Falcon holds a Technical Cooperation Permit covering 7.5 million acres in the southwest Karoo Basin. In August 2010, Falcon submitted an application for an exploration license covering the same area.
The Karoo Basin covers 600,000 sq km in central and southern South Africa and contains thick, organic rich shales such as the Permian Whitehill Formation. Until recently, the Karoo Basin was not considered prospective for productive hydrocarbons resulting in very limited modern hydrocarbon exploration onshore in South Africa.
With the advances in modern drilling technology and shale exploration, the United States Energy Information Administration’s April 2011 report “World Shale Gas Resources: An Initial Assessment” estimates 485 TCF of technically recoverable shale gas resources in South Africa’s Karoo Basin. (pages 288/365).
Technical Cooperation Permit
Falcon holds a Technical Cooperation Permit (TCP) covering an area of approximately 7.5 million acres (approximately 30,327 km2) onshore Karoo Basin, South Africa. In geological terms the Karoo refers to a geological period lasting some 120 million years and the rocks laid down during that period of time. These rocks were deposited in a large regional basin and resulted in the build-up of extensive deposits, some of which have been identified as having excellent shale gas potential. The TCP grants Falcon an exclusive right to apply for an exploration right over the underlying acreage.
On 1 February 2011, the Minister of Mineral Resources (the “Minister”) published a notice in the Government Gazette declaring a moratorium on the processing of all new applications relating to the exploration and production of shale gas in the Karoo Basin. This moratorium did not extend to existing applications, such as Falcon’s, that were submitted prior to 1 February 2011. In April 2011, the Minister announced a further moratorium, which was not officially declared in terms of a notice in the Government Gazette, prohibiting all new applications and suspending the processing of all pending applications whilst the South African Department of Mineral Resources conducted an environmental feasibility study on the effects of hydraulic stimulation and developed a system to regulate onshore exploration activities (the “Undeclared Moratorium”). The undeclared moratorium has no legal effect since it is a requirement of the South African petroleum legislation that all such moratoriums be published in the Government Gazette. In September 2012, the South African Government announced a decision to lift the undeclared moratorium on shale gas exploration. The Minister has indicated that although the Undeclared Moratorium has been lifted, pending exploration right applications will not be processed and awarded until the regulations regarding unconventional exploration are published. The proposed regulations titled “Mineral and Petroleum Resources Development Act (28/2002): Proposed technical regulations for petroleum exploration and exploitation” were published in the Republic of South Africa Government Gazette for comment on 15 October 2013. Consequently, the Board expects that the exploration right over the acreage will be awarded in 2014.
Cooperation agreement with Chevron
In December 2012, Falcon entered into an exclusive cooperation agreement with Chevron to jointly seek unconventional exploration opportunities in the Karoo Basin. The Chevron Agreement provides for Falcon to work exclusively with Chevron for a period of five years to jointly seek to obtain exploration rights in the Karoo Basin subject to the parties mutually agreeing participation terms applicable to each right.