CNR International Exits Block 11B/12B Offshore South Africa, Future of Project Uncertain

CNR International Exits Block 11B/12B Offshore South Africa, Future of Project Uncertain

In a significant development for South Africa's energy sector, CNR International (South Africa) Limited has announced its withdrawal from its 20% interest in Block 11B/12B, located offshore the Republic of South Africa. This news, made public on July 1, 2024, by Africa Energy Corp. (TSX Venture: AFE) (Nasdaq First North: AEC), throws the future of the Block 11B/12B project into some uncertainty.

CNR International's Exit and Partner Options

CNR International's decision to withdraw highlights potential challenges within the consortium developing Block 11B/12B. The company's exit comes with a clause in the joint operating agreement (JOA) granting the remaining partners 30 days to decide on their own course of action. This means TotalEnergies EP South Africa B.V., which holds the largest stake at 45%, and Africa Energy Corp. (through its subsidiary Main Street 1549 Pty Ltd. with a 10% interest), have until the end of July to determine their next steps.

TotalEnergies Reviews Options

The response from TotalEnergies, the major player in the consortium, is crucial for the project's viability. According to Africa Energy Corp.'s announcement, TotalEnergies EP South Africa B.V. is currently "reviewing its options" for its 45% interest in Block 11B/12B. This could indicate that TotalEnergies is considering either remaining in the project and finding a replacement for CNR's stake or potentially exiting alongside CNR.

Africa Energy Corp. Committed to Block 11B/12B

In a positive sign for the project, Africa Energy Corp. has clearly stated its intention to retain its 10% interest in Block 11B/12B. The company believes that natural gas will play a vital role in South Africa's energy transition, with the gas reserves in Block 11B/12B representing the most significant domestic supply option currently available. This unwavering commitment from Africa Energy Corp. demonstrates continued confidence in the project's potential.

Possible Reasons for CNR International's Withdrawal

While the specific reasons behind CNR International's withdrawal haven't been made public, there could be several factors at play. These might include:

• Shifting energy priorities: The global energy landscape is constantly evolving, and CNR International might be refocusing its resources on different projects that better align with its current strategic objectives.
• Project development challenges: Developing offshore oil and gas fields can be complex and expensive. CNR International might have encountered unforeseen challenges during the exploration or development phase, leading them to reassess their involvement.
• Economic considerations: Fluctuations in global oil and gas prices can significantly impact project profitability. CNR International might have determined that the current economic climate does not make continued participation in Block 11B/12B commercially viable.

The Road Ahead for Block 11B/12B

The coming weeks will be crucial for determining the future of Block 11B/12B. The decisions made by TotalEnergies and the remaining partners will significantly impact the project's trajectory. Here are some potential scenarios:

• TotalEnergies remains committed: If TotalEnergies decides to stay involved and finds a suitable replacement for CNR International's stake, Block 11B/12B could continue development as planned. This scenario would likely involve a period of negotiation and due diligence to secure a new partner.

• TotalEnergies exits alongside CNR International: A joint withdrawal by both TotalEnergies and CNR International would be a significant setback for the project. The future of Block 11B/12B would then depend on the willingness of other companies to take over the consortium lead and explore potential partnerships with Africa Energy Corp.

• Africa Energy Corp. seeks new partners: Even if TotalEnergies decides to exit, Africa Energy Corp.'s continued interest opens the possibility of finding new partners to replace both CNR International and potentially TotalEnergies. This path would require Africa Energy Corp. to take a more prominent leadership role in the project.

Impact on South Africa's Energy Security

The development of domestic natural gas resources is critical for South Africa's energy security and its transition away from a reliance on imported fossil fuels. The potential delay or cancellation of the Block 11B/12B project could have a negative impact on these goals.

Conclusion

CNR International's withdrawal from Block 11B/12B casts a shadow over the project's