Afro Energy Pty. Ltd., a subsidiary of Kinetiko Energy Ltd., has executed a non-binding term sheet with Industrial Development Corp. (IDC) of South Africa to jointly develop a new joint venture (JV) for the evaluation and production of liquefied natural gas (LNG) in South Africa.
The first stage of the project targets 50 megawatts (MW) of gas-equivalent power, Kinetiko said in a press release. The first stage is estimated to cost approximately AUD 138 million ($88.4 million), of which IDC will fund AUD 52 million ($33.3 million) in equity for a 30 percent stake in the JV and Afro Energy will finance AUD 38 million ($24.3 million). for a 70 percent stake in the JV. Afro Energy “has the right to bring in third-party investors into the JV for part or all of its 70 percent interest and may make the payment,” Kinetiko said in the statement.
The second stage of the project would see the JV expand production to 500MW of gas-equivalent power, which would be South Africa’s largest onshore LNG project, according to the statement. IDC plans to finance 30 percent of the second stage of development.
The parties aim for the first 50MW LNG-equivalent block to be completed in two to three years, with more blocks to be developed in nine to 10 years, according to the statement.
The term sheet also gives IDC the option to participate in the co-development of 1,000 MW of gas-equivalent energy in other LNG, according to the statement.
“This is a step change in the scale of the company’s development and represents a national project to support South Africa’s transition to cleaner, more reliable and affordable energy,” said Kinetiko CEO, Nick from Blocq. “I cannot overstate the importance of this massive step we have taken in collaboration with our IDC joint venture partners as it represents a level of confidence in our project from high levels of government. The project has been registered in the Strategic Infrastructure Projects management mechanism that operates from the Presidency. This is expected to streamline all processes related to the state and government in terms of authorization and licensing and minimizing tape. We are more than happy to say that our journey towards commercialization and production of large-scale projects has now begun.”
Australia’s Kinetiko is focused on commercializing advanced shallow conventional gas and coalbed methane projects in South Africa. The company said the term sheet underpins its goals of unlocking more than two trillion cubic feet of gas reserves in the country.
IDC has been granted a 60-day exclusivity period during which the parties aim to complete formal legal documentation and obtain internal approvals necessary for binding agreements. IDC’s internal approvals include the execution of financial documents including joint venture agreements, shareholder agreements and loan agreements that must be approved by the investment committee and IDC’s board, according to the statement.
Kinetiko currently has a 49 percent economic interest in Afro Energy, which holds the exploration permits for the project. Kinetiko said it has recently obtained the necessary shareholder approvals allowing it to acquire a 100 percent economic interest in Afro Energy, and expects to complete the transaction shortly. Upon completion of the acquisition, Kinetiko will be the sole shareholder of Afro Energy and therefore all obligations noted for Afro Energy under the term sheet will be 100 percent assumed by Kinetiko, the company said.
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