INVICTUS Energy, the Australia Stock Exchange (ASX) listed exploration company prospecting for oil and gas in Muzarabani, says Zimbabwe needs to urgently put in place adequate legislative provisions for the oil and gas industry.
The ASX listed junior exploration firm said there are deficiencies in the current laws on issues that include absence of policy for oil and gas and frameworks for sharing of proceeds from the industry if the resources are discovered.
This comes as Invictus Energy has started negotiating a Production Sharing Agreement with the Government of Zimbabwe, part of discussions that will take place over next three months relating to its Muzarabani oil and gas project.
Already, Invictus has gathered significant scientific data, which has either entailed processing previous historical information collected by Mobil in the 1990s or additional source rock details obtained from its prospective area.
The data has shown encouraging results pointing to potential existence of trillions of gas and billions of petroleum products, prompting urgent need to address legal deficiencies in the Mines and Minerals and Petroleum laws of Zimbabwe.
As such, Invictus and Government will over the next few months hold discussions with Government, after the Muzarabani was given priority project status, to develop a sustainable and world class legislative and fiscal framework for oil and gas.
Invictus Energy said this week that the issues had been given regard at the highest level after being classified as priority pro under the Office of the President and Cabinet (OPC’s) fifth round of 100-day cycle programmes.
The project, in the Cahora Bassa Basin, has been classified as one of the key projects in Zimbabwe that can provide a significant economic benefit to the economy in pursuit of the vision of becoming a middle-income economy by 2030.
Executive director Paul Chimbodza told Business Weekly, following earlier announcement by the company that engagements between Invictus and Government under the OPC’s 100-day cycle programme will focus on four key result areas.
These entail conclusion of a legal framework of the Production Sharing Agreement (PSA), Special Economic Zone status, a national fiscal regime for petroleum and gas in Zimbabwe and extension of Invictus Energy’s Special Grant (SG).
Production sharing agreement or production sharing contract is a common type of contract signed between a government and a resource extraction company concerning how much of the resource extracted from the country each will receive. There is need to develop a framework that governs legal issues around production sharing of petroleum and gas in Zimbabwe which are not adequately covered by the current Mines and Minerals Act and the Petroleum Act.
Invictus has been immediately confronted by issues of deficiencies in the country’s mines and energy industries legislation amid encouraging results from its ongoing exploration activities in the firm’s Muzarabani prospective area.
The Cahora Bassa Project encompasses the Muzarabani Prospect, a Multi-Trillion Cubic Feet and liquids rich conventional gas-condensate target, which is potentially the largest, undrilled seismically defined structure onshore Africa.
The prospect is defined by a robust dataset acquired by Mobil in the early 1990s that includes seismic, gravity, aero-magnetic and geochemical data.
The estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations.
Chimbodza said the PSA will set out terms of sharing of proceeds from Muzarabani, in the event of discovery of commercially viable petroleum oil or gas, between Invictus and Government without the later investing much.
“The current legislation that is there in the country has not been adequate. This is from the current Mines and Minerals Act and other legislation like the Petroleum Act. They do not adequately cater for oil and gas because this is something that has never been done in Zimbabwe.
“So there are legislative issues. It’s basically to lay the legislative framework that allows for flawless and sustainable exploration for oil and gas. There are a number of things that become imperative which have not been catered for by current legislation,” he said.
He said while Zimbabwe had specific policies for minerals such as gold and diamond, there was no such framework for oil, which has significant potential to change Zimbabwe’s economic fortunes if discovered in sizeable quantum.
Chimbodza said there also were issues to do with the actual tenure of Invictus Energy’s Special Grant to align it with some agreements being negotiated with Government such as the production sharing agreement.
“There has not been any legislation that allows for example, the Minister to enter into a production sharing agreement (PSA). So we have got four key areas that we have identified which we have included as deliverables in the next 100 days,” he said.
The PSA will ensure a predictable, stable and transparent legal and fiscal regime is put in place that is commensurate with terms in the region, follows international best industry practice and meets the country’s aspirations.
The four key areas to be discussed over that period are a PSA, extension of the tenure of the Special Grant, getting SEZ status for Muzarabani project and extension of the prospective area that is covered by Special Grant.