PROPOSED BILL HAS SERIOUS CONSEQUENCES FOR SA’S OIL AND GAS INDUSTRY

Friday, June 14, 2013
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She noted that there are many substantive amendments proposed in the draft Bill which will impact on the sector.
Key amendments with potentially far-reaching consequences include disbanding the Petroleum Agency of South Africa, which is the government authority with specialised industry experience that currently regulates the country’s petroleum (oil and gas) resources. The draft Bill delegates all functions currently exercised by the agency to ‘regional managers’ of the Department of Mineral Resources who are responsible for handling mining applications, and who have little or no expertise in the oil and gas industry.
“In our view this could have a significant negative impact on the upstream oil and gas sector, particularly given that successful oil and gas producing nations around the world have dedicated petroleum regulators,” said Ms Oberholzer.
The draft Bill also clarifies that the state has a right to a “free carried interest” in all new exploration rights and production rights, with an option to acquire a further interest on specified terms through an organ of state or state owned company. Should the state exercise its option either during exploration or production it will be entitled to be issued with special shares and to appoint two directors to the management board of the production operation and to receive all dividends in respect of the further interest.
According to Ms Oberholzer, the full implications of this provision remain obscure as it is not clear what the extent of the state’s “free carried interest” will be and what the extent of the “further interest” is intended, and the terms on which such interest may be acquired.
The draft Bill also omits the fixed time periods specified in the current Act within which applicants and government must perform their obligations and enables government administrators to determine these periods by regulation. This creates more flexibility but also results in uncertainty.
In terms of the Bill, listed companies, who hold a petroleum right or an interest therein, may not alienate “any interest” in the company without the prior written consent of the Minister. Ms Oberholzer stated that: “This amendment is a great concern as it could be interpreted to mean that listed companies may not sell shares without the Minister’s prior written approval.
“The draft Bill includes safeguards to prevent one or more companies from monopolising South Africa’s petroleum resources, and allows for the partitioning of rights which could stimulate further investment by the industry,” said Ms Oberholzer.
The draft Bill also suggests that the Mineral and Petroleum Resources Development Amendment Act 49 of 2008, which was assented to by the President on 19 April 2009, will commence and that the environmental functions that were previously governed under the Mineral and Petroleum Resources Development Act will be regulated in terms of the National Environmental Management Act (“NEMA”).
The draft Bill makes further changes to align the Mineral and Petroleum Resources Development Act and NEMA. According to Megan Adderley, a lawyer in the oil and gas department at Bowman Gilfillan, “Further amendments will be required to streamline and fully align NEMA and the Mineral and Petroleum Resources Development Act, particularly the public participation processes.”
The public comment period ends on 28 January 2013. Thereafter the draft Bill will be presented to the relevant Cabinet committee for approval before being gazetted and tabled in parliament. There will be a further public comment period which will be run by the relevant portfolio committee in parliament.