Giant leap for SA’s promised Karoo Shale Gale: Licence granted to Challenger’s Bundu Gas
From a purely financial perspective the potential for South Africa when it comes to the use of shale gas could have a profound impact on the economy. The impact that fracking has had in the United States, particularly on its manufacturing industry and the lowering of energy costs has been a significant contributor to the turnaround in its economy. South Africa could reap substantial fruits from the benefits of cheap energy. Despite the environmental debate, the news that Bundu Gas and Oil Exploration will be continuing with its application for rights to shale gas exploration in the Karoo has been met with positive reaction by industry. On CNBC Africa's Power Lunch Alec Hogg spoke Robert Willes, Chief Executive of Challenger, Bundu's parent company about the development, what is next, and the exciting prospects on the horizon for shale gas in the country. – LF
ALEC HOGG: Unconventional gas explorer, Challenger Energy has announced that its subsidiary here in South Africa, Bundu Gas and Oil Exploration, has taken a decision to proceed with its application for shale gas exploration rights in South Africa's Karoo Basin. Well, joining us on the line from Perth, Australia, is the company's Chief Executive, Robert Willes. Robert, this is a big announcement and another step ahead in the potential exploitation of shale gas, in South Africa. Have the markets reacted positively to this news in Australia?
ROBERT WILLES: Yes, indeed this is a very, exciting development for Challenger and very significant, I think, for shale gas in South Africa. Effectively the Government has now said that they've commenced the processing of the applications, which is a very, important step forward, given that the applications have been on hold prior to this, effectively since 2011. There has been some market reaction in Australia. I think this news has been received very favourably.
ALEC HOGG: When you were in the studio here with us, in Johannesburg (at the end of January) you were very hopeful that, not only you would get the 'go-ahead', but also that your block, because you were the first mover, is the most attractive of the areas. I think you said a million acres that you're going to be exploring there. If you'd come up dry, does that mean the rest of the Karoo is not so good for shale gas?
ROBERT WILLES: No, I don't think it necessarily means that, although we certainly don't expect to come up dry. The Karoo is a very large area and there maybe more than one 'sweet spot' in the overall play but, obviously testing this area, with that well that was drilled in 1968, had an extraordinarily, encouraging result, will be a very significant step forward.
ALEC HOGG: What's the next step for Challenger?
ROBERT WILLES: Well, the next step, effectively what has happened is the Government has asked us to review the Environmental Management Program that was part of our Application submitted back in 2010, and bring that up to date and as part of that carryout in, necessary community and stakeholder consultations. They've asked us to complete that by the 27th February 2015. That's the next step for Challenger or for Bundu as a subsidiary that's very significant. Once we have done that and hopefully the licence process will conclude, not too long thereafter. Once the permits, where licenses have been awarded at that point we will be able to commence the exploration activity. The probable way that we'll commence is initially, with studies and reprocessing of the seismic that was shot in the late 60's and then following on from that, we will probably drill a couple of core holes to get some fresh core samples from the area.
Then we will select a location for an initial vertical well, which we will drill through the various shale horizons and then the plan would be too complete that hydraulically, fracture stimulate it and test the shale from different shale horizons and that will tell us a reasonable amount about the prospective, and that will be the first phase of the exploration. Depending on the results of that, this may then move onto subsequent favours, so that's, effectively, how we would expect to see this initially commence.
ALEC HOGG: Robert, I'm reading a wonderful book called 'The Frackers', which I'm sure you've seen. It's written about the American story of fracking and how they've transformed that economy but in the early days there was a lot of difficulty that the explorers had in, finally bringing shale gas to its economic productivity, as it is now. Are we likely, in South Africa, to benefit from their technological improvements in the United States? Is that common knowledge that you can use or are we going to have to go through our own learning curve?
ROBERT WILLES: Well, look, I think the first thing is that the technology and the experience (from the early days) in the U.S. has moved on very substantially, so I think there will be an enormous amount of technical expertise, and technology that's been developed that South Africa will be able to benefit from here. That said, it is often the case that each shale has its own characteristics and one has to work out the right parameters and the ideal way to fracture stimulate that, to get the gas to flow that is known, in the trade as cracking the code. That may take more than one fracturing process, if you like, to work out the code that maybe applicable to a particular shale plate but all of that technological expertise and experience that's been built up in the U.S. over all those years is going to be of an enormous value to South Africa, in bringing this potential resource forward.
ALEC HOGG: Is there any code that hasn't been cracked; in other words, have they found shale gas deposits (elsewhere in the world) that they haven't been able to bring to account, as the Americans have?
ROBERT WILLES: I think, yes, that would be the case. Not all shale has, necessarily had its code cracked or turned out to be economically producible. Of course, this is part of the process, which we need to go through in the exploration and appraisal program in South Africa. We do have an advantage here, in a sense that we are probably ahead, of where you would be in a typical frontier shale play because there are something like five wells drilled, in the late 60's, through the Karoo, and their seismic plates. We already know that there are gas shows in those wells, and we know that gas flowed from the one in the centre of our application area. We have data and information that's ahead of a typical frontier play, but nevertheless, we still have to conduct exploration and appraisal to demonstrate that the gas that's evidently in play, the extent of it and that it is economically viable to produce that in quantity. That really is what the exploration and the appraisal program is going to be about.
ALEC HOGG: That was Robert Willes, the Chief Executor of Challenger Energy. It was lovely talking with him. He is in Perth, Australia (and not Sydney as our chart suggested a little bit earlier).