Published: 5 February 2021
The last twelve months have been tumultuous for the industry; with global economic turmoil, ongoing lockdowns and restrictions on travel contributing to a slump in oil prices to historic lows in the early part of 2020. Ongoing uncertainty regarding the economic outlook for the year ahead suggests that 2021 will be similarly challenging.
In the 2019 Budget Review document, National Treasury acknowledged that it had not approved any fiscal stability agreements for oil and gas companies for some time, despite these agreements (which guarantee that the terms of the tax rules that exist as at the date that the fiscal stability agreement was entered into will apply regardless of any subsequent change to legislation) being a key component of the Tenth Schedule to the Income Tax Act and the Royalty Act. National Treasury also indicated in the 2019 Budget that it would be embarking on a process to review the tax treatment and special rules applicable to companies in this sector. No further indication was given at the time as to the objective of the proposed review and, with no details provided in the 2020 Budget or since, it is not clear if any progress has been made on this initiative in the last year.
In order to encourage investment in the oil and gas sector and the development of new projects, and thereby provide a much-needed boost to the local economy and improve energy security for the country, it would be most useful for meaningful progress to be made on improving regulatory certainty for the industry. In the upstream (exploration) sector, this would include the finalisation of the long-awaited Upstream Petroleum Resources Development Bill and some indication being provided in the 2021 Budget regarding the outcome of the review announced in 2019 of the tax rules applicable to oil and gas companies and, most critically, the resumption of approvals for fiscal stability agreements.