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The CEF Group of Companies
Presentation to the Select Committee On Economic And Business
Development On the role of CEF in the development and expansion of the
oil and gas industry in South Africa and the African region.
Objectives
 Provide the PCE with an overview of the Oil and Gas Industry from a global, regional and local perspective.
 This overview is aimed at highlighting the core characteristics, risks, opportunities and key drivers that shape
the sector
 Accentuate the Oil and Gas key strategic decisions for the country within the rapidly evolving global sphere
 Provide an overview of future energy demands to drive global economic recovery
 Provide a perspective on industry dynamics in the African continent its long term impact on the continents ability to
refine its own products and the role being played by Traders.
 Touch on key best practices that South Africa can learn from an Oil & Gas transformational agenda
 Elucidate on our current and future initiatives in the industry as the CEF Group and how these are geared towards
strengthening our economic and political role in the sector and region and other industry Body initiatives.
 Although not part of the brief share some insights in the development of renewable energy
 Share the overview of our Strategic Partnership Investment Framework to improve competitiveness in the
Industry
Page  2
Sources of information for this presentation has been obtained from a number of resources, CEF Group Internal documents and other publicly
available information from OPEC, BP Energy Outlook 2016, SAOGA, Congressional Research Services, EIA, E&Y , PWC and World Economic Forum
Structure of the Presentation
CEF Group Overview
-Group Operating Environment Overview
-Oil and Gas Value Chain & role played by each entity
Oil & Gas Industry Overview
-Industry Characteristics, structure and emerging trends
-Sub Sahara and South African Perspectives
Transforming the Oil & Gas Industry
-Lessons from Mexico and Norway
Role of CEF in developing the Oil & Gas Industry
-Initiatives by each entity including energy mix diversification
Leveraging on South Africa’s Competitive Edge
-Elements in our favour
Framework to improve South Africa’s Oil & Gas
Competitiveness
-High Level Strategic Partnership Imperatives
Concluding Remarks
-Concluding remarks & way forward
Page  3
CEF Group Overview
Page  4
Overview of the mandate, vision and mission of CEF
 The Mandate of CEF
is derived from the
CEF Act (No 38 of
1977) and its articles.
The mandate is in
essence to contribute
to the security of
energy supply for the
country.
 The Vision of CEF is  The Mission of CEF is
to be a leading
to grow our footprint in
integrated energy
the energy sector, to
company that provides
be the catalyst for
national sustainable
economic growth and
energy solutions for
energy poverty
South Africa. This way
alleviation through
CEF contributes to
security of supply, and
national energy
access to acceptable
security.
(affordable) energy in
Africa
 The Key Drivers are:  Role of CEF: Search for
appropriate energy solutions to
1. Developmental
meet the future energy needs
Objectives
of South Africa, the Southern
2. Commercial
African Development
Viability
Community and the sub3. Governance
Saharan African region,
including oil, gas, electrical
4. Operating
power, solar energy, lowEnvironment
smoke fuels, biomass, wind
This is the Basis of the
and renewable energy sources
Group Score Card
• Contribute to security of energy supply
• Be strategic partner to the Department of Energy
• Provide comfort to the state on energy sector goal support
• Reduce country’s over dependency on Multinationals
• Align with government’s broad objectives (NDP) and Act as a vehicle for government policy implementation
The above shapes the Group StrategyAchieving the above requires a coordinated Group approach, a conducive legislative framework, political support
and a coherent Group structure that is working towards a common goal
Page  5
Current Group Structure
Minister of Energy
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Page  6
CEF (SOC) Ltd (“CEF”) is the holding
company for a number of subsidiaries,
which, when taken together, constitute the
CEF Group.
These subsidiaries also operate in the
energy sector with commercial, strategic,
regulatory and developmental roles.
3rd Biggest SOE in South Africa
Group Net Asset Value of : 35 Billion Rands
Employs about 2500 people
The Group is actively involved from
Upstream to Downstream operations
Pioneers in the Renewables and Alternative
Energy space
Support NDP objectives and play a critical
role in the Southern Cape Economy and
Southern African Region
75% Revenue is from PetroSA
22% Revenue is from SFF
2% Revenue is from AE
1% Revenue if from iGas
Diversifying The
Group income stream
& energy sources
Renewable
Subsidiaries
CEF
Energy
Projects Division
Other
Subsidiaries
Equalisation Fund
Associate
Companies
ETA Energy
(SWH)
Petro SA
SFF
Methcap (19%)
CCE
IGAS
AE (to DMR)
EnerG Joburg
(29%)
CEF Carbon
(Dormant)
PASA
Core of Group Operations each
with own Governance
Structures
The Oil and Gas Value Chain & Where we operate as the CEF Group
PETRO SA -Exploration & Production
PASA
• Ghana
Promotion, Licensing and Regulating the exploration and
production of the country’s natural oil and gas resources.
• Ikhwezi Gas & All indigenous oil and gas opportunities
SFF
Petro SA
 Tankage/Stratic Stocks
Project Development,
Gas to Power
 Logistics Infrustructure
Gas and Gas
infrastructure
GTL Refinery
Operations
The movement &
storage of
hydrocarbons using
pipeline & ships & value
chain maximisation &
Renewables initiatives
The refining, processesing and
blending of hydrocarbons to
make fuels & chemical products
AEMFC – Mining/coal-In support of Power Generation
Page  7
iGas-
Petro SA
Acquisition of
exploration rights and
search for hydrocarbons
below earth’s surface
Developments of oil
fields and extraction of
hydrocarbons from
reserves
Energy Projects
Division &
Renewables (PPA) Biofuels
PetroSA :
Marketing and supply of finished
products to end users to fuel
economic activity
Overview of the Oil &
Gas Industry- Global
Perspective
Page  8
Global Oil & Gas Industry overview Characteristics and Emerging Trends
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The Oil and Gas Industry is characterised by Long lead times and is Capital
intensive with a number of variables, dependencies (Exchange Rate,
Crude Price and Geopolitical Tension) and inherent risk.
These risks are mainly around compliance with both anticipated and
unanticipated governmental requirements, competition from oil and gas
companies for the acquisition and development of assets and licenses, the
geological nature of oil and gas fields, notably unexpected drilling
conditions, the inability of service companies to deliver on contracted
services, inability to anticipate market changes in a timely manner, adverse
weather conditions, availability of competent skills and delays in the
availability or delivery of appropriate equipment.
The industry is dominated by Multinationals and trading firms mainly in the
West and is dollar based.
As with any other commodity supply and demand are the key drivers of this
industry fuelled by global economic growth mainly in emerging economies
such as China and India.
Bp’s 2016 Energy outlook predicts a drop in energy demand reflecting
both a lower expected profile for Chinese economic growth, and
environmental and climate policies encouraging a faster switch to lower
carbon fuels.
Therefor Investment decisions in the industry take into context as number of
the elements mentioned above and have a long term horizon views.
Page  9
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There is broad consensus in the Oil and Gas Industry on the role
of emerging markets as drivers of energy consumption
growth, with OECD economies showing little growth or outright
declines. All the outlooks show gas as the fastest growing
fossil fuel, and continuing modest growth in oil
The decline in the oil price has had a massive impact on the
sector and the wider global economy. Upstream capital
expenditures (capex) have been significantly cut, with many
exploration and production projects being put on hold
retrenchments taking place. However, for the midstream and
downstream, investment is continuing, as participants invest for
the longer term
With the prevailing low oil markets causing hardships for some
exploration companies, but will create opportunities for those with
the financial resources to acquire value assets that become
available.
On the equipment side, all suppliers are under pressure to
reduce costs; the oilfield service companies that enjoyed high
margins in the recent boom are particularly impacted.
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There are clear signs that the market is adjusting and
that it will gradually rebalance. But the adjustment process
is likely to be long, and energy companies need to adapt
Oil and Gas impact across the value chain as a result of low oil price
Upstream
Refining Operations
Supply & Trading
The steep oil price decline since
2013 is having repercussions both good and bad - across the
globe with the vast oil and gas
industry supply chain is bracing
itself for tough times.
The global refining industry is
currently undergoing rapid changes
amidst
recent
global
market
fluctuations, fall in oil prices and varying
refinery margins. However, the industry
is moving towards stabilization in the
near term future. Global refining
margins have improved significantly in
recent months which should support
strong demand for crude and lend some
strength to both spot prices and
spreads in the short term. Refiners are
currently making enough money from
producing gasoline to cover the costs
incurred in producing not-very profitable
distillate
Global Oil output has declined by about 300,000
barrels per day to 9.3 million barrels per day
(million bbl/d). Most energy forecasters,
including the EIA and the IEA, see global
production falling by around 0.5 million bbl/d in
2016. The decline could be steeper than that
however, given the plunging rig count, high
depletion rates, and extraordinary capex cuts.
"Oil & gas explorers will be
relooking at their budgets and
deciding where to allocate their
limited capital spend given the
substantial decline in the oil price,”
says Chris Bredenhann, an analyst
at
PriceWaterhouse
Coopers
(PwC).
Many projects have been deferred
as exploration is scaled down
resulting in job losses.
Page  10
EIE –Energy Information Administration
LNG supply is up, prices down. While the oil
market is stabilising, LNG’s downturn could just
be getting started. February 2016 delivery
cargoes were going for US $7 per million Btu
(MMBtu). But more global liquefaction and
export capacity is set to hit the market in
2016, exacerbating the glut. The first export
facility in the U.S. – Cheniere Energy’s Sabine
Pass – will start up soon. With supply set to
jump faster than demand, prices will remain low
and could fall even further
Looking Ahead- Energy Demands and drivers of the Oil & Gas Industry -2016-2035
 Population and income are the key drivers behind growing demand for energy and the Oil & Gas Sector in the next 20 years
 The world’s population is projected to increase by around 1.5 billion people to reach nearly 8.8 billion people by 2035.
 Over the same period, GDP is expected to more than double; around one-fifth of that increase comes from population growth and
four-fifths from improvements in productivity (i.e. GDP per person).
 China and India together account for almost half of the increase in global GDP, with OECD economies accounting for around a
quarter.
 Africa accounts for almost half of the increase in the world’s population, such that by 2035 it is projected to have 30% more
people than China and 20% more than India. Yet Africa accounts for less than 10% of the increase in both global GDP and
energy consumption over the Outlook.
 The growth in the world economy means more energy is required; energy consumption increases by 34% between 2014 and
2035.
 Virtually all additional energy is consumed in fast-growing emerging economies; energy demand within the OECD barely grows.
 The growth of energy is slower than in the recent past – 1.4% per annum (p.a.) versus 2.3% p.a. in 2000-14 – reflecting
significantly faster falls in energy intensity (energy used per unit of GDP).
 China’s energy demand growth slows as its economy rebalances, towards a more sustainable rate. By the final decade of the
Outlook, China contributes less than 30% of global energy growth, compared with nearly 60% over the past decade.
OECD –Organisation for Economic Cooperation and Economic Development
Page  11
Changes in future fuel mix
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Page  12
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More than half of the increase in global energy
consumption is used for power generation as the longrun trend towards global electrification continues: the
share of energy used for power generation rises from 42%
today to 45% by 2035.
Fossil fuels remain the dominant source of energy powering the global economy, providing
around 60% of the growth in energy and accounting for almost 80% of total energy supply in
2035
Gas is the fastest growing fossil fuel (1.8% p.a.), with its share in primary energy gradually
increasing. Oil grows steadily (0.9% p.a.), although the trend decline in its share continues.
Coal suffers a sharp reversal in its fortunes. After gaining share since 2000, the growth of coal is
projected to slow sharply (0.5% p.a.), such that by 2035 the share of coal in primary energy is at
an all-time low, with gas replacing it as the second-largest fuel source.
Among non-fossil fuels, renewables (including biofuels) grow rapidly (6.6% p.a.), causing their
share in primary energy to rise.
Rise in urbanisation and increasing middle class is likely to increase energy consumption
Source BP 2016 Energy Outlook
Overview of the Oil &
Gas Industry- Sub
Sahara Perspective
Page  13
Sub Sahara Perspective –Oil
 Sub-Saharan Africa is a vast region of approximately 27 000
square kilometers. Geographically, it is the area of the continent
of Africa that lies south of the Sahara Desert. Politically, it
consists of all African countries that are fully or partially located
south of the Sahara
 Sub-Saharan Africa has 63.1 billion barrels of proved crude
oil reserves. The Middle East has 13 times that amount and
Central and South America has 5 times that amount.
 Based on latest figures, Sub-Saharan Africa (SSA) produces
nearly 6 million bbl/d of liquid fuels which is about 7% of total
world oil production.
 Nigeria has been the top liquid fuels producer in the SSA
region, followed by Angola. Together they made up 75% of
total liquid fuels produced in Sub-Saharan Africa
 Unplanned disruptions caused by oil theft and pipeline damage
compromises a substantial portion of Nigeria’s crude oil
production.
Sub-Saharan Africa Proven Oil Reserves (source: - January
2014
Country
World
Reserves
Share of
Rank
(MMbbl = 1
World
Production
million
barrels)
10
Nigeria
37 200
2.51%
18
Angola
10 470
0.71%
26
Ghana
5 000
0.34%
31
Gabon
3 700
0.25%
37
Congo (Republic) 1 940
0.13%
38
Equatorial Guinea 1 705
0.13%
40
Chad
1 500
0.10%
44
Uganda
1 000
0.07%
59
Cameroon
200
0.01%
62
Congo (DRC)
180
0.01%
71
Ivory Coast
100
0.01%
72
Mauritania
100
0.01%
86
South Africa
15
0.001%
91
Benin
8
0.001%
99
Ethipia
0.4
0.000%
Total
63 118
Sub4.26%
Saharan Africa
Source: SAOGA
Page  14
Sub Sahara Oil Export Markets
Sub-Saharan Africa's Exports of Crude Oil
 U.S. crude oil imports from Nigeria have declined sharply
because of growing U.S. production of light sweet crude
oil, of similar quality to Nigerian crude. Nigeria typically
accounted for about 10% of the crude oil imported into the
United States; share dropped to about 5%.
 Nigeria exported around 2.2 million bb/d of liquid fuels in
2012. Exports diverted from the United States have been
absorbed by the European Union, making the region the
leading regional importer of Nigeria’s oil.
 China was the largest crude oil importer from SubSaharan Africa, followed by the United States. Angola is
the second leading exporter of crude to China and
accounted for 15% of China’s crude oil imports in 2012
 The current low oil prices have had major economic
impact on countries like Nigeria and Angola that rely on
oil for about 70% of their budgets and over 90% of their
exports. This has led to the devaluation of the currencies
in these countries and raising of interest rates.
Page  15
Source: APEX Tanker Data
Sub Sahara Refinery Capabilities
 Despite Sub Sahara Africa’s substantial oil resources, refining capacity remains limited.
 As such, countries like Angola and Nigeria export crude oil, only to import refined oil at an additional cost.
 Refining capacity is much lower than crude output and this gap continues to widen significantly.
 To make matters worse, existing refineries are not even operating at full capacity; in fact, refinery throughput
continues to be below crude output. This points towards a big opportunity for investors to build refineries.
 There are however many challenges that limit the incentive to invest in refineries in Sub Sahara. Such challenges
include corruption, poor maintenance, theft, and other operational problems.
 Over the years the region has also seen a number Trading Houses (Vitol, Galp Energia, Trafigura, Mercuria
making significant inroads through the acquisition of Major Oil Company assets, storage facilities or Marketing
presence.
 The aging refineries in Africa and the aggressive expansion of Traders could signal future challenges for the
continent and create more dependency on outside finished products.
Page  16
Sub Sahara Perspective –Gas
 Sub-Saharan Africa has 221.6 trillion cubic feet of
proved natural gas reserves. The Middle East has
almost 13 times that amount and Eurasia has almost
10 times that amount.
 Sub-Saharan Africa produced 1.69 trillion cubic
feet of natural gas in 2011, accounting for 1% of
total global natural gas production.
 Natural gas production in Sub-Saharan Africa grew
by an annual average of 10% over the past ten
years.
Sub-Saharan Africa Proven Natural Gas Reserves - January 2014
World Rank
Country
Reserves
Share of
(cubic metres)
World
Production
8
Nigeria
5 246 000 000 000 2.80%
42
Angola
271 800 000 000
0.15%
50
Cameroon
135 100 000 000
0.07%
51
Mozambique
127 400 000 000
0.07%
56
Congo (Republic)
90 610 000 000
0.05%
61
Namibia
62 290 000 000
0.03%
63
Rwanda
56 630 000 000
0.03%
67
Equatorial Guinea 36 810 000 000
0.02%
70
Cote d'Ivoire
28 320 000 000
0.02%
71
Mauritania
28 320 000 000
0.02%
72
Gabon
28 320 000 000
0.02%
75
Ghana
22 650 000 000
0.012%
83
Tanzania
6 510 000 000
0.003%
96
Benin
1 133 000 000
0.001%
97
Congo (DRC)
991 100 000
0.001%
100
South Africa
453 068 800
0.0002%
Total
6 143 337 168 800 3.28%
Sub-Saharan
Africa
 Growth was led by Nigeria, Equatorial Guinea, and
Mozambique. Nigeria produces around two-thirds of
the region’s natural gas, although Nigeria’s
production could be higher but it flares 20-25% of its
Source: SAOGA
gross production
 Sub-Saharan Africa exports about 1.22 trillion cubic feet of natural gas via pipeline and liquefied natural
gas (LNG). Nigeria, Equatorial Guinea, and Mozambique are the only sizable natural gas exporters in
the region. Angola joined the group in 2013 when it began exporting LNG
Page  17
Sub Sahara LNG Export Markets
1. Mozambique
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A bulk of Mozambique's Gas is sent to South Africa via
pipeline
2. Equatorial Guinea
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Exports LNG mainly to Asia, followed by Latin America
and Europe
3. Nigeria
 The vast majority of natural gas exports are LNG, with
small amounts exported via the West African Gas
Pipeline
 In 2012, Asia overtook Europe as the largest regional
importer of Nigeria’s LNG. This is largely due to Japan,
which more than doubled its LNG imports from Nigeria
4. Angola
 Exports LNG mainly to Latin America
Page  18
Sub Sahara LNG Future Growth
 East Africa’s dry natural gas production is
expected to grow by an annual average of 6%
from 2010 to 2040. Recent offshore
discoveries in Mozambique and Tanzania are
expected to boost production in the region.
 Offshore natural gas resources in Namibia
and coalbed methane exploration in South
Africa, Zimbabwe, and Botswana could add to
southern Africa’s natural gas production.
 Natural gas production in Sub-Saharan Africa
is projected to grow at an annual average rate
of around 5% from 2010 to 2040.
 West Africa is projected to dominate natural
gas production in Sub-Saharan Africa in the
long term, accounting for 81% of the region’s
natural gas growth from 2010 to 2040.
Overview of the Oil &
Gas Industry- South
African Perspective
Page  19
South African Perspective –Upstream
 South Africa does not have significant proven oil and gas reserves and produces oil and gas from coal and
imported crude oil.
 The relative under-utilisation of gas is as a result of the abundant coal resources in the country that allowed South
Africa to produce petroleum and by-products as well as electricity cheaply from coal.
 However, declining coal resources and the relative cost of coal-produced electricity and petroleum in financial and
environmental terms is seeing South Africa diversify its energy mix, a process that is already under way.
 The South African Upstream sector although robust is not as mature as the rest of the world and most of our input
costs is import related. This implies that most costs are dollar based. Because the country does not have a mature
services industry to support the complex business operations (Rigs, Helicopters, Decommissioning Services, and
other specialised skills) these have to be acquired abroad at a high costs.
 The PetroSA offshore operations are the only active operations in the region albeit in an area that is notorious for
challenging rough see conditions.
Page  20
South African Perspective -Downstream
 South Africa’s combined consumption of Petrol, Diesel, Jet fuel and Illuminating Paraffin in relation to
other countries in Africa is large however the country’s consumption is small in international terms
 South Africa consumes 28 billion litres per annum versus some 36 billion litres per annum for the whole of
SADC
 South Africa’s consumption is the same as the greater Los Angeles area
 South African refining name plate capacity in crude oil equivalent terms of some 700 000 bbl./d.
 PetroSA GTL Refinery’s name plate capacity is 45 000 barrels per day (bbl./d) in crude oil equivalent
terms equating to some 6% of the total name plate capacity in South Africa
 The general nature of the refining business is capital intensive with high fixed operating costs,
low unit margins and a margin taking business instead of a margin setting business. Hence
economies of scale are essential for economic viability of refining business.
 South Africa’s combined local production of Petrol, Diesel, Jet fuel and Illuminating Paraffin is some 24
billion litres per annum and thus is dependent on imports to meet demand
 South Africa imports 95 octane Petrol, both 500ppm & 50ppm sulphur Diesel and smaller quantities of
Jet fuel
Page  21
South African Perspective continued
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Given the relatively small size of the oil industry in South Africa and the high capital cost of entry there are a
limited number of companies within the oil industry operating across the entire value chain
 This has resulted in the oil industry operating as an oligopoly
 Thus market entry for a new entrant can only be effectively achieved through acquisition of an existing
player
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The geography of South Africa is vast and the demand for petroleum products is influenced by concentration of
economic development in urban areas such as Gauteng and surrounds, the Greater Durban-Pinetown corridor,
Greater Cape Town and areas around East London/Port Elizabeth which together consume some 90% of the
petroleum product requirements for South Africa.
The remaining 10% demand for petroleum products is consumed by the remainder of South Africa which tends
to be largely rural.
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Given the limited indigenous crude oil resources and South Africa’s dependence on imported crude oil, with the
related impact on balance of payments, security of supply was an important consideration for the development of
the democratic South Africa.
Page  22
Mapping the Downstream industry players
Refinery
Capabilities
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Retail
Presence
Yes
Yes
Yes
No
Yes
Yes
Yes
Commercial
Presence
Yes
Yes
Yes
Limited
Yes
Yes
Yes
Lubricants
Yes
Yes
Yes
No
Yes
Yes
Yes
Speciality
Products
Yes
Yes
Yes
No
Yes
Yes
Yes
Extensive
Depot
Network
Yes
Yes
Yes
Limited
Yes
Yes
Yes
On road
fuelling
capability
Yes
Yes
Yes
No
Yes
Yes
Yes
Page  23
Key Oil and Gas perspective and strategic considerations
 Global demand for energy continues to rise
– to power increased levels of activity as the world economy continues to grow
 Energy mix changes significantly
– coal losing, renewables gaining, and oil and gas combined holding steady
 Growth rate of carbon emissions slows sharply
– but not by enough without further policy changes
 With clear indications of the emerging fuel mix, where should the African Continent be investing today to capture the
opportunities of tomorrow?
 Although Africa’s population will grow rapidly in the next coming years, its contribution to world GDP is insignificant, what can
be done to accelerate GDP in the continent
 What opportunities exist for Refinery upgrades and new builds
 Do opportunities exist for more coordinated regional planning and dealing with possible disruptions
Page  24
Transforming the Oil
& Gas Sector
(Energy Reforms) Lessons from Mexico
& Norway
Page  25
Mexican Reforms
 In December 20, 2013, Mexican President Enrique Peña Nieto signed historic constitutional reforms related to
Mexico’s energy sector aimed at reversing oil and gas production declines
 On August 11, 2014, secondary laws to implement those reforms officially opened Mexico’s oil, natural gas, and
power sectors to private investment and strategic partnership
 The reforms were not established solely on the basis of securing revenues, but intended to generate new jobs, to
benefit the local population and economy with the long term view of Mexico being an energy hub
 As a result, Pemex (The National Oil Company) now partners with international companies that have the
experience and capital required for exploring Mexico’s vast deep water and shale resources
 The energy reforms transform Pemex into a “productive state enterprise” with more autonomy and a lower tax
burden than before, but make it subject to competition with private investors.
 As part of these reforms different types of contracts for private companies interested in investing in Mexico,
including production-sharing and licensing; allow companies to post reserves for accounting purposes; establish
a sovereign wealth fund; and create new regulators
 increase this as well as transportation and storage for refined products.” These are the areas of opportunity for
investors. Mexico urgently needs to increase its storage of refined products, along the lines of those used in OECD
countries.
Page  26
The Norwegian Model
 Statoil was founded in 1972 as the national oil company (NOC) of Norway.
 Along with Brazil's Petrobras, Statoil today is a leader in several technological areas including operations in
deep water.
 With its arm's length relationship to the Norwegian government and partially-private ownership, it is generally
considered to be among the state-controlled oil companies most similar to an international oil company in
governance, business strategy, and performance.
 The "Norwegian Model" of distinguishing Statoil's commercial responsibilities in hydrocarbons from regulatory and
policy functions granted to other government bodies has inspired admiration and imitation as the canonical model
of good bureaucratic design for a hydrocarbons sector.
 Key Elements of the Norwegian Model
Page  27
1
Focused Policy orientation
2
Systematic efforts to build competence
3
Development of Norwegian industry and
technological capability
4
Experience, Highly competent producer and
Strategic Partnership
5
Domestic significance
6
Government Relationships
Role of CEF on the
development and
expansion of the oil and
gas industry in South
Africa and the African
region.
Page  28
Energy Security Master Plan (ESMP) DME 2007 & The Role of CEF
 According to ESMP “Energy security means 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 environment management requirements and interactions among economic sectors.”
 In 2006, it was estimated that the economy would, in the case of total fuel supply disruption, lose at least R925
million a day (at 2005 prices), raising a fundamental question regarding the role of government in ensuring security
of supply.
 The Master Plan focused short term measures being developing supply chain solutions to South Africa’s liquid
fuels supply challenges, management of liquid fuels demand and emergency response. New Multi- Product
Pipeline was built in 2010 and CEF had to pay over a R1bill to ensure the functioning of the pipeline
 The long term approach however is broader and seeks to integrate supply, demand, macroeconomics,
geopolitics and climate change without excluding supply chain issues. It further seeks to allow for making of
well-informed choices of energy supply options, energy carriers options, demand sector strategies as well as
energy transformation approaches that will minimise negative impacts on the environment and the economy.
 It was recommended that the local production of finished petroleum products be promoted, and specifically, that at
least 30% of finished products be manufactured from indigenous raw materials- CEF has pursued E & P in
search for indigenous gas feedstock
Page  29
The various elements of providing Energy Security for South Africa
 Diverse energy resources: this part creates a link between this definition and the policy stance that predicates energy security on
diversification, as expressed in the Energy White Paper (1998) – CEF Response GAS OPTIONS and RENEWABLES
 Sustainable quantities: this seeks to create an implicit link between supply and demand, through the use of the term ‘sustainable’.
By definition, this also includes efficiency in both production and consumption, as well as economic viability- Strategic Stock
and New Refining Capacity- Project Mthombo
 affordable prices…economic growth and poverty alleviation: this further seeks to create a link between supply and demand, by
fostering security of demand through ensuring affordability, a key consideration given the challenge of poverty alleviation. The
focus on economic growth seeks to position energy as a strategic input to a resource-intensive South African economy; - Timing
of all initiatives to take impact into the economy
 environment management requirements: considering the effect of energy on the environment, and vice versa, it is important that
the often conflicting impacts are managed in a balanced manner. This may also include managing the dichotomy of ensuring
affordability while attempting to internalise the environmental cost associated with conventional energy production and
consumption, as well as introducing cleaner alternatives; - advocates for clean fuels & compliance to new
environmental standards
 interactions among economic sectors: this seeks to emphasize that an integrated approach is required, taking into account the
convergence between such sectors as electricity and liquid fuels, between liquid fuels and agricultural commodity markets, as well
as impacts on other economic sectors’ competitiveness- Had to treat fuel as the vein for the 59% GDP economic
sector contributors which cannot run without fuel
Page  30
New Refining Capacity in South Africa
 According to ESMP “Without additional refining capacity, South Africa will increasingly be dependent on
imported refined fuels. It is also increasingly more technically challenging and costly to gain access to
upstream oil and gas resources due to increased competition fuelled by escalating global demand for these
resources.”
 It was therefore recommended that 30% of all crude consumed in South Africa be procured through PetroSA
 A recent study conducted shows that the national demand for automotive fuels will exceed South Africa’s
production capacity in the near future. (FSSST )
 Forecast Liquid Fuels Supply shortfall for South Africa exceeds 6billion liters
 It is evident from the forecast that either a new CTL (roughly 5 billion litres/annum), or crude refinery, at double
the capacity, could be accommodated from 2013/14, which is the earliest date by which any one of these could
be implemented. Local companies are currently working on building business cases for securing the supply of
liquid fuels through CTL and Crude Oil Refining.
 CEF spent a number of years studying the above options and recommended that a new crude refinery be
built in South Africa for Sub-Saharan fuel requirements.
Page  31
PETROSA
Page  32
PetroSA has been a pioneer in integrated GTL business and gas field developments in
South Africa
PetroSA Mandate
•
Operate as a commercial entity and create value for the shareholder.

•
Advance national objectives in the petroleum industry

•
Ensuring security of energy supply, payment of tax and dividends
Supporting economic growth, job creation, spearheading industry transformation
Compliment and promote Government policy and strategic thrust (advance energy goals)
•
Established in 2002*
•
Employs ~1400 staff. Owns one of the world’s largest GTL
refineries.
PetroSA Core Activities:
•
Exploration, development and production of oil and gas.
•
>2 Decades of experience in developing and operating gas
infrastructure.
•
Participation in and acquisition of local as well as
international upstream petroleum ventures.
•
Business spans the petroleum value chain
•
Production of synthetic fuels from gas.
•
Produces diesel, gasoline, kerosene and specialty products
•
•
Has produced ~70 MMbbl crude oil &
more than 1 Tcf of natural gas to date. Currently produces
Development of domestic refining and liquid fuels logistical
infrastructure.
•
Marketing and trading of oil and petro-chemicals.
•
Has upstream presence in South Africa and Ghana.
•
•
Contributes 75% towards Group revenue
Has funded its operations and capital expenditure from own
balance sheet
•
Years of experience developing and operating complex gas fields
* Established
Page  33
through the merger between Soekor (Pty) Ltd and parts of the Strategic Fuel Fund
The GTL Refinery- The Core Asset
Over the next 5 years, PetroSA will
spending over 3bn Rands with plant
modifications and upgrades to improve
refining capacity and ensure security
of energy supply. Most of these
initiatives are in the feasibility /Front
End Loading stages as part of the long
terms planning for ensuring
sustainability of the GTL Refinery
Coupled with these modifications and
on going refinery upgrades, PetroSA
will aggressively invest about 500
Million Rands in Sales and
Marketing assets in the next year to
enhance presence and customer
service.
Page  34
South Africa remains relatively under-explored, presenting various upstream opportunities
In the medium to long term period,
PetroSA will be embarking on a
number of strategic partnerships in
the Upstream area as part of the
organisations efforts for derisking the
upstream operations, getting access to
funding and technical skills required
to execute large complex upstream
projects.
PetroSA is active along the South- and West Coast of South Africa
Page  35
Our current upstream portfolio presents opportunities for collaboration
Region
Area
(sqkm)
Petroleum License
22 329
Exploration Right
1st Renewal
1272
Exploration Right
Block 1
19 897
Block 2A
4 998
Asset
Block 9
Block 11a
South
Africa
Equity
Partners
Equity
Holding
23-Nov-12
PetroSA
100%
1st Renewal
23-Nov-12
PetroSA
100%
Exploration Right
1st Renewal
07-Feb-13
60%
40%
Production Right
Gas Marketing
Development Period
26-Aug-09
Cairn India
PetroSA
Sunbird
Energy
PetroSA
Anadarko
PetroSA
PetroSA
Sasol
50%
Anadarko
PetroSA
80%
20%
Petroleum Right Phase Date of Award
Block 2C
6 223
Exploration
Exploration Right
under application
Under
application
Block 3A/4A
25 332
Exploration Right
Exploration Right
under application
Under
Application
Block 5/6
93 963
Exploration
First Phase
17-Aug-12
76%
24%
65%
35%
50%
* Operator
Total Acreage Area offshore South Africa:
150 413 km2
Page  36
•
PetroSA operator of all the Production Rights in Block 9 as well as Block 9, 11a and 3A/4A Exploration Rights
•
Partner in 3 Exploration Rights and one Production Right on the West Coast
•
Internationally experienced partners and operators
PetroSA Ghana:
Success through
partnerships
PetroSA Equity Share per Block:
•
•
•
Jubilee Unitised Area - 2.73%
DWT - 3.83%
WCTP - 1.8%
West Cape Three Points Block:
(Appraisal Phase)
(Operator: Kosmos Energy)
Deep Water Tano Block:
Jubilee Unitised Area:
(Development Phase)
(Production Phase)
(Unit Operator: Tullow Oil)
(Operator: Tullow Oil)
Gas
Oil
Oil
Page  37
PetroSA’s LNG importation project will unlock the growth potential for gas in South Africa
Proposed LNG terminal to comprise
the following:
• Offshore Infrastructure (jetty, trestle,
cryogenic pipelines)
• Onshore Infrastructure (storage
tanks, re-gasification equipment,
auxiliaries)
• Associative Pipeline Infrastructure
• Will create opportunities to supply
Independent Power Producers
(IPPs)
• Various locations have been
evaluated.
Page  38
Oil PetroSA Initiatives to develop skills and participations
Offshore logistics Base Management
Supplier Development
Training & Development
20 year concession opportunity for the
Operatorship of the Offshore Logistics
Base in the Port of Saldanha. General
port services as well as services to
support the Offshore Oil and Gas
Exploration and Production . These
services are essentially what is currently
being provided by the Mossel Bay
Offshore Logistics Base within the
Operations Division.
Supplier Development Analysis Project
(DTI, DMR ,OPASA) to :
Conduct a financial analysis baseline of
Oil & Gas procurement in South Africa’s
offshore industry
Setting targets for minimum local
production and supply in proportion to
total domestic upstream Oil & Gas value
chain
Establishing national enterprise & supplier
development and training programme for
upstream O&G
PetroSA runs a Centre of Excellence
where artisans are trained and given the
required skills to be able to operate in the
Downstream environment. Where
possible most of these artisans are
absorbed into the Refinery operation. This
training also helps for the scheduled
maintenance shut downs.
This is central to job creation
Page  39
PetroSA Actively takes in Graduates In
Training and absorbes them into the
organisation providing them with practical
work experience in the Oil and Gas
Industry
iGAS
Page  40
Igas Overview
 iGas is the official State agency for the development of the hydrocarbon gas industry in Southern Africa

iGas should advance the energy goals set out in the White Paper on Energy Policy (December 1998) or as revised from
time to time. Specifically iGas will promote the diversification of energy usage into hydrocarbon gas
 Where investments are made outside South Africa iGas should prefer investments in SADC and African countries

iGas may from time to time and in accordance with sound business principles, enter into joint ventures for gas
transmission pipelines and related projects
 All projects/investments of iGas should be guided by normal commercial criteria
 Investments decisions should not depend upon state funding or state guarantees for loans other than from the resources of
CEF.
 iGas has focused on gas infrastructure to enable natural gas to flow to South Africa
Page  41
Igas Gas Transmission pipeline network
2nd Expansion,
Complete December
2014
 The Rompco gas transmission pipeline is a
successful joint venture with the Mozambique
Government and Sasol. Rompco continues to
expand the gas transmission pipeline network.
The pipeline transports a significant amount of
natural gas to the Gauteng, Mpumalanga and Free
State industrial hubs.
 Sasol’s natural gas is supplied via the 865km
ROMPCO natural gas transmission pipeline from
the Pande and Temane Gas Field in Mozambique,
to Sasol’s plants in Secunda and Sasolburg.
 The pipeline is 50% owned by Sasol, 25% by the
South African Government (CEF) and the other
25% by the Mozambique Government. The existing
pipeline is being expanded with the introduction of
loop lines to ramp up to 147 million GJ
 In an effort to bring more gas into the country iGas
through the Rompco Loop Line 2 construction in
Mozambique progressing well with a budget of
2.7bn. To date 83% complete and about two
months ahead of schedule
Page  42
Igas Gas Transmission pipeline network
 iGas develops new infrastructure projects;
 LNG regasification terminal and port related infrastructure basic design at Coega completed in 2007/2008 to
supply gas to a 2400 MW power station.
 Gas transmission pipeline feasibility study for natural gas from Saladanha Bay to Eskom’s Ankerlig Power
Plant.
 Input to Project Phakisa for gas transmission pipelines within and connecting IDZs
Page  43
SFF
Page  44
SFF Overview
SFF Core Function
SFF is a nominated stockpiling agency of the Republic in terms s17(1) of the National Energy Act of 2008.
•
‘The Minister may, in a prescribed manner, for the purposes of ensuring security of supply, direct any state-owned entity to acquire, maintain,
monitor and manage national strategic energy feedstock and carriers)
Operating since 1954
SFF Core Activities:

Previously controlled the Equalization Fund

Saldanha In-ground Crude Oil Terminal

Operations in the Western Cape (Saldanha Bay & Milnerton) and

Milnerton Crude Oil Terminal

Ogies underground bunkers storage facilities (Capacity to
eMalahleni (Ogies)

Employs 138 personnel

39 Steel tanks, each with 200 000 barrels storage capacity

6 in-ground tanks, each with 7.5 million barrels storage capacity.
Page  45
store 75 million barrels)

Oil Spill Response services
SFF Initiatives
PROJECT
STATUS
(Milnerton Terminal)
Refurbishment of Milnerton
crude oil tanks
INVESTMENT
PURPOSE
TIMELINE
Ongoing (Inspection/
Integrity assessment
phase)
R270 million
To be inline with NERSA requirements for
licensing to meet with API standards .
Once refurbished, the tanks can be used
to store crude oil for commercial purposes.
March 2017
Construction of a storage
terminal in the Gulf of Guinea
Feasibility studies and
internal governance
approval processes
TBC
Construction of a storage terminal to
create a regional storage hub for both
products and crude in the Gulf of Guinea
as a gateway to West Africa as equity
investor and operator
TBC
Identification of Strategic
Location for finished product
storage – To accommodate
increase in strategic stock.
All locations identified.
Negotiations for land
with Transnet has
started.
Investment of refined
products is targeted.
To be ready for increase in Strategic Stock
when the draft policy is approved.
March 2017
(Saldanha Terminal)
Loading arm refurbishment
Procurement
processes completed
service provider
identified
Capital expenditure
R 39.2 m
To ensure that 3 loading arms are
available to connect to ships for loading/
offloading.
October 2016April 2018
(Saldanha Terminal)
Replacement of Gangway at
the Jetty.
Awaiting approval of
sole source supplier
Capital expenditure
R 7.5 m
Allow access to and from the ship
March 2017
Page  46
CAPITAL
EXPENDITURE
Other SFF Developmental Initiatives (Operation Phakisa)
 SFF, through its oil pollution control division, is part of the Operation Phakisa B1 Lab Initiative that is tasked with
developing an oil spill emergency response plan for South Africa.
 SFF funded the first Incident Command System (ICS) training workshop for all stakeholders in 2015 and will
continue to provide financial assistance to the initiative as and when requested by the Department of
Environmental Affairs – Ocean & Coastal Management Branch.
 SFF is also participating in the development of the emergency response plan and will provide personnel to be
trained, at SFF’s expense, in the management of oil spill incidents.
 These trained personnel will form part of the country’s standby oil spill response team and will be at the disposal
of the Department of Environmental Affairs and Department of Transport (SAMSA). SFF, by training its personnel
to the standard required to implement Operation Phakisa, will be assisting the Department of Environmental Affairs
(DEA) in containing its training budget.
 SFF has also budgeted to acquire additional oil spill response vessels and other oil pollution control equipment
during the 2016/17 financial year. The list of SFF’s current inventory for combating oil spills has already been
provided to the DEA database, making the inventory available for DEA’s needs in dealing with oil spills should a
need arises
Page  47
PASA
Page  48
Petroleum Regulation
 Petroleum exploration and production is regulated by the Mineral and Petroleum
Resources Development Act, 2002 (Act No.28 of 2002) (MPRDA), the Regulations and
other forms of legislation.
 Regulatory functions which involve ensuring adherence to the provisions of the
MPRDA are undertaken by Regulation Division comprising the following three
departments:
 Licensing and Legal Compliance;
 Technical Compliance; and
 Environmental Compliance.
Page  49
Regulatory Functions
 Regulation Division is responsible for performing the following regulatory functions:
 Receive, process applications for different types of permits/rights and make recommendations to the Minister;
 Ensure that permit/right holders comply with the law, including terms and conditions of the granted permits/rights;
 Promote economic growth and petroleum resource Development (Optimal exploration and production);
 Ensure that production right holders contribute to socio-economic development (Social and Labour Plans and
empowerment);and
 Give effect to section 24 of the Constitution by ensuring development of petroleum resources in an orderly and
ecologically sustainable manner (Environmental Management Plans/Programs/Environmental Authorisations).
Page  50
South African Extended Continental Shelf Project
 This is the original claim submitted by the Petroleum
Agency in respect of the Mainland and the area around
the Prince Edward Islands.
 The red lines represent the 200 nautical mile limit while
the white lines represent the outer limit of the continental
shelf.
Page  51
South African Extended Continental Shelf Project
 The blue outline indicates the areas in which
there is agreement between the sub-commission
and the South African defence team.
 The sub-commission claims that there is not
enough data to prove the connection between
the Mozambique Ridge and the Agulhas Plateau.
 To prove such a connection a seismic and
bathymetric survey would have to be conducted
over the saddle area(outlined in White).
 Such a survey would cost an estimated R150m
and, if the data demonstrated continuity, could
add about 465 000 km2 to the South African
marine territory. Recommendations will be issued
on the areas on which there is agreement.
Page  52
South African Extended Continental Shelf Project
 The Total South African Claim of the area around the
Prince Edward Islands approximates 706 000 km². The
sub-commission rejects our entitlement to the NW and
Western margin, an area of approximately 581 000km²
leaving SA with only 125 000 km² of the original area.
The defence team rejects the views of the subcommission and the defence is on going.
Page  53
Petroleum Resource Management
 The Total South African Claim of the
area around the Prince Edward Islands
approximates 706 000 km². The subcommission rejects our entitlement to
the NW and Western margin, an area
of approximately 581 000km² leaving
SA with only 125 000 km² of the
original area. The defence team rejects
the views of the sub-commission and
the defence is on going.
Page  54
Petroleum Resource Management
 South Africa has now managed to attract a large number of well qualified and capable investors to its upstream
industry but exploration programs, especially offshore where capital risk is greatest, are limited
 This as a result of uncertainty resulting from the MPRDA amendment process, as well as the very low oil price
 Petroleum Agency continues to profile SA as an attractive exploration destination by ;
 concentrating on the technical argument for existence of oil and gas,
 facilitating partnerships and risk sharing, and
 building internal technical knowledge and expertise to be in a better position to assist with, and monitor operators’
technical work and advise our own stakeholders.
 Promotional vehicles: Local and international conferences, hosting of data rooms, adverts in suitable journals ,
Agency website and other online facilities
Page  55
Information & Technical Data Management
 Maintain National Database on Oil & Gas Exploration Data and Information including;
 Geological and Geophysical Data for 400 Boreholes, 270 000 km 2D and 40 000 km² 3D Seismic Data
 Maintain Technology Infrastructure to support archiving, retrieval and delivery of data, records and information
 Physical and Digital Storage and Archiving of Technical Data
 Incorporate new Data and Information into the National Database
 QC & Enforce data quality standards
 Provide, Manage and Improve Access to Data
 Retrieve and supply data to License holders, Academic Institutions and Service Providers
 Manage Ownership, Entitlement and Security on data
 Improve access through digitization and transcription services
 Provide Core lay-out, geological sample, library and Microscope and Data viewing services
Page  56
Operation Phakisa
 The Department of Mineral Resources was assigned as the “Delivery Unit” for Offshore Oil and Gas Exploration. The
Agency plays a pivotal role in this regard.
 In particular the Agency is involved in the following nine initiatives:
1) B1: Joint industry-government emergency response drills
2) B3: Exploit the broader research opportunities presented by offshore oil and gas exploration
3) C1: Develop upstream oil & gas local content roadmap
4) D1: Develop skills strategy roadmap
5) D2: Develop capability for sub-surface research data gathering
6) E1: Build a streamline end-to-end institutional structure
7) E2: Enhance environmental governance capacity of the oil & gas regulator
8) E3: Promotes awareness of the oil and gas industry
9) Legislation
 All the deliverables assigned to the Agency have been met within the timeframes. The reports on the Phakisa projects
were updated and are available on http://www.operationphakisa.gov.za/operations/oel/oilgas/pages/default.aspx
Page  57
Energy Projects
Diversifying our Energy Mix
Page  58
Renewables Energy Projects
The CSP projects are on track:
 15% Shareholding in the 100MW ACWA Redstone which will reach financial close this quarter with construction commencing a
month later.
 Ministerial approvals for the 150MW Solis & 150MW KGS projects have been received. Projects awaiting adjudication by DoE.
The Solar Park
 The Solar Park determination revised wherein CEF and Eskom will now be minority shareholders.
 Project awaits the selection of a strategic partner by DoE.
The Gas Determination
The Gas determination has been revised wherein CEF and Eskom will now be minority shareholders of the 600MW gas to power
programme.
 DoE is engaging the market to determine the role of the SOEs.
 Developing a Gas determination implementation plan is therefore not possible now, this KPI needs to be amended.
Page  59
Leveraging on South
Africa’s Competitive
Edge
Page  60
Development of Oil & Gas Industry by leveraging on country’s competitive edge
 Stable economy
 Progressive licencing and promotion processes for prospective Oil & Gas investors
 Established infrastructure (ports and storage facilities) and support services
 Well stablished downstream sector with sizable footprint and reliable network of delivery points
 Increasing energy consumption levels
 Ongoing review of relevant legislation to facilitate transparency and certainty in the industry
 Availability of skilled workforce in the upstream and downstream components of the value chain
 Substantial interest from Traders and other investors based on the strategic location of the country and access to
the rest of the African continent
 Potential for recovery of untapped resources off the South African shores that could be a game changer for the
country.
 Opportunities for partnership right across the value chain
 Rapid development of the clean or renewables energy resources
Page  61
Strategic Partnership
Investment
Framework to
improve
competitiveness
Page  62
Overview
Over the past decade PetroSA has funded all its major capital projects from its own balance sheet with minimal success in a
complex and risky oil and gas industry. A case in point was the Ikhwezi Project that wiped out a substantial amount of PetroSA’s cash
balances. With upstream risks mounting and accessing reserves more difficult, PetroSA has had to change tact and seek more
strategic collaborative business relationships to ensure long term growth. The strategic reason for going this route is due to the
following:
 Capital intensive: Upstream projects are becoming too big for a single company to finance on its own especially deep-water
projects or challenging terrains like the Bredarsdorp Basis and be able to carry PetroSA when required.
 Risk concentration: The risk profile attached to large-scale exploration and production (E&P) projects is such that no single
company may wish to take full exposure.
 Access to technology: Complex upstream projects and other field developments require proprietary technology that PetroSA may
not necessary have access to due limited operational experience
 Access to skills and know how (expertise to execute) : Large scale projects require a lot of experience and know to execute
with aplomb. Strategic partnership will PetroSA this opportunity..
 Market positioning and portfolio optimization: Explore opportunities for pooling assets to develop a market-leading position in
mutual areas of interest (e.g., downstream) or product (e.g., chemicals) and enable a portfolio to be optimised across both asset
pools, generating a value uplift from prioritising larger assets. In an increasingly cost-focused climate, economies of scale are
critical to success and strategic partnership may help PetroSA to achieve this.
It is envisaged that delivering on the Strategic Partnership Model will improve PetroSA competitive advantage and usher in a different
form of investment philosophy where is goes beyond price. Partnership may cut right across the value chain
Page  63
Other considerations for strengthening strategic partnership
 Policies to strengthen and clarify the operating framework for Oil and Gas investment
 Policies to better promote and facilitate Oil and Gas investment
 Policies to foster strategic collaboration on domestic Oil and Gas infrastructure needs
Page  64
Concluding Remarks
 As the CEF group navigates through the changing Oil and Gas land scape, in order to adapt successfully, having
clear sense of where we are heading, so that we not only emerge from the current challenges wiser, but do so
better equipped to meet the longer-term trials facing our industry.
 Amid these current challenges there exists opportunities and in the New Economy that calls for strategic
partnership with like minded entities that will collectively shape the future.
 The African continent is blessed with natural resources but lack of regional planning and coordination is
hampering progress and value is lost. This is also true for staying vigilant and abreast of the motives of the
various trading houses that are expanding their footprint and storage capabilities.
 As Africa’s energy demands ship with rising population figures entities like the CEF Group must be at the
forefront of change to meet those energy needs. More investments must go towards Gas and Renewables in
tandem with global changes and the need to reduce carbon emissions.
 Over the next 5 years we shall be making significant investments right across our value chain to ensure future
security of energy supply.
 Our investments will not be limited to infrastructure but skills development, bursaries, community projects,
internships, small business incubation and support.
 As we continue to strengthen our presence in the various South African provinces we will endeavour to take our
key stakeholders along this journey of growth with us.
Page  65
Thank You Do You Have
Any Questions?
Page  66