the ability of private utilities now to commence IPPs, or independent power production units. So, we have a multitude of market alternatives to use going forward.

Stuart: Right. And the wash of it is you’ve studied the seams long enough to know that getting the gas out’s not too hard. And amazingly, you don’t have to frack. This gas flows without hydraulic fracking.

Adam: Yeah, that’s right. So, the magic in our discovery is that the very, very well-known, you know, Karoo coal fields are covered by these volcanic sills, which traps gas in compartments. And it enables us to only drill down to, as we’ve done recently in our Korhaan field, down to 500 meters, intersect the coals, and we’re finding that the gas is hosted also in these carbonaceous sandstones, you know, at times, you know, 100 meters in pay zone. So, you know, our real advantage is we don’t have to drill deep, and we, you know, there’s permeability there, Stuart, so we do not have to frack to get the gas out. And, as I said, South Africa’s very environmental. They’ve actually got a moratorium on fracking in South Africa, so it gives us a competitive advantage.

Stuart: Right. So, feels to me that like the stars are lining up for Kinetiko. And, as you say, in the next few weeks, we’ll have the flow rates from those initial three wells. It’s a reasonable bet that there’s more where your initial small uptake came from, which is, you know, only pilot scale. But there’s multiple parties lined up, ready to take whatever you’ve got to offer.

Adam: Yeah. We’ve got a journey. Stuart, we’ve told the market that we’ve done extensive aeromagnetic surveys, which have identified, currently, 79 gassy compartments. I’m talking to you about three wells, and then even the IDC wells, all being hosted in one of those compartments. So, our journey and scalability is enormous, so we’re looking to partner with many, many other institutional investors in South Africa with whom we’re talking to, and many potential offtakers. And they range, as I said, from small IPPs right up to the huge [inaudible 00:05:53] groups like Sasol, who could potentially take thousands of wells of our gas.

Stuart: Right. And last but not the least, the traded price of gas in South Africa is pretty good. You can sell this thing, last time I checked, in the order of $8 to $10 USD a gigajoule, right?

Adam: Stuart, we might even surprise to the upside there. We’re pretty hopeful that it could well be in the range of $10 to $12 in our next announcements in the offtake agreements we do. So it suits us very strongly at this price.

Stuart: I gotta hand it to you. You and your colleagues just keep making this story better and better, so keep up the good work.

Adam: Thanks, Stuart. We certainly have a lot to look forward to.

Stuart: Thanks for talking to Stocks Down Under.