The development of shale resources is steadily advancing across the world as the exploration and production industry looks to replicate the success achieved in developing these resources in North America. One area that might have the potential for substantial shale resources is South Africa, where many exploration and production companies are focusing on the onshore Karoo region.

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South Africa
Royal Dutch Shell (NYSE:RDS) plans to spend approximately $200 million to explore in the Karoo region in South Africa. The company has applied for a license to explore a 90,000 square kilometer region here, and expects a decision by the Petroleum Agency of South Africa in the summer of 2011.

South Africa plans to offer licenses for exploration in four separate rounds by the end of 2012. This plan has generated some opposition in South Africa as some residents of that country fear environmental damage as a result of the hydraulic fracturing process. The energy industry maintains that the process of extracting hydrocarbons from shale is safe.

Sasol (NYSE:SSL) is also involved in exploring for shale gas in the Karoo region, and in July 2010 was awarded a joint permit along with Chesapeake Energy Corporation (NYSE:CHK) to assess the area for resources. The permit is for up to 12 months and does not allow any drilling or surface activity. Falcon Oil & Gas Ltd. (TSX:FO) obtained a similar permit in late 2009, and has applied for a license for further exploration.

Sasol has been actively entering into shale plays in North America and signed two recent deals with Talisman Energy (NYSE:TLM) on acreage that is prospective for the Montney Shale in Canada.

In December 2010, Sasol agreed to pay $1.05 billion CAD to acquire a 50% stake in the Farrell Creek project in British Columbia. Four months later, the company agreed to pay $1.05 billion CAD for a 50% stake in the Cypress A project, also in British Columbia.

The company may be building its expertise in developing shale gas in Canada with the hope of using that knowledge in other parts of its portfolio. Sasol will also utilize its extensive experience in constructing gas to liquids facilities, where natural gas is converted into various liquid products, including diesel, liquid propane gas, naphtha and kerosene.

The Bottom Line
The shale revolution that began in North America a decade ago is set to spread to other continents as the industry attempts to repeat the success it enjoyed in North America. South Africa is one focus of these efforts to provide future supplies of energy. (For related reading, also see Natural Gas: An Investment Guide.)

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