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Tlou Energy may be set for significant upside as CBM project advances

Stockbroker Shore Capital sets a fair value estimate for Tlou at 25p per share, versus a market price of 5.5p
oil and gas operations
Tlou has just completed a drill programme in Botswana

Tlou Energy Ltd (LON:TLOU) shares could be worth much more than the current market value, that’s according to house broker Shore Capital.

Reacting to the latest news from Tlou’s Lesedi coal bed methane project in Botswana, the broker gave its view on what the company’s assets are worth.

“Ahead of further updates, our fair value estimate for Tlou stands at approximately 25p per share; with an active work programme underway and strong progress being made at Lesedi, we continue to see excellent scope for Tlou to become a leading Southern African-focused independent power producer,” Shore Capital analyst Craig Howie said.

For context, Tlou shares currently trade at around 5.55p in London’s AIM market – so the ‘fair value’ figure put forward by Shore would be nearly five times higher.

Production pods complete

It comes after Tlou updated investors on its drilling programme in Botswana. The company said that two development pods – each containing three wells - have been completed and, they are now de-watering prior to controlled gas flows.

This concludes the current programme of drilling and Tlou noted that its costs to date have been in line with budget.

Tlou highlighted that strong gas indications were observed while drilling and initial water flow is similarly very encouraging.

"I am very encouraged by the recently completed drilling program and in particular the strong gas indications observed to date,” said Tony Gilby, Tlou managing director.

“Furthermore, the good initial water flow, which is higher than that previously observed at Selemo, is potentially indicative of good permeability and therefore potentially good gas flows in this geologically high-graded area.

“Completing the wells in a timely manner and on budget was a great effort by the field staff and they are to be commended for their achievements."

Tender process continues

One potential reason why the market value is below the level suggested by Shore Capital is that whilst operational progress can be seen, the commercial future of the project has yet to be secured.

Tlou is one of two companies presently competing in a formal tender process run by the Botswana government for a gas-to-power project, to be fed by coal bed methane gas resources.

Earlier this month, Tlou told investors it had received confirmation that the technical stage of the Request for Proposal (RFP) for Development of CBM fuelled power plants in Botswana has been passed.

It meant that the Botswana Public Procurement and Asset Disposal Board (PPADB) had opened the financial phase of the tender process.

Tlou highlighted that its proposal received a technical score of 89.8%, while rival Botswana firm Sekaname was marked at 86.4%.

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