Although the Kudu gas field was discovered in 1974, today, in 2018, 44 years later, gas operations have still not commenced. This was done by analyzing the legal risk of the legal framework governing the legislative and contractual risks of gas extraction and identifying the implications of these risks for the development of the Kudu gas project.
INTRODUCTION
- B ACKGROUND OF THE K UDU GAS FIELD
- A IM AND OBJECTIVE
- Aim
- Objective
- T HE RESEARCH QUESTIONS
- Primary question
- Secondary questions
- M ETHODOLOGY
- L IMITATIONS
- R ELEVANCE OF THIS RESEARCH
- O VERVIEW OF CHAPTERS
What are the implications of these legal risks to the development of offshore gas operations for the kudu gas project. The Kudu gas project will be used as a case study to analyze the legal risks of developing upstream gas operations.
IDENTIFYING THE LEGAL RISKS
- I NTRODUCTION
- A N OVERVIEW OF THE DEVELOPMENT OF UPSTREAM GAS OPERATIONS
- What is natural gas?
- Geological elements of natural gas leading to upstream gas operations
- Upstream gas in the Namibian context
- W HAT IS RISK ?
- Identifying risk in upstream gas operations
- C ONCLUSION
The declaration referred to in this definition according to Article 42 of the law is declared when a "discovery is of commercial interest and the Minister, with the request made to the Minister by the holder of the license in question, within a period of 90 days from the date of such application, declares by notification in the Gazette the discovery block and not more than eight other specified blocks in an oil application field. 25 Natural Gas Explained, US Energy Information Administration, October 2017. https://www.eia.gov/energyexplained/index.php?page=natural_gas_home. Upstream is commonly known as the exploration and production part of the oil and gas industry.30. Risk identification is the process of finding, recognizing and describing risks in an organized manner in order to ensure that all important activities in the organization are identified and categorized. 53.
Regulation of the Upstream Petroleum Industry: A Comparative Analysis and Evaluation of the Regulatory Frameworks of South Africa and Namibia” 2014 (accessed 28 August 2018). The oil and gas industry is highly operated in a project-based environment, where each task is highly structured so that a single operation can include several small projects to ensure that the operation of the operation will be less risky and more efficient.56 The efficiency of an oil and gas industry is therefore highly dependent on the success or completion of multiple small projects.57. Regional Political Risk Analysis: The Niger Delta Conflict and Its Impact on the Political Risk of the Gulf of Guinea” 2010 (accessed 19 September 2018).
The substantive, general and difficult to track risk is the uncertainty arising from the contract portfolio as a whole.80 This risk arises in the phase of upstream gas operations, therefore this paper will look at what the contractual risks are in terms of the gas sales agreements, offtake agreements and the model petroleum agreement entered into for the Kudu gas project. For the foreign investor, it is often preferable that the general framework for exploration and production is regulated in terms of a generic petroleum legislation, so there is room for negotiation of the details in terms of the contract.84 Chapter three of this paper will make a behavioral analysis of the Namibian petroleum. This chapter established a better understanding of the natural gas occurrences and the upstream activities that lead to gas production.
NAMIBIA UPSTREAM GAS LEGAL FRAMEWORK
- I NTRODUCTION
- L EGISLATIVE AND CONSTITUTIONAL FRAMEWORK
- National White Paper on Energy policy
- The Petroleum (Exploration and Production) Act
- The Namibian Constitution
- Petroleum Taxation Act
- Environmental Management Act
- T HE INSTITUTIONAL FRAMEWORK THAT ADMINISTERS THE OIL AND GAS INDUSTRY
- The Ministry of Mines and Energy
- The National Petroleum Corporation (NAMCOR)
- T HE CONTRACTUAL FRAMEWORK FOR EXPLORATION OF UPSTREAM GAS
- Petroleum agreement
- C ONCLUSIONS ON WHAT THE FRAMEWORK IS THAT GOVERNS LEGAL RISKS
The Energy White Paper was adopted in 1998 as the national energy policy for the exploitation and development of the petroleum (oil and gas) resources of Namibia.94 The policy covers the exploitation of offshore petroleum resources and deals with energy demand (mainly domestic energy), supply (electricity, upstream oil and gas, downstream liquid fuel) issues, downstream energy environment and renewable energy environment, and renewable energy environment, energy environment efficiency and regional energy trade and -cooperation).95 It orders that the Namibian upstream policy must aim to attract sufficient investment in exploration and production, especially in light of the limited capacity of the local petroleum exploration and production sector.96. Once exploration has been carried out and a petroleum field has been declared, the holder of the exploration license which has been issued may, subject to the provisions of the Act relating to production licences, apply within a period of two years from the date on which the petroleum field was so declared or such further period as the Minister may allow in writing for valid reasons during the currency of a petrol license for the production licence7. 112 "The competitiveness of the regime is an essential determinant of the amount of upstream investment in exploration, discovery and production by multinational oil companies." African Development Bank and the African Union Oil and Gas in Africa (2009) New York Oxford University Press Inc at page 80.
An extraction permit allows the extraction of the oil resource and the duration of this permit is for a maximum period of 25 years, but it can be extended for a further period of 10 years.126. Before a petroleum exploration license is issued in Namibia, the Minister must enter into a petroleum agreement with the persons concerned, this agreement must not be inconsistent with the provisions of the Petroleum Act.131 The Petroleum Act allows for additional discretionary terms and conditions for production activities, which in some cases may not have been included as the exploration license entered into was negotiated in terms of and. To ensure that all conditions are included for the negotiations on the exploration permit, the Ministry of Mines and Energy prepared a model oil agreement in 1998 and was updated in 2007.
Regulation of the Offshore Petroleum Industry: A Comparative Analysis and Assessment of the South African and Namibian Regulatory Frameworks' 2014 (accessed 11 October 2018). These requirements become legal risks if they are not met, and failure to do so could result in a breach of legislation governing ownership and access to petroleum resources, resulting in a criminal offense or breach of contractual obligations.137. 137 The fourth chapter will provide a detailed overview of the Kudu gas project and its current status in terms of its development of offshore gas production activities and will carry out a legal risk analysis against the legal framework described in this chapter.
THE CONSEQUENCES OF THE LEGAL RISKS TOWARDS THE DEVELOPMENT OF
- I NTRODUCTION
- The historical overview of the kudu gas field
- Kudu gas to power
- Gas field development of the Kudu gas project
- A LEGAL RISK ASSESSMENT OF THE UPSTREAM GAS OFFSHORE GAS OPERATIONS OF THE K UDU GAS PROJECT
- Legislative and regulatory risk analysis
- Contractual risk analysis
- O THER RISK OBSERVATIONS
- Financial risks
- Market risks
- U NDERSTANDING THE CONSEQUENCES OF LEGAL RISKS TO THE DEVELOPMENT OF OFFSHORE UPSTREAM GAS OPERATIONS OF THE
- How does legal risk affect the development of offshore gas operations?
144 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, South African Institute for Environmental Assessment May 2006. 146 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, Southern African Institute for Environmental Assessment May 2006: Southern African Institute for Environmental Impact 157. Environmental Assessment May 2006.
159 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, The Southern African Institute for Environmental Assessment May 2006. 163 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, The Southern African Institute for Environmental Assessment May 2006 at page 11. 164 Environmental impact from Kudu Power Station (Evaluation of environmental impacts from Kudu Power Station) Mond and Obib, Enviro Dynamics (June 2005) at page 10.
167 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, South African Environmental Assessment Institute, May 2006 at page 11. eis.com/data/literature/Kudu_SAIEA%20Integrated%20ImpactMitigation%20Report_May%202006.pdf. 179 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, South African Institute for Environmental Assessment, May 2006 at page 11. The upstream partners have an environmental certificate for the development of the Kudu gas field under
190 Kudu Gas to Power Project: Integrated Impact and Mitigation Report, South African Institute for Environmental Assessment May 2006 at page 11. The above legal risks are governed by the legal framework set out in chapter 3 and which framework is further applied to the current status of the Kudu gas project.
RECOMMENDATIONS AND CONCLUSION
C ONCLUSIONS
When carrying out a legal risk assessment based on the legal framework governing the legislative/regulatory and contractual risks, it was determined that legal risk can quite negatively hinder the development of foreign upstream operations if legal compliance with the regulatory requirements is not met. The consequences of non-compliance can include fines imposed on the project company or a possible prison sentence by company directors which ruins reputational risk which in turn affects investor perception of the project and which, as mentioned in this paper finding in chapter 4, ultimately leads to delays in the development of the project. This thesis established that policy uncertainty deters investors' interest in a country and that in order to encourage the development of the petroleum industry, the regulatory framework for petroleum must also be attractive to investors and made the recommendations below.
M ITIGATING FACTORS AND RECOMMENDATIONS
- Kudu gas project
- The Government of the republic of Namibia
While reviewing the legal framework governing Namibia's upstream gas sector and conducting an analysis of the consequences of non-compliance with these legal instruments, enforcement mechanisms were found to be inadequate. In addition, the Ministry of Mines and Energy's Petroleum Directorate should have a better record-keeping system so that a good record of compliance can be established for petroleum exploration and production permit holders. Regional Political Risk Analysis: The Niger Delta Conflict and Its Impact on the Political Risk of the Gulf of Guinea” 2010 (accessed September 19, 2018) 2016).
Moller, L., Evolution of the legal framework for oil and gas exploration and production in Namibia. Regulation of the Upstream Petroleum Industry: A Comparative Analysis and Evaluation of the Regulatory Frameworks of South Africa and Namibia” 2014 LLD thesis, University of Cape Town. Available at: http://www.the1- eis.com/data/literature/Electric_Power_from_Kudu_Gas_An_Alternative_to_Epupa_March_1996.p df.
Available at: www.the-eis.com/data/literature/Kudu_SAIEA%20Integrated%20ImpactMitigation%20Report_May%202006.p df. Available at: https://www.2b1stconsulting.com/tullow-nears- development-decision-on-namibia-kudu-gas-to-power/. Regime competitiveness is a key determinant of the amount of upstream investment in exploration, discovery and production by multinational oil companies. African Development Bank and African Union Oil and Gas in Africa (2009) New York Oxford University Press Inc at page 80.
