The Oil and Gas Law Review: South Africa

Introduction

The South African oil and gas regulatory landscape is in the midst of a transition as the industry awaits the enactment of the long-awaited Upstream Petroleum Resources Development Bill. It is hoped that once passed, the Bill will provide investors with security and legal certainty in respect of upstream oil and gas activities. Currently, South Africa's natural gas reserves are estimated at only 25.1 billion cubic meters (bcm) and crude oil reserves at 18.4 million barrels for 2021. The country's gas production is furthermore estimated at 0.59 bcm and crude oil production at 990 barrels per day. There is still significant opportunity for gas production in South Africa, with Total, now known as TotalEnergies, announcing two significant gas discoveries in Brulpadda and Luiperd prospects. These discoveries are also anticipated to serve a significant role in gas-to-power projects in South Africa's near future. In terms of midstream activities, there are significant opportunities for LNG imports in Richard's Bay, the Coega Special Economic Zone (SEZ) and Richard's Bay. The midstream and downstream industries' will also be impacted by the enactment of the Gas Bill and the anticipated publication of a gas master plan paving the way forward for the industry.

Legal and regulatory framework

i Domestic oil and gas legislation

The main legislation governing the exploration and production of oil and natural gas is the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) and the Mining Titles Registration Act, 1967. This legislation must be read with the Constitution of South Africa, 1996 (the Constitution), the National Environmental Management Act 1998 (NEMA), the Income Tax Act 1962 (ITA), the Value Added Tax Act, 1991 and the Mineral and Petroleum Resources Royalty Act, 2008.

The object of the MPRDA is to:

  1. give effect to the principle that the state is the custodian of petroleum resources in South Africa;
  2. promote equitable access to the national mineral and petroleum resources;
  3. meaningfully expand the opportunities for historically disadvantaged persons (HDPs);
  4. promote economic growth, development and employment; and
  5. provide security of tenure.2

The MPRDA provides that licences, permits and the relevant environmental authorisation are required to conduct technical cooperation operations, reconnaissance operations, exploration and production operations.3

The key provisions of the MPRDA prescribe the application procedure to be followed to obtain the prescribed licences and permits. It also sets out the rights and obligations of the holders, the powers of the Minister of Mineral Resources and Energy (the Minister) to suspend or cancel rights and permits, the transferability of rights and permits, the requirements to obtain a closure certificate, the powers of the Minister to expropriate land for purposes of exploration and production, acts that qualifies as an offence and the corresponding penalty.

Until recently, the MPRDA prescribed the environmental obligations of right and permit holders. However, the relevant provisions have been repealed and the holders' environmental obligations are now fully covered under NEMA.

A key legislative development that is set to replace many of the above key provisions was the recent publication of the Upstream Petroleum Resources Development Bill (UPRDB). The draft UPRDB was initially published on 24 December 2019 in the Government Gazette for public comment and was tabled in the National Assembly on 1 July 2021. The UPRDB essentially aims to separate the regulation of the upstream petroleum sector from that of the mining sector. Currently, the UPRDB is undergoing parliamentary review and approval processes before it is passed into law.

ii Regulation

The principal regulatory bodies overseeing upstream oil and gas operations are the national Department of Minerals and Energy (formerly known as the Department of Mineral Resources) (DMRE), the Petroleum Agency of South Africa (SOC) Limited (Petroleum Agency) and the Mineral and Petroleum Titles Registration Office.

The regulator's powers

The DMRE is responsible for the administration of the MPRDA. The MPRDA established the Petroleum Agency as the designated agency to undertake this activity and has prescribed its functions.4 The Petroleum Agency has a dual role. On the one hand, it must perform the function of a regulator, and on the other hand it must promote onshore and offshore exploration and production of oil and gas.5 The Petroleum Agency also performs an advisory and administrative role that includes receiving applications for oil and gas permits and rights, evaluating and processing such applications and making recommendations to the Minister whether or not to grant the right or permit applied for.6 It also monitors compliance with the terms and conditions of rights and permits and collects the prescribed licensing fees.7 In practice, the Petroleum Agency reports to the DMRE and the Minister.

The Mineral and Petroleum Titles Registration office is responsible for the registration of exploration and production rights and the recording of reconnaissance and technical cooperation permits.

iii Treaties

South Africa is a party to the New York Convention, which has been enacted into domestic legislation by way of the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977. South Africa is not a party to the International Centre for Settlement of Investment Disputes (ICSID).

In terms of the Institute of Legal Proceedings Against Certain Organs of State Act 40 of 2002, a notice of intention to institute legal proceedings must be served on an organ of state within six months from the date on which a cause of action arose. Any court process by which legal proceedings are instituted may not be served on the state before the expiry of 30 days after the notice of intention to institute legal proceedings was served on the relevant organ of the state.

For parties to commercial disputes, arbitration is the preferred dispute resolution mechanism; however, disputes may be brought before the local courts. Dispute resolution clauses in upstream-related rights, as well as dispute resolution clauses in downstream contractual arrangements, often provide for disputes to be settled by way of arbitration in accordance with the rules of the Arbitration Foundation of Southern Africa.

To date, there have been no judgments or awards obtained by foreign corporations against government authorities or state organs in the oil and natural gas sector. Foreign corporations are, however, not precluded from doing so. Local subsidiaries of foreign corporations have obtained judgments against the state in mining and other sectors.

Bilateral investment

South Africa is a signatory to a number of bilateral investment treaties (BITs) protecting investments by nationals of countries such as the United Kingdom, the Netherlands, Switzerland and South Korea, to name but a few.

However, South Africa has begun terminating its BITs with the intention of replacing them with South African domestic legislation in the form of the Promotion and Protection of Investment Act 22 of 2015 (the Act). This was pursuant to the review by the South African government of investment laws and regulations following the case of Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, ICSID Case No. ARB(AF)/07/01.

The Act came into effect on 13 July 2018. The aim of the act is to protect foreign investors in South Africa.

Accordingly, South Africa has substituted the treaty protections with those stipulated in the Act. The protections offered in the Act are substantially diminished when compared with the substantive standards contained in international treaties.

The Act will have no direct effect on any protections that foreign investors enjoy under international treaties; those protections are still governed by the international instruments from which they arise.

Licensing

South Africa operates a licensing regime under which access to petroleum resources is obtained through an application to the Minister of Mineral Resources (Minister) for an upstream oil and gas right in the form of a reconnaissance permit, technical cooperation permit, exploration right or production right. These applications are processed on a first come, first served basis and in the case of contemporaneous applications, an application by a historically disadvantaged South African (as defined in the MPRDA) will be given preference.8

A reconnaissance permit entitles the holder to carry out geological, geophysical and photo geological surveys. The reconnaissance permit is valid for a period not exceeding one year, and it is not renewable or transferable, nor does it provide any exclusivity.

A technical cooperation permit entitles the holder to conduct a technical cooperation study, based on an analysis of data held by the Petroleum Agency. The holder of a technical cooperation permit has the exclusive right to apply for, and be granted, an exploration right in respect of the area covered by the permit. The technical cooperation permit is valid for a period not exceeding one year and is not renewable or transferable.

Exploration rights entitle the holder to conduct exploration operations and all incidental activities on the exploration area and are transferable. Exploration rights endure for a period not exceeding three years and can be renewed for three periods of two years each. The holder of an exploration right has the exclusive right to apply for renewal and be granted a production right over the exploration area.

Production rights are granted for an initial period not exceeding 30 years and are transferable. In addition, the holder of a production right has an exclusive right to apply for, and be granted, a renewal of the right. The maximum number of renewals permitted in relation to a production right is not prescribed by the MPRDA; thus, the period may be renewed for further periods not exceeding 30 years.

The MPRDA envisages that the terms and conditions of rights and permits must be prescribed, which is normally done under the regulations.9 However, the regulations have some form of negotiation in mind as they provide that the terms and conditions agreed upon for upstream oil and gas rights and permits will be approved by the Minister.10 In practice, the Petroleum Agency has a standard form for all rights and permits. The terms and conditions of the standard form rights and permits have not been published under regulations and the terms and conditions are negotiated on a case-by-case basis. The terms and conditions of these rights and permits must be informed by the MPRDA and any provisions that go beyond this act will be ultra vires. However, ultra vires terms and conditions remain valid until they are set aside collaterally or on judicial review.11

The key terms and conditions that are not specifically legislated pertain to the state's participation, the participation by HDPs, relinquishment and mandatory contributions to the Upstream Training Trust.

The current standard terms and conditions provide that the state has an option to acquire a 10 per cent participating interest for the state in production rights. The state will not be liable for past costs incurred by the rights holder in the exercise of such rights, but must contribute in accordance with its participating interest towards costs incurred after the acquisition by the state of its participating interest.

The holder of a right must reserve a further 10 per cent participating share for HDPs in the production right, which must be acquired by an HDP on commercial terms.

Generally, relinquishment of a portion of the exploration area is required on renewal. The standard form exploration right normally requires a 20 per cent relinquishment of the exploration area on completion of the initial exploration period, 15 per cent relinquishment of the exploration area on completion of the first renewal period and a further 15 per cent relinquishment of the exploration area on completion of the second renewal period. However, this may vary from right to right.

The standard form exploration and production rights also requires an annual contribution to the Upstream Training Trust, which is further discussed in Section VIII.

All rights and permits must be submitted within 60 days after the execution of thereof to the Minerals and Petroleum Titles Registration Office (MPTRO), to be recorded and registered. Once the right is registered at the MPTRO, it becomes a limited real right in respect of the acreage over which the right is granted.12

Upstream oil and gas licences will lapse if the right is not renewed before the end of the relevant period or the effluxion of time at the end of the last renewal period. The Minister may also cancel or suspend an upstream oil and gas right or permit if the holder is conducting operations in contravention of the MPRDA, breaches a material term or condition of the right and permit, is in contravention of an environmental authorisation or has submitted false, fraudulent, incorrect or misleading information in connection with its right or the MPRDA.13 However, the Minister must, before cancelling or suspending the right, give the holder written notice of such intention to suspend or cancel, so as to provide the holder with reasonable time to make representations or to comply with a directive.14

Production restrictions

Currently, there are no restrictions on the export of oil and gas and there are no local beneficiation provisions. However, this is expected to change in the future.

The National Energy Regulator of South Africa (NERSA) is mandated in terms of the Gas Act 2001 (Gas Act) to determine the maximum prices to be charged by individual gas distributors, reticulators and traders. To exercise this power, NERSA must determine that there is inadequate competition in the gas industry. Oil prices are not regulated by legislation in South Africa. By contrast, the price of refined petroleum and gas products in the midstream and downstream sectors is highly regulated.

Assignments of interests

The MPRDA provides that an exploration or production right or any interest in such right, or controlling interest in a company that holds such right, may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister of Mineral Resources and Energy.15 No fees are prescribed for the transfer of exploration rights and permit and the state does not have a right of first refusal.

Ministerial permission is not required for a change in operatorship. However, if the operator is not a holder of the right, ministerial approval will be required.

Tax

i Applicable tax regime

The South African Revenue Service (SARS) is responsible for collecting revenue and ensuring compliance with tax laws.

The taxes that are applicable to the oil and gas industry include:

  1. income tax and capital gains tax (CGT) in terms of the ITA;
  2. value added tax (VAT), levied under the Value Added Tax Act 1991 (VAT Act); and
  3. royalties, which are imposed by the Mineral and Petroleum Resources Royalty Act, 2008 read with the Mineral and Petroleum Resources Royalty, 2008 (Administration) Act.

ii Income tax and CGT

In addition, oil and gas companies may be liable for transfer duties on the transfer of immovable property and securities transfer taxes on the transfer of securities. South Africa further imposes withholding taxes on dividends, royalties and interest.

South Africa applies a residence-based income tax system, meaning that South African residents are subject to income tax on their worldwide income, while non-residents are taxed on their income from South African sources. Residents are further subject to CGT on their worldwide capital gains, while non-residents are subject to CGT only in respect of capital gains arising from the disposal of immovable property situated in South Africa, or movable property attributable to a permanent establishment in South Africa, unless a double taxation agreement (DTA) provides otherwise.

A resident, in relation to juristic or legal entities, means any person who is incorporated, established or formed in South Africa or who has a place of effective management in South Africa. Branches of offshore companies will not fall within the definition of resident, but they may still be subject to South African income tax and CGT on the basis that they derive income or capital gains from a South African source, unless they can rely on a DTA for protection.

Until 31 March 2012, a resident company was subject to secondary tax on companies, a second tier of corporate tax on distributions of profits, at a rate of 10 per cent (STC). The STC was replaced with a dividends tax with effect from 1 April 2012. A dividends tax is a tax on the shareholder receiving the dividend, which is collected by the company declaring the dividend. Dividends tax is imposed currently at a rate of 15 per cent but may be reduced to zero per cent under the Tenth Schedule to the ITA or under a DTA.

Resident and non-resident companies currently are subject to income tax at a rate of 28 per cent and to CGT at an effective rate of 22.4 per cent.

The Tenth Schedule to the ITA contains a number of favourable provisions for oil and gas companies, including a special dispensation in respect of deductions from oil and gas income. In respect of an oil and gas right, oil and gas companies currently can claim up to 200 per cent in deductions for capital expenditure incurred during exploration. The Tenth Schedule also currently authorises the Minister of Finance to conclude binding fiscal stability agreements with an oil and gas company. These agreements have the effect of guaranteeing that the provisions of the Tenth Schedule (as per the date of concluding the agreement) continue to apply in respect of that right as long as the right is held by the oil and gas company.

iii VAT

Persons who make taxable supplies in the course of an enterprise conducted wholly or partly in South Africa, irrespective of whether they are a resident or non-resident, must register as VAT vendors, provided that the minimum threshold is reached. VAT vendors collect output VAT from their customers and claim credits for input VAT paid by them. The difference is paid to SARS.

VAT is generally levied at a rate of 15 per cent at each stage of the distribution chain, although certain supplies are subject to VAT at a rate of zero per cent (referred to as zero-rated supplies), while other supplies, such as financial services, are treated as exempt.

A person must register as a VAT vendor if it carries on an enterprise and the total value of taxable supplies during the previous 12 months exceeds one million South African rands, or will exceed one million South African rands within the next 12 months.

iv Carbon Tax Act

In May 2019, the South African National Treasury announced the implementation of the new Carbon Tax Act 2019, with effect from 1 June 2019. The Carbon Tax Act imposes a levy on any person who conducts any number of listed carbon dioxide-producing activities, including several attributable to the extraction and processing of petroleum products.

Environmental impact and decommissioning

i Authorisations and competent authorities

Applicants for exploration and production rights under the MPRDA must obtain an environmental authorisation (EA) issued in terms of Section 24 of NEMA and the NEMA Environmental Impact Assessment Regulation (EIA Regulations), which require that an environmental assessment is undertaken for certain activities that are listed in the regulations.

The timelines, processes and costs associated with applying for an EA will depend on whether a Basic Assessment or an Environmental Impact Assessment (EIA) is appropriate for the project. This would be determined by a qualified environmental consultant referred to as an Environmental Assessment Practitioner (EAP) in terms of the NEMA EIA Regulations. Although the EAP undertakes the assessment on behalf of the applicant, it is required to be independent. The applicant is responsible for the cost of the environmental assessment.

The Minister of Mineral Resources and Energy is the competent authority for the granting of EAs for activities related to exploration and production, while the Minister of Environmental Affairs would act as the appeal authority.

In June 2015, the Minister of Mineral Resources (now the Minister of Mineral Resources and Energy) published Technical Regulations for Petroleum Exploration and Exploitation (the Technical Regulations) under the MPRDA, which apply to onshore exploration and production operations. These attempted to establish technical and environmental standards for the conduct of hydraulic fracturing in South Africa. However, in July 2019, the Supreme Court of Appeal of South Africa ruled that the Technical Regulations had been improperly promulgated and were therefore invalid. The court ordered that the Technical Regulations be set aside, and it is expected that they will be redrafted at some stage.

Depending on the nature of the petroleum operations, other environmental licences and permits may be required. Such licences may include a waste management licence issued in terms of the National Environmental Management: Waste Act 2008, or an atmospheric emissions licence issued in terms of the National Environmental Management: Air Quality Act, 2004.

ii Environmental enforcement

NEMA provides for the appointment of environmental management inspectors (EMIs) within the DMRE to control compliance with environmental obligations. The appointment process, functions, powers and standards that apply to EMIs are governed by Section 31 of NEMA.

These EMIs have the power to investigate, issue compliance notices and admission of guilt fines, and in more extreme cases hand over cases involving criminal liability to the National Prosecuting Authority (NPA) for prosecution. Failure to comply with a compliance notice may also result in the revocation of the EA or licence in respect of which contravention occurred.

iii Decommissioning and financial provisioning

Holders of an exploration or production right must obtain a closure certificate in the event that: (1) the right lapses, is abandoned or cancelled; (2) the relevant operations are ceased; or (3) any portion of the right is relinquished.

Closure certificate applications must be submitted to the Petroleum Agency within 180 days of the lapse, expiry or cancellation of the right in question.

In addition, an EA must be obtained to decommission the operations. The EIA process in support of the EA application must be initiated before the submission of an application for a closure certificate. Finally, on closure, an exploration or production right holder will be required to execute approved rehabilitation and closure plans.

The Financial Provisioning Regulations published under NEMA require that exploration or production right applicants and holders must make financial provision for the rehabilitation, closure and ongoing post-decommissioning management of negative environmental impacts. On 27 August 2021, the Minister of Forestry, Fisheries and the Environment published proposed amended regulations in respect of financial provisioning (Proposed NEMA Regulations). The Proposed NEMA Regulations do not apply to an applicant or holder of an offshore operation, where the activity involves a seismic survey but no drilling of stratigraphic wells. The Proposed NEMA Regulations are also no longer applicable to applicants for a Section 11 Deed of Assignment. In terms of the transition period, the Proposed NEMA Regulations state that holders of offshore exploration rights (save where there is no drilling of stratigraphic wells) or production rights who applied for such a right prior to 20 November 2015 must by no later than 19 February 2024 comply with the financial provisioning requirements. The Proposed NEMA regulations are currently undergoing public consultation.

Foreign investment considerations

i Establishment

Non-South African entities may apply for and hold upstream oil and gas licences and permits in South Africa. However, companies that are incorporated in other jurisdictions and that conduct business in South Africa are required, in terms of the Companies Act, 2008, to register as an external company with the Companies and Intellectual Property Commission.16

ii Capital, labour and content restrictions

There are no specific legislative requirements that relate to the employment of local personnel in the upstream oil and gas industry. However, the standard form exploration right and production right used by the Petroleum Agency state that the holder of the right shall employ South Africans with appropriate qualifications and experience, giving preference to historically disadvantaged persons, taking into account the operational requirements of the licence holder.

The standard form exploration right and production right specifically state that the holder shall not be precluded from employing non-South African personnel if the required skills are not available in the local labour market. They also require that licence holders report on the number of local persons (classifying by race and gender) and expatriate persons employed.

There is a shortage of local workers trained in the upstream oil and gas industry; therefore, companies often employ foreign workers in these skilled positions.

The standard form exploration right and production right require the holder to make an annual contribution to the Upstream Training Trust. The Trust administers the contributions and provides bursaries to South Africans to study at universities in South Africa to gain the skills required for the oil and gas industry.

iii Anti-corruption

The Prevention and Combating of Corrupt Activities Act, 2004 is the key legislation aimed at combating corruption in South Africa. The act creates a general offence of 'corruption', which is broadly defined as directly and indirectly receiving or giving gratification from or to another person to act or influence the other person to act in a manner that:

  1. is illegal, dishonest, unauthorised or biased, among other things;
  2. amounts to breach of a positon of authority, breach of trust or violation of a legal duty or set of rules;
  3. is designed to achieve an unjustified result; or
  4. amounts to any other unauthorised or improper inducement to do or not do anything.

The act applies in both the private and public sector and persons convicted of offences under the act are liable to a fine or imprisonment, including life imprisonment.

In addition, the act makes it a criminal offence for a person in a position of authority who has knowledge or suspicion of an offence of corruption, theft, fraud, extortion, forgery or uttering a forged document (in excess of 100,000 South African rands) to fail to report this to the South African Police Services. A person in a position of authority who fails to report knowledge of suspicion of corruption can be imprisoned for up to 10 years.

Current developments

i Policy developments

The 2019 Integrated Resources Plan (IRP) was published in October 2019. The IRP is an electricity capacity plan, which sets out South Africa's electricity demands, how this demand is to be addressed and the costs thereof up to 2030.

An expanded role for gas in the energy mix is provided for in the IRP, which envisages the creation of an additional 8,100MW of gas-fired and diesel-fired generation capacity by 2030 to support energy security. This capacity is expected to make up the shortfall caused by the delays to the completion of the mega coal-fired power stations Kusile and Medupi, and the future decommissioning of other existing power generation facilities.

To this end, two ministerial determinations have recently been made for the procurement of new electricity generation capacity. The first determination provided for the procurement of 2,000MW of capacity via the Risk Mitigation Power Procurement Programme.

The second determination, which is still in draft form, concerns the procurement of 11,813MW of new generation capacity, of which 3,000MW must come from gas-fired and diesel-fired power plants.

ii Upstream Petroleum Resources Development Bill (UPRDB)

A major development within the South African oil and gas industry was the introduction of the UPRDB in Parliament. The bill aims to fulfil key policy objectives such as equitable access and sustainable development of the nation's petroleum resources while encouraging active state and HDP participation in the development of such resources. There are a few noteworthy provisions of the UPRDB that will repeal and replace sections of the MPRDA.

The UPRDB provides for a petroleum right, which essentially integrates an exploration right and production right into one right. In terms of the petroleum right, the duration of the exploration and production phases varies according to whether the right is granted in relation to offshore acreage in shallow and deep waters, respectively.

A notable regulatory change introduced by the UPRDB is the licensing regime, which comprises a competitive administrative licensing round and an open licensing round, both of which are triggered by ministerial invitation yet are not parallel systems such as in the case of Section 9 of the MPRDA. While the systems appear substantially similar, the explanatory memorandum published together with the UPRDB provides that in the administrative adjudication system, the awarding criteria are defined in the notice of invitation whereas in the open licensing system, such criteria are not defined.

Insofar as the UPRDB seeks to promote HDP participation in the petroleum industry, the bill provides that every petroleum right must have a minimum of 10 per cent undivided participating interest by Black persons. It also allows for dilution of the right to no less than five per cent regardless of the ownership of the company, for the purposes of raising capital. The reservation of a block and blocks for Black persons also broadens the scope for Black persons to participate in the sector.

The state participation provisions in the UPRDB afford the state the right to acquire a 20 per cent carried interest in a petroleum right for both exploration and production phases of such right. Section 34(3) of the UPRDB provides for the holder to recover a maximum of 50 per cent and 100 per cent of the state's proportionate share of exploration and production costs, respectively. However, with no definitive cost recovery mechanism in place, non-state holders must await further clarity, most likely through the promulgation of separate financial legislation by the Minister of Finance.

The fiscal framework adopted by the UPRDB is also marred by a degree of uncertainty in that the UPRDB makes limited reference to key fiscal terms while also neglecting to clarify ancillary fiscal terms that are instrumental to right and permit holders assessing the economic viability of their investment.

The transitional provisions of the bill are another fundamental feature affecting rights and permit holders.

Consequently, rights holders would therefore welcome the comprehensive transitional provisions that promote security of tenure of existing permits or rights by providing an opportunity to transition to a new act once the bill is passed. The certainty and stability afforded are crucial to rights holders who have already made significant investments.

iii The Gas Amendment Bill

The long-awaited Gas Amendment Bill, 2020 (Gas Bill) has been published in the Government Gazette.

The Gas Amendment Bill was introduced to Parliament on 29 April 2021.

The draft Gas Bill was first published in 2013 but had been delayed for a number of years. The Gas Bill seeks to amend the Gas Act, which was enacted in 2002 with the purpose of establishing a regulatory regime for the piped gas industry in South Africa. The Gas Act, however, is out of date, as it does not regulate recent technological developments in the gas sector, therefore leaving a gap in the law.

The bill primarily governs the midstream petroleum industry, rather than upstream. In particular, the bill excludes licensing of transmission and storage involving an upstream pipeline.

The Gas Bill will make provision for the regulation of new technologies, and will play an important role in achieving the vision of the IRP. In terms of licensing requirements, the bill requires all liquefaction or regasification activities to be licensed. This would include land-based regasification plants and floating regasification storage units (FSRUs). Regasification facilities play a key role in converting gas back from liquid after or during transportation. While these facilities are already regulated by the National Energy Regulator of South Africa (NERSA) in practice (though not expressly in the act), these amendments do provide legislative certainty in this regard.

The Gas Bill will undergo parliamentary debate and public participation before the final version is passed into law. Given the current electricity crisis in South Africa, and the need for legislation to reflect new resources and technologies, it is hoped that there will be no further delay in the progress of the bill.

iv Domestic exploration and production

PetroSA is the primary producer of indigenous natural gas offshore South Africa. Its offshore producing gas field is located in the Bredasdorp basin and is used as feedstock for its gas-to-liquids refinery in Mossel Bay; however, this gas field is depeleting.

Renergen, a local South African company, is the only other local producer of natural gas. Renergen utilises onshore wells at its Virginia Gas Project in the Free State Province, which is also reportedly the site of the world's richest helium deposits.

In 2020, Total, now known as TotalEnergies, announced significant gas condensate on the Luiperd prospect located on Block 11B/12B located offshore South Africa, their second discovery after the Brulpadda discovery announced in 2019. This discovery is anticipated to be a catalyst for South Africa's gas-to-power programme.

The Total discoveries are the first of their kind (other than the past discoveries in Block 9) and have the potential to be a game changer for the South African offshore oil and gas sector.

It is expected that more licence holders will commence drilling activities once the long-outstanding Upstream Petroleum Resources Development Bill is enacted and regulatory certainty is achieved.

v Imports

South Africa relies on imports of crude oil and refined fuels to meet its liquid fuels needs, importing almost 90 percent of the crude oil consumed domestically, primarily from sources in Saudi Arabia, Nigeria, Angola and Ghana.

South Africa imports the majority of its natural gas from Mozambique via a transmission pipeline owned by the Republic of Mozambique Pipeline Investing Company (ROMPCO), which has been set up as a joint venture comprising iGas, Mozambique's Companhia Mocambicana de Gasoduto and Sasol. Sasol is in the process of disposing its interest in the ROMPCO pipeline.

In July 2019, South African state-owned rail, port and pipeline company Transnet announced that it had entered into a US$2 million cost-sharing agreement with the World Bank International Finance Corporation (IFC). The study focuses on the future use of Transnet Pipelines for the development of inland natural gas transmission and the establishment of virtual LNG pipelines. In terms of Transnet's Natural Gas Strategy, an increase in the development of gas to power generation facilities, storage and import infrastructure is key for South Africa's success in the midstream oil and gas industry. In terms of the development of LNG Import Terminals, Richards's Bay, the Coega Special Economic Zone (SEZ) and Saldanha Bay have been flagged as the key locations in this regard. The Richard's Bay port in particular is already well equipped and ideally located because of its connectivity to pipeline transmission networks.

vi Current market trends

In light of recent policy decisions, it is evident that the state seeks to increase electricity generation capacity, and mitigate the impact of load shedding, through gas-to-power initiatives. The Total discoveries indeed serve as a catalyst for a thriving oil and gas industry in South Africa. However, the pending regulatory reforms in the oil and gas industry will indeed influence the attractiveness of South Africa as an oil and gas investment destination. Investors require legislative and fiscal certainty as well as security of tenure when making capital intensive investment decisions. The oil and gas industry furthermore is at a critical point in respect of the energy transition, requiring oil companies to diversify and participate in the renewable energy sector.

Footnotes

1 Matthew Ash is a director, Kelsey Pailman is an associate and Shuaib Ramjam is a candidate attorney at Norton Rose Fulbright South Africa Inc.

2 Mineral and Petroleum Resources Development Act 28 of 2002, Section 2.

3 id., Section 5A.

4 id., Sections 70 and 71.

5 id., Section 71(a).

6 ibid., Section 71.

7 ibid.

8 id., Section 9.

9 id., Sections 75(4)(a), 80(5), 80(4).

10 Regulations 19, 24, 29 and 35.

11 Oudekraal Estates (Pty) Ltd v. City of Cape Town and Others 2004 (6) SA 222 (SCA).

12 Mineral and Petroleum Resources Development Act 28 of 2002, Section 5.

13 id., Section 47(1).

14 id., Section 47(2)–(4).

15 id., Section 11.

16 Section 23 of the Companies Act, 2008.

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