Leveraging on exploration work undertaken by petroleum conglomerate Mobil more than three decades ago in the Zambezi Basin, which revealed abundant gas deposits, Australian Stock Exchange (ASX)-listed Invictus has been foraging the area for potential oil deposits. Zimbabwe Independent senior reporter Tinashe Kairiza (TK) spoke to Geo Associates founder Paul Chimbodza (PC) on how positive exploratory results can transform the fortunes of Zimbabwe, currently in the throes of crippling fuel shortages and deep economic problems. Geo Associates holds a 20% stake in Invictus, which is undertaking the project. Below are the excerpts:
TK: Following reports that Zimbabwe had discovered a massive oil find in the Muzarabani Basin, may you give us a brief background of the project. What is your relationship with Invictus?
PC: For the record, kindly note that the Muzarabani Oil and Gas Project is held under Special Grant No4571 issued to a locally-registered company, being Geo Associates (Pvt) Ltd. The two shareholders in Geo Associates are the ASX-listed Invictus Energy (80%) and the local partner One Gas Resources (Pvt) Ltd (80%)
Geo Associates has been in existence since 1996, when it was set up by Paul Chimbodza (a senior exploration geologist and holder of a BSc Honours degree in Geology). The initial years of Geo Associates were primarily in geological consultancy and the company mutated to acquisition of a wide portfolio of mineral assets and exploration licence, including the Muzarabani Special Grant 4571.
Through the Reserve Bank of Zimbabwe exchange control approval, Invictus was given the nod to acquire 80% of Geo Associates in June 2018 and this entailed that all other mineral assets, except the Oil and Gas SG 4571, had to be divested out of Geo Associates. To date, the company solely exists for the purpose of advancing the Muzarabani project.
To this end, I can only comment on behalf of the local company that I lead, being One Gas Resources (Pvt) Ltd and I am in no way permitted to speak on behalf of our partner Invictus, who have their own communication channels with the market and stakeholders.
TK: Last year, when this newspaper spoke to you, you highlighted that Invictus intended to drill a well along the Muzarabani Basin to determine whether the area hosted significant oil deposits that can be commercially exploited. Has that well been drilled and what were the findings?
PC: The project deadline was set for Q3 to Q4 of 2020 as the planned drilling timelines and this is a performance obligation that we have set ourselves and agreed to with the Ministry of Mines and Mining Development.
Taking into account that our licence has area coverage of 100 000 hectares, a lot of technical work and planning occurs behind the scenes before a decision is made to drill at a particular site against the other. Our teams are working around the clock to ensure that the project is drill-ready by the set timelines and we are on course to fulfil those obligations on time.
TK: How much do you intend to invest to drill that well as part of the exploration exercise?
PC: We intend to drill to a vertical depth of around 4km and depending on the final data set; we may end up opting to drill two wells to enhance our chances of success. The budget costs for each well is in the order of between US$15 million to US$20 million.
The variance in cost will depend on where we will be able to source the drilling rigs from. Such type of drilling demands highly-specialised drill rigs and drilling crew that we unfortunately do not have in country and we are currently weighing our options on the best that could be available. We have a few alternatives that we are currently looking at, being drill rigs out of Mozambique, which has had a lot of success in commercial gas finds. Our technical team is also looking in East Africa and the Americas for a suitable rig.
TK: I understand that much of the exploration work you are undertaking now is anchored around the work that Mobil did 25 years ago. How useful is the data that Mobil gathered for you to consider investing in that sector?
PC: The Mobil data set consisting of seismics and magnetic surveys is an extremely valuable technical repository gathered between the mid-1980s and the mid-1990s at a cost of around US$30 million. This was an exploration programme that was initiated by the government of Zimbabwe to get some understanding of the hydrocarbon potential of the Zambezi Basin stretching all the way from East of Hwange through Kariba, Mlibizi, Binga, Mana Pools, Kanyemba, Muzarabani and further east.
This data set has been gathering dust at the Geological Survey Department for the last 30 years and what we have done is to bring in new computing prowess into the decoding and interpretation of the data which was stored on magnetic tapes.
With the input of our expert partners like Getech, we have managed to unravel a lot of geological structures and characteristics that could not be deciphered by the computer power of 30 years ago. This has gone a long way in de-risking our SG4571 acreage as a potential host for oil and gas.
In a nutshell, what the Mobil data has done to the project is that we did not have to start from the base, but pick up from where Mobil left and infused that with more modern exploration techniques.
This is testimony to the value that can accrue to exploration companies across board, if they take the time to visit and dust the geological archives at the Ministry of Mines' Geological Survey Department and use modern exploration techniques and computer software to evaluate their exploration licences. It's always smart not to re-invent the wheel, if the wheel was made to good standards.
TK: You were granted your investment licence in June last year. What does the licence spell out in terms of the royalties and taxes that you will be contributing to the fiscus once the project comes on stream?
PC: It is important to note that SG 4571 is an exploration licence, which we will have to upgrade to a production licence in the event of a commercial discovery. Royalties and taxes will only become relevant during the production stage.
However, there are a number of positive options and spin-offs for both our project and the government of Zimbabwe that we are currently working on to ensure that, in the event of commercial production, there are benefits that accrue to both the investors and the government of Zimbabwe.
In addition to the usual taxes and royalties, the oil and gas sector globally also has a "production sharing agreement" with host countries and we are putting a lot of work in that space to ensure equitable distribution of future benefits from this project.
TK: Earlier this year, the Mines minister Winston Chitando said, based on preliminary results from the exploration you are undertaking, Zimbabwe could start producing its own fuel in the next 10 years. Is that the correct position? And if so, how much would be required in terms of investment to realise that?
PC: Successful and commercial gas discoveries are always a potential game-changer for any host country, as there are a number of ways of commercialising and monetising the gas.
In the oil and gas sector, there are three areas of potential participation, being:
- Upstream -- Exploration, drilling and production;
- Midstream -- Logistics involved in moving the product. Includes oil and gas pipelines, tankers, storage, etc; and
- Downstream -- this is the end user part of the value chain.
Our partners Invictus Energy are primarily an upstream entity involved in exploration and production up to wellhead.
As One Gas Resources and being the local partners and local custodians of this project, we are keeping our fingers crossed for positive drilling results as we have set ourselves up to participate in the midstream and downstream activities of the value chain.
A number of downstream business openings for us are currently being evaluated and obviously with a condition precedent of a commercial find at the upstream end.
These include the following:
- Gas to Electricity (GTE) -- generation of electricity using natural gas;
- Gas to Liquids (GTL) - generation of petroleum products using gas. These products include diesel, petrol, LPG, kerosene, naphta, waxes, solvents, urea, plastics, amongst others; and
- Compressed Natural gas (CNG) - the use of compressed natural gas to run vehicles and trains.
CNG is methane gas stored at high pressure and is a fuel which can be used in place of petrol, diesel and propane/LPG. CNG combustion produces fewer undesirable gases than the aforementioned fuels. In comparison to other fuels, natural gas poses less of a threat in the event of a spill, because it is lighter than air and disperses quickly when released.
All diesel and petrol-fired vehicles can easily be converted to run on CNG through a simple conversion kit that can be fitted at a mechanical workshop.
All the above business categories will require huge investments running into billions, depending on the final production entry levels.
As One Gas Resources, we have taken the initiative to visit and be taken on guided tours of projects in the region and globally that are leaders in gas-to-electricity, gas-to-liquids and compressed natural gas commercialisation.
A highly-experienced, competent, diverse and currently lean board of directors, chaired by myself, and with international exposure to oil and gas commercialisation, has been put in place to drive this agenda.
TK: What are the terms of the investment deal in Zimbabwe? Does government hold any stake in the project?
PC: Muzarabani Oil and Gas SG4571 is a product of the Mines and Minerals Act Chapter 21:05, which allows exploration companies to apply for exploration rights for any mineral commodity (including gold, chrome, platinum, industrial minerals) through the Mining Affairs Board of the Ministry of Mines and Mining Development.
Exploration for energy minerals is under a special grant and the issuance of a special grant comes with its six monthly progress reporting obligations on work done and expenditures incurred.
It is these six-monthly reporting obligations that government uses to track progress on any exploration licence in the country.
The Mines and Minerals Act dictates that all minerals in the country are vested in the state and anyone can apply for such as provided for by the Mines and Minerals Act, Chapter 21:05. The Government of Zimbabwe through the Ministry of Mines is therefore a custodian of the mineral resources and a facilitator and administrator to would be mineral explorers in their chosen mineral commodity.
TK: What is the shareholding structure of the Muzarabani oil project in Zimbabwe?
PC: SG 4571 is held under a locally-registered Zimbabwean company, Geo Associates (Pvt) Ltd and the two shareholders are the ASX-listed Invictus Energy (80%) and the local partner One-Gas Resources (20%).
TK: Does Invictus have the financial capacity to exploit the oil deposits if exploration supports commercial exploitation?
PC: Invictus are fully funded to undertake the work obligations as per our submissions to the Ministry of Mines, but, as earlier alluded to, and, because of how we are structured, I am not competent to comment on behalf of Invictus, who are a shareholder in the project.
TK: Lastly, when the project is running full throttle, how many jobs can be created from it?
PC: As alluded to in the aforegoing submissions herein, this project is underpinned by a huge condition precedent, which is: a successful drilling programme leading to a commercial discovery.
Should this be achieved, the net effect on employment from upstream, through midstream and downstream will easily support tens of thousands in employment creation.
We, however, want to reiterate that we are still a long way from talking about production, as the main focus is delivering a successful exploration and drilling campaign that will underpin the fundamentals for future production scenarios.