South Africa plans to take 20% free stake in all oil ventures

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By Zimbabwe Investor on October 10, 2013. No Comments

Bloomberg reports that South Africa’s government plans to take a 20 percent free stake in all new oil and gas ventures and reserve the right to buy a further 30 percent at market-related rates. It is not clear whether Mineral Resources Minister Susan Shabangu plans to roll out this  to cover all future foreign direct investment in natural resources.

The South African government gave notice of its intention to take a share of all new energy projects when it published planned amendments to the 2002 Mineral and Petroleum Resources Development Act last year. On record companies including Exxon Mobil Corp. and Royal Dutch Shell Plc have criticized the draft law for failing to specify what size stake must be ceded, and said a lack of certainty will deter investment. Compared to similar laws in gulf states, these companies have nothing to complain about.

South Africa, closed to foreign investment until apartheid ended in 1994, is seeking to develop its oil resources to boost and diversify an economy with a 25.6 percent unemployment rate. While Irving, Texas-based Exxon and The Hague-based Shell have stakes in offshore blocks, extraction is yet to take off. The country imports 70 percent of its oil needs, processing the remainder of its fuels from coal and gas.

South Africa had proven oil reserves of 15 million barrels in January 2011, located to the south and off the west coast near the Namibian border, according to Oil and Gas Journal.

“For a country to attract investment in the exploration of oil and gas, the financial risks need to be balanced with stable and transparent legislation that provides benefits to investors and meets the country’s aspirations,” Shell said in a Sept. 11 submission to lawmakers. The bill’s deficiencies “could lead to significant delays in planned investment.”

Shell is exploring prospects off South Africa’s west coast, while Exxon, the largest U.S. energy producer, plans to search for crude and natural gas after acquiring rights to blocks near the eastern port of Durban.

Changes to the law “may significantly impact on the ability of investors to continue exploration in South Africa,” Russ Berkoben, president of Exxon’s local unit, told lawmakers in Cape Town on Sept. 11. The government “is sending a message to investors that their high-risk investment will have a much lower reward.”

Anadarko Petroleum Corp, based in Houston, bought stakes in about 24 million acres offshore South Africa, and estimates it will have to invest about $800 million in exploration and a further $3 billion to $8 billion if a commercial discovery is made. BHP Billiton Ltd., Cairn India Ltd. and Canadian Natural Resources Ltd. have also struck exploration accords.

The Offshore Petroleum Industry Association of South Africa, a grouping of 18 energy companies, said legislating that the state gets a free stake in projects would be a deviation from technical cooperation permits and exploration-rights accords signed by its members.

“At present, state participation is provided for in exploration rights and production rights and is capped at 10 percent,” the group, whose members include BHP, Shell, Sasol Ltd and Total SA, said in a written submission to lawmakers “The state, while not liable for past costs, is liable to pay” its share of production costs should it elect to participate, it said.