South Africa's crucial new upstream bill set to head to parliament

22 May 2021
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South Africa's crucial new upstream bill set to head to parliament

Cabinet of President Cyril Ramaphosa gives go-ahead for draft Upstream Petroleum Resources Development Bill to head to legislature, perhaps next month

South Africa’s government has given the go-ahead for the draft of its much-needed and long heralded upstream oil and gas bill to go before parliament.

According to a statement published on Thursday on the website of President Cyril Ramaphosa, his cabinet approved the submission of the Draft Upstream Petroleum Resources Development Bill to parliament.

This bill — which will replace part of the existing Minerals & Petroleum Resource Development Act — aims to provide a legislative and regulatory framework that is conducive to investments, growth and job creation.

It is also expected to give clarity on issuing of permits and rights, transferring these rights, as well as participation by black people and the state.

Upstream was told by an informed source that the draft legislation will call for “best efforts” to find a black partner in an exploration right, but a black economic empowerment interest will definitely be needed in a production right.

The draft bill also highlights the need for petroleum rights holders to sell a percentage of the oil produced — at prevailing market prices — to the state oil company.

A new state player called the South African National Petroleum Company was unveiled last year that would brig together PetroSA, IGas and the Strategic Fuel Fund.

According to a source with knowledge of South Africa’s political process, the next step is that a memorandum of objectives will be published in a government gazette to set out the objectives of the bill, before the bill is then gazetted, perhaps in June.

"We anticipate that the updated iteration of the Upstream Petroleum Bill will be published in the government gazette by June 2021, said a note from Megan Rodgers, oil and gas sector head at Cape Town-based legal firm Cliffe Dekker Hofmeyr.

'Significant and welcomed' draft bill

Describing what may be expected in the draft bill, she said a “significant and welcomed” amendment would be the introduction of a petroleum right that will govern the key terms of both the exploration and production phases.

“We (also) expect to see the introduction of a retention permit which is to be granted in instances where development and production of petroleum is not possible owing to unfavourable market or economic conditions and to enable a petroleum right holder to undertake gas market development.”

Rodgers is forecasting the end of technical co-operation permits (TCPs), which allow companies to do desktop studies on acreage for one year before allowing them to apply for exploration rights, but expects current TCP holders’ rights to remain until they expire.

“We hope to see black-owned companies having the right to dilute equity at a shareholding level and at a participating interest level in order to raise funding to meet its share of costs,” she added, “with the option to exit".

Rodgers also wishes to see the state’s expected 20% carry to be recovered by the partners over time and would like all references to “production bonus” and “petroleum rent tax” removed from the bill because they create investor uncertainty.

David Forfar and Anieria Bouwer, oil and gas lawyers with Bowmans, noted recently that the bill may require certain future licensing rounds to only be open to black-owned companies.

They also noted that the government may articulate a greater "use it or lose it" tone within the bill in order to accelerate exploraiton activities.

"It is likely that rights holders who have spent years not drilling (in some cases for perfectly understandable reasons) will be required to speed things up or risk being required to relinquish acreage,” they said.

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