Finweek English Edition - - FRONT PAGE - BY JANA MARAIS


Sa­sol is ready to drill for oil and gas off the Dur­ban coast, but pol­icy un­cer­tainty is ham­per­ing fur­ther de­vel­op­ments, says CEO David Con­sta­ble. “We have 82 000km2; the seis­mics are well un­der­way; we know there are re­serves down there. We’re ready to go.”

For an energy-starved coun­try like South Africa, where oil and gas is a nascent in­dus­try, this should be great news. But Sa­sol and its pro­ject part­ner, Italy’s Eni, won’t spend any more money on it for the fore­see­able fu­ture.

“You can’t in­vest. You can’t even bring a drill rig down here be­cause you don’t know what your in­vest­ment ul­ti­mately looks like,” says Con­sta­ble. The main con­cern for oil and gas play­ers is gov­ern­ment’s long-stalled a mend­ments to t he Min­eral and Petroleum Re­sources De­vel­op­ment Act ( MPRDA), which would give gov­ern­ment the right to ac­quire any stake in the oil and gas sec­tor at an “agreed price”.

Con­sta­ble, like many crit­ics of the amend­ments, be­lieves that oil and gas should have their own leg­is­la­tion.

“The risk pro­files are to­tally dif­fer­ent bet ween min­ing and oil and gas. [Ex­plor­ing for hy­dro­car­bons] costs a lot more. You have a lot of dry wells; it is high risk,” he ex­plains.

SA has few proven re­sources, and there­fore, says Con­sta­ble, gov­ern­ment should first in­cen­tivise, and then “turn it up at some fu­ture date” by, for ex­am­ple, i ncreas­ing roy­al­ties. “But hav­ing un­cer­tainty and lack of di­rec­tion doesn’t work for the oil and gas in­dus­try, and es­pe­cially not now with the oil price.”

The MPRDA isn’t the only reg­u­la­tory hurd le: Sa­sol ’s ot her chal­lenges in­clude pro­posed car­bon ta xes, de­lays on gov­ern­ment r ules re­gard­ing fu­els stan­dards, chang­ing BEE codes, air qual­ity leg­is­la­tion, and mas­sive Com­pe­ti­tion Com­mis­sion fines that even­tu­ally get over­turned on ap­peals, such as the re­cent R534m fine re­lated to poly­mer pric­ing. Sa­sol has in­vested sig­nif­i­cantly to en­sure that it is com­pli­ant with the raft of reg­u­la­tions

that gov­ern its busi­ness, which is negated by fur­ther amend­ments to the var­i­ous pieces of leg­is­la­tion.

Con­sta­ble is par­tic­u­larly con­cerned about t he BEE codes. “The dt i [depart­ment of trade and in­dus­try] is tr ying to get their heads around own­er­ship con­trol. That’s a huge goal­post move. We’ve spent a lot of time and ef­fort get­ting to level 4, and we’ll be right back at the bot­tom of the bar­rel when these new codes come into ef­fect.”

Di­ver­sity in Sa­sol is at 65.2%, he says, and 50% in top man­age­ment lev­els. On em­ploy­ment eq­uity, Sa­sol is on track to reach its 2017 tar­gets as agreed with the depart­ment of labour. “Pref­er­en­tial pro­cure­ment, en­ter­prise de­vel­op­ment… all the things we do on the ex­ist­ing score­card is out the win­dow.”

It is one of many mov­ing goal­posts, he says, which is likely to de­ter new in­vest­ment.

“That to me is not cer­tainty.”


With low oil and gas prices forc­ing higher-cost pro­duc­ers out of busi­ness, coun­tries whose economies are heav­ily re­liant on the sec­tor may start look­ing at “rolling out the red car­pet a bit more” to in­vestors, Con­sta­ble reck­ons.

For Sa­sol, Qatar, where it al­ready op­er­ates Oryx, a gas-to-liq­uids (GTL) plant, and Canada, where it has been suf­fer­ing losses f rom its shale gas oper­a­tions, could of­fer po­ten­tial.

“A lot of con­tracts are com­ing up for re­newal in the Mid­dle East,” he says. “Qatar, for ex­am­ple, is con­cerned about the price they can get for LNG [ liq­ue­fied nat­u­ral gas]. That begs the ques­tion − well, let’s take that gas and build another GTL plant, which is an op­por­tu­nity for us as well,” says Con­sta­ble. An Oryx 2 can po­ten­tially leapfrog Sa­sol’s plans to build a GTL plant in Louisiana, he says.

While the $8.9bn eth­ane cracker at the same Lake Charles com­plex in Louisiana is go­ing full-steam ahead, Sa­sol moved the GTL plans, which would cost be­tween $11bn and $14bn, “to t he back­seat” ear­lier t his year fol­low­ing the drop in oil prices.

“It’s not in the trunk,” Con­sta­ble says, adding that Sa­sol has re­worked the orig­i­nal size and scope of the pro­ject as part of its strat­egy to adapt to lower oil prices, prov­ing “ro­bust” re­turns at an oil price of $80 a bar­rel.

“I’m not go­ing to say never to Canada ei­ther – they’re in a world of pain right now. They can’t sell gas in the US be­cause the US has shale gas. Their oil is down to $23 a bar­rel on oil sands,” he says. “It’s re­ally a painful time for Western Canada. I think be­cause of that they’re go­ing to start think­ing about be­ing a l it t le more f riendly, like Louisiana was, to new in­dus­try. In­dus­trial tax hol­i­days, pay­roll re­bates, you know − just nice in­cen­tives to get us more in­ter­ested like Louisiana did.”

With gas be­ing a “buyer’s mar­ket”, SA is in a strong po­si­tion to ne­go­ti­ate con­tracts for LNG im­ports and build a new in­dus­try around that, Con­sta­ble be­lieves.

Sa­sol has sub­mit­ted a pro­posal as part of re­quest for in­for­ma­tion (RFI) to the depart­ment of energy in July. This forms part of gov­ern­ment’s plans to in­crease the con­tri­bu­tion of gas to SA’s energy mix, in­clud­ing through LNG im­ports, a re­gasi­fi­ca­tion ter­mi­nal, set­ting up gas-f i red power plants and bring­ing ad­di­tional gas into the coun­try’s piped grid. Spe­cial eco­nomic zones such as Richards Bay and Coega could work as en­try por­tals for LNG, which would be a “great way to go” for power gen­er­a­tion.

“Cer­tainly we as an in­dus­try would need some pro­tec­tion on LNG prices from an ex­change rate per­spec­tive, but other than that I think we could get there. You know, roll out the red car­pet a lit­tle bit for a new in­dus­try.”

David Con­sta­ble

CEO of Sa­sol

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