Shell Plc has acquired a 60% stake in Block 2C of South Africa’s portion of the Orange Basin, close to the Northern Cape Ultra Deep area where its plans to drill five wells continue to suffer delays.
The development was announced by the company on Monday, giving it more access to a promising acreage which has yielded several oil finds in recent years.
The transaction involves state-owned PetroSA and comes following recent reports of suspension of Shell’s exploration activities in the country.
The block attracts a $25 million dollar signature bonus which has been reportedly paid by Shell.
Under the terms of the agreement, Shell will fund the development of the acreage, with documents seen revealing plans to drill up to three initial exploration wells for an estimated cost of between $135 million to $150 million.
Under the agreement, Shell will also fund the planned work programme on the block.
The transaction still requires approval from the Petroleum Agency South Africa (PASA), which media reports say has not yet been formally notified of the transaction.
Shell’s strong interest in the Orange Basin
Despite undertaking a $400 million write-down on the Namibian side of the Orange Basin this year and continued opposition from greens in South Africa, Shell seems unlikely to leave the juicy region.
Currently, Shell’s activities in Block 5/6/7 remain suspended under a court order the company is challenging.
It is uncertain whether this deal will progress, given the regulatory landscape in South Africa’s energy sector .
There are a number of suits and counter suits currently pending involving oil majors and civil rights groups.
These include the 2022 suspension of a seismic survey by the Makhanda High Court. Although the Supreme Court of Appeal issued a partly favourable ruling in 2024, the case remains before the Constitutional Court.
Why exploration is difficult in South Africa
Oil and gas exploration has been limited largely due to public outcry over environmental risks and the strong support for clean energy projects over fossil energy.
Fossil projects often face serious scrutiny in the hands of environmental groups who often seek to reverse authority to drill at the slightest chance of any discrepancy in the environmental impact assessment process.
Over the last four years, IOCs like Shell and TotalEnergies have been slapped with different court injunctions, primarily instigated by powerful greens like Greenpeace.
As a result, most of the prospects in the country’s Orange basin remain plugged. Also, there is a long running ban on hydraulic fracturing (fracking) in the Karoo Basin, which is believed to hold vast amounts of shale gas that could change the nation’s energy destiny.
Frustrated in its exploratory efforts in the country, TotalEnergies warned it might pull out of several hydrocarbon blocks in the country if the process of receiving exploration permits were further delayed.
However, South Africa’s Minister of Mineral and Petroleum Resources Gwede Mantashe has been out calling for the country to not abandon fossil fuels, citing energy security and growing population.
In October, he hinted that the government was finalising modalities to lift the decades-old ban in the near future.
“Once those regulations are gazetted, I (will) lift the moratorium,” Mantashe told Reuters. “The economy needs a growth trigger, and oil and gas are those triggers.”
