Bottom Line: Despite high hopes, South Africa shale gas permits are not likely to be forthcoming this year for E&P companies, bound up as they are in a wash of legal appeals by environmental groups.
Analysis: While the South African government is moving to pave the way for the issuance of shale gas permits, having lifted the moratorium on hydraulic fracturing in September, challenges in court by environmentalists are certain to delay this process and keep permits on hold for the time being.
In 2011, Shell applied for permits to drill 24 exploratory wells in western South Africa, at Karoo, which is estimated to hold up to 485 trillion cubic feet of shale resources. But moratorium-lifting aside, the process is far from over. It won’t be until July that the government completes its draft study on fracking, which then will be brought up for public consultation. The public is definitely not fully on board, either, with fairly strong environmental groups supported by landowners, opposed and vowing to fight the process.
Recommendation: Companies like Chevron and partner Falcon Oil & Gas Ltd. (FO), which says it expects to start exploration in the second half of this year, are being overly optimistic in the face of their shareholders. The regulations are not yet in place for fracking, though the moratorium has been lifted, and we believe environmental groups will successfully challenge the process for some time. While these groups are not likely to reverse the process, they will cause lengthy delays—certainly delays that will outlast the rest of 2013.