South Africa Seeks Safety and Clarity with New Shale Gas Regulations

by Akin Gump Strauss Hauer & Feld LLP

A sluggish economy, a desire to cut back on the use of coal-powered electricity, and a worldwide focus on new oil and gas recovery techniques have pushed the South African government to take steps toward diversifying its energy industry and developing its natural resources using best practices from around the world. This week, the South African Department of Mineral Resources took a step towards achieving this goal.

Oil and gas E&P activity in South Africa is fairly limited, as evidenced by the fact that the country relies on imports to meet nearly 95 percent of its crude oil requirements, according to the South African Department of Energy.[1] This situation, however, is not due to a complete lack of resources. Exxon Mobil Corp.; Royal Dutch Shell Plc and the South African, state-owned PetroSA have interests in the mostly undeveloped 15 million barrels of proven oil reserves located in the south of the country and in varied waters offshore.[2] With the vast majority of South Africa’s energy needs being covered by locally produced coal (28% of which is exported), incentives to develop oil and gas resources have been lacking until now.

To accomplish the goal of safely developing its oil and gas resources, and thus adding these resources to its energy portfolio, the South African Department of Mineral Resources has released proposed regulations to augment existing gaps identified in the current oil and gas E&P regulatory framework, with a particular emphasis on hydraulic fracturing.[3] These regulations were released on October 15, 2013, and the South African Department of Mineral Resources is accepting public comments on them until November 14, 2013.

For seasoned operators, many of the regulations will feel familiar, such as American Petroleum Institute standards for well casings, centralisers and cement. Many of the regulations, however, are notably peculiar to South Africa, including detailed requirements relating to the mitigation of any effects the E&P activity might have on key assets, such as the South African Large Telescope facility. Furthermore, the South African government intends to be fully apprised of the E&P operations throughout the development of a prospect, with numerous provisions throughout the regulations requiring notice be given to varying authorities such that the authorities can be present for certain actions, such as pressure-testing blowout preventers, testing formation pressure sensitivity or engaging in the hydraulic fracturing of a reservoir. Protection of water resources, surface use and wildlife are also key themes throughout the regulations since hydraulic fracturing fluid disclosure requirements and spill notification thresholds are far more stringent than regulations found in many other parts of the world including the United State.  For instance, spilling 50 liters or more of hydraulic fracturing fluid or flowback requires the notification of the proper authority within 24 hours of the spill.

Comments to the regulations will likely focus on refining and streamlining many of the proposed requirements, as well as clarifying the mechanisms by which many of the regulations will be enforced, but this is just the start. The regulations provide the kind of framework that will allow potential operators to feel comfortable with the boundaries for E&P activity involving hydraulic fracturing in South Africa, but an exacting review of the final enacted regulations will be necessary for that comfort to develop into action.





DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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