IVZ Drill Update: Regional seal and 10m to 15m potential hydrocarbon interval

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.

Drill progress update: IVZ’s drill is now at 2,021m out of a planned 3,500m.

Initial logging has today revealed a 10m to 15m potential hydrocarbon interval.

This is just from the first 3 out of 7 targets.

A substantial regional seal above the primary targets has now been confirmed.

The primary targets are being drilled into now and will take another 3 to 4 weeks.

Encountering the regional seal is a major geological ‘de-risking’ ahead of drilling into the primary targets.

The 10m to 15m of potential hydrocarbons is significant, but at this stage is interpreted based on resistivity logging only.

IVZ made the decision NOT to run a downhole tool to test pressure OR to take a sample to surface, due to hole conditions (mud weight and tight reservoir) and tool availability - any of which could delay the drilling into the primary targets of the well.

This is why the wording “potential ” was used instead of “discovery” - for the ASX to allow the announcement of a “discovery”, a hydrocarbon sample must be pulled to the surface - IVZ is instead prioritising drilling into the primary targets.

While announcing a “discovery” would have excited the market, we think not risking sampling of the 10m-15m interval was the right decision - imagine the uproar if sampling issues delayed hitting the primary targets by a couple of months.

So today we learnt that drilling has also confirmed a significant seal in place above the primary targets - which are being drilled next - which addresses one of the key geological risks that had been weighing on the market.

The final key takeaway is that the drill direction has now been altered to try and hit a better part of the primary targets. So fingers crossed we can then get that coveted “discovery” announcement with a surface sample from IVZ.

This is our quick interpretation of the news.

IVZ Managing Director Scott Macmillan is hosting an investor webinar at 10:30am AEST today to provide some commentary on this drill progress update.

Click this link to register your attendance and watch:

https://us02web.zoom.us/webinar/register/WN_Atks2m9xQ2K-a1-_Ozsn1w

In today’s drilling update, IVZ put out three key bits of news.

1. IVZ hit a 10-15m interval indicative of potential hydrocarbons (oil and/or gas) at the first target - due to hole conditions (mud weight and tight reservoir) and tool availability that could risk significant delays to drilling the primary targets.
2. Seal identified. Right above primary targets - with several hundred-metre thickness - This is good news - not having this seal was a primary risk going into the drilling program. Hopefully this means there’s a geological seal strong enough to trap oil and/or gas in the primary targets below.
3. Primary targets to be drilled within the next 3-4 weeks

Almost ten years on, and today’s news has a dejavu feeling to it.

We have been tracking an analogy to a previously successful drill campaign by Africa Oil Corp.

IVZ has announced a 10m to 15m interval of potential hydrocarbons from their initial targets - but sampling was not done to focus on primary targets.

Africa Oil’s basin opening Ngamia-1 well announced 20m of net pay from their initial targets - the key difference is they were in a position to run a tool to bring a sample to surface with little risk of delays, and hence were able to announce Kenya’s first ever oil discovery.

Africa Oil then went on to drill the primary targets and announced more oil columns and the share price went up over 1,000%.

This is what we are hoping IVZ can achieve from their primary targets and perhaps later from the revisiting sampling of the initial targets.

Of course, Africa Oil’s success does not mean IVZ’s drilling will be successful. Oil and gas exploration is always high risk.

While attempting to take a sample could have worked for IVZ, the company decided the risks of delaying drilling were just not worth it to delay the primary targets.

In terms of the tight reservoir encountered in IVZ’s initial targets - Africa Oil hit an 18m interval with its Twiga-2 well with similar reservoir conditions where the drill hit too close to a basin fault - before changing direction and then intercepting a much larger 62m column with resource potential.

IVZ now finds itself in a similar position across one of its seven stacked targets where it believes that by drilling from a different location, IVZ may be able to confirm a hydrocarbon discovery.

On top of all of this, IVZ hit a thick seal regional right above its primary targets, which has set up a grandstand finish for the rest of its drilling program.

With drilling scheduled to be completed before the 22 November (60 days after drilling started on the 23 September), we are hoping an official discovery is declared, and we see that Africa Oil style re-rate in IVZ’s share price.

Investors who were expecting a hydrocarbon announcement from the first two targets will need to wait a little longer, as the call was made to forgo pressure sampling on the 10-15m intercept.

The hallmarks of a discovery are there for IVZ... but for now our attention turns to the primary targets.

If a discovery is made, IVZ would unlock a whole new oil and gas basin in Zimbabwe, similar to the Africa Oil discovery which unlocked the Lokichar basin in Kenya - this was the key reason for Africa Oil re-rating by over 1,000% from ~$1 to over $10 per share.

Again in a similar fashion, both IVZ and Africa Oil went into the first drilling program with similar market caps.

To top things off, IVZ holds the “Basin Master position”, which basically means that in the event oil and gas is found, anyone who wants a piece of it will need to go through IVZ.

But again, we must stress Africa Oil’s success is no guarantee IVZ will be successful.

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 by clicking on the image below.

To run through today’s news, IVZ Managing Director Scott Macmillan will be holding an investor briefing this morning.

For those who want to get along, the details of the meeting are as follows:

Presenter: Managing Director Scott Macmillan

Time: Wednesday 26 October 2022 at 10:30 am AEST / 07:30 am WST

Where: Meeting will be done on Zoom.

Registration link:

https://us02web.zoom.us/webinar/register/WN_Atks2m9xQ2K-a1-_Ozsn1w

More on today’s news

Here are our three key takeaways from today’s announcement:

1. 10-15m interval indicating potential hydrocarbons.

Today, IVZ hit a 10-15m intercept, which it says is indicative of potential hydrocarbons.

More interesting to us was the fact that IVZ confirmed that it could test this target area a lot better just by repositioning the drill rig and drilling “away from the fault plane where better reservoir quality may be present”.

As soon as we read this, we remembered that something similar had happened with Africa Oil Corp (one of our first-ever big wins in oil and gas) when it was drilling its Twiga-2 well.

At Twiga-2 Africa Oil hit an 18m oil column with “limited reservoir quality”.

Africa Oil then made the call to sidetrack the well away from the fault to the north (still targeting the same prospective zones) before hitting a 62m oil column with resource potential.

IVZ now finds itself in that exact same position where a simple change in direction could be the key to unlocking whatever is trapped inside that particular stacked target.

For those who are not familiar with the Africa Oil connection to IVZ, here is a quick reminder:

Africa Oil Corp is the same company that, similarly to IVZ, drilled a basin opening well, hitting oil in 2012.

Off the back of this, its share price went from ~$1 to over $10 per share, and the rest was history for Africa Oil which hit a multi billion $ market cap.

Of course, past success for Africa Oil does not guarantee any success for IVZ.

We have written about the similarities between IVZ and Africa Oil in our previous notes and, more recently, just before IVZ started drilling.

To see that trip down memory lane, a summary of the similarities and our experience as shareholders of Africa Oil back in 2011-12 check out the following note here: IVZ to drill any day now - What a past successful exploration campaign looks like.

2. Seal identified measuring several hundred metres in thickness.

Given the size of IVZ’s target at 20 trillion cubic feet and 845 million barrels of liquids, a key technical risk was whether or not there was a strong enough layer of rock (the seal) in place to hold all of that oil and gas.

Today’s news confirms that IVZ has in fact hit something that could be resembling that all-important seal and that it is several hundred metres thick - big enough to potentially trap a discovery underneath it.

IVZ mentioned that drilling had slowed down during this first phase of the program because of the “presence of a substantial regional claystone/mudstone seal several hundred metres in thickness”.

Although this does cause delays, it is a very good signal that a seal might be present strong enough to trap all of the oil and gas in place.

This is something that may go unnoticed in today’s announcement but is one of the primary geological risks IVZ listed going into this drill program:

Of course, there is no guarantee that the seal is effective, and the next phase of drilling will ultimately determine this.

Which takes us to our third key takeaway for today.

3. Primary targets to be drilled in the next phase of drilling

This is perhaps the most important and is directly related to the identification of that potential giant “seal”.

IVZ is yet to drill through its primary targets.

With this next phase of drilling (which IVZ expects to start soon), IVZ will be drilling through the final section with its primary targets.

This is where we are hoping IVZ can make a basin opening discovery and deliver the catalyst for a major re-rate in IVZ’s share price.

IVZ has indicated that the well will be complete within 50-60 days from 23 September.

This means that there is less than ~four weeks before the drilling is complete and we know whether IVZ has opened up an entirely new oil and gas basin in Africa.

And of course, we still have a second well to look forward to after this one, which IVZ intends to drill immediately after this well, which means more potential for discoveries.

What’s next for IVZ?

Drilling results from the Mukuyu-1 well 🔄

After today’s announcement, IVZ has completed the “intermediate section” of its Mukuyu-1 well and is preparing to drill into the “final section”.

IVZ confirmed in today’s announcement that it will now run casing in the sections already drilled before the drill rig continues into the “primary targets”.

The well is set to reach its final target depth of ~3,500m before any wireline logging is complete.

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

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

IVZ has previously confirmed that the Baobab-1 well pad construction is 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.

This should be in around late November, but the timeline could change significantly if IVZ hits any large gas columns, as any major hits would disrupt drilling and shift IVZ’s focus towards Mukuyu-1.

Our 2022 IVZ Investment Memo

Today’s news contributes to 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