By Dr Michael Green

NEX-listed Karoo Energy announced highly encouraging news earlier this week that, to us, demonstrated that the company has all the makings of being a unique Southern Africa power play based on a potentially very large shale gas project.

Karoo has just signed an MOU with Contax Partners (Contax) who will be the company’s technical partner and project manager for the extensive exploration and implementation work on its large shale gas assets in Botswana. Dubai-based Contax has more than thirty years of experience in project management of large scale oil and gas projects in the Middle East and Africa and works for the likes of Shell.

Contax are actively looking for opportunities to expand their African project management operation and the company is funded by Sheik Mohammed Al Khalifa of the Bahrain Royal Family, and whom Karoo’s CEO Noel Lyons has known for some years.

Apparently, before agreeing to become Karoo’s technical partner, Contax commissioned an independent technical report which involved a detailed analysis of the company’s assets and work done to-date. The independent technical report was prepared by a US expert on shale gas exploration and development and who used to work for the US energy giant Chevron.

The US shale gas expert reported independently to Contax and Sheik Mohammed on his findings un which he stated that be believed Karoo to be one of the best prospective shale gas plays he had ever seen – no small beer considering that this includes projects that he had previously worked on in the US. 

On the back of this report, Contax decided not only would they agree to become Karoo’s technical partner, but also take a stake in the company. Consequently, Karoo has agreed to let Contax subscribe for upto 20% of the new equity being raised for the forthcoming move from next to the AIM market. This has now been fully contracted and is part of the AIM admission document and represents £800,000 of the minimum working capital of £3.7 million. News is that fund raising roadshow should be completed shortly and that the company expects to have applied for admission to AIM by 1^st July 2018. 

Contax will be an enviable cornerstone investor with the benefit to Karoo of now being  fully embedded in the Botswana project. It is not hard to see what attracted Contax to Karoo which has first mover advantage in exploring for shale gas in Botswana. The country has a dire shortage of energy, and Karoo holds four 100%-owned natural gas and petroleum licences covering an area of approximately 141,250km² in the Karoo Basin in Botswana.

The Kalahari Karoo Basin of Botswana extends over most of Botswana and has been shown to share big geological similarities to the Main Karoo Basin in South Africa. The US Energy Information Administration (EIA) estimated a risked technically recoverable shale gas resource of 370 TCF for the Main Karoo Basin in its 2013 shale gas study.

Importantly, CPR consultants RPS Energy have identified four big lows which are low lying areas that have been filled with rock and potential organic material which over the years and that has been compacted to form shale. These four big lows cover something like 20-40% of the company’s vast licence area which potentially contain organic-rich shales.

Last year, it was confirmed that the sedimentary rocks in the target area lie in the gas window, and with the funds being raised coincident with the AIM listing this will allow these big lows now to be tested by drilling, which is expected to begin soon after admission.

We have high expectations for Karoo Energy once the company moves from the NEX market and believe it could be one of the star performers during 2019 as their program of exploration and proving up their reserves takes place. Accordingly we will release a full indepth report post the list.

DISCLAIMER & RISK WARNING

Karoo Energy is a research client of Align Research. Align Research & a director of Align Research own shares in Karoo Energy and are bound to Align Research’s company dealing policy ensuring open and adequate disclosure. Full details can be found on our website here (“Legals”).

This is a marketing communication and cannot be considered independent research. Nothing in this report should be construed as advice, an offer, or the solicitation of an offer to buy or sell securities by us. As we have no knowledge of your individual situation and circumstances the investment(s) covered may not be suitable for you. You should not make any investment decision without consulting a fully qualified financial advisor.

Your capital is at risk by investing in securities and the income from them may fluctuate. Past performance is not necessarily a guide to future performance and forecasts are not a reliable indicator of future results. The marketability of some of the companies we cover is limited and you may have difficulty buying or selling in volume. Additionally, given the smaller capitalisation bias of our coverage, the companies we cover should be considered as high risk.

This financial promotion has been approved by Align Research Limited.

• Karoo Energy