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IVZ's wireline logging results announced


Published 04-JAN-2023 10:08 A.M.


13 minute read

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,692,102 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.

Yesterday our 2020 Energy Pick Of The Year Invictus Energy (ASX:IVZ) finished drilling operations at its first ever oil and gas well at its project in Zimbabwe.

The results from the well and the subsequent sidetrack well proved a working hydrocarbon system.

Gas at 135x above background levels and multiple potential gas bearing reservoir units were found.

On its own these are excellent results for the first ever well in an undrilled basin - however there was one final piece of the puzzle missing.

We were hoping to see a hydrocarbon sample brought to surface allowing an official “discovery” to be declared.

But due to technical issues with a tool getting stuck in the well, no such sample was obtained.

Rather than keep spending money on getting an elusive fluid sample, IVZ prudently decided it was time to stop work, analyse the data they now have and use it to plan its next well.

As such IVZ was not able to officially announce the “D” word - a hydrocarbon “discovery” on Mukuyu-1.

In case you missed the full investor briefing and Q&A given by IVZ MD Scott Macmillan yesterday, you can watch the replay here.

IVZ achieved pretty much everything aside from the final step needed to declare a “discovery” - and unfortunately has missed out on all the media, government and investor attention, and a big share price re-rate that typically comes with a rare discovery announcement.

We still look at the well drilled and the sidetrack well as a success, as IVZ did confirm a working hydrocarbon system at ~900m gross interval (this is the potential size of the oily hydrocarbon system).

IVZ is clearly happy with it too, evidenced by them having just contracted the Exalo drill rig for further 12 months of drilling in the basin.

However, with no discovery announced, and market expectations high, hot money and retail traders speculating on a discovery announcement sold out on this news yesterday.

The IVZ share price was trading at ~30c pre-announcement to ~15c for most of the day post the announcement.

We held a bigger position than we usually would into this result: 3,692,102 IVZ shares and 1,217,101 options, which is down 50% on paper from the pre-result price.

We plan to continue to hold this position into the lead up of the next drilling event planned for this year.

Given that IVZ has now proven a working hydrocarbon system in the basin and has 13 other targets to go after, we may also look to increase our position over the coming weeks. We would look to do this while the share price has taken a hit, sentiment is relatively low, and the next drill date hasn’t yet been announced by IVZ.

Given that IVZ has now proven a working hydrocarbon system in the basin and has 13 other targets to go after, we may also look to increase our position over the coming weeks. We would look to do this while the share price has taken a hit, sentiment is relatively low, and the next drill date hasn’t yet been announced by IVZ.

Exact timing and drilling location for the next well is pending analysis of data collected and new pre drill work to be planned such as 3D seismic data gathering

It’s not back to the drawing board - but rather the next chapter forward for IVZ in 2023, with a lot of valuable lessons learnt.

Given IVZ has secured the drill rig for the next 12 months, it should reduce delays between drilling campaigns and give the company another crack at a discovery.

It is likely that IVZ will need to raise some more money to fund 2023 drilling campaigns, or look towards a farm-in partnership for funding. We will be putting our hand up to participate in a capital raise if it happens.

With all high-risk drilling events there is a chance that the outcome doesn’t meet expectations.

We are hoping that the knowledge gained from the first well will put IVZ into a better position to select the optimal target to hopefully make a discovery in 2023.

Investing in small caps is an emotional rollercoaster and often a game of patience, and we back Managing Director Scott Macmillan and the rest of the IVZ team to deliver on another exciting drilling campaign in 2023.

Maybe even two...

Since our first Investment in IVZ back in September 2020 our hope was always to see IVZ deliver an oil and/or gas discovery.

To be able to officially declare a discovery IVZ needed to produce a fluid sample and confirm ‘movable hydrocarbons’.

Unfortunately, IVZ didn’t declare the “D” word yesterday.

As a result of technical and operational issues the wireline logging tools (the tools needed to obtain a fluid sample) are now “non functional”.

The latest issue came when the wireline logging tool became stuck in the Mukuyu-1 sidetrack well, and after an unsuccessful “fishing while logging” expedition to try and retrieve the tool and a fluid sample - IVZ decided to finalise the Mukuyu-1 well.

While a fluid sample wasn't obtained for a wildcat well (the first one in this basin) IVZ has managed to de-risk its project significantly.

With the final results in here are our key takeaways from IVZ’s Mukuyu-1 well:

✅ A 10-15m interval indicative of potential hydrocarbons (oil and/or gas) was intersected across the first three of shallow targets.

✅ Seal was identified with several hundred-metre thicknesses above the deeper 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 that IVZ is drilling for.

✅ Elevated gas shows up to 135x above background gas levels through the first of two primary targets.

✅ Elevated (100%) fluorescence, indicating condensate or light oil.

✅ Elevated Logging While Drilling resistivity.

✅ 🛢️A working conventional hydrocarbon system declared. 🛢️

✅ ~900m gross interval in one of the primary targets (upper Angwa)

🔲 Wireline logging results - Multiple potential gas bearing zones found - but IVZ was unable to obtain a fluid sample of any moveable hydrocarbons. As a result, the company couldn't officially declare a new discovery.

Beyond this, we are still waiting for final lab analysis of all drilling data. This should improve IVZ’s understanding of the project and help refine the well design for its next drilling program.

In yesterday’s announcement IVZ also confirmed that it has signed an agreement for a 12 month contract extension for the drill rig (Exalo Rig 202) to stay on site - meaning we are likely to see IVZ drill again this calendar year (maybe even twice).

IVZ confirmed that the rig would be “warm stacked” which basically means the well is on standby, ready for use (after maintenance and upgrade works) - likely at either of the following targets:

  1. Appraisal well at Mukuyu-2 - Here IVZ would be drilling the same Mukuyu prospect where drilling has just finished. The key point of difference would be that the well would be an appraisal well given IVZ has already identified a ‘working hydrocarbon system’. All results of Mukuyu-1 would guide the selection of the Mukuyu-2 drill location and operations.
  2. Basin margin well at Baobab-1 - Here IVZ would be drilling the first of its five basin margin targets where the company has a gross unrisked prospective resource of ~1.2 billion barrels of oil.
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Ultimately these drilling programs form the basis for our IVZ “Big Bet” which is to see the company make a new discovery.

Our IVZ 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:

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Key takeaways from the investor webinar

Yesterday morning we listened to Managing Director Scott Macmillan go through the results of the drilling campaign, and provide an update on IVZ’s strategy going forward.

Click here or on the image below to listen to the full video.

If you don’t have time to sit through the full 90-minute presentation, here are some of our key takeaways from the webinar:

Commentary on drilling results

Scott opened the presentation with an optimistic outlook on the results.

In particular, the log analysis indicated multiple gas bearing units, with elevated gas shows up to 135x above background resistivity and a proven hydrocarbon system.

Ultimately, a discovery wasn’t announced, however, some of the key geological aspects of the project were de-risked, in particular the presence of source rock and the presence of a seal.

The drilling campaign has given IVZ a much better understanding of the geology which will factor into the drilling campaigns planned for 2023, and de-risked the remaining prospectivity in the basin.

IVZ will soon undertake an analysis of its datasets and core samples to get a better understanding of the permeability and refine the pay intervals.

Drill Rig Secured for 2023 - Scott talks about this from 6:10 onwards

IVZ secured an agreement with Exalo to keep the drill rig inside Zimbabwe for the next 12 months.

As a result of the agreement, IVZ gets to have the rig on site and will be more or less ready to go and drill its next well. The primary benefit from this is that IVZ doesn't need to go through the entire drill rig mobilisation/demobilisation process again.

This saves both costs and time for IVZ.

Scott confirmed that the rig would now undergo maintenance and upgrades (particularly with regards to the ability to deal with mud systems) to improve drilling performance.

As soon as IVZ is ready to drill again it can quickly move the rig to the final well location and start drilling.

Looking forward to 2023

Lab results from Mukuyu-1 - 24:30 minute mark.

During the webinar Scott also commented on lab results pending from the Mukuyu-1 well which would help refine the geological model leading up to a new well in 2023.

Where IVZ will drill next - 26:00 minute mark & again at 58:57.

Scott mentioned that the company would look to drill either Mukuyu-2 appraisal well or the Baobab-1 basin margin well.

The primary difference between the two being that the Mukuyu-2 well would be a lot more de-risked given IVZ has already confirmed a working hydrocarbon system with Mukuyu-1.

At this stage there is no specific guidance but Scott did mention that he thinks the Mukuyu-2 well is a lot more likely to come next.

Production Sharing Agreement - 1:17:00 mark.

Scott also touched on the progress IVZ is making in terms of the Production Sharing Agreement.

This would effectively be the final stage of permitting before IVZ has certainty around tenure, as well as having fiscal and legal frameworks in place, should IVZ commercialise its project.

Below is an image from IVZ’s 2021 Investor Presentation, showing where a Production Sharing Agreement sits in the permitting process.

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Potential 3D seismic acquisition program - 20:50 minute mark & again at 39:26.

Scott mentioned throughout the webinar that IVZ may consider shooting some 3D seismic over the Mukuyu prospect before drilling Mukuyu-2 and put the potential cost of the program at ~$4.5M.

This is a possibility for the next step before drilling Mukuyu-2 but at this stage IVZ hasn't committed to it.

Comments on Funding - 23:30 minute mark.

Scott confirmed that some of the cash that had been reserved for the next well was used to drill the Mukuyu-1 sidetrack well.

Given this, he confirmed that IVZ may need to look to raise additional funds for its next well OR consider bringing in a farm-in partner.

Importantly, Scott confirmed that a farm-in agreement would be a lot easier to complete given the data IVZ will have on hand after Mukuyu-1 (Scott comments on this at around the 52:00 minute mark).

What’s next for IVZ?

Lab analysis of drilling results 🔄

IVZ confirmed yesterday that all of the drilling data from the Mukuyu-1 well would now be shipped off to a lab for detailed analysis.

The results from this should mean IVZ can refine and improve its geological model of the Mukuyu prospect which can feed into future well designs and improve the likelihood of the company targeting more prospective oil and gas zones.

At the highest level, after the data is analysed IVZ will have a much stronger understanding of its project from both a geological and technical point of view.

Drilling of second well 🔄

After yesterday’s announcement, IVZ plans to drill one of the two following wells in 2023.

In terms of timing, Managing Director Scott Macmillan mentioned in yesterday’s investor webinar that guidance would be given after long lead items are ordered and on site.

The two wells IVZ has flagged are as follows:

1.Mukuyu-2 appraisal well.

This one is more straightforward and would see IVZ go back and drill the same Mukuyu prospect.

The difference this time would be that IVZ would now be drilling a de-risked “appraisal well” which basically means IVZ is drilling an already identified Oil & Gas prospect.

Instead of being a complete wildcat well where the company is drilling an area where it could potentially find nothing, IVZ already has a working hydrocarbon system and over 900m of potential gross hydrocarbon intervals.

At a very high level, this would be the less risky well to drill for IVZ especially after IVZ can refine its well design using the data gathered from the Mukuyu-1 well.

We also note that Scott mentioned in the Investor Webinar that IVZ might look to run 3D seismic surveys across the prospect so that the next well at the prospect would be in the best spot for a successful outcome for the company.

2. Baobab-1 (Basin Margin) well

Here, IVZ plans to drill its first basin margin well.

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Across the ‘Basin Margin Play’ IVZ has an estimated 1.2 billion barrels of oil (gross mean unrisked) across five drill ready prospects that it first plans to test with the Baobab-1 well.

IVZ previously said that Baobab-1 well pad construction was underway and was scheduled to be completed before the Mukuyu-1 well was finished drilling.

IVZ had initially planned to drill Baobab-1 as soon as the Mukuyu-1 well was completed but given the results from the Mukuyu-1 well, there is a possibility that this is sidelined until after an appraisal well at Mukuyu-2.

Our IVZ Investment Memo

After yesterday’s announcement IVZ has completed the key objective we wanted to see the company achieve as part of our 2022 Investment Memo (IVZ Memo #1) - to drill its first well at its oil and gas project.

Having completed drilling operations, we will now wait for IVZ to release the final results from the lab analysis ongoing for the Mukuyu-1 well and for the company to detail its forward exploration plan before putting together a new IVZ Investment Memo.

Be on the lookout for our IVZ Memo #2 in the coming weeks (after we hear the forward plan from the company) and also our review of how IVZ performed against each area of our IVZ Memo #1.

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.

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