1. 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

2. 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

3. 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) ( 2007), Medium Term Strategic Framework (2009-2014) 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) ( 2007), Medium Term Strategic Framework (2009-2014) Operate as a commercial entity and create value for the shareholder Pay tax and dividends Pay tax and dividends Operate as a commercial entity and create value for the shareholder Pay tax and dividends Pay tax and dividends Advance national objectives in the petroleum industry Spearhead industry transformation Spearhead industry transformation Advance national objectives in the petroleum industry Spearhead industry transformation Spearhead industry transformation 3

4. 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

5. 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

6. 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

7. 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

8. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/078 PETROSA’S INTEGRATED ENERGY CENTRE

9. 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

10. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0710 PERFORMANCE AGAINST OBJECTIVES

11. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 PERFORMANCE AGAINST OBJECTIVES KPITargetResultsComments EE - Recruitment of Women 30% of appointments  39% of all appointments were women. EE - Recruitment of People living with disabilities 3% of appointments  Achieved 1% of appointments. Preferential Procurement 50% of discretionary spend  Achieved 53% of discretionary procurement spend on BEE suppliers B-BBEE Sales 235 Million litres  Achieved 287 Million litres. Gross Margin Percentage 8%  Achieved 11% Actual vs. Budget 10% Opex Variance  Costs were 5% below budget ~ Achieved ~ Partially Achieved ~ Not Achieved 11

12. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 KPITargetResultsComments Fatalities 0  No fatalities Disabling Injury Frequency Rate (DIFR) <0.4  Achieved 0.14 Environmental Incidents 10  9 environmental incidents QualityRetention of ISO 9001 + include Upstream  Recertification on increased scope achieved Occupational Hygiene Survey 80%  Achieved 79% ~ Achieved ~ Partially Achieved ~ Not Achieved PERFORMANCE AGAINST OBJECTIVES 12

13. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 KPITargetResultsComments Indigenous GTL Refinery Production 3.777 million barrels  Achieved 4.733 million barrels Gas-Loop processing Efficiency 80%  Achieved 80% Execute the LNG FEED programme Conclude Eskom Joint Study Agreement by end August 2012  Achieved by end June 2012 Issue various service contracts  Not achieved. Execute Project Ikhwezi on schedule and according to approved plan. Deliver project on-schedule  Equipment Installation targets achieved.  Project costs targets achieved  Schedule target not achieved due to late arrival of the drill rig ~ Achieved ~ Partially Achieved ~ Not Achieved PERFORMANCE AGAINST OBJECTIVES 13

14. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 PERFORMANCE AGAINST OBJECTIVES KPITargetResultsComments 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 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 surveys70% approval  Achieved ~ Achieved ~ Partially Achieved ~ Not Achieved 14

15. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 KPITargetResultsComments To conclude a farm-out deal in Equatorial Guinea 31 July 2012  Negotiations are in progress To add reserves of 15 Mmboe 31 March 2013  24.7 MMboe of reserves added ~ Achieved ~ Partially Achieved ~ Not Achieved PERFORMANCE AGAINST OBJECTIVES 15

16. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 16 TRANSFORMATION

17. 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 TargetStatusRemarks Equity OwnershipN/A Management & Control 15 Achieved Employment Equity8.489.4315 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 Development17.131620COE, Bursaries, Leadership development Preferential Procurement 19.2720 Not achieved Enterprise Development 2.851.615 Enterprise Development Strategy has been developed and is being executed. Socio-Economic Development (CSI) 14.1415 Not achieved Contribution Level 33Target to be confirmed in new year ~ Achieved ~ Partially Achieved ~ Not Achieved 17

18. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0718 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

19. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0719 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

20. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/07 20 FINANCIAL PERFORMANCE

21. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0721 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

22. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0722 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

23. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0723 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 CASHFLOW STATEMENT -2012/13 vs. 2011/12 PPE & Sub. Acquired = Property, Plant & Equipment and Subsidiary Acquired

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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 Incurred31,34735,837 Recovered-(16,395) Expensed31,34719,442 PetroSA Group Results – Audit Opinion

30. 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 policy260,93025,868 Contravention of legislation605,0001,519 Total865,93027,387 PetroSA Group Results – Audit Opinion

31. 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

32. 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.

33. 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.

34. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0734 Other Operating Expenses 2012/13 vs. 2011/12

35. 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 30,31315,414 Items individually < R50,000 11 90 Total 31,347 35,837 PetroSA Group Results – Audit Opinion

36. The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd Reg. No. 1970/008130/0736 Thank You!