Synopsis Invictus Energy is an Australian Listed (ASX) upstream oil and gas exploration company that currently has 80% commercial ownership in an exploration project, SG 4571, being undertaken in the Cabora Bassa Basin, Zimbabwe. The main asset target, the Muzarabani prospect, has 5 stacked targets that were independently assessed to contain an elephant size estimate of 8.2Tcf and 249 mmbbls. The License also contains the Msasa Lead which is estimated to contain 1.05Tcf and 44 mmbbls. It is referred to as one of the largest untapped oil and gas deposits in the world. SG 4571 License Prospect The SG 4571 license is held by Geo Associates Ltd which is partially owned by Invictus Energy (80%) and a local partner in Zimbabwe, One-Gas Resources (20%). The agreement allows One-Gas to participate in upstream, midstream and downstream segments of the oil and gas industry. Location The license area covers approximately 250,000 acres (101,000 hectares or roughly the size of King Island, Australia) in Northern Zimbabwe and runs along the border with Mozambique. The project site is roughly 4 hours North of Zimbabwes capital, Harare and access to the site is via a sealed road that goes until 1km from the proposed well site. 1990s Mobil Exploration During the 1990s, Mobil conducted an extensive exploration program of the Mzarabani anticline in Africa, which extended from Victoria Falls to the Cabora Bassa Basin. The region of Muzarabani was selected for further analysis due to its favourable depths to host a conventional gas target. US$30 million was spent to acquire surface and subsurface data, including gravity surveys and over 1600 line kilometres of 2D seismic data. The studies determined that the Cabora Bassa Basin had all the required ingredients of a working petroleum system yet they relinquished the acreage when their studies revealed that the basin had a higher potential for gas than oil. Mobil at the time was exploring oil due to the lack of a structured gas market in the region and globally. Additionally, the Zimbabwean government in the 90s was under the regime of Robert Mugabe, a highly chaotic politician, so the sovereign risk was extremely high. The prospect was left dormant until 2018 not because of the technical issues but more because of the above-ground commercial issues (the previous government was overthrown). Additionally, Mobils 1990s exploration program was during the pre-internet days so the dataset was not available in the public domain and just lay dormant and unknown. Invictus Energy was able to acquire the dataset due to the company’s competitive advantage of their presence in Zimbabwe (thanks Scott!) Reprocessing of Mobil Data - 2018 Having acquired ownership of Geo Associates Ltd in 2018, Invictus sought to engage an independent party, Sewell and Associates, Inc, to reprocess Mobils original dataset from the 1990s using updated processing techniques, basin modelling and industry classifications of source rock types. Invictus also contracted independent global geoscience and geospatial services firm, Getech, to estimate the resource potential from the interpreted data. In 2019, Getech estimated an elephant size estimate of 8.2Tcf and 249 mmbbls. The Mzarabani prospect is estimated to have a total of 8.2tcf and 249mmbbls. The Msasa prospect is estimated to have 1tcf and 44mmbbls. It is important to note that Invictus has an 80% claims to the resources and this is expected to decrease if they bring in a farm-in partner. Getech also stated that “The Best Estimates reported represent that there is a 50% probability that the actual resource volume will be in excess of the amounts reported.” To put this resource size in perspective, the Pluto Gas Field Australia which has been a major cash-generating asset for Woodside has only half of Invictus’ estimated resources. The most exciting opportunity of this project is that 5 of the reservoir targets can be drilled with only 1 well, significantly reducing the capital costs required. Also, drilling a duster on one target doesn’t necessarily mean that the others are dusters. Geochemical Analysis of Source Rock - 2019 In 2019, Invictus conducted a geochemical analysis from an outcrop source rock sampling program. The analysis was made by Geomark Research. A total of 19 samples were obtained for source rock analysis, with 7 of these samples undergoing saturate/aromatic, biomarker and isotope analysis. The analysis confirmed that at least two source rock facies are present in the Cabora Bassa Basin. The Mkanga Formation consists of a high-quality oil-prone lacustrine source rock, and the Angwa Alternations Member consisting of good quality gas and liquid prone source rock. The analysis also confirmed the ability of the source rock to generate significant quantities of hydrocarbons. The source rock analysis also correlates with source rock data from other African and West-Australian Basins where billions of barrels and multiple TCF gas volumes have been discovered. This has provided management with great confidence over the prospect and they believe this correlation is the most substantial element of the project. Additionally, the Angwa sandstone formations have oil-prone shales at surface, with porosity of 20% and permeability between 100 to 1200 millidarcies. To put this in perspective, STX west erregulla had 102 millidarcies New Seismic Data Acquisition - 2021 The 2018 prospect estimates and basin modelling have all been calculated from the 90s raw legacy dataset. Exploration data acquisition methods, equipment and analysis have significantly improved since then, therefore allowing for more accurate interpretations. In April 2021, Invictus engaged Polaris Natural Resources, Canadas longest-standing seismic company, to provide acquisition services for a 2D seismic program. The aim of this seismic campaign is to acquire refined seismic surveying lines that will assist in selecting the drilling site location that will efficiently and effectively hit all the 5 stacked targets with one well. Plus, Invictus also hopes to unveil additional resource. The 1990s dataset from Mobil had seismic lines of 15km however with the new data captured by Polaris, Invictus intends to refine the seismic lines to 2km (providing greater accuracy and clarity) The Polaris team behind the operation have recently completed the ReconAfrica prospect in Namibia, which demonstrated a substantial working petroleum system. From late May, it is expected that seismic surveying campaign work will take between 6-8 weeks and 1-2 months for analysis and interpretation afterwards. Invictus and Polaris are looking to employ and educate some 80 local personnel for the project, which bodes well for local sentiment towards the project.
Zimbabwean Government One of the biggest commercial risks to Invictus Energy is the sovereign risk of operating within Zimbabwe which has a history of a corrupt government through the reign of Robert Mugabe, 1980-2017. With the overthrow of the government in 2018, the newly appointed President Emmerson Mnangagwa has taken dramatic steps to overhaul the political atmosphere and has begun to openly invited foreign investment into the country through investor-friendly reforms. President Mnangagwa is renowned for wanting to attract foreign investment and even addressed the Invictus’ Energy project in his Independence day speech. The current mines minister, Winston Chitando, was a former resource industry executive and understands the needs of the resources sector. Numerous Special Economic Zones Legislations have been established and include 100% foreign ownership of assets Guarantee of investor rights 100% remittance of earnings 5-year tax holiday and 15% corporate tax rate thereafter Zero Capital Gains Tax Customs duty exemption on raw materials and capital equipment Offshore banking and transacting outside local financial system safeguards against local currency effects If Zimbabwe were to somehow stuff up the Invictus project… essentially there would be no foreign investment in the country for the next 20 years. As a nation that is heavily reliant on industry and mining, the costs of having no foreign investment are significant and will dampen its transition into a fast-developing nation. One of the reasons I was attracted to IVZ was the potential impact that the project could have on the economy of Zimbabwe and the wellbeing of its people. Zimbabwe is currently experiencing significant power outages which are having dramatic effects on businesses and industry. Establishing a domestic and low-cost energy source through gas could have profound flow-on effects on living standards, health, education etc. With such upside for Zimbabwe, I believe the government will do everything in their power to get this project going and this can clearly be seen through Invictus’ project being given priority status from the government in January 2020. Southern-Africa Energy Shortage The region of Southern Africa, which hosts the Southern African Power Pool, is currently experiencing a dramatic energy crisis where the demand is far outweighing the supply. This issue is fueled by significant population growth, growing industry and minimal foreign investment in power generation over the past few decades. The Power Pool supplies over 230 million people across 12 different countries and the power outages are having a dramatic effect on industry development, investment and the livelihoods of the populations. Currently, the majority of power for Southern Africa is generated through coal and hydroelectricity. Notably, South Africas coal power plants, which supply 20% of power, are being retired in the coming years and there is currently widespread drought within the region making hydropower inefficient. The gas fields in Mozambique which are currently supplying 80% of the power supply to South Africa are expected to plateau in 2025. Whilst the renewable energy sector is still underdeveloped but growing fast, there is a significant medium-term gap that needs to be filled. The current short-medium term supply gap is currently being filled through diesel fire powered generators, which is an extremely expensive operation. Therefore, the need for cheap and effective gas power is becoming increasingly important and is seen as a highly viable option for the monetisation of the Invictus prospect. The spine of the Southern African Power Pool runs directly through Zimbabwe providing Invictus with direct access to the power supply markets across the region. Market Monetisation Options Invictus has a multitude of options to monetise its oil and gas resources: Power generation: through the Southern African Power Pool Petrochemicals: through South Africas Sasols Secunda facility Fertiliser: Zimbabwe is a largely agricultural-based economy. Currently importing costly fertiliser Industrial: The top ten industrial gas users in South Africa turnover US$10 billion per annum and use 30Bcf per year Mining: Off-grid mining operations are using diesel at 30-40c/kWh vs. grid cost of 10-15c/kWh. LNG can be trucked to an off-grid location reducing cost by 40% Liquid fuel: South Africa generates synthetic fuel from coal with the remainder being imported. Can also export crude oil via the port of Beira, Mozambique Current MOUs: Gas Sale MOU with Sable Chemicals - May 2019 Sable Chemicals is the sole manufacturer of ammonium nitrate fertiliser in Zimbabwe. Invictus has agreed to supply up to 70 mmscf/d over 20 years, which equated to a total of 510bcf. Sable Chemicals is currently operating well below capacity and the country has to import ammonia feedstock from South Africa. Gas Sale MOU with Tatanga Energy - December 2019 Tatanga Energy is an Independent Power Producer in Zimbabwe. Invictus has agreed to supply up to 100 mmscf/d over 20 years, the total agreement is 730Bcf. This gas to power facility is expected to supply up to 500MW. Routes to Markets Surrounding the prospect area are multiple well-developed infrastructures facilities that would allow Invictus to transport the oil and gas to the relevant markets Gas Pipeline: Twin Harare-Beira liquids pipeline (1960s) that connects to the ROMPCO pipeline (2004) Power: Connects into Southern Africa Power Pool grid to export electricity domestically and regionally Road: Beira Corridor Route is one of the major transit routes in Africa. Can transport Small Scale LNG by road to mining and industrial users Rail: It is only 1,000kms from Harare to Johannesburg, South Africa by rail Liquids Pipeline: Twin Harare-Beira liquids pipeline that enables export of crude oil through the Beira Port to international markets. Also has access to Indeni Ndola Refinery in Zambia Share Price Prediction This is just a mere prediction on my behalf but also has a basis from ReconAfrica.TSX, a similar company operating in Namibia, price movements. Being the first mover into a country/region can yield massive benefits for Invictus by securing the best acreage, with the best terms and access to the most profitable markets so there are multiple opportunities in the future after this prospect is drilled. I believe that Invictus has the potential to be a multi-bag (10-30) holding overnight if the drilling campaign is successful. With a current Market Cap of $87 million, Invictus could easily transform into a multi-billion-dollar company. I believe a conservative price estimate would be $2 however this doesn’t include the effects of FOMO, so it could be higher. A peer that Invictus is often compared to, ReconAfrica, transformed into a $1.3 billion company off the back of a successful drilling campaign (they are yet to extract the resources). ReconAfricas share price jumped massively prior to actual drilling and a similar comparison would place IVZs share price in the range of 40-50cents. Realistically, I believe the share price will be in the mid-30s after the PSA and farm-in partner have been signed as it significantly de-risks the project. The price doesn’t take into account the impact of FOMO, which can be seen through the aggressive share price of 88E.ASX. I absolutely love the story of Invictus not only as a shareholder but also what the project can do for Zimbabwe as well as the region.
Some great resources include youtube shareholder meetings as well as podcast interviews. The Australian Investor Forum Hotcopper often discusses IVZ
