Shell Is Cleared to Drill Deepwater Wells Off South African West Coast

Shell plc SHEL, in a move that could reshape South Africa’s energy landscape, has secured environmental approval to drill up to five deepwater wells off the country's west coast. The project targets the Northern Cape Ultra Deep Block in the Orange Basin, an area of high interest for oil explorers due to its geological continuity and proximity to Namibia, where major discoveries have already been made. The planned wells will range from 2,500 meters to 3,200 meters deep, marking a significant step in tapping South Africa’s offshore potential.

Strategic Importance of South Africa’s West Coast Block

The region has gained attention due to recent offshore discoveries in neighboring Namibia’s waters. South Africa’s block in the Orange Basin is close to TotalEnergies SE’s TTE huge Venus and Mangetti oil and gas discoveries in Namibia. TTE’s Venus field in Namibia, which is expected to reach a final investment decision by 2026, could establish Namibia as a key oil producer by 2029.

But, recently, several companies, including Shell and TotalEnergies, are preparing to conduct exploratory drilling in South Africa, too. Total Energies acquired stakes in the Block 3B/4B in 2024 with an aim to commence offshore drilling in 2026, subject to regulatory approval.

Taking a Shot at Energy Security

Shell's announcement comes at a time when South Africa is struggling with declining domestic refining capacity and an increasing reliance on imported fuels. As a net importer of oil and gas, South Africa depends heavily on international markets, sourcing crude mainly from the Middle East and other nations of Africa. This reliance has exposed the country to volatile global oil prices and driven up the cost of fuel and related products.

If Shell, currently carrying a Zacks Rank #3 (Hold), strikes viable oil or gas reserves, the project could bolster national energy security and contribute meaningfully to economic development goals. The company stated that successful exploration could play a vital role in stabilizing supply and strengthening the country’s industrial base, though it did not provide specific project timelines.

Legal Precedents and Environmental Concerns Loom

Despite the green light, the broader future of offshore exploration in South Africa remains uncertain. Shell's previous efforts on the East Coast were bogged down by legal challenges concerning public consultation and environmental risks. That case is now heading to South Africa’s highest court and its outcome could influence public policy and investor sentiment moving forward. Local communities and environmental groups, like Greenpeace, have launched campaigns against Shell, preventing it from exploring offshore. The environmental groups continue to push back against seismic surveys, citing potential harm to marine ecosystems.

Navigating a Challenging Landscape

For a long period, South Africa’s energy ambitions were hampered not just by legal battles but also by bureaucratic inertia.

But now, the country is backing its exploration push with regulatory reforms aimed at boosting fuel security. The Ministry of Mineral and Petroleum Resources is actively promoting upstream activity by creating a more favorable environment for foreign investment. Key among these efforts is the Upstream Petroleum Resources Development Act of 2024, which offers greater security of tenure for exploration and production operations. The government is also working to streamline approval processes, especially by accelerating environmental authorizations. These initiatives are expected to attract new players and unlock the full potential of the country’s oil and gas sector.

Key Picks

Investors interested in the energy sector might look at some better-ranked stocks like BKV Corporation BKV and Flotek Industries, Inc. FTK. BKV and Flotek currently sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

BKV Corporation is an energy company that produces natural gas from its owned and operated upstream businesses. The Zacks Consensus Estimate for BKV’s 2025 earnings indicates 338.18% year-over-year growth.

In the oil and gas sector, Flotek serves major and independent energy producers and oilfield service companies, both domestic and international. The Zacks Consensus Estimate for FTK’s 2025 earnings indicates 64.71% year-over-year growth.

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This article originally published on Zacks Investment Research (zacks.com).

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