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Interview

Nhlanhla Kubheka – Founder and Managing Director, Geo Africa Petroleum Limited, South Africa

10.04.2018 / Energyboardroom

Nhlanhla Kubheka, founder and managing director of Geo Africa Petroleum, a local consultancy focused on subsurface, highlights the services they offer to the market and what steps must be taken to create a favourable E&P environment. Additionally, he discusses the company’s plans to establish an oil and gas upstream datacenter and the implications of a thriving South African hydrocarbon ecosystem for the entire nation.

 Could you please introduce the company and yourself to our international audience?

“In the event of our success, we are looking to own our own drilling rig and seismic equipment for land or sea, which will allow us to hire and train more local people, thereby making significant contributions towards employment and the skills development in the country.”

I first started my career with a degree in geophysics at a post-graduate level, before taking up a role at the Council for Scientific and Industrial Research (CSIR) where I became involved in subsurface research on mining and groundwater exploration. I gained interest in the exploration production of oil and gas resources prior to the merger of Mossgas and Soekor to form PetroSA and PASA in 2001. During this period there were a lot of funds being dedicated towards equipping local people for the field, and Soekor was the only company involved in the upstream sector. I went to work for Petroleum Geo-Services (PGS) in the UK and this is where I gained my consultancy experience. Afterwards, I moved to Energy Africa, now known as Tullow Oil, scaling the ranks, and in 2012, I joined PetroSA, after having an urge to understand the government aspect of the business. Afterwards, I took up a role at New African Global Energy in the UK, a young company with an excellent CEO that knew how to raise funds quickly.

All these experiences gave me great market incite from many very different aspects, and in 2015 I set up Geo Africa Petroleum, a company with a multidisciplinary team that applies technological solutions and services in the oil and gas upstream industry, with the main focus being in the subsurface. Our team consists of geologists, geophysicists, reservoir engineers, petroleum economists; so basically, every area of subsurface that deals with data acquisition and data interpretation and drilling of hydrocarbons. We currently have around eight staff and are able to shift these numbers depending on our needs.

As an expert in subsurface, what opportunities do you see?

South Africa is not yet a major oil and gas hub; however, South Africa has about 38 blocks offshore and 20 blocks onshore demarcated for oil and gas licensing to indigenous and international E&P companies, with most of these blocks remaining unexplored. South Africa also has about six state-owned entities tasked with the development of subsurface activities to support the government’s energy mandate.

Geo Africa Petroleum as the only subsurface company that is locally owned. Compared to the larger players we are able to support all aspects of the market, acting as an advisor, and this fits into the first branch of the company advisory services.

Our other business arm is professional solutions. We provide desktop technological solutions at international standards and we work in different aspects within a project to find solutions. This is done via a tender process, or gaining projects and working on them as a team

What are your growth drivers between the two segments?

The low global oil price and high shale gas production in the US, has made a lot of oil available to the market. Equally, the delays in signing the Mineral Petroleum Resource Development Act (MPRDA) has caused uncertainty that prevented many International Oil Companies (IOC) to enter the market, and those that are already present, not to invest more so to accelerate projects to production. This has resulted in most of our work coming from the public sector as they require our technical services to advise them on the industry and geology to ensure high productivity in the near future.

Overall, this has put us in good stead as the partner of choice for a number of reasons. We realised that the technical voice in the public sector is highly needed, and despite the industry having a money centric approach, we understand that our advisory services allow the public sector to pay more attention to the technical point of view, critical for projects to be effective.

In the event of our success, we are looking to own our own drilling rig and seismic equipment for land or sea, which will allow us to hire and train more local people, thereby making significant contributions towards employment and the skills development in the country. This will enable us to access the market across South African borders, participating in a share of core project areas and also helping us compete against other service players, which are mainly based overseas.

Furthermore, many overseas companies are looking to invest in South Africa via the opportunities offshore and onshore for shale gas. With the law of the local government, South African companies must take part in this process. Therefore, with our own equipment we will be able to add valuable equity and local content, which will give us a competitive advantage to fill the service space and position us as the preferred partner of choice.

Do you believe that there is potential for Oil and Gas production in South Africa?

Yes. There are many blocks that remain unexplored, and those that have been underexplored are a combination of oil and gas, though mostly gas as massive organic sources generating hydrocarbons are buried very deep, with higher temperatures and pressures. Nevertheless, there is potential for both oil and gas, even in the deep-water blocks, and this requires large capital compared to many other locations in the world, forcing exploration out of reach for many companies. For example, media reports state that in the North Sea UK the break-even price sits at about 25 USD a barrel for Statoil’s Johan Sverdrup field, compared to over 50 USD in South Africa. However, we have seen economic production of both oil and gas in the satellite fields, such as block 9. This has attracted multinationals, such as Total and ExxonMobil, which are now looking to explore in the vicinity and tap into available subsea infrastructure thereby leveraging on low operation expenditure costs.

What is the outlook for South Africa to be a significant producer?

In South Africa, people have been frustrated as many promises on community benefits being made with no action being taken. When investing into oil and gas upstream it is always long-term, taking about ten years to go from exploration to production. The broader local community does not welcome the E&P process and they object towards the investment efforts. Our services are tailored to assist in community engagements, being an advisor to government on how local content can be structured to benefit e during early phases of the E&P process.

I envision that major oil or gas production in South Africa will not for at least another eight to ten years for an array of reasons, one of them being data quality. There is a lot of data being held by the petroleum agency that was acquired during the 1970’s, with drilling stopping during the 1980’s. Therefore, this information is quite old, and gaps in data make it unreliable; therefore, companies must acquire new data through geographical assessment via processes such as surveys and drilling. This is a long process, requiring follow-on, data interpretation, generation of subsurface models, resource-reserves estimations and economic predictions, hence the reason behind the long period between the exploration and production phases in South Africa.

We predict capital expenditure to increase by at least 15 percent in the year 2018, following a cut of about 40 percent in 2014. Some projects are expected to resume immediately after the government signs the MPRDA, leading to an increase in the drilling rig count, with the possibility that very soon there will be a discovery of a giant oil or gas field.

What are the main opportunities to grow abroad?

We want to work across the continent, though it is very important we solidify our position in South Africa first and utilize our network to expand. By participating in the public sector, we will be working with people that travel a lot, and they will be able to promote our work when they go to other markets.

Additionally, to increase our African footprint, we participate in Africa trade missions of the Department of Trade and Industry, where we explore opportunities to export and enter in JV partnerships with locals on provision of services in the SADC region, particularly where recently major oil or gas discoveries have been made, such as Mozambique, Kenya, Uganda etc.

Furthermore, we are looking to set-up the a collocation data center for the oil and gas upstream sector be located in the special economic zone. This will be a science-technology platform that will allow data from South Africa to be stored in the central storage of business tools which will be accessible industry-wide, and by South African law, this data will become publicly available after five years. This will prevent valuable data being lost, and secondly, we will be able to provide the technical expertise to analyse this data, generating new revenue stream. The datacenter will thereafter be our base location for Geo Africa owned equipment.

This will ensure that when investors are looking to invest in South Africa or want to make a low risk informed funding investment decision, they will be able to come to our center to obtain the information with modern technology. Furthermore, our local experts with expert knowledge of the South African geological landscape, will be able to assist investors and accelerate E&P projects as they give input of an independent expect view.

We believe this datacenter platform has the possibility of being rolled out across the SADC region to promote knowledge transfer aiming to reduce geological risk and commercial risk. For example, Mozambique has high success in gas offshore and onshore shale gas, while in South Africa wants to develop this area. By having a datacenter in Mozambique, and applying this knowledge to South Africa, we will increase the chance of success in E&P.

How have you been able to raise the capital for these projects?

For the datacenter we believe it will cost somewhere in the vicinity of 200 million ZAR (18 million USD). We have had some interest from international companies to participate, though it was during a challenging period and they could not invest in such a project. We believe we must get the ball rolling and government must demonstrate its participation by co-funding such initiatives in the sector, and then large companies will join in the future.

The country’s economy is driven by mining, though we must understand that if a large offshore discovery is made, it has the possibility of changing the country for the better. An example of this is Ghana, where a large oil discovery brought amazing benefits. Therefore, this centre gives us the opportunity to utilize our oil and gas resources more effectively, while attracting the expertise and companies we lack in the country.

What drives your passion for Oil and Gas?

I have developed my drive in the hydrocarbon sector throughout my career, and from what I have seen in the other parts of the world, oil and gas has the potential to shape a nation’s politics, infrastructure and economy. We see this in the Middle East where from the plentiful supplies of oil, the entire region has been built up and flourished. We’ve come to realise that in some US county such as Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, free-education for the nation became a reality when funded from oil production.

My passion is that someday we can bring this type of revolutionary energy discovery to South Africa, but we as a nation and industry must all be driven in the same direction. As a nation we can overcome all challenges in unity through decisive empowerment engagements underpinned by robust programs from our local government that support economic growth. This starts from not at the governmental level, but the people. They see the refineries and believe we have oil, but they do not understand that the real money comes for E&P, and to do this we need to be given access to market and equity. Once people are educated on this, we can all work towards accelerating the South African oil and gas sector.

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