The only underlying question aching every investor’s pocket is whether Zimbabwe has oil, ultimately. A bit to unpack here, but it’s worth taking the time to look at it. Last week on 03 November, Invictus got thrust into a trading halt following a ‘Please Explain’ from the ASX over price and volume ‘issues’, to which Invictus suggested that the market “may be speculating on the likelihood of success or failure of drilling targets in the Mukuyu-1 well”. Fast forward to 10 November (time of reporting), Invictus has revealed that the drilling has been successful, with “elevated mud gas peaks (up to 65 times above background gas baseline) have been observed while drilling through a depth of 3,070 mMD with marked increases from C1 to C5 compounds (methane, ethane, propane, butanes and pentanes)”.
Managing Director Scott Macmillan says the early results are “an exciting development validating our subsurface model”. However, McMillan has exercised caution in his addresses to investors. At the Invictus Energy Investor Briefing two weeks ago, he said “under ASX (Australian Securities Exchange) listing rules and under SPE (Society of Petroleum Engineers) rules, in order to declare a discovery, you have to obtain a fluid sample back to surface, which is a very important criterion in order to declare a discovery”. He further added, “A lot of other companies would have been more aggressive and declared this a discovery, but we play by the rules and won’t push this further than we are allowed to”. So far, Invictus has not obtained a fluid sample back to the surface, but the explorer is only a few steps away, and investors are betting on success.
Invictus Energy (IVZ) has confirmed a “working hydrocarbon system” within its Mukuyu-1 well amid equipment trouble. Drilling of the well, which lies within the company’s 80-per-cent-owned licence in the Cabora Bassa Basin of Zimbabwe, has reached a measured depth of 3086 metres. The journey to this depth, however, has been slower than anticipated due to “challenging conditions” in the Pebbly Arkose, where Invictus said several loss zones were encountered that required remedial action to stabilise drilling fluid loss. Despite this, elevated gas shows and resistivity were displayed in the Pebbly Arkose and the Forest formation. Drilling conditions improved in the Upper Angwa formation primary target, where elevated mud gas peaks were observed up to 65 times above background levels.
An initial 100-per-cent fluorescence was also observed in a downhole cutting sample of sandstone from 3070 metres, which the company said indicated the presence of condensate or light oil. However, in the Upper Angwa formation, the stator in the downhole drilling motor failed and is now being changed out before drilling can continue. Notwithstanding the drilling difficulties, the company’s Managing Director, Scott Macmillan, said the early indications in the Upper Angwa were “highly encouraging” and proved a conventional working hydrocarbon system existed in the Cabora Bassa Basin.
The share price of Invictus Energy has been on a roller coaster since the beginning of the year and speculation is swinging ahead of a major announcement post-completion of current drilling exploits on the exploration wells in Zimbabwe. The Australian Stock Exchange listed Invictus Energy is the 80% owner and operator of the Caborra Bassa Project located in Muzarabani, which is in Mashonaland Central at the border with Mozambique. The company’s share price has moved up by 115% since the beginning of the year from AUD0.13 to AUD0.28 as at 10 November. However, between May and June, the counter fell by 30% easing from AUD0.28 to about AUD0.13.
The Cabora Bassa Project encompasses the Mukuyu prospect, with a prospective resource estimate of 20 trillion cubic feet and 845 million barrels of conventional gas-condensate target or about 4.3 million barrels of oil equivalent. The Mukuyu prospect which will cost about US$16 million in exploration, is mapped on seismic data with over 200km/s under closure and contains multiple prospective horizons.
Invictus completed the acquisition of 840 km of high-resolution 2D seismic data in November 2021 (CB21 Seismic Survey Documentary) which revealed new targets within the Mukuyu prospect. Drilling of the Mukuyu-1 exploration commenced in September 2022, the first of a 2 well high impact basin opening drilling campaign. Baobab-1 will follow to test the high potential basin margin play which displays similarities to the East Africa Rift “String of Pearls” play.
Having peaked at AUD0.31 in September the stock went on to plunge to levels below its year opening at AUD0.11 at the beginning of November as Mukuyu explorations were underway.
A closer look at the share price movements shows a direct relation to project developments. Largely the movement reflects speculations on the ongoing drilling developments on Mukuyu-1. The update posted on the 26 of October was lukewarmly expressing complications in the drilling and sample analysis process.
In the 26th of October update, the company said
“Following the completion of the first suite of wireline logging, a zone of interest in the secondary objective in the 200 Horizon target coincident with observed seismic amplitude anomalies was interpreted to contain potential hydrocarbons based on significantly elevated resistivity (two orders of magnitude above baseline) across a 10-15m interval from approximately 785m MD and separation between shallow, medium and deep resistivity readings.
Further analysis of this zone was interpreted to have tight reservoir properties with complex mineralogy and a decision was made to forgo running the formation pressure/sampling wireline tool without the appropriate sampling probe and packers available.
The decision was made with careful consideration of several factors, including the ability to obtain valid pressure measurements and fluid samples in tight reservoir and significantly overbalanced hole conditions with the increased risk of tool sticking and potential loss due to the heavy mud weight used in this hole section.”
While sounding hopeful, the statement cited unforeseen complications that some investors interpreted as potentially adverse to the prospects of a positive outcome for the exploration further propelling the plunge in share price which was already underway.
Off the Peak
The share price carnage began in earnest at the end of August following a temporary trading suspension on the ASX at the request of Invictus, citing a pending major announcement. At the end of August, the company announced that it was raising AUD25 million through a private placement at AUD0.23 per share to fund the drilling phase of the Mukuyu 1 and Baobab 1 wells.
The company said the decision to self-fund was reached after considering the significant increase in the prospectivity of the Caborra Bassa project following the gazettal of additional exploration tenure and consequential de-risking of the campaign.
It also saw the maintenance of material ownership of the expanded acreage encompassing the new Basin Margin play, plus additional prospects and leads, as providing shareholders with the largest exposure to drilling success. Lastly, the company said the consideration of sole funding via its own equity capital in comparison to the dilutive impact shareholders would absorb at the project level via any potential farm-in agreements.
It is clear from the carnage which followed that a good fraction of the shareholders preferred spreading the risk through debt other than capital calls. To some, the decision could have been interpreted as a lack of buy-in from the outside, maybe a pointer towards elevated project risk.
Interestingly, the latest announcement as at 10 November, has again sparked interest in the counter, a sign of high speculation on the project. On Thursday morning, the energy explorer’s shares surged as much as 150% higher to 26.5 cents, under 1 session following a more encouraging update on the drilling process.
What lies ahead?
MD, Scott McMillan said the find was an exciting development that validated the company’s subsurface model. “We still have several hundred metres of drilling through our primary targets with additional potential, which will be followed by a comprehensive wireline logging programme to evaluate results, with the aim of confirming the presence of moveable hydrocarbons in multiple zones,” Mr Macmillan said.
Logging while drilling (LWD) analysis has identified further shallower zones of interest within the Upper Angwa, with elevated mud gas readings and LWD resistivity being observed. Additional potential zones of interest in the Pebbly Arkose and Forest formations also display elevated LWD resistivity. This wireline logging program will take place once Invictus’ drilling reaches a total depth of 3500 metres, and it will allow the company to identify any potential hydrocarbon pay.
“The decision was made with careful consideration of several factors, including the ability to obtain valid pressure measurements and fluid samples in tight reservoir and significantly overbalanced hole conditions with the increased risk of tool sticking and potential loss due to the heavy mud weight used in this hole section,” Invictus said.
It means that Invictus is now at a point to identify what is inside the rocks as it prepares to reach the target points within the hole. The explorer said it would carry out more research and use the acquired data to examine alternative sites to test this target further in a crestal location and away from the fault plane where improved reservoir quality may be present.
There are likely to be further swings in the share price until the drilling and sampling process is completed. The counter’s future prospects clearly lie in the outcome of the exploration across a number of targeted areas within the broad basin whose surface area has been expanded on additional claims acquired. Share price stability will only kick in once production commences if the exploration succeeds and matrices such as production run rate, gas quality, global demand etcetera, are determined.