Invictus Energy has declared a gas find at its Muzarabani prospect, setting Zimbabwe on a long journey towards producing gas for the first time.
The company announced on the Australia Stock Exchange that four samples from the Upper Angwa section of its Mukuyu-2 exploration well confirm the presence of gas at the site.
“The discovery represents one of the most significant developments in the onshore Southern Africa oil and gas industry for decades,” says Scott Macmillan, MD of Invictus Energy.
The samples came from depths of up to 2.7km in the exploration well, which is being drilled to a depth of 3.4km. Invictus is sending the samples, via a ship, for independent assessment in the US. This will help the company know more about the resource. Exploration will, meanwhile, continue at the site to locate more drilling targets in the basin. Typically, multiple wells have to be drilled in an area.
The find comes after a decade of exploration by Invictus Energy. Mobil previously explored the area, but abandoned it after indications showed there was more likely to be gas than oil. Invictus then used Mobil’s data to kick off its own exploration campaign.
The government has high hopes for the gas discovery.
“We believe that this discovery will have a positive impact on the economic and social development of Zimbabwe,” Mines Minister Zhemu Soda says. “We are confident that this discovery will open up new horizons for Zimbabwe.
However, it will take years of further investment before the gas makes its way to the surface.
What happens now?
The gas find is great news for Invictus and the country. However, the job is only just starting. As the company began exploration drilling last year, geologist Paul Chimbodza, whose Geo Associates is a partner in the project, explained that, if successful, the exploration drilling would only be the beginning of a long process.
First, the company now has to drill more wells to find out just how much gas there is, the quality, and to see what would be the best way to get it out of the ground. It is after this process that work would only begin to build all the infrastructure needed to take out the gas and transport it to markets.
Explained Chimbodza: “These are exploration wells. They are not production wells. These are wells that we use to ascertain the resource in the ground. Once those wells give us positive results, we will move into what we call basin appraisal, drilling ancillary wells around the general area to upgrade the resource numbers and to quantify the resource and get an indication of the quality.”
This means it may be years until production starts. In Mozambique, exploration began in the 1960s. Gas was first discovered in 2010, and the first shipments from offshore sites only started last year. Namibia discovered oil and gas offshore last year, but only expects the first production in 2030. To develop the gas field, Invictus may need to raise additional capital. This may mean selling part of its 80% in the project to investors for money to develop the site, or securing a larger energy company as a partner to bring the project to production. The company has previously said it may also list on the Victoria Falls Stock Exchange in future, allowing broader participation.
Second time lucky
Invictus was frustrated after drilling its first well, Mukuyu-1, late last year. It was unable to get the fluid sample it needed to declare a discovery due to ground conditions. The second well, Mukuyu-2, also had its pitfalls; Invictus had to drill a ‘sidetrack’ well to get a good sample. However, it has found gas sooner than many other explorers have. Over recent years, the chances of successfully finding gas or oil, especially in new exploration areas such as Zimbabwe, are less than 10 out of every 100 wells drilled, experts say.
”It is a phenomenal achievement to achieve this from the first two wells in the basin,” Macmillan said on a call Thursday morning.
Namibia went through 30 dry holes over 40 years of exploration – led by companies such as Exxon, Total, Petrobas and Tullow – before the 2022 find. Onshore, Canada’s ReconAfrica failed to find commercial deposits from its first well in the Kavango basin. South Africa drilled over 200 unsuccessful wells before its first discovery. In Uganda, 116 wells were drilled between 2008 and 2014, with 22 discoveries being made. Uganda expects to start pumping oil in 2025, decades after exploration began.
Where would the gas go?
When Invictus eventually does produce gas, it will have ready buyers for some of its product. As it started exploration, the company was also signing up potential customers. In 2019, Invictus signed a non-binding MoU with Zimbabwean energy firm Tatanga Energy for the supply of gas to Tatanga’s proposed 500MW power plant, once a potential commercial gas discovery was confirmed.
Invictus and Sable Chemicals also signed an MoU to supply natural gas to the country’s sole ammonium nitrate producer. Under that MoU, Invictus would supply up to 70 million cubic feet of gas per day for 20 years, which would be enough to sustain production for Invictus and at the same time meet the supply needs of Sable’s Kwekwe plant, one of the country’s biggest consumers and importers of gas. Invictus also hopes to eventually supply local and regional markets, which are hungry for gas.
Who gets what?
Because this is the country’s first gas project, Zimbabwe had previously no laws or regulations on how the sector would work. In 2021, Invictus and the government signed the Petroleum Exploration Development and Production Agreement (PEDPA). The agreement sets regulations that will govern both Invictus and government through the exploration, appraisal, development and production phases and the obligations and rights of each party over the project lifecycle.
The next critical step is the signing of a production sharing agreement. 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.
Already, Invictus and the government have agreed that government, through the Mutapa sovereign wealth fund, 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.
Joe Mutizwa, whose Mangwana Capital is a shareholder in Invictus Energy, told newZWire last year that government could get up to 60% of the output in a production sharing agreement. However, negotiations were ongoing.
At the @energy_invictus gas exploration well site, businessman @JoeMutizwa speaks to us on why his fund, Mangwana Capital, has made a bet on the project:
• 35 pension funds in play
• Govt could get up to 60% of output under a production sharing agreement being discussed pic.twitter.com/yAq8nHU8Mx— newZWire (@newswireZW) August 19, 2022
Who else is in Invictus?
One-Gas Resources, a Zimbabwean company owned by Paul Chimbodza, owns 20% of the project. Mangwana Opportunities, a fund that includes a group of 35 Zimbabwean pension funds, is among the shareholders in Invictus Energy. The fund is run by Mangwana Capital, headed by Mutizwa. Among the funds that are invested in Mangwana are NSSA, FML, Datvest, Econet Pension Fund, ZESA Pension Fund and others. Mangwana has prescribed asset status, making it attractive to local pension funds. Other investors in Invictus Energy are Macmillan’s Bayethe Investments (with 6%), and various shareholders represented by funds such as Citicorp, BNP Paribas, HSBC and JP Morgan.
