Brulpadda: Let’s not squander the ‘money toad’

The economy could take off – if South Africa responds with single-minded focus.
With any potentially valuable discovery under the ground or water, what was essentially unknown becomes much more of a valuable known. Image: Supplied

Exploration for oil or minerals is a risky activity. And when a significant find is made, there is the further risk that the terms allowed to the finder may turn out to be adverse. The larger the resource proved, the more adverse these terms are likely to be.

Any original successful risk-taker is hostage to the government of the country where the discovery is made. With any potentially valuable discovery under the ground or water, what was essentially unknown will have become much more of a valuable known. Accordingly, the share of the value added allowed to the discoverer can easily become a matter of ex-post negotiation, rather than a rule of previously agreed on laws.

Exploring for oil or gas in deep, turbulent South African waters is a particularly risky endeavour. Rules applying to exploration for oil or gas are still to be redrafted and voted upon. Yet, despite all this inherent uncertainty – all the known unknowns – Total and its partners went ahead and explored off our coast. They have discovered what is clearly a significant quantity of hydrocarbons in their concession area 275km south of Mossel Bay, called Brulpadda. They will be drilling further wells to determine the fuller potential of the gas and oil available for exploitation.

Interesting numbers about Brulpadda

• 1 billion barrels of ‘wet gas’ (gas that contains a small amount of oil) – potential size of the Brulpadda finding

• 19 000km² – size of the Brulpadda block

• 15% – percentage of South Africa’s imports represented by oil

• 6-9 years – estimated time to production

How then should South Africa respond to this fait accompli, a new economic opportunity of great potential significance?

Surely it should be to maximise the output of oil and gas? Taxes or royalties can and will be levied on it. However, it would have to be of an internationally comparable and competitive scale to encourage production and further exploration activity.

Given a natural concern for safety and the environment, the business of bringing the oil and gas to the market should best be governed by no other factor than maximising output at minimal cost.

Opportunity upon opportunity

What is in prospect, if all goes well, is construction activity on a large scale undertaken over many years. Drills will be sunk from the platforms to be built, served by helicopters and launches with bases and workers onshore. Pipelines will be laid to bring the oil and gas onshore and to extend the network to new refineries and their customers in the urban areas. Further capital expenditure in the oil and gas-intensive industry (for export and the local market) will become feasible off the newly established grids. The economy could take off.

To make the best of what has become possible, minimal consideration should be given to any other potential interests in the resource, other than the general interest in faster economic growth. Any interests that might impose themselves on the project managers and the capital providers should be actively disallowed.

Construction companies and those that are free to hire them should be allowed to bid competitively for work and to organise that work as best they see fit. They should be subject to minimal interference in the form of patronage, crony capitalism, corruption and extortion.

The genuine public interest in redistributing the benefits of the project would then be satisfied by the extra revenue generated for the government, not by opportunistic rent-seeking. The extra revenue could be spent for the benefit of the poor in better-funded schools and hospitals or cash grants, maybe even lower tax rates; a case of growth and then redistribution, rather than erratic redistribution at the expense of growth. It would represent a true game-changer for the SA economy. 

Brian Kantor is chief economist and strategist at Investec Wealth & Investment.


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Odious just thinking that the ANC are viewing this as theirs and only for them

We should follow Norways’s model of a sovereign fund that holds income separate from governments. Norway is prob the wealthiest, or in top couple, nation on earth on per capita basis because of it. About a trillion dollars in value – roughly 1% of the world’s shares!

Wishful thinking. Norway is a civilized country where people respect the law , persons and property. SA is run by thieves with no respect for law or persons or property. Our present state of the economy speaks for itself.

I can see ANC bigwigs salivating at the prospect of raping these funds. No different from dictators

The world is awash with oil and gas. We do not need this. You can literally pick up the phone and order tanker loads of refined product delivered to our ports without laying out any capital.

This is a bad idea to keep PetroSA afloat for the cadres to plunder.

“You can literally pick up the phone and order tanker loads of refined product delivered to our ports without laying out any capital”

Justify that.

I assume that you are a trader in the hydrocarbon industry with that emphatic statement.


Yes, you can call companies like Vitol and Glencore and order refined product.

Many countries dont have refineries and rely on refined fuel to be shipped in.

Singapore has several refineries turning product into refined fuel and delivering all over the world.

Glad I could teach you something today.

Thanks for the teaching moment eric.

Will be treasured forever.

Have a nice day now.

Essentially I agree; provided you can store enough reserves to get through any Middle East / Venezuela hiccup and price spike (and not sell these reserves to your ANC chums). For the ANC SA, development of a gas field is like an invite to another Eskom / Medupi/Kusile thieving orgy under the BEE / EE guise and funded / sponsored by the SA taxpayer; maybe with a financial intermediary like Investec inbetween? And there would still be no or insufficient gas like “Mossgas” and like Eskom and electricity.

Fool me once.

A cynical comment but I truly hope there’s nothing there. Our destiny will be Angola’s and not Norway’s. Kantor used the phrase fait accompli … that’s the only relevant fact here. The Gangsterocracy will simply gate-keep that, Total will take the rest and the peasants will get nothing!

6-9 years to production. Oil requirements could change significantly by then judging by some countries to have oil burners banned by 2020 and electric vehicle replacements.

Not to mention hydrogen becoming cost competitive as a means of solar power storage. And nuclear fusion becoming practical and more affordable. Not so long ago fracking was all the craze with Shell appearing quite excited.

I wonder who should manage it? PETROSA, SAA, PIC, Eskom. So many wonderful choices. How can it possibly fail?

The question is: “What can go wrong?” Lol

‘Brulpadda’: Who comes up with ridiculous names?

End of comments.



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