HCI’s Johnny Copelyn and Impact strike ‘smart oil deal’

The transaction with TotalEnergies allows exploration company to keep half its stake in two Namibian fields.

Exploration company Impact Oil and Gas, half-owned by JSE-listed Hosken Consolidated Investments (HCI), has struck a deal with giant TotalEnergies, allowing it to keep half its stake in two Namibian deep-sea fields and benefit from oil flow in a number of years’ time. 

The deal, probably struck partly by SA’s Johnny Copelyn, CEO of HCI, was “very smart”, said Piet Viljoen, executive director of Merchant West Investments.

It allows HCI to own about 4% in the oilfields and one day make money when the oil is pumped.

Copelyn, who declined to speak to the media as Impact is doing so, is known as a world-class negotiator.

HCI, a BEE investment holding company, owns a 49.2% stake in Impact, which until last week held a 20% stake in the oilfield off the coast of Namibia, Venus, or Block 2193B, and an almost 19% stake in a nearby field, Block 2192. Both are about 8,000km². 

Due to its shareholding in Impact, HCI had about a 10% stake in the two offshore fields in a country far more committed to developing the fossil fuels than SA is.

In 2022, oil publication Upstream reported that Venus was very oil rich, and cited a confidential report by consultancy Wood Mackenzie that it could have more than 3-billion barrels of recoverable oil. 

HCI’s share price rose to more than R240 in the past year on speculation the Venus field held enormous amounts of oil, with some reports reading the field was one of the biggest finds of its kind.

Data from TotalEnergies in September last year suggested while the field has oil, it is not as much as the hype suggested. 

Sell stakes

Impact, a London-based firm committed to exploring the coasts of Africa for oil and gas, lacked the hundreds of billions of dollars to invest in developing Venus and the neighbouring oil block.

It was thought Impact would sell its stakes to one of the big energy players and in 2022 US investment bank and financial services firm Jefferies was appointed to investigate a sale. 

TotalEnergies holds the highest stake in the fields, followed by QatarEnergy, leaving Namibian state-owned oil company Namcor holding minority stakes of 10% and 15% respectively. 

But Copelyn and Impact managed to sell half of their stakes in the two blocks in a deal that will allow them to now own 9.5% per field, without putting up upfront cash in to develop them. 

This gives HCI just more than 4% ownership in Venus and Block 2192. 

In terms of the deal, TotalEnergies, which bought half the Impact stake, will provide Impact with a loan for all the costs of exploring and developing their stakes until oil is pumped. Impact will then repay the French company an interest-free loan from proceeds of the oil. 

Elegant way

“I would have loved to see those negotiations as Copelyn didn’t have a strong hand to play and didn’t have the cash, said Viljoen.

SmalltalkDaily analyst Anthony Clark, who is a shareholder in HCI, said the deal was an “elegant way for Impact and its shareholders to maintain a stake in world-class oil deposits without having to put in a further cent”. 

But after the Wednesday announcement, the HCI share price dropped about 8.5% to close at R183.91 on Friday as many had expected the field would be sold in entirety. 

“While the market was unhappy that they aren’t getting a big fat cash windfall, clearly Johnny Copelyn is taking a longer-term view and realising that by sticking with a smaller stake in a world-class deposit, he has quite large upside going forward,” said Clark.

Clark said Copelyn had more information than HCI shareholders on the scale and scope of the oil offshore.


Clark said: “Clearly the offshore show investors like the deal. The domestic investors don’t because they aren’t getting an immediate cash windfall.” 

He said HCI shareholders would have to hold shares to realise value only in a number of years. 

Start pumping

“Those with a longer-term perspective realise that Johnny Copelyn is a master of structuring deals to the benefit of himself and the company. So if he has done this, he clearly has a very good reason.” 

Venus is expected to only start pumping oil by 2028, according to Upstream.

Impact CEO Siraj Ahmed said last week it was a pivotal transaction that paved the way for Impact’s transition from an exploration company to a hydrocarbon-producing company, through its participation in the development of the world-class Venus discovery.

“This transaction also enables Impact to participate in further significant exploration opportunities in the blocks, offering the potential to significantly grow the existing discovered resource base.” 

Copelyn has previously criticised SA government policy uncertainty in terms of BEE, oilfield royalties and tax structures, and in chasing away companies including ExxonMobil, Equinor, BHP, Cairn, Cosmos and Anadarko from exploring on the SA coast. 

He said in the 2021 HCI annual report, “there has been a growing disillusion with prospecting for oil and gas in SA”.

Source: Business Day : childk@businesslive.co.za