After taking advice from stakeholders, South African president Jacob Zuma knocked on the head an earlier version of the legislation to unlock unconventional exploration and sent it back to the South African parliament.

The Department of Mineral Resources last week came back with a fresh set of changes to the Mineral and Petroleum Resources Development Act, 28 of 2002 Amendment Bill that could improve licence conditions for those companies sticking with the early stage unconventional sector in the southern African nation.

Attempts to get shale gas exploration off the ground in the energy hungry nation have stalled due to concerns around hydraulic fracturing, a lack of consultation and a need to build a legislative framework.

“Clearly the engagement has been constructive around the amendment bill, and they have proposed a number of changes that are much more encouraging,” Willes said.

Challenger first entered the Karoo Basin in 2010, and has been waiting for the law to catch up with its plans ever since.

The original bill would have given the government a 20% free-carried interest in new exploration and production rights, and the right to acquire further unspecified interests, but the changes recommended by the DMR suggest making that a 20% carried interest with a cost recovery mechanism during the production phase.

Willes said the new proposal was much more in-line with international norms.

“Exactly what that cost recovery mechanism is going to be they haven’t said. Whether they will propose a PSC style remains to be seen (but) that was one significant positive,” he told Energy News.

The new terms also allow the nation’s ministers of resources and finance the discretion to scale back that 20% level to ensure a project is viable at the time the production licence is granted.

Further, the state is looking at amending the rules for Black Economic Empowerment participation, which are currently governed by mining laws, but not specifically provided for under upstream oil and gas operations.

The suggestion is that the resources minister should develop petroleum regulations that would set BEE participation at a minimum 10%, lower than the 26% requirement under the mineral exploration rules.

“They are recognising the early stage of this industry and significant money needs to be invested onshore and offshore before discoveries are made,” Willes explained.

Changes to the bill would also provide project certainty for the life of exploration and production by agreeing to production term rights at the time the exploration licence is issued.

“This has been a positive set of changes,” Willes said.

“It’s difficult to say exactly what the timing will be, but I think we will see the key legislation moving quickly now.

“The deputy minister did say that he hoped still would be settled by the end of November, and I think that this is a positive step forward, even if that deadline is looking unlikely.”

With some formal consultation likely, Willes is optimistic that it won’t be too long before the bill is back before the National Council of Provinces, South Africa’s upper house, and that leases could be awarded by mid-year.

Potential

Willes said that when the Karoo Basin permits are finally granted South African can finally begin to assess the potential of its shale gas resources, but that process was likely to take years.

There are rigs in Sub-Saharan Africa capable of drilling vertical wells, but any horizontal drilling and fraccing would need to be shipped in, that that is still some time off.

In the meantime, the industry will benefit from government plans to move the economy away from coal and to develop gas infrastructure.

South Africa is suffering from chronic power shortages, and while the government is running processes to boost its renewable capacity, it is also looking at LNG imports to fill new gas-fired power plants, even as it urges development of CSG and shale gas resources.

CSG is allowed under the existing petroleum act, but is even less developed than in neighbouring Botswana.

“LNG imports will be positive for us, because it will kick-start gas infrastructure, and in the long run as SA starts to prove is domgas supply, it will be of great strategic and economic value to the country,” Willes said.

Cranemere

When its leases are awarded, Challenger expects to be one of the leading players in the nation.

Its applications, secured with partner Bundu Gas and Oil Exploration in 2010, contain the most encouraging well with gas shows in the area, mostly drilled in the 1960s, which support the presence of a resource play in the Karoo Basin.

Bundu's application covers some 3500sq.km, and they are believed to be some of the best in the nation.

Soekor drilled CR 1/68 in 1968 and 11 zones of interest were noted. The well tested a stable eight million cubic feet per day of gas from shales, peaking at 16MMcfpd, before the blow-out preventer needed to be activated.

For decades it was assumed the gas was from a small, naturally fractured and high pressure shale reservoir that contained limited and non-commercial amounts of gas, but 50 years have seen technological changes and there now could be a resource play in the Permian Fort Brown shales, which are up to 1524m thick in some areas.

South Africa’s semi-desert Karoo region is thought to hold at least 390 trillion cubic feet of shale gas, and the government said it could be the answer to the country’s energy challenges as coal-fired power stations struggle to meet the rising electricity demand.

By comparison, the US has 622.5Tcf of shale gas potential, according to the US Energy Information Administration.

Willes admits that while Challenger has been a single-project company for the last few years, albeit one with a degree of paralysis, it is still actively looking to other projects because Cranemere is a long-term play that is taking longer than it expected.

Edit: This story has been edited to correct a number of factual errors.