IVZ Secures Sovereign Wealth Fund backed Strategic Investment. PPSA and Farm-Out very close. Mukuyu-2 Flow Test Imminent.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 5,740,409 IVZ shares and 2,967,713 IVZ 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.

Invictus Energy (ASX:IVZ) is back.

After a quiet 2024 so far, IVZ just updated the market, and there is a lot to digest... and to look forward to.

We just finished watching the IVZ investor briefing (link to watch the recording below).

...and we have certainly missed “IVZ watching” during the recent quiet months.

But today looks like the starting gun for IVZ into a busy period of material newsflow.

Today’s news - a US$10M strategic capital raise backed by the Sovereign Wealth Fund Of Zimbabwe - known as the Mutapa Investment Fund.

This US$10M capital raise will be done via a placement to strategic Zimbabwe institutions and comes with a new listing on the Zimbabwe stock exchange, which is called the Victoria Falls Stock Exchange (VFEX).

We also got a pretty good idea of what to look out for next..

“Funds to be utilised for Mukuyu-2 flow testing, advancing early monetisation opportunities and purchase of long leads for new exploration wells”

The upcoming flow test for its Mukuyu-2 discovery could be a major catalyst if IVZ can deliver a commercial flow rate.

We also got an update on the long awaited Petroleum Production Sharing Agreement (PPSA) - The Zimbabwe Sovereign Wealth fund is going to implement the PPSA (in Scotts words, “very shortly”).

From the investor webinar: “the production sharing agreement will be delivered very shortly and then we expect very quickly off the back of that also our farm out process which has been going on in the background”

We also heard that a farm-out process with a “strategic partner” is progressing well - we take “strategic partner” to mean it’s a bigger oil & gas company.

In the webinar, Scott guided the completion of the farm-out to occur “very quickly after the PPSA”.

(a “farm out” is basically swapping a share of the project in return for funding of drilling and/or operatorship from a partner company - Scott mentioned repayment of back costs too - meaning a further non-dilutive cash injection for IVZ)

The announcement also mentioned in the use of funds “Long lead items for new exploration wells”

In the webinar Scott mentioned an “aggressive exploration campaign” at IVZ’s “basin margin and eastern flank targets“ across a multi well campaign - with drilling costs reduced by ~40% due to the higher number of expected wells.

(Source)

It's been almost 12 months since IVZ declared its discovery at Mukuyu “the 2nd biggest discovery in Sub Saharan Africa for 2023”

After today’s announcement we have a pretty good idea of what IVZ is looking to do and what to look out for over the next few months.

Three major catalysts we think could re-rate IVZ’s share price -

1. Flow test and prove its discovery is commercial - The US$10M strategic raise announced today should get IVZ through a flow test of its Mukuyu-2 well to see if the project can deliver commercial flow rates.
2. Finalisation of the Petroleum Production Sharing Agreement (PPSA) - this one is big from a project tenure/ regulatory perspective. We think its exactly what a big partner wants to see get finalised before it commits to a deal with IVZ.
3. Farm out discussions with a strategic partner - probably what the market wants to see, external validation of huge discovery.

(Source)

The two catalysts likely have a lot of overlap - a big partner would likely want to see a PPSA in place before coming onboard and the PPSA probably requires certainty of financing before it's locked away...

Participation in today’s raise by the Sovereign Wealth Fund of Zimbabwe is a solid sign the first catalyst is likely to get done very soon.

(Source)

We think the PPSA will ultimately open the door for any big deal with a farm-out partner.

That’s the major catalyst we think the market is waiting to see.

AND IVZ confirmed in a recent presentation that it was in discussions with partners all across the capital stack - upstream/downstream/strategics and regional banks.

That highlight in the middle from the following slide is particularly interesting, mentioning:

“Several parties actively assessing and working towards funding offers expected to fund CY24-25 work programs”

(Source)

Once the US$10M raise announced today is done and IVZ has a farm out partner locked in it will be all about getting IVZ’s discovery developed and brought online.

(Source)

Our key takeaways from today’s webinar:

We sat in on the webinar MD Scott Macmillan ran an hour ago - you can watch the recording here.

Here were some of our key takeaways:

• As we touched on earlier, Scott mentioned how important the underwriting by Mutapa (Sovereign Wealth Fund Of Zimbabwe) for today’s raise was for getting the Petroleum Production Sharing Agreement (PPSA) signed. He specifically mentioned how an “upstream JV partner” would be easier to get done now that the “Above ground” stuff is about to get finalised.
• He specifically mentioned that the PPSA would be delivered “very shortly”.
• Scott also spoke about how the PPSA would unlock farm-out partners. This makes sense as it would outline to a major looking in, what sort of government backing the project has and the terms under which the project would be governed.
• Scott mentioned IVZ was close to a farm-out deal and that any deal would involve a big funding package with it. He mentioned the cash injection would be a mix of “recovery of back costs” (cash to IVZ) as well as funding for IVZ’s “aggressive exploration program” across its basin margin and eastern flank targets AND 3D seismic.
• Scott specifically mentioned the US$10M being raised would go toward flow testing its Mukuyu discovery AND to purchase long lead items for future drilling programs.
• He mentioned the flow test was important because it would lay the groundwork for phase 1 of IVZ’s development strategy which is to start producing and selling gas via a pilot project to the nearby Eureka gold mine.

Scott’s webinars are always a good listen, and today’s one was no different, especially with the context he gave on why the raise is important from a non-financial perspective.

For those who missed the webinar here is a link to the video:

(Watch the webinar recording)

Our IVZ Investment Memo

A lot of our IVZ Investment Memo focused on drilling Mukuyu and making a discovery.

Now that IVZ has made a discovery our IVZ Investment Memo has largely been completed.

Now it's all about getting IVZ’s project commercialised and bringing on a big funding partner to help drill out the remaining targets (along the basin margin and eastern flank).

We will be looking to put out a new IVZ Investment Memo in the coming weeks to lay out what we want to see the company achieve going forward.

For now here is a pretty good summary of why we continue to hold IVZ in our Portfolio.

Why we are Invested in IVZ

Below are some of the key reasons and our previous coverage of why we think IVZ’s basin opening discovery is a major milestone for the company.

• IVZ holds the key to the basin, if a discovery is made (Basin Master position) - IVZ holds ~80% of its project and if a discovery is made it gets to decide what happens with the project post-discovery.
• Oil and gas majors have paid multiples of IVZ’s current valuation for discoveries across East Africa - some transactions were done at 12x to 224x of IVZ’s implied working interest % on its project.
• Basin Margin ‘String Of Pearls Play’ undrilled -IVZ has ~1.2Bn barrel oil equivalent prospective resources across basin margin targets. Basin Margin targets in the East African Rift System have an exploration success rate of 100% - 14 discoveries from 14 wells.
• Directors who have had success in the East African Rift System - After drilling its first well in 2022, IVZ appointed John Bentley as its chairman and Robin Sutherland as its non-executive director. John built from the ground up and sold Energy Africa to Tullow Oil for US$500M and Robin worked for both Energy Africa and Tullow Oil.
• IVZ is looking to do what Africa Oil has done before - back in 2012, Africa Oil Corp (TSX.V:AOI) drilled a string of successful wells and delivered a 1,000% share price run and sustained re-rate. We are hoping IVZ does the same thing.
• Carbon offset projects to generate carbon credit revenues - IVZ is in the early stages of building out a carbon offset business that could generate revenues from carbon credits. IVZ is a unique small cap exposure to global carbon credit prices.
• One of the biggest conventional oil and gas prospects globally - IVZ has a gross unrisked prospective resource of ~5.5 billion barrels of oil equivalent making it one of the largest conventional oil and gas targets in the world.
• The Zimbabwe Sovereign Wealth Fund is aligned with IVZ - Back in March 2022, IVZ signed a head of agreement with the Zimbabwe Sovereign Wealth Fund which would see the fund take an interest in the project - this aligns the government and the people of Zimbabwe’s interests with IVZ.
• US$30M in work done by Mobil before IVZ acquired the project -The project had US$30M in legacy data leftover by Mobil from the 1990’s. Interestingly Mobil had never drilled the project before IVZ took control of it.
• Strategically located next to South Africa - IVZ’s project sits next to South Africa which is one of Africa’s biggest energy consumers and is expected to be structurally short of energy supplies over the next decade.