Sector News

Shell pulls back from shale in South Africa

March 17, 2015
(Reuters) – Royal Dutch Shell is pulling back from its shale projects in South Africa due to lower energy prices and delays in obtaining an exploration licence for the onshore Karoo Basin, it said on Monday.
A more than halving of crude oil prices since June has put high cost projects such as shale gas exploration in jeopardy around the globe, and Shell South Africa said waiting six years for a licence for Karoo had not helped.
Chairman Bonang Mohale, who said the company was going to a “low cost holding position”, told Reuters oil prices would need to be between $60 to $80 a barrel and South Africa would need to present “excellent commercial terms” for the company to resume its operations.
“Capital is mobile and is looking for the best commercial terms everywhere else in the world,” he said. “We were hoping that we would have had a licence (for Karoo) in 36 months.”
Officials at the Department of Mineral Resources could not be reached for comment.
An estimate by the U.S. Energy Information Administration, gives South Africa the world’s eighth biggest shale reserves, with the potential to transform an economy that has always been a big oil and gas importer.
Shell’s retreat is a blow to the South African government, which has been criticised by oil firms for delaying issuing exploration licenses, most notably in the Karoo region, which is believed to hold up to 390 trillion cubic feet of technically recoverable reserves.
Shell had applied for an exploration license covering more than 95,000 square km, almost a quarter of the Karoo.
A study commissioned by the company said extracting 50 trillion cubic feet or 12.8 percent of potential reserves, would add $20 billion or 0.5 percent of GDP to the South African economy every year for 25 years and create 700,000 jobs.
Green groups and land owners in the Karoo, a vast semi-desert wilderness stretching across the heart of South Africa, have argued that exploring for shale by fracking, or hydraulic fracturing, would cause huge environmental damage.
The government has been accused of dragging its heels in finalising policy for gas and oil exploration. Pretoria has also said it wanted a 20 percent free stake in exploration ventures, before companies have covered their costs.
“At a time of low oil prices and exploration budgets being slashed, the onus is on governments to put in place clear and attractive investment conditions,” said Anne Fruhauf, senior vice president at Teneo Intelligence.
“The longer the government takes to clarify fracking regulations, the less sense it makes for a company like Shell to maintain anything more than a holding operation in relation to its South African shale project.”
(Reporting by Ed Cropley and Peroshni Govender; Writing by Joe Brock; Editing by James Macharia and Philippa Fletcher)

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