- Total has discovered a potential 1 billion barrels of "wet" gas off the coast of South Africa.
- The gas could be used as petrol - or perhaps even converted into electricity, according to one expert.
- The Brulpadda find should mean more tax revenue and a stronger rand.
Last week, the French energy giant Total announced it had discovered a large gas field off the South African coast.
Total – along with its partners – owns the exploration rights to the Brulpadda block, an area of 19,000 km², some 275km south of Mossel Bay.
They tried to drill the block in 2014, but gave up after rough winter weather wreaked havoc on its equipment. This time, Total drilled in December, and used a more specialised rig which could cope with the strong currents.
Total struck 57 meters of gas 3,633 meters deep – and now predicts that the field could yield up to 1 billion barrels of gas.
What has been found?
A gas condensate – basically this is a “wet gas”, gas that contains a small amount of oil.
What will it be used for?
The gas could be converted into petrol at PetroSA’s gas-to-fuel refinery in Mossel Bay.
But Niall Kramer, CEO of the South African Oil & Gas Alliance (SAOGA), says it is still too early to jump to conclusions on the final use for the gas.
For example, instead of petroleum, the gas could be converted into electricity.
How big is the find?
To put it in context: Last year, ExxonMobile discovered a total of 895 million barrels in wells across the world – it was the most successful explorer worldwide. In this single discovery in South Africa, Total’s find of 1 billion barrels trumped that.
According to some estimates Total’s Brulpadda find is three to five times bigger than all the gas finds so far in South Africa put together, says Kramer.
More than 300 offshore wells have been drilled in South Africa over the past decades – but only in relatively shallow seas. Total’s Brulpadda find was South Africa’s first deepsea well.
Total may now drill another four wells in Brulpadda. The American oil giant Exxon Mobil and the Italian group Eni SpA also hold stakes in fields close to Total’s block. They could also be energised and decide to explore now that Total has struck gas, says Kramer.
Who will benefit from the find?
Total owns 45% of the Brulpadda licensing rights, followed by Qatar Petroleum (25%), Canadian Natural Resources (20%), and Main Street (10%). MTN chairperson Phuthuma Nhleko is the only South African director of Main Street – and owns up to 51% of the company. The rest of Main Street is held by the Canadian company Africa Energy.
Read: This MTN boss could make billions from the massive Brulpadda gas find – and e.tv’s owner could also benefit
The only other South African connection is through HCI, which owns eTV. HCI indirectly owns a stake in a UK company called Impact Oil & Gas, which has supplied financing to Nhleko’s company who invested in Main Street.
How will it affect South Africans?
Firstly, government will earn more tax
Total and its partners will pay the regular 28% corporate tax on all taxable income from Brulpadda. According to the most optimistic estimates, the Brulpadda find could yield $1 trillion for Total and its partners – which will mean a massive tax windfall.
In addition, oil and gas companies have to pay a royalty of approximately 5% on all gross sales of all oil or gas produced in South Africa.
Also, it is common internationally for the state to be entitled to participate directly in any production operation through partnership with the producer. “The extent of the state’s entitlement will be determined by the licensing terms and the new legislation,” says Gregory Nott, director of the law firm Norton Rose Fulbright.
Minister of Mineral Resources Gwede Mantashe plans to separate oil and gas from the Mineral and Petroleum Resources Development Act (currently in force alongside the Mining Charter) and develop separate legislation for the oil and gas industry which would yield immediate impact.
“This legislation is much anticipated,” says Nott, “as it will determine all terms and conditions which apply to oil and gas licences over and above the existing tax regime, for all industry participants as well as further potential investors.”
“Drilling for oil and gas is highly capital-intensive and high risk with little certainty of success. In order for investment in this high-risk but vital industry, investors need certainty in legislation and in government policy.”
Brulpadda should also bolster the rand
Oil represents more than 15% of South Africa’s imports. If South Africa produced more of its own oil, we wouldn’t have to sell so many rands to buy dollars to pay for the imported oil. This could boost the local currency.
These businesses and skills will be in demand
Kramer thinks the Brulpadda find could have a massive boost to all kinds of businesses in South Africa. Apart from refining oil and other downstream activities, companies providing helicopters, marine services, catering supplies and transport to get supplies to the deep-sea platforms.
He believes artisans, particularly welders and electricians, will be needed when they get to production both onshore and on the rigs. But to start with, highly skilled and experienced engineers and other extraction experts will have to come from overseas, he added.
In addition, if the gas is converted into power, it could provide an affordable and reliable source of energy that could boost manufacturing in the country. Kramer says that businesses have been, for example, hesitant to establish large smelters because of fears over electricity reliability.
Which towns will benefit most?
While Sedgefield is closest to the find, Mossel Bay is the most obvious beneficiary – it’s the nearest hub to the find and it also hosts the PetroSA refinery.
But Kramer believes there may be different nodes that could see a boost
Saldanha Bay has already been developed as an oil and gas services hub and has the capability to service rigs and drilling equipment. Coega, which has a deep water port, could also see more activity.
But what about the environmental impact?
Professor Harro van Blottnitz, who teaches in the chemical engineering department at the University of Cape Town, is "more alarmed than contented" about Total's find.
"Globally, there’s already enough hydrocarbon resources discovered to completely wreck the climate.
"South Africa can very comfortably meet all its energy needs through solar power – all requisite technologies are fast maturing or readily available.
"I believe that it's a relatively small find of unusual hydrocarbons, in difficult deep sea conditions. I hope we’ll rather deploy our scarce engineering skills to building infrastructure for people on land, than difficult structures in the Southern Ocean."
Green Peace also "strongly condemned" Total’s exploration plans.
"Discovering yet more oil and gas is not something to celebrate when burning fossil fuels is driving potentially catastrophic climate change. This is essentially oil that we cannot afford to burn in the face of extreme weather conditions and recurrent droughts."
It also warned of potential oil spills in future.
What happens next?
Total plans to get 3D data of the area, and will then decide how many more exploration holes to drill and will probably be evaluating rigs for production.
According to Kramer, exploration could happen within the next year to three years. “Production could be six to nine away. There are rigs available and the African rig count (rigs in use) is up to 100.”
For more go to Business Insider South Africa.
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