1. Presentation to the Portfolio Committee on Mineral Resources 11 September 2013

2. Vusumuzi Sihwa – Acting Chairperson Sean Lunn – Lead Spokesperson
Presenters
Vusumuzi Sihwa – Acting Chairperson
Sean Lunn – Lead Spokesperson

3. OPASA is confident these industry players are capable of exploring and developing South Africa’s potential oil and gas resources.

4. The current regulatory frame work encourages investment in South Africa
OPASA member companies have now been granted the majority of South Africa’s offshore rights and permits
Offshore exploration & appraisal activities are highly capital intensive with significant geological uncertainty together with commercial and technical risk that typically result in a low probability of achieving commercial success.
Offshore exploration wells generally cost in the range of ±$150 million per well and the majority of these wells are unsuccessful.
The mining industry has a long history in South Africa, whereas the majority of South Africa’s offshore area is under-explored and therefore the offshore oil and gas industry is still in its relative infancy.

5. Stimulate job creation
A commercial discovery could lead to substantial potential benefits for SA
Increased state revenue from taxes and royalties
Stimulate job creation
Large potential contribution to GDP growth
A commercial discovery of offshore oil and gas - potential benefits for SA
A potentially large contribution to the economy through spurring GDP growth.
Increased state revenue from taxes and royalties paid by companies.
If successful, estimates indicate that the offshore industry would stimulate job creation in the country and bring billions of dollars of investments.

6. …and the creation of a world class service industry
Fabrication & construction
Repairs & maintenance
E&P Services Companies
General engineering services
Equipment & materials supplies
Logistics
Other Services: Training, financial, IT, Salvage
The offshore industry has the potential to create and develop a network of technologically advanced world class services in South Africa.
Source: SA Oil & Gas Alliance

7. Challenging environment, high risk and surprisingly low success rate
The challenging offshore environment necessitates significantly high investments for exploration and, if successful, development and production. In addition to the significant upfront investments, global offshore exploration drilling typically has a surprisingly low success rate. Hence, the risks and costs to the industry are huge, but so are the potential benefits for the country.
Massive capital outlay to explore a hostile offshore environment,
with no guarantee of commercial success

8. South Africa’s potential resources, coupled with the current legislation, encourages the industry to take these huge risks
Offshore exploration opportunities have been assessed in conjunction with the current legislation 8

9. The Bill creates perilous uncertainty for the industry
LACK OF STABILITY
UNCERTAINTY
DISBANDMENT OF PASA
Oil & Gas companies may simply shift their focus to other global opportunities
The MPRD Amendment Bill of 2013, in its current form, does not incorporate the majority of the industry comments on the draft bill and therefore creates perilous uncertainty which could ground the fledgling industry with all it’s potential value to the country. Oil and gas companies, who make investment decision based on risk and certainty, may simply shift their focus to other global opportunities

11. Way Forward Insertion of the following transitional provision:
“Any exploration right or production right granted pursuant to an exclusive right held in terms of a technical co-operation permit or exploration right that was applied for or granted prior to the commencement of this Act, is to be granted on substantially the same terms and conditions that would have applied if this Act had not come into force”
&
Insertion of:
“meaningful consultation” - into key sections of State Participation and HDSA as well as the relevant considerations that relate to beneficiation and exportation.
(See annexures)
THE CURRENT REGULATORY FRAMEWORK AND SETTLED PRACTICES SHOULD CONTINUE TO APPLY TO FUTURE PETROLEUM RIGHTS GRANTED PURSUANT TO PETROLEUM RIGHTS AND PERMITS THAT HAVE BEEN GRANTED OR APPLIED FOR PRIOR TO THE PROMULGATION OF THE BILL
We recommend that this outcome could be achieved through:
(i) the insertion of the following transitional provision as an amendment to the Act in the Bill, where Act refers to the amendments contemplated by this Bill:
“Any exploration right or production right granted pursuant to an exclusive right held in terms of a technical co-operation permit or exploration right that was applied for or granted prior to the commencement of this Act, is to be granted on substantially the same terms and conditions that would have applied if this Act had not come into force.”

12. Way Forward A working group of all stakeholders be convened
Before the President signs the Bill
To engage meaningfully and in good faith to reach a mutually agreeable way forward
Oil and Gas industry representatives, including OPASA members would be included among the stakeholders.

13. Additional Consideration
It is international best practice to have an independent petroleum regulator
The OPASA recommends that an upstream petroleum regulator be retained as:
“One unit in one location”
In the OPASA submissions to the Department of Mineral Resources (“DMR”) on the draft Bill we highlighted the importance of the Petroleum Agency’s expertise, industry knowledge and experience, indicated that it is international best practice to have an independent petroleum regulator, and requested that the Petroleum Agency be retained in its present form. The Bill was not amended to take cognisance of these concerns. However, the summary of the Bill provides that the existing regulatory expertise within the Petroleum Agency will be retained and that the officials from the Petroleum Agency will form part of the DMR regional managers offices, while the promotions department will form part of the Council for Geosciences. This does not adequately address the Industry’s concerns. Even if some of the Petroleum Agency staff are retained and redeployed to the regional managers offices (which is still uncertain and it is also not clear what role they will play or how much influence they will have), the concentration of expertise will be dispersed resulting in a significant loss of efficiency and uniformity. It its current form the Petroleum Agency provides: a convenient “one stop shop” for industry to interact with government in relation to all aspects of upstream petroleum;
a knowledgeable government body in which relevant skills and industry knowledge are concentrated (having one or two Petroleum Agency staff members at each regional managers office will not adequately equip these offices to deal with petroleum regulation and monitoring of operations and work programme commitments); and
uniformity and consistency of processes, procedures and approach;
In our view, successful petroleum regulation must be centralised to retain a concentration of expertise which results in uniformity and efficiency. Therefore, in our opinion, it would be unworkable for petroleum regulation to be regionalised.
The industry is merely requesting that all the Petroleum Agency staff be retained as one institution at one location so that the efficiency and concentration of knowledge is not lost.
Recommend Amendment to the Bill The OPASA recommends that an upstream petroleum regulator be retained as one unit at one location (rather than being dispersed throughout the regions).

14. Working together, we can develop a successful industry with substantial potential benefits for our country
We look forward to working together with the state to develop a successful South Africa Offshore Industry which could lead to substantial benefits to the State and it’s people.

15. Annexures 14

16. State Participation and HDSA - Recommended Amendments
Section 80(7) of the MPRDA
“The State has a right to a free carried interest in all new exploration rights, with an option to acquire a further interest on specified terms through a designated organ of State or State-owned entity as determined by the Minister in the Gazette, after meaningful consultation with interested and affected parties.”
Section 84(6) of the MPRDA
"The State has a right to a free carried interest in all new production rights, with an option to acquire a further interest on specified terms through a designated organ of State or State-owned entity as determined by the Minister in the Gazette, after meaningful consultation with interested and affected parties.”
Section 80(2) of the MPRDA
"The Minister may, having regard to the type of petroleum resource concerned and the extent of the proposed exploration project, request the applicant to give effect to the objects referred to in section 2(d) and comply with [the Amended Broad Based Socio Economic Empowerment Charter for the South African Mining and Minerals Industry provided for in section 100] the prescribed charter which will be determined after meaningful consultation with interested and affected parties.” 15

17. Beneficiation and Exportation - Recommended Amendments
The OPASA recommends that the legislature should specify relevant considerations to guide the exercise of the ministerial discretions related to beneficiation and exportation in clause 21 of the Bill which amends section 26 of the MPRDA as follows (our suggested amendments are underlined):
“"(2) If the Minister after consulting a Minister of the relevant State department and representatives of the mineral or petroleum industry, as the case may be, finds that a particular mineral or form of petroleum can be beneficiated economically in the Republic, the Minister may promote such beneficiation subject to such terms and conditions as the Minister may determine, after meaningful consultation with interested and affected parties including relevant factors expressed by such parties.”
"(2B) The Minister shall, after taking into consideration national interest development imperatives and relevant factors including local and international market prices and the need to maintain viable mineral and upstream petroleum industries, and after meaningful consultation with interested and affected parties, from time to time by notice in the Gazette determine such percentage per mineral commodity or form of petroleum and the developmental pricing conditions and the price in respect of such percentage of raw minerals as may be required for local beneficiation ”
“(3) Any person who intends to export any designated minerals mined or form of petroleum extracted in the Republic may only do so with the Minister's written consent subject to such conditions as the Minister may determine and such consent may not be unreasonably withheld where any designated minerals mined or form of petroleum extracted in the Republic cannot be economically beneficiated in South Africa." 16 16