Tag Archive | Andarko

Objections to Minerals and Petroleum Resources Bill

Exploration investment threatened……

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordProposed changes to the Minerals and Petroleum Resources Bill (MPRDA) were given the “thumbs down” sign by a number of international participants in the oil and gas industry who provided the minister of mineral resources with a solid indication that the amendments to the Bill are not acceptable as they stand if major investment is to be expected or gas exploration encouraged.

Shell SA was largely ambivalent, although calling for greater clarity on a number of issues.

Confrontation was clearly evident from some of the submissions made by members of the oil and gas exploration industry, however, to a number of principles contained in the MPRDA Bill, the most common issues being lack of clarity for investment purposes and objections to the consolidation of the B-BBEE charters for mining and liquid fuels.

Plenty to think about

oil rigWhilst the chairperson of the portfolio committee of mineral resources claimed there were over six hundred pages from the private sector on the subject which the minister of mineral resources already had stated would probably be a contentious matter, a number of exploration companies were quite vociferous in their objections, both in their oral hearings and when it came to questioning from MPs.

At the last minute the submission from PetroSA was withdrawn subsequently explained by the CEO of PetroSA to the portfolio committee on energy as being for reasons of signatures to various confidentiality agreements.

The amendments contained in the Bill are extensive, including proposals to seek to promote beneficiation of resources: extend government ownership into all ventures; place two state officials on the boards of companies to monitor BEE compliance; the combining of both industry BEE charters; the dissolution of the Petroleum Agency of SA (PASA) and to declare “certain minerals” as strategic resources.

Anadarko at sea over Bill

anardarkoAnadarko SA, a subsidiary of Anadarko Petroleum Corporation who stated they were one of the world’s largest independent oil and gas exploration and production companies with over 5,000 employees and were currently in partnership with PetroSA in Mozambique waters, said their primary areas of concern with the MPRD amendments were that they caused total fiscal instability and uncertainty, something they were not used to working with.

They preferred a dedicated regulator to deal with the oil and gas industry who dealt with only that, they said.   On the issue of fiscal stability, their CEO, Emil Ranoszek, stated that the new Bill “lacked robust economic stability provisions to protect the rights and legitimate expectations of existing rights and permit holders going from an exploration right through to a production right”.

Risk at unacceptable levels

Anadarko, he said, was “committed to establishing a mutually beneficial relationship with the South African state and that oil and gas companies and (they) were ready to make significant investments in South Africa but the Bill in its current form disturbed this balance and raised commercial risk to unacceptably high levels”.

Ranoszek noted that PetroSA was a 20% shareholder in the areas where Anadarko already had a license.    Anadarko was one of the few companies in the world, he said, which had the technical knowledge to “draw the water depths” where they were currently working. If the terms, conditions and risks were deemed to be too high and Anadarko decided not to proceed with operations, then the company would relinquish its licenses.

How PetroSA was going to decide to handle such a situation was unknown and he could not speak for them.

Money flowing to communities

When asked how Anadarko was contributing to the job creation situation in Mozambique, Ranoszek replied that this had been both in the form of direct and indirect jobs from services providers and other sourcing companies. The revenue generated was in the billions of dollars, he said, with the result that Anadarko “was literally building small towns along the coast.”

Anadarko was presently funding a programme in a Mozambican University for the study of petroleum engineering “to upscale the locals in terms of petroleum skills and knowledge.”

ExxonMobil says no clarity

Exxon mobileRuss Berkoben, president of ExxonMobil said the amendments would have several adverse consequences for the growth potential of the South African oil and gas industry. There was “much ambiguity as to the State’s intent”, he said.

Clarity was required regarding the concept that the state would be issuing so-called special shares if it exercised an option for an interest and the state’s right to appoint two directors to a management board of a production operation.”  The Bill gave no clarity on how such matters would be applied.

Berkoben said the minister had to recognise the differences between the petroleum industry and the mining sector and it was his opinion was that PASA should be retained as a body, an entity that understood many of the complexities of his industry, some of which he outlined.  The dissolution of PASA was unwise, he suggested, and with no idea of what regulations were intended, the situation regarding investment had become totally fluid.

BEE  and beneficiation a problem for industry

On the issue of the proposed fines for non-BEE compliance, ExxonMobil said that this would further compromise the viability of certain petroleum operations and discourage expenditure on exploration and development work programmes.  On beneficiation requirements Berkoben stated that he could not visualise how these were applicable to the petroleum exploration or gas industry in reality, other than the minister having rights to offer fuel to outlets with different pricing structures downstream.

When asked by MPs if ExxonMobil had consulted at ministerial level on the Bill and its proposals, Berkoben replied that the answer was simply that ExxonMobil had not been consulted as a stakeholder originally regarding the basis of the proposed changes and he felt that they were being imposed on the oil and gas industry. They were unwarranted, he said.

SA may loose opportunity

impact fieldSean Lunn, managing director of Impact Oil and Gas Ltd, told the committee that the company held an exploration right and three technical cooperation permits along the eastern coast of South Africa and prospects so far identified lay in very deep water and a long way offshore, with the Agulhas current which heavily impacted on exploration along the coastline.

He explained that the oil and gas exploration industry was a dynamic, worldwide business and countries were ranked by their “prospectivity” in fiscal terms, resulting in an industry that was willing to take such risks as proposed on South Africa’s East Coast, one of the most dangerous in the world, when it provided the rewards that were commensurate with the risks taken.

Impact was partnering with ExxonMobil, he explained, and the potential benefits for South Africa “were great, not to mention that the country could become self-sufficient in oil and gas.  South Africa was currently considered to have very high geological risk as no major oil or gas fields had yet been found.

If the current process was unable to find a mutually workable solution, the possibilities that existed offshore may, therefore, lie untapped for decades to come and the huge potential benefit to the country could remain unrealised, he concluded.

Perilous uncertainties

A briefing by the Offshore Petroleum Association of South Africa (OPASA) was made by the acting chairperson, Vusumuzi Sihwa, who re-iterated that the oil and gas exploration environment was challenging environment; high risk; had a surprisingly low success rate with a massive capital outlay to explore a hostile offshore environment such as the East Coast of Africa; and with no guarantee of commercial success.

South Africa’s potential resources, coupled with the current legislation, encouraged the industry to take these huge risks but the MPRDA Bill created “perilous uncertainty for the industry” through lack of stability, uncertainty, coupled with added confusion through the disbandment of PASA.

Sihwa said oil and gas companies could simply shift their focus to other global opportunities.  He suggested that a full working group of all stakeholders, not just some, be convened before the President signed the Bill and the group engage meaningfully and in good faith to reach a mutually agreeable way forward.

OPASA recommended that an upstream petroleum regulator be retained as one unit in one location.

Changing playing fields

Under questioning, the company said existing regulations and the operating environment were very favourable, which was why almost all the prospecting blocks were taken up. The current amendments had brought an element of uncertainty to the table; “the rug was being pulled from under the feet of the industry and this was now a worry, especially whilst projects were in process.” Companies had come into South Africa in terms of a set of rules which were now being decisively altered, he said.

With regard to the liquid fuels charter, OPSA complained that they have never been part of any matters involving mining charters and it was incorrect to impose regulations historically from one industry upon another industry.

Unintended consequences of Bill

sasolIn a separate presentation, Sasol, represented by Johan Thyse, said that Sasol was different to many in the oil and gas industry as it was present throughout the value chain. Consequently government policy and regulation affected the company extensively. Thyse warned the chairperson that the Bill, as it stood, would have serious unintended consequences for both industries.

He said the proposals if left unchallenged would severely affect Sasol’s ability to execute its strategy in South Africa and play its role in the National Growth Path and in the National Development Plan.

Sasol commented in detail on issues surrounding free carried interest and also the mining charter as compared with the liquid fuels charter; the concept of “concentration of rights” which they were highly critical of; the transfer of petroleum licencing; what was referred to in the Bill as regional regulators; the disbandment of PASA and beneficiation as it affected Sasol.

Environmental off beam

They were particularly and deeply concerned regard environmental management issues proposed and the authorisation of issues surrounding increasing the extent of a mining rights through amendments; the removal of prescribed time-frames on many issues and the matter of redefinition of strategic minerals and any consequent effect upon on exports.

Under questioning Sasol said there was total lack of clarity on many issues. Coal for example did not follow cadastral boundaries on the issue of rights as did maritime resources and there was confusion on beneficiation targets and time-frames as to whom and what it applied to.

When asked whether the Bill, with its uncertainties and bearing in mind Sasol’s stakeholders and shareholders, would make it easier or harder to operate in South Africa Thyse replied that “due to the lack of clarity on investment in the Bill, Sasol certainly would re-look at how and where it would invest.”

Investment climate threatened

shellJan W Eggink, Upstream General Manager, Shell SA, said their primary concern where matters equity ownership provisions in the mining charter and how this would the affect investment climate. He said that his company fully supported government’s B-BBEE agenda and matters related to a state interest in the petroleum and mining industry but he needed clarity on whether mining, offshore gas exploration on BEE issues could possibly be combined under one set of rules in view of their disparity.

Under questioning, Egglink called for “more constructive engagement with government” on the combining of matters affecting both the mining and onshore gas industry”.  His overall opinion was that it was difficult to say much on the MPRDA without any knowledge of how any regulations might work.

It was after the Shell presentation, that it was announced by the chair that the PetroSA submission had been withdrawn although the absence from the hearings had been noticeable.

Refer previous articles in this category
http://parlyreportsa.co.za//bee/mprda-bill-causes-contention-parliament/
http://parlyreportsa.co.za//uncategorized/mineral-and-petroleum-development-bill-grabs-resources/
http://parlyreportsa.co.za//energy/draft-mprda-bill-for-comment/

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