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Invictus Energy has signed a Memorandum of Understanding (MoU) with Sable Chemicals that will see the former supplying natural gas to the country’s sole manufacturer of agriculture grade ammonium nitrate fertiliser subject to the confirmation of gas discovery at the Muzarabani Cabora Bassa Prospect.
Under the non-binding MoU, Invictus Energy (Invictus) would supply up to 70 million cubic feet of gas per day for 20 years, from the date of first commercial gas production.
The two parties, however, only expect to complete a gas sales and purchase agreement by 30 June 2021. Sable will also have to complete feasibility studies to upgrade its existing process and replace the feedstock with natural gas.
The Muzarabani Cabora Bassa oil prospect has the potential to produce 3,9 trillion cubic feet (tcf) of gas and 181 million barrels of conventional gas.
If it sails through, the deal will be as good as killing two birds with one stone.
For Invictus, the deal is a major boost as the company is close to approaching the market to secure project funding in exchange for equity in a process called farmout. If potential investors can see the company has a purchaser before production begins, it becomes easier to get them on board.
According to managing director Scott Macmillan the Muzarabani project has already attracted significant industry attention ahead of the highly anticipated farmout process, which will commence in the June quarter.
In the oil and gas industry a farmout agreement involves one part getting equity in a company in exchange for the drilling of one or more oil and or gas wells.
Farmout agreements are the second most commonly negotiated agreements in the oil and gas industry, behind the oil and gas lease. For the farmor (owner of one or more mineral leases), the reasons for entering into a farmout agreement include obtaining production, sharing risk, and obtaining geological information. Farmees (provider of drilling services) often enter into farmout agreements, because they wish to obtain an acreage position, need to utilise underutilsed personnel, need to share risks, or because they desire to obtain geological information.
“Signing this MoU with Sable marks a significant milestone in our commercial negotiations as we look to progress the Cabora Bassa Project. Sable is the sole producer of nitrogenous fertiliser in Zimbabwe and a well-recognised brand in the country,” Macmillan said on Tuesday.
“The potential gas supply of up to 70 million cubic feet per day for 20 years is a substantial volume, which will help underpin the development of any commercial gas discovery we make in the Cabora Bassa Project. This MoU demonstrates the huge local gas demand in an energy starved market in Zimbabwe and we expect to enter into additional gas supply MOUs in the future.”
As for Sable Chemicals, the deal will come as a solution to its gas needs as it has been producing AN fertiliser from ammonia gas, which is imported from South Africa, a situation that has come with its own problems.
In September, Sable Chemicals reportedly said it was only able to meet 38 percent of national demand for ammonium nitrate because the government only granted it $425 000 a month in hard currency when it required $2,8 million monthly to import ammonia gas.
Bothwell Nyajeka CEO of Sable Chemicals said his company is “extremely pleased to enter into this MoU with Invictus and potentially secure an indigenous natural gas supply to produce ammonia gas for our fertiliser plant.
“Sable Chemicals currently has a capacity to produce 240 000 tonnes of ammonium nitrate per year and has historically played an important anchoring role in the agricultural sector of Zimbabwe, thus ensuring that well priced fertilisers, with formulations that are optimised to suit local conditions, are made available to farmers in a timeous manner each year.
“The potential future supply of gas by Invictus is also critical for Sable’s medium-term expansion programme aimed at increasing production to 600 000 tonnes of nitrogenous fertilisers,” Nyajeka said.
Bongani Ndlovu