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Presentation to the Portfolio Committee for Minerals and Energy. Mr Sipho Mkhize President & CEO PetroSA. Cape Town, 18, October 2006. The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd Reg. No. 1970/008130/07. Outline. Overview PetroSA Corporate Objectives Feedstock Update
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Presentation to the Portfolio Committee for Minerals and Energy Mr Sipho Mkhize President & CEOPetroSA Cape Town, 18, October 2006 The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd Reg. No. 1970/008130/07
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
About PetroSA • South African national oil company, 100% government owned • Operate the world’s largest and one of the only three GTL plants worldwide • Accumulated unique GTL experience for the past 14 years and operating know-how, which it is in the process of commercialising • GTL commercialisation has been an activity within PetroSA since 2001 and has since become one of the strategic priorities for the company. • Operates the strategic crude storage tanks in Saldhana • Oil/Gas producer in SA and Nigeria (OML114/Abana field) • Is active across the value chain (in both upstream and downstream) • An international player with African focus
Mission of PetroSA Operations Division “We will deliver sustainable growth through maximisation of cash flow from PetroSA’s assets with our people, delivering operational excellence underpinned by world class SHEQ practises in partnership with our customers and local communities.” • Find a Balance between • Efficiency and commercial drive of IOC • Mindset of NOC - deliver more than profit!
PetroSA’ Experiences: GTL supports macroeconomic development • Employment : direct and indirect • Training and Development of Skills in Process Industry • Supplier Development: Services, Maintenance, Materials • Support of Transformation: Black Economic Empowerment • Opportunities for Small & Medium Enterprise Development • Tax revenues other than Royalties for raw materials • Improves security of supply – direct through GTL products or via swaps with external markets with different specs • Opens access to local Downstream Market: Trading, Marketing • Anchor inland customer for development of Gas Infrastructure and Inland Market: Commercial, Gas to Electricity, Private Households, Chemicals • Input in Government to Government negotiations in developing countries: support of regional development GTL Technology offers more than just export of raw materials
Overview • PetroSA has had a successful year in many aspects of its business. A solid growth platform for the future has been laid following the successful restructuring of the organization. • The business is now buoyant, our people are feeling upbeat and confident, and the circumstances of our industry all contribute to a positive outlook.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Corporate Objectives • Implement South Coast Gas project by 2008 • Secure feedstock for the Mossel Bay plant beyond 2012. • Replace non-feedstock production and build reserves to maintain a non-feedstock production rate of more than 30 000 barrels of oil equivalent per day, with a reserve life of at least 8.5 years by 2010 • GTL Refinery to achieve a sustainable break-even target by 2010 that will ensure a long term affordable feedstock supply. • Complete development phase II of LTFT GTL by October 2007 and develop opportunities to commercialize technology. • Meet new fuel specifications, as per legislation, in the future. • Commercially manage Government strategic stocks and associated tankage. • Enter the downstream marketing of liquid fuels.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Feedstock Update • Secure feedstock for the Mossel Bay plant beyond 2008 and invest in related infrastructure • Successfully implement the South Coast Gas Project by May 2007 • Recommend a long term feedstock alternative
Feedstock Update - Cont • Continue/accelerate exploration activities in South Coast • Continue to pursue strategic participating interest in upstream gas producing assets offshore West and East Coast of Southern Africa. • Lead the development of gas infrastructure on the West Coast. • Engage key stakeholders to secure support for the pipeline project. • Obtain approval for a single gas buyer business model from the Energy Regulator to underpin the financial viability of pipeline. • Investigate and develop alternative options – contingency • Underground coal gasification • CNG • Coal bed methane • Imported LNG • Develop worst case scenario options: • Conversion to crude refining, Mossel Bay, Saldanha, Coega. • Abandonment
Feedstock Update - Cont Optimistic/preferred • 2007 – 2011: Gas from FA/EM and South Coast Gas Project • 2011 – 2015: Other South Coast Gas • 2012 onwards: Piped West Coast Gas &/or CNG from Mozambique Fall back option (insufficient South Coast gas) • 2009 – 2012: Gas for 2-train operation from FA/EM and SCG Project • 2015 onwards: Piped West Coast Gas, or CNG from Mozambique and/or Namibia, and/or West Coast • Importation of LNG – Coega or Saldanha Pessimistic • Abandonment, or crude conversion 2011 (for latter – decision required latest mid 2008)
Feedstock Update - Cont • PetroSA aspires to drive gas commercialisation in Southern Africa, preferably with other NOC’s, to ensure: • Maximum mutual benefit • Regional cooperation and development • Focus on downstream beneficiation of indigenous gas • Efforts concentrated on Namibia, South Africa and Mozambique. • PetroSA to lead the development of gas utilisation infrastructure – Gas Transmission Pipeline, CNG, or LNG. • PetroSA engaging Key Stakeholders to secure support
Feedstock Update - Cont • PetroSA is to develop additional fields in the South Coast Gas development known as the Bredasdorp Basin. • The project is fully in execution phase and is on track for first gas intake in May 2007.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
LTFT Technology Update • The Low Temperature Fischer-Tropsch (LTFT) Semi Commercial plant in Mossel Bay was designed and constructed through an agreement with Statoil, the Norwegian State-Owned national oil company. • A technology company, GTL.F1 AG has been established, with an additional engineering partner, Lurgi, to house and further develop and market the LTFT and integrated reforming technology, MegaSyn. • The objective is to operate the plant at conditions as close as possible to the expected commercial conditions, with a view of conducting a catalyst life test, a limited process variable study as well as a tracer study. • There is a marked change to the progress being made in the global GTL business. The main players, Sasol, Shell and Exxon Mobil, are all developing large GTL projects.
LTFT Semi- Commercial Plant A JV Project with Statoil • $60+ million investment • EPC Contractor Technip Italy S.p.a. • Ready for commissioning March 2004 • Catalyst supply Johnson Matthey Catalysts • Technology concept proved end 2005 Major Components • Slurry Bubble Column Reactor • Cobalt catalyst • Proprietary filter • Compressor, Membrane unit • Instrumentation and data capture LTFT Technology Update -Cont
The Algerian Government has invited PetroSA to bid on a 34000 b/d integrated GTL project (Tinrhert). • Sep. 2005, PetroSA submitted a technical proposal in a consortium with Statoil and BHP Billiton. • A commercial bid is scheduled for submission in Sep. 2006 along with competitors, Sasol, Chevron and Shell. LTFT Technology Update -Cont
900 million barrels of oil equivalent • PetroSA share 135 mil barrels eq (15% share) • Aligned with PetroSA reserve target • Supply PetroSA European markets • Commercialise GTL technology Target • Only 3 qualified bidders • GTL experience: largest worldwide • Partners: Statoil and BHP Billiton Competitive Bid Technology • Deploy new LTFT technology • Demonstration underway in South Africa Capex Commit. LTFT Technology Update -Cont
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Security of Supply • West / East coast gas pipeline • Coega storage and loading facilities • Participation in a CTL / Refinery study • Exploration and driling operations in RSA coastal waters • LNG receiving terminal Total Capital Expenditure for these projects in the next 5 year at R15 billion
KEY NAMIBIA Oranjemund WEST COAST 1 WEST COAST 2 BREEDE RIVER SOUTH CAPE TOWN AFRICA OVERBERG 541 km LANGKLOOF Bit terfontein Calvinia Beaufort West Hopefield Saldanha 290 km Touwsrivier Uitenhage 125 km Worcester Oudtshoorn Joubertina Coega George Swellendam 222 km Cape Town Port Elizabeth 163 km 445 km Mossel Bay Proposed Gas Transmission Pipeline
Gas Sales & Purchase Agreements Gas Sales & Purchase Agreements GTL plant Producer 1 Producer 2 Onshore Wholesale Gas Trader Eskom Gas Flow Transmission pipeline Producer 3 Major Industries Producer 4 Transportation Agreement Local Distribution Co. LNG & CNG Proposed Aggregator Model
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Global Safety Record • PetroSA has undertaken an international benchmarking exercise which shows all our operations are easily within the bracket for world best practice • The GTL refinery in fact exceeds the benchmark. • Among other highlights was the achievement in December 2005 of a total 6.45 million hours without a disabling injury at the GTL refinery. • The company’s quality certifications with the International Standards Organisation (ISO 9001/2000 and ISO 14001) were not only retained, but extended to cover additional areas that met the certification requirements.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
HIV and Aids • A case study on the remarkable HIV and AIDS programme rolled out in PetroSA was conducted. • Key success areas within a six-month period were: • 79.4% of employees had attended awareness session • 64% had undergone voluntary testing. • The programme has already had a positive impact on the local community in Mossel Bay, which has requested PetroSA’s help with a similar community-wide initiative.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
BEE • To pursue economic growth through the seven (7) elements of BBBEE • Employment equity (70:30) • Skills development (5% of payroll) • Preferential procurement (40%) • Management & control (89%) • Supplier Development Programme - Enterprise Development: Established five companies (5) & spent about R 10 Million towards the development • Corporate Social Investment - Residual: (over the three year period spent R50.1 Million
BEE Supplier development • PetroSA piloted a successful Supplier Development Programme over two years • South African Supplier Development Agency was launched in September 2005.
BEE Skills transfer and development • Two graduate students were sponsored for international MSc programmes in Reservoir Engineering to address the shortage of skills in that area. • Ten other students have commenced petroleum studies abroad with sponsorship from PetroSA. • PetroSA welcome the Department of Trade and Industry’s (DTI) National Initiative for Partnership Programme (NIPP), in terms of which, foreign companies doing business in South Africa are obliged to provide reciprocal benefits in respect of training. • PetroSA has made huge advances at its Centre of Excellence in Mossel Bay. This Centre serves as an industry model and will make a significant contribution to the planning and smooth execution of the statutory maintenance shutdown of the GTL refinery scheduled for October 2006.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Imvume Transaction • Two public-interest investigations were conducted • R18 million condensate transaction with Imvume Management. • The standing committee on public accounts (SCOPA) recommendations were: - Risk assessment procedures be strengthened - Regular report-backs be made to SCOPA. - PetroSA’s risk management function has been established as a separate function within the Office of the CEO.
Imvume Transaction - Cont • A court settlement agreement was signed with Imvume in August 2005 • Since then good progress has been made in the collection of the advance payment made to Imvume during early 2004. • At 31 March 2006, repayments of R9.5 million had been received in terms of the settlement agreement. • Interest raised on the outstanding amount is R4 million, resulting in the total outstanding debt at 31 March 2006 being R12.5 million. • Since May 2006, Imvume has defaulted on the settlement agreement. • In August 2006, our lawyers were instructed to execute the settlement, by attaching assets.
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Challenges • Slow decision process • Foreign investment approvals • Conversion to new order rights uncertain • Upstream fiscal uncertainty • Shortage of technical and operational skills
Outline • Overview PetroSA • Corporate Objectives • Feedstock Update • LTFT Technology Update • Security of Supply • Global Safety Record • HIV Aids • BEE • Imvume • Challenges • Financial Results
Financial Results 2005/6 • With this year’s performance, further progress has been made within a positive global market context for GTL technology and products over the coming decade. Aggressive commercialisation of GTL know-how and the development of value-added products should bring PetroSA into the mainstream of global demand and diversify the income stream. The national growth outlook is good, with the economic fundamentals firmly in place. • We expect to make further advances in all areas of our business, including a successful refinery maintenance shutdown, possible E&P acquisitions in Namibia and Mozambique, and successful commissioning of the South Coast Gas project. I look forward to reporting back to stakeholders next year.
The graphic below shows the relationship between the rand/dollarexchange rate, the crude oil price and profitability of the company. Permanent workforce demographic profile 31 March 2006
Performance Review 2006 2005 Change R’m R’m % Income Statement Turnover 7 509 6 446 17 Operating profit 2 312 1 715 35 Net profit 2 765 1 737 59 Balance Sheet Total assets 15 595 13 213 18 Total debt 310 427 (27) Net asset value 11 494 9 234 24 Cash generated 3 406 4 078 (16)
Revenue Variance 2006 2005 Change R’m R’m R’m Turnover 7 5096 4461 063 Average ZAR / USD R6.38 R6.28 2% Average crude oil price $58bbl $42bbl 28% AnalysisR’m Price variance 2 410 Volume variance (1 500) Exchange variance 153 1 063
Ration Analysis 2006 2005 % % Gross Margin 40.9 39.1 Cost to revenue ratio 72.6 76.3 Return on assets 17.7 13.1 Gearing 2.6 4.3 Liquidity Current ratio excl. cash 1.55 : 1 1.97 : 1