Leading European oil firm Royal Dutch Shell plc (RDS.A) intends to invest approximately $200 million for shale gas exploration in South Africa. However, this proposal is facing stern opposition from local farmers and conservationists over environmental protection.
Shell plans to explore the country’s semi-arid Karoo region where a moratorium on oil and gas drilling was issued in April over ecological concerns. Harvesters and environmentalists remain apprehensive that hydraulic fracturing –– a technique used by drillers to look for oil and gas –– will have adverse effects on the region’s rugged landscape and exotic flora and fauna.
However, as elucidated by the spokesperson of Shell, with the success of the company’s exploration efforts, the Karoo region will be able to generate high-quality crude production for South Africa within a decade. Management estimates South Africa to have at least half of the projected 485 trillion cubic feet of trapped shale gas that is commercially viable, making the country energy self-sufficient for decades.
Apart from Shell, which holds exploration rights for 35,000 square miles in the region, petrochemical group Sasol Ltd. (SSL), Anglo American and Falcon Oil & Gas are targeting to operate in the Karoo basin.
The advocates of drilling in the Karoo believes that with the discovery of shale gas in the region, there would be an end to the chronic power shortage in South Africa and lesser dependence on harmful coal-fired power stations. Moreover, the country could opt for a cleaner source of energy. Currently, almost 90% of the nation's electricity is supplied by coal.
The Hague-based Royal Dutch Shell owns one of the largest integrated oil and gas businesses in the world. The group has operations worldwide and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy-related businesses.
We believe that the Anglo-Dutch energy giant exhibits a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects and increased capital expenditures will support volume growth in the long run.
However, we maintain a long-term Neutral recommendation on the stock, considering the volatile oil and gas fundamentals, operational hindrances and international business risks. Shell currently retains a Zacks #3 Rank (short-term Hold rating).
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