Chevron Joins Search For Hydrocarbons In S Africa's Karoo

By Devon Maylie

JOHANNESBURG--Chevron Corp. (CVX) has joined the search for oil and gas in South Africa's Karoo, teaming up with Dublin-based Falcon Oil & Gas Ltd. (FO.V)

The two companies said this week that Falcon and Chevron's South Africa unit entered an agreement to jointly explore for hydrocarbons in the Karoo basin. Chevron late Thursday declined to provide further details on the agreement.

New gas and oil discoveries across Africa have attracted a rush of international players to come explore. In neighboring Mozambique, Anadarko Petroleum Corp. (APC) and Italy's Eni SpA (E, ENI.MI) have made gas discoveries.

In South Africa, the gas exploration in the Karoo was held up while the government decided on a regulatory system for the controversial exploration method companies said they would need to use.

In September, South Africa lifted a temporary halt on shale-gas exploration in the Karoo, an isolated, nature-rich region. Companies said production will still be many years away.

South Africa, estimated to hold the world's fifth-largest reserves of shale gas according to estimates by the U.S. Energy Information Administration, last year imposed a moratorium on hydraulic fracturing--a procedure known as fracking--while it took a closer look at the repercussions of letting companies like Royal Dutch Shell PLC use the controversial technique in the Karoo, an arid region home to a variety of desert mammals and plant species.

The technique has helped unlock gas reserves trapped in underground shale rock in the U.S. with great success, but critics say the technique risks damage to the environment.

Falcon currently has a technical permit to study a 7.4-million-acre area with the exclusive right to convert that permit to an exploration permit.

Chevron said Tuesday that it will make a cash payment of up to $1 million to Falcon to contribute toward past costs. The two companies will now work together to secure an exploration permit.

"[The] agreement with Chevron is a major step forward towards realizing the full potential of our already significant acreage position in the Karoo," said Falcon chief executive Philip O'Quigley.

Write to Devon Maylie at [e-mail]

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