Overview of Upstream in South Africa
Upstream Licensing and Activity
South Africa remains a largely unexplored region in which there have been only modest, mainly gas, discoveries to date. Nevertheless, current upstream interest is high and we anticipate a significant increase in the amount of upstream activity over the next few years.
South Africa currently has four upstream regions of interest:
South Coast. This is the only producing area in South Africa. Gas production (oil production has largely ceased) from PetroSA's FA platform is piped ~80km onshore to a GTL plant near Mossel Bay. The existing producing fields are now very close to end of life and PetroSA is actively looking to develop further reserves starting with the subsea development of the FO field. Canadian Natural Resources holds a promising offshore block in the area which is thought to have potential for a significant oil discovery. The whole area is quite a challenging development environment due to strong current but much of the region is in reasonably shallow water.
Orange River Basin. Situated off the northwest coast of South African adjacent to the Namibian border this is a vast and very underexplored region. Forest Oil has a commercial gas discovery in about 100m of water about 100km from the coast and is currently working on gas market development activities prior to proceeding with the field development. Tullow Oil's Kudu gas field, situated just north of the border in Namibia, is another commercial discovery in the area that is awaiting a development decision. A number of exploration blocks operated by PetroSA, Forest Oil and BHP Billiton hold potential for gas and oil discoveries. Exploration on these blocks has been substantially delayed by the changeover in the South African mineral rights regime and the need for companies to convert or reapply for licences - however the rights are now being finalised and we expect significant exploration activity to pick up in the latter part of 2010. In September 2009 Royal Dutch Shell acquired a right to explore in the deepwater Orange Basin; they are currently busy with related studies.
East Coast. This is the offshore area off the eastern part of the country. In September 2009 the Singapore-based Silverwave Energy acquired a right to commence exploration activity in the offshore area between Durban and the Mozambique border. While not a conventionally favoured exploration area it is interesting because the region sits at the Southern end of the Mozambique channel in which a number of significant discoveries have recently been made further north.
Onshore. There has been significant recent interest in onshore unconventional gas resources. In the northerm parts of the country there is interest and activity around coal-bed methane reserves although it is likely that the potential here is fairly limited. Of greater interest are possible shale gas resources in the vast Karoo Basin that straddles much of the interior of the country. Shell and Falcon Energy have recently acquired separate rights to assess the potential central Karoo basin areas and are busy with studies.
Upstream Supplier Base
Two catalysts spurred the development of South Africa's upstream supplier base. Firstly, the development of the South Coast offshore infrastructure starting in the late 1980s led to the establishment significant South African capacity to fabricate and provide a variety of technical services to the industry. Many of the global service companies also established South African operations to service these developments. Secondly, the explosive growth of the West African oilfields has attracted many local firms into the market and South Africa is now a significant supplier of services and equipment to West Africa.
The graphic below depicts the key areas of capability in the South African supplier base.
Particular expertise and critical mass has been reached in several subsectors of overall upstream value chain:
Fabrication and Construction
South Africa boasts proven success in Development Projects
In partnership with international oil and gas players, South Africa has a proven track record in development projects from Conceptual Design and Front End Engineering Design (FEED) to Feasibility, Engineering, Procurement, Fabrication, Construction, Installation and Commissioning.
Fixed Systems, Floating Systems, Topside Modules, Sub-sea Systems, Mooring Systems and Sub-sea Pipelines have been handled by the world-class engineering and manufacturing base available in the country. South Africa is able to offer a skilled workforce trained through the national education and training institutions which include a number of world-class universities.
Various fabrication private fabrication facilities exist around the country. In 2007 a major fabrication facility at Saldanha Bay was upgraded to focus specifically on fabrication for large-scale upstream fabrication projects.
Ship/Rig Repair and Maintenance
South Africa’s Ports and Maritime Excellence
South Africa has a number of ports with deep water access and drydock facilities serviced by a well-developed marine engineering and services sector. Local engineering contractors are well equipped to undertake fabrication, construction, ship/rig repair and maintenance, surveys and certification while complying with international norms around health, safety and environmental standards. In recent years the industry has undertaken many large oil and gas vessel repair/upgrade projects for clients such as Transocean, Pride International, Chevron, Acergy, Saipem and others.
The Port of Cape Town is the main centre for the repair and upgrade of upstream offshore vessels and equipment due to its strategic location on the southwestern corner of the African continent, its large graving drydock and the depth of services available. Cape Town's drydock is the largest one in Africa but as yet the country does not have drydock facility capable of handling drillings rigs or the new generation drillships
Two current initiatives to place public port infrastructure under private management promise to greatly improve the competitiveness of the ship/rig repair sector in the months ahead. In the Port of Cape Town, FerroMarine Cape has obtained a long-term lease on the A-Berth Facility and is currently developing the berth into a world-class dedicated repair and upgrading facility for the upstream industry. The upgraded facility is scheduled to be completed by November 2010. DCD Dorbyl Marine will operate 50% of the facility with the remaining 50% being available for lease by third parties up until 2013. The South African Ports Authority is also in the process of concessioning the major ship repair facilities in South Africa's ports. From an oil and gas industry perspective this means that the large drydocks in Cape Town and Durban will be privately operated by 2011 - this should greatly improve the services being offered to upstream clients.
Distribution and Logistics
A major logistics hub for West Africa
Cape Town is currently a major logistics and distribution point for materials and equipment into the West African oilfields. Most of the major global logistics providers have substantial capability and infrastructure in the city and the port is well-connected to West Africa by sea, air and road links. Road transport through South Africa to Angola has become particularly important in recent years due to the congestion and delays in Angola's ports. As upstream activity in East Africa grows it is probable that one or more of South Africa's east coast ports will assume a growing role in servicing that region.
Exploration and Production Services
South Africa offers umbrella services
South Africa’s advanced industrial base and high engineering standards provides a broad base of suppliers and service providers to the upstream industry. Many of these companies have significant track records through their involvement in South Africa’s own offshore exploration and production endeavours as well as in the West African offshore fields. This local capacity complements the capability and expertise available through the local operations of many of major global upstream service companies.
Strategic African Position
South Africa is geographically and politically well-positioned to be a base for supplying sub-Saharan oil and gas projects. Geographically the country is on the southern tip of the African continent and provides easy access to both east and west Africa by sea and air. Politically, South Africa is a founding member of the New Partnership for African Development (NEPAD), whose prime objectives are to elevate Africa’s opportunities in the global economic arena and to enhance its full and beneficial integration into the global economy. It is also an active member of the African Union (AU), the Southern Africa Development Community (SADC) and the Southern African Customs Union (SACU). Its role as leader and partner in the African community provides South African-based companies with favourable access to opportunities in the region. In particular, we have observed a growing trend in many of the local content initiatives in the African oil-producing countries preferentially requiring "African content" when local content is not available. This is a natural outgrowth of the broader African political agenda of trying to foster more cooperation and capability within the continent as a whole.