Government’s plans to have a 20% free-carry interest in all new oil and gas ventures in South Africa and to acquire a further 30% at market- related rates has caused con- sternation in the industry, a lawyer has said.

Mineral Resources Minister Susan Shabangu revealed this last month, when she announced the technical regulations for shale gas hydraulic fracturing, or fracking, in the Karoo, as well as other petroleum-sector technical regulations that have been approved by Cabinet.

Law firm ENSafrica senior associate Dr Luke Havemann tells Mining Weekly that, while free- carry interest is not uncommon in the global oil and gas industry, the total stake that government may actually acquire in these ventures is a cause for concern.

“Besides the 20% free-carry interest and the additional 30% share that can be bought at market-related rates, a 26% black economic-empowerment (BEE) share also needs to be factored in. What remains unclear is whether there will be an overlap of percentages or whether they will be applied individually.”

Havemann says, should the percentages be applied indivi-dually, government could have a 76% stake in these ventures, which does not leave much of a stake for the international oil companies, and this may become a significant disincentive for investment in these ventures.

As highlighted during the public consultation phase of the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill, international oil companies investing in South Africa have requested that the oil and gas industry be exempt from these proposed amendments to the MPRDA. The industry also suggested that government consider the viability of separ-ating the regulatory regime for the oil and gas industry from the mining industry.

While it does not seem that government plans to separate oil and gas legislation from mining legislation, Havemann says the way forward would be for govern- ment to truly consider the via-bility of having oil- and gas- specific legislation and separate it from mining law as “the oil and gas industry needs a coherent self-contained industry-specific legal framework”.

Government is patchworking the existing regulations through the MPRDA Amendment Bill and the technical regulations for fracking, thereby attempting to rectify the concerns are the current legislation.

Havemann says, while industry continues to improve the legislation in a piecemeal fashion, it could, however, be doing a lot more in terms of oil and gas legislation, which is incoherent and needs clarity. The legislation also needs to be industry specific to attract investment.

Havemann would like to see government take more heed of the issues raised during the public hearings, which may result in clarity being achieved with regard to the free-carry interest, the additional 30% and the 26% BEE share, as well as the currently unknown beneficiation requirements.

“To attract the expertise needed to exploit the resources, South Africa needs to provide an attractive environment, including clarity in the legal environment, which involves finding more appropriate and beneficial ownership percent ages going forward,” he says.

Should government’s stake be a significant disincentive for investment in the country’s oil and gas industry and should international oil and gas companies find it difficult to exploit these resources appro- priately, the industry may be subjected to a knock-on effect. For example, there might be delays in the possible benefits from shale gas and the offshore oil and gas industry, while downstream industries will also be affected.