THE POTENTIAL IMPLICATIONS OF THE STATES OPTION TO ACQUIRE “FREE CARRIED INTEREST” ON THE OIL AND GAS INDUSTRY

The uncertainly created by the “free carried interest” provided for in the draft Mineral and Petroleum Resources Development Bill may discourage oil and gas investors. At present the State’s interest in rights are not legislated but are provided for in the standard form exploration and production rights. In terms of these rights the State may exercise an option to acquire a 10% participating interest in a production right through an organ of State. The State is not liable for past expenses but contributes in proportion to its participating interest towards production costs.