ivz.jpg

Invictus Energy Limited

(ASX:IVZ)

Current Price:

$0.250

Our Investment Summary

Date of
Initial Coverage

18-Sep-20

Initial
Entry Price

$0.038

Returns from
Initial Entry

558%


What does IVZ do?

IVZ is a gas exploration company drilling one of the largest un-tested gas prospects in Zimbabwe.

What is the macro theme behind IVZ?

Natural Gas demand in Africa to replace existing coal and oil energy generation. As governments around the world look to phase out ageing coal-generation, gas will play a critical role in providing a green and more cost-effective alternative to base-load energy generation.


Investment Memo: Invictus Energy (ASX:IVZ)

16-Feb-2022


Why did we invest?

A) First mover on an Elephant Scale Target-  Our primary reason for investing in IVZ was for it to go and replicate our previous success with Africa Oil back in 2012. IVZ's Oil & Gas project in Zimbabwe has a prospective resource (100% Gross Basis) of 9.25 TcF Gas + 294m barrels of Conventional Gas-Condensate. Drilling program expected to cost US$12m which is cheap considering the size of the target being tested.

B) Strategic Location bordering South-Africa- Zimbabwe over-looked in the past due to geopolitical issues & rampant inflation. With political climate improving & it's location bordering the Energy hungry South-Africa the project has immediate access to energy markets & direct to industrial users who are looking to transition energy consumption at there projects to a more green source.

C) We like big oil & gas exploration drilling events - We have been investing in early stage oil & gas exploration for many years, and three of our most successful investments have been in "swing for the fence" high impact drilling, especially if it is a "basin opening" drill. These are high risk but high potential reward. Big, basin opening, exploration wells (like IVZs) take a long time to prepare, but the share price usually runs up in the lead up to commencement of the drilling.

Click to see the key reasons for making our investment in IVZ

What we expect the company to deliver in 2022?

Objective #1: Detailed interpretation of seismic survey recently conducted.

We are hoping to see the results from the seismic survey form a major part of the planning process for the upcoming maiden drilling program.

Objective #2: Drilling rig contracted & permitting completed.

We are hoping to see all of the permitting process completed & drill-rigs contracted before the company needs to raise to finance drilling.

Objective #3: Financing for drilling

Potential farm-out to secure drilling financing.

Objective #4: This is the most important: We want to see the first drill.

What could go wrong?

Exploration Risk:

IVZ will be doing a maiden drilling program at its gas project, there is a chance the drilling finds no gas which could mean the project is stranded.

Economic Production 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.

Geopolitical Risk:

The project is located in Zimbabwe which has a history of political & economic instability, there is a risk that geopolitical issues make it difficult to advance the gas project. 1st half of the Production Sharing Agreement Finalised but 2nd half not completed, there is a risk that the government try's to take a large part of the proceeds from the project if it is successful.

Commodity Price Risk:
Ultimately demand for Gas and its price will dictate the economic viability of the project.

What is our investment plan?

As with all 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 profit before the drill result comes in. We look to hold at least 40% of our initial position into the first result, this is a ~3 year strategy.


Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 6,706,980 IVZ shares and 140,989 IVZ options at the time of writing this article. S3 Consortium Pty Ltd has been engaged by IVZ to share our commentary on the progress of our investment in IVZ over time.



IVZ Investment Milestones

Initial Investment: 3.9c
Increased Investment: 11c
Increase Investment 10c
Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 Price increases 2000% from initial entry
12 Month Capital Gain Discount
🔲 Free Carry
🔲 Take Profit
🔲 Hold remaining Position for next 2+ years


Our Past Commentary on Invictus Energy

Date Title
21-May-2022 $ 0.000 Commodities super cycles
14-May-2022 $ 0.220 Small caps in a shocking market
30-Apr-2022 $ 0.210 US market swings drove a wild week on the ASX.
28-Apr-2022 $ The IVZ Bidding War Has Officially Begun - Drilling in July
23-Apr-2022 $ 0.195 What exactly is a share price catalyst?
11-Apr-2022 $ 0.210 Why we invest in IPOs and our investment approach
07-Apr-2022 $ IVZ Identifies New Prospective Targets Ahead of First Well
04-Apr-2022 $ 0.185 Investing in Early Stage, High Risk Companies in 2022
28-Mar-2022 $ IVZ Gets a 7x Increase in Acreage, Focused on the Margins. Sovereign Wealth Fund on Board. Drilling Getting Closer
12-Mar-2022 $ 0.160 Nickel, the War and Under Investment in Exploration
05-Mar-2022 $ 0.140 Mainstream Media Catching on to the Commodities Supercycle
21-Feb-2022 $ 0.150 Why we invest in Oil & Gas and Precious Metals
16-Feb-2022 $ Years in the making: IVZ first drill now months away
12-Feb-2022 $ 0.155 Energy Transition Metals, Raw Materials, McKinsey, Supply and Demand Economics
31-Jan-2022 $ 0.120 Inflation, US Fed Reserve, Bond Yield, Cash Buffer Portoflio
22-Jan-2022 $ 0.115 Our Investment Approach, Energy Cold War, Ukraine, Supply Chain Crisis
14-Jan-2022 $ 0.120 How do Fund Managers Invest in Small Cap Stocks?
08-Jan-2022 $ 0.125 Early-year trading indicates market is set for an up-and-down year
18-Dec-2021 $ 0.115 Investing 101: Taking Stock of your Stocks and Diversification
11-Dec-2021 $ 0.125 ASX rests pre-Chrsitmas as the market trades on very low volumes
09-Dec-2021 $ IVZ Commits to Farm in Deal with British Tycoons - But Maintains Open Relationship
04-Dec-2021 $ 0.150 Omicron, Inflation and Investment Memos
06-Nov-2021 $ 0.145 COP26, Battery Metals, Green Energy
09-Oct-2021 $ 0.165 Investing 101: Key lessons for small cap investors
04-Sep-2021 $ 0.155 Annual Reports, Uranium and a Welcome to New Subscribers
10-Jul-2021 $ 0.155 Breaking News: Stellantis signs offtake MoU with VUL
26-Jun-2021 $ 0.160 June tax loss selling is behind us, KNI IPO expected in August
05-Jun-2021 $ 0.175 What did our investmensts do this week? BPM, VN8, IVZ, and more...
27-Apr-2021 $ 0.185 Our Portfolio Performance from January 1st to March 31st 2021
16-Apr-2021 $ 0.185 IVZ Price Runs on Positive Result in Same Petroleum System?
26-Mar-2021 $ 0.180 We just invested - Extra Exposure to Elephant Energy Explorer
11-Mar-2021 $ 0.089 Up 2,150% - Will IVZ Repeat this Run?
12-Feb-2021 $ 0.078 What are the best returns in our portfolio?
07-Jan-2021 $ 0.053 Our Stock Picks for 2021
18-Sep-2020 $ 0.051 Introducing Our Top Energy Pick of 2020: Eying Elephant Scale Potential



Investor Presentation

African gas to replace Russian gas supplies to Europe?

ASX:IVZ May 18, 2022

Investment Memo: IVZ 2022

Macro Theme: Natural Gas


The following news piece by the BBC asks the question “Can Africa replace Russian gas supplies to Europe?”.

Read the full article here.

Key takeaways from the BBC article is as follows:

  • Russia has the largest natural gas reserves in the world and is the largest exporter, accounting for around 40% of Europe's imports.
  • The EU wants to cut supplies by two-thirds by the end of the year and become independent of all its fossil fuels by 2030.
  • Africa’s biggest exporters (Algeria, Egypt and Nigeria) amount to less than half of what Russia supplies to Europe.
  • The good news is that there is great potential in Africa and the continent is well positioned with vast natural gas resources that could be developed to replace Russian supplies.
  • The EU has already started looking south with the Italian Prime Minister Mario Draghi only last month signing a gas supply deal with Algeria to increase gas imports by ~40%.
  • Energy economist Carole Nakhle says that in the medium and long term we “will see greater investment to increase the capacity to bring more gas out of the ground and bring them to Europe".

We have been invested in Invictus Energy (ASX: IVZ) which we made our 2020 Energy Pick Of The Year because of its elephant scale prospect, which has the potential to open up an entirely new oil and gas basin in Zimbabwe, should the drilling program in July make a successful discovery.

IVZ is currently fielding farm-in offers from several interested parties as it prepares for the two well drilling program in July, where the first well will be targeting a 8.2 trillion cubic feet (Tcf) + 247 million barrels of conventional gas condensate (gross un risked basis) prospective resource at Mukuyu-1.


Seismic data showing potentially hydrocarbon bearing zones

ASX:IVZ May 13, 2022 Announcement

Yesterday our 2020 Energy Pick of the year Invictus Energy (ASX: IVZ) put out an update on the analysis work going on for all the seismic data the company has put together leading upto the big drilling event in July of this year.

In the announcement IVZ also confirmed that it still on track to drill the Mukuyu-1 well in July of this year which will be targeting an independently estimated prospective resource of 8.2 trillion cubic feet (Tcf) + 247 million barrels of conventional gas condensate (gross unrisked basis).

Most of yesterday’s announcement was however focused on IVZ’s latest analysis around all of the 2D seismic that is available over its project area. The key takeaway being that IVZ believes the sections immediately below the shallow “Horizon 200” target at the Mukuyu target could be comprised of multiple stacked hydrocarbon bearing zones, ranging in thickness from 40 to 80m.

The significance of this is that the all of the data now correlates with the amplitude anomaly at the Horizon 200 target with all of the data suggesting a potential Direct Hydrocarbon Indicator (DHI).

IVZ shot ~840km of 2D seismic data and then went and reprocessed ~US$30M in legacy datasets left over by Mobil who ran some basin wide seismic surveys in the 1990s.

IVZ has now combined all of this data and looks to have refined the Mukuyu target to the extent that the company has a relatively decent idea of what it is targeting and where it expects to intercept gas bearing reservoirs.

Another key takeaway from all of this is that IVZ have managed to put together another key target that will be the focus of the upcoming Mukuyu-1 well - the 200 Horizon (shown in the image below). Importantly this sits outside of the current prospective resource and is extremely shallow at a depth of only ~850m.

The image below from yesterday’s announcement really helped us visualise what all of this seismic data is telling us, with a clear breakdown of the different stacked targets.

We suspect that with all of the new findings after processing all of this seismic data that IVZ could potentially look to update its prospective resource, especially given the newly identified “Horizon 200” target is currently excluded in the prospective resource figure.

With drilling expected to commence in ~2 months it may not be enough time, but we would like to see just how big of a target this well is actually shaping up to be.

We have been invested in IVZ since September 2020 and are looking forward to this year's big drilling event.

To see all of the key reasons why we invested in IVZ, what we expect to see the company achieve this year and the key risks to our investment thesis, check out our 2022 IVZ Investment Memo here.

We also note that IVZ’s Managing Director Scott Macmillan is holding a technical briefing to discuss these results at 12:00 AEDT today, which you can register for using this link - https://us02web.zoom.us/webinar/register/WN_h2tv-jIwT2uIrIi54UrUuQ


Wellpad construction ongoing, drilling to start in July

ASX:IVZ May 10, 2022

This morning we came across this drone footage from our 2020 Energy Pick of the Year, Invictus Energy’s (ASX:IVZ) LinkedIn page, which shows the progress being made with wellpad construction works at the Mukuyu-1 drilling location.

With wellpad construction progressing, IVZ confirmed on the post that the drilling program was scheduled for July.

We first invested in IVZ in September 2020 as the company prepared to drill out one of the largest seismically defined, undrilled oil and gas structures in onshore Africa.

IVZ’s Mukuyu prospect has an independently estimated prospective resource of 8.2 trillion cubic feet (Tcf) + 247 million barrels of conventional gas-condensate.

For some context on the size of the target, the Bass Strait which has been supplying the bulk of domestic Australian gas needs had ~10 trillion cubic feet of gas reserves at its peak.

Since we first invested, IVZ has run a detailed 2D seismic program, reprocessing US$30M in seismic datasets leftover by Mobil who were the previous owners of the project in the 1990’s. All of this means that IVZ has significantly refined its drill targeting and is now ready to finally drill its elephant scale prospect.

With wellpad construction underway and drilling approximately two months away, we detailed what else we are waiting on from IVZ in our last note which you can view here: What’s next for IVZ (note dated 28 April 2022)

To see all of the reasons why we continue to hold IVZ in our portfolio check out our 2022 IVZ Investment Memo where you can also find the key objectives we want to see IVZ achieve in 2022 and all of the key risks to our investment thesis. Click here for the Memo.


Italy looking to Angola for gas. EU interested in African gas

ASX:IVZ Apr 21, 2022

This morning we saw the following Bloomberg article which highlighted Italy’s recent deal to boost natural gas imports from Angola as the country tries to move away from a dependence on Russian energy imports.

At the moment Italy receives ~40% of its gas supplies from Russia and the Italian prime minister and ex-president of the European Central Bank, Mario Draghi said “We are delivering on our commitment to diversify energy sources”.

As part of the agreement, Italy will increase its gas purchases from Angola and will also look to be involved in the joint development of energy projects. The Bloomberg article also states that the PM would then look to travel to the Republic of Congo and later to Mozambique looking for similar deals.

We were already well aware of Europe's interest in looking south to replace its energy dependence on Russia, the move by the Italian government now provides for some macro tailwinds for other African energy projects.

We have exposure to this thematic through our 2020 Energy Pick of the Year, Invictus Energy (ASX:IVZ) which is less than 2 months away from drilling the largest seismically defined, undrilled oil and gas structure in onshore Africa.

IVZ's Oil & Gas project is located in Zimbabwe and has a prospective resource (100% Gross Basis) of 9.25 trillion cubic feet (TcF) Gas + 294m barrels of Conventional Gas-Condensate and is of a big enough size that in the event a successful discovery is made, we think the Europeans could start to show some interest.

We made our first investment in IVZ back in September 2020 primarily because of its elephant scale prospective resource. Since then we have been patiently waiting for the upcoming drilling program which is now scheduled to take place in June.

To see all of the reasons why we invested in IVZ, what we want to see the company achieve in 2022 and the key risks to our investment thesis, check out our 2022 IVZ Investment Memo by clicking on the image below.


Farm-in process restarted, new offers being considered

ASX:IVZ Mar 31, 2022 Announcement

In our most recent note on IVZ, in which we covered IVZ’s 7x increase in acreage from 100,000 to 709,300ha at its Zimbabwe gas project, we flagged that its farm-in option with Cluff Energy Africa might be put up for renegotiation.

Today, IVZ confirmed that Cluff Energy Africa’s option to commit to a farm-in over the project had been extended to 30 April and that it expects an updated binding farm-in offer by then.

IVZ also said that it is already in discussions with “multiple parties for additional farm-in offers”. This is a good sign as it will create competition amongst those interested parties.

With the seismic data reviews also likely to be nearing completion and the Sovereign Wealth Fund of Zimbabwe now backing the project we suspect that companies that alot of parties that may have been waiting on some of the political/permitting risks to be addressed are now interested in the project.

Today’s announcement now sets 30 April as the deadline for the farm-in process to be finalised leading up to the two well drilling program scheduled for June.

What’s next: We want to see the seismic data processing and analysis finalised, well locations confirmed, and some binding farm-in offers in the lead up to the maiden drilling program in June.

To see the key reasons we continue to hold IVZ in our portfolio and what we want to see the company achieve this year, check out our 2022 Investment Memo here.


Trading halt pending an update regarding its permitting

ASX:IVZ Mar 24, 2022

This morning we saw our 2020 Energy Pick of the Year Invictus Energy (ASX:IVZ) go into a trading halt pending an update with respect to the outstanding permitting of its project.

It’s difficult to say for sure what the announcement will be regarding but given the trading halt quotes that IVZ “will be providing an update in relation to finalising an agreement relating to the Company’s SG 4571 Permit with the Government of the Republic of Zimbabwe” we hope it is related to the production sharing agreement that IVZ said was nearing completion.

In our last note we said that we expected IVZ to make progress converting its Petroleum Exploration Development and Production Agreement (PEDPA) (which was signed in March 2021) into a 25 year 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 make a large scale discovery during its maiden drilling program in ~June.

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

We will be watching for the announcement, which should be out on or before Monday. If the Production Sharing Agreement is finalised, then the pathway to the potentially basin opening drilling program will be much clearer.

This year’s drilling program is the main reason we are invested in IVZ.

For more on why we continue to hold IVZ in our portfolio and what we want to see the company achieve in 2022, check out our 2022 Investment Memo here.


Rig contract executed, drilling to commence in June

ASX:IVZ Mar 10, 2022

Ahead of its drilling program that’s anticipated to commence in June, IVZ today confirmed that the final drill rig contracts had been signed for its Muzarabani-1 well in Zimbabwe, as well as an option to drill a second exploration well.

As for the option for a second well, IVZ is currently waiting on the formal granting of the extended licence area before committing.

IVZ have agreed on is the Exalo #202 rig, which can drill down to a depth of ~5,000m and is expected to begin mobilisation at IVZ’s project in May.

A key takeaway from today's announcement for us is that IVZ has managed to secure a rig that is powerful enough to drill down to ~5,000m depths.

In the most recent investor webinar, managing director Scott Macmillan mentioned that the seismic data to date showed that a drill rig could test five different structures of interest by drilling to a depth of ~4,500m.

IVZ is still finalising its interpretation of the seismic data it acquired in 2021 as well as the US$30M legacy dataset left over by Mobil as it works to firm up where it will be drilling in June.

We set this as objective #1 in our 2022 Investment Memo which you can check out here.


Final Processed Seismic Data Received

ASX:IVZ Feb 28, 2022

Today IVZ announced that the datasets from its 2021 2D seismic survey and the re-processing of the US$30M legacy dataset left over by Mobil had largely been received from the 2D seismic consultants.

Next, IVZ will continue with its internal interpretation of the datasets before ranking the anomalies picked up from most interesting to least, so as to finalise the locations for its drilling program now expected to be spud in June 2022.

In our 2022 investment memo we put the “detailed interpretation of seismic data” and final identification of the drilling locations as objective #1. Once this is out of the way, IVZ can shift its focus to the maiden drilling program.