Mike Cohen and Paul Burkhardt
SOUTH Africa may be too late rethinking planned changes to energy laws that oil companies say will discourage investment as crude below $50 (R581) a barrel deters drilling.
The 2002 Mineral and Petroleum Resources Development Amendment (MPRDA) Bill, passed by legislators last year, proposed giving the government the right to a free 20 percent stake in all new oil and natural gas ventures and to buy an unspecified additional share at an “agreed price”.
Companies including Total opposed the provisions, saying they were too vague and would undermine business. President Jacob Zuma declined to assent to the law on the grounds that it may violate the constitution and referred it back to Parliament last week.
Risky developments
“The current low prices will certainly limit the appetite for risky and high-cost developments,” Chris Bredenhann, the southern Africa energy leader for PricewaterhouseCoopers, said. “It is therefore critical that any additional barriers, such as uncertain or unfavourable regulatory frameworks are removed.
“The government has taken note of the negative impact that the proposed MPRDA would have on the industry.”
About 70 percent of South Africa’s crude needs are met through imports, with the balance processed from coal and gas. Last year, the government initiated a project known as Operation Phakisa, which aims at boosting local production by encouraging companies to drill 30 offshore exploration wells within a decade.
“Investments in the range of $3 billion to $5 billion are needed,” the government and energy industry said in a joint report released in August, which estimated the nation’s possible reserves at 9 billion barrels of oil. “Given that exploration success rates are below 15 percent, investors see these opportunities as risky.”
The risk has grown with the slump in the oil price, which has been driven by rising US production and a refusal by members of Opec to cut supply. – Bloomberg