Shell Withdraws from Kudu Field

Shell has made the decision to withdraw from the Kudu gas field offshore Namibia because if failed to prove sufficient reserves to justify a planned floating gas compression plant. Pending Shell's withdrawal as the operator of the license, the remaining partners' interests are automatically expanded in proportion to their current holdings. This will give Energy Africa a 40% interest in the field and ChevronTexaco will hold the remaining 60%.

Energy Africa MD Rhidwaan Gasant says while the failure to find the expected gas reserves is disappointing "it could well be a business opportunity for us we are still of the view that there probably are sufficient reserves to justify a gas pipeline down to Cape Town".

Gasant says Energy Africa is reviewing its options in consultation with the Namibian government and ChevronTexaco, with a particular focus on financing the drilling of additional appraisal wells and the possibility of bringing in new partners.

To date, gas reserves of 1.3-trillion cubic feet have been proven at Kudu. Although this is well short of the 5 trillion cubic feet Shell required to justify spending the estimated 2.5 billion it would cost to build a floating liquefied natural gas plant aimed at northern hemisphere markets, analysts say the reserves could still prove large enough to supply the southern African market at a profit.

In addition to the liquefied natural gas plant, which would have been the anchor project in Shell's production plan with an offtake of about 850-million cubic feet of gas a day, the intention was to supply a relatively small gas-fired power station in Namibia, and build a coastal pipeline to feed industry in the Western Cape and a large power station to be built near Cape Town.

The SA minerals and energy department's gas task team has been investigating the feasibility of establishing a national gas pipeline grid, with natural gas from Namibia, Mozambique and SA's west coast as potential suppliers.

MD Femi Bajomo says with the current level of proven gas reserves "Shell cannot commit to a sustainable gas export project as envisaged. There are, however, sufficient proven gas reserves to support a local power plant, but the project is not considered viable under the present market conditions." Although the recent drilling campaign had been disappointing, with two dry wells, the partners had been able to appraise the field effectively, and Shell believed the information from seismic studies and the drilling of four wells would assist the appraisal efforts of future prospectors, Bajomo concluded.