Hosken Consolidated Investments (HCI) announced yesterday that its associated investment company, Impact Oil and Gas, has entered into a farmout agreement with TotalEnergies for two offshore oil and gas exploration blocks in Namibia. These blocks, known as 2912 and 2913B, are poised to enter production, marking a pivotal moment for Impact’s transition from an exploration to a hydrocarbon-producing company.

HCI, holding a 49% stake in Impact Oil and Gas, expressed optimism about the prospects of the deal. Impact is a key participant in Blocks 2913B and 2912, situated in the northern part of the Orange Basin, an area generating considerable interest within the exploration community.

The farmout agreement with TotalEnergies EP Namibia involves the sale of a 9.39% undivided participating interest in Block 2912 and a 10.5% undivided participating interest in Block 2913B. Upon completion of the transaction, Impact will retain a 9.5% interest in each of the blocks.

Siraj Ahmed, CEO of Impact Oil and Gas, emphasized the importance of the agreement, stating, “This is a pivotal transaction for Impact that paves the way for its transition from an exploration company to a hydrocarbon producing company, through its participation in the development of the world-class Venus discovery.”

As part of the agreement, Impact will receive a carry loan covering all remaining development, appraisal, and exploration costs on the blocks from January 1, 2024, until the commencement of oil production. This allows Impact to focus on advancing its operations without the immediate financial burden.

The farmout agreement also includes reimbursement in cash for Impact’s share of past costs incurred on the blocks, estimated to be approximately $99 million. The repayment of the carry to TotalEnergies will be linked to Impact’s after-tax cash flow and net of all joint venture costs, providing a sustainable financial structure for both parties.

Impact will pool its entitlement barrels with TotalEnergies during the carry repayment, ensuring regular off-takes and a stable cash flow profile. Additionally, the partnership allows Impact to benefit from TotalEnergies’ marketing and sales capabilities.

Blocks 2912 and 2913B are located in the Orange Basin, with Block 2913B situated offshore southern Namibia, covering approximately 8,215 km² in water depths up to 3,000 meters. Impact’s exploration strategy has been centered around the deep-water Cretaceous play in this region, extending from southernmost Namibia to the Durban Basin in South Africa.

HCI’s share price experienced a temporary decline by 6.1% to R188.97 on the JSE following the announcement. Nevertheless, the current price remains significantly higher than R53.50 three years ago, reflecting the positive trajectory of HCI’s investments in the oil and gas sector.