On 25 April 2024, the National Council of Provinces passed the Upstream Petroleum Resources Development Bill [B13B – 2021] (Upstream Bill or Bill) without amendment. The Upstream Bill has now been sent to the President for assent, as the final step before it becomes law. The President also has the option to refer the Bill to the Constitutional Court for a decision on its constitutionality, should he have any concerns in this regard.
The Upstream Bill seeks to ensure that the upstream petroleum sector is regulated not under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA), but under standalone legislation.
The Upstream Bill introduces a separation of the regulatory frameworks governing mining and upstream petroleum exploration and production which are currently dealt with together under the MPRDA. This separation allows the emerging and nuanced upstream oil and gas sector to be regulated entirely separately from the more established mining sector. The regulatory framework created under the Upstream Bill brings about a certain level of regulatory certainty which should result in more investor confidence. The table below highlights some of the key changes that will occur once the Upstream Bill is signed into law:
| MPRDA | Upstream Bill | ||||||
|---|---|---|---|---|---|---|---|
| Status of the PASA | |||||||
| PASA appointed as the designated agency for petroleum licensing in the Republic of South Africa with the functions set out in Section 71 of the MPRDA. | The Upstream Bill provides for the establishment of PASA as the authority designated to perform inter alia the specific functions referred to in section 10 of the Bill. The historical uncertainty around the mandate of PASA is removed by the Upstream Bill. | ||||||
| Process for applications for permits or rights | |||||||
| The Minister must grant a technical co-operation permit, exploration right or production right, as the case may be, if the applicant demonstrated technical ability and proof of access to adequate financial resources to cover the work programme. | The Upstream Bill proposes the introduction of a petroleum right which will govern the key terms of both the exploration phase and the production phase and will replace the granting of separate exploration and production rights. The Upstream Bill also proposes the phasing out of technical cooperation permits (TCPs). TCPs will remain valid until they expire. The Upstream Bill proposes two methods for the submission of applications for petroleum rights and / or permits, which can only be made following an invitation by the Minister, namely:
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| Duration of Petroleum Rights | |||||||
| The MPRDA provides for the duration of the exploration right as follows:
Total: 9 years |
The Upstream Bill provides for different time periods, depending on the location and status of acreage. A summary of the duration of the exploration phase is provided below:
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| Government participation | |||||||
| Government/State participation is not legislated in MPRDA, however, in practice, the State has an option to participate via a 10% carried interest through exploration. At production it has an option to take up the 10% carried interest and only pays its proportionate share of development costs and operational costs | The Government/State has a right to a 20% carried interest under the Upstream Bill (during exploration and production phase). Holders will be entitled to recover a maximum of 50% and 100% of the State’s proportionate share of exploration and production costs, respectively. The percentage allocation of the State’s entitlement and cost recovery rules will be as prescribed in Regulations. | ||||||
| Historically Disadvantaged South Africans (HDSA) participation | |||||||
| HDSA participation is not legislated in MPRDA; however, oil companies are required under the terms of an exploration right to use all reasonable endeavours to find an HDSA partner. At the grant of a production right they must have an HDSA partner for 10%. This obligation arose as a consequence of having to give effect to the Liquid Fuels Charter applicable to the petroleum industry. | Every Petroleum Right must have a minimum 10% black participation (HDSA participation).
Two levels of black participation are provided for, being:
Co-venturers may retain empowerment credentials upon the exit of the HDSA Participant, subject to certain conditions provided for in the Bill. |
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| Requirement to be a South African registered company | |||||||
| There is no prohibition in the MPRDA against the issue of a production or exploration right holder to a non-South African incorporated company or joint venture. | An exploration and or production right may be granted only to a company incorporated in South Africa under the Companies Act, 2008.
Where an exploration and or production right is to be held through an unincorporated joint venture, all companies that are parties to the joint venture must be incorporated in South Africa. |
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| Strategic stock obligations | |||||||
| No obligations imposed under the MPRDA. | The Upstream Bill requires that a petroleum right holder must sell a percentage of petroleum at the prevailing market price to the State Petroleum Company or any other state-owned entity designated by the Minister (SPC) to meet the State’s strategic stock requirements, subject to terms and conditions to be agreed upon. The percentage of petroleum to be sold will be determined by the SPC, and the terms and conditions, including the determination of the prevailing market price, must be agreed upon between the SPC and the right holder. | ||||||
It is expected that the changes to petroleum regulations in South Africa implemented by the Upstream Bill will, upon its enactment, apply to existing extant exploration rights. The transitional arrangements in the Upstream Bill envisage a requirement (from the time of the Bill’s enactment), upon the holders of extant exploration rights, to apply for the conversion of their exploration rights into the new form of petroleum instrument, namely the petroleum right mandated under the Bill, by not later than the expiry of the then current term of their exploration right. The process of conversion would entail the cancellation of the existing exploration right and the award of a replacement petroleum right.
Under the transitional arrangements in the Bill, the PASA is to guarantee the preservation of the existing terms applying to exploration operations (i.e., any operations within the “exploration period”), under extant exploration rights, upon their conversion into the replacement petroleum right mandated under the Bill. In addition, the holders of extant exploration rights covering “frontier” and “deepwater” acreage, who drilled exploration wells or made a discovery in their Third Renewal Periods, would be entitled to apply for an additional two (2) year extension of the exploration period (in equivalence with the rights to extend currently envisaged for the new form of petroleum right proposed under the Bill).
Upon the conversion of extant exploration rights to the new form of petroleum right, the transitional arrangements in the Bill envisage the incorporation of new terms applying to production operations (i.e., any operations within the “production period”), if production right terms were not already annexed to the exploration right. Such terms will be based on the model terms to be applicable to all new form petroleum rights under the Bill.
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