PetroSA hit by new R8.8bn funding blow
CAPE TOWN — Financially squeezed PetroSA has to fill an R8.8bn funding gap before February 2017 unless it is given a reprieve by Mineral Resources Minister Mosebenzi Zwane.
The gap relates to abandonment and rehabilitation — when a plant is shut down and the area environmentally rehabilitated.
The National Environmental Management Act requires that provisions for abandonment, decommissioning and rehabilitation be fully funded upfront but PetroSA does not have the cash reserves for this.
The state-owned entity (SOE) has only set aside R1.9bn of the estimated R10.7bn it will require when it stops operating, because it has run out of feedstock for its gasto-liquid refinery in Mossel Bay. It would also have to decommission its offshore structures.
Most of the abandonment expense is set to be incurred up to 2023 but the timing will depend on when PetroSA’s offshore gas fields stop producing at economically viable rates. This will depend on future oil and gas prices.
PetroSA has applied to the minister for a deferment of its obligation to be fully funded. It had also transferred its cash reserves into a ring-fenced decommissioning fund and would continue to do this in future, but the obligation posed “a threat to the going concern of the CEF group”, interim group chief finance officer Lufuno Makhuba said in the 2015/16 annual report tabled in Parliament until Friday.
He said that if the company was compelled to meet this obligation it would not be able to fund its capital investment programme.
“There are currently challenges with funding this gap due to PetroSA’s weakened financial position,” the auditor-general said in his report.
The auditor-general anticipated that the R10.7bn provision was likely to increase once technical advisers had completed their assessment of PetroSA’s abandonment liability.
“PetroSA has until February 2017 to undertake a more adequate assessment of the quantum and close the current and future deficit,” the auditor-general said.
The company suffered a net loss of R449m in the 2015/16 financial year, an improvement on the previous year’s R15bn loss, the biggest of any SOE in SA.
The loss arose from a R12bn impairment on Project Ikhwezi, which failed when new offshore wells yielded only 10% of the gas deposits that had been expected when PetroSA invested in it.
Gross revenue fell 13% to R15.7bn due to lower product prices the report said were “driven by the fall of the price of crude oil worldwide and lower volumes”.
Available cash reserves fell from R4.3bn to R3.7bn and total liabilities rose by R1bn to R16.8bn.
The report also said PetroSA’s long-term financial sustainability was a “serious concern” because of the depletion of its feedstock reserves. Whereas PetroSA had proven and probable reserves of 97.6-billion of standard cubic feet (bscf) at the end of March 2015, this had fallen to 75.8bscf at the end of March 2016.
The cumulative total production from the gas to liquid refinery was 13% below budget at 7.877million barrels in 2015/16, largely attributable to lower than budgeted indigenous production (25% below target), as well as from unplanned outages and a dip in the Eskom power supply in March, the report said.