Kinetiko Faces Funding and Execution Challenges Despite Promising Gas Flow Improvements

Quarterly Progress in South African Gas Exploration

Kinetiko Energy (ASX: KKO) has delivered a positive update for the quarter ending 31 March 2025, highlighting significant advances in its onshore gas exploration and production activities in South Africa’s Mpumalanga Province. The company’s two production test wells, 271-KV06PT and 271-23PT, have demonstrated sustained and improving gas flows, dispelling earlier concerns about geological anomalies limiting reservoir potential.

The second production test well, 271-KV06PT, reached its terminal depth of 631 metres and successfully flared gas, confirming the presence of commercially viable gas volumes. Meanwhile, the first production test well, 271-23PT, initially thought to be impacted by a sealed reservoir compartment, has shown increasing gas presence, reaffirming Kinetiko’s consistent success in encountering gas across all wells drilled to date.

Drilling Optimisation Study Uncovers Key Insights

In response to initial restrictions in gas flow, Kinetiko commissioned Oilfield Technologies Australia Pty Ltd (OT) to conduct a drilling optimisation study. Laboratory analyses of core, water, and foam samples revealed that excessive water invasion caused by drilling techniques temporarily impeded gas movement. This finding shifts the narrative from geological limitations to operational factors affecting well productivity.

OT’s interim results have led to recommendations for optimising drilling consumables and refining completion processes, including the use of surfactants to enhance gas mobility. These remediation strategies are set for implementation starting April 2025, aiming to unlock improved gas recovery in existing and future wells.

Financial Position and Strategic Partnerships

Financially, Kinetiko remains in a stable position with no debt and approximately $441,000 in available funds, including cash and joint venture holdings. The company continues to invest in exploration and evaluation, with expenditures of around A$1.116 million during the quarter. It has also secured a loan agreement post-quarter to support ongoing operations and is exploring further funding options through debt and equity markets.

Strategically, Kinetiko is advancing its joint venture with South Africa’s Industrial Development Corporation to develop a producing gas field at the Amersfoort site, located in the northern part of its ER271 tenement. This partnership aligns with South Africa’s energy transition goals, leveraging Kinetiko’s substantial contingent gas resources to provide cleaner, reliable base load power.

Operational and Environmental Stewardship

The company reported no health, safety, or environmental incidents during the quarter, underscoring its commitment to responsible operations. Over 4,286 person-hours of drilling activity have been completed without reportable safety issues, supported by rigorous safety protocols and pre-shift meetings at well sites.

Employment impacts remain positive, with a mix of local South African and expatriate personnel engaged across management, exploration, environmental, and operational roles. Kinetiko’s focus on domestic employment supports regional economic development alongside its energy projects.

Looking Ahead: Resource Growth and Production Scaling

Kinetiko’s current contingent resource stands at 6 trillion cubic feet (2C), equivalent to approximately one billion barrels of oil, with expectations for significant growth as exploration progresses. The company aims to convert a portion of its 5.8 TCF of prospective resources into contingent resources through ongoing drilling and evaluation.

Following the completion of the drilling optimisation program, Kinetiko plans to resume production test well drilling, focusing initially on the Amersfoort region. The success of these efforts will be critical in advancing the company’s vision to commercialise a scalable, advanced shallow conventional gas solution that supports South Africa’s energy transition.