1. Parliamentary Portfolio Committee on Minerals and Energy
PetroSA
Parliamentary Portfolio Committee on Minerals and Energy
Presentation
17 November 2004
Presented by Sipho Mkhize, CEO & Managing Director PetroSA

2. Agenda Introduction Reasons for Merger Shareholder Objectives
Merger Assumptions
PetroSA going forward
Financials

3. Background
Historically the Soekor and Mossgas assets were established for strategic reasons i.e. primarily to overcome the UN Oil Sanctions
Hence the focus was strategic and not commercial
Significant investment was made by the State - Mossgas R13 bn, Soekor R8 bn.
Over and above the investment Mossgas received a subsidy of R1,5 bn in the form of tariff protection

4. Background Investment was funded through state guaranteed loans
Returns on these investments were negligible
Soekor had limited success in finding oil reserves, but sufficient gas reserves to take Mossgas to 2008/9
Mossgas’s life span was threatened by availability of gas. Further investment of R2,5 bn to develop gas reserves had to be made to extend the life span of Mossgas to 2008/9

5. Why Merge? UN Oil Sanctions lifted in 1993 Strategic need fell away
Long term economic sustainability of these assets became an issue for Government
Options considered by Government
Privatisation
Closure
Restructuring

6. Why Merge?
(Continued)
Restructuring preferred by Government and took the following steps
Created environment towards commercial viability of the assets by writing off / capitalising loans to the value of R8,0 bn for Mossgas and R1,5 bn for Soekor
Approved merging of assets to create an integrated commercially viable State Oil Company (PetroSA)

7. SHAREHOLDER OBJECTIVES
Achieve sustained commercial viability
PetroSA has to be competitive on a benchmarked basis
Continuous improvements culture is required for all activities across the value chain, ie. from exploration and production through to marketing
Grow and diversify into value added products
Create a learning culture through continuous skills development and knowledge transfer
Structure PetroSA along the value chain to maximise margins across to all the segments

8. SHAREHOLDER OBJECTIVES
Achieve transformation on a continuous basis through:
Accelerated implementation of Government Policy on Employment Equity
Focused initiatives to give effect to Black Economic Empowerment
Development of a market and customer responsive culture
Continuous performance measurement and benchmarking

9. SHAREHOLDER OBJECTIVES
Operating PetroSA in line with best international practices with regard to
Safety
Health
Environment
Quality
Actively contribute to the following macro-economic objectives
Competitive fuel price to the end user
Security of feedstock supplies
Reduce exposure to forex requirements

10. Key Elements of PetroSA’s Core Business Strategy
Secure feedstock for the Mossel Bay plant beyond 2008 and invest in related infrastructure.
Grow E & P business by building reserves to produce barrels per day by end 2010.
Manufacturing to achieve a break-even point of $19.00 per barrel by end 2007.
Develop and prove LTFT GTL Technology by end 2005.

11. Key Elements of PetroSA’s Core Business Strategy
(Continued)
Meet new fuel specifications, as per legislation, in 2006 and 2010.
Access for our product to the downstream markets
Manage Government strategic stocks and associated tankage.

12. PetroSA going forward…..
Vision
Mission
Purpose of PetroSA
Strategic Goals
Key elements of PetroSA’s Business Strategy
Capital Expenditure Programme
Major Challenges
Action Plans

13. PetroSA Vision
To be a leading African energy company competing globally in an environmentally friendly manner to the benefit of all stakeholders

14. PetroSA Mission
The group will be a leading provider of petroleum oil, gas and petrochemicals competitively in African and global markets by commercially exploring, producing, refining and marketing oil, gas and petrochemicals for the benefit of its customers and stakeholders through innovation, quality products and empowered employees.

15. The Purpose of PetroSA
PetroSA is a Strategic Asset to the Government of South Africa operating in the Gas, Oil and petrochemicals environment in the economy. The core Strategic functions of PetroSA is to enable the government to achieve the following in this sector:
Mitigate the impact of Oil price variations to the South African economy
Management of contingency crude oil reserves and Strategic Assets of Government in Saldanha
Access to upstream assets to the benefit of SA
Drive transformation throughout the oil, gas fuels and petrochemicals value chain in South Africa
Exploitation of the intellectual property and operational know-how that has been achieved through managing Gas to Liquids assets
Support Broad Based Economic Empowerment in the industry
Accelerate the implementation of Government policy of Employment Equity and capacity building in the Industry
Operate PetroSA as a commercial entity

16. The Core Business of PetroSA
PetroSA owns, operates and manages the South African Government’s commercial assets in the petroleum industry. The core business of PetroSA is:
Exploration and production of crude oil and natural gas at the south eastern and western coast of South Africa.
Participation in and acquisition of international upstream petroleum ventures, focussing on crude oil.
Selling and marketing of synthetic fuels produced from the plant at Mossel Bay to the local market and high value chemicals internationally.
Commercially exploit the development of low temperature Fischer Tropsch technology to benefit South Africa, and
The management of strategic crude oil stock and crude oil storage facilities on behalf of the Government.

17. Major Challenges
Major cash flow stream of PetroSA under threat as FA/EM gas supply to Manufacturing plant depleted by 2007
Secure long-term feedstock supply to Manufacturing plant on a commercial viable basis
Uncertainty exists as to total investment required to secure feedstock for Manufacturing plant
Expand E& P asset base aggressively
Due to capital intensive industry and long business cycles, prioritise and pursue projects of critical importance to secure future of PetroSA within available financial means

18. Major Challenges
(Continued)
Financing of projects by utilising strength of balance sheet limited due to short period of secured cash flow generation from current operations
Lack of acceptable dividend policy to enable pursuance of objectives
Exchange control regulations not conducive for investment in upstream activities
Streamlining of internal business processes

19. Action Plans 1. Bed down feedstock solution for MB & start implement
2. Prove and implement GTL technology
3. Improve plant efficiencies
4. Expand trading portfolio
5. Deliver fuel specs 2006
6. Deliver site optimisation project
7. Deliver on E&P business strategy
8. Downstream access plan

20. Finance Section

21. Economic Indicators 2003/4 2002/3 2001/2 Average crude oil price
$28.97/bbl
$27.58/bbl
$23.36/bbl
Average R/$ exchange rate
7.20
9.82
9.48
Impact on revenue: $1 change in price
R164m
R1 change in exchange rate
R382m

23. PetroSA Annual Revenues 2001/2 to 2004/5

24. Abridged Income Statement
Volume (1 367)
Price
Exchange Rate (1 110)
Subsidiary (342)
Total (2 409)
2004
2003
R’m
Gross Revenue
3 473
5 882
Operating Profit/(Loss)
(396)
2 141
Net Investment Income
636
1 159
Taxation
(1)
(20)
Profit after taxation
239
3 280
Forecast 2005
R’m
5 623
743
592 -
1 335

25. Abridged Balance Sheet
2004
2003
R’m
Assets
Non-current assets
5 385
5 791
Amounts held by holding company
1 594
Current Assets
2 291
1 366
Cash and cash equivalents
2 637
2 973
11 907
11 724
Equity and liabilities
Capital and reserves
7 503
7 359
Long-term loans-shareholder
958
1 481
Non-current provisions
2 461
2 142
Current liabilities
985
742

26. Abridged Cash Flow
2004
2003
R’m
Cash generated by operating activities
271
801
Cash utilised in investing activities
(382) 67
Loans repaid
(224)
(2 006)
Decrease in cash and cash equivalents
(335)
(1 138)
Cash and cash equivalents at beginning of year
2 973
4 111
Cash and cash equivalents at end of year
2 638

27. Current Financial Position (BAU)
Cash Reserves of close to R5 billion
Positioned to fund Feedstock beyond 2008
Very low gearing level. Debt:equity of 5% after loan pre-payment
Source: Feedstock Project analysis

28. Total Capital expenditure
Source: Feedstock Project analysis

29. Total Capital expenditure
Source: Feedstock Project analysis

30. PetroSA Cash Flow
Source: Feedstock Project analysis

31. Thank You