OIL AND GAS | 5 THINGS TO KNOW ABOUT THE UPSTREAM PETROLEUM RESOURCES DEVELOPMENT BILL

The South African oil and gas sector requires significant investment for the development and growth of the upstream petroleum industry. In an attempt to accelerate the exploration and production of oil and gas, the Upstream Petroleum Resources Development Bill B13B-2021 (UPRD Bill) was introduced to the National Assembly in July 2021. The National Assembly passed the UPRD Bill in October 2023 and currently, the UPRD Bill is with the National Council of Provinces for concurrence.  

Below we outline 5 things you need to know about the UPRD Bill: 

Number 1: The State is custodian and acts through the Minister of Mineral Resources and Energy 

The State is the custodian of all petroleum resources, and the State acting through the Minister of Mineral Resources and Energy (Minister) may grant, issue, refuse, control, administer and manage any rights or permits provided for the in the UPRD Bill.  

Number 2: The UPRD Bill provides for 4 rights/permits: 

  • Petroleum rights are granted to explore for and produce petroleum. Petroleum rights may be granted for either i) onshore or offshore acreage in shallow waters; or ii) acreage designated as frontier and offshore acreage in deep waters. A petroleum right for shallow waters may for the exploration phase be granted for 9 years; and for the production phase, for an initial period of 30 years and may be renewed for an unlimited period of 10 years per term. A petroleum right for deep waters may for the exploration phase be granted for a period of 14 years; and the production phase, for an initial period of 30 years and may be renewed for an unlimited period of 10 years per term.  
  • Drilling permits may be applied for by holders of petroleum rights because a petroleum right holder may not undertake drilling without a drilling permit. The application for a drilling permit must be submitted to the Petroleum Agency and approved within 60 days from the date of lodgement, subject to terms as it may determine.  
  • Holders of petroleum rights may also apply for retention permits within 180 days after electing to develop the discovery. A retention permit may be obtained if i) the economic development of gas can only be accomplished where gas produced as the primary or secondary product is sold commercially; or ii) the development and production of petroleum would be uneconomical because of unfavourable prevailing market or economic conditions. A retention permit suspends the terms and conditions of the petroleum right to which the retention permit relates.  
  • Reconnaissance permits are granted to acquire seismic data by conducting reconnaissance operations. Reconnaissance permit is granted for a period not exceeding 2 years. Notably, the holder of a reconnaissance permit has an exclusive right to market any data acquired under the reconnaissance permit for a maximum period of 10 years, which period must be reckoned from the date of lapsing of the permit.  

Number 3: The UPRD Bill provides for licensing rounds: 

  • The Minister may administer competitive licensing for petroleum rights through invitations for applications in respect of blocks specified in the Minister’s notice.  
  • When considering applications received on the same day, the Minister may give preference to an application from a Black Person (as defined in the UPRD Bill). 

Number 4: The URPD Bill provides a 10% minimum for the participation of Black Persons in petroleum rights 

  • Every petroleum right must have a minimum of 10% undivided participating interest by Black Persons. 
  • The Black Persons’ undivided participation interest in a petroleum right may be diluted to no less than 5% to any funder or company, regardless of the ownership structure of such a funder or company, for purposes of raising capital subject to ministerial consent. 

Number 5: State Participation and the compulsory sale of petroleum to the State 

  • The State Petroleum Company is designated as a state-owned entity to manage the State’s interest in petroleum rights. The State has a right to a 20% carried interest in petroleum rights, in both the exploration and production phase.  
  • Petroleum right holders 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 to meet the State’s strategic stock requirements, subject to terms to be agreed to by the parties. The percentage of petroleum sold will be determined by State Petroleum Company or any other state-owned entity designated by the Minister. If the parties are unable to reach an agreement, the dispute must be referred to arbitration as provided for in the petroleum right.  

In the meantime, and until the UPRD Bill is assented to by the President, the regulation of upstream oil and gas is still regulated in terms of the Mineral and Petroleum Resources Development Act, 2002. 

Mihlali Sitefane 

Director 

info@sitef.co.za  

Anthony Sepheku 

Candidate Attorney