Hosken Consolidated Investments : IMPACT EYES DOUBLE FARM-OUT AFTER SOUTH AFRICA EXPANSION

London-based Impact Oil & Gas bets deepwater exploration has been substantially derisked by nearby mega gas finds

It has been a busy month for Africa-focused E&P firm Impact Oil & Gas. The company agreed to buy a 90pc operating interest in South Africa's offshore Area 2, sold a 50pc working operating interest in the nearby Transkei and Algoa blocks to Shell, and bought 36.5pc of Canadian independent Africa Energy Corp.

The last of these deals makes Impact an indirect stakeholder in South Africa's block 11B/12B, where Total made its Brulpadda and Luiperd gas discoveries. Brulpadda has an estimated c.2.8-5.5tn ft³ (79.3-155.7bn m³) of gas initially in place and could meet South Africa's domestic demand for many years, although there are several milestones to pass before it reaches FID.

'The Brulpadda and Luiperd discoveries start to derisk exploration in southern Africa, and they provide a fantastic platform for us to explore the Transkei basin,' says Impact CEO Siraj Ahmed.

'The sorts of plays we are pursuing… offer multi-billion-barrel potential' Ahmed, Impact Oil & Gas

'We have always pursued highly material prospects in deep water-areas where we believe you will get some of the cheapest barrels in the longer term. The key is to ensure the assets and the terms remain competitive to enable the supermajors to invest in them.'

Impact will acquire the Area 2 stake from Singapore's Silver Wave Energy. Located adjacently east of Transkei and Algoa and covering 78,708km², Area 2 is part of Southern Africa's Aptian deepwater oil and gas zone, stretching from northern Namibia in the west to the Durban basin in the east.

Silver Wave's website claims Area 2 could hold up to 1bn bl oe but notes it has been 'poorly explored' and warns drilling and development could be 'very expensive'.

'There is very limited data on the block,' says Ahmed. 'But what we have seen so far has been very encouraging, and we believe having Transkei as well as Area 2 acreage gives us the full complement of plays and play types. It is a substantial position that has significant running room, and the sorts of plays we are pursuing there offer multi-billion-barrel potential.'

Establishing partnerships

South Africa's blocks are in seas with extremely strong currents and tough weather conditions, while Area 2 is in depths of over 3,000m.

'It is not impossible to explore at those depths. It is just highly unlikely to happen anytime soon, particularly in that part of the world,' says Justin Cochrane, head of Africa upstream regional research at IHS Markit. 'The reasoning behind buying into Area 2 is less related to Area 2 exploration potential and likely more related to the Transkei and Algoa blocks' exploration potential.'

Impact owns the remainder of Transkei and Algoa, while Shell's investment in the two blocks also gives the Anglo-Dutch major the option to buy a further 5pc working interest. 'Bringing Shell to Transkei is a significant place from which to build joint ventures for that area,' says Ahmed, noting Impact may do two farm-outs in Area 2.

'In the past, Impact has preferred to do one farm-out and hand over control of exploration to a supermajor. Our strategy now is to try and retain some influence over that work programme. Sometimes that means you have to have more than one farm-out, and we have to accept a greater equity position and the risk that comes with that early on.'

Exploration has been limited at Transkei and Algoa but has included 2D seismic surveys. Impact and Shell plan to buy around 6,000km² of 3D seismic data in early 2022. 'If that is positive, there could be drilling post-2024. But it might not start until 2026,' says IHS's Cochrane.

Impact has held acreage off South Africa's southeastern coast for several years, previously in partnership with ExxonMobil and Norway's Equinor before they withdrew this year.

'Impact tends to look for partners to fund exploration,' says Cochrane. 'Shell is augmenting its position all the way around [southern Africa] and already holds a reasonable acreage position in southern Namibia and the Orange basin.'

Impact also owns 22.2pc of Orange Basin Deep off South Africa's west coast, plus similar-size stakes in two Namibia offshore blocks to the north. Total is the operator and majority stakeholder in all three assets.

'After the exit of ExxonMobil and Equinor, our view on the prospectivity of the Transkei area meant that it really offered a significant counterbalance to the risk of failure in Namibia,' adds Ahmed.

Source: Petroleum-economist.com Matt Smith

https://www.petroleum-economist.com/articles/upstream/exploration-production/2020/impact-eyes-double-farm-out-after-south-africa-expansion