THE Zimbabwe Independent can exclusively reveal that Mutapa Investment Fund (MIF), a sovereign wealth fund with a substantial asset base, has taken on a pivotal role in overseeing a production sharing agreement with Invictus Energy, following a US$5 million investment in the company last week.
Invictus is engaged in oil and gas exploration in the Zambezi basin, where it has already reported a gas discovery.
Last week, Invictus advanced its Zimbabwean ambitions by listing on the Victoria Falls Stock Exchange.
MIF, led by former central bank governor John Mangudya, now holds a stake in the company, which also trades on the Australian Stock Exchange.
The Petroleum and Production Sharing Agreement (PPSA) framework outlines how governments and investors share revenues from oil or gas projects while allowing governments to retain ownership and control over their natural resources.
Sources close to the Invictus project revealed that MIF is now responsible for refining the hydrocarbons policy and the PPSA.
“The hydrocarbons policy is going well under the ambit of the (Petroleum and) Production Sharing Agreement that is now being handled by Mutapa Investment Fund,” a source close to the deal said.
“Details of the PPSA and hydrocarbons policy are still highly confidential and classified at this stage.”
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Invictus chief executive officer Scott MacMillan confirmed MIF’s shareholding stood at 5%. He said if an oil and gas discovery is made, the PPSA would lay out the next stages to be undertaken.
“The investment by the MIF is hugely important as it not only helps us progress and provides some funding for our upcoming work programme, but more importantly demonstrates strong support from government,” MacMillan said.
“Mutapa will hold approximately 5% of Invictus, which would make it one of the largest individual shareholders in the company.
“If the company is successful in making an oil or gas discovery, the PPSA then outlines the steps to appraise the field to adequately define the resource base and determine the commerciality of the find.
“This enables a field development plan to be defined, finance secured for the drilling, facilities and associated infrastructure (pipelines, etc) and the necessary regulatory and government approvals granted in order to make a final investment decision,” he said.
MacMillan stressed that the PPSA will be in line with regional trends.
“We are not at liberty to say until the agreement has been completed, but in broad terms it is in line with regional countries,” he said.
“The product /profit sharing mechanism then comes into force which defines what share the government is entitled to.
“These are typically sliding scales which vary according to production rates or profitability so that the government and its citizens benefit from their resources.”
In most oil-producing countries like Nigeria and Kuwait, governments assume minimal or no risk in petroleum resource production.
Research by the Independent shows that in most oil and gas-producing countries, PPSAs stipulate that governments receive 30% of the production proceeds, while the foreign investing firm gets 70%.
Mangudya said: “There was a claim which belonged to the government, which is under the sovereign fund and a claim also which was under this company. So those two claims are now being mined by Invictus.
“We are basically supporting the initiative of having gas in Zimbabwe, which is LPG gas. And it is part of energy sustainability. It is part of meeting the energy security of the country.”
According to the Oxford Institute for Energy Studies, PPSAs are among the most common types of contracts between countries with proven oil reserves and petroleum extraction firms.
“Production-Sharing Agreements are among the most common types of contractual arrangements for petroleum exploration and development,” the institute says.
“Under a Production-Sharing Agreement the state as the owner of mineral resources engages a foreign oil company (Foc) as a contractor to provide technical and financial services for exploration and development operations.
“The state is traditionally represented by the government or one of its agencies such as the national oil company (Noc).
“The Noc acquires an entitlement to a stipulated share of the oil produced as a reward for the risk taken and services rendered. The state, however, remains the owner of the petroleum produced subject only to the contractor’s entitlement to its share of production,” the institute further states on its website.
Relating to Zimbabwe, Invictus announced four years ago that it was nearing the finalisation of the production sharing agreement with the government.
