New Market Study Published: South Africa Oil & Gas Report Q2 2014

From: Fast Market Research, Inc.
Published: Tue Apr 29 2014

South Africa's oil and gas sector is set for growth, as an upsurge in exploration and the increasing prospectivity of the country's offshore acreage point towards considerable upside potential for the country's long-term upstream prospects. The country also has vast unconventional resource potential, and with growing political support lifting the moratorium on hydraulic fracturing, we could see shale development permits issued as early as H1 2014. However, the passage of the mineral and petroleum resources development bill has caused widespread unease in the industry, and deep regulatory uncertainty may cloud the country's long-term oil and gas outlook, unless the government can offer greater clarity to potential investors.

The main trends and developments in South Africa's oil and gas sector are:

* Interest peaked in South Africa's offshore potential with Shell, ExxonMobil and now Total exploring in the deeper-water areas. Total has announced that it will begin drilling operations in its 11B/12B license in 2014. Shell also hinted that it would begin drilling operations in its Orange Basin permit at some point in 2014, although this has not been finalised.
* There has been significant concern surrounding the mineral and petroleum development amendment bill, which was passed by parliament March 2014. The bill offers the state a 20% free carried stake in all new developments, no limit on state ownership of assets and no clarity regarding the pricing terms for stake acquisition. Investors have voiced concern about potential resource nationalism and asset fire sales. It is probable that this level of regulatory uncertainty will delay major investment decisions over the short term, with long-term risks to the downside, depending on the manner of the bill's implementation.
* In September 2012, South Africa's Cabinet announced the end of a temporary ban on hydraulic fracturing (fracking), which had been in place since April 2011. Bundu Oil & Gas, Chesapeake Energy, Chevron, Falcon Oil & Gas, Sasol, Shell and Statoil are among the players actively pursuing the development of shale gas in South Africa. Growing political support for shale gas development could see exploration permits issued from as early as H1 2014.
* Coal bed Methane (CBM) could provide a more immediate remedy to South Africa's gas needs than shale. Australian company Kinetiko continues to see strong production flows from its Amersfoort CBM pilot wells. The company could book gas reserves from the project in H1 2014, while commercial production could begin in the next few years.

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