Precious resources - JSE MAGAZINE

Precious resources

Petroleum Agency SA is mandated to ensure the country’s oil and gas industry reaches its full potential for the benefit of all

As the recently appointed CEO of Petroleum Agency SA (PASA), Phindile Masangane wants to actively drive the organisation’s vision to ‘see a diversified and fully developed upstream oil and gas industry that produces at least 50% of the country’s petroleum needs’. She explains that PASA has three main functions, the first being to attract investment into production of oil and gas in SA. ‘We have a team of geologists and geophysicists, who interpret data gathered through past exploration activity to determine prospectiveness, and use this to attract exploration companies to South Africa.’

The second function is to regulate the upstream industry in terms of the Mineral and Petroleum Resources Development Act and other applicable legislation. ‘We have staff responsible for ensuring legal, technical and environmental compliance, as organisations enter into contracts with the state to explore for oil and gas,’ says Masangane.

PASA’s other function is to act as the ‘national archive for all data and information produced during oil and gas exploration and production in South Africa, and to curate and maintain this data for use and distribution’. It also advises government ‘on any issues pertinent to oil and gas’, and carries out any special projects, as directed by government.

SA, says Masangane, currently imports more than 95% of the gas used in the country, and ‘we have almost no crude-oil production, so we import that as well. Recently, we have also started importing refined petroleum products as our refineries have not made the required investments to meet demand. So, we are too reliant on imports, yet we have good petroleum-resource prospectiveness as a country that is under-explored’.

Phindile Masangane, CEO of Petroleum Agency SA

As far as the country’s oil and gas potential is concerned, Masangane says that ‘current estimates indicate potential for billions of barrels of oil and multi-trillion cubic feet [Tcf] of gas yet to be discovered. Onshore, PASA’s estimates for shale gas are 205 Tcf recoverable, while coal-bed methane and biogenic gas represent a further multi-Tcf potential resource’.

Yet much of the seas around SA still remains unexplored. As an example of this, she says, only four wells have been drilled off the east coast so far. However, it is off the southern coast where the most recent discovery was made. This is Brulpadda, about 175 km from Mossel Bay. ‘Odfjell’s Deepsea Stavanger oil rig arrived off to South Africa from Norway around the middle of August,’ she says. ‘It is drilling the Luiperd – more correctly the Luiperdpadda – prospect, which is the second of five prospects in the group.

‘There is an option to retain the rig off South Africa for further drilling. The Brulpadda well found light oil and gas condensate, but the phase in the other prospects can only be determined through drilling. Future development of the discovery is highly dependent on the success of this activity. It’s possible we could see gas condensate being piped to the PetroSA facility in Mossel Bay, but these decisions are ultimately up to the operator, Total, and its partners.’

Other exploration coming up offshore is the planned drilling of the Gazania-1 well, off the west coast, to test a prospect close to the A-J1 oil discovery made in 1988, she says. Drilling is expected to begin in Q1 2021. Off the east coast, ENI and its partner Sasol have identified potential deepwater prospects, but the testing of these by drilling has been delayed due to various issues, including the coronavirus pandemic.

COVID-19 has caused serious disruptions to the industry and PASA, says Masangane. ‘Exploration and production of oil and gas need a significant presence of international oil companies, which – from time to time – bring their experts into the country to manage projects. With the restrictions on travel, that put major projects on hold as equipment and people could not come into the country.

‘Fortunately, in Level 3 of the lockdown regulations, the Minister of Mineral Resources and Energy passed regulations that opened the exploration and production of oil and gas to go ahead.’

For PASA, she says, COVID-19 has prompted the organisation to accelerate the implementation of its digitalisation programme, whereby it is automating its processes, including the online application for oil and gas permits. ‘In the immediate sense, we want to support the department in finalising the new legislation for petroleum-resource development as we believe this is critical for securing the much-needed large investments into the industry.

‘The oil and gas exploration industry has always been extremely volatile, being subject to global economic forces and highly dependent on the fluctuating oil price. In addition, oil and gas exploration is exceptionally risky in terms of initial, upfront capital investment, with long periods before any return on investment and profit generation,’ says Masangane.

‘To counter this, oil and gas exploration companies require equitable terms and especially long-term stability and consistency in contractual terms, together with political and independent judicial stability. Coupled with this would be a government that is committed to ease of doing business and facilitating entry into the upstream space. Current opportunities lie in the development of the standalone Upstream Petroleum Resources Development Act [UPRDA] and its accompanying regulations,’ she says.

‘This rewriting of the legislation governing oil and gas exploration and production gives South Africa a chance to address the requirements of the industry, while also ensuring an equitable deal for the South African state, and meaningful participation of South Africans in the industry.’

According to Masangane, transformation in the local oil and gas industry plays a large part of PASA’s mandate, as does job creation. SA, she adds, already has the ability to provide a big array of skills and services to the upstream industry, as represented by the membership of the South African Oil and Gas Alliance. However, what the country does not have is specialised skills, such as qualified rig crews, as the local industry is too small to sustain such specialisation. Specialised crew and tradesmen trained to service the upstream industry have to be equipped with skills that can be applied cross-industry to ensure sustainability.

‘The upstream oil and gas industry is highly capital intensive, high risk in the early stages, and requires highly specialised skills. So local small and medium-sized companies tend to find it difficult to source funding for participating in the sector,’ she says. ‘Our challenge is that, as a regulator acting on behalf of the government and the people of South Africa, we have to find solutions to these challenges so that South African companies can meaningfully participate in this strategic industry.’

Indigenous production of oil and gas supports security of energy supply; enables the re-industrialisation of the economy; and can create many permanent jobs.

‘Gas is part of South Africa’s energy transition to a cleaner energy future, yet we don’t have domestic production of gas, in spite of having good gas resources,’ she says. ‘Once the UPRDA and its accompanying regulations are finalised, we can expect the initiation of active exploration for shale gas onshore.

‘The true potential of this resource will only become known through drilling and production testing, but this may certainly represent a major economic boost for the growth of South Africa.’


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