Hosken Consolidated Investments (HCI), the R16bn investment company, cannot afford to remain a significant minority shareholder in the promising Venus oil and gas discovery off the Namibian coast until the project reaches its development stage.
But participation in the early stages has already been rewarding, with its indirect 10% in the discovery already fuelling a 185% rise in HCI’s share price over a year.
Speaking at the HCI AGM on Monday, CEO Johnny Copelyn noted that shareholders in the Venus block — which include energy giant TotalEnergies with a 40% stake — might ultimately need to fork out between $50bn and $80bn to participate fully in the discovery.
Impact Oil, which is 49.9% held by HCI, has a 20% stake in the Venus deposit. “HCI is an $800m company. The $10bn to $15bn needed for Impact to participate in Venus is not in our ballpark.”
He said HCI would hopefully be able to monetise any upside in Venus over the next 18 to 24 months, but warned that it would be difficult to extract fair value until further appraisal work was undertaken.
Copelyn told Business Day that the project’s final investment decision could be the opportune moment to exit Venus.
HCI is already participating in a $35m capital raising exercise at Impact, which intends using part of the proceeds to fund the drilling of the first exploration well in the Venus deposit.
HCI’s share price — which is trading at a premium to the group’s last stated net asset value (NAV) — suggests the market is expecting a highly profitable exit from the Venus investment.
Copelyn, though, warned that the exploration at Venus was the size of Greater London and at a depth that would match that city’s Big Ben landmark. “It’s an enormous area to assess.”
He said the last quarter of 2022 would see a new well drilled about 12km from the initial find. “This should give greater clarity on the rate that oil and gas can be extracted.”
Copelyn believed by next year’s HCI AGM shareholders would see some advance on monetising the participation in Venus.
Oil industry pundits have already estimated the Impact stake could be worth $500m- $1bn, which would mean HCI’s share could sit between R4.25bn and R8.5bn.
Copelyn noted that an extra R8bn had been added to HCI’s market value since the discovery of the Venus field. “That’s an enormous amount of value people assume we will get for (our stake in) Venus. I don’t want to comment on that.”
He did, however, believe the Venus discovery would be transformative for the Namibian economy. “In a few years it’s possible that 70% to 80% of that country’s economy could be an oil economy.”
In his annual letter to shareholders, Copelyn wrote that the development of the Venus blocks over the next eight to 10 years could well result in it producing 1-million barrels of oil a day or more, as well as extracting huge volumes of gas. “If this takes place, the oil alone will add some $35bn a year to the GDP of Namibia at current prices.”
Asked about HCI resuming dividend payments, Copelyn indicated the distributions were not realistic in the short term, especially while there were funding commitments for the Venus project. “Possibly in another year we can talk about resuming dividends at HCI. That’s probably realistic, but it depends on developments at Venus.”
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