PetroSA in deal with Russia

$400m agreement is signed

EMBATTLED national oil company PetroSA yesterday signed a $400 million (R5.17 billion) agreement with Russia’s Rosgeo to develop oil and gas blocks in South Africa, with PetroSA looking at repositioning itself towards future growth.

The agreement was signed on the sidelines of the ninth Annual Brics Summit held in Xiamen, China.

However, media reports in Europe indicate that the deal is lopsided to the benefit of Rosgeo with Rosgeo’s chief executive Roman Panov quoted as saying that the firm would own 70 percent of the project, while PetroSA would take up the remaining 30 percent and that the project would be financed in partnership with Russian and South African banks.

However, PetroSA would not confirm or deny this reported ownership structure. Thabo Mabaso, PetroSA’s spokesperson, said he was not in the position to confirm these media reports.

“Our guys negotiated the deal well into the night; we will have to wait for our delegation to come back from China to share more details on the deal,” Mabaso said.

In a statement yesterday, Nhlanhla Gumede, PetroSA’s interim chairperson, said the agreement represented a significant development towards building a new strategic thrust for the company.

“A find in block 9 and 11a would result in much-desired exploration activity of our onshore and offshore oil and gas potential. The country and PetroSA will benefit greatly from the find. From the perspective of PetroSA it will result in cheaper feed into the Mossel Bay refinery,“Gumede said. Estimated reserves in the two blocks reportedly total 50 million tons of crude and 1.2 trillion cubic metres of natural gas.

PetroSA has experienced a difficult three years and currently has a projected loss of R2.2bn for the financial year ended March, which follows its record R14.6bn net operating loss in the 2014/15 financial year. Under the terms of the agreement, the exploration areas of blocks 9 and 11a off the south coast of South Africa will be developed by the two firms.

Rosgeo will be tasked with conducting a considerable volume of geological exploration work. In particular, the Russian geological exploration company will carry out more than 4 000km² of 3D seismic operations and over 13 000km² of gravity-magnetic exploration works, as well as the drilling of exploratory wells.

PetroSA said the project envisaged extraction of up to 4 million cubic metres of gas daily and this would subsequently be delivered to PetroSA’s gas-to-liquefied refinery, in Mossel Bay.

In June, an evaluation report into PetroSA’s botched Project Ikhwezi revealed that the venture – which saw the parastatal make a R14.5bn loss in the 2014/15 financial year – was doomed by gross incompetence.

The Ikhwezi project was aimed at drilling offshore wells to supply natural gas to the refinery in Mossel Bay.

Panov said that the signed agreement was aimed at developing bilateral relations and would strengthen Rosgeo’s presence in the African market.

Earlier this year two former PetroSA directors, William Steenkamp and Owen Tobias, took the Central Energy Fund (CEF), the ministry of energy and the state oil company to court for their alleged unlawful dismissal in July.

In his affidavit, Steenkamp has alleged that the board was fired because it failed to lend its support to a Russian firm linked to President Jacob Zuma.

Steenkamp had further charged that untoward offers had been made to certain board members to relinquish their roles in the national oil company for board positions in other state-owned enterprises.

But CEF chairperson Luvo Makasi has hit back at the two, saying that under their directorship PetroSA was plunged into financial distress to the tune of R941 million. CEF is a shareholder in PetroSA.

Makasi yesterday said South Africa’s oil and gas potential remained largely unexplored and the exploration effort with Rosgeo presented significant upside to both the country and PetroSA.

“The upside for PetroSA is the possible expansion of our depleting gas resources,” Makasi said.