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South Africa's offshore sector finally makes some waves

Total plans drilling campaign to establish scale of reserves

South Africa has been waiting for a major discovery to galvanise interest in its offshore oil and gas sector for years and Total last week provided one that could. But the government still needs to put in place a new regulatory framework for the industry capable of wooing investors and, with a general election in the offing, that may not be a rapid process.

The French major said on February 7 it has made "a significant gas condensate discovery" on its Brulpadda prospect on Block 11B/12B in the Outeniqua Basin, 175km off the southern tip of South Africa, hailing it as "a new world-class gas and oil play".

"The well encountered 57 metres of net gas condensate pay in Lower Cretaceous reservoirs. Following the success of the main objective, the well was deepened to a final depth of 3,633 meters and has also been successful in the Brulpadda-deep prospect," the company said.

Total's chief executive Patrick Pouyanné said it could hold "around 1bn barrels of global resources, gas and condensate light oil".

The next step is to acquire 3D seismic data this year, and then drill four exploration wells on the license, which covers 19,000 km2, with water depths from 200 to 1,800 metres.

The area is subject to difficult metocean conditions—bad weather contributed to the abandonment of a previous attempt to drill the well, back in 2014, just before the oil price crash of that year. However, Total thinks its experience of working in the similarly challenging West of Shetland area on the UK continental shelf will stand it in good stead.

Domestic power potential

That the discovery is mainly gas rather than oil may be a disappointment for the government, given its costly oil imports balance.

However, it does open up interesting possibilities for a nascent gas-to-power programme that is intended to help wean South Africa off coal dependence. The long-term energy plan calls for more than 8 gigawatts of gas-fired generating capacity to become operational in 2026-29, with feedstock for that possibly coming by pipeline from Mozambique's offshore gas fields or via LNG imports. Now, a domestic alternative may be available.

A future project could also tap into offshore gas pipeline infrastructure already in place to link long-established gas reserves closer to shore serving Sasol's gas-to-liquids plant in Mossel Bay. That plant, which has been running at reduced capacity because it doesn't have enough gas feedstock, could be another potential customer for Total's gas.

If enough gas was discovered, South Africa could even become an LNG exporter, and, of course, future exploration may yet yield oil, changing the dynamic again.

Regulatory reforms awaited

A number of international oil companies, including ExxonMobil, Equinor, Eni and Total itself, have interests in other South African offshore exploration licences. But the success of one well is cannot pave the way alone for further offshore developmentTotal must prove the potential of its find and South Africa urgently needs to hasten changes to its upstream regulatory framework.

Last year, the government implemented a moratorium on new applications for oil and gas licences while it works on the revamped legislation. That was later eased to allow applications already in the system to be considered, but the planned legislation has yet to emerge.

Implementing a new petroleum bill will be complicated by the upcoming general election, which President Cyril Ramaphosa has said will be held on 8 May. A headline-grabbing hydrocarbons find ensures the sector's future will now be a focus for campaigning.

"The process of revising the country's hydrocarbon legislation will now be catapulted onto the political frontline. With just months to go until the general election, the government is set to come under intense pressure to ensure the industry delivers local benefits," said Ben Payton, head of Africa, for political risk consultancy Verisk Maplecroft.

He said the ruling African National Congress (ANC) is likely to face pressure to deliver immediately tangible benefits for the nation by allowing either black-owned South African companies or the government to be given a greater share in new projects. Similar pressure relating to the mining sector has already led to licensees needing to reserve a 30% equity share for black-owned partner companies there.

One opposition party, the left-wing Economic Freedom Fighters (EFF), has said it would nationalise extractive industries if it came to power. But pre-election polls show the EFF running in third place, well behind the ANC, which has been in power since 1994 and which is forecast to win comfortably again, though possibly with a reduced share of the vote.


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