Finding energy between rock and hard place: Amid scrutiny, Invictus takes Zim oil and gas prospect to investors

The Africa Oil Week, Nov 7-9, Cape Town: Invictus to pitch Muzarabani prospect to potential partners at oil event

Until a week ago, not many had heard of Invictus Energy, the company that is prospecting for oil and gas in Muzarabani.

For months, the company had bubbled under, acquiring the project, getting licences, raising capital, and exploring the prospect. But days ago, after President Emmerson Mnangagwa’s press statement on Invictus’ exploration was wrongly reported as confirming an oil and gas find, the company was suddenly thrust to the surface.

In a country that has been fed many exaggerated and false claims of “mega deals”, the backlash on Invictus was crude and swift.

The company’s credentials were questioned; one Zimbabwean even took the extra step to go check out the company’s registered offices in Perth. The offices, the man reported, don’t look anything like those of ExxonMobil, Rosneft or BP would.

It was all mildly amusing, but a reflection of the depth of public scrutiny and cynicism that Invictus, and any investor, now has to deal with when starting up anything in Zimbabwe.

“We choose to spend our shareholders’ money directly on our projects rather than on fancy offices,” Scott Macmillan, MD of Invictus, wryly tells newZWire.

The company had flown under the radar since April, when Interpose, a company based in Perth, bought 80% of the Cabora Bassa project via a 100% acquisition of Invictus Energy. There was also little notice when Invictus then raised A$4.5million on the ASX for the exploration phase, and went on to appoint Macmillan, a Zimbabwean, as MD.

Macmillan is a former advisor for Woodside Petroleum, Australia’s largest independent gas and oil producer and a key player in African energy. Macmillan was also senior reservoir engineer at AWE Ltd, which runs a gas development in Western Australia.

Having done much of its business away from public glare, nothing could have prepared Invictus for the storm created by screaming headlines.

Now that they are in the public glare, Invictus have to contend with a lot; there is the ASX, there is a Government that is prone to overselling, there are cynics critical of that Government and those that do business in Zimbabwe. Invictus has to deal with all this while it begins a key step; convincing new partners to come aboard what could be a major find.

Mobil tapes at the Zimbabwe Geological Survey: Mobil used $30m to prospect for oil and gas. 25 years later, Invictus has retrieved and analysed that data

Oil for dummies
On Monday, Invictus released reserve estimates prepared by Netherland, Sewell & Associates (NSAI), a consultancy that analyses reserves for energy companies. The report showed “net mean recoverable conventional potential of 680 million barrels of oil equivalent consisting of 3.1 Tcf and 145 million barrels of condensate net to Invictus. The size of the primary Upper Angwa target alone in Mzarabani Prospect places us in Giant scale field potential.”

We were not about to pretend we had suddenly become oil experts who knew what all this meant, so we reached out to Macmillan, and asked him to dumb it down for us. The numbers, he explained, show only the the potential that is in Muzarabani for energy.

“The 3.1 Tcf and 145 million barrels of condensate is Invictus’ 80% equity share. The total is 3.9 Tcf + 181 million barrels of condensate. 3.9 Tcf can provide 500MW of power for 40 years (and that can increase with higher efficiency gas turbines),” Macmillan says.

The “181 million barrels of condensate” refers to a light oil associated with natural gas, and the potential there, if realised, could meet Zimbabwe’s current consumption of around 25,000 barrels per day of refined products for about 20 years. Barrels of oil equivalent is a measure of energy, not volume of oil.

However, these are pre-drill estimates only and are classified as potential, Macmillan says. The existence of oil “can only be proven through drilling the exploration target”. An accompanying cautionary statement makes sure to tone down any premature excitement, saying “further exploration, appraisal and evaluation are required to determine the existence of a significant quantity of potentially movable hydrocarbons (oil)”.

Invictus team on a site tour

What now?
On Monday, Invictus emerged from a trading halt, where a company voluntarily suspends trade in its shares pending an announcement that can affect its share price. The NSAI estimate saw the company’s stock open 66% up, before settling down at the close.

The share price movement was a measure of some investor interest, which is key for what Invictus now plans to do next.

Geological and geophysical studies will continue, including additional basin modelling, and there will be a further resource estimate. All this will lead to a marketing programme to attract a “farm-out partner”.

“Farming-out” is where a company such as Invictus explores for oil, then finds a partner to develop the resource. For Invictus, the plan is to add value through the technical work, and then find a partner. It will not be easy, but a market that has not seen many new projects coming up over the past three years of downturn is looking for some new prospects.

“Farming out is a formal process that companies launch to attract other partners into their oil and gas exploration projects. Even the largest companies in the world such as ExxonMobil, Shell, BP etc farm out their projects to reduce their risk and capital exposure. This is because exploration is a high risk game which is expensive and requires significant capital for exploration and then if successful the development of the discovered field. This is prudent to manage company balance sheets and risk exposure as there is no guarantee of exploration success,” Macmillan explains to us.

The first chance to gauge the level of interest in the possibility of Zimbabwean oil comes this week at the Africa Oil Week, a meeting of the oil industry, being held in Cape Town. This will be the first time that Zimbabwe is noticed at any oil forum, and Invictus has been given a slot at the Prospect Forum, a session for companies looking for new prospects.

Said Macmillan ahead of his presentation: “We hope to put Zimbabwe on the map as an attractive oil and gas exploration destination and attract additional partners and investors.”

In their presentation to potential investors in Cape Town on Wednesday, Invictus said the farm-out process would start in the first half of 2019.

Invictus sold the prospect of a ready market for energy abroad and in Zimbabwe; the LNG plants in the Rovuma basin of Mozambique, tapping into the Pande-Temane gas pipeline to South Africa and offloading locally to the likes of Hwange, Sable Chemicals, industrial consumers and the Feruka and Harare refineries. An independent power plant could also allow energy exports to the region via the Southern Africa Power Pool.

President Emmerson Mnangagwa, flanked by Invictus MD Scott Macmillan and Paul Chimbodza of One Gas, Invictus’ local partner

Excitement and cynicism
Invictus are obviously taking a big risk on Muzarabani, but looking at the survey data, it is one that shareholders of the company, some of whom have done this before, seem willing to take.

“Our board of directors have been involved in taking companies from small resource exploration companies through to producers. We see significant potential in the Muzarabani project to do the same if we have exploration success,” Macmillan says.

“This was a vote of confidence from our shareholders in Zimbabwe, the project and the board and management team as an investment to commit their own money towards. This is directly as a result of the dramatically improved investment climate due to the reforms made by the current government.”

“Any Zimbabwean national is entitled to apply for permits and explore for resources using their own capital as we are doing. If we are successful and we make a commercial discovery, the Government will derive a significant amount of revenue from a production sharing agreement which includes royalties, taxes etc which will benefit all Zimbabweans, not just Invictus and our partners.”

Aware of the scepticism in Zimbabwe, Macmillan says the company is required to update the ASX regularly and “people will be able to follow our progress and can see that we fulfill our obligations and work commitments as laid out”.

Should Invictus discover gas, it may be years until the first barrel leaves the site, given the scale and cost of such projects.

In the meantime, Invictus will have to balance the demands of compliance and disclosure on the ASX, with the need to manage perceptions in Zimbabwe, where the Government is just as desperate for good news as its critics are to discredit any news of investment.