Oil industry happy with Act proposals

THE offshore oil and gas industry has welcomed proposed amendments to the Mineral and Petroleum Resources Development Act that will allow companies to claim some production costs from the state as a participating partner in projects.

The proposals, if enacted, would provide the legal framework for the exploration and production of shale gas and offshore reserves.

In the bill, adopted by parliament in 2014, the state was given a 20% free carried interest in all new exploration and production rights, whereas now the department proposes a system of cost recovery from the state during the production phase.

The original bill also entitled the state to a further participation interest that would be exercised either through a production sharing agreement or through the acquisition of the interest at an agreed price.

This provision has now been replaced with a governmental right of preemption for exiting right holders.

Offshore Petroleum Association of SA chairman Sean Lunn said the industry supported the proposed amendments.

“We believe they represent a uniquely South African win-win solution. We are hopeful for an expeditious conclusion of the bill,” Lunn said.

Norton Rose Fulbright head of Africa Greg Nott said the proposals, if they were enacted, would increase the likelihood of foreign investment and provide legal certainty.

President Jacob Zuma referred the bill back to parliament in January 2015 because of constitutional concerns. It was nevertheless adopted without amendment by parliament’s portfolio committee on mineral resources and is now the subject of public hearings by provincial legislatures.

Norton Rose Fulbright director Lizel Oberholzer said the proposals provided for a decreasing of the state’s participating interest to no less than 10% at production phase.

This adjustment was required to make the project economically viable and give the state the flexibility to determine its level of participation on a case-by-case basis. The holder of a production right would be able to recover development costs from the state from the proceeds generated from the production right.

Herbert Smith Freehills partner Peter Leon was concerned about the proposed provision that mining permits will in future be granted to only 50-plus-1% blackowned South African companies. — BDLive