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How the UPRDB is fueling SA’s economic potential

On 24 December 2019, the first iteration of the Upstream Petroleum Resources Development Bill (“UPRDB”) was published for public comment. The UPRDB introduces a separation of the upstream petroleum exploration and production sector from the mining sector, which is currently both 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 21 February 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 17 December 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 14 June 2021, following the Minister of the DMRE’s (“Minister”) explanatory summary published in the Government Gazette wherein 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 1 July 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. 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.

A new permit is introduced by the UPRDB, namely the retention permit. A retention permit is granted in cases where development and production of petroleum is not possible due to unfavorable 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, prior to making an investment decision.

The UPRDB proposes two methods for the acquisition of permits and the petroleum right, namely, (1) applications-by-invitation and (2) unsolicited applications. Applications-by-invitation is then subdivided into a further two methods namely, (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, and assess each application based on the holders technical and financial ability, and compliance with the prescribed criteria. Open licensing rounds, whilst also initiated by notice in the Government Gazette, will be processed on a first come first serve basis.

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.

The oil and gas sector has the potential to contribute to the much-needed boost to the South African economy as well as improve energy security for the country. Whilst rich in its natural resources, South Africa faces severe energy poverty, and we are therefore encouraged by the European Union’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.

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