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Oil Column: South Africa to be reopened for shale exploration

For Monday’s column we are casting the net a little wider than normal to look at developments in South Africa’s Karoo region, host to shale acreage that has world-class potential.

There, a moratorium on exploration looks set to be lifted, although the devil is very much in the detail.

According to reports from South Africa, the department of mineral resources gazetted a key notice, the first part of which extends a ban on fresh applications for shale gas acreage in the Karoo.

However the second section is key as it paves the way for exploration rights to be awarded to Shell (LON:RDSA), AIM- and Toronto-listed junior Falcon Oil & Gas (LON:FOG, CVE:FO) and Bundu Oil, which is majority owned by ASX listed Challenger Energy (ASX:CEL).

The indications in-country are the award of licences will actually occur before the South African elections on May 7.

The gazette notice followed some highly encouraging comments by the country’s mineral resources minister, Susan Shabangu, at the Indaba mining conference in Cape Town last week.

There she told delegates: “We will move ahead decisively, yet responsibly with the exploration of shale gas, to unleash its potential contribution to, amongst others, cost-competitive energy security, employment creation and a range of other latent benefits to the country.”

It is interesting that while the licence awards will lift the embargo on exploration of this large, but environmentally sensitive area of South Africa, the ban on fracking remains in place.

However draft technical regulations governing the use of this technique were closed for consultation in November ahead of their adoption, which is seen as imminent.

Not that the fracking issue will bother companies, initially at least, as they take time to assess the full potential of their acreage.

For Falcon, which we have followed for some time now, the licence award will end a three-year period of limbo.

The decision it must make is whether to go it alone, or team up with its exclusive partner Chevron.

Given Falcon’s model, the City’s money is on the latter option.

Estimates suggest that deposits in the Karoo basin could be the fifth-largest in the world. It is estimated to contain 485 trillion cubic feet of technically recoverable shale gas.

For South Africa, heavily dependent on coal-fired power stations for its electricity, an alternative home grown fuel source, will have a major impact on the country’s energy security.