IVZ Confirms Working Hydrocarbon System - and is still drilling

|

Published 10-NOV-2022 10:00 A.M.

|

Price: $0.100

|

9 minute read

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,987,102 IVZ shares and 1,217,101 options and the Company’s staff own 60,000 shares and 10,845 options at the time of publishing this article. The Company has been engaged by IVZ to share our commentary on the progress of our Investment in IVZ over time.

Today Invictus Energy (ASX:IVZ) confirmed a working conventional hydrocarbon system, 65x elevated gas shows - and some highly fluorescent cutting samples (see photo below).

Our 2020 Energy Pick of The Year IVZ is currently drilling the biggest conventional onshore oil and gas prospect in Africa.

IVZ still has a few hundred metres left to drill through the primary targets - then wireline logging to confirm that rare and coveted “oil & gas discovery”.

This morning, IVZ announced:

  • Elevated gas shows - 65X above background gas levels (for reference, 65x is a lot)
  • Elevated fluorescence - 100% fluorescence indicating condensate or light oil (the high value easy to refine type of oil/gas)
  • Elevated logging while drilling resistivity - elevated resistivity demonstrates potential hydrocarbons when no mud gas readings are available

This is all a bit technical, but in summary we can conclude:

IVZ has now confirmed a working conventional hydrocarbon system in the Cabora Bassa Basin.

Many will remember when 88 Energy released a similar announcement observing fluorescence confirming potential hydrocarbon presence on their Merlin-2 well. This spiked the 88 Energy share price up 1,000%, before settling back at around 400% from the pre drill share price.

88 Energy, unfortunately, failed to convert these shows into a discovery at the next crucial step of bringing oil to the surface due to poor reservoir quality - always remember that even with incredible news like today’s oil & gas exploration is risky, IVZ will be attempting to recover a hydrocarbon sample to surface in the coming weeks.

What’s next for IVZ?

Once IVZ has drilled through the rest of the primary targets and reaches target depth, they will run a wireline log to determine the size of gas columns and most importantly, try to bring a sample of oil/gas to the surface...

If IVZ successfully brings a hydrocarbon sample to the surface we expect to get an IVZ announcement with that magic word - DISCOVERY.

A discovery on IVZ’s first well will imply that the multiple other targets in IVZ’s basin will have an increased chance of success, which we expect to be reflected in the share price.

The map below shows other IVZ targets in the Cabora Bassa basin, where a working hydrocarbon system has today been confirmed:

Despite a couple of equipment issues so far in the first well, which are expected in frontier oil & gas drilling, IVZ has confirmed they are on track to complete drilling and wireline logging within the previously stated timeframe of 25th November to 5th December (“50 to 60 days from the 26th September spud date”).

So we should know if we have a discovery and how big it might be in a few weeks...

Of course, always remember that oil & gas exploration is risky and things can still go wrong.

Here is an image of our interpretation of how deep IVZ’s well is currently at, and the section where today’s positive news is coming from:

So what has the Mukuyu-1 well found so far?

  • ✅ A 10-15m interval indicative of potential hydrocarbons (oil and/or gas) across the first three of its targets.
  • ✅ Seal identified with several hundred-metre thickness above the primary targets. This was a key risk going into drilling. This hopefully means there’s a geological seal that’s strong enough to trap oil and/or gas in the primary targets IVZ is drilling now.
  • ✅ Elevated gas shows 65x above background gas levels through the first of two primary targets. NEW
  • ✅ Elevated (100%) fluorescence, indicating condensate or light oil. NEW
  • ✅ Elevated Logging While Drilling resistivity. NEW
  • ✅ A working conventional hydrocarbon system. NEW

What is IVZ doing next?

  • 🔄 Well is currently at 3,086m depth, with IVZ preparing to drill through its two primary targets to the planned total depth of 3,500m.
  • 🔲 Wireline logging programme after drilling is completed. This will be when IVZ will try to identify any moveable hydrocarbons and ultimately put out a “net pay” number.

With so much already confirmed, the early signs are promising.

Ultimately, it will be the wireline logging programme that determines if and just how big of a discovery IVZ has made.

The results of this program could prove to be significant for IVZ investors, as we've seen before.

Ten years ago we were invested in another potentially basin opening drilling program in Africa, and it was the net pay numbers announced by Africa Oil that preceded the 10x share price re-rate for the company.

After announcing three consecutive net pay numbers, Africa Oil saw its share price re-rate by over ~1,000%, taking the company’s market cap into the billions of dollars.

Unlike what we saw with 88 Energy, Africa Oil successfully brought a hydrocarbon sample to the surface and confirmed the reservoir quality.

Africa Oil was able to drill, log and sample as the hole progressed, so was able to provide updates during the drilling process, which IVZ hasn't been able to do due to equipment issues

IVZ’s market cap was just $92M at yesterday’s close price before this announcement:

You can read our full comparison of IVZ versus Africa Oil’s basin opening drill campaigns here.

This brings us to our “Big Bet” for IVZ:

Our ‘Big Bet’

“To see IVZ make a basin opening oil/gas discovery in Zimbabwe and re-rate by over 1,000% - similar to the move Africa Oil experienced after making its basin opening discovery in Kenya.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our IVZ Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true

To monitor the progress IVZ has made since we first Invested and how the company is doing relative to our “Big Bet”, we maintain the following IVZ “Progress Tracker”:

See our IVZ Progress Tracker here:

Invictus Energy
ASX:IVZ

Deeper dive on the three key takeaways from today’s IVZ news:

  1. Elevated gas shows through the first of two primary targets - 65X above background gas levels.

The significance of this is mostly centred around the “background gas levels” mentioned, which is generally a measure of what would normally be expected in an area where there is no hydrocarbon system.

IVZ’s sample has gas shows 65 times above that background level.

If there was no working oil and gas hydrocarbon system in the area then we would expect this measure to be far lower and probably in line with the background levels.

We also note that these readings came from the first of two primary targets which may mean IVZ is close to what it is ultimately chasing - a big fat gas column.

  1. Elevated Fluorescence - 100% fluorescence indicating condensate or light oil.

Fluorescence is measured by putting the mud samples from the well under UV light.

When drilling for oil and gas, strong fluorescence can generally be an early indication of oil and gas presence.

The intensity and colour of fluorescence are useful indications of oil gravity and mobility (basically the weight).

In today’s announcement, IVZ mentioned that its samples indicated “the presence of condensate or light oil”.

Generally, lighter hydrocarbons are more valuable because they yield a high value, lighter product that is easier to refine.

At this stage, this is a great early signal that IVZ may have found the higher value, easier to process, type of oil & gas.

Again, this is similar to what 88 Energy announced that spiked and re-rated their share price... until they failed to bring oil to the surface, which IVZ will be attempting in the next few weeks.

The difference between 88 Energy and IVZ’s announcements?

IVZ’s initial observations were measured as 100% fluorescence, whereas 88 Energy’s was considered “weak to moderately dry”.

In summary, IVZ’s announcement looks a lot stronger and we are hoping this translates in an positive response in IVZ’s share price.

  1. A working hydrocarbon system.

This one is relatively straightforward.

IVZ is looking to make an entirely new oil and gas discovery.

This means it is trying to prove its pre-drill theory of there being trapped oil and gas accumulations underground.

The presence of a “working hydrocarbon system” is exactly what IVZ would have been hoping it would find coming into drilling, and now it has this.

All that is left is to wireline log and prove just how big the columns are and whether or not there are moveable hydrocarbons in these systems.

A positive wireline log and sample in the next few weeks will increase expectations of all the other targets in IVZ’s Cabora Bassa Basin.

What’s next for IVZ?

Drilling results from the Mukuyu-1 well 🔄

After today’s announcement, IVZ’s drill rig is drilling through its two primary targets in the 600 and 650 horizons (Upper Angwa Alternations Member).

The well is currently at a depth of ~3,086m and after some more maintenance work (changing a downhole motor and drill bit) will start to drill down to the total depth of 3,500m.

After drilling is complete, IVZ will commence its wireline logging programme where IVZ will ultimately look to identify movable hydrocarbons and put out “net pay” numbers.

This we think will be the major catalyst for a re-rate in IVZ’s share price.

IVZ expects the drilling program to be complete by late November, early December.

Drilling of the Baobab-1 (Basin Margin) well 🔄

The Baobab-1 well pad construction is already underway and is scheduled to be completed before the Mukuyu-1 well is finished drilling.

IVZ expects to move its drill rig to the Baobab-1 target as soon as the Mukuyu-1 well is completed.

We expect to know more about timing on this well in late November, BUT the timeline could change significantly if IVZ hits any large gas columns, as any major hits would mean IVZ spend more time analysing the results of the Mukuyu-1 well.

Our 2022 IVZ Investment Memo

Today’s news contributes to the last remaining objective #4 of our IVZ Investment Memo:

Click here for our IVZ Investment Memo, where you can find the following:

  • Key objectives we want to see IVZ achieve
  • Why we are Invested in IVZ
  • What the key risks to our Investment thesis are
  • Our Investment plan

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,987,102 IVZ shares and 1,217,101 options and the Company’s staff own 60,000 shares and 10,845 options at the time of publishing this article. The Company has been engaged by IVZ to share our commentary on the progress of our Investment in IVZ over time.



General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.

 

Get Expert Stock
Analysis and Opinions

Join thousands of other Investors following our stock commentary for Free

X