Tag Archive | Mossel Bay

PetroSA on the rocks for R14.5bn

Project Apollo plan to save PetroSA…

Sent to clients 6 Oct.…..A team comprising of industry experts is now defining a new strategy to save the PetroSA struggling offshorePetroSA logo gas project on the East Coast.   The experts were not named but the exercise is entitled Project Apollo and reports were given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund.

Despite producing a balance sheet that shows a technical cash profit of R2.5bn in simplistic terms made up of revenue less operating costs, in reality PetroSA is clearly beyond business rescue in proper commercial terms unless it manages to get a bail-out from Treasury to save the troubled entity from written off “impairments” of R14,5bn. But business rescue is on the way it would appear.

R11.7bn of the “impairment” was as a result under performance of its Project Ikhwezi to supply gas onshore to Mossgas.

Reality sets in

The total loss for 2014/5 was in reality R14.6bn after tax.      Project Apollo will now tackle the main cause of the loss at Ikwhezi, options stated as including “the maximisation of a number of upstream initiatives; the utilisation of tail gas; and how the gas-to-liquid refinery itself can be optimised with the new, revised and “limited under-supply of feedstock.”

cef logoThe Central Energy Fund (CFE), acting as the parent body for PetroSA, told Parliament that it is applying for such assistance, PetroSA being flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”. CEF described PetroSA’s performance as merely “disappointing”, which raised the ire of most parliamentarians.

Those present

To add pain to the proceedings for Deputy Minister of Energy, Thembisile Majola, and senior heads of the Department of Energy (DOE) also in attendance together with the full board of CFE represented by new acting Chairman Wilfred Ngubane, the auditor general’s (AG) highly critical findings were read out one by one to MPs of the Portfolio Committee on Energy.

All this resulted in the remark from Opposition member, Gordon Mackay, that PetroSA “instead of becoming afikile majola national oil company had become a national disaster”. Criticism was levelled at both CEF and PetroSA across party lines, Chairman Fikile Majola demanding that Parliament conducts its own forensic audit and investigation into the facts that had led PetroSA to achieve such spectacular losses.

It appears that in the total accounting of the loss of R14.6bn for the year under review, R1.8m was also incurred in the form of non-performance penalties; stolen items of R110,000; over payments in retrenchment packages of some R3m; and R55,000 stock losses. Irregular transactions in contravention of company policy amounted to some R17m, the AG noted.

Lack of industry skills

Although the AG’s report was “unqualified” in terms of correct reporting, lack of management controls and bad investments were identified by the AG as the problem. In fact, acting CEO of PetroSA, Mapula Modipa, clearly inferred that lack of skills generally in the particular industry, lack of background knowledge in the international oil investment world and lack of experience in upstream strategic planning had led PetroSA year after year into its loss situation.

Particularly referring to troublesome investments in Ghana, Equatorial Guinea and continued exploration and production at Ikhwezi resulting in the “impairment”, a sort of write down of assets totalling R11.7bn, reports have been submitted before to the Portfolio Committee on Energy over the last two years. Warnings were given.

However in this meeting the AG’s views on the subject were under discussion and the terminology used by the AG could only be interpreted, as put by MPs, as poor management decision-making, lack of knowledge of the oil industry and the appropriate management skills in that area.

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordHowever, over the years going back over previous annual reports for the last five years with forwards by Ministers and Cabinet statements issued over the period, it becomes self-evident that the “drive” to establish PetroSA as a state entity in the fuel and gas industry was politically driven, coupled with (as acting CEO Mapula Modipa had inferred) inexperience in the top echelons.

Still the Mossgas problem onshore

However, self- evident this year were the declining revenues from the wells at sea supplying Mossgas, where it was stated that now one wells had been abandoned, three were in operation and two had yet to be drilled. Project Inkwezi, against a target of 242bn barrels per cubic feet (bcf) only delivered 25 bcf from three wells. A “joint turnaround steering committee” had been formed to help on governance issues, technical performance and the speeding up of decision making. But the bcf is unlikely to change

Part of the new plan has involved of a “head count reduction” and employees had been notified. It was admitted that PetroSA had an obligation to rehabilitate or abandon its offshore and onshore operations costed at R9.3m in terms of the National Environmental Management Act and a funding gap of R9.3m now had to be bridged in the immediate future to pay this further outstanding in terms of the Act.

Further forensic audit

The cross-party call for an independent parliamentary forensic investigation that was made (which included thegordon mackay DA chairperson Fikile Majola as the driver behind the motion) “will hopefully not just result in a blame game”, said Opposition MP Mackay “but get to the bottom of how such an irresponsible number of management decisions with public money took place over so long a period.”

Chairperson Majola (ANC) concluded “This amount of money (R14, 5bn) cannot just be written off without someone being responsible.” He added, “There has appeared much difference between the abilities of technical staff and the technical knowledge of the leaders and decision makers on the board of PetroSA.”

Minister of Energy, Ms Joemat-Pettersson, was again absent from the meeting. However, earlier, in the meeting, the Deputy Minister standing in for her, said “when all is said and done we intend staying in this business”.

Nil from Necsa

necsaA meeting following in the same day, following the CEF presentation, was a report from the Nuclear Energy Corporation (Necsa) which failed to happen because Necsa were unable to produce an annual report or any report, Minister Joemat-Pettersson having obtained an extension of one month to the end of October for the annual report to be ready. Chairperson Majola said that the meeting could not take place without a financial report since oversight of such report was their mandate.

Opposition members complained that not only had Parliament’s time been wasted but that the whole instruction for Necsa to be present “appeared to be a media exercise to show that the governing party was on the ball”.

A litany of problems
The extension for the Annual Report conclusion had been granted to the Minister in terms of the Public Finance Management Act (PMFA), a fact well known, but the media were present in strength in the morning not only for the CEF’s explanation for the PetroSA loss but in the afternoon for Necsa explanation of its loss as a regulatory body, in the light of current media reports on irregularities, staff resignations and dismissals.

Other articles in this category or as background
PetroSA has high hopes with the Chinese – ParlyReportSA
CEF hurt by Mossel Bay losses – ParlyReportSA
Better year for PetroSA with offshore gas potential – ParlyReport

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CEF hurt by Mossel Bay losses

CEF R3.4bn write down was “irregular” …..

PetroSA logoLosses incurred at the Central Energy Fund (CEF) gas to liquid facility at Mossel Bay operated by PetroSA have resulted in a revaluation of assets based on the expected life of the refinery but the impairment that resulted, to the tune of R3.4bn, was found to be “irregular” by the office of the auditor general (AG) when reviewing the CEF 2013/4 results.

CEO of CEF, Siswe Mncwango, appeared before the portfolio committee on energy together with the chief executives of subsidiaries PetroSA, iGas, the Strategic Fuel Fund (SFF), African Exploration and Mining (AE) and the licensing and regulatory petroleum body, PASA, to brief the committee on their annual report and to justify their financial performance in terms of the AG findings for the group.

PetroSA struggling

The key issue central to the impairment of R3.4bn, Mncwango said, was the necessity for subsidiary PetroSA, in terms of its mandate, to maintain its levels of gas feedstock at a sufficient level to meet strategic stock policy in the national interest.  It was necessary, he said, to undertake this accounting process in view of delays experienced in exploiting undersea gas fields.

He said, the plant started operating at Mossel Bay in 1992, the life of plant being estimated at 15 years, and then known as Mossgas. With the project not having the necessary funding for exploration at sea during its early years, the plant consequently became threatened far too early in its planned operating life.

Limited choices

CEF faced two financially driven options, Mncwango explained to parliamentarians.  There was a choice between running the plant at 50% capacity or to close it down, he said.  As the strategic need for gas feedstock was an imperative facing both CEF and PetroSA, it was decided to further explore the existing and nearby gas field area.

Project Ikhwezi was thus born but at this stage expensive drilling to greater depths and lateral drives have been encountered and with newly pioneered methods, this has resulted in major additional costs. However, PetroSA, in a briefing from their engineering head on the subject drilling expectations, indicated that they are confident that plentiful gas supplies are on the cards.

Long time drilling

The project involves tapping into gas reserves in Petro SA’s F-O field which is located 40km south-east of the production platform off the south coast of South Africa.  The first well drilled was finalised in 2013 and the final link between all wells is to be completed during 2014/2015, parliamentarians were told.

The delays that have been experienced have also negatively affected the finances of PetroSA, CEF said, and this had necessitated permission for a temporary impairment from national treasury. However, this was not certificated correctly according to the AG’s report and consequently the R3.4bn impairment became “irregular”.

Difficult waters

According to Andrew Dippenaar, PetroSA’s upstream acting vice-president, Project Ikhwezi may, and probably will, be producing in some eighteen months. The riskiness and speed necessary in trying to find gas in difficult waters has added to the problems, he said, on top of which the gas field is geologically problematic.

This has led to operating losses at refinery level with a result that some sort of accounting write off was necessary in the short term, despite this hurting PetroSA’s current cash reserves of R5.5bn. This amount will not be recoverable, CEF’s financial officer said but he was adamant that this was not a cash loss affecting the taxpayer, more a book entry. CEO Mncwango added that inherited delays in finding gas at sea in the immediate area close to the landing facilities had resulted in the current situation. These were many risks in oil and gas exploration, he said.

Chief financial officer of PetroSA, Lindiwe Bakoro, was insistent that as a result of long delays in exploration any hope of immediate profits might be delayed but long term viability had been planned for and this was expected.  Consequently, new valuations on assets were undertaken to re-gear the project with treasury permission.  However, Bakoro confirmed that PetroSA would await the final results of drilling and connection before any final write down-decision on the impairment took place.

Purchasing procedures

On other irregular expenditure items, totalling some R30m, that appeared in the CEF results noted by the AG, these again were for PetroSA.   Such were mainly as a result of the correct procedures not having been followed in terms of procurement procedure. 

The correct procedures were now followed throughout the CEF group, Mncwango said, and the AG had been satisfied on this subject, since the annual report had not been qualified. A specific “irregular” figure of R1.6bn was also reported for PetroSA in respect of its Ghana operations.

Again it was explained that this was a procedural and the necessary documentation on transfer of monies had been incorrectly processed.   It would appear that treasury permission had been applied for and granted in 2013 but the actual transfer of R1.6bn had taken place in 2014, a different financial year for the record. CEF reported that PetroSA, nevertheless, had shown a particularly good return for the first time on its Ghanaian liquid fuels investment, returning a profit for 2013/4 of some R560m

On or off. Who knows?

Asked if any discussions with Engen on downstream development in the name of PetroSA had progressed, CEF’s Mncwango said that any such discussions were confidential and he would not be drawn into further explanations since these were commercially sensitive, whether with Engen or any other body in the liquid fuels sector.

Ms. Nosizwe Nokwe-Macamo, CEO of PetroSA, concluded that steps were taken to effectively manage fruitless, wasteful and irregular expenditure and that the focus for the national fuels group in the period ahead included delivery on Project Ikhwezi and finalising funding arrangements for “downstream entry”.

Gas plan on the way

The meeting was attended by the deputy minister of energy, who said she was confident that steps taken by both CEF and PetroSA were in the interests of the national strategy on gas supplies and that cabinet were shortly to debate the gas utilization master plan (GUMP). This was in response to opposition members who had complained to the minister that South Africa’s liquid fuels and energy plans could not be finalised until the state’s future gas supply scenario was properly clarified.

Other articles in this category or as background

http://parlyreportsa.co.za/energy/petrosa-has-high-hopes-with-the-chinese/ http://parlyreportsa.co.za/energy/cef-still-has-its-troubles/ http://parlyreportsa.co.za/uncategorized/central-energy-fund-slowly-gets-its-house-in-order/

Posted in Energy, Enviro,Water, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, LinkedIn, Special Recent Posts, Trade & Industry0 Comments

PetroSA has high hopes with the Chinese

Sinopec agreement necessary

PetroSA logoDr Benny Mokaba, an independent consultant on energy planning and options working for PetroSA, confirmed to parliamentarians of the energy committee that a framework agreement had been signed between PetroSA and the giant Chinese petrochemical company, Sinopec. As a result, the Mthombo refinery project at Coega, “continues to gather momentum”.

He asked parliamentarians to remember “that this project had been named as one of the six major projects of the New Growth Plan”.

Crucial infrastructure problems affecting the project were described as rail, port and pipeline issues, relationships with the Coega Development Corporation, Eskom power and dealing with provincial and municipal matters. As this was a presidential “SIP” project, ongoing engagement and reporting on status was being given but parliamentarians were advised that “due to the competitive nature of the industry, very little more could be said.”

Refinery and gas projects

Dr Mokaba said that in the year under review PetroSA had continued to operate safely and profitably; that the Mossel Bay refinery “sustenance” had remained a key focus and the Ikhwezi offshore gas project is progressing well, drilling having started and first gas expected shortly.

However, he said that PetroSA faced increasing challenges with declining feedstock; increased competition for hydrocarbon assets; a weak rand and funding limitations; with the result that it’s cash “was depleting at a fast rate”.

African ventures

Most of the focus of the strategy was on the “upstream plan”, where Dr Mokaba said that PetroSA would “consolidate its recent acquisition in Ghana, known as ‘Sabre’; finalise “farming out” 55% of its equity stake in a block in Equatorial Guinea; and was looking at funding options for a possible acquisition in Venezuela. (During the presentation the exposure by the media of PetroSA of problems in dealings in Ghana had not been made, nor was it mentioned at this meeting)

Sinopec important to the venture

CoegaJoern Falbe, vice president, new ventures, PetroSA, said on midstream matters that the main issue was “we know what we don’t know” and this had led to better planning certainty and the realization that experts, especially when it came to the Mathombo project, were needed.

He pointed out that PetroSA were not the real experts in mega-projects such as this – in fact total project managers and logistical team expertise hardly existed in SA for this kind of undertaking to be handled “in house”, but Sinopec from China were, in their view, the answer and that is why the new framework agreement was an important stage to have finalised.

“We are working closely with IDC over the Mathombo project as well and through them we shall get the financing correct”, he said.   Members asked if government guarantees were going to be needed but this stage had not yet been reached, was the reply.

Little happening downstream

PetroSA said nothing on downstream issues other than to mention a petrol station was being built at Mbizana, working with the local community. Mbizana is a large municipal area located in the Eastern Cape Province on the R61 road connecting KwaZulu Natal south coastal boundary to the N2 highway with a population of approximately 246 500.

On downstream issues generally, the chair explained that PetroSA was in a competitive world and this would not be discussed
Associated articles archived
http://parlyreportsa.co.za//uncategorized/better-year-for-petrosa-with-offshore-gas-potential/
http://parlyreportsa.co.za//uncategorized/integrated-energy-plan-iep-is-not-crystal-ball-gazing-says-doe/

Posted in Energy, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry, Transport0 Comments


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