South Africa: Exciting Times Ahead For SA Oil, Gas Industry

Last Updated: 18 March 2014
Article by Luke Havemann

It was announced recently that Total intends to sell its South African coal assets and step up its exploration for oil and gas in South Africa. This announcement is of interest for a variety of reasons.

Until the recent advent of the shale gas saga, South Africa's potential oil and gas reserves were always considered insignificant compared with the country's other non-renewable resources.

From a historical perspective, after almost a quarter of a century of sporadic and fairly amateur terrestrial oil exploration efforts that unearthed only negligible accumulations, the government resolved in 1913 to heed the calls of the public and to obtain the views of the best available overseas expert.

The person they turned to was Edward Hubert Cunningham Craig, a Scottish geologist, who was furnished with the mandate of "approving or disproving ... the theories of payable South African oil deposits". His tour of South Africa failed to uncover any noteworthy hydrocarbon accumulations and thus his final report was a "devastating verdict (that) was a great disappointment to the whole of SA".

Craig did, however, state as follows: "While I regret that it has been necessary to give a gloomy view of many propositions, where hard and careful prospecting work has been performed, I am hopeful that my tour may not be without some results in turning the attention of prospectors and capitalists to areas more worthy of exploitation."

As hindsight has revealed, there are many areas in South Africa, both onshore and offshore, that are worthy of exploration and, ideally, as Craig said a century ago, "exploitation". From an offshore perspective, it was not until three professors from the University of Cape Town drew attention in 1964 to the petroleum potential of South Africa's continental shelf that the government reconsidered the possibility of significant accumulations occurring within its jurisdiction.

However, it was not until the early 1990s that Mossgas produced South Africa's first natural gas.

From an onshore perspective, the country is still waiting with bated breath for shale-related exploration to be authorised in a manner that will allow for an accurate estimate of South Africa's potential shale gas reserves.

Although there are other onshore gas reserves, such as coal-bed methane and biogenic methane, it is the so-called "gamechanging" size of the potential shale gas reserves that are of the greatest interest.

Although it is now trite to say that South Africa may be endowed with some of the largest shale gas reserves in the world, corresponding confidence regarding South Africa's potential offshore resources has not yet garnered similar status.

The tide in this regard may, however, be turning in that the stepping up of Total's oil and gas exploration will, apparently, take place in the offshore arena.

When it comes to truly significant oil and gas companies (the so-called super majors) showing an interest in South Africa's offshore hydrocarbon potential, Total is not alone. South Africa can now also boast the presence of Shell and ExxonMobil.

Consequently, it is reasonable to argue that three super majors would not have invested in South Africa's offshore acreage unless they were of the view that a noteworthy return on their investments could be realised.

Notably, the super majors are joined in the offshore arena by a fair number of other, smaller, oil and gas companies, such as Silver Wave Energy, Impact Africa and Sasol Petroleum International.

Such has been the unprecedented interest in offshore acreage that, in the past three years, nearly all such acreage has been licensed.

Under the circumstances, substantial exploration can be expected to take place in South African waters within the next few years and South Africa may soon reach the stage at which its oil and gas reserves can no longer be labelled as insignificant.

This turning point in the story of South Africa's oil and gas reserves may be closer than most South Africans realise and, in view of the fact that Total is expected to drill the promising Paddavissie and Brulpadda prospects during the course of this year, Total may well end up playing a truly significant role in that story.

The decision by Total to sell its South African coal assets and step up its oil and gas exploration could be a decision that pays significant dividends in the near future and helps to rewrite the story of the South African oil and gas industry.

Previously published in BDLive on 20 February 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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