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How the Upstream Petroleum Resources Development Bill is fuelling SA’s economic potential

Photo: File

Photo: File

Published Jan 26, 2022

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By Amore Carstens

ON DECEMBER 24, 2019, the first iteration of the Upstream Petroleum Resources Development Bill (UPRDB) was published for public comment.

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The UPRDB introduces a separation of the upstream petroleum exploration and production sector from the mining sector, which is currently regulated under the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA).

Written comments on the UPRDB from industry stakeholders were required to be submitted by February 21, 2020, and government consultations with industry stakeholders were conducted by the Department of Mineral Resources and Energy (DMRE) and the Petroleum Agency (the Task Team) between April and May 2020. National Treasury issued a tax policy discussion paper on December 17, 2021, to be read alongside the UPRDB, which sets out certain key proposals on the taxation of upstream oil and gas activities.

A second iteration of the UPRDB was published on June 14, 2021, following the Minister of the DMRE’s explanatory summary published in the Government Gazette where he declared his intent to introduce the UPRDB to the National Assembly.

It was evident from this version of the UPRDB that the Task Team made a concerted effort to take into account the concerns raised by the industry stakeholders. The UPRDB was introduced to the National Assembly on July 1, 2021 and was tagged an “ordinary bill affecting the provinces”. Consequently, it must be considered by both the National Assembly and the National Council of Provinces.

The provisions put forth by the UPRDB are encouraging. The current draft of the UPRDB consists of comprehensive transitional provisions to ensure security of tenure of existing permits or rights by giving holders of such permits and rights an opportunity to transition to the provisions of the UPRDB. A signification development is the introduction of the petroleum right, which governs the key terms of both the exploration and production phase. The petroleum right will replace the granting of separate exploration rights and production rights, and consists of an exploration phase and a production phase. The term of these phases will vary, depending on the location of the acreage. In addition, a petroleum right may only be granted to a company incorporated in South Africa and an interest in a petroleum right must be held by a South African incorporated company. This will encourage both foreign investment and local participation in the oil and gas industry. Currently, South Africa’s offshore oil and gas acreage is occupied by a mix of junior, major and supermajor oil companies, as well as the national oil company. We stand at the precipice of an exciting period in the development and production of gas and condensates, onshore and offshore, all of which could positively impact the South African economy.

The UPRDB provides that the holders of existing exploration rights will have the exclusive right to convert the exploration right to a petroleum right. A production right, however, will continue in force for five years from the date of commencement of the UPRDB, after which it must be converted into a production right.

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The terms and conditions of the production right will constitute the terms and conditions of the petroleum right. Technical co-operation permits will no longer be granted under the UPRDB, and any application that is pending when the UPRDB begins will be finalised under the provisions of the MPRDA. A new permit is introduced by the UPRDB: the retention permit. A retention permit is granted in cases where development and production of petroleum is not possible due to unfavourable market or economic conditions. The retention permit would suspend the terms and conditions of the petroleum right so as to allow the holder to wait for a positive shift in market conditions, before making an investment decision.

The UPRDB proposes two methods for the acquisition of permits and the petroleum right: (1) applications-by-invitation and (2) unsolicited applications. Applications-by-invitation is then subdivided into a further two methods: (a) competitive administrative licensing rounds or (b) open licensing rounds, both of which are initiated by the minister.

Under the provisions regulating competitive administrative licensing rounds, the minister may invite applications for a petroleum right in respect of a specific block/s by Government Gazette. This notice will include prescribed criteria which prospective applicants must comply with. Each application will be assessed based on the holder’s technical and financial ability, and compliance with the prescribed criteria. Open licensing rounds, while also initiated by notice in the Government Gazette, will be processed on a first come, first serve basis, and it is anticipated that no prescribed criteria will accompany such notice.

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An unsolicited application only applies to applications for reconnaissance permits, which can be submitted at any time, without the need for the minister to publish an invitation.

Accordingly, a petroleum right can only be acquired upon the publication of a notice by the minister, and an unsolicited application for a petroleum right may not be submitted.

The oil and gas sector has the potential to contribute to the muchneeded boost to the South African economy as well as improve energy security for the country.

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While rich in its natural resources, South Africa faces severe energy poverty, and we are therefore encouraged by the EU’s recent proposal to label natural gas as a “green” energy source in the movement toward a just energy transition. This proposal, coupled with the legislative certainty the UPRDB brings, will undeniably contribute greatly to our economy.

Amore Carstens is an associate in the Oil and Gas sector at Cliffe Dekker Hofmeyr.

*The views expressed here are not necessarily those of IOL or of title sites.

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