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South Africa's offshore open for business

Eager to emulate its neighbours' success, the country is striving to reinvigorate interest in its deepwater potential

Efforts to get large-scale offshore exploration moving in South Africa have largely proved fruitless in recent years, but fresh interest has emerged, albeit against the background of an uncertain regulatory environment.

Encouragement has come from Statoil's decision to beef up its existing position in the country—having entered its upstream in 2015.

In September, the Norwegian firm announced it was farming in to ExxonMobil's deepwater acreage, acquiring a 35% interest in Exploration Right 12/3/252 Transkei-Algoa, off South Africa's southeast coast. ExxonMobil, with a 40% stake, remains operator, while Impact Africa holds 25%. The licence covers some 45,000 sq km in water depths up to 3,000 metres. Impact, which farmed out a majority stake in the acreage to ExxonMobil in 2012, says processing extensive data, which includes 2D seismic surveys made in 2014, has significantly improved understanding of the area's exploration potential.

Statoil has also completed a deal with UK-based minnow OK Energy, taking a 90% interest and operatorship in the adjacent Exploration Right 12/3/257 East Algoa. OK Energy retains the other 10%. That licence covers some 9,300 sq km in similar water depths.

These moves firmly entrench Statoil in the South African offshore sector, adding to its acquisition of a 35% stake in ExxonMobil's Tugela South Exploration Right, covering 9,000 sq km just to the northeast of the new acquisitions.

There has also been positive news for PetroSA, South Africa's troubled state oil company, which has secured a deal, supposedly worth around $400m, with Russian geophysical services firm Rosgeo. The latter will help develop PetroSa's 9 and 11a blocks in the Outeniqua basin off the southern coast. PetroSA is eager to find more gas in the region to fuel its Mossel Bay gas-to-liquids facility, which is running short of local supply. The precise terms of the agreement, which was signed at the recent BRICS summit in China, remain vague. But Rosgeo and PetroSA said the Russian firm would carry out a "considerable volume" of exploration, including 1,500 sq miles (3,885 sq km) of 3D seismic and over 8,000 miles of gravity-magnetic surveying, and drill exploratory wells.

The partners say the project is envisaged supplying up to 140m cubic feet a day of gas to the Mossel Bay plant—but, while there may be a chunky deposit out there somewhere, the explorers will, of course, need to find it first.

Neighbouring hopes

South Africa has looked with envy at the oil riches of Angola to the north, along Africa's Atlantic coast, and now the huge gas finds in neighbouring Mozambique on the other side of the continent. Understandably, it has been keen to stress that some of the geology under its waters in the Atlantic side is similar not only to that of its neighbours, but also to that yielding oil off Brazil. For the geology was forged at about the same time, when the two continents were adjacent.

But, despite a long history of shallow-water exploration and some surface-based studies in deep water, discoveries—and serious investment—have been limited of late, despite the presence of heavy hitters, such as ExxonMobil and Total. The French company became operator of Block 11B/12B in 2013, with a view to drilling in 2014, but plans were delayed. A contract with Odfjell Drilling was signed in mid-2017, possibly paving the way for a well to be drilled in 2018.

The last few years haven't been the ideal time to persuade the majors to make heavy investment in deep offshore but South Africa will be hoping that oil price stability and improved oil company balance sheets provide foundations for change.

Uncertainties over the country's oil and gas investment environment aren't helping that quest though. Amendments to the main legislation governing the sector—the Petroleum Resources Development Act (MPRDA)—were passed by parliament in 2014, but President Jacob Zuma refused to sign them on constitutional grounds and because they might infringe international trade rules. The changes could have given the state an automatic 20% stake in all new energy projects and the right to acquire even larger stakes-hardly a stomach settler for the international oil companies.

Since then there has been talk of hiving off oil and gas sector legislation from that for the rest of the mining sector, but this hasn't happened. Mineral Resources Minister Mosebenzi Zwane said in September that amendments to the MPRDA would be passed in December 2017.

However, Olifile Sefako, chair of the South African parliament's select committee on land and mineral resources, said in late November, that February or March would be more likely. The legislation is currently under discussion by the South African parliament's upper house.

Corruption allegations surrounding Zuma's ANC-led government—including some relating to oil and gas deals—also complicate the investment environment. Zuma is under pressure to step down as head of state after a December conference of the ruling African National Congress, which will elect his successor as party leader.

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