IVZ holds an interest in the entire Cabora Bassa basin. In the event the company officially declares a discovery, any major company looking for exposure to the basin will need to negotiate a deal with IVZ.
$0.057
Opened: 13-Jul-2023
Shares Held at Open: 5,893,666
What does IVZ do?
Invictus Energy (ASX: IVZ) is an oil and gas exploration company looking to confirm a discovery in Zimbabwe, Africa - one of the few underexplored basins remaining in the world.
IVZ is also developing a carbon offset project in Zimbabwe which could see it develop the world’s first carbon neutral gas project.
What is the macro theme?
Natural gas demand is set to increase in Africa as it replaces existing coal power generation.
As governments around the world look to phase out ageing coal generation, gas will play a critical role in providing a lower carbon footprint. Gas is a more cost-effective alternative to base-load energy generation.
A potential discovery by IVZ has the potential to supply both Zimbabwe and the gas hungry South African market.
IVZ’s carbon offset project also provides a rare ASX listed exposure to the “carbon credits” markets which is expected to grow by ~500% by 2030.
Our Big Bet for IVZ
To see IVZ go on and 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.
Why did we invest in IVZ?
“Basin Master” position in Zimbabwe
IVZ holds an interest in the entire Cabora Bassa basin. In the event the company officially declares a discovery, any major company looking for exposure to the basin will need to negotiate a deal with IVZ.
Basin margin ‘String of pearls’ play
IVZ holds ~90km of basin margin fairway with a prospective resource of 1.17 billion barrels across five drill ready targets.
IVZ’s basin margin is analogous to the Lokichar basin where Africa Oil made its discovery and re-rated by over 10x. For context, the Lokichar basin saw >0.8 billion barrels of oil discovered with an 88% success rate after the first discovery was made.
De-risked project
IVZ has already confirmed a working conventional hydrocarbon system at its project. All the company needs to do to declare an official discovery is bring an oil/gas sample to surface.
With the data and lessons learnt from its first well, we hope IVZ will deliver this milestone.
Strategic Location bordering South Africa
IVZ’s project is located in Zimbabwe which borders energy hungry South Africa. The project benefits from immediate access to well developed energy markets servicing ~230 million people.
South Africa in particular needs more natural gas supply with significant shortages expected by the year 2030 as the country looks to transition away from coal powered generators.
Experienced management team to lead project development
IVZ recently brought on board John Bentley as Chairman and Robin Sutherland as a Non-Executive Director. John grew the small cap company Energy Africa before selling the company to Tullow for US$500M.
Robin led the Tullow exploration team through multiple discoveries, including the ones made in the Lokichar Basin in Kenya (the basin we always compare to IVZ).
Rare ASX exposure to a blue sky carbon offset project
Concurrent with its gas project, IVZ is developing a carbon offset project on a 50:50 partnership basis with the Forestry Commission of Zimbabwe.
Carbon credits are expected to trade for up to US$80-150/tonne by 2035 - once IVZ’s project is verified as eligible to generate carbon credits this could produce a second revenue source for the company.
What do we expect IVZ to deliver?
Objective #1: Drilling of the Mukuyu-2 appraisal well
We want to see IVZ drill the Mukuyu-2 appraisal well and officially declare a new discovery.
Milestones
Long lead items ordered
Well design completed - location finalised
Drill rig mobilised (warm stacked rig)
Drilling starts
Drilling finishes
Drill results
Objective #2: Financing for the Mukuyu-2 well
IVZ’s well is now funded having raised $35.4M in cash over the last 6 months. There is also a possibility IVZ looks to bring in an offtake partner for the project which may help with future funding rounds.
Milestones
Capital raise 1.1 - Placement at 12c
Capital raise 1.2 - SPP at 12c
Capital raise 1.3 - Placement at 12c
Offtake MOU/agreement
Objective #3: Identify and confirm the first basin margin well
We want to see IVZ firm up its first drilling target across its basin margin fairway. At this stage, it looks like IVZ will drill the Baobab prospect but given the company is looking to acquire more 2D seismic data this could change.
Milestones
Review targets
2D Seismic acquisition program
Prospective resource update
First basin margin well location finalised
Objective #4: Progress the development of its carbon offset project
We want to see IVZ progress its carbon offset project to the point where it becomes accredited under Vera’s Verified Carbon Standard (VCS) program so that the carbon credits can be sold in the open market.
Milestones
Results from the pilot program
Financing/partnership agreement on the project
Accreditation under Vera’s Verified Carbon Standard (VCS) program
What could go wrong?
Exploration risk
IVZ is planning two wells, the first is an appraisal well and the second is a new exploration well.
While the appraisal well is somewhat derisked (because it is targeting a known hydrocarbon system) there is still a risk that nothing commercial is found.
There is also a risk of technical failure while exploring.
Commercialisation risk
If gas is found it doesn't guarantee that it can be economically produced, there is a risk that the water content of the gas flows is too high making it uneconomic to extract.
Flow-rates will need to prove that any gas found can be economically produced.
Commodity Price Risk
Ultimately demand for gas and its price will dictate the economic viability of IVZ’s project.
Market risk
If the broader market sells off there is a chance that investors shy away from high risk investment opportunities like oil and gas explorers.
IVZ is a pre-revenue explorer and may be impacted by these market wide sell offs.
Funding risk
IVZ does not generate any revenues and so is reliant on fresh funding for its exploration programs.
This means IVZ is reliant on access to capital, if the markets are unwilling to finance IVZ’s exploration programs the company may need to go slow on its operations or offer large discounts to its share price when raising capital.
Geopolitical Risk
The project is located in Zimbabwe which has a history of political and economic instability, there is always a risk that geopolitical issues make it difficult to advance the gas project.
IVZ has a preliminary Production Sharing Agreement Finalised but the second half is not completed, there is a risk that the agreement is delayed or that IVZ gives up a portion of the project as part of the agreement.
What is our investment plan?
As with all our early stage oil and gas Investments, we Invest early, well before the main drilling event and will aim to be free carried and have taken some profit before the drill result comes in.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 5,893,666 IVZ shares and 2,675,435 IVZ options and the Company’s staff own 101,667 IVZ shares and 31,679 IVZ options at the time of publishing this memo. The Company has been engaged by IVZ to share our commentary on the progress of our Investment in IVZ over time.
Binding farm out agreement
