Kinetiko Energy Ltd (ASX:KKO) holding Afro Energy has entered into a joint development agreement with the Industrial Development Corporation of South Africa (IDC), an arm of the South African Government mandated to promote economic growth and industrial development in South Africa.
The Perth-based gas explorer, which focuses on advanced shallow conventional and coal bed methane opportunities in rapidly developing markets, will co-develop gas fields with the IDC in the energy-hungry nation to produce energy for industrial, commercial, transportation or power generation applications.
Major player in onshore production
“Kinetiko’s vision of becoming a major player in South African onshore gas production has today taken a significant step forward with agreements being finalised with the IDC, a leading national development finance institution, to co-invest in the development of a gas field adjacent to the company’s existing Amersfoort wells,” executive chairman Adam Sierakowski said.
The proposed gas field consists of approximately 20 gas-producing wells under an existing bulk gas production permit of 500 million standard cubic feet (mmscf) per annum.
The IDC has committed to contributing R70 million for a 45% interest and Afro Energy to contribute R85 million for a 55% interest in an incorporated joint development entity. The IDC has a first right to participate up to 45% of the next 80 wells developed by Afro Energy.
Approvals are in place for the JDA and fieldwork is anticipated to start later this year.
“This transaction represents the first investment in Kinetiko by a substantial South African institution and will fast track the company’s ambitions to rapidly develop numerous gas fields over the vast gassy geology identified and we are grateful for the IDC team's long support," Sierakowski said, "and we look forward to being a development partner with them.”
Shares were 9.76% higher to A$0.09.
Two-phase development
This investment and development will be conducted through an incorporated special purpose vehicle – Afro Gas Development SA (Pty) Ltd (AGDSA) – and gas field development will be undertaken in two phases.
The first phase will be the development of approximately 10 wells and the construction of a gas terminal with gas treatment and processing plant, metering station and pipeline gathering system.
The second phase will consist of the commencement of gas production from existing wells and the development of around 10 further wells, along with the maintenance and expansion of facilities as required.
Production will be achieved under the permission granted to Afro Energy authorising the removal and disposal of 500 mmscf of gas per annum.
The ADGSA project is budgeted to cost approximately R155 million, of which 45% will be contributed by the IDC and 55% by Afro Energy. The contributions are to be made by shareholder loans repayable from ADGSA project gas production revenues.
Afro Energy and the IDC must have executed binding shareholder loan agreements for their respective contributions by August 1.
The IDC has the first right to participate for up to 45% equity investment in any further special purpose vehicles relating to further gas production blocks up to a total of 80 wells. Afro Energy is the designated operator of the ADGSA project and will be engaged to apply its vast technical and operational experience in the development of the gas production field.
Afro Energy has already drilled a five-spot well cluster near Amersfoort and has another five approved sites within close proximity, as well as another five exploratory well sites approved to the south.
Applications are being lodged for the further ten wells in the vicinity of the Korhaan well cluster near Amersfoort.