The African Energy Chamber has expressed disappointment at French energy major TotalEnergies’ withdrawal from gas field projects in SA, attributing the decision to regulatory obstacles that hamper companies trying to develop energy-sector projects.
TotalEnergies, the operator of Block 11B/12B, where it made two gas discoveries, Brulpadda and Luiperd, said on Monday it was walking away from the $3bn project.
The reason given was that Brulpadda and Luiperd could not be “converted into commercial development due to the difficulties encountered in developing and upgrading these gas discoveries on the SA market”.
TotalEnergies has an investment of about $400m already sunk into the project in which it holds a 45% stake. The decision to withdraw comes after the exit of its partner, CNRI, earlier this month. CRNI has a 20% interest in the block.
TotalEnergies said it was also withdrawing from the 5/6/7 offshore exploration block, in which it holds a 40% stake. The block is on the southwest coast between Cape Town and Cape Agulhas. The other partners in the block are Shell and PetroSA, which have interests of 40% and 20%, respectively.
NJ Ayuk, the executive chair of the chamber, said the exit of TotalEnergies from the upstream business dealt a blow to SA’s exploration efforts.
“Simply put, TotalEnergies’ exit from Blocks 11B/12B and 5/6/7 represents a blow to the country’s energy industry.
“Block 11B/12B featured two major gas discoveries — the Brulpadda and Luiperd finds — which, as the chamber previously stated, have the potential to transform SA’s economy,” said Ayuk.
“In addition to confirming the potential of the country’s offshore basins, these discoveries brought to light alternative energy solutions for a country plagued with a decade-long energy crisis. However, regulatory hurdles and red tape made these discoveries economically challenging to develop, leading to the energy major’s exit.”
TotalEnergies’ decision to withdraw from the “game-changing” discoveries of gas condensate fields off the coast of Mossel Bay leaves Canadian firm Africa Energy as the sole owner of the exploration rights in the projects.
Africa Energy, run by Robert Nicolella, who is also the CFO at Hosken Consolidated Investments (HCI), said the decision by TotalEnergies and partners to withdraw from the project meant it remained the sole owner of the project, with no money expected to change hands in the process.
Africa Energy said that under the joint operating agreement the withdrawing parties would assign their interest free of charge to each of the nonwithdrawing partners in proportion to the interests of nonwithdrawing partners.
Africa Energy CFO Jeromie Kufflick told Business Day that TotalEnergies’ exit would delay the project, and it was now looking for new partners.
“We expect that there will be delays in getting the production right approved due to the exit of TotalEnergies and the transition of operatorship, and while we are confident that we will get the production right approved, the timing of the approval is uncertain,” said Kufflick.
“In order to develop these resources, we will need to find a strategic partner to assist us. Our immediate focus will be to secure the production right approval and seek to find offtake customers for the gas. We will assess and determine the most appropriate time to bring in partners to advance the project.”
TotalEnergies discovered the huge Brulpadda and Luiperd gas fields in 2019 and 2020. The Petroleum Agency of SA estimates that the Block 11B/12B project has the potential to create 1,500 direct jobs and 5,000 indirect jobs and boost the country’s GDP by R22bn.
Africa Energy said that Block 11B/12B gas could replace more than 2,300MW of SA’s diesel-fired electricity generation.
Law firm Cliffe Dekker Hofmeyr has said that offshore oil and gas exploration require significant investment as exploration activities are estimated to cost upward of $150m.
Exploration opportunities are considered risky because of historically low success rates, said the firm.
Business Day understands that TotalEnergies has dragged the departments of forestry, fisheries & the environment and mineral resources & energy to court to compel them to hand over the record of their decisions pertaining to the 5/6/7 exploration block.
The record sought by TotalEnergies includes an April 2023 decision by the energy department to grant it environmental authorisation to conduct exploratory well drilling in the block. The interlocutory application, which was brought by TotalEnergies after the government failed to play ball, is expected to be heard on Thursday. It relates to the main case where environmental groups seek to set aside the government’s decision to give TotalEnergies the right to drill offshore for gas and oil.
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