The government has granted energy explorer Invictus Energy access to a larger exploration area, seven times its current licensed area, as the two parties move into a critical phase; a production sharing agreement.
The company’s SG 4571 licence area will expand from 100,000 hectares to 709,300 hectares. The concession gives Invictus the right to explore the entire Cabora Basa basin.
“The enlarged SG 4571 licence provides us with a basin master position encompassing the entire Cabora Bassa Basin in Zimbabwe. Subject to making an opening discovery with one of our first two wells, it potentially could provide us with future discoveries on a large scale within the basin,” Invictus MD Scot Macmillan says.
Previously, the company pleaded with government for more hectarage to match the size of other exploration licence areas in the region, which are far bigger than that of Invictus. A larger area would, the company said, increase chances of a commercial discovery of gas or oil. In Zambia, block sizes in the Zambezi basin range between 600,000-800,000ha.
While survey data has shown the potential of oil or gas in Muzarabani, only the drilling of wells can confirm this. Invictus plans to start drilling exploration wells in Muzarabani in June.
Production sharing: what’s at stake?
Government and Invictus are currently discussing a production sharing agreement (PSA), and Finance Minister Mthuli Ncube says they hope to sign it by the end of April and have the legal changes needed approved by Parliament in July.
Invictus is represented in the talks by its 80%-owned local partner Geo Associates, while Zimbabwe’s interests are held by the Sovereign Wealth Fund of Zimbabwe (SWFZ).
A production sharing agreement sets out how revenue and output are shared between the government and Invictus, should the company discover commercially viable deposits of gas or oil.
Already, outside the full terms of the PSA to be announced, the two sides have agreed that SWFZ will be granted a 10% back-in-right within six months of a final investment decision being made to go ahead with any commercial development. A back-in-right contract allows the government to take up shares in the operation once a commercial discovery has been made.
Under such agreements, investors like Invictus raise their own money and take the risk for exploration and development. Should they find commercial deposits, they are given a period to sell the output to recoup those costs, before sharing with government.
“The PSA is basically where you have agreed with the government, how much government gets, and how much the contractor gets, and that is in advanced negotiations,” according to Invictus chairman Stuart Lake.
He said in an interview with ZTN: “What we’ve shared with the government so far is all the examples that have happened in the region; what worked and what didn’t work for various companies. They (government) have gone outside to a variety of very learned individuals to get good feedback about, ‘is that correct or otherwise’. They got their own feedback, so we’re getting close to getting that progressed.”