Home » Brulpadda discovery and ongoing exploration have put SA on the international investment map

Brulpadda discovery and ongoing exploration have put SA on the international investment map

by Media Xpose

SA PROFILE spoke to Dr Phindile Masangane, CEO of the South African upstream oil and gas regulatory authority, Petroleum Agency South Africa (PASA), about what is required to secure stability and security of energy supply.

Dr Masangane was appointed as Chief Executive Officer of PASA in May 2020. Before that, she served as an executive at the South African state-owned energy company, CEF (SOC) Ltd, the holding company of PASA. In this role, she was responsible for clean, renewable and alternative energy projects. In partnership with private companies, Dr Masangane led the development of energy projects including the deal structuring, project economic modelling and financing on behalf of the CEF Group of Companies.

Her responsibilities also include supporting the national government in developing energy policy and regulations for diversifying the country’s energy mix. In 2019, Dr Masangane was appointed Head of Strategy for the CEF Group of Companies, where she led the development of the Group’s long-term strategic plan (Vision 2040+) as well as the group’s gas strategy.

Between 2010 and 2013, Dr Masangane was a partner and director at KPMG and was responsible for the Energy Advisory Division. In this role she successfully led the capital raising of $2 billion for the Zimbabwe power utility (ZESA/ZPC)’s hydro and coal power plants expansion programmes.

What is PASA’s role and its mission and vision?

Petroleum Agency SA is South Africa’s national regulator for the upstream oil and gas industry in South Africa. PASA licenses and regulates exploration and production activities of oil and gas both onshore and offshore.

PASA has three main functions:

  1. The first is to attract investment to South Africa’s oil and gas upstream industry via investment into exploration and production of oil and gas in South Africa.  We have a team of geologists and geophysicists who interpret data gathered through past exploration activity to determine prospectivity and use this to attract exploration companies to South Africa.
  2. The second is to regulate the upstream industry in terms of the Mineral and Petroleum Resources Development Act, its regulations and other applicable legislation.  PASA has staff responsible for ensuring legal, technical and environmental compliance as organisations enter into contracts with the state to explore for oil and gas.
  3. The third 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 dwata for use and distribution.

Other functions include advising government on any issues pertinent to oil and gas as well as carrying out any special projects, as directed by government.

For example, we are currently studying the geology of the Karoo Basin to quantify the shale gas potential that we have. We are also studying the ground water availability (quality and quantity) so that we have a baseline against which we can monitor shale gas activities in the future.

What is required to secure stability and security in the sector?

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.

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 to facilitating entry into the upstream space.

Local expertise in servicing the industry’s requirements in terms of human resources and services is also a strong advantage. A developed industrial economy offering opportunities for local monetisation of gas discoveries would also assist.

Where do the opportunities lie in this sector?

South Africa has a good petroleum resource prospectivity which remains unexplored. The country is highly dependent on imported crude oil and in recent times South Africa also started importing finished product (petrol and diesel), which is not good for our balance of payment as a country. The opportunities are massive for the country to unlock its petroleum resource endowment to meet its energy needs. 

The development of the stand-alone Upstream Petroleum Resources Development legislation and its accompanying regulations will further support a conducive environment for oil and gas development.  This rewriting of the legislation governing oil and gas exploration and production gives South Africa a chance to address the requirements of the industry (as above) while also ensuring an equitable deal for the South African state and meaningful participation of South Africans in the industry.

The recent Brulpadda* discovery and ongoing exploration in the area, as well as the potential for shale gas have both put South Africa on the international map in terms of a destination for investment. The oil price is making a slow but steady recovery from the recent crash caused by the price war between Russia and Saudi Arabia and further exacerbated by the drop in energy demand because of the COVID-19 pandemic. 

What are the challenges facing this sector?

Challenges facing the South African upstream industry include the low oil price (now steadily recovering), uncertainty regarding terms and legislation (now being addressed through the UPRDA), environmental concerns and misplaced public negativity regarding fossil fuels, and the perception that we lack the specialised skills.

A further challenge is to diversify the industry and make it more inclusive in terms of South African companies undertaking exploration in South Africa.

Transformation of the upstream oil and gas industry and making sure that the industry is inclusive is essential. 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 companies tend to find it difficult to source funding to participate in the industry. 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.

How big a role does PASA play in the renewable energy sector, and how will you be advancing this agenda?

Oil and gas are fossil fuels and by definition, not part of the renewable energy sector.  The South African energy transition is from a high coal reliant energy mix with a high carbon footprint to a cleaner energy future with mainly gas/renewable energy. Renewable technologies cannot provide a reliable baseload supply of electricity. The flexibility and load following capability of gas technologies makes gas-to-power an essential technology to combine our renewable energy programme with.

South Africa is currently heavily dependent on coal as a primary energy source and the substitution of natural gas for some percentage of electricity generation, as envisaged in the National Development Plan, could assist with the country reaching its goals in terms of lowering the carbon emissions.  PASA’s main role in this is to attract and facilitate the activities of explorers for indigenous gas.

How important is policy- and legislation decision-making in informing how PASA undertakes its operations?

Policy and legislation are of utmost importance in how PASA operates. The main purpose of PASA is to implement and apply policy and applicable legislation to the upstream industry on behalf of government.  Its mandate is 100% driven by policy and legislation.  Its close contact with the diversity of exploration companies puts it in a unique position to be able to advise government in the formulation of policy.

Where are the new SA oil and gas explorations?

Currently there is ongoing exploration offshore of the prospects close to the Brulpadda discovery.  Odfjell’s Deepsea Stavanger oilrig is on its way to South Africa from Norway and should arrive around 12 August.  It will drill 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 in South Africa for further drilling. 

The Brulpadda well discovered 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 further drilling.

Other exploration 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.  African Energy Corporation has entered into a partnership with Azinam and Panoro in this block (still to be approved by the ministry) and have identified numerous prospects in the block. Aziman will become the operator. The well will test the Gazania and Namaqua prospects. Drilling is expected to start during the first quarter of 2021.

Off the east coast, ENI and partner Sasol, have identified potential drill prospects in deep water, but the testing of these by drilling has been delayed due to various issues including the COVID-19 pandemic and its effect on the oil price.

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 economy of South Africa.

Do you know what the onshore and offshore potential is of these explorations?

PASA has a team of geoscientists which determines the potential to attract explorers, ensure that exploration is properly managed, and advise government on the potential indigenous resource to help develop energy and development policy.

Offshore is for the most part underexplored, for example, there are only four wells drilled off South Africa’s east coast.  Current estimates indicate the potential for billions of barrels of oil and multi Tcf (trillion cubic feet) of gas yet to be discovered.  Onshore, PASA’s estimate for shale gas is 205 Tcf recoverable while coal bed methane and biogenic gas represent a further multi-Tcf potential resource.

What skills and upskilling of expertise is still required to ensure stable and thriving on- and off-shore exploration?

South Africa already has the ability to provide a vast array of skills and services to the upstream industry, as represented by the membership of SAOGA. What South Africa 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 tradesman trained to service the upstream industry have to be equipped with skills that can be applied cross-industry to ensure sustainability.

Professional skills such as reservoir engineers, petroleum geologists and geophysicist are also in very short supply locally, for the same reasons.

What is the future for gas-fired power stations? Will this provide more stable power generation, and how far away is SA from introducing this?

South Africa already has legislation in place allowing for independent power production and this will most probably lead the way to gas-fired power stations on a large scale.  Explorers for coal bed methane onshore have reported discoveries that could sustain gas fired stations of possibly co-firing supplement to coal.  We are expecting the first procurement of gas-to-power generation capacity to be launched anytime now – the procurement approval has been granted by both Minister Mantashe and the energy regulator (NERSA) under the 2000MW emergency power procurement determination. During the year we expect another 3000MW of gas-to-power generation capacity procurement to follow.

How would you describe the current state of SA’s petroleum industry?

South Africa imports more than 95% of the gas used in the country. 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 prospectivity as a country that is under-explored.

How is the COVID-19 pandemic affecting the petroleum industry and PASA in particular?

COVID-19 has caused serious disruptions to the industry and PASA. Exploration and production of oil and gas have a significant presence of international oil companies who from time to time bring their experts into the country to manage projects. With the restrictions on travel, major projects been have put on hold as equipment and people cannot enter South Africa. Fortunately, in Level 3 of the lockdown regulations, the Minister of Mineral Resources and Energy has passed regulations that opened the exploration and production of oil and gas to go ahead.

For PASA, the pandemic has made us accelerate the implementation of the digitisation programme wherein we are automating our processes, including the online application for oil and gas permits.

What are your long-term goals for PASA?

In the long term, we want to see a diversified and fully developed upstream oil and gas industry that produces at least 50% of the country’s petroleum needs. Indigenous production of oil and gas supports security of energy supply and enables (re)industrialisation of our 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.

How will the merging of PetroSA, the Strategic Fuel Fund and iGas (to form the National Petroleum Company) impact the petroleum industry?

The petroleum industry is not just an economic industry but it is about security of the country. You can see that in all countries the state always has a part in the petroleum industry. Bringing the three entities together is about making sure that the three SOEs can pull their resources together to optimise the state participation in the petroleum industry. This is in line with the upstream petroleum resource development legislation that is being developed.

In terms of executive positions, you work in a male-dominated sphere. However, studies show that diverse work environments hold many benefits. As a woman, how can your background and lived experience benefit PASA?

I believe that some leadership qualities which come naturally to women are what make women better leaders. For example, women are naturally long-term visionaries and I will use my experience in government policy development to focus PASA on delivering government’s long-term objectives for the sector.

You have a PhD in Chemistry. Where does your love of chemistry and science in general, come from?

From an early age I was very strong in maths and science. I was fortunate and I was given opportunities to pursue studies in science (Chemistry) to the highest level (PhD) and I really enjoyed it.

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