Total starts drilling for offshore gas in SA

Jun 01, 2014 12:00 AM

French oil and gas group Total will this month start the first new offshore private sector exploration drilling programme in South African waters in more than a decade.

Total and its joint venture partner, Canadian Natural Resources (CNR), hold exploration rights over Block 11B/12B, near a PetroSA gas field in the South Outeniqua deepwater basin, about 180 km off Mossel Bay.

Drilling of the well, which will be called Brulpadda, is expected to start around mid-June and will take about 60 to 120 days, depending on weather and sea conditions, documents show.

It is expected to cost about $150 mmm (R1.6 bn), according to estimates by the South African Oil and Gas Alliance. Total, which bought 50% in the project from CNR for an undisclosed amount late in 2013, declined to comment.

The decision to proceed to the drilling phase comes despite concerns highlighted by the oil and gas industry over the Mineral and Petroleum Resources Amendment Bill, which will give the state a 20% free carry in new projects and the option to acquire the rest at an “agreed” price. Oil and gas may also be declared a strategic resource, which could lead to price and export controls.

Critics have said that the bill, which is awaiting President Jacob Zuma’s signature to become law, will kill investment in the nascent oil and gas sector. Anadarko Petroleum became the first company to publicly say it had halted exploration spending until there is more clarity.

Although it is expected that existing projects will be exempt from the 20% free-carry requirement, it is not explicitly stated in the bill. In a letter to Mr Zuma, the DA highlighted several problems with the bill, which it says contains various clauses that are unconstitutional. It asked Mr Zuma to refer it back to parliament for fixing.

Chris Bredenhann, partner at PwC, said uncertainty remained a problem for industry players.

“The uncertainty is there, but the message from a global context is that South Africa’s potential reserves are at least seen as something that needs to be looked at. The easy oil is gone and energy companies have to look at other frontier countries. South Africa is one of them.”

With potential commercially viable reserves of shale gas, coal-bed methane and offshore oil and gas, South Africa has been seeing unprecedented interest from multinational firms such as Chevron, Royal Dutch Shell and ExxonMobil.

An estimated $1 bn might be spent on oil and gas exploration, including for shale gas, oil, coal-bed methane and underground coal gasification projects, PwC said last year.

Total’s Brulpadda is understood to be the first new offshore well since Forest Oil did exploration in the Ibhubesi gas field off the West Coast in the early 2000s. Australia’s Sunbird Energy has since bought Forest’s 76% stake, receiving government clearance for the deal in October last year. PetroSA holds the rest.

The commercial development of Ibhubesi is expected to cost R15bn and gas will be supplied to Eskom’s Ankerlig power station, which the utility plans to convert from diesel to gas.

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