Hey mate!
Shooting through some information on Invictus Energy
Snapshot as of 18th November:
Ticker ASX: IVZ
Price: $0.33
Market Capitalisation: $312 million
Diluted Shares on Issue: 1.015b
Key Points
- In the past 2 weeks, Invictus has CONFIRMED the presence of a working hydrocarbon system. They have acquired data readings. Waiting to see whether the prospects are commercial. This is the major catalyst and results will be released 5-7 days from today.
- Invictus Energy owns 80% of the entire resource. Owning such a large resource for such a small company is unheard of and will become extremely beneficial in the future (Take over offer or Farm-in Partner)
- Whilst there is Sovereign Risk in Zimbabwe, the PEDPA & PPSA legislation significantly reduces the risk that the government can screw over IVZ. The new President is pushing for foreign investment and has enacted numerous legislations in parliament. VZ's play is discounted by the market due to the sovereign risk which in my opinion presents a fantastic opportunity
- This project is of national significance for Zimbabwe not only for economic growth but also to curb the frequent power outages the region is experiencing
My initial summary notes were posted in my stock newsletter. I wrote it back in 2021 so some information is outdated however it will give a good introduction, especially surrounding how the company arrived at where it is today, the management team, the Zimbabwean government, Monetisation avenues as well as the Energy crisis occurring in Southern Africa.
More than welcome to subscribe to my newsletter as will release more stock summary reports in the future. I have roughly 8 company reports that I am drafting. The whole process takes quite some time and I often call the CEO and have a discussion with them.
The news releases since initial Summary notes (more recent news lower down)
Completion of Seismic Acquisition Campaign
Invictus acquired 840 line kilometers of additional seismic data to help define the Oil & Gas prospects, the size of the resources, and the optimal wellhead location. They ended up extending the campaign further as they saw areas of interest that were not previously recognized
Invictus lists on the DTC Markets in North America
Invictus begins trading on a secondary market under the ticker IVCTF. Opens up the potential for North American investors to get a piece of the action. So far the volume of the additional exchange has been very encouraging
Invictus Signs contract with Drilling Campaign Service Providers
Invictus signs a contract with Baker Hughs, one of the world's largest Oil & Gas services companies. Invictus also signs a contract with Exalo, the top onshore O&G drilling company in Europe.
Seismic Campaign data produces extremely positive results
The data acquired is processed by an independent 3rd party agency that indicates multiple, strong seismic amplitude anomalies observedfrom the data. De-risks the play further as they can see what's under the ground
Invictus increases their acreage area by 3.6x
Extremely significant! The company is awarded further acreage by the government which now covers the entire basin margin play. Invictus essentially has drilling rights for all the potential plays within the region which will block other companies from coming in. Also adds significant value for potential Take Over offers.
Increase in prospective resources to 20Tcf and 845m Barrels of Oil -
Announcement MASSIVE! The resource estimate for just one of the company's prospects is upgraded by an independent 3rd party from 8.2Tcf to 20Tcf, a 2.7-fold increase. This is across seven stacked targets in the prospect... they are not trying to hit one target but will have multiple shots. To put it in perspective, Australia's largest-ever gas discovery was the Gorgon Gas Project which has roughly 40Tcf of gas. This is for the entire Gorgon Basin... Invictus has 20Tcf on just one singular prospect. The estimate is so significant due to the size of the 4-way closure being over 200Km2, making it potentially the largest undrilled structural trap in Africa. In the report, the 3rd party stated that they only set the Gross Rock Volume to a maximum height of 650m and 500m respectively in both formations. This resulted in only a limited portion at the top of each formation being assessed. Invictus has stated their own internal figures are significantly higher however have chosen not to release them due to not wanting to mislead the market with how large they are.
Invictus was awarded three carbon-offsetting programs in Zimbabwe. The projects are estimated to generate more than 30 million carbon credits over their 30-year life. Through obtaining the program, Invictus becomes highly attractive to institutional investors who around bound by certain ESG requirements. Additionally, becomes extremely attractive to potential T/O offers from the oil majors as also fits well with their ESG requirements. Based on my research/modeling, the carbon offsetting program could be a substantial revenue stream in its own right. My model predicts that the potential revenue generated over the 30 years of the Carbon Offset program is on the lower end of the price estimates: US$614,843,568 and on the Upper end of the price estimates: US$933,684,998. Note Invictus was extremely conservative with their estimations of the 30 million carbon credits and the company has engaged an independent 3rd party to verify the figures.
Further prospects were identified & second drill site was selected -
Announcement Upon interpreting the additional seismic data acquired, multiple drill-ready prospects were identified in the basin margin play displaying similarities with the East African Rift String of Pearls discovery. 5 of the 12 new prospects were independently assessed to contain 1.17 billion barrels of oil. Baobab was selected as the second exploration drill site with spudding to occur in early 2023. This prospect is estimated to contain 243 barrels of oil.
Spudding of the Mukuyu well occurred on the 24th of September. Data acquired from the well campaign has been extremely supportive so far, de-risking the well to in my opinion 90%. Due to ASX compliance results, Invictus is unable to call the campaign a discovery yet... they need to retrieve actual fluid samples to the surface. This is what is occurring in the next 5-7 days from today (18th November).
Looking at the data obtained so far, the 200 Horizon zone encountered a 15m interval which was the first news that the basin contains a working hydrocarbon system. Whilst the 15m is nothing to scream about, Invictus did not hit the main target of the 200 zone due to requirements for the well deviation in order to effectively hit the lower targets. The 15m interval was indicated as a tight reservoir (poor flow rates) however due to being on the side of the margin fault line, this reservoir porosity was expected. Towards the main target of the 200 zone, the reservoir is expected to be more permeable and be of larger interval.
The main concern for the lower targets in the prospect was that the seal was ineffective, meaning that the rock above was not effective in trapping the hydrocarbons so they would leak out. The campaign data has indicated the presence of a substantial regional claystone/mudstone seal several hundred metersin thickness which is extremely positive.
Whilst drilling into the lower targets, elevated mud gas peaks were recorded. In separate horizons, results indicated mud gas peaks of 65x and 135x above the background gas baseline with marked increases from C1 to C5 compounds(methane, ethane, propane, butanes, and pentanes). Multiple zones with elevated mud gas and fluorescence were encounteredthroughout the intersected Upper Angwa reservoir. Wireline logging data including gamma ray, resistivity,density, and neutron tools also indicated multiple potential gas-bearing zones. These results allowed Invictus Energy to confirm a working hydrocarbon system.
Invictus released an announcement today stating that they will soon begin wireline formation testing which will bring core and fluid samples to the surface, allowing them to finally state that they have a discovery. The testing is expected to be completed within 5-7 days. The drill rig will keep drilling down to test deeper potential targets.
Unfortunately, the service provider Baker Hughes has been extremely disappointing in their operations which has caused multiple delays in the drilling campaign. This has included equipment breaking down as well as equipment not even being at the site... Not what you expect from a Tier 1 services company. Delays are generally expected during drilling campaigns however and it is not a concern as the team has still pushed forward after remedial action has taken place.
Forward-Looking Activities
- In the next 5-7 days, Invictus energy will release their wireline formation and log analysis data. This is the BIG EVENT!
- The Mukuyu well will be plugged and the drill rig will be transported to the second well site, Baobab
- Baobab is well expected to spud early next year with an estimated time to depth being 30-40 days
There is currently uncertainty about what will occur afterward as Invictus has not provided guidance as they are purely focused on the current drilling campaign and need confirmation of a commercial discovery. It could go a few ways:
- Take-out offer from Tier 1 major oil companies. What I am personally hoping for as these companies will offer billions of dollars to obtain the asset. The path to commercializing O&G can be long and there will be an opportunity cost with the other stocks I am tracking.
- Farm-in offers from Tier 1 majors who will provide funding for Invictus to undertake appraisal wells on Mukuyu, Baobab, and allow for additional exploration drilling the other prospects. Will likely provide funding to develop production facilities so the asset can be quickly monetized.
- No offers (IMO highly unlikely) and Invictus will have to obtain funding to undertake the appraisal wells, exploration wells etc. Either through capital raises or debt financing.
Risks
The immediate risks are that the wireline and formation data come back stating that the well encountered small intervals of gas and that the reservoir is tight meaning that the flow rates are ineffective. All this could lead to a non-commercial outcome of the well. HOWEVER, what we know so far is that:
- The log analysis has indicated multiple potential gas-bearing reservoir units
- This is more far fetched, but the recent announcement stated 'wireline formation testing tool enroute to wellsite to conduct pressure and fluidsampling to confirm presence of moveable hydrocarbons'. It is highly unlikely that they would run a formation testing program if adequate reservoir quality did not exist.
- From mud weighting required to balance formation pressure, log-derived reservoir parameters and comprehensive industry analog data, Invictus would currently have a good idea as to whether the hydrocarbons are moveable or not
- With the gas-charged, reservoir-quality sandstone units having readings of 65x to 135x, there is strong evidence that the hydrocarbons are moveable
The Sovereign risk is still a factor however as stated in my newsletter summary report, I believe this is overexaggerated. There is also the risk that equipment may fail which could cause further delays.
Personal Remarks
Having held on to the company for a few years, we are essentially on the eve of the main event! The official discovery of hydrocarbons in the monumental Mukuyu well. It is already known that there are hydrocarbons throughout the multiple prospects and now we just require samples to be brought to the surface as well as an announcement stating the size of the intervals encountered. I am extremely bullish for both to come back extremely positive. Obtaining such results will significantly de-risk the additional prospects within the region, providing valuable data for the company for future drilling campaigns.
Whilst I don't generally like to share my price estimates after a single event, if Mukuyu comes back commercially viable then the share price will be far north of here. The value of the Mukuyu asset alone is worth tens of billions of dollars not including all the other prospects however, that is further down the track when the asset is brought into commercial production. Additionally, given the current market conditions, the share price may not end up representing the asset's true value. Given that there are over 1 billion shares on issue, you can equate every $1 in the share price to represent $1 billion in market capitalization.
Remember that the results are only 5 to 7 days away, so these may be the last moments to accumulate a position.
There are a lot of eyes on the current campaign from retail investors (heavily track on ASX_Bets and HotCopper), Institution investors who are expected to enter once commerciality has been announced as well as the Tier 1 majors who Scott is frequently in communication with. It is my expectation that in the near future (under 1 year) Invictus Energy will be given a takeout offer from a major in the multiples of billions of dollars. I will be holding my stock tightly until that happens.
Resources
- PAC Equity Partners notes from Sep 2022 (attached as a PDF)
