The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd Reg. No. 1970/008130/07

PetroSA’s Role in the RSA Upstream Petroleum

Sector

Presented to

The Portfolio Committee on Energy

Parliament of RSA

20 February 2014

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Contents

• PetroSA’s Mandate

• Improvement of access to and security of supply:

− RSA, Block 9 and 11a

− RSA, West Coast Assets

− Shale Gas

− State Participation

• Prospects for localisation

• Skills scenario – status quo and a case for an oil and gas training facility

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Complement & promote Government policy & strategic thrust

Advance energy goals and objectives as set out in various

policy instruments , E.g. Energy White Paper (1998), Energy Security Master Plan

( 2007), Medium Term Strategic Framework (2009-2014)

Operate as a commercial entity and create value for the shareholder

• Pay tax and dividends

Advance national objectives in the petroleum industry

• Spearhead industry transformation

Our Mandate

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Improvement of access to and security of supply

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Security of Supply – RSA Definition

• “Ensuring that diverse energy resources, in sustainable quantities and at affordable prices, are

available to the South African economy in support of economic growth and poverty alleviation,

taking into account environmental management requirements and interactions among economic

sectors.” Energy Security Master Plan (2007)

Upstream Perspective

• Diversity - Oil and Gas (including shale gas)

- Geographical spread (various basins, domestically)

• Affordable price - (Strong NOC complemented by sizable indigenous resource base could

drive down price, and ensure sustainable supplies)

Security of Supply - Upstream Perspective

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

RSA South Coast – Block 9 and 11a

N

Project Ikwezi

Block 9

Block 11a

140 km

Sable South Coast Gas

FA Platform

E-CB

E-DC

F-Q

E-P

EM

Block 9

(22 000 km2)

• Mutiple oil and gas discoveries

at different stratigraphic levels

• Main feedstock supplier to the

Mossel Bay GTL plant from

several producing fields

• Relatively mature but potential

for new plays, leads and

prospects

• Continued focus to maintain

and increase PetroSA’s

reserves

Block 11a

(2 200 km2)

• First gas discovery offshore

South Africa.

• Several more gas discoveries

since.

• Potential for future gas

development

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Period Duration DescriptionMinimum

ExpenditureCompleted

Initial Period

(2007 - 2010) 3 Yrs

Geological and geophysical

interpretation. Drill one well $17 000 000 Yes

First Renewal

(Nov 2012-Nov

2014) 2 Yrs

Acquisition and processing of 3D

survey$10 000 000 Yes

Second Renewal

(Nov 2014 - Nov

2016) 2 Yrs

To be proposed by PetroSA at

time of application

Third Renewal

(Nov 2016 - Nov

2018) 2 Yrs

To be proposed by PetroSA at

time of application

Block is 100% owned by PetroSA

Work programme for 1st Renewal Period is complete

PetroSA will commence application to enter 2nd Renewal Period

Block 9 – Further Exploration to aid security of supply

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

RSA - West Coast Assets

Total Asset Area: 151,489 km2

PARTNERS

PETROSA ASSETS, ORANGE BASIN, SOUTH AFRICA

Block Area

(sqkm) Right Joint Venture Equity %

Block 1 19,897 Exploration Cairn India 60%

PetroSA 40%

Block 2A 4,998 Production

Sunbird Energy

76%

PetroSA 24%

Block 2C 6,223 Exploration Anadarko 65%

PetroSA 35%

Block 3A/4A 26,408 Technical

Cooperation Permit

PetroSA 50%

Sasol 50%

Block 5/6 93,963 Exploration Anadarko 80%

PetroSA 20%

Block 3B/4B BHP Billiton

Orange Basin Deepwater Shell

Block 3A/4A PetroSA

2A Sunbird

Block 1 Cairn India

2C Anadarko

Central Orange Basin

Sungu Sungu

Block 5/6 Anadarko

South

Africa

Operators

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 From IHS Data

• Basins in South Africa relatively underexplored • Good success rate in Outeniqua Basin, includes some

un-commercial discoveries though • No deep-water drilling in South Africa yet • Large upside potential remains

South Africa Basins Compared With…..

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Underexplored West Coast, East Coast & Onshore

10 10

ORANGE KAROO NATAL TROUGH

Zululand

Offshore Orange & Natal Basins, and onshore Karoo basins are still underexplored

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Shale Gas -improving the energy landscape of SA

• Feedstock for the GTL plant

• Power plants

• Infrastructure development – roads, railways, pipeline,

gas processing plants

Positive impact on Economy through:

• Job creation

• Taxes and royalties

• Service sector and technology development

• Increased foreign exchange reserves

• Petrochemicals and fertilizer industries/manufacturing, etc

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

• Designate PetroSA as holder of State participation interest in the MPRDA - Enable

NOC to more effectively ensure Security of Supply

• State through NOC to participate from exploration phase based on a free carry, to

develop the technical and commercial knowledge and appreciate risks early on

• To pay its share of forward work programme and past costs from production

proceeds with no obligation if production is not achieved

• To have option to take its share in cash or in kind once production commences

• To have option to increase state’s share after production commences

Empowering the NOC through State Participation

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Implication of state allocation to PetroSA

• Exploration risks, including geological and financial risk carried by foreign explorers • Bring to line with international practice, PetroSA almost the only NOC that competes

with international oil companies for domestic exploration acreage • High farm-in cost to indigenous acreage avoided , E.g, cost of TCP application is R500, and for an Exploration Right = R1200, but cost to farm-into shale gas acreage for a 25% stake easily US$150 million (forward costs) • State allocation will allow early, free entry into all shale gas and conventional

exploration blocks

• As part of the Joint Venture, PetroSA/State will have a voting right and will be privy to decision making progresses, skills and technology as well as risks and resource estimates.

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Prospects for localisation

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

• Local beneficiation - to enhance supply security of liquid fuels and power

• BEE Participation at field development and production phase (core upstream

activities, to develop deep skills and firm knowledge base) - high initial capital outlay

and risk prohibitive for Broad Based participation at exploration phase (Capacitated

BEE’s free to participate at all phases)

• Supplier development - to develop local capacity to supply and service upstream

industry/skills transfer arrangements with foreign Oil & Gas companies

• Human capital development - particularly development of industry core skills, such

as Reservoir Engineering, Petroleum Geoscientists , shale gas specific expertise

Localization - What it should ideally entail

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

A framework for considering opportunity areas –

OffshorePotential Areas for Localization / Services Required by Upstream Sector

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

• Positive balance of payments, more dollars flowing inwards and kept in country,

increasing overall value add to the country

• Oil companies benefit from a successful localization through:

- Smoother flow of supplies of goods and services, increasing efficiencies

and driving down costs

- Reliable local supply, and harmonious stakeholder relations (local

agitation/unrest towards sector kept to a minimum)

- Reduction in operational costs by keeping expatriate staff to a minimum

Localization - Potential Spin-Offs

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

• An assessment of the technological, financial and human resources in the country

• Identification of the types of services that can be performed by local companies

currently

• The types of goods and services that can be developed in the country

• The financial investment required for the development of local goods and services

• The financial investment required to develop the skills required to supply and service

the upstream sector

• A realistic timeline within which this should be achieved

Localization - Key Considerations/Requirements

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Skills scenario – status quo and a case for an oil and gas training

facility

The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

Capacity Building

• PetroSA has over the years been at forefront of developing core

upstream skills in the country, such as Reservoir Engineers and Petroleum

Geoscientists

• There has been more aggressive development of these skills, focussing

on Black South Africans, through Overseas Scholarships (Master and PhD

Programmes), International Secondments, Graduates in Training

Programme, and on the Job training. PetroSA continues on this path

• PetroSA signed a Memorandum of Cooperation with Schlumberger to

explore setting up a shale gas technology development centre in RSA

• The purpose of the centre would be to carry out further research using

Schlumberger’s unique/patented shale gas processes and technologies

• Schlumberger operates in 10 of the largest shale basins in the USA

including

Barnett Shale, Forth Worth Basin

Eagle Ford Shale, Western Gulf Basin

Marcellus Shale, Appalachian Basin

The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd Reg. No. 1970/008130/07