Will South African trio’s algorithm be a boon for oil sector?

Over $300-billion of oil and gas exploration projects have been shelved since the oil price fell from a high of $120 in July 2014 to a low of $25 in early 2015 — but three South Africans’ use of a statistical algorithm promises to cut the cost of finding oil and gas.

While unlisted UK company Africa New Energies (ANE) recently became the subject of a bidding war with valuations of hundreds of millions of dollars, analysts remain cautious, with the company yet to discover a single barrel of oil.

The company, launched by Stephen Larkin, Brendon Raw and Shakes Motsilili in 2012, uses data collected from satellites, aircraft and ground-based earthquake detection monitors to scope for oil and gas.

ANE is backed by both the UN and the Namibian government, which has awarded the company a  22 000 square kilometre concession – an area larger than Gauteng. It plans to start drilling in 2018.

Zak Mir, the media pundit who hosts TipTV in London said ANE’s algorithm was the first technology innovation with a realistic chance of success to emerge after the industry slump — with many exploration techniques still overly reliant on seismic methods, which were introduced in 1924.

“While there is a bit of a dot com feel to these rumours, I have no doubt that interest in ANE’s technology will reach fever-pitch if its drilling programme in the Kalahari does deliver.”

Exploration from your desktop?

Andrew Turpin, a former head of media relations at energy companies Iberdrola and Centrica and Indian oil refining group Essar, said ANE’s algorithm materially improves the notoriously low probability of finding land-based hydrocarbons through drilling expensive test wells.

The algorithm can prove even more valuable, he said, in that it enables remote desktop assessment of hundreds of potential hydrocarbon deposits across entire continents, making it possible for investors to rank prospects before they have set foot in the country. This can eliminate the risk of wasting billions on infrastructure.

“In a world where oil majors are paying $17 to replace each barrel of reserves using their internal geological teams and investor sentiment is moving away from mega-hydrocarbon projects, ANE’s algorithm is a potential game changer,” said Turpin.

“However, there is still a risk for any bidder looking at ANE. Nothing is proven yet and most bidders would want clarity that the Kalahari acreage contains more than just fossilised sea water,” he stressed.

Edward Stock of Artaois, the London-based independent energy markets consultancy said “the industry is facing a dilemma as to where new reserves will come from. This is a time where investment into high-cost exploration in hostile environments is waning and the current focus on fracking is seen as uneconomical at the current prices.

“Technology that will increase the efficiency of exploration while providing returns at current levels should be attracting investment back into the sector.”

Analysts have expressed caution over ANE’s algorithm for discovering hydrocarbons

But Stock agrees with Turpin’s caution.

“Nothing is proven yet, and ANE’s unorthodox funding model constrains the amount of capital it can raise.  The company claims a prospective resource of 1.6 billion barrels — so — at ANE’s forecast of $40 per barrel — the outcome of its drilling campaign is one that the rest of the industry will be watching closely.”

ANE’s South African country manager Shakes Motsilili was tight-lipped when asked to comment on the bids, stating that if any discussions were happening they tended to be drawn out over many months and would be subject to confidentiality.

ANE CEO Stephen Larkin will be hosted by Startup Grind Cape Town on 25th April to talk about the potential for crowdfunding to galvanise other South African tech startups.