Minerals and Energy

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Minerals and Energy Portfolio Committee Mpumelel
o Tshume MD / CEO
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The Petroleum Oil and Gas Corporation of South
Africa (Pty) Ltd
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Delivery

• Inform the Portfolio Committee on PetroSAs
• Vision and strategic objectives
• Business and challenges
• Performance
• Budget 2003/2004

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Structure of presentation

• Section 1 Vision and overview of current
  business
• Section 2 Strategic objectives
• Section 3 Business performance 2002/2003
• Section 4 Budget 2003/2004
• Section 5 Corporate Governance
• Section 6 Challenges and conclusion

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Vision and Overview of current business Section 1
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Vision

• To be a leading African energy company, competing
  globally in an environmentally reponsible manner,
  to the benefit of stakeholders.

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Overview

• Merger of Soekor, Mossgas and certain activities
  of SFF
• Business strategy informed by
• Energy White Paper (1998)
• Business Plan and Corporate Governance review
  report sanctioned by Cabinet in May 2001
• Wholly state-owned
• Separate legal entity under Companies Act
• Mandated to manage all commercial assets of state
  in the petroleum industry

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Overview(continued)

• Managed on sound commercial business principles
• Forecasted turnover for 2002/2003 financial year
  - R5.6 billion.
• Forecasted profit after tax and before dividends
  for 2002/2003 financial year - R1.6 billion.
• Sound balance sheet to raise financing for major
  capital projects
• Book value of assets at end March 2003 - R12.2
  billion
• Employs approximately 1 200 people

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Overview(continued)

• Supply approximately 7 of total South African
  refined product - Mossel bay GTL plant
• Oil production from Southern Cape offshore
  approximately 15 000 barrels per day
• Chemical exports - R600 million per annum
• Worlds largest commercial natural gas to
  transportation fuels plant
• Sasol licence agreement limitations
• Participation in international upstream petroleum
  ventures

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FA Platform

• 100 km south of Mossel Bay
• 220 m high
• 105 m water depth
• 9 direct wells, 3 satellite wells
• 7 wells by remote control through EM buoy

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Strategic Objectives Section 2
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Corporate Strategic Thrust Exploration and
Production Division

• Exploring, developing and producing gas reserves
  on a commercial basis to supplement feedstock to
  Manufacturing refinery
• Intensify investment in the upstream sector of
  value chain by focusing on Africa
• Optimising production and current operations to
  generate cash flow for current and future
  developments

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Corporate Strategic Thrust
Manufacturing Division

• Optimising production and current operations to
  generate cash flow for current and future
  developments
• Evaluating alternative sources of feedstock to
  Manufacturing refinery
• Reduce Manufacturing cost base over next 18
  months to achieve a R720 million saving per year

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Corporate Strategic Thrust
Trading, Supply and Logistics

• Expanding product range into higher-value
  chemicals and new environmentally compliant fuels
  
• Develop and grow international sales by growing
  market share in existing customer base and
  extending sales regions already served
• Optimisation of logistics in consideration of
  broad strategy to supply 30 of fuel products to
  BEE companies
• Product trading and hedging to penetrate markets
  for oil offtakes as well as to minimise exposure

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Corporate Strategic Thrust Corporate
Planning and New Ventures

• Extending position in value chain to wholesale
  and retail marketing
• Commercialise and exploit gas to liquids (GTL)
  know-how
• Develop Pipeline infrastructure along West Coast
• Investigate national refinery capacity expansion
• Enter LNG, Methanol, down stream petrochemicals
  businesses via partnerships and synergistic
  acquisitions

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Corporate Strategic Thrust Support
Functions

• Ensure access to world-class support services,
  systems and practices in pursuit of operational
  excellence
• Ensure functional systems support empowerment of
  teams and individuals
• Implement competency development programs to
  retain, develop and attract human capital

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Corporate Strategic Thrust Transformation

• Black Economic Empowerment
• Achieve Employment Equity in line with Policy 60
  40
• Develop
• Skills and Capacity in line with commercial focus
• Corporate Social Investment Strategy and Funding
  Plan
• Policy, targets and procedures to promote
  affirmable procurement
• Facilitate the development of suppliers
• Promote Equity participation by black owned
  companies in our businesses
• Achieve a commercially orientated culture change

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Business Performance 2002/2003 Section 3
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Summary of salient points
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Business Performance 20002/2003

• Implementation of merger completed
• Entered into three upstream participation
  agreements in Gabon, Algeria and Nigeria
• Oil production better than expected from Oribi
  and Oryx oil fields (Oribi produced 25 million
  barrels vs expected 11 billion barrels Oryx
  produced 9 million barrels vs expected 4.5
  million barrels)
• GTL manufacturing plant achieve 1 million hours
  without disabling injuries
• Good progress in securing gas feedstock for GTL
  manufacturing plant
• Ibhubesi gas fields
• Block 9 gas fields
• Kudu gas fields

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Business Performance 20002/2003(continued)

• Entered into numerous Memorandums of Co-Operation
  and Memorandums of Understanding with NOCs,
  IOC,s and Governments
• Refocused marketing efforts for petrochemical
  products internationally reaped significant
  monetary benefits
• Commissioning of LAD/LAK 1 project, increase
  petrochemicals production by 70 000 tons per
  year. Gross revenue added of 30 million per
  year.

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Business Performance 2002/2003(continued)

• Initiate social development programs in Mossel
  Bay and Limpopo Province
• Implement progressive HR policies and set R115
  million aside for training and skills development
  over next three years
• Significant progress to achieving representative
  demographic profile
• Contract of R750 million for procurement of
  condensate awarded to BEE company
• Financial performance from Finance outstanding.

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Business Performance 2002/2003(continued) Staff
by Race
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Business Performance 2002/2003(continued) Top
Management
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Business Performance 2002/2003 (continued)Staff
by race, gender and designated groups
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Business Performance 2002/2003 (continued)BEE
discretionary expenditure
R100 Million Target (16 of Opex) for 2002-2003
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BEE- Current and future initiatives

• Projected BEE Procurement expenditure for
  2003-2004 is R200m (Estimated 30)
• 25 of all staff will be female
• 1 of all staff will be disabled individuals
• 60 of staff will be from the designated group
  and 40 non-designated by 2004 (By level and
  division)
• R6m will be spent on supplier development
  programme
• Establishing a forum to discuss opportunities
  between black business, established suppliers and
  PetroSA

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BEE- Current and future initiatives (continued)

• R50m will be spent on CSI-targetting education,
  poverty alleviation, community development and
  enterprise development, including the
  registration of PetroSA Trust
• 9 interest in Sable Oil field to be sold to HDSA
  groupings by mid year 2003
• PetroSA is funding the Vukani initiative to train
  450 women intrepeneurs from 9 provinces, and 30
  Process Controllers
• Partnerships being established with SABS and
  CHIETA and other state owned organisations to
  promote enterprise development

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BEE- Current and future initiatives (continued)
Women And Disabled Groups

• PetroSA is introducing new BEE reporting
  parameters effective April 2003
• Black women owned enterprises,
• Black disabled owned enterprises,
• Black empowered enterprises,
• Black enterprise 50,1 with preference for 100
  black owned enterprises
• To date PetroSA has spent R12m on six Black women
  owned enterprises,
• Zero expenditure on Disabled owned enterprises.

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Budget 2003/2004 Section 4
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Summary 2003/4 Budget

• Employment equity
  6040
• Gender equity
  25
• Black economic empowerment (R mil) 200
• Sales growth
  11
• Productivity improvement 13
• Return on shareholders funds 13
  
• Net profit before tax(R mil)
  878
• Net profit after tax (R mil)
  878

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Income statement
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Salient ratios of financial plan
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Investments required in the future ( 2003/4)

• R millions
• Manufacturing
  367
• E P
  1 383
• Other
  13
• Gross total Capex
  1 762

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Corporate Governance Section 5
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Corporate Governance

• Compliance a high priority
• Compliance required to following main acts /
  regulations
• Public Finance Management Act
• Treasury regulations
• South Aftican Reserve Bank regulations
• Close working relationship with regulatury bodies
  essential to ensure quick decision making and
  approval process
• Opportunity to add 3.3 million barrels of oil to
  reserve base lost

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Challenges and Conclusion Section 6
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Challenges

• Expand business along the industry value chain,
  with retail as main priority
• Secure long term gas feedstock for GTL
  manufacturing plant
• Progress GTL commercialisation projects to ensure
  commisioning of first full scale plant not later
  than 2009
• Commissioning of SABLE oil field in 2nd quarter
  of 2003. Will add 12 million barrels to oil
  reserves. Expected capital cost of 86 million
• Successful shutdown during 2nd quarter of
  2003.Expected cost of R171 million, margin impact
  of R220 million

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Challenges (continued)

• Migration to unleaded fuels
• Create a culture and value system aligned to our
  commercial objectives
• Skills enhancement to create required capacity
• Consolidation of business architecture- systems
  and policies
• Achievement of transformation objectives,
  especially BEE
• Corporate Governance compliance
• Meaningful contribution to NEPAD objectives

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Conclusion

• The business strategy of PetroSA is based on
  achieving and contributing to following
  shareholder objectives
• Achieve a competitive commercially viable company
  on a sustained basis
• Active along the full value chain of the
  petroleum, oil, gas and petrochemical sectors
• Achieve transformation on a continuous basis,
  with focus on BEE delivery
• Up skill of staff and industry capacity building

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• Thank you