petroleum

IN THE SPOTLIGHT: NEW PETROLEUM SECTOR LEGISLATION

31 October 2024
In the Spotlight
SA Legal Academy

A draft South African National Petroleum Company Bill was recently submitted to Parliament for information and planning purposes only. However, at the time of writing, the Bill had yet to be formally tabled. SA Legal Academy explains the link between this proposed new piece of legislation and the recently gazetted Upstream Petroleum Resources Development Act.

The new state-owned company (SOC) envisaged will be responsible for managing exploration and production rights and interests acquired and exercised in terms of the Upstream Petroleum Resources Development Act. This is according to a memorandum on the draft Bill’s objects, which notes that the SOC will also manage interests ‘preceding’ the new legislation ‘or the common law’.

A draft version of the Bill was released in November 2023 for public comment. Revised to reflect some of the input received, it was then posted on the Parliamentary Monitoring Group website shortly before an explanatory summary was gazetted on 18 October 2024 – announcing the Bill’s imminent formal introduction in the National Assembly once certified by the Office of the State Law Adviser.

Once operational, the proposed new SOC will merge PetroSA, the South African Gas Development Company (iGas) and the Strategic Fuel Fund Association – giving effect to a Cabinet decision made in June 2020.

The Upstream Petroleum Resources Development Act was published on 29 October 2024 – the Bill concerned having been passed by Parliament in April 2024. Not yet in force, its overarching purpose is to provide for an independent piece of legislation dedicated to petroleum resource development. To that end, it separates petroleum provisions in the Mineral & Petroleum Resources Development Act, 2002, from its minerals-related provisions. This is with the intention of stabilising the country’s upstream petroleum sector and facilitating the certainty and security required by prospective investors – as noted in a memorandum on the objects of the Bill passed in April.

State participation in petroleum rights is the focus of the Act’s section 34, which refers to a ‘state petroleum company’ responsible for managing state participation in exploration and production activities through a 20% carried interest in petroleum rights’. This is noting that:

‘the carrying holder or holders are entitled to recover 50% and 100% of the state’s proportionate share of exploration and production costs respectively’
‘the state’s proportionate share of exploration and production costs must … be recoverable from its proportionate share of production or revenue’
‘the state may elect to take its proportionate share of petroleum production in kind or in cash’, and that
‘a percentage of the state’s annual share of production or revenue’ will be used to offset exploration and production development and production costs.

The Act defines ‘carried interest’ as ‘state participation through an interest in a petroleum right … , which interest vests exclusively for the benefit of the state and the costs of which are borne by the carrying holder of a petroleum right’.

‘Carrying holder’ is defined as ‘any other holder of an undivided participation interest in a petroleum right, except black persons’.

Given prevailing broad-based black economic empowerment (B-BBEE) requirements, the definition’s reference to ‘black persons’ is especially relevant in the context of provisions in the Act’s sections 31 (participation of black persons in petroleum rights), 32 (reservation of block or blocks for black persons) and 33 (exit of black persons from a petroleum right). This is noting that – according to a memorandum on the objects of the Bill concerned – the term ‘black persons’ refers to a company that is 51% owned by them.

The relationship between the draft South African National Petroleum Company Bill and the Upstream Petroleum Resources Development Act is therefore underpinned by government’s ongoing commitment to B-BBEE.

In addition, according to a media statement on the 9 October 2024 Cabinet meeting at which the draft Bill was approved for tabling in Parliament, the new SOC envisaged is expected to address concerns about liquid fuels security given that ‘local refining capacity … is largely held by international oil companies’, some of which are closing their local refineries.

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IN THE SPOTLIGHT: NEW PETROLEUM SECTOR LEGISLATION

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