THE Government, through the Sovereign Wealth Fund of Zimbabwe (SWFZ), will hold 10 percent equity in the Muzarabani-Mbire oil and gas project without spending cash during the exploration phase (known as back-in-right), if the project achieves commercial discovery.
Back-in-right is a feature of oil and gas contracts that allows a party, often a government, to acquire an equity participation in a project once the commercial discovery has been made without carrying the costly risk of exploration.
The equity rights are in line with provisions of further agreements signed last week between project developer (Australian firm), Invictus Energy, and the Government of Zimbabwe.
The agreements on the exploration rights and conditions thereof relating to the Muzarabani-Mbire oil and gas project (Caborra Bassa Basin) come on the back of promising results of studies supporting possible existence of petroleum in the area.
Indications are that the area, potentially the largest undrilled seismic (geophysics) structure onshore Africa, may be host to 9,25 trillion cubic feet of gas and nearly 300 million barrels of oil.
Invictus says 1 trillion cubic feet can generate 500 megawatts for more than 20 years.
Invictus’ 80 percent owned subsidiary, Geo-Associates and SWFZ executed a Heads of Agreement (HoA) to increase the firm’s Special Grant 4571 licence (exploration) area from 100 000 hectares to 709 300 hectares.
Under the agreement, exploration area will be amalgamated with the Cabora Bassa South reserved area, which belongs to the SWFZ, to cover the entire Cabora Bassa Basin in Zimbabwe.
The SG 4571 area increase is now awaiting procedural Government gazetting.
A sovereign wealth fund is a state-owned investment fund composed of money generated by the Government, often derived from a country’s surplus reserves, minerals or any other sustainable source.
It is set up to manage, preserve and create wealth to stabilise and grow the economy in times of crises and to create a pool of assets to benefit future generations.
The new provision means Zimbabweans will hold 10 percent equity in the potentially multi-billion (US) dollar petroleum project without carrying the risk of exploration costs, if commercial oil/gas deposits are discovered.
“Commercial discovery” means a discovery of petroleum that has been demonstrated to contain petroleum reserves that justify the investment of capital and effort to bring the discovery to production.
“The company will increase the minimum work programme obligation for the current second exploration period to drill two exploration wells, including the Muzarabani-1 prospect and one exploration well in the expanded area.
“The rig contact with Exalo Drilling SA, confirmed on March10, 2022, accommodates a two well drill programme anticipated to commence in late June 2022,” Invictus said in a statement this week.
Geo Associates and the Government of Zimbabwe will also conclude the Petroleum Production Sharing Agreement, which will encompass the legal and fiscal provisions to govern the project and the development of any discovered resource.
Invictus plans to start exploration drilling in Muzarabani-Mbire districts of Mashonaland Central Province around end of June or early May this year.
Results from further processing of data gathered by French oil giant, Mobil, in the early 1990s and new data that Invictus collected in September last year have shown encouraging results that oil and gas may be present in the Caborra Bassa Basin.
Officials at Invictus Energy said the commercial discovery of oil and gas would bring enormous benefits for the country, among them energy self-sufficiency, fiscus revenue, growth in exports and employment creation.
The proposed Petroleum Product Sharing Agreement (PPSA), administered by the Ministry of Energy and Power Development, contains the fiscal provisions of the project, including the Republic of Zimbabwe’s profit/product share, and takes effect following commencement of the production phase of the project.
The PPSA will provide Zimbabwe with a share of any developed resource in addition to the SWFZ equity (assuming back-in-right is exercised).
Together, the Petroleum Exploration Development and Production Agreement (PEDPA) executed last year and PPSA form the Production Sharing Agreements (PSA) between Zimbabwe and Geo-Associates, demonstrating the Government’s commitment to implementing investor friendly reforms and promoting and protecting foreign investment.
The PEDPA signed in March last year, and the PPSA to be signed following enactment of amendments to legislation, will establish a predictable, stable and transparent legal and fiscal regime.
This would be commensurate with terms in the region, following international best industry practice, meeting the country’s aspirations and providing investors and the Government a fair share of any developed resources.
The PPSA has undergone independent review and is expected to be finalised and executed shortly.