Ailing PetroSA clinches deal with Russian exploration firm

Cape Town – PetroSA has signed a deal with Russian exploration company Rosgeo which is expected to bring oil and gas development of about $400m (R5.2bn) to South Africa.

In a statement issued on Monday, South Africa’s state-owned oil and gas company said the agreement was signed at the BRICS summit currently taking place in Xiamen, China.

The agreement involves development in the exploration areas off the South African south coast.

Rosgeo plans to carry out more than 4 000 square km of 3D seismic operations over 13 000 km of gravity-magnetic exploration works, as well as drilling exploratory wells, PetroSA said.

The project envisages up to 4 million cubic metres of gas being extracted daily, which will be delivered to PetroSA’s gas-to-liquids refinery in Mossel Bay.

Central Energy Fund chairperson Luvo Makasi said oil and gas exploration is pivotal for South Africa’s energy security and for the survival of PetroSA.

“South Africa’s oil and gas potential remains largely unexplored. This exploration effort presents significant upside to both the country and PetroSA,” Makasi said.

“The upside for PetroSA is the possible expansion of our depleting gas resources. Discovery of hydrocarbons on our shores has the potential to bring significant revenues to the country and prove the country’s oil and gas prospectivity.”

PetroSA has been under pressure for the past two years after it recorded a mammoth loss of R14.6bn in 2015 as a result of the botched Project Ikhwezi, which involved the finding of new gas deposits under the sea off Mossel Bay to feed the Mossel Bay gas-to-liquids refinery.

Fin24 earlier reported that three out of the five drilling wells yielded a modest 25 billion cubic feet of gas out of an expected 242 billion cubic feet. In the mid-2000s PetroSA still had a cash balance in excess of R10bn, but the project has since put its balance sheet under considerable pressure – to such an extent that the Mossel Bay refinery risks closure in March next year.

Project Ikhwezi was expected to deliver the first gas in March 2013, which would have extended the refinery’s lifespan to 2019. The first deposits, however, were only available some 21 months later by December 2014.

In addition, the state-owned company has been plagued by board instability. A new interim board was appointed in July in the hope that it would appease financiers who had expressed concern about its governance and finances.

Nhlanhla Gumede was appointed interim chairperson and Leanne Williams, Quentin Mathew, Noto Eister, Puleng Kwele, Boy Manqoba Ngubo, Dr Nomvuselelo Songelwa, Sepheu Simon Masemola and Mthozami Xiphu were appointed as additional interim board members. 

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