Africa Oil & Gas: South Africa imposes licensing restrictions

Temporary restrictions on oil and gas licensing are causing confusion, but should help reform the licensing system in the long run, Petroleum Economist reports.

On 28 June, Petroleum Agency South Africa, the state regulator, published a statement signed by mineral resources minister Gwede Mantashe. It said the granting of new technical cooperation permits, and exploration and production rights would be restricted until the publication of a fresh invitation for applications. The statement added that the restriction was part of a strategy to improve the licensing system to fast-track exploration, but gave little further explanation.

The moratorium doesn’t affect applications made before the publication date. Companies that already have technical cooperation permits can also apply for exploration or production rights, according to the agency.

The legitimacy of the move has been questioned by some. Edwin Berman, a resources and environment associate at ENSAfrica, a South African black economic empowerment law firm, says no reason was given why the temporary moratorium was needed to facilitate a revamp of the licensing system. He also said the minister may have acted “without due process”, as existing stakeholders weren’t consulted, leaving the review open to a possible legal challenge.

Unclear, too, is whether the moratorium prevents companies with existing technical cooperation permits and exploration rights from applying in areas other than those where they already have licenses.

Need for clarity

Regulatory uncertainty has long been a major issue facing explorers in South Africa. The problem has particularly put a brake on the development of offshore resources. Last year, Shell relinquished an offshore licence, citing legislative uncertainty as one of its reasons for doing so. Other companies with permits in South Africa, mostly in the unexplored offshore, have halted programmes as they wait for clarity.

Despite confusion over the precise rationale for the moratorium, Niall Kramer, chief executive of industry association South Africa Oil and Gas Alliance, believes that energy firms will become engaged in the underlying drive to reform the industry. With the country’s Minerals and Petroleum Resources Development Act (MPRDA) still to be finalised, they’ll be hopeful of influencing its final form to better suit their objectives, he says.

Energy minister Jeff Radebe in March called for the rapid finalisation of MPRDA, but little seems to have been done to achieve that goal.

Kramer stresses that South Africa is still a new “exploration jurisdiction” and that the restrictions could yet act as a catalyst for engagement and “trust building”.

But he also thinks South Africa’s nascent oil and gas industry has little time to waste. “All we need to do is see the tens of billions [of dollars] committed to Mozambique over the next few years to see what a catalytically positive effect oil and gas investments can have,” he said.

Berman also sees some positives. He says the moratorium may simply be a way for the minister to flag that the government is taking the need to improve the regulatory system seriously. He adds that companies with an interest in South African upstream should look at the notice “more with curiosity for what will comes next, than with genuine concern”.

The Department of Mineral Resources failed to respond to requests for comment.

Bigger picture

Revising the framework for upstream investments is part of a larger overhaul of South Africa’s energy sector.

Radebe has said he will seek cabinet approval for a revised Integrated Resource Plan (IRP). This lays out a path for South Africa’s long-term electricity demand and power sector development and will have a bearing on potential gas demand. Some of this demand could be met from future domestic discoveries, if more exploration can be encouraged.

The Business Unity South Africa industry group believes that an updated IRP is needed to put South Africa’s energy policy on a sustainable footing. But consultation is required to ensure that the plan is both affordable and sustainable.

Radebe has a target of attracting at least $25bn in foreign investment in his area of responsibility. His mission is part of President Cyril Ramaphosa’s ambitious plan to attract $100bn of investment into the ailing economy.

Possible investments include a new greenfield oil refinery and a gas pipeline linking South Africa to the Rovuma basin gas hubs being planned in northern Mozambique. Radebe has also raised the possibility of rekindling efforts to exploit the country’s potential onshore shale gas reserves.