Photo by: Bloomberg
If the required legislative framework is in place by mid-year, ASX-listed shale gas developer Challenger Energy Limited (CEL) could potentially be awarded a licence and start its work programme for shale-gas exploration in the Karoo, through its subsidiary Bundu, in the third quarter of this year, UK-based investment intelligence firm Edison Investment Research said on Wednesday.
The firm noted that CEL was progressing towards the award of exploration permits with the submission of the updated environmental management programme in late February. It expected corehole drilling to start 12 months to 18 months after the work programme.
Further, Edison highlighted that with the power crisis in South Africa “getting worse”, the need for new energy sources, including gas, was growing.
“Regular load-shedding by State-owned Eskom is hurting South Africa’s economy, notably the mining sector, to the tune of 0.5% to 1.8% of gross domestic product a month, depending on the [severity of the] blackouts,” Edison said, citing estimates by the Department of Public Enterprises that the power cuts cost the country R20-billion to R80-billion a month.
“The country does not have easy or cheap options to solve its near-term power crisis, as gas imports from neighbouring Mozambique would require an expensive new pipeline, estimated at $6-billion, and liquefied natural gas imports would be technically difficult. If shale gas exploration is successful, indigenous gas supply could help meet the country’s dire need for more power,” Edison said.
It added that current commodity price fluctuations had little impact on new-build power economics, which continued to favour gas over coal or diesel in the long term.
NO FRACKING
In accordance with a request from the Petroleum Agency of South Africa, the scope of CEL’s proposed work programme has been altered to remove hydraulic fracturing, or fracking.
Challenger had initially planned to reprocess existing two-dimensional seismic data shot in the 1960s and 1970s and acquire two coreholes, then drill one vertical well, fracture it in three stages and run a production test.
Challenger’s updated work programme was largely unchanged with respect to the first two phases. Phase 1 comprised desktop and field studies focused on building a hydrogeological (groundwater) model and studying existing core samples, while Phase 2 would comprise a detailed analysis of seismic data and construction of a subsurface model, with a view to choosing optimal well locations.
Each of these two phases was expected to take six to nine months. Should existing seismic data be insufficient to build a detailed geological model, Challenger could decide to gather new seismic data.
Phase 3, scheduled to start 12 months to 18 months after a permit award, would entail the drilling of up to three coreholes to gather fresh geological samples, logging and testing of the coreholes, but no fracking.
This would assist the company in assessing the characteristics of the target shale layers, notably their organic content, porosity and permeability; to map out the reservoirs and any discontinuities in the stratigraphy; and to test the target intervals through a full logging suite.
If the wells only found gas shows that did not flow naturally, no fracking and no flow test would be conducted.
“Challenger will need a well-funded joint venture partner to cover exploration and appraisal expenses once it receives a permit award.
“Strategically, we believe it may be in Challenger’s interest to raise equity before a deal to partly fund the first exploration programme, as it would retain a much higher working interest post-farm-out. Reducing dilution in the early stages would allow it to benefit more from a bigger value uplift in a second farm-out,” Edison said.