SA oil and gas projects at risk

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IOL bus mar11 gas offshore . Image: JOGMEC via Reuters

Johannesburg - South Africa's plans to muscle in on new oil and gas ventures threaten to derail a fledgling industry, undermining state efforts to safeguard energy security and curtail imports.

Proposed changes to the 2002 Mineral and Petroleum Resources Development Act will give the government a 20 percent free stake in all new energy projects, and the right to buy an unspecified additional share at an “agreed price.”

The ANC, which wants the state to play a bigger role in the economy, is pushing for the law to be passed before May 7 elections with a National Assembly vote scheduled for Wednesday.

Companies including Exxon Mobil Corp., Anadarko Petroleum Corp. and Royal Dutch Shell Plc have begun prospecting in South Africa's waters over recent years, as new technology boosts their ability to find and pump oil from deep beneath the seabed. While the country had proven reserves of 15 million barrels at the end of 2013, according to Oil & Gas Journal, there is no significant production.

About 70 percent of the nation's crude needs are met through imports with the balance processed from coal and gas.

“Many international oil companies have probably not invested enough at this stage to fight the legislation tooth and nail,” Anne Fruhauf, a southern Africa analyst at New York-based risk evaluator Teneo Intelligence, whose clients include US-based energy companies, said in an interview on Monday. “Some upstream investors might simply relinquish their acreage if the bill is enacted in its current form.”

MORE ONEROUS

An earlier draft of the law limited the state to purchasing an additional 30 percent at “fair market value.” The more onerous ownership provisions were introduced by ANC members of the National Assembly's mineral resources committee on March 5, the day before it adopted the measure in its entirety.

The Offshore Petroleum Association of South Africa, whose 13 members include Anadarko, BHP Billiton Ltd., Exxon, Sasol Ltd.'s petroleum international unit and Total SA, criticized an early version of the legislation in parliamentary hearings in September, saying it lacked clarity and would deter investment.

The association yesterday issued its first public comment since the hearings, expressing concern that the law would compromise the industry.

Bloomberg


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