Exploration Right Environmental Management Programme Report: Seismic Survey, Southern Karoo Basin

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1 EXECUTIVE SUMMARY Exploration Right Environmental Management Programme Report: Seismic Survey, Southern Karoo Basin Falcon Oil & Gas Ltd Page i Introduction 1.1 Background Falcon Oil & Gas Ltd ( Falcon ) is applying for an Exploration Right in terms of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) to conduct natural gas exploration by means of a seismic survey in the southern part of the Great Karoo Basin, South Africa. The application area (refer to Figure 1) encompasses more than farms and farm portions (1 239 title deeds). Falcon proposes to conduct seismic data acquisition on a limited number of these only (see Section 2.3 below). 1.2 Legal Requirements Section 5(4) of the MPRDA states that any proponent may not explore for petroleum or commence with any work incidental thereto on any area without: An approved Environmental Management Programme (EMP); An Exploration Right; and Notifying and consulting with the landowners or lawful occupiers of the land in question. In order to apply for an Exploration Right, Falcon completed the prescribed Application Form and submitted it to the Petroleum Agency of South Africa (PASA) the designated agency regulating petroleum exploration and production in terms of the MPRDA on 31 August PASA accepted the Application Form on 7 September 2010 (PASA Reference No: 12/3/208/1) and instructed Falcon to notify and consult with interested and affected parties (IAPs) and to compile and submit an EMP in support of the application within 120 days, as per the requirements of Section 79(4) of the MPRDA. SRK Consulting (South Africa) Pty Ltd ( SRK ) was appointed by Falcon to compile the EMP on their behalf, and to facilitate the required IAP consultation process. Other legislative requirements that may be relevant to the proposed activities include: National Environmental Management Act (Act No. 107 of 1998) and Environmental Impact Assessment Regulations, 2010; National Environmental Management: Biodiversity Act (Act No. 10 of 2004); National Heritage Resources Act (Act No. 25 of 1999); and National Water Act (Act No. 36 of 1998). Project Description 2.1 Background and Motivation Falcon s proposed seismic survey exploration programme is intended to assist in determining whether the unquantified shale gas known to occur in the application area constitutes a commercially viable natural gas resource. Natural (methane) gas provides a cleaner form of energy than coal or oil. Shale gas exploration is, therefore, strategically important to identify and assess potential sources of natural gas which could provide alternative energy sources to South Africa. Should the seismic survey results indicate the presence of a potentially viable shale gas resource, Falcon may apply to PASA for the right to conduct further exploration in the form of exploration well drilling, which would be necessary to ascertain the commercial viability of the resource. If production of gas were to be pursued, Falcon would have to apply for a Production Right. This EMP Report is concerned with the seismic survey exploration programme only since the location and extent, as well as the potential viability of any shale gas resource, are not known at present. 2.2 The Proposed Exploration Programme Falcon proposes a three year exploration programme, as follows: Year 1 (to commence after the Exploration Right is issued) Finalising the seismic survey line routes (including consultation with affected landowners); Year 2 Seismic data acquisition in the field (see Section 2.3 below); and Year 3 Seismic data interpretation in order to determine whether additional exploration activities are warranted in future.

2 Figure 1: Map of the application area, key environmental characteristics and the preliminary seismic survey lines. FOUD/dalc _Falcon_Seismic EMP_Executive Summary_FINAL January 2011

3 2.3 Seismic Field Data Acquisition Falcon has identified preliminary locations (routes) for the survey lines (see Figure 1). These lines will be finalised during Year 1 of the exploration programme and will be amended as far as possible to incorporate landowner concerns and environmental constraints. Wherever possible, seismic lines will follow existing roads, tracks and other previously disturbed areas. Up to 1 000km seismic data will be acquired using the shot hole method. This involves drilling 5m-deep shot holes at approximately 50m intervals along the seismic lines. The holes will be drilled using one of a number of small types of portable drilling rigs, depending on the local conditions. Small explosive charges placed in each hole and detonated in a controlled manner create and transmit pulses of acoustic energy into the ground. Different geological strata will reflect this back to the surface and geophones (receivers) placed along the seismic lines will pick up and record the time taken for the sound wave to reflect back to the surface. This information is then interpreted to form a picture of the geological layers in the survey area. Falcon will appoint a contractor to undertake the seismic data acquisition activities in the field. A seismic crew of roughly 18 to 22 staff, with equipment comprising around four 4x4 vehicles (bakkies), two vehicle-mounted drills (one of which will be small and specifically designed for off-road areas) and three small transportation trucks, will be active in the field for the expected 6 to 8-month duration of the seismic survey. The Affected Environment The southern Karoo region has a semi-arid climate with hot summers and very cold winters. Rainfall in the area is generally low and the area has experienced severe drought over the last few years. The application area is generally flat, with undulating hills and koppies in some areas, and located between the Great Escarpment and the Cape Fold Belt Mountains. The extreme western part of the application area is more broken in its topography and includes a portion of the Great Escarpment. The geology of the area consists of the Cape Granite Suite and Cape Supergroup basement units. Soils are variable and formed predominantly by rock weathering. A number of major non-perennial rivers traverse the application area including the Gamka River, Leeu River, Groot River, Buffels (Kariega) River and Sundays River. Numerous smaller non-perennial rivers and streams as well as dams occur in the area. Groundwater levels vary on average from 10m to more than 30m below ground level. Groundwater is used extensively in the Karoo and abstraction takes place year-round. Air quality in the application area is generally good as there is little industrial development or other sources of air pollutants in the vicinity, although dust levels are likely to be relatively high in the arid Karoo conditions. The application area is rural in nature and generally quiet. Any noise that is generated is typical of agricultural areas and comes from agricultural vehicles, machinery and road traffic. The application area is vast and encompasses a significant diversity of habitats and vegetation types in four ecoregions or biomes. The bulk of the application area falls within the semi-arid Nama Karoo Biome. The Succulent Karoo Biome makes up the western quarter of the application area where there are also some relatively small areas on the escarpment that are part of the Fynbos Biome. In the eastern quarter of the study area there are relatively small patches that fall within the Thicket Biome. The application area is dominated by two Nama Karoo vegetation types, namely Gamka Karoo (central area) and Eastern Lower Karoo (eastern area), and the preliminary seismic lines transect these two vegetation types for the most part. None of the vegetation types that occur in the application area is listed as threatened, although most types have high proportions of South African endemics. Some dwarf succulent species, for example, have very restricted ranges and specialized habitat requirements, making them very sensitive to disturbance. Although large parts of the application area comprise natural veld (with some degraded areas) there are no completely pristine areas remaining in the Karoo, largely due to the effects of grazing. The application area largely hosts animals with extensive distributions, although diversity and endemism among invertebrates and reptiles is high in parts of the Karoo (particularly in the Succulent Karoo Biome). Although bird diversity is high, very few species are endemic to the Karoo region. A number of small mammals are endemic to the Karoo biomes, the most vulnerable of which is the Critically Endangered Riverine rabbit (Bunolagus monticularis). This habitat specialist is one of the rarest mammals in the world, mostly as a result of habitat destruction by farming activities. It may occur in the dense riparian vegetation associated with watercourses in the western part of the application area. Although the vast herds of larger mammals (antelope, zebra and other game species) that once roamed the grassy flats of the Karoo region have now all but

4 disappeared, some species do still occur or have been reintroduced into protected areas or private game farms, along with some non-indigenous species. Very few formally protected areas fall within or overlap with the application area and the preliminary seismic survey lines are located well away from these, although a number privately-owned game and other farms that are managed for conservation and/or ecotourism purposes do fall within the application area. Several areas identified as focus areas for protected area expansion by the National Protected Areas Expansion Strategy (NPAES) also occur in the application area. In addition, the preliminary seismic survey lines also traverse a number of areas highlighted on the Critical Biodiversity Area (CBA) maps for the region. The cultural/heritage resources in the application area consist of archaeological sites ranging from Early Stone Age occupation right into the historical period, most of which are well represented elsewhere and not unique to the Karoo. Historical period sites, such as historic farmsteads and towns with associated formal and informal burial grounds are also present. The greater Karoo Basin is very important for its palaeontological resources. The application area is rich in known fossil sites, particularly in the western half and in the Sundays River valley in the east. The application area comprises the districts of Ceres, Laingsburg, Prince Albert and Beaufort West in the Western Cape; Fraserburg and Sutherland in the Northern Cape and Aberdeen, Graaff Reinet, Jansenville, Willowmore and Pearston in the Eastern Cape (see Figure 1). Most of these towns fall just outside the application area. The larger settlements that fall within the application area include Merweville, Leeu-Gamka, Rietbron, Aberdeen and Jansenville. The majority of the land within the application area is privately owned farmland, mostly used for raising livestock (sheep, goats and some cattle) and game for hunting or ecotourism. The application area is well located in terms of transportation infrastructure, with several national roads and other major routes passing through it. A network of mostly gravel roads provides access to the farmlands and smaller towns in the application area. Environmental Impact Assessment The impact assessment methodology assigns potential impacts a significance rating based on a standard set of criteria, including extent or area of the impact, impact duration, intensity and likelihood. Significance is rated as low, medium or high. Impacts are assessed without and with the implementation of mitigation (or Page iv optimisation) measures designed to reduce the significance of negative impacts (or enhance benefits). Seismic data acquisition activities will move along rapidly (up to 10km per day) and direct impacts will therefore mostly be of very short duration. Impacts will also mostly be limited to the project footprint and, as activities will mostly take place on previously disturbed areas, would be of limited intensity. A summary of the significance of the potential impacts and key recommended mitigation measures is provided in Table 1. Potential impacts have all been assessed to be insignificant or of very low or low significance with the implementation of the recommended mitigation measures, which have all been incorporated as management actions into the EMP (see below). Environmental Management Programme The primary purpose of the EMP is to detail the management and control measures required to ensure that the mitigation measures identified to minimise potential negative impacts are effectively implemented, and that all seismic survey exploration activities are conducted in a sustainable and environmentally responsible manner. 5.1 Roles and Responsibilities Several role-players will be involved in the environmental management of the seismic survey activities. These role-players and their responsibilities are: PASA responsible for monitoring Falcon s compliance with the conditions of the Exploration Right and the EMP; Falcon has overall responsibility for the implementation of and compliance with the conditions of the Exploration Right and the EMP. During seismic data acquisition activities, Falcon will be represented on site by a full-time Site Agent; Specialists appointed by Falcon to provide specialised input with regard to managing impacts on vegetation, the Riverine rabbit and heritage resources; Environmental Control Officer (ECO) responsible for independent monitoring of compliance with EMP through regular visual inspections (spot checks); and Seismic Contractor responsible for implementing the environmental management actions contained in the EMP. 5.2 Environmental Management Procedures A number of procedures to manage specific

5 environmental concerns or project aspects will be compiled and implemented during the seismic survey exploration programme, including the following: Land Use Agreements will be drawn up with each landowner and will set out management measures and requirements for working on private property (including compensation arrangements); Vegetation Management Plans will be implemented where the final seismic surveys lines cannot avoid natural vegetation in specific areas of concern within the application area; An Environmental Awareness Plan will be implemented to ensure that all staff are aware of the content and requirements of the EMP and their environmental responsibilities in this regard; A Grievance Mechanism will be implemented to ensure that IAPs can register complaints and that these will be addressed quickly and adequately; and Compliance Monitoring will take place through daily monitoring checklists completed by the Seismic Contractor and signed off by the Falcon Site Agent, as well as fortnightly EMP compliance reports compiled by the ECO. 5.3 Environmental Specifications and Management Actions The mitigation (and optimisation measures) identified during impact assessment are incorporated into the EMP as the key environmental specifications and management actions that Falcon (and the Seismic Contractor) commit to implement during all activities in the field during the seismic exploration programme. 5.4 Financial Provision Falcon must make financial provision for environmental management of the seismic exploration activities, including rehabilitation. Financial provision is calculated based on the requirements of the EMP. Page v The main concerns raised by IAPs with regard to the proposed seismic exploration activities related to: Potential impacts on water resources, specifically groundwater; Landowner rights and compensation; and Potential impacts on vegetation (and grazing). Many of the concerns and objections raised by IAPs did not pertain to the proposed seismic survey exploration programme per se, but related to the renewed interest in the Karoo for potential gas production in general and the implications of possible future gas production for the region. These concerns could not be addressed in the EMP as the activities that they relate to are not included in the application to PASA since they are not currently proposed and no details are available. Any predictions with respect to such activities would therefore be premature and, at best, speculative and theoretical. Public Consultation A comprehensive public consultation process was undertaken as part of the EMP process to notify IAPs and provide them with an opportunity to comment on the proposed activities and raise issues and concerns to be addressed in the EMP. One of the limitations of the study is that it was not possible to identify and consult with all of the landowners due to the large number of properties involved and timeframes imposed by the MPRDA. Requirements for consultation with each affected landowner prior to the start of operations in the field are included in the EMP.

6 Page vi Table 1: Summary of impact significance and key mitigation measures. Potential Impact (Negative unless otherwise indicated) Physical impact on soils (increased erosion / compaction) Significance without mitigation Key mitigation measures Low Minimise footprint of activities. Restrict movement of vehicles and people over natural areas. Implement mitigation measures to minimise impacts on fauna and natural vegetation. Contamination of soils Employ good housekeeping practices, e.g. use drip trays when refuelling. Ensure all staff members are trained in spill prevention and response. Implement a waste management plan. Altered sense of place and visual impact Low Minimise footprint of activities. Impaired land use activities and land use potential Reduced air quality caused by dust and carbon emissions Increased noise levels leading to adverse social reaction Restrict and control movement of people and vehicles. Implement mitigation measures to minimise impacts on fauna and natural vegetation. Consult adequately with landowners prior to and during seismic data acquisition. Include landowner requirements with regard to other land use activities in landowner agreements. Implement mitigation measures to minimise impacts on fauna and natural vegetation. Minimise footprint. Plan the seismic survey operations so as to eliminate unnecessary vehicle trips. Ensure all vehicles and equipment are adequately maintained to ensure optimum functioning and minimum emissions. Ensure all vehicles and equipment are adequately maintained to minimise excessive noise generation. Limit activities to daylight hours. Implement a grievance mechanism to address IAPs complaints regarding noise. Structural damage as result of use of explosives Observe a setback distance of 200m from all aboveground structures and boreholes. Ensure shot holes are adequately backfilled. Minimise explosives charges to smallest practicable charge. Altered drainage patterns and surface water hydrological regimes Altered hydrogeological regime and groundwater availability Carefully plan final seismic lines to minimise need for crossing over water courses. Implement mitigation measures to minimise impacts water course and floodplain vegetation. Implement setback distance of 200m from all aboveground structures and boreholes. Restrict depth of shot holes to minimum required (5m). Contamination of water resources Medium Employ good housekeeping practices, e.g. drip trays when refuelling. Ensure all staff are trained in spill prevention and response. Implement a waste management plan. Significance with mitigation Low

7 Page vii Potential Impact (Negative unless otherwise indicated) Significance without mitigation Key mitigation measures Loss of and damage to natural vegetation Medium Carefully plan final seismic lines to minimise need for crossing over natural areas and avoid specific areas of concern. Restrict and control movement of people and vehicles. Appoint a qualified person to review final seismic lines and develop and oversee implementation of site-specific vegetation protection and rehabilitation measures. Obtain any required Environmental Authorisations in terms of NEMA and the EIA Regulations, Disturbance to fauna Prohibit killing, injuring or collecting of any animals by crew members. Ensure landowner requirements with regard to minimising disturbance to livestock and game are implemented. Implement mitigation measures to minimise impact on natural habitat. Appoint a qualified person to review final seismic lines and, if necessary, recommend additional mitigation measures to avoid any disturbance of the Critically Endangered Riverine rabbit. Impaired socio-economic wellbeing of affected landowners Contribution to local economy Increased traffic and damage to local road network Adequately consult with landowners prior to and during seismic data acquisition activities. Draw up and honour land use agreements with each affected landowner. Positive Give preference to individuals from local communities for employment opportunities. Maximise the use of local suppliers of goods and services. Plan the seismic survey operations so as to eliminate repeated use of the same unsurfaced roads Ensure that land use agreements address landowners requirements with regard to the use of farm roads and compensation for any damage to farm roads. Decreased safety and security Ensure seismic crew members are all under constant supervision. Ensure all gates are closed/locked and fences repaired/replaced immediately (on a daily basis), as per relevant land use agreements. Loss of or damage to heritage resources Low Carefully plan the seismic survey line routes to avoid all known heritage resources. Appoint a specialist to review final seismic survey line routes and advise on need for further work. Cease all activities and notify SAHRA and/or a specialist. If any previously unknown heritage material is uncovered. Significance with mitigation Low Positive