Annual Report 2013

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Nov 8, 2013 (3 years and 10 months ago)

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

Annual Report 2013

10 October 2013

Presented to

The Portfolio Committee on Energy

Parliament of the RSA


1

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

CONTENTS


Mandate


Issues discussed last year


Operating Environment


Highlights


Strategic Objectives


Performance Against Objectives


Transformation


Financial Performance


Audit Opinion


Closing Remarks







2

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


Our mandate as a national oil company




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

3

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

ISSUES DISCUSSED LAST YEAR


PetroSA was facing feedstock challenges at
Mossel

Bay. We had just started the
Ikhwezi

offshore project.


Feedstock challenges remain.
Ikhwezi

development is underway


Sale of Brass Exploration in Nigeria: Litigation was still in progress


This has now been finalised in our favour.


There were some outstanding Environmental Management matters in
Mossel

Bay


All recommendations are being implemented.


The Ghana Sabre Acquisition had not yet been finalised


Transaction finalised and contributing to
PetroSA’s

growth


Investigations into procurement irregularities were underway


Board investigations completed. Recommendations being implemented.


Ministerial investigations in progress.




4

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

OPERATING ENVIRONMENT


The global petroleum industry has remained volatile and highly competitive.


Crude prices averaged $110.10/bbl, down from $114.67/bbl 2011/12


High crude prices increase the cost of imported inputs, though there is a
positive impact on revenues.


Low production rates reduced the benefit from high prices.


High prices also increase hydrocarbon asset prices and the general cost
of doing business.


Average Exchange rate was R8.53/$, vs. the R7.45/$ for 2011/12.


Weak rand increases capital costs and the cost of imported items like
condensate (used at the
Mossel

Bay refinery).



Positive impact on revenues.


RSA’s
low growth rate
,
high unemployment
and high levels of
inequality

and
poverty

remain a concern. As NOC we are committed to deliver our mandate.





5

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


THE YEAR UNDER REVIEW

General:


PetroSA is committed to South Africa’s quest for security of supply and
socio
-
economic growth and transformation.


We have continued to operate safely and profitably, in the face of
severe challenges of declining indigenous feedstock and rising
feedstock costs.



Revenue up by 36% from R14.4 billion to R19.6 billion


Net profit down 54% from R1.28 billion to R593 million

Mossel

Bay
refinery sustainability has remained a key focus area:


Our offshore drilling project off the south coast of SA, (Project
Ikhwezi
)
is in progress


The project to import liquefied natural gas (LNG), has progressed, with
public consultations starting early 2013.




6

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

Ghana:


The acquisition of oil reserves in Ghana was completed during the year
and the asset is performing well.

Transformation


We built and handed over our first Integrated Energy Centre, in
Mbizana
, Eastern Cape.


R21 million invested in community projects.


1300 (or 71% of workforce) employees trained


Training costs amounted to 2.4% of the total wage bill.



287 million litres sold to BEEs.



52.7% of total discretionary procurement spend went to BEEs


7


THE YEAR UNDER REVIEW

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

8

PETROSA’S INTEGRATED ENERGY CENTRE

LNG



MTHOMBO































25%
















5%













Downstream
logistics

SHALE GAS

LOCAL DEMAND

IKHWEZI

MTHOMBO

2010 2013 2015 2018 2020


2030

CURRENT

To be a sustainable, fully integrated,
commercially competitive National Oil
Company supplying at least 25% of South
Africa’s liquid fuel needs by 2020
.

Strategic Objective

9

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

10

PERFORMANCE AGAINST
OBJECTIVES

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

PERFORMANCE AGAINST OBJECTIVES

KPI

Target

Results

Comments

EE
-

Recruitment of Women

30% of
appointments



㌹3

潦 慬氠慰p潩n瑭敮瑳tw敲攠w潭on.

䕅E
-

R散牵楴m敮琠潦

P敯灬e

汩癩n朠睩瑨 d楳慢楬楴楥i

㌥3潦
慰p潩n瑭敮瑳



䅣A楥v敤


ㄥ1潦 慰p潩n瑭敮瑳t

Pref敲敮瑩慬

Pr潣or敭敮琠

㔰┠潦
d楳捲e瑩潮慲y

獰snd



䅣A楥v敤 㔳┠潦 d楳捲e瑩潮慲礠
pr潣or敭敮t

獰snd 潮oB䕅E獵sp汩敲s

B
-
BBEE

Sales

235 Million
litres



䅣A楥v敤 ㈸㜠䵩7汩ln 汩瑲敳e


Gross Margin Percentage

8%




䅣A楥v敤

ㄱ1

䅣Au慬a癳. Budget

㄰┠
Opex

V慲楡湣攠



C潳瑳tw敲攠㔥5b敬潷 budge琠


~ Achieved


~ Partially Achieved


~ Not Achieved


11

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

KPI

Target

Results

Comments

Fatalities

0



N漠fat慬楴楥a

䑩D慢汩湧 In橵r礠
䙲敱u敮c礠Rat攠
(䑉䙒)

㰰.4



䅣A楥v敤 〮ㄴ

䕮癩v潮o敮t慬a
Inc楤in瑳t





㤠敮癩v潮o敮t慬a楮i楤in瑳t

Quality

Retention of ISO
9001 + include
Upstream



R散敲瑩晩ea瑩潮t潮o楮ir敡獥e 獣潰攠慣h楥v敤

Occupa瑩潮慬t
䡹杩敮e

卵Svey

㠰8


䅣A楥v敤 㜹%

~ Achieved


~ Partially Achieved


~ Not Achieved


PERFORMANCE AGAINST OBJECTIVES

12

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

KPI

Target

Results

Comments

Indigenous

GTL
Refinery
Production

3.777 million
barrels



䅣A楥v敤

㐮㜳㌠浩汬楯n b慲a敬e

䝡G
-
䱯Lp pr潣o獳楮i
Ef晩c楥icy

80%


䅣h楥ved 80%

Execute the LNG FEED
programme

Conclude Eskom
Joint Study
Agreement by end
August 2012


Achieved by end June 2012

Issue various
service contracts



乯N

慣h楥v敤.

䕸散ut攠Pr潪散琠
I歨we穩

潮o獣s敤u汥l慮d
慣c潲d楮i t漠慰pr潶敤
p污l.


䑥汩D敲epr潪散琠

-
獣s敤u汥l



Equ楰i敮琠Inst慬污瑩潮tt慲ge瑳t慣h楥v敤.


Pr潪散琠c潳瑳tt慲ge瑳t慣h楥v敤


卣S敤u汥lt慲ge琠n潴o慣h楥v敤 du攠e漠污t攠
慲物v慬a潦 瑨攠d物汬 物r

~ Achieved


~ Partially Achieved


~ Not Achieved


PERFORMANCE AGAINST OBJECTIVES

13

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

PERFORMANCE AGAINST OBJECTIVES

KPI

Target

Results

Comments

Acquire downstream
asset

Acquire asset by 31
March 2013


Not achieved

Project Mthombo


Completion of
phase I Joint Study
by 30 Nov 2012


Obtain approval to
commence phase II
of joint study by 31
Dec 2012


Achieved





Achieved

To develop new
trading markets

Total volumes traded
120 million litres



Not achieved.

Implement
Commercial/Industri
al sales strategy

Volume target: 300
million litres including
LPG.


Not achieved

Customer surveys

70% approval


Achieved

~ Achieved


~ Partially Achieved


~ Not Achieved


14

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

KPI

Target

Results

Comments

To conclude a
farm
-
out deal in
Equatorial Guinea


31 July 2012



N敧潴楡瑩潮t

慲攠en pr潧o敳猠

To add reserves of
15 Mmboe

31 March 2013



㈴.㜠
䵍M潥

潦 r敳敲v敳e慤d敤

~ Achieved


~ Partially Achieved


~ Not Achieved


PERFORMANCE AGAINST OBJECTIVES

15

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

16

TRANSFORMATION

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

PetroSA’s BEE Current STATUS

BBBEE Elements

Current
Results 2012

Previous

Results

Target

Status

Remarks

Equity Ownership

N/A

N/A

N/A

N/A

N/A

Management &
Control

15

15

15

Achieved

Employment Equity

8.48

9.43

15

Preference given to women for every recruitment cycle and
employment of people living with disabilities. Offering
bursaries and training. Forming partnerships with institutions,
e.g. CPUT and
National

Council for
Persons

with Physical
Disabilities

in South Africa (NCPPDSA)

Skills Development

17.13

16

20

COE, Bursaries, Leadership development

Preferential
Procurement

19.27

20

20

Not achieved

Enterprise
Development

2.85

1.6

15

Enterprise Development Strategy has been developed and is
being executed.

Socio
-
Economic
Development (CSI)

14.14

15

15

Not achieved

Contribution Level


3

3

Target to be confirmed in new year

~ Achieved


~ Partially Achieved


~ Not Achieved


17

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

18

Preferential Procurement Policy Framework Act


Regulations stipulate that an organ of State must, determine and
stipulate the preference point system to be utilized in the evaluation
and adjudication of tenders.



The regulations stipulate that where a local entity has tendered,
points must be awarded to the
tenderer

recognising their BBBEE
status up to a maximum of 10 points.



Procurement of hydrocarbons is through the tender process,
governed by the PPPFA which requires a 90/10 preferential point
scoring method. (90% price based; 10% BBBEE status)



PetroSA operates in a regulated pricing environment characterised
by low margins which can be further compounded by the payment of
premiums



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

19



In 2011 PetroSA was granted an exemption from complying for one
year . This exemption expired in December 2012. Discussions
currently underway with Finance ministry for exemption.



In the year under review, hydrocarbon purchases valued at R4.1
billion were made, of which R 1.7 billion was made from BBBEE
entities



In total 54 transactions were concluded of which 3 (total value R 605
million) were non compliant to the PPPFA


Preferential Procurement Policy Framework Act

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

20

FINANCIAL PERFORMANCE

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

21

Consolidated Income Statement

2012/13 vs. 2011/12

NOTES

Revenue


Higher than last year mainly
due to weaker R/$ and
contribution from Sabre


Cost of sales


Higher than last year because
of increased sale of
purchased product; the
margins of which are lower


Other Operating Income


Purchase of Pioneer Natural
Resources share of equity in
Block 9 had positive impact
(R254m)


Other Operating Expenses


Due mainly to demo plant
write
-
down (R360m)


Investment income


Lower cash balances due to
recent investments


Finance costs



Notional interest on
abandonment higher due to
inclusion of Pioneer Natural
Resources equity in Block 9
and revaluation of Absa $ loan
R222m

INCOME STATEMENT YTD
Actual
2012/2013
Actual
2011/2012
Variance
R'm
R'm
Revenue
19 676


14 444


5 232


Cost of Sales
(17 498)


(11 941)


(5 557)


Gross Profit
2 178


2 503


(325)


Gross Profit %
11%
17%
-6%
Other Operating Income
384


80


304


Other Operating Expenses
(1 958)


(1 675)


(283)


Profit/(Loss) from Operations
604


908


(304)


Investment Income
732


840


(108)


Loss from equity acc. Investments
-


(6)


6


Finance Costs
(816)


(456)


(360)


Profit before taxation
520


1 286


(766)


Taxation
73


(5)


78


Profit for the year
593


1 281


(688)


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

22

BALANCE SHEET
Actual
2012/2013
Budget
2012/2013
Actual
2011/2012
R'm
R'm
R'm
ASSETS
Property, plant and equipment
16 978
11 009
6 720
Investments and Other
215
19 764
186
Current assets (excl. cash)
6 513
5 936
6 243
Cash and cash equivalents
7 444
57
12 849
Restricted Cash
2 594
1 512
0
Cash at Holding Company
489
593
489
TOTAL ASSETS
34 233
38 869
26 487
EQUITY AND LIABILITIES
Capital and reserves
18 702
19 368
18 018
Deferred Tax
1 728
0
0
Long-term loans
0
11 932
0
Non-current provisions
8 398
6 514
6 192
Current Liabilities
3 361
1 055
2 273
Short-term loans
2 037
0
0
Current tax payable
6
0
4
TOTAL EQUITY AND
LIABILITIES
34 233
38 869
26 487
Consolidated Balance Sheet

2012/13 vs. 2011/12

NOTES


Property, Plant,
Equipment


Higher than budget
and prior year due
to Sabre (R5.1bn) &
fair value adjustment

Cash


Higher than budget
because of delay in
execution of
Downstream
acquisition

Deferred Tax


Sabre as a result of
fair value adjustment
on consolidation

Provisions


Higher due to rehab
costs of acquired
Sabre asset and
Pioneer Natural
Resources share of
Block 9 purchased

Loans


Loan for Sabre
purchase raised, to
be re
-
financed after
Sep’2013

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

23

NOTES


Cash from Operations


Positive for the year
due to lower working
capital levels


Interest paid


Less than budget due
to loans not raised


Property, Plant,
Equipment


Higher than prior
year due to Sabre
acquisition


Loans


Loan for Sabre
purchase raised in
PetroSA



Bank Loans and
related party loans in
Sabre repaid on
acquisition

CASH FLOW
Actual
2012/2013
Actual
2011/2012
Movement
R'm
R'm
Cash from operations
3 139


(103)


3 242


Interest Received
733


840


(107)


Interest paid
(20)


(1)


(19)


Taxation
-


383


(383)


Discontinued Operations
-


448


(448)


Cash before investing activities
3 852
1 567
2 285
Investing Activities
PPE & Sub. acquired
(7 222)


(679)


(6 543)


Other Investing Activities
(2 623)


-


(2 623)


Cash before financing activities
(5 993)
888
(6 881)
Financing Activities
Loans raised
1 814


-


1 814


Loans repaid for subsidiary
(1 343)


-


(1 343)


Dividends received/paid
-


-


Transfer - restricted cash
-


-


-


Increase/ decrease in cash
(5 522)
888
Effects of exchange rate changes
118


109


Opening balance
12 848


11 852


Closing balance ( excl. restricted & CEF)
7 444


12 849


CASHFLOW STATEMENT
-
2012/13 vs. 2011/12

PPE & Sub. Acquired = Property, Plant & Equipment
and Subsidiary Acquired

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

The PetroSA group was issued with an
unqualified audit opinion.


An emphasis of matter,
which does not modify the audit opinion
, was raised for the
following items:




Significant Uncertainties

The company has disclosed fruitless and wasteful as well as irregular

expenditure incurred during the financial period under review.

As some of the investigations were either still in the process of being finalised or
previous recommendations still being implemented, further fruitless and wasteful
expenditure and/or irregular expenditure may still require disclosure in subsequent
periods.




Material Impairments

Material impairments to the PetroSA Equatorial Guinea loan account in the

2013 financial period to the amount of R186.4 million (2012: R1 412 million) were
incurred.

24

PetroSA

Group Results


Audit Opinion

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

25

Report on Other Legal and Regulatory Requirements


Predetermined Objectives


There were no material findings on predetermined objectives, concerning
usefulness and reliability of the information.


Material misstatements in the performance against objectives report were
identified during the audit, all of which were corrected by management.


Achievement of Planned Targets


33% of total planned targets were not achieved during the year under review.


Annual Financial Statements


Annual financial statements submitted for auditing were not prepared in all
material aspects in accordance with the prescribed reporting framework and
as required by the PFMA and the Companies Act.


Material misstatements of revenue identified by the auditors were subsequently
corrected .




PetroSA

Group Results


Audit Opinion

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

26

Report on Other Legal and Regulatory Requirements


Audit committee


Contravention of the Companies Act in that an audit committee member
that served during the current financial period had also been involved in
the day
-
to
-
day management of the company's business.


Expenditure Management


Steps were not taken to effectively prevent fruitless and wasteful and
irregular expenditure.


Fruitless and wasteful expenditure of R31m and irregular expenditure of
R866m were incurred.




PetroSA

Group Results


Audit Opinion

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

27

Report on Other Legal and Regulatory Requirements


Environmental compliance matters


Contravention of the National Environmental Management Act as timely
corrective action has not been implemented with regards to contamination
at the operating facilities.


Procurement and contract management


Certain goods and services were not procured through a procurement
process which is fair, equitable, transparent and competitive as required by
the PFMA.


Contracts were awarded to bidders based on preference points that were
not allocated in accordance with the requirements of the Preferential
Procurement Policy Framework Act.



PetroSA

Group Results


Audit Opinion

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

28

Other Reports


Investigations


An investigation, mandated by the Board Audit and Risk Committee, into
possible irregularities relating to the procurement policy, was completed
and recommendations from this investigation are in the process of being
evaluated and implemented by those charged with governance.


An investigation, mandated by the previous Honourable Minister of
Energy, Mrs Peters, into all significant procurement for goods and
services that are not considered to relate to the GTL operations of
PetroSA, is still in
-
progress.





PetroSA

Group Results


Audit Opinion

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

29











Fruitless and wasteful expenditure

2013

R’000

2012

R’000

Incurred

31,347

35,837

Recovered

-

(16,395)

Expensed

31,347

19,442

PetroSA

Group Results


Audit Opinion

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

30












Irregular transactions


2013

R’000

2012

R’000

Contravention of company policy

260,930

25,868

Contravention of legislation

605,000

1,519

Total

865,930

27,387

PetroSA

Group Results


Audit Opinion

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

31

PetroSA

Group Results


Audit Opinion

Irregular Transactions


2013

R’000


Harrith Fund Managers: Appointment was not in terms of the
tender/procurement procedure.


16 600


Wellstream International (Project Ikhwezi): A contract was
approved by the project procurement committee. The value of
the contract falls outside of the delegated level of authority of
the committee.


241 000


Bowman Gillfillan: Irregular transactions in the prior year
incurred further expenditure in the current year.



200


Talentline Consulting & PriceWaterhouseCoopers: Irregular
transactions in the prior year incurred further expenditure in
the current year.


3 100

Contravention of Company Policy


260 900

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

CONCLUDING REMARKS

32

The organisation continues on its NOC Mandate to support
security of supply.


2012/13 was a profitable year, but operating conditions remain tough.


The focus is on sustaining on the GTL refinery at Mossel Bay, focussing
on the gas supply challenge. We will use this as a platform for growth.


We are tightening financial and operational performance and controls.


Our Vision 2020 growth strategy will advance job creation, enterprise
development and other key transformation initiatives.





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

CONCLUSIONS

33

The organisation continues on its NOC Mandate to support
security of supply.


2012/13 was a profitable year, but operating conditions remain tough.


The focus is on sustaining Mossel Bay, focussing on the gas supply
challenge. We will use this as a platform for growth.


We are tightening financial and operational performance and controls.


Our Vision 2020 growth strategy will advance job creation, enterprise
development and other key transformation initiatives.





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

34

Other Operating Expenses

2012/13 vs. 2011/12

Actual Ytd
at 31
March 2013
Budget
Ytd at 31
March 2013
Variance
2011/12
Actual
R'm
R'm
R'm
R'm
New Ventures: Upstream
172


278


106


158


New Ventures: Midstream
66


142


77


63


Subsidiaries
44


20


(24)


(22)


Shared Services
659


779


120


791


Chief Executive Office
143


127


(16)


128


Finance
262


298


35


447


Corporate Planning and Strategy
20


30


11


22


Corporate Affairs & Shared Services
135


174


39


99


Human Capital
99


97


(2)


96


IGAS
-


53


53


-


Provisions
594


273


-321


713


Foreign exchange and impairment
423


-


(423)


-28


TOTAL OTHER OPERATING
COSTS
1 958
1 492
(466)
1 675
The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07

35

Fruitless and Wasteful Expenditure


2013

R’000


2012

R’000

Fraudulent transaction written off


-



86

Contract cancellation fee


-

19,025

Penalties and interest paid to tax authorities


-



9

Repudiation of disability claim


142


-

Penalties and interest for late payment of cargo
dues


881



1,213

Legal and consulting fees


30,313

15,414

Items individually < R50,000


11



90

Total


31,347


35,837

PetroSA

Group Results


Audit Opinion

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

36

Thank You!