Kinetiko Energy’s gas find a big boon for energy-hungry SA

Australian energy firm Kinetiko, which confirmed that it made a big gas discovery near Secunda in Mpumalanga last week, has announced a maiden reserve of 3.1 billion cubic feet (bcf) in its pilot gas production area in the province.

Although it may take years to reach full commercialisation, its gas find is a boon for South Africa, which is battling a power crunch, analysts say.

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The company, which is listed on the Australian Securities Exchange, also reported a 20% increase in 2C contingent resources, adding that it expects significant further upgrades from neighbouring application exploration right (ER) block ER320 once it is granted, it said in a stock filing on Monday.

Its 2C contingent resources, which are discovered resources, reached 3 trillion cubic feet (tcf) net (6tcf gross), while its prospective resources, which are yet to be discovered, were calculated at 2.8tcf – which Kinetiko said would be convertible to contingent resources based on further exploration drilling.

The company said its maiden reserves were assessed over an initial area that spans 6.8km².

Exciting moment

Speaking about the updates, Kinetiko CEO Nick de Blocq said the gas discovery is the most significant and exciting moment in the company’s corporate endeavours 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 [proven and probable reserves] certification for the project at about 6.4bcf of gas,” De Blocq said.

He noted that 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 6tcf. It has also added a similar level of prospective resources (2U ~ 5.8tcf) which will move into the contingent category as further exploration confirms the geological potential,” he said.

The updates come nearly a week after De Blocq confirmed a gas find of significant size in the company’s ER272 block to Moneyweb.

The Perth-headquartered gas explorer, which is focused on advanced shallow conventional gas and coal bed methane opportunities in some developing markets in southern Africa, holds a 49% stake in Afro Energy.

Afro Energy holds the exploration rights for the block in which it made its recent gas find (ER272), as well as ER270 and ER271.

Decent reserves

Speaking to Moneyweb following the gas discovery, Integral Asset Management CIO Keith McLachlan said the find is positive for an energy-hungry nation like South Africa suffering through an energy deficit created by problems at state-owned power utility Eskom.

“Without looking at exports, consider just the multiplier effect of more abundant energy fulfilling that local deficit; it’s fantastic news from a domestic perspective,” McLachlan said.

He said Kinetiko’s latest discovery, which follows significant gas projects in the country spearheaded by the likes of Renergen, demonstrates that South Africa certainly has some decent gas reserves.

He noted that it takes time to commercialise prospective reserves to full-scale production.

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Founder of Smalltalkdaily Research, Anthony Clark, said the gas find legitimises the onshore gas industry as well as Renergen’s project exploration and prospect development.

He said Kinetiko would have to independently evaluate the prospects of “proven” 1P, 2P and 3P reserves and resources to gain its exploitation.

But in its announcement on Monday, Kinetiko said its update is based on its Sproule report from 14 August. Sproule is an independent petroleum engineering and certification firm based in Calgary, Canada, which has also conducted reserve and resource assessments for a myriad of Australian clients.

Clark said Kinetiko could be faced with three to nine years to develop the prospect reserves once all permits by the Department of Mineral Resources and Energy have been granted, and environmental and community engagement has been done and approved.

“You may have said you found gas, but getting it corroborated independently and then getting it out of the ground is the hard and expensive part,” Clark said, referencing Renergen’s R1 billion Virginia phase one plant in the Fee State, where it has its helium gas project. The second phase of that project is costing Renergen around R21 billion.

“Renergen have been at this since 2014, and it was only 2022 [when its] first gas production occurred,” he said.

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