While the Upstream Act is set to come into effect on a date to be fixed by the President by further proclamation in the Government Gazette, the Department of Mineral Resources and Energy (DMRE) has been hard at work, publishing the draft regulations to the Upstream Act for public comment on 14 April 2025. Written comments to the regulations are due for submission on 13 June 2025.

Our previous alerts focused on the key changes introduced by the Upstream Act, and in this alert, we unpack the salient transitional provisions contained in Schedule 1 of the Upstream Act, which aim to ensure security of tenure and investment certainty.

Existing permits and rights granted under the MPRDA

Reconnaissance permits

A reconnaissance permit in force immediately before the Upstream Act comes into effect will continue in force and be subject to the terms and conditions under which it was granted, until the expiry of the permit.

Technical co-operation permits

Technical co-operation permits will no longer be granted under the Upstream Act. If you are a holder of a technical co-operation permit immediately before the Upstream Act comes into effect, your technical co-operation permit will remain valid until the end of its term. The holder of a technical co-operation permit has the exclusive right to apply for a petroleum right in respect of the area to which such permit relates and must apply for the petroleum right before the expiry of the technical co-operation permit. The Upstream Act provides that the technical co-operation permit will remain valid until such time as the application for a petroleum right has been granted or refused.

Exploration rights

An exploration right in force when the Upstream Act comes into effect will continue in force until the expiry of the term that the exploration right is in when the Upstream Act becomes effective. The exploration right will be subject to the same terms and conditions under which it was granted. The holder of an exploration right will have the exclusive right to convert the exploration right to a petroleum right in respect of the area to which the exploration right relates, and the application for the conversion must be submitted before the expiry of the exploration right. Failure to apply for conversion to a petroleum right prior to the expiry of the exploration right will result in the loss of the aforementioned exclusive right.

The transitional provisions provide that a holder of an exploration right can convert to either a petroleum right in the exploration phase, or a petroleum right in the production phase. The phase applicable to such conversion will be determined with due regard to the exploration period. This means that if the right holder is in the initial period of their exploration right, alternatively the first or second renewal period of their exploration right, then they will be entitled to convert to the petroleum right in the exploration phase. If, however, the exploration right holder is in the third and final renewal period granted under the MPRDA, then they will have to convert to the new petroleum right, production phase before the expiry of the third renewal period.

Application for conversion from an exploration right to a petroleum right, exploration phase

An exploration right in respect of which an application for conversion to a petroleum right for the exploration phase has been lodged will remain valid until the application for conversion has been granted or refused. The Minister of Mineral Resources and Energy is obliged to grant the application for conversion to a petroleum right if the holder of such exploration right:

• complied with the terms and conditions of the exploration right;
• is not in contravention of any provision of the MPRDA;
• relinquished a petroleum right area in accordance with the terms and conditions of the exploration right;
• has access to financial resources and has the technical ability to conduct the proposed exploration operation optimally in accordance with the exploration minimum work commitment for the next term;
• has complied with the conditions of the environmental authorisation; and
• has, where applicable, been granted an amended or a new environmental authorisation in terms of the National Environmental Management Act 107 of 1998 (NEMA).

Application for conversion to petroleum right, production phase

As mentioned above, if a holder is in the third renewal period of the exploration right immediately before or after the Upstream Act comes into effect, they must apply for conversion to a petroleum right, production phase, prior to the expiry of such third renewal period if the holder has:

• declared a commercial discovery;
• elected to develop the commercial discovery;
• paid the prescribed non-refundable application fee;
• relinquished a percentage of the exploration right area in accordance with the terms and conditions of the exploration right; and
• access to financial resources and has the technical ability to conduct development and production operations optimally in accordance with the development and production programme.

An application for conversion to a petroleum right in the production phase must be accompanied by inter alia the prescribed development and production programme in respect of a petroleum field to be developed, a report reflecting compliance with an environmental authorisation, and a detailed report reflecting the exploration results, the interpretation thereof and the expenditure incurred.

What happens to existing terms and conditions associated with exploration rights?

The Upstream Act states that the holder and the Petroleum Agency must agree on the terms and conditions for the petroleum right, but subject to the retention of terms and conditions under which the exploration right was granted. This in our view creates not only legal continuity, but investor certainty in that the terms and conditions granted under the MPRDA will be retained, notwithstanding the new legislative regime. 

For example, this means that if state participation has been provided for under the terms and conditions of an exploration right prior to conversion, then such terms and conditions as contained in the exploration right will apply. If state participation is not provided for under the terms and conditions of the exploration right, then the transitional provisions provides that section 34 of the Upstream Act which set out the requirements for state participation, will only apply upon application for approval to progress to the production phase of the petroleum right, and therefore not immediately upon conversion.

If the terms and conditions of a production right were annexed to the exploration right, then those terms will constitute the terms and conditions of the petroleum right upon conversion.

Production rights

A production right in force when the Upstream Act comes into effect or after the act comes into effect will continue for a period of five years, or until the date of its expiry, whichever is earlier. The production right terms and conditions will constitute the terms and conditions of the petroleum right upon application for conversion, subject to the necessary changes. It is unclear what the aforementioned “necessary changes” are referring to, and unfortunately, the draft regulations do not provide any clarity in this regard.

Environmental authorisations

The transitional provisions under the Upstream Act state that until such time as amendments are effected to the NEMA, and for purposes of any application for an environmental authorisation, any reference to the MPRDA under NEMA must be read as reference to the Upstream Act and, as such, NEMA will continue to govern petroleum rights until the required amendments are effected. We hope to see the draft of such amendments in due course. 

Pending applications

Pending applications lodged under the MPRDA will be processed, granted or refused under the provisions of the MPRDA, notwithstanding the upstream Act coming into effect. Upon being granted, the conversion requirements explained above will apply to the permit or right.

Looking ahead

Moving from one legal regime to another is like rerouting a pipeline: it has to be done carefully, with minimal disruption and maximum foresight. The transitional provisions of the Upstream Act are therefore more than a technical adjustment, as they measure how well the country can usher in a new era of energy development while honouring its existing legal commitments and attracting new investment.