COMPANY ACTIVITY

The South African shale challenge

A ROLLING blackout schedule run by South African state-owned power company Eskom for the last six years has underscored a national energy crisis for the country and opened up the discussion for a solution in the form of a shale gas revolution.

Andrew Snelling
The South African shale challenge

The blackouts, referred to as “load shedding”, are commonplace enough that the energy provider has a section on its website dedicated to notifying customers as to when their area is going to be affected.

It was surely with this in mind that re-elected President Jacob Zuma described shale gas as a “game changer” in his state of the nation address following the South African elections in May.

The newfound confidence in shale as a solution to the country’s problems has been helped in no small part by a worldwide ranking of shale formations by the US Energy Information Administration last year.

South Africa’s shale plays ranked eighth in the world, with 390 trillion cubic feet of gas technically recoverable, a majority of it from the semi-desert Karoo Basin in the country’s south.

Now, with shale on the mind, the newly reinstated government is busy developing policy to manage a shale gas industry waiting to happen.

Majors Shell and Falcon have already staked out claims to large areas of the Karoo, receiving formal acceptance of their exploration approvals in 2010.

Public opposition to fraccing then held up proceedings, fuelled by the infamous Gaslands documentary, leading to a moratorium on fraccing until the end of 2012.

Following the lifting of the moratorium, Chevron joined the party, farming in with Falcon.

Beating the industry heavyweights to the punch though was Australia-based junior Challenger Energy, which has an application registered for 4300sq.km in the best explored part of the basin through its 95%-owned subsidiary Bundu Energy.

Bundu snapped up the acreage based on a well drilled by then state-owned company Soekor in 1968, which experienced a gas kick strong enough to set off the blow-out preventer when it drilled into the deep Ecca shales, producing gas to surface for a 24-hour period.

The company also shot seismic, finding shales which didn’t suit its conventional needs, causing the well to be plugged and abandoned.

“What I think we’ve got here – and the reason that I got involved – is because it seemed to me that Challenger had its foot on something that could potentially be of world scale and clearly of national significance to South Africa if it comes through,” Challenger managing director Robert Willes told Energy News.

“This is a potential company maker.

“So really the challenge is to take it from here into that company maker and that’s what we’ve been working on.

“We’ve got a board and management team that’s got pretty significant heavy-duty international experience with a lot of household names. So I think we’ve assembled a team that can drive this forward.”

There are two directions South Africa could go in the move towards shale – Zuma could choose to send proposed amendments to the mineral resources legislation back to Parliament to be revised, as prescribed by new Mineral Resource Minister Ngoako Ramatlhodi, or he could sign it, ignoring lobbying attempts from the majors.

The current version of the legislation is set to give the government a 20% free-carry in oil and gas projects, with the ability to acquire the other 80% at an agreed price.

It has led the industry to lobby the government, claiming that a fledgling sector needs less restrictive governance to succeed.

“I would take the view that over time and once the size of the resource has been established and people can really understand what the economics are, then ultimately international experience would suggest the policy setting would ultimately migrate [to that],” Willes said.

“I don’t want to be cavalier about it but I suspect that’s what would happen.

“I’d be pretty happy if they went the second route [revising the bill], because although it might take a little bit longer I think it’s one of those situations where you take a little longer to save time, effort and money in the medium to long term, so I think it would be very encouraging if they did that.”

Once a licence is approved, Challenger’s exploration and appraisal program is anticipated to involve the reprocessing of seismic data, drilling of 1-2 coreholes and the drilling, fraccing and production testing of one well.

Due to the political uncertainty, it’s difficult for the companies in the Karoo to put a timeframe on their plans.

However, Challenger is very loosely aiming for a final investment decision towards the tail end of the decade, all things going well.

Regardless of how long it takes, Challenger is confident of the market for shale gas in South Africa and believes it is in a prime position to take advantage of it once the situation allows and in conjunction with a farm-in partner.

TOPICS:

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

editions

Mining Magazine Intelligence Exploration Report 2024 (feat. Opaxe data)

A comprehensive review of exploration trends and technologies, highlighting the best intercepts and discoveries and the latest initial resource estimates.

editions

Mining Magazine Intelligence Future Fleets Report 2024

The report paints a picture of the equipment landscape and includes detailed profiles of mines that are employing these fleets

editions

Mining Magazine Intelligence Digitalisation Report 2023

An in-depth review of operations that use digitalisation technology to drive improvements across all areas of mining production

editions

Mining Magazine Intelligence Automation Report 2023

An in-depth review of operations using autonomous solutions in every region and sector, including analysis of the factors driving investment decisions