South Africa Proposes Law to Give State Share of Oil Projects

The South African government has proposed changes to an energy law that would enable it to secure free stakes in all new oil- and gas-production projects.

The planned amendments to the Mineral and Petroleum Resources Development Act also aim to secure the state the right to appoint two directors to the board of companies operating new energy projects and to abolish the petroleum industry regulator. The changes, if approved by Parliament, could have repercussions for companies such as Exxon Mobil Corp., the largest U.S. energy producer, and Royal Dutch Shell Plc, which intend prospecting in South African waters.

The law didn’t specify what size stake the state would take in new energy projects and it was unclear how the provisions will work in practice, said Peter Leon, the Johannesburg-based head of Africa mining and energy projects at law firm Webber Wentzel.

“These proposals are extremely negative for the industry while surrounding countries continue to benefit from an exploration boom,” he said in an e-mailed response to questions today. “No obvious reason has been advanced for the abolition of the Petroleum Agency of South Africa and the transfer of its all responsibilities to nine regional managers of the Department of Mineral Resources.”

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. International energy companies have becoming increasingly interested in exploring South African waters as new technology boosts their ability to find and pump hydrocarbons from deep underneath the seabed.

“The pressure should be on the government to support the industry,” Claude Baissac, the founder of country-risk consultants Eunomix, said in a phone interview from Johannesburg. “We see no sign of that. This draft legislation is hopelessly out of tune.”

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