Mitigating Uncertainty in Regulations for Investments in South Africa

Abstract

The low oil price environment experienced in 2014 was an opportune time for local and foreign investments to take place in South Africa’s fledgling oil and gas industry, especially in the underexplored, infrastructure-less offshore West Coast, deep offshore South Coast and the Karoo unconventional shale gas region. However, this opportunity was not without challenges for existing and potential new investors due to uncertainty in the new regulations and legislation introduced by the regulating bodies. The finalisation and promulgation of the Mineral and Petroleum Resources Development Act (MPRDA) Draft Amendment Bill has been a lengthy process since its introduction in 2012. The uncertainty surrounding the fiscal provisions contained within the MPRDA specifically relating to the petroleum sector has led to many Operators and their Joint Venture (JV) partners adopting a wait and see approach whilst others opt for decisive exits. This in turn has led to delays in unlocking the potential of South Africa’s oil and gas resources and the development of much needed infrastructure. One of the biggest challenges over the past few years due to this uncertainty is the potential non-renewal of existing and future exploration right applications. Each Operator and their JV partners may have their own valid reasons for non-renewal but undeniably a common denominator is the low oil price environment affecting project economics. It is possible that the uncertain fiscal terms contained within the MPRDA and changes in the delineation of offshore Marine Protected Areas that are encroaching on prospective areas post being granted exploration rights, are factored in by decision makers. To mitigate against this meant that Operators need to be proactive through continuous collaboration with JV partners and the Regulators. Additionally, information from external legal counsel of various legislation, rights of the holders, applicability of the Mawetse Judgement etc. are utilised to best manage the situation and avoid termination of Exploration Rights. The situation could also lead to new investment opportunities in prospective areas that have been or about to be relinquished due to non-renewal of rights. Finalisation of the MPRDA is critical as it has far reaching effects in addressing the country’s requirements for security of energy supply, contributes significantly to the fiscus, creates new jobs, transfers and creates new skills and talents in the workforce.

AAPG Datapages/Search and Discovery Article #90332 © 2018 AAPG International Conference and Exhibition, Cape Town, South Africa, November 4-11, 2018