/ 10 October 2013

Govt to take 20% free stake in new gas and oil

South Africa imports 70% of its oil needs
South Africa imports 70% of its oil needs, processing the remainder of its fuels from coal and gas. (Reuters)

Government plans to take a 20% free stake in all new oil and gas ventures and reserve the right to buy a further 30% at market-related rates, Mineral Resources Susan Shabangu said.

The state 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.

At public hearings held in Parliament last month, companies including Exxon Mobil and Royal Dutch Shell criticised the draft law for failing to specify what size stake will have to be ceded, and said a lack of certainty will deter investment.

"The first 20% will be the free carried part by the state," Shabangu told reporters today in Pretoria.

While the government will be able to increase its interest to 50%, it will have to acquire 30% at market-related prices, she said.

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% 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% 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 September 11 submission to lawmakers. 

The Bill’s deficiencies "could lead to significant delays in planned investment." Parliament’s mineral resources committee is due to resume its deliberations on the new law on October 22. – Bloomberg