Permit increase & new partnership make Invictus Energy shares rally

Highlights

• Invictus Energy Limited’s (ASX:IVZ) 80% owned subsidiary Geo Associates (Pvt) Ltd and the Sovereign Wealth Fund of Zimbabwe have executed a Heads of Agreement.
• Special Grant 4571 licence area has increased sevenfold from 100,000 hectares to 709,300 hectares.
• Invictus has committed to expanding the forward work program to drill a second well in addition to the Muzarabani prospect in the upcoming June 2022 drilling program.

After a trading halt lift, shares of independent oil and gas exploration company Invictus Energy Limited (ASX:IVZ) were trading up by over 5% at AU$0.2 on Monday morning (28 March 2022, 11:15 AM AEDT). The upward trajectory seemed to have been propelled by an upbeat market update on the activities of Invictus’ Cabora Bassa project in Zimbabwe.

The Company’s 80% owned subsidiary Geo Associates (Pvt) Ltd (Geo Associates) and the Sovereign Wealth Fund of Zimbabwe (SWFZ) have executed a Heads of Agreement (HoA) under which the Special Grant 4571 (SG 4571) licence and application area has been increased. Notably, SG 4571 contains the world class multiTCF Mzarabani and Msasa conventional gas-condensate prospects.

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HoA details

The HoA executed between Geo Associates and the SWFZ will amalgamate the respective licence areas into the extended SG 4571 licence area. This follows extensive negotiation and collaboration with the various ministries and government bodies over the last seven months.

The agreement “lays the foundation stone for a vibrant and productive oil and gas sector that will contribute to the creation of jobs, generation of exports and delivery of energy security to Zimbabwe”, says Hon Mthuli Ncube, Minister of Finance and Economic Development.

HOA Signing Ceremony with Hon. Mthuli Ncube & Mr Paul Chimbodza

Source- Company announcement, March 2022

Under the agreement-

• The SWFZ will be entitled to a 10% equity back-in-right to the extended SG 4571 which is exercisable within six months after positive Final Investment Decision to develop any discovered resource within the licence.
• The SWFZ will have risk-free participation in the SG 4571 through to the commencement of production.
• Both parties may collaborate to explore in areas of mutual interest that do not form part of the expanded SG 4571 licence (subject to separate agreements).

Sevenfold increase in SG 4571 acreage area

The licence area has been increased from 100,000 hectares to 709,300 hectares. This substantially increases Invictus’ footprint more than sevenfold. Notably, the enlarged licence provides Invictus with a basin master position encompassing the entire Cabora Bassa Basin in Zimbabwe.

The area will be amalgamated with the SWFZ’s MSC003 Cabora Bassa South Reserved Area to cover the Cabora Bassa Basin in Zimbabwe fully.

Original SG 4571 licence area within expanded acreage covering Cabora Bassa Basin

Source- Company announcement, Mar 2022

Petroleum Product Sharing Agreement

The proposed Petroleum Product Sharing Agreement (PPSA) is administered by the Ministry of Energy and Power Development. It comprises the fiscal provisions of the project that includes the Republic of Zimbabwe’s profit/product share.

The PPSA takes effect following commencement of the production phase of the project. It will provide the Republic of Zimbabwe with a share of any developed resource in addition to the SWFZ equity. Besides, it will establish a predictable, stable and transparent legal and fiscal regime which is proportionate with terms in the region, following international best industry practice, meeting the country’s goals and offering investors and the Republic of Zimbabwe a fair share of any developed resources.

Notably, the Petroleum Exploration Development and Production Agreement (PEDPA) and PPSA together form the Production Sharing Agreements (PSA) between the Republic of Zimbabwe and Geo Associates. This is a demonstration of the Zimbabwe Government’s commitment to executing investor friendly reforms whilst promoting and protecting foreign investment.

It should be noted that the PEDPA was signed on 26 March 2021. The PPSA will be signed following enactment of amendments to legislation.

Way forward

The SG 4571 area increase is currently awaiting procedural government gazettal. Meanwhile, Invictus will increase the minimum work program obligation for the current second exploration period to drill two exploration wells, including the Muzarabani-1 prospect and one exploration well in the expanded area. The recently confirmed rig contact with Exalo Drilling SA accommodates a two well drill program, likely to start in late June 2022.

Exalo IRI 1200 Drilling Rig, Source- Company announcement, Jan 2022

Image description- Exalo IRI 1200 Drilling Rig

Geo Associates and the Republic of Zimbabwe will also conclude the PPSA which will encompass the legal and fiscal provisions to govern the project and the development of any discovered resource. The PPSA has undergone independent review and is expected to be finalised and executed shortly.

Besides, Invictus and its local partner One Gas Resources (Pvt) Ltd, plan to amend the Invictus and One Gas Shareholders’ Agreement and terms of the One-Gas carried interest in the expanded SG 4571 licence.

Invictus is committed to expanding the forward work program to drill a second well in addition to the Muzarabani prospect in the upcoming June 2022 drilling program, which if successful could be transformational for the Company and for the Republic of Zimbabwe.