With the prospect of wildcatting now waylaid, the Wild Coast has won what could be a lengthy stay against aggressive economic development in its pristine waters.
Last week the Constitutional Court ruled out any chance that partners Shell and Impact Oil & Gas could retain the right to explore the potentially lucrative oil prospects off the Eastern Cape coast by revising their application to renew — even if they followed the correct procedures to a T.
Environmental and community issues aside, the Constitutional Court ruling lays down a marker for future prospecting applications: do your homework thoroughly when it comes to public consultation or face costly delays … and even, as in this instance, a possibly permanent setback.
It’s already been an expensive hold-up for Shell and Impact. In 2012 the Eastern Cape High Court set aside their contentious exploration right, ruling that the rights over the oil block had been granted unlawfully, without proper consideration of the ripples that exploration activity could send through the surrounding community.
But in 2024 the Supreme Court of Appeal threw the prospectors the thinnest of lifelines. The court suspended the set-aside order and provided for another renewal application that would, retrospectively, ensure a more comprehensive public participation process. The Constitutional Court, however, felt strongly that Impact and Shell should not be able to rely on the renewal process to keep the contested exploration right in play. In short, there is no comeback from this ruling for Impact and Shell.
There are a number of losers in this saga, even if Wild Coast communities deem themselves the winners.
For Shell, the development is fairly inconsequential. The group has enough other promising oil concessions around the world to preclude fixating on this frustration.
But for JSE-listed Hosken Consolidated Investments (HCI), the major shareholder in Impact, the judgment will be deeply disappointing and could jeopardise its wider ambition of becoming a major player in South African oil and gas exploration.
Impact’s potential losses are sizeable. It was only recently that HCI bought Impact’s interests in the three South African oil and gas blocks — off the Wild Coast, the West Coast and the southern Cape — for a contingent payment of $10m. This was premised on there being a commercial discovery in at least one of them within the next four years. In effect, HCI will acquire between 85% and 100% of Impct’s stakes in the blocks.
Last week’s court ruling will now trigger a write-down in the values previously attached to these offshore prospects. But there’s little doubt that HCI, which fortunately for it also has a potentially lucrative stake in one of Namibia’s most promising oil fields, will press on with its other local oil and gas exploration projects.
What does this mean for South African oil and gas prospects? Does the Constitutional Court outcome represent an impediment for all future exploration efforts?
Well, the Eastern Cape project, for one, is surely off the table for the foreseeable future. The Petroleum Agency SA will likely err on the side of tact and not rush to put the Eastern Cape block up for a new exploration rights application. If and when it does do so, who would bid for it? HCI, Impact and Shell would surely want preferential treatment in view of the time, effort and money they have already sunk into the project.
While the government (well, mineral & petroleum resources minister Gwede Mantashe at least) seems to enthusiastically back oil and gas exploration, South Africa still has a reputation for tying up resource seekers in red tape. Legal precedents can add further complexity, thwarting capital allocation decisions by energy majors in local waters.
While Namibia is going full steam ahead on offshore exploration, South Africa has to tread a fine line between exploiting the oil that could lubricate its economic cogs and ensuring the wellbeing of affected communities. South Africa, no-one needs reminding, is heavily reliant on imported crude.
Once the oil starts flowing in Namibia — perhaps as early as mid-2028 — South Africa will have a concrete case study to help it weigh economic necessity against the concerns of communities. It’s going to be a tough call.
