Promoting Exploration of Oil & Gas Resources and Their Development throughout Southern Africa

Interview with Lindiwe Mekwe, Acting CEO & GM of Regulation Division at Petroleum Agency SA

South Africa’s oil reserves are relatively modest – around 15m barrels at the end of 2011 compared to the 37bn of sub-Saharan oil giant Nigeria) most of which is located off the southern coast in the Bredasdorp Basin and off the west coast near the Namibian border. Of these, the little- explored offshore Orange Basin near Namibia is of the most interest in the eyes of many industry observers. What can you tell us about its potential?

We are at the infancy stage. What we are at the exploration phases which entails acquiring data in terms of assessing whether it is commercially viable to proceed to the production phase. Thanks to the information we have received from international oil companies as well as the reconnaissance operators through the data that have been acquired by means of seismic survey we have realised that there is potential that we might be able to have oil and gas in our offshore areas. We are essentially relying on these companies to do more work to proof the presence of hydrocarbons in our shores in order to quantifying the volumes and even the reserves that we have.

We have heard that there have been about 20 offshore licences. Is that correct?

I believe it is more than 20 offshore licences.

You have some exciting companies there such as Anadarko.

Yes. We have quite a few there: Anadarko, Cairn Oil Inc. from India, ExxonMobil and PetroSA (South Africa’s National Oil Company) as well as Sungu Sungu our South African Black Owned Company. Other companies are Singaporean oil company called Silver Wave Energy who are busy gathering more data to determine the presence of hydrocarbons potentials.

So is there a lot of exploration going on?

Yes, there is a lot of exploration going on but at the moment they are not drilling, they are busy processing the exploration data.

I am hopeful that with that quantification of shale gas deposits that are laying there it will benefit South Africa to a large extent and contribute to the energy mix.

There have been a number of gas discoveries in the Orange Basin, one of which – the Ibhubesi gas field – being developed by PetroSA – first production was expected in 2016, is this on schedule?

Yes, we have actually awarded them the production right and they are in partnership with an Australian company called Sunbed and then they were busy trying to get a purchase agreement with Eskom though I don’t know how far they went in terms of negotiating that with Eskom. We have received an indication from them that there is a large amount of gas at the Ibhubesi gas field and that they are trying to get gas sales agreements and then they will start producing more in terms of selling it to their purchasers.

We have heard that the Petroleum Agency is currently promoting a number of other locations with exploration potential. Can you elaborate on these?

That is normal and we do it as part of our mandate. After all the exploration data and then the assessment of the oil and gas that we do, at the end of the day we make sure that we promote those resources at international organization platforms. We usually go to London and promote there. We also plan to attend an oil and gas conference to be held in Canada. We will also do a promotion at AAPG which is usually held in the USA and we do present promotional and technical papers at those events as well. 

So you don’t discriminate.

Yes. We don’t promote the any specific company profile but focus on resources and exploration work done onshore and offshore of our country.

PetroSA has also developing the F-O field, commonly known as “Project Ikhwezi” in an attempt to sustain gas supplies to the GTL facility. How is production currently running?

Due to unfavourable market conditions as a result of the oil price plunging the company decided to readjust their operations. Currently they have suspended one well and producing from 3 wells.

Will PetroSA exploit other nearby formations to try to prolong production from this area or are they looking at its like its retrenched and now they are just waiting hopefully for additional buoyancy in the oil price before they begin again?

Yes. Currently the knock on the oil price has hit most of their operation plans so for now they are focusing on small areas and then as soon as they recover from that downturn I am hoping that they will consider other ventures. They are in partnership with other companies in certain blocks just to mitigate the cost and sharing the risks. Their financial constrains has made it very difficult to do optimal exploitation of the resources.

It is the possible addition of a sizeable unconventional source that currently generates the most international interest in the natural gas sector. Particularly the presence of massive shale deposits in the Karoo Basin, which potentially gives South Africa the eighth-largest technically recoverable shale gas resources globally. Do you believe that the shale gas in the Karoo Basin has the potential to transform the nation’s energy mix and make a significant contribution to South Africa’s economy?

Absolutely. It has been reported that it can be a game changer for South Africa. I am hopeful that with that quantification of shale gas deposits that are laying there it will benefit South Africa to a large extent and contribute to the energy mix. But what we must not forget to mention is that more work needs to be done to determine the actual presence of shale gas and whether it will be commercially viable to do so.

Will shale gas exploration be instrumental in meeting South Africa’s growing energy demand?

I believe that it will help a lot in terms of adding value into the energy mix and solve South African energy challenges.

You have recently confirmed that there are two new players which have entered South Africa’s natural gas arena – Rhino Resources and Cairn Energy. Will you be tendering any further permits in the near future?

In terms of our licencing regime, it is first come first served. Meaning that whoever is interested in exploring for oil and gas must submit an application in terms of the Mineral and Petroleum Resources Development Act, 2002. What we are required to do is to process the applications in accordance with that legislation and then the decision to approve the said applications is done by the Minister of Mineral Resources based on whether the company has fulfilled all the requirements.

Concerns have been raised regarding sourcing water in this relatively arid region, possible competition with agriculture for scarce water resources and whether toxic wastewater will affect the environment, groundwater table and wildlife. How would you answer these concerns?

In terms of the water resources, yes we are aware that we are in a predicament whereby there is not enough water resources in the Karoo region but fortunately enough we have the National Water Act that looks into application pertaining to the water resource. That will mean whichever company applies for an oil and gas permit will also make sure that they are aware of the National Water Act whereby the department of water affairs is the competent authority that will be looking into processing that particular application and check as to whether that company has fulfilled all requirements in accordance with the National Water Act.

The country also has a sizeable downstream sector with 4 crude refineries, giving it the second largest refining capacity on the continent, will Coega allow PetroSA to market its production to the rest of Africa?

Everything that has to be done downstream also has to happen within the legal and legislated framework. Coega offers excellent opportunities for growing petrochemical industry

Critics have pointed out that the location chosen for the new refinery is questionable, requiring the construction of expensive pipelines to carry refined product to the main markets in Gauteng, or impractical shipping to Transnet’s new multiproduct pipeline in Durban, would the expansion and upgrade of existing refineries not offer a far better economic rationale?

For every decision to be made it will be preceded by a thorough investigation of facts and an analysis of the needs. As such the development of the pipeline will be guided by those needs pertaining to how to transport a particular product and whether it is feasible to do so.

To what extent has the sharp decline in oil prices over the last year resulted in any questions being raised about the wisdom of South Africa’s aspiration to pursue an aggressive rollout of an oil services hub referring to the Saldanha Bay IDZ n particular?

The oil price has hit every country globally more so the oil and gas development sectors. I don’t think South Africa is the only one that has been hard hit most countries got their fair share. Saldanha Bay is not immune from such kind of economic impact, if there are no activities happening from the oil and gas sectors it will definitely feel the pinch as a result of no development and growth.

Broadly speaking, the medium to long term horizon for South Africa is a hydrocarbon refining oil services and potentially offshore and onshore industry. It could become an oil and gas player.

Yes. That’s the aspiration and goal and we are doing everything we can to make sure that that happens.

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