Tlou Energy (LSE:TLOU) rose 0.9pc to 6p this morning after revealing that it is on the verge of beginning a key drilling programme at its flagship Lesedi project in Botswana. The business, which has seen its market cap fall to £22.6m after a problematic start to the year, said it has agreed on pilot production well locations at Lesedi and begun preparation work for drilling. It is currently waiting on the final pieces of equipment to arrive onsite prior to spudding the first of up to three ‘production pods’, each consisting of three wells, in October.
The programme, funded by a placing earlier this year, will be Tlou’s first significant step towards developing Lesedi as a low-carbon producing coal bed methane product. It hopes to use the asset’s 3.2TCF certified contingent gas resource to address Botswana’s electricity deficit and its need for a relatively clean energy source to replace coal and diesel.
Specifically, it plans to sell the gas into Botswana and across the Southern African Power Pool through power purchase agreements with one or more customers. The company will also look at selling gas to compressed natural gas or small-scale liquified natural gas projects that have been proposed to it by third parties.
Lesedi has yet to enter the development stage, but Tlou has received the necessary environmental approvals and mining licences to advance. The firm plans to generate an initial 10MW of power. This will start with 2MW than can be expanded as further drilling increases access to what the firm describes as ‘significant gas reserves already in place’.
Despite making much progress, Tlou has been in decline since February, when Botswana’s government cancelled a request for proposal (RFP) to develop up to 100MW of CBM-fuelled pilot power plants. It felt the bids it had received had fallen short of compliance requirements. The RFP marked a vital step in the creation of a coal bed methane market in the country, and as such, its cancellation led Tlou, one of just two total bidders, to tank.
Things turned a corner in July when the government once again invited Tlou to bid for the development. Then, in August, the firm said a pre-tender meeting with officials was positive with ‘continued government goodwill to advance [Lesedi]’.
With the final deadline for development bids falling on 10 October and a drilling programme imminent, Tlou is entering a busy period for newsflow. Could we soon see a catalyst for a share price recovery?