Authors: Peter Leon, Paul Morton, Amanda Hattingh and Ernst Muller
A year ago, on 27 February 2019, Total S.A. announced a major discovery of gas condensate in the Outeniqua Basin (Brulpadda prospect, Block 11B/12B) offshore South Africa. This deposit reportedly contains around one billion barrels of oil equivalent.1
This discovery had two significant consequences. First, it identified South Africa as one of the world’s new frontiers for oil and gas exploration. Second, it placed a spotlight on the inadequacy of South Africa’s existing regulatory regime and the urgent need to develop upstream petroleum legislation.
Authors: Peter Leon, Patrick Leyden, Ernst Muller and Amanda Hattingh
Last week StatsSA (South Africa’s official statistics authority) announced that South Africa’s economy contracted by 0.6 per cent during Q3. It is likely to contract further in Q4 as a further round of electricity blackouts occurs as a result of Eskom load shedding. The economy’s current travails are mainly driven by a contraction in the mining, manufacturing and transport sectors. The mining sector, in particular, contributed 6.1 per cent less in this quarter to the country’s Gross Domestic (GDP) Product following a decrease in production of platinum group metals, coal and iron ore.
StatsSA’s announcement followed that of the International Monetary Fund (IMF) in its Article IV Mission to South Africa on 25 November 20191 that South Africa’s medium term growth outlook remained subdued. The IMF explained this was largely due to stagnant private sector investment and exports coupled with declining productivity. This dearth of investment (both foreign and local) is in turn driven by a lack of reform to address weaknesses in the business climate, including regulatory constraints, labour market rigidities and inefficient infrastructure.2
Authors: Peter Leon, Patrick Leyden and Matthew Burnell
1. RELEVANT AUTHORITIES AND LEGISLATION
1.1 WHAT REGULATES MINING LAW?
The mineral resources sector is primarily regulated by statute and in terms of the Mineral and Petroleum Resources Development Act, 28 of 2002 (MPRDA).
Black economic empowerment (BEE) in the mining industry is regulated under the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (Mining Charter III). Mining Charter III came into force on 1 March 2019 and significantly increased BEE threshold requirements in respect of ownership, procurement and employment equity. To understand the extent of the BEE obligations for South Africa’s mining industry, regard must also be had to the Implementation Guidelines for the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry, 2018 (Guidelines), which the Minister of Mineral Resources and Energy (Minister) published on 19 December 2018.
In addition, prospecting and mining activities are regulated by various environmental and health and safety laws which are considered in more detail in section 9.
Authors: Peter Leon, Paul Morton and Patrick Leyden
With the momentum of Total’s discovery earlier in the year and the promise of an emerging player in the oil and gas sector, 2019 may be South Africa’s best opportunity to set the legal framework for a successful and productive domestic oil and gas industry.
On 7 February 2019, Total announced a major discovery of gas condensate offshore South Africa, on the Brulpadda prospect on Block 11B/12B in the Outeniqua Basin,1 which is reported to contain around 1 billion barrels of oil equivalent.2 Total described the discovery as ‘opening a new world-class gas and oil play’ and the announcement has certainly generated a lot of interest in the South African press. The upstream industry has also taken note and South Africa now features heavily in conversations about exploration on the African continent. Although there has been much speculation on the potential contribution to the South African economy, it is clear that reserves of this magnitude have the potential to transform the energy mix in the country and contribute significantly to public revenues.
Total and its partners plan to continue their assessment of the Brulpadda discovery through further seismic surveys and a number of further exploration wells later in 2019. In the meantime, the discovery has put the spotlight on the regulatory regime governing the upstream sector in South Africa. Oil and gas is covered by the same legislation in South Africa as mining, namely the Mineral and Petroleum Resources Development Act of 2002 (the “MPRDA”). The MPRDA is a regular feature in the South African news, most recently during the course of 2018 with the proposed Mining Charter III and the abandonment of the ill-fated MPRDA amendment bill. However, given the historical dominance of the mining sector in South Africa, oil and gas regulation has never been the centre of attention. That is now likely to change.
Author: Patrick Leyden
In a move that is likely to be welcomed by the mining industry, President Ramaphosa has appointed Gwede Mantashe as the Minister of Minerals and Energy (which now combines the Ministries of Mineral Resources and Energy).
During his short erstwhile tenure as Minister of Mineral Resources, Mantashe made significant progress in addressing several fundamental issues that have hampered investment into the South Africa mining industry over the last five years. His decisive action in addressing corruption and maladministration within his Department as well as taking steps to promote regulatory certainty were positively received by both domestic and international investors alike. As a result, South Africa gained twenty seven places under the Policy Perception Index and also made considerable gains under the overall Investment Attractiveness Index in the Fraser Institute’s most recent Mining Investment Survey.