TLOU Tlou Energy Limited

Tlou Energy Limited

("Tlou" or "the Company")

Interim Results

The Company is pleased to announce its interim results for the six months ended 31 December 2023. The report is available on the Company's website: tlouenergy.com/reports.

The Company has made excellent progress over recent months and remains on track to get gas fired power into the grid in Botswana later this year.

Highlights:

Ø Lesedi production wells continue to flare gas as dewatering progresses

Ø The 100km 66kV transmission line, connecting Tlou's Lesedi project directly to both Botswana's power grid and the Southern African Power Pool is complete

Ø Connection to Serowe substation achieved, Lesedi no longer isolated from primary Botswana electricity market

Ø Lesedi substation which will connect Tlou's power generators to the transmission line is approximately 38% complete

Ø Generation and sale of power remains on track for later this year

Tlou's Managing Director, Mr Tony Gilby commented, "The Company has made excellent progress over recent months and we are getting very close to first revenue. Having direct access to the power grid opens up our gas field to a huge market. It has taken hard work and significant investment over many years to get to this point and we look forward to delivering power and earning first revenue for the Company as soon as possible."

Lesedi Power Project

Tlou is developing a 10MW power generation facility at its Lesedi operations base in central Botswana. The Company plans to sell electricity into the power grid later this year and then expand rapidly.

Tlou is flowing gas and has a fully functional operations base about 100km west of Serowe. The operations base is located on Tlou's own 4,000-hectare property. The recently constructed 100km 66kV power line allows direct access into the regional power grid.

Key remaining items to completed prior to first power sales include finishing the substation at the Lesedi site, installation of generators, completing the short gas gathering line (from the gas wells to the generators), energising the power line and sale of first electricity.  Minor finishing works on the transmission line and the addition of switchgear at Serowe will also be completed prior to first power.

The initial target is ~2MW of power, followed by rapid expansion to 10MW, generating approximately $10m in revenue per annum (i.e. approx. $1m per MW p.a.)

All key approvals are in place including environmental assessments, production licence, power generation licence and the Power Purchase Agreement.

Electricity will be generated using gas from Tlou's gas field. Tlou has a significant gas resource which has been certified by independent experts SRK Consulting (Australasia) Pty Ltd.

Tlou holds a 100% interest over approximately 9,000km² of exploration permits including a 900km² production licence. There are two main coal seams that Tlou are focused on, the Lower Morupule and the Serowe play - each covering about 1,800km² within Tlou's 100% owned acreage. The Company is currently concentrating on the Lower Morupule play. Tlou has an extensive geological database including well data, seismic data and reprocessed aeromagnetic data.

The Government of Botswana remains very supportive and Tlou's power can help to reduce reliance on expensive imported power. In addition to supplying power in Botswana, the Company may sell electricity regionally via the Southern African Power Pool, opening up an even bigger market for Tlou's electricity.

Tlou is aiming to be a vertically integrated gas to power company owning 100% of both the upstream (gas production) and downstream (generation) sides of the operation.

Post period end the Company raised $1,139,403 via an entitlement offer. In addition, the Company is in discussions with several strategic parties to secure the remaining funds required for project completion.

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

By Authority of the Board of Directors

Mr. Anthony Gilby

Managing Director

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For further information regarding this announcement please contact:

About Tlou

Tlou is developing energy solutions in Sub-Saharan Africa through gas-fired power and ancillary projects. The Company is listed on the ASX (Australia), AIM (UK) and the BSE (Botswana). The Lesedi Gas-to-Power Project ("Lesedi") is 100% owned and is the Company's most advanced project. Tlou's competitive advantages include the ability to drill cost effectively for gas, operational experience and Lesedi's strategic location in relation to energy customers. All major government approvals have been achieved.

Forward-Looking Statements

This announcement may contain certain forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such forward-looking information involves risks and uncertainties that could significantly affect expected results. No representation is made that any of those statements or forecasts will come to pass or that any forecast results will be achieved. You are cautioned not to place any reliance on such statements or forecasts. Those forward-looking and other statements speak only as at the date of this announcement. Save as required by any applicable law or regulation, Tlou Energy Limited undertakes no obligation to update any forward-looking statements.

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Directors' report

The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity' or the 'Group') consisting of Tlou Energy Limited (referred to hereafter as the 'Company' or "Tlou") and the entities it controlled at 31 December 2023.

Directors

The names of the directors who held office at any time during the half-year and up to the date of this report are:

Directors have been in office since the start of the half-year to the date of this report unless otherwise stated.

Principal Activities

The principal activity of the consolidated entity is to explore and evaluate power solutions in Sub-Saharan Africa through Coalbed Methane (CBM) gas-fired power. No revenue from these activities has been earned to date, as the consolidated entity is still in the exploration and evaluation or pre-development stage.

There have been no significant changes in the nature of the group's principal activities during the half-year.

Review and results of operations

The loss for the half-year after income tax amounted to $1,821,374 (December 2022 loss $2,245,259). Information on operations and results during the period are set out below.

Lesedi Project

The Lesedi Project consists of four Prospecting Licences (PL) and a Production Licence. The first stage of development is a 10MW power generation facility which will be located in the Company's Production Licence area.

The status of the Lesedi licences is as follows:

PL renewal applications are submitted three months prior to expiration. Renewal applications were submitted for PL001/2004 and PL003/2004 in June 2023. The Company has been informed that following a processing delay at the relevant department the renewed licences are expected to be issued in March 2024.

Lesedi Gas-to-Power project

The Lesedi project is Tlou's most advanced. At Lesedi the Company is developing a proposed 10MW gas-to-power project. The first electricity to be generated at Lesedi is planned to go towards satisfying the 10MW Power Purchase Agreement (PPA) with Botswana Power Corporation (BPC), the national power utility. The Lesedi project has several components of the development process either completed or ongoing including the construction of transmission lines, substations, a field operations facility and generation site as well as production wells.

Transmission Line Construction

The Lesedi project was approximately 100km from the nearest BPC substation connection in Serowe. To connect to the national grid, the Company had to construct a 100km 66kV transmission line. This, together with associated infrastructure and gas production wells should enable the Company to connect and provide electricity into Botswana's power network. Construction of the 66kV transmission line has been completed by the contractor Zismo Engineering Pty Ltd (Zismo). Minor finishing works and the addition of switchgear at the Serowe substation will be done prior to the line being energised. The line is planned to remain under care and maintenance until energisation, which is expected around mid-2024.

Substation Construction

In addition to the transmission line, an electrical substation is required at the Lesedi end of the transmission line whereas at the opposite end the line has been connected to the existing BPC substation at Serowe. The substation at Lesedi was initially designed for the first 5MW of power, however during the half year the Company changed the design to facilitate expansion beyond 10MW. This will be beneficial as the projects grows. The connection at Serowe is complete and the Lesedi substation is approximately 38% complete. It is currently anticipated that the work will be completed around mid-2024.

Future gas production

The Company has two gas production pods, Lesedi 4 and Lesedi 6 currently flaring gas. During the reporting period, the Company completed a redrill of both lateral wells of the Lesedi 4 production pod. The aim of redrilling the lateral wells was to provide straighter lateral sections using a specialist rotary steerable system (RSS). The lateral sections were drilled for approximately 700m and successfully intersected with the Lesedi 4P vertical production well. These straighter laterals are expected to assist with removing water from the reservoir to more efficiently dewater and flow gas. Also during the period a new production pod, Lesedi 6, was completed. The RSS was also used for the lateral sections of this production pod. Post drilling, both Lesedi 4 and Lesedi 6 pods had production equipment installed to commence dewatering ahead of gas production.

Lesedi 6 experienced a rapid increase in casing pressure in both lateral wells with first gas production to surface occurring soon thereafter. The rapid build-up of casing pressure and production of first gas to surface in a relatively short time was very encouraging. This was the fastest gas to surface in the Lesedi field to date.

Lesedi 4 and Lesedi 6 continue to flow gas as the water level is being gradually lowered to just above the coal. Once the wells stabilise and stop surging (gas and water), gas flow rates will be measured. Tlou is confident that with the in-house knowledge gained from previous drilling efforts, extracting more and more gas out of the coal reservoir will become progressively simpler and more cost effective due to economies of scale.

Mamba Project

The Mamba project is in the exploration and evaluation phase with further operations required on the licences. It consists of five Prospecting Licences covering an area of approximately 4,500 Km2. The Mamba area is situated adjacent to Lesedi. In the event of successful drilling results at Mamba, it is envisioned that this area would be developed as a separate project from Lesedi. The Mamba area provides the Company with flexibility and optionality. The status of the Mamba licences is as follows:

PL renewal applications are submitted three months prior to expiration. A renewal application for PL 241/2014 was submitted in June 2023. The Company has been informed that following a processing delay at the relevant department the renewed licence is expected to be issued in March 2024. Further work on the Mamba project is proposed once the Lesedi project is in production. The next stage of operations is likely to include a seismic survey and the drilling of core-holes.

Boomslang Project

Prospecting Licence, PL011/2019 designated "Boomslang", is approximately 1,000 Km2 and is situated adjacent to the Company's existing licences. To date, the Company has not carried out ground operations in the Boomslang area. Like the Mamba project the first stage of operations is likely to include a seismic survey following by core-hole drilling. The status of the Boomslang licence is as follows:

PL renewal applications are submitted three months prior to expiration.

Significant changes in the state of affairs

During the half-year ended 31 December 2023, there were no other significant changes to the state of affairs of the consolidated entity other than those stated above and disclosed in the financial report and notes thereof.

Matters subsequent to the end of the half-year

In February 2024, the Company issued 32,554,360 ordinary shares at $0.035 per share, raising $1,139,403. The total number of issued shares following this capital raising is 1,076,536,717. Also, on 31 January 2024, 2,275,000 performance rights lapsed.

Other than the matters discussed in this report, there has not arisen in the interval between the end of the half-year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect significantly the operations of the group, the results of those operations or the state of affairs of the group in subsequent financial periods.

Likely developments and expected results of operations

The Company has drilled two wells in the Lesedi project area which have produced CBM gas. These wells are planned to be the first two gas producing wells that will be used to generate power at the Lesedi project. These wells were designed to achieve enhanced gas flow rates in the area proposed for the Company's initial project development. The gas flow rates from these wells are vitally important to assess the viability of the Lesedi project and the Company is yet to confirm commercial gas flow rates and there is no guarantee that the required rates can or will be achieved. In addition, further wells flowing commercial gas volumes will be required to produce sufficient gas for the planned Lesedi project.

The Company is advancing plans to develop ancillary projects in addition to the gas-fired power project. These projects may be subject to regulatory approvals. No guarantee can be given in relation to the results of the Company's operations, gas flow rates, regulatory approvals being granted or the ability to secure the funds required to progress all or any of the Company's existing or planned operations.

The Company is subject to risks which may have a material adverse effect on operating and financial performance. Tlou's Risk Management Policy can be found on the Company's website. It is not possible to identify every risk that could affect the business or shareholders. Any actions taken to mitigate these risks cannot provide complete assurance that a risk will not materialise or have a material adverse effect on the business, strategies, assets or performance of the Company. A list of risks currently considered material and mitigation strategies are set out below. This is not an exhaustive list and risks are outlined in no particular order.

Auditor's Independence Declaration

The auditor's independence declaration for the half-year ended 31 December 2023 has been received and is attached to this report.

Signed in accordance with a resolution of the Board of Directors.

Anthony Gilby

Managing Director

Brisbane

8 March 2024

Consolidated statement of comprehensive income for the half-year ended 31 December 2023

Consolidated statement of financial position as at 31 December 2023

Consolidated statement of changes in equity for the half-year ended 31 December 2023

Consolidated statement of cash flows for the half-year ended 31 December 2023

Notes to the consolidated financial statements for the half-year ended 31 December 2023

Note 1.    Significant accounting policies

Introduction

Tlou Energy Limited (Tlou) is a company domiciled and incorporated in Australia. The Financial Report for the half-year ended 31 December 2023 consists of the Financial Statements of Tlou Energy Limited and the entities it controlled during the period ('Consolidated Entity' or the 'Group').

Compliance with accounting standards

The half-year financial report has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standard AASB 134: Interim Financial Reporting.

The half-year financial report does not include all the notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report of the group for the year ended 30 June 2023 and any public announcements made by Tlou during the interim reporting period in accordance with the continuous disclosure requirements of the Corporation Act 2001.

Basis of preparation

The financial statements have been prepared on an accruals basis and are based on historical costs except for derivative financial instruments which are measured at fair value through profit and loss. The financial report is presented in Australian dollars.

The accounting policies and methods of computation applied by the Consolidated Entity in the consolidated interim financial report are the same as those applied by the Consolidated Entity in its consolidated financial report as at and for the year ended 30 June 2023, except as noted below.

New and revised standards

A number of new or amended standards became applicable for the current reporting period. The impact of the adoption of these standards did not have any impact on the group's accounting policies and did not require retrospective adjustments.

Going Concern

The consolidated financial statements have been prepared on a going concern basis which contemplates that the consolidated entity will continue to meet its commitments and can therefore continue normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

For the period ended 31 December 2023, the Group incurred a loss of $1,821,374 after income tax and net cash used in operating activities was $1,369,138 and net cash used in investing activities was $8,229,142. At 31 December 2023 the Group had net current liabilities of $192,462 and commitments due in the next 12 months of $3,734,747. Subsequent to balance date the Group raised $1,139,403 from the issue of shares.

The ability of the Group to continue as a going concern is dependent upon completing a capital raise or securing other forms of financing within the next two months. This is in addition to amounts already raised subsequent to balance date. These funds are required to continue development of planned power projects and to meet the consolidated Group's working capital requirements. The ability of the Group to continue as a going concern is also dependent upon future capital raises.

These conditions give rise to material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern. Whilst acknowledging these uncertainties, the Directors have concluded that the going concern basis of preparation of the financial statements is appropriate considering the following circumstances:

·      Management is in discussions with a number of parties to provide funding for completion of work to connect the Group's power project to the electricity grid, a key target which would enable the Group to generate first revenue;

·      The Company's largest shareholder continues to support the company and has provided a $1m loan facility that can be drawn down as required. This amount may also be increased in future subject to agreement with the shareholder; and

·      Funds could be raised through the equity markets as supported by recent successful capital raisings.

At the date of this financial report, none of the above fund-raising options have been concluded and no guarantee can be given that a successful outcome will eventuate. The directors have concluded that as a result of the current circumstances there exists a material uncertainty that may cast significant doubt regarding the consolidated entity's and the Company's ability to continue as a going concern and therefore the consolidated entity and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. Should the Group be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial report. This financial report does not include any adjustments related to the recoverability and classification of recorded asset amounts or classification of liabilities and appropriate disclosures that may be necessary should the Group be unable to continue as a going concern.

Fair values

The fair values of the Consolidated Entity's financial assets and financial liabilities approximate their carrying values. No financial assets or financial liabilities are readily traded on organised markets in standardised form.

Accounting estimates and judgements

Critical estimates and judgements are continually evaluated and are consistent with those disclosed in the previous annual report. 

Exploration & evaluation assets

The consolidated entity performs regular reviews on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.  These reviews are based on detailed surveys and analysis of drilling results performed to reporting date.

Management has considered whether Tlou is still in the exploration and evaluation (E&E) phase or has moved into development. The projects should still be classified as E&E as the technical and commercial feasibility has not been established. In particular:

•            whilst there has been independently certified gas reserves and contingent resources whether or not these reserve gas flow rates will be of a commercial quantity has not been established;

•            funding for the commercialisation of reserves and for a commercial level of production has not been confirmed; and

•            a final investment decision has not been made.

At the date of this report the Directors consider that Tlou is still in the E&E phase. While the Company has made significant progress during the reporting period, the three points above are still relevant, i.e. (i) commercial gas flow rates are yet to be established, (ii) agreed funding to commercialise the project is not yet in place, (iii) the Company has not reached a final investment decision. Based on these facts and despite the progress made to date the project remains in the E&E stage. 

Note 2.    Expenses

Note 3.    Trade and other receivables

Note 4.    Other current assets

Note 5.    Exploration and evaluation expenditure

The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phase is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

Note 6.    Convertible notes

The parent entity has convertible notes and loans as follows:

Convertible Notes

The parent entity issued convertible notes totalling US$5,000,000 on 24 January 2022. The notes are convertible into ordinary shares of the parent entity, at the option of the holder at the higher of:

(a)   A 10% discount to the weighted average traded price of the Company's shares on the ASX over the 90 days prior to the Conversion Date; and

(b)   A$0.06

The notes incur interest at 7.75% and the Company may capitalise interest for the first 18 months with interest payments due at six-month intervals thereafter. The notes expire on 24 January 2027, being 5 years after issue.

Convertible Loans

ILC Investments Pty Ltd ("ILC") and ILC BC Pty Ltd ("ILCB") have provided loans to the Company, made up of a converted ILC term loan along with an additional $2m loan from ILC and a separate $1m loan from ILCB. ILC is Tlou's largest shareholder. Interest on the loans is charged at 10% per annum. The convertible loans are repayable at the earlier of 30 April 2026 or 60 days after the date the Company first generates and supplies electricity into the grid from its Lesedi project. At any time during the term, ILC and ILCB may elect to convert the whole or part of the loan into shares in the Company at $0.035 per share.

With the inclusion of the convertible option on the loans, the company undertook a valuation of the loans to include the financial liability and the conversion feature of the loan.

The convertible loans comprise: (a) a debt instrument; and (b) a conversion feature to exchange the loans for a fixed number of equity instruments. In valuing the convertible loans it was necessary to determine the fair value of the liability component and subtract this value from the face value of the convertible loans to determine the equity component.

The financial liability is classified as a non-current liability and the conversion feature is classified as an equity reserve.

Note 7.    Long term loan

Term Loan

ILC Investments Pty Ltd ("ILC") provided a loan to the Company during the year ended 30 June 2023. In November 2023 the terms of the loan were amended with a conversion option added. The balance at the date of amendment and accrued interest up to date of amendment were then reclassified as a convertible loan as outlined in Note 6.

Note 8.    Contributed equity

Ordinary shares issued during the half-year

Options

At 31 December 2023, there were no options for ordinary shares in Tlou Energy Limited on issue.

Performance rights

The following table shows the number, movements and exercise price of performance rights for the period ended 31 December 2023.

*These rights expired on 31 January 2024.

Note 9.    Contingent liabilities

The Directors are not aware of any contingent liabilities at 31 December 2023.

Note 10. Segment information

Identification of reportable segments

Operating segments are identified on the basis of internal reports that are regularly reviewed by the executive team in order to allocate resources to the segment and assess its performance. The Company currently operates in one segment, being the exploration, evaluation and development of coalbed methane resources and power generation in southern Africa.

Segment revenue

As at 31 December 2023 no revenue has been derived from its operations (2022: $nil).

Segment assets

Segment non-current assets are allocated to countries based on where the assets are located as outlined below.

Note 11. Commitments

Exploration expenditure

To maintain an interest in the exploration tenements in which it is involved, the consolidated entity is required to meet certain conditions imposed by the various statutory authorities granting the exploration tenements or that are imposed by the joint venture agreements entered into by the consolidated entity. These conditions can include proposed expenditure commitments. The timing and amount of exploration expenditure obligations of the consolidated entity may vary significantly from the forecast based on the results of the work performed, which will determine the prospectivity of the relevant area of interest. Subject to renewal of all prospecting licences, and variations to agreements the consolidated entity's proposed expenditure obligations along with obligations under contracts related to the construction of transmission lines and associated infrastructure which are not provided for in the financial statements are as follows:

Note 12. Events occurring after reporting date

In February 2024, the Company issued 32,554,360 ordinary shares at $0.035 per share, raising $1,139,403. The total number of issued shares following this capital raising is 1,076,536,717. Also, on 31 January 2024, 2,275,000 performance rights lapsed.

Other than the matters discussed in this report, there has not arisen in the interval between the end of the half-year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect significantly the operations of the group, the results of those operations or the state of affairs of the group in subsequent financial periods.

Directors' declaration

In the directors' opinion:

(a)  the attached financial statements and notes are in accordance with the Corporations Act 2001including:

(i)            the attached financial statements and notes thereto comply with the Corporations Act 2001,Australian Accounting Standard AASB 134 'Interim Financial Reporting', the Corporations Regulations 2001and other mandatory professional reporting requirements;

(ii)           the attached financial statements and notes thereto give a true and fair view of the consolidated entity's financial position as at 31 December 2023 and of its performance for the financial half-year ended on that date; and

(iii)          there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of directors made pursuant to section 303(5)(a) of the Corporations Act 2001.

On behalf of the directors

Anthony Gilby

Managing Director

Dated at Brisbane this 8th day of March 2024