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Business Writer
INVICTUS Energy, an Australian firm exploring for gas and oil in Zimbabwe, has shortlisted an unspecified number of large and small farm-out partners to drill in Muzarabani amid cautious optimism it could successfully discover one of or both precious energy commodities, managing director Scott MacMillan revealed.
Once a partner, usually a petroleum company with experience in oil and gas drilling, has been secured, negotiations will commence for an agreement that will see the company taking equity in Invictus. MacMillan said the ASX firm holds 80 percent of shares in the oil exploration company and there was enough equity for another party to join.
Farm-out is the assignment of part or all of an oil, natural gas or mineral interest to a third party for development. The third party, called the “farmee”, may commit to spend money to perform a specific activity related to an agreement, such as operating oil exploration blocks, funding the expenditures, testing or drilling.
MacMillan would, however, not reveal the names of the shortlisted partners or the number saying he was bound by non-disclosure agreements and confidentiality clauses, but indicated that the junior oil and gas exploration company was hopeful it would conclude a drilling agreement with a partner within the first half of this year.
Notably though, he said while the agreement would be finalised this year, drilling was unlikely to commence by December because the company needs time to look for drill rigs in Africa and bring them to Zimbabwe. Against this background, drilling for oil and gas in Invictus prospective area in Muzarabani will only begin next year.
Oil is important as its products underpin modern society, mainly supplying energy to power industry, heat homes and provide fuel for vehicles and aeroplanes to carry goods and people around the world. Its refined products are used to manufacture chemical products, such as plastics, fertilisers, detergents, paints and even medicines.
Natural gas, a non-renewable hydrocarbon, is also now indispensable part of the modern day life and is used as a source of energy for heating, cooking, and electricity generation. It is also used as a fuel for vehicles and chemical feed-stock in the manufacture of plastics and other commercially important organic chemicals.
“We have got a shortlist that we are advancing with, but I can’t say exactly. We are targeting to complete that in the first half of this year. So, what we are doing at the moment is look at rig availability in the region. Because we are targeting drilling to depths of about 4 kilometres we don’t have equipment in Zimbabwe that can do that far,” MacMillan said.
“The rigs that are available in the region at the moment are found in countries like Tanzania and Kenya and are presently contracted up to about end of this year.
“So we are now assessing the suitability of each of those rigs; we are doing some preliminary design work at the moment and get to assess the suitability and availability of each.
“To mobilise one of those drilling rigs, depends on the size of it; ranges between 150 and 300 truckloads of equipment and depending on where
its coming from it’s has to be delivered to a port; put it on a ship and float it down to Beira, then driven up here. So we are trying to get the timing and availability for these rigs,” the Invictus MD said.
MacMillan said there had been frenzied interest from reputable oil mining firms that have done major global petroleum discoveries to partner the ASX-listed Zimbabwe focused oil and gas company on the basis of encouraging results from evaluation of primary data, which has been extensively reprocessed using modern techniques.
“The shortlist includes a lot of companies from the majors to super-majors down to mid-tier companies that are active in the region.
“A lot of people are very surprised that an asset like this has been sitting here for such a long time without being looked at, so it’s has come of the blue a bit and we have done a lot of work to bring it to the phase we are at.
“We hope to conclude (negotiations) and bring in someone in the near future. The reason companies do this, even super majors that have enormous balance sheets they farm out, is to spread the risk because, as I said, the success rates are low and so what you tend to do is have a portfolio of projects and spread your risk among those,” MacMillan said.
Discovery of oil or gas will have serious impact on the economy in many ways; from production sharing revenues to taxes and royalty inflows, employment creation, energy self-sufficiency and increased impetus to economic growth. Countries like Angola, Nigeria, and Libya give examples of some of the benefits that can accrue.
Invictus said geo-chemical features of source rock study results that were done on previously gathered data on Muzarabani showed that the area is capable of producing both oil and gas with median estimates indicating possibility that potentially resource-rich basin may be host to between 800 billion cubic feet to 20 trillion cubic feet of oil or gas.
“From the analysis that we did of the source rock, it’s capable of generating both gas and oil. Now, the question of whether it’s going to be gas or oil comes down to a couple things. One; source rock type; Is it more gas prone or more oil prone and the two, the temperature that the source rock has been cooked at and that’s a function of how deep it has been buried.”
Asked if the previous negative image of the country had not been a hindrance to efforts aimed at attracting investment, McMillan said there had been hurdles in the way, but they took it upon themselves to explain to potential investors how the situation had changed and how much Government was working to improve the country’s investment climate.
“There has been a change and people have been willing to re-engage and invest in the country again. I think one of the important extinguishers for us as Invictus, although we are Australian company, it’s a very experienced Zimbabwean management team. I think people are a lot more comfortable with that fact there are Zimbabweans running it and heavily involved,” he said.
Invictus said is already negotiating production sharing agreements with the Government of Zimbabwe while also inputting into amendments to the Petroleum Act to specify the nature of (PSAs), which were not exhaustive as there has not been precedence of oil and gas in Zimbabwe until recently. Significant ground has been covered,” MacMillan said.
MacMillan said Zimbabwe was still being treated a bit unfairly given its still tough for foreign executives and investors to make a decision to invest in Zimbabwe as they continue to look at the country with lences of and on the basis of its reputation of the past, saying while the environment remained tough a lot of reforms had gone into efforts to improve the situation.
“But I think that is going to change with time as they (investors) see more and more success stories and I thinks that is the only way to really change those perceptions,” MacMillan said.
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