PASA a strategic entity of government in its goal of diversifying the energy mix

PASA a strategic entity of government

in its goal of diversifying the energy mix

South African Business Integrator spoke to the Petroleum Agency SA about its mandate as a custodian of South Africa's oil and gas rights, as well as its new five-year strategy.

What is the mandate of PASA in terms of being a 'custodian' of the country’s oil and gas rights?

PASA’s mandate is threefold – firstly, to attract investment to South Africa’s upstream industry; secondly, to regulate the activities of oil and gas explorers and producers, and thirdly, to act as the national archive and database for all data and information produced in the process of oil and gas exploration and production.

The upstream oil and gas exploration industry requires technological capacity and is extremely high risk in terms of capital investment and needs long-term investment of resources before a return is shown. Because of this, many countries choose to share the risk of oil and gas exploration and production with private companies, and South Africa follows this model.

Government has designated PASA as the custodian of South Africa’s oil and gas resources. Its role is to attract these companies to our investment opportunities and facilitate their entry into and operations in the upstream industry.

What is the thrust of PASA’s new five-year strategy?

The Agency has identified five new strategic objectives to enable it to effectively deliver on its mandate by capturing the opportunities being presented by the changes in the environment as well as ensure that the Agency overcomes the challenges that it faces. These objectives include: 1. Increasing exploration activity to move the industry from a predominately exploration phase to development and production phase; 2. Sustainability to ensure the company has sufficient financial and human resources to carry out its responsibilities into the foreseeable future; 3. Advocacy to provide input into policy and regulations that impact the industry we regulate; 4. Digital transformation to adopt new, more efficient technologies; and 5. Operational excellence, to ensure efficiency of our

process.

These five strategic objectives will position the Agency as a strategic entity of government in its goal of diversifying the energy mix and developing the domestic gas market, embracing digitisation and automation to improve efficiency, rise to the requirements of the new legislation and find a place in the global transition towards a low carbon future.

What are the key aspects of PASA’s new value statement?

The company’s internal value statement remains unchanged. We have, however, recently reconsidered a further aspect of value – that of value representation and creation. PASA delivers value to its shareholders and stakeholders as follows: • Contribute to the security of energy supply through the development of the domestic upstream petroleum industry; • Attract investments that create jobs; • Create opportunities for economic transformation and diverse participation; • Risk reduction of exploration plans (preliminary data); and • Investment opportunities.

This value is created for all South Africans, for oil and gas companies investing in opportunities and for our stakeholders including the DMRE, DEFF, CEF, host communities and NGOs and NPOs representing interested parties.

What are the changes that are happening internally at PASA and in the industry, and why are these changes necessary?

The Agency has been restructured internally in line with the new strategy. IT has been elevated beyond its former role as a support function, to drive the company’s digital transformation. In addition, the Agency will now have a communications and stakeholder engagement function to respond to the negative perception about the oil and gas industry. South Africa’s energy mix is coal dominated therefore gas is a transition fuel to a cleaner energy future.

When will the moratorium on new applications for rights be lifted and PASA be open for new bids?

As of December 2020, there is no longer a moratorium on applications for rights onshore, other than those for shale gas in a specified area covering the central Karoo. Other onshore applications continue to be received and processed in terms of the MPRDA. The moratorium for shale gas rights and new offshore applications remains in place and is expected to be lifted with the enactment of the hydraulic fracturing regulations (for environmental management and water use) for the shale gas extraction technologies.

With a strong international focus on decarbonisation, what is PASA’s position on the continued exploitation of fossil fuels?

The transition to cleaner fuels and renewables is inevitable if the world is to reduce the negative impact of climate change. South Africa is a signatory to the Paris Agreement and has committed to a 'Peak-Plateau-Decline' carbon emission trajectory. The government policy is to diversify the country’s energy mix which is currently coal dominated to a lower carbon future by introducing proportionately higher renewable energy resources such as wind and solar, into the energy mix as well as gas-to-power. Gas burns with less than half the CO2 emissions from coal and additionally has no SOx emissions. It is thus a suitable transition fuel towards a lower carbon economy for South Africa, especially since gas-to-power technologies are flexible and would therefore compliment the intermittent renewable energy being added to the national grid.

What conditions are contributing to the sense that the market for gas in South Africa is set to grow exponentially?

The two recent world-class discoveries off our south coast places South Africa at pole position to be a notable

gas producing country. Once indigenous gas becomes available, it becomes much easier for the domestic gas market to develop including beneficiation of the gas to chemicals.

What is PASA doing to attract investment into the industry and promote new drilling projects?

PASA continues with its programme of promoting investment opportunities at local and international oil and gas conferences and exhibitions. South Africa has a history of political stability; the new administration is widely regarded as business friendly and the new UPRD bill will assist the Agency in expediting exploration through close management of acreage allocation and work programmes. The Bill also empowers the Agency to commission multi-client or speculative surveys enabling the acquisition of data to attract investment. South Africa currently offers an attractive fiscal framework. These positive factors create a conducive environment for the Agency to pursue its mandate of attracting investment into the upstream petroleum industry

What does PASA look for when evaluating the credentials of potential explorers or developers?

Applicants must demonstrate that they have the technical capability and financial resources to carry out the work programmes agreed, as well as any future development that may ensue. A track record of experience, a good health and safety record, environmental compliance record and compliance with oilfield practice is essential. Having said that, PASA is determined to increase involvement of local companies in our upstream industry and develop local capacity. One way of achieving this is through partnerships between international and local companies.

Does PASA have a strategy to retain existing investors?

All investors want to see a return on their investment and a reward for taking on risk. PASA’s approach is to facilitate their activities and guide them through compliance and regulatory requirements to achieve the best outcome for both government and the investing companies. Advocacy plays an important role and PASA is concentrating on communicating the role that the upstream industry can play in reconstruction and development of our economy to government. A recent example was the facilitation of logistics for the drilling of the Luiperd well during Covid-19 lockdown.

Is there international interest in South Africa’s oil and gas resources?

Definitely – you need only take a look at our exploration map on our website. You will see international companies such as Total, Shell, ENI, Kosmos, Africa Energy Corporation, Azinam, Impact Oil and Gas, CNR, Qatar Petroleum, New Age and others all hold interests in exploration acreage. In addition, we have agreements in place with international service providers to acquire seismic data.

Please outline the implications of the passing of the Upstream Petroleum Resources Development Bill by the South African parliament. Does it provide greater certainty to investors? Is the link between exploration rights and development rights made clear?

Oil and gas exploration and production is currently regulated under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA). The Bill will repeal and replace the relevant sections pertaining to upstream petroleum activities in the MPRDA. The Draft Bill therefore provides greater policy certainty and a stable environment for investment in the South African oil and gas sector. The Bill provides security of tenure by combining the rights for the exploration, development and production phase under one permit.

What changes are envisaged in the amendment to the National Environmental Management Act of 1998 (NEMA)? How will these changes affect environmental compliance?

The National Environmental Management Laws Amendment Bill, which was revived in June 2020, proposes various amendments to the National Environmental Management Act, 1998. Proposals that may positively impact upstream petroleum operations include the provisions empowering the Minister responsible for mineral resources to delegate a function entrusted to him in terms of the Act to any organ of state, and designate as an environmental petroleum inspector any staff member of any other organ of state that executes a regulatory function.

The minister in this regard may delegate certain competent authority functions to the Petroleum Agency SA, which may improve the turn-around timelines for making decisions on the EA applications. Furthermore, designating staff members of Agency as environmental petroleum inspectors means that all compliance monitoring and enforcement functions prescribed in the Act as far as upstream petroleum operations would be efficiently executed.

Please give an update on the issuing of exploration rights over the last 18 months.

A total of 21 exploration rights for both onshore and offshore were issued during the period – this includes renewals and new exploration rights.

Please outline the potential and current state of play (is there exploration or drilling going on?) in the following offshore areas:

a. Orange Basin (off west coast)

There is drilling of the Gazania-1 prospect scheduled for this year in the shallow water block ER105, operated by

Azinam with its partners Thombo, Main Street and Panoro. This is in the area of the A-J 1 oil discovery made in the 1980’s.

b. Gamtoos Basin (southern coast, one of five sub-basins of Outeniqua Basin)

New Age Algoa hold acreage together with Rift Petroleum in the shallow water while Impact Africa’s application for renewal of their ER in deeper water is in process.

c. Northern Pletmos Basin (ditto)

The northern Pletmos Basin is under application by Sungu

Sungu.

d. East Coast Basin (Tugela study area)

The shallow water part of the Tugela area is held by Impact

Africa while deeper water acreage is under licence to ENI in partnership with Sasol. These explorers have reached the end of an exploration period and PASA is awaiting their decision on future exploration which could include drilling.

e. Western Bredasdorp Basin

The western Bredasdorp basin is currently open acreage and will most probably be released on licence round once the UPRDA is enacted and the moratorium on offshore applications is lifted.

What can you tell us about Total’s two finds off Mossel Bay?

The Brulpadda and Luiperd discoveries of gas and condensate are the largest hydrocarbon discoveries made in South Africa to date and have opened a world-class exploration play and sparked further interest in deep water exploration.

These results are for only two drilled prospects in the Paddavissie feature where three further prospects remain to be drilled. There could be sufficient gas to feed the Mossel Bay plant at full capacity for more than 40 years. The Paddavissie feature is only a fraction of the Block 11B/12B, therefore these two gas finds do not even begin to represent the full potential of the licence block. Further seismic data to the east has confirmed the existence of another geological feature, named Kloofpadda, which consists of a number of large and encouraging leads. There are also prospects identified in the north of the block.

What are the various onshore exploration opportunities?

Onshore exploration opportunities are represented by unconventional resources such as shale gas in the south – central Karoo, coalbed methane in the coalfields of the east and northern sectors of the country and biogenic gas in the Virginia and Evander regions. However, geological analysis is showing that there may well be significant potential for conventional oil and gas resources onshore.

Please give a sample of activity/drilling/exploration rights granted at:

a. Karoo Basins (Shale gas and other? WC/NC)

There are no granted exploration rights for shale gas in the Karoo. There are three applications in process in the Northern Cape, but as yet these have not been granted and there is no activity. PASA and CGS are collaborating on baseline studies in the Karoo on background soil gas, ground water status and seismicity. This includes the drilling of a deep scientific well near Beaufort West which is nearing completion.

b. Coal bed methane (FS/Lim/Mpu)

Coalbed methane discoveries have been made by Anglo in the Waterberg (ER002) on the Botswana border.

They are currently conducting feasibility studies for the commercialisation of the resource. Other CBM discoveries include those in the

Soutpansberg, Springbok Flats and Amersfoort areas.

c. Biogenic gas (FS)

Tertra4, a subsidiary of Renergen, holds the only onshore Production Right (PR007) in the Virginia area of the Free

State. They are currently expanding operations and are building a new plant to switch from CNG to LNG and Helium production. The LNG will be utilised in the transport industry. Once the project comes into operation in early 2022, it will place South Africa in the top helium producers in the world. 