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KINETIKO ENERGY LTD (KKO) - How Drilling Optimization Will Transform South Africa's Energy Future
The urgency of South Africa's energy crisis takes center stage as Adam Sierakowski, Executive Chairman of Kinetiko Energy Limited, reveals how his company is positioned to transform the nation's energy security. Sitting on a mammoth 6 trillion cubic feet of 2C contingent gas resources—equivalent to 1 billion barrels of oil—Kinetiko has made what could be South Africa's most significant energy discovery in decades.
What makes this story particularly compelling is the technical breakthrough recently achieved. After initial test wells delivered disappointing flow rates, world-class experts identified that high-pressure drilling methods had caused formation damage, reducing gas permeability by up to 85%. This wasn't a geological problem but a fixable technical issue. The rocks themselves contain excellent gas potential, and with straightforward drilling optimization, Kinetiko can now unlock flows that could supply clean energy to South Africa for half a century.
The timing couldn't be more critical. South Africa's coal-dominated energy grid faces "effective decay and decline" while its imported gas from Mozambique is projected to cease within 3-5 years. Kinetiko's discovery, strategically located just 180km southeast of Johannesburg amidst existing energy infrastructure, represents a "multi-generational opportunity."
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Andrew Musgrave Host
Welcome to another episode of ASX Briefs, and joining me today is Adam Sierakowski, the Executive Chairman of Kinetiko Energy Limited, a company unlocking South Africa's largest known onshore conventional gas resource. With six TCF and 2C contingent resources already booked and operations located near critical energy infrastructure, Kinetiko is aiming to become a key supplier of clean domestic energy to a country in urgent need of new baseload solutions. Adam, thanks for joining me today and welcome to the ASX Briefs podcast.
Adam Sierakowski Guest
Andrew, thanks for having me on.
Andrew Musgrave Host
So, Adam, for new listeners, can you give us a quick overview of Kinetiko and the broader opportunity you're targeting in South Africa?
Adam Sierakowski Guest
Yeah, thanks, Andrew, it's great to be on. Certainly, Kinetiko Energy is the 100% owner of shallow onshore gas assets in South Africa. We've been exploring in country for over 10 years and have to date made a major discovery which stands at 6 trillion cubic feet of 2C gas resource, and that's the equivalent of 1 billion barrels of oil. Look, the gas quality is very good. But, really importantly, it's strategically located about 180 kilometres southeast of Johannesburg, right in the middle of South Africa's existing energy infrastructure and, for your listeners that don't know, South Africa's in the midst of an energy crisis, so our gas discovery could be a significant solution to that crisis.
Andrew Musgrave Host
Now, Kinetiko recently released a major technical report that changes the outlook on your initial test wells. What did the expert review find and why is it so significant?
Adam Sierakowski Guest
Yeah, Andrew, we think there's a really important step in our journey to be a really significant gas producer, and the reason for that is we recently finished two pilot production test wells. The results from those wells didn't achieve the gas flow rates we expected. That didn't correlate strongly to the nearby geological testing we did with core wells, which was in some circumstances only about 50 metres away. So, off the basis of that, we were able to engage some world-class experts called Oilfield Technologies Group. They undertook some independent testing and, really importantly for us, they were able to establish through their laboratory testing that it was in fact our drilling methods, principally the use of high-pressure drilling, which created warm and foam invasion into the formation, and their tests showed that that caused up to an 85% loss in gas permeability. So yeah, so we've really got a strong causation for why we got the results we did and are really positive about the drilling optimisation we can undertake.
Andrew Musgrave Host
Okay, and with that flow issue, what were the changes that are being made in response, and can you give us a sense of how confident the team is that future wells will deliver stronger gas flows?
Adam Sierakowski Guest
Yeah, so the testing as I said, it was undertaken on some really strong geological samples that we had and as I said, we've done a lot of practical core drilling in the area. So, we were able to undertake those lab tests on those cores and what that was able to show is that the geology is fundamentally you know strongly permeable. You know we should be getting gas from optimized drilling, and that laboratory results also showed us that the drilling optimization that we now need to undertake is really straightforward. We're going to be able to do it with the existing drilling services that we have in country and our existing team and affect much superior outcomes with no significant effect to our budget or time program.
Andrew Musgrave Host
Okay, and I think it's worth emphasizing that the rocks themselves weren't the problem. So, can you clarify what the test results showed about the reservoir potential?
Adam Sierakowski Guest
Yeah, so the you know the samples, as I said, were effectively taken from the region. So, you know we were able to test the rocks right. We're undertaking the production testing and this was the. This was the kernel of what we were able to establish that the reason that we weren't able to get gas from the production test wells is that the amount of water pressure we used and the type of drilling foam we used, which is a high viscous drilling foam used in these sort of um, these wells.
Although we're a first mover in this country, no one's done exploration of this type, Andrew, so there's no playbook on how to drill these wells. But what the test showed is that, effectively, that water and foam went into the rocks, into the formation and effectively blocked the gas from flowing effectively into our production wells. So, we know what we did wrong. We've got an excellent team who's been able to identify that for us and now we've got the remedy we need to go and drill effectively in the future.
Andrew Musgrave Host
Okay, so how does this reset your pathway towards commercial production and resource growth?
Adam Sierakowski Guest
Well, it's a fantastic reset because what it's actually shown us, frankly, Andrew, is that we've drilled wells in a suboptimal fashion right from the very get-go. So not only were these last two wells drilled, which produced this causation, but Kinetiko has drilled previously other pilot production wells. Those wells have actually successfully flowed gas, but what this has demonstrated is that those wells were indeed drilled sub optimally. So, we're very excited about the ability to take these learnings and to even take them back into regions where we have successful flow rates and try and improve those flow rates by optimising our drilling. That, of course, leads into our bigger journey of turning our current, as I said, 6 trillion cubic feet of gas resource and we believe that will grow. So, we have 5.8 trillion cubic feet of prospective resources, which could be added to that existing six. But in addition to that, Andrew, we already have some gas reserves that have been certified in a 2P category, and it's a real focus of our country to turn our major resource into reserves, and this is a significant part of bringing credibility to that journey.
Andrew Musgrave Host
Okay, now, as South Africa pivots away from coal and looks to gas, how do you see Kinetiko contributing to energy security?
Adam Sierakowski Guest
Yeah, well, it's certainly a big part of our company's vision is to be a transition energy solution. The country has a major energy crisis. It has done so for many, many years. It's relied on significantly its carbon-based coal energy power solution to provide its energy and that is in effective decay and decline and cannot be replaced.
The only other source of gas that the country's had available to it is offshore gas in Mozambique from a region called the Temane-Pande field. That has been a valid source of gas for 20 years, but that is now also in steep decline and, in fact, is currently programmed to reduce and cease being able to provide gas over the next three to five years. So, with those two matters, the country needs an interim energy solution, and a gas resource discovery of our size is a multi-generational opportunity. It has the capability of providing gas to that country for something like half a century, so we think it's a significant opportunity. We are partnering with several government entities. Opportunity we are partnering with several government entities. We have a legal agreement with the Industrial Development Corporation of South Africa that is looking to develop a pilot production field, and we have ongoing negotiations with interstate utilities such as ESCOM and SASOL, so major opportunities for us there, Andrew.
Andrew Musgrave Host
Now, just to wrap things up what should investors be watching for the rest of the year?
Adam Sierakowski Guest
Well, you know, we have been a little quiet getting this technical report in place and fully understanding what we need to do better in terms of optimising our drilling. But now we're ready to go and it's all about news flow. We have planned another well to be spudded later this month. That well will be located up near our headquarters of our project in a region called Brackfontein, where we already have a number of pilot production wells that have flowed gas, Andrew, so we want to drill another one up there. The reason for that is to also expedite the potential to have our first pilot production field in operation as soon as possible.
That could be a cluster of as little as sort of five to ten wells. We'll then go and drill another well in the southern geology, adjacent to where our recent two production test wells failed to get gas, so we want to go and rectify that. We also have the ability to remediate those wells. We've been working with our independent experts, and they've identified remediation processes to remove the water and the foam from those existing wells to hopefully achieve some good flow rates. And above all of that, as I said, from that we want to increase our resources and look to increase our gas reserves. So, you know, we think there's a lot of significant value levers coming up.
Andrew Musgrave Host
All right, Adam. Well, thanks for joining me today. It's been great to chat, and we'll be watching closely for the company's next set of results.
Adam Sierakowski Guest
Thanks very much, Andrew.
Andrew Musgrave Host
That concludes this episode of ASX Briefs. Don't forget to subscribe and we look forward to catching you on our next episode.