BHP Billiton (“BHP”) has postponed South Africa’s first deepwater oil exploration well amid claims by oil companies of uncertainty in mining legislation on taxes and royalties.

The $50 million well was to have been drilled on Blocks 3B and 4B off the west coast of the country in the second half of 2005. But despite a tight global market for drill rigs, BHP has opted to forfeit the rig it had lined up. The earliest a new rig is likely to be secured is around another two years.

Andrew Fisher, General Manager of BHP Billiton Petroleum – Southern Africa, refused to comment. However, word is out among the other oil companies that BHP had cancelled exploration drilling because it wanted production rights to be set before undertaking the most expensive search yet for oil in South African waters. South Africa’s department of minerals and energy strongly refutes these claims.

“They are only raising one element. If they hit a dry well, it’s money down the drain,” said Jacinto Rocha, Deputy Director-General of Mineral Regulations. He added that royalties would only start to apply to Blocks 3B and 4B in maybe nine years’ time when BHP’s exploration rights ceased and production rights were negotiated.

He insisted that the government was not responsible for the hold-up. “They [BHP] raised concerns about the availability of drill rigs, so they asked us to fast-track the conversion process [of old order rights to new order rights as outlined in the Mineral and Petroleum Resources Development Act].” The conversion process was completed in August, which should have allowed BHP to start drilling. “We don’t know why they postponed. It may be a lack of faith on their part…They are the only ones who know and they’re not telling us.”

Rocha, also a director of the Petroleum Agency SA, said a new fiscal regime governing production rights was being established by the national treasury and the agency. It would specify taxes and royalties payable, and determine whether oil companies could repatriate money or operate dollar accounts. He said oil companies would know these terms and conditions well before 2009, when the royalties section of the act came into effect. It was “highly likely” to be finalized next year.

Other concerns in the industry have been raised about the introduction of a 30-year cap on production rights and whether exemptions from foreign exchange regulations will continue to apply.

In June 2002 BHP took control of 90% of the sublease for Blocks 3B and 4B from Colorado-based Global Energy Holdings, which still retains a 10% stake. BHP also holds 90% of a joint venture with Sasol Petroleum International to investigate shallow water gas potential in Blocks 3A and 4A.