The Department of Mineral Resources is attempting to develop oil and gas drilling in South Africa through Operation Phakisa. The project is still in the early stages of research and exploration, but the Department aims to have 30 wells built in 10 years. DME estimates very roughly, that as many as 9 billion barrels of oil and 9 billion barrels of gas could be within South African borders, and many national and international companies have expressed interest in investing in South African drilling. The Department is emphatic that amendments to the Mineral and Petroleum Resources Development Act (MPRDA) must be passed by the National Assembly, and they point out that progress on the Offshore Oil and Gas Exploration project is on or ahead of schedule.
The Committee recognised that this is a very large and complex industry, and pressed the Department to do more to keep them and the public informed and educated about this project. The Committee asked for clarity about exactly what stage of the process Operation Phakisa is in and also asked questions about the deliverables the Department had presented. In addition, the Committee was concerned about the low success rate of drilling and the lack of specific fiscal information at this stage. The Department assured the Committee that the broad economic benefits and energy security envisioned as a result of this project would be extremely beneficial to all South Africans.
Operation Phakisa Oceans Economy Lab website: http://www.operationphakisa.gov.za/operations/oel/oilgas/pages/default.aspx
The Chairperson said that Operation Phakisa is key and noted that many variables affect mining. He also pointed out that there is an employment crisis in mining.
Department of Mineral Resources Presentation on Operation Phakisa
Mr Mosa Mabuza: DMR Deputy Director General: Mineral Policy and Promotion, provided background saying Operation Phakisa aims to speed up development of oil and gas. Operation Phakisa focus on the oceans economy has four parts. Today’s presentation focuses on the Oil and Gas Lab, which aims to drill offshore. This program has attracted much foreign investment. The national industry is in the early stages of development: research and exploration is necessary. For example, deep water is almost entirely untested. Possibly as many as 9 billion barrels of both oil and gas exist respectively, and will help create jobs, bolster the economy, and reduce foreign resource dependence. The Department hopes to have 30 wells in 10 years. The Department recognises that this is a costly, long-term, and dangerous project with historically low success rates.
Mr Mabuza said that in 2010, South Africa applied to the UN to allow an extension of South African borders to expand it maritime territory offshore. They expect an answer in 2017.
Mr Mabuza identified 11 Initiatives and grouped them in six categories:
- Localisation of supply chain
- Capability development
The Department welcomes government oversight in order to avoid disasters. They also see this as a broader research opportunity for both the government and the science community.
The presentation concluded by sharing the deliverables from this project. Mr Mabuza insisted that operations are either on schedule or ahead of schedule, with many deliverables being met. The Department is very happy with the progress, noting that this is a complex industry.
A delivery unit has been established to drive delivery of the “3 ft plans”, and weekly reports are sent to the President. Development of a phased gas line is 67% ahead of schedule. International oil company participation has been established and emergency planning and management has been formalised. The project design for broader research opportunities has been completed and the stakeholders are on board. Financial analysis is 33% ahead of schedule. The Department is currently putting together a skills strategy roadmap to outline how the necessary skills to service the oil and gas sector will be provided to the people. Government is working to establish a multi agency Ocean R&D Strategy, and the necessary technologies and mechanisms are being researched. A business case, migration plan, and project design have all been done in order to engage stakeholders.
Mr A Nyambi (ANC, Mpumalanga) asked about the MPRDA legislation and the issue of NCOP consultation. He noted that the department reports regularly to the President and yet the information presented to the Committee sometimes seems “behind the times”, and asked how the NCOP can be better engaged? He asked for clarity on the meaning of “legislative clarity” and “local supply content”. Finally, he addressed pipeline costs: what does it mean that it is 67% ahead of schedule?
Ms C Labuschagne (DA, Western Cape) noted that this is a complex and new project. She requested a presentation of the 3 ft plan. She noted that the returned MPRDA Bill is still in the National Assembly. How has the department addressed the fact that offshore gas is still being debated in that bill? What is the link between financial analysis procurement and fiscal terms? How is this analysis done? Can you present that financial analysis? She noted that some initiatives are much more difficult than others. She recalled that much of the land is under licence and permit, can we get a breakdown fiscally and job-wise what companies and what government is responsible for? Can you please explain the skills capacity report, how big did it find the gap to be? Can you explain the risk more specifically? She noted that SA is not receiving investment currently - that it only hopes to receive investment.
Ms E Prins (ANC, Western Cape) asked why the government should be involved in this venture if the success rate is so low?
The Chairperson noted that the industry is in early development, and asked what must we do right in order to have success?
In his response, Mr Mabuza explained that the weekly reports to the President concerned Lab commitments for the initiatives. He agreed that the Committee must be brought into confidence. He explained that legislative certainty means here that SA must be able to assure international oil companies that their interest would not be wasted. These companies were concerned by various examples of the government’s multiple definitions on investment issues. The Department hopes that investment practices and government requirements will be clear. He explained local supply content by pointing out that, for example, one drill would currently require equipment and services that are not made or are available in SA, and if local supply content could be used it would be much better. The 3 ft plan is evaluating, among other things, how much local supply content is possible.
Mr Mabuza said that, as to the pipeline figure, 67% is not the completion of actual investment, but rather an analysis of what the pipeline will require. They expected this analysis would take much longer and prevent movement to exploration.
In response to Ms Labuschagne, Mr Mabuza said that a 3 ft plan presentation is possible. He noted that the Department is not able to answer questions on the process of the bill and Ms Labuschagne agreed. He said that financial analysis depends on depth of well, but is possible to provide. He noted that fiscal terms appear in the Act, but that the MPRDA awaits conclusion. He approved of acreage being under permit. He said that a skills capacity analysis will be provided. As to the risk, he said that companies know that this risk can be mitigated but not avoided. Mr Mabuza disagreed that no investment is present; while he noted that some are not finalised, he said that the project is credible and that the companies are satisfied with the process.
To the Chairperson, Mr Mabuza said that legislative certainty is very important in order to do it right; the conclusion of the MPRDA will help other aspects fall into place.
Ms Prins asked about the timeline and when further presentations will take place.
Ms Labuschagne asked about acreage and permits: she is concerned about the risk to the government and to what extent must government guarantee infrastructure, etc. How many of these companies are registered in SA, and if they are not how can we guarantee that they will create jobs? She noted that 130 000 jobs is not that many, so she asked again about skills development for local workers. She is concerned that the benefits will disproportionately benefit the companies and oil will only go to other countries. Finally, she asked whether there was engagement with the industry concerning the current bill or planning future bills.
Mr E Mlambo (ANC, Gauteng) asked about the International Oil Pollution Compensation (IOPC) Fund: how does that work? Is it the SA government interacting with this fund, or just your department? Is the UN involved?
In reply to Ms Prins, Mr Mabuza pointed out that infrastructure used to service industries in neighboring countries already exists. He said that the timeline is hard to establish because the process is too complex, but that the project is still worthy of support. Mr Mabuza again strongly urged the resolution of legislative issues so that rigs can be erected as soon as possible. Perhaps in five to seven years we can have a clearer idea of how many resources SA actually has.
Mr Mabuza implored Ms Labuschagne to take a broader view on the economic benefits: beyond jobs, you have energy security, and the economy depends on energy. Thus, the country will be strengthened and the economy stimulated. He promised a skills capacity report. He pointed out that international companies already operate in SA and are beneficial, though he appreciated her point on the protection of the country’s interest. He recognised there had been developments in the Bill including splits and amendments. He hoped for a long-term relationship with petroleum.
Mr Mpumzi Bonga, DME Delivery Unit Director, explained about the IOPC Fund that without correct legislation, not all companies paid what they should have to South Africans. This agreement ensures that payment will happen in the case of any incidents. To be clear, this was a government decision through National Treasury. Areas included the Treasury, which determined the figures, and the IOPC Fund confirmed the validity of the figures. They initially argued who had and had not paid their dues. However, those discussions have concluded and it only is not finalised because the SA government cannot pay until the Minister of Transport formally agrees to these expenditures. The DoT has not yet made a press release about the agreement between SA and the IOPC.
The Chairperson concluded that Members can go back to their provinces well informed about these important issues, and gave the department the last word.
Mr Mabuza thanked the Committee and promised to continue to provide information.
The Chairperson adjourned the meeting.
[Apologies: Mr Singh, Mr Parkies, Mr Smit, and Mr Rayi]
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