South Africa - EnergyBoardroom50 November 2006 Oil & Gas Financial Journal • Land of opportunity S ince South Africa’s leap into democ-racy in 1994, the country has entered the

South AfricaEnergy reportNovember 2006

A Focus on

November 2006 Oil & Gas Financial Journal • www.ogfj.com 49

South Africa

This supplement was produced by Focus Reports LLC. For more

information and exclusive interviews, log on to www.focusreports.net.

50 November 2006 Oil & Gas Financial Journal • www.ogfj.com

Land of opportunity

Since South Africa’s leap into democ-

racy in 1994, the country has entered

the age of globalization and the

local players were suddenly exposed to the

challenges and opportunities that the oil

and gas industry is facing worldwide. Stanley

Subramoney, PricewaterhouseCoopers’ Afri-

can Energy leader states that “since 1994,

South Africa has become a well sought after

destination for all types of foreign direct

investment, and oil and gas is no exception.”

The event of hosting the 18th World

Petroleum Congress in Johannesburg - the

fi rst time that the WPC’s leading congress

took place on the African continent - has

put Africa and South Africa’s oil and gas

potential on center stage. During the open-

ing ceremony, Phumzile Mlambo-Ngcuka,

South Africa’s deputy president and former

minister of minerals and energy underlined

that South Africa was hosting the congress

on behalf of Africa as a whole. “I think it was

mostly a highlight for Africa, as it recog-

nized the increasing importance of Africa’s

exploration and production potential to the

international players in the industry,” stated

Ayanda Mjekula, chairman of South Africa’s

Central Energy fund, which is the govern-

ment body controlling PetroSA, Petroleum

Agency SA, iGas, Oil Pollution Control SA,

and the country’s Strategic Fuel Fund. The

World Petroleum Congress strengthened the

ties between PetroSA and the continent’s

dominant national oil companies and co-

host sponsors NOC, NNPC, Sonangol, and

Sonatrach.

Sipho Mkhize, president and CEO

of PetroSA, emphasized that the World

Petroleum Congress served as a unique

networking platform for the African national

oil companies when he stated that “their

participation as co-host sponsor emphasized

the need for us in Africa to work together,

share the resources and equally contribute

to the development of Africa.”

The shift away from the traditional suppli-

ers in the Middle East into the oil producing

countries in Africa presents massive opportu-

nities for the oil and gas industry across the

entire African continent. Taking a historical

perspective, Subramoney noted that tradi-

tionally large overseas companies sourced

Africa’s resources and gave very little in

return to grow the local economies. “Putting

it bluntly, they plundered the resources of

the African continent,” he noted before

concluding that, “One of the tragedies of

the African continent was that we exported

wealth and imported poverty.”

Nowadays he sees a new model emerg-

ing, a model that is based on smart partner-

ships; it is about joint ventures, about public-

private partnerships and about empowering

local companies. Using the vast capital and

technology resources

of the multinationals

in partnership with

local companies will

be of lasting benefi t

to local economies.

The new model

is targeting local

economic growth,

poverty alleviation,

and sustainable local

skills.

Fostering these

mutually benefi cial,

strategic partner-

ships amongst the

continent’s national

oil companies, as

well as a range of

up-and-coming Afri-

can E&P companies

and the international

majors, indepen-

dents, and juniors is

a critical step in the

development of the

sector across the

continent. “This busi-

ness is about capital,

intellectual property

and access to markets, so the go-it-alone

scenario for national companies or interna-

tional majors will probably not be the only

solution going forward,” stated Subramoney.

In addition to being the consulting fi rm’s

African energy leader, Stanley Subramoney

is also the deputy CEO of PwC South Africa,

the largest fi nancial advisory services fi rm in

South Africa. Servicing the oil and gas mar-

ket across the continent, PwC has a footprint

in 31 countries and employs approximately

7,500 people. “This enables us to service

our national, multinational and trans-national

clients in Africa through a seamless product

offering which then enables us to provide

our clients with a unique one-stop-service,”

explained Subramoney.

The renewed interest in the African oil

and gas industry forces the international

frontrunners entering the African continent

to adapt their business models to suit local

dynamics. However, Stanley Subramoney

underlined that “the rate of return that

investors will achieve in Africa is higher than

elsewhere across the

globe. Markets are

virtually untapped

and Africa is open

for business.” He

recognizes that there

are many challenges

around corporate

governance and

political instability,

but in his view, the

economic returns far

outweigh the politi-

cal risk.

He takes particular

pride in PwC’s role as

a provider of thought

leadership material

on specifi c issues

and challenges in the

industry, which he

claimed “assists CEOs

in shaping their vision

when they are prepar-

ing their strategic

plans.” This directly

responds to one of

the main challenges

of doing business in

Africa - the lack of

credible, current information.

In recent years, sound corporate

governance has become a buzzword in

the consulting and auditing environment.

Subramoney jumped on the opportunity to

emphasize that the PwC brand stands for

integrity, honesty, professionalism and above

all, good corporate practices. “Regardless

of where in the world we operate, includ-

ing Africa, we are guided by a strict code of

conduct underpinned by global standards on

independence and risk management, and we

Top: Ayanda Mjekula, chairman of the Central Energy Fund

Bottom: Stanley Subramoney, Deputy CEO of PricewaterhouseCoopers in South Africa

Sasol_OGFJ_0611 1 10/19/06 3:30:23 PM

Sasol_OGFJ_0611 1 10/19/06 3:30:23 PM


will not hesitate to resign from any assign-

ment if it does not comply with our fi rm’s

standards,” he said.

A fi rm’s reputation is largely based on

the reputation of its clients, and PwC prides

itself on the fact that the fi rm works with

all of the majors and most of the national

oil companies across the African continent,

which makes for an enviable client base.

PwC is quite bullish and Stanley Subra-

money stated the fi rm’s aim to double its

revenue across Africa by 2010. As part of

an Africa-wide strategic plan, PwC places

particular emphasis on continuing growth in

Angola, Nigeria, and the Gulf of Guinea; a

clear indication of the fi rm’s focus on coun-

tries where the oil and gas industry plays

a dominant role in the national economy.

“PwC will continue to be the leader in the

oil and gas industry because of our strong

African footprint,” he stated.

The next frontier in exploration and productionWhile South Africa is the continent’s larg-

est energy consumer, the country has not

been able to signifi cantly beef up its energy

mix with domestically produced oil and

gas. Between 1977 and 1996, state-owned

Soekor was the only entity that carried out

exploration activities, and could not explore

all areas effectively. In addition to democ-

racy, the 1994 elections brought stability

which paved the way for the return of invest-

ment, making it the turning point for both

the economy and exploration activity. That

same year, Soekor relinquished its onshore

and offshore rights, except for blocks nine

and 11a, and opened the acreage up for

international competition. Soekor would

never see international E&P companies oper-

ating on its home turf. In 1996, the company

was separated into a licensing authority,

which later became Petroleum Agency SA,

and a commercial entity, which combined

Soekor and Mossgas to become PetroSA.

“I think that there has been gross under-

investment in exploration activity in South

Africa itself,” remarked Ayanda Mjekula.

“This is a situation that we hope to reverse

through one of the companies under the

CEF, the Petroleum Agency SA, which is

responsible for exploration and regulation.”

A licensing round for the whole offshore area

was pitched too soon after the elections for

investors to feel confi dent about political

stability and so there were no takers. Nev-

ertheless, in 1997 Phillips Petroleum broke

the ice by signing a sublease for blocks 17

and 18 off the east coast and this inspired

other companies with confi dence to come to

South Africa.

Over the years that followed, South

Africa welcomed companies such as Forest

Exploration International, Anschutz, Pioneer

Natural Resources, BHP Billiton Petroleum,

Sasol Petroleum International, and Cana-

dian Natural Resources. Refl ecting on the

days when the international E&P companies

were making their fi rst steps in South Africa,

Mthozami Xiphu, CEO of Petroleum Agency

SA, stated, “I think that international compa-

nies saw South Africa as international green

fi eld; an opportunity to come in and apply

their international expertise.”

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Rising oil prices and technological

advances are allowing crude oil to be

recovered in ultra-deep waters, which has

turned exploration and production in South

Africa into an interesting opportunity for

the risk-takers in the industry. “We are a

prospective country, the promise is valiant

and the bubble of optimism is un-punctured,

but at the end of the day, wells will have to

be drilled to prove South Africa’s potential,”

emphasized Xiphu.

The E&P in South Africa tend to be domi-

nated by juniors rather than majors. Pioneer

Natural Resources was one of the fi rst juniors

to recognize South Africa’s potential. General

manager Marek Ranoszek confi rmed that:

“South Africa is still pretty much a market for

niche players that can take a 20 million barrel

fi eld and develop it in a profi table way.”

In 1998, Pioneer was looking for expan-

sion opportunities outside of mainland USA

and its eye fell on Africa, where it decided to

enter South Africa in order to start its African

operation on a manageable scale. Over the

years, Pioneer moved away from operating

its own acreage and focused its attention

on block 9, which holds the Sable (11,000

b/d) and Oribi/Oryx (3,500 b/d) fi elds and

accounts for South Africa’s complete oil

production, and where it has a joint venture

with PetroSA, the operator.

The Petroleum Oil and Gas Co. of South

Africa, trading as PetroSA, own, operate

and manage the South African government’s

commercial assets in the petroleum industry.

In addition to the two fl oating oil production

facilities on the Sable and Oribi/Oryx fi elds,

PetroSA operates the F-A platform. Stand-

ing in 105 meter water depth, this gas and

condensate production platform provides

the essential feedstock for PetroSA’s gas-

to-liquids (GTL) plant – the world’s largest

commercial GTL plant – located 80 kilometers

north in Mossel Bay. Extending their successful

cooperation in the future, PetroSA and Pioneer

are currently investing US$480 million in the

South Coast Gas Development, which will link

up a series of gas-condensate discoveries and

feed the gas and condensate to PetroSA’s GTL

plant via the F-A platform. PetroSA’s General

manager E&P, Dan Marokane, confi rmed that

“the South Coast Gas Development will guar-

antee feedstock for the GTL plant until 2013

and future developments linking into the F-A

platform can extend its lifespan until 2020.”

Simultaneously, PetroSA is rapidly increasing

its footprint across Africa with a view to replac-

ing current production and also growing and

diversifying the reserve base. In line with the

company’s aggressive E&P strategy to enable

a target production rate of 65,000 b/d by the

end of 2010, PetroSA has acquired interests

in Gabon, Equatorial Guinea, Sudan, Nigeria,

Namibia, Mozambique, Angola, and Algeria.

New entrants: South African juniorsThe African continent has 9% of the world’s

oil and gas reserves and both geopolitical

developments and rising oil prices have

made investing in Africa’s oil business

increasingly attractive. Billions of dollars will

be invested in Africa’s oil and gas industry in

the next few years, and PetroSA is not the

only South African

E&P company that

is ready to rise to

the challenge of

entering the African

E&P arena. Two

new South African

juniors, Ophir and

Energetic Petroleum,

are rapidly establish-

ing their positions in

the industry. Ophir is

building its portfolio

based on the strong

African network

and fi nancial base

of Mvelaphanda

Holdings and the experienced management

that previously was the driving force behind

Fusion Oil, while Energetic Petroleum was

established by accident.

A few years ago, Mazwi Yako, a skilled

negotiator who studied international relations

in Moscow, joined a friend in Chad where they

successfully negotiated an oil block on his

behalf. Yako recalled: “Later on, my friend told

me that he had the intention of selling this oil

block for US$70 to 80 million. Then I said to

myself, here is an opportunity.”

Yako joined forces with Bruce Buthelezi

and Malibongwe ‘Reeboh’ Mandela and

since July 2004 he has been the executive

chairman, and one of Africa’s youngest

juniors, of Energetic Petroleum. “Through

building a diversifi ed portfolio of explora-

tion, appraisal and production assets in

Africa, our ambition is building an African

oil company which will ensure that the

major profi ts from oil remain in Africa,”

Yako explained. The fi rst country Energetic

Petroleum entered with that philosophy in

mind was the Ivory Coast, where they signed

agreements on blocks CI-12 and CI-104

towards the end of 2005. Also, in Mauritania,

Energetic has obtained two blocks, the off-

shore block 21 and the onshore block TA-3

in the Taoudeni basin. While in the northeast

of Mali, the company has been awarded

block 14, which is situated in the Tamesna

Basin. General manager Bruce Buthelezi is

particularly excited about the latest block

that Energetic has received in Kenya. “This

block is very interesting because it’s only

drilled well encountered oil and gas shows,

and it is just below

the border of the

prolifi c area of South

Sudan,” he boasted.

Being highly

successful in obtain-

ing exploration

licenses, Energetic

Petroleum’s main

challenge is securing

the fi nancing. The

company is currently

in talks with private

equity houses in

London concerning

future fi nancing and

in order to increase

investors’ appetites, Energetic strives to add

one or two oil blocks that are near produc-

tion or in production to its portfolio of pure

exploration blocks to balance its portfolio

and reduce Energetic’s risk profi le. The

projected addition of South African assets

to the portfolio provides fi nance houses with

more comfort for their initial investment in

South Africa’s.

Underlining that Energetic Petroleum is

an African upstream company on the fast

track, Yako explained: “our target is to fl oat

the company on the AIM by end March,

early April 2007 and we are well on course

to achieving this objective.” Energetic

Petroleum’s management predicts that the

IPO will not raise more than US$50 million

Mazwi Yako, executive chairman of Energetic Petroleum

Commer_OGFJ_0611 1 10/17/06 3:05:27 PM

Commer_OGFJ_0611 1 10/17/06 3:05:27 PM


since it does not want to dilute its sharehold-

ing by more than 30% from day one. Never-

theless, the listing will boost the company’s

international profi le, paving the road for

international independents and juniors to

enter into strategic arrangements that will

provide Energetic Petroleum with access to

technical experience and expertise, while

Energetic Petroleum’s partners will be ben-

efi t from a relationship with a 100% company

when moving into other areas of Africa. “It

would be a win-win relationship,” concluded

Mazwi Yako.

Having been an anti-apartheid activist,

Tokyo Sexwale was sent to Robben Island as

a political prisoner in 1977. After spending

thirteen years in South Africa’s maximum-secu-

rity prison alongside fi gures such as Nelson

Mandela he was released in 1990. Following

South Africa’s fi rst democratic elections in

1994, Tokyo Sexwale was named Premier of

Gauteng Province, South Africa’s economic

powerhouse. While being a highly successful

politician, Tokyo Sexwale decided to leave

the political scene in 1998 and founded

Mvelaphanda Holdings, which is now one of

South Africa’s leading Black Economic Empow-

erment (BEE) groups. Realizing that empower-

ment is just a temporary legislative framework

that is there to rectify the past, Tokyo Sexwale

stated from the outset: “I’m building a non-

racial company that includes white, blacks,

and Indians and refl ects the country; I am not

building a black company.”

In 1998, while he was actually consider-

ing emigrating from South Africa to the Far

East, Mark Willcox met with Tokyo Sexwale

and took an instant liking to him. Look-

ing back at their fi rst meeting the current

CEO of Mvelaphanda Holdings refl ected,

“I was lucky enough that he offered me to

join him as a partner.” Over the past eight

years Mvelaphanda has grown to become

South Africa’s largest black-owned diversi-

fi ed group, and through its investments the

company is the world’s biggest producer of

gold, the second largest diamond miner, and

the fourth biggest platinum producer. In the

process, Mark Willcox emerged as one of

the few white South Africans who have built

their success on the BEE framework. At pres-

ent, the group has interests across a diverse

range of sectors including banking and

fi nancial services, healthcare, tourism and

property, security, facilities management and

industrial services. However, Mark Willcox is

quick to point out that Mvelaphanda didn’t

stumble into its businesses. “As soon as

we established Mvelaphanda we went into

platinum, since Tokyo said that platinum was

going to be a long term market opportu-

nity.” Similarly he said: “the Gulf of Guinea

is going to be strategic, particularly with

respect to instability in the Middle East, and

the growth of China and India; let’s focus

and acquire some assets in that area.” To

turn this vision into reality Ophir was cre-

ated, a privately-owned oil and gas company

with Mvelaphanda as its largest shareholder.

***The development of

Ophir is in the hands of

Alan Stein and his management team which

previously established and then sold Fusion

Oil, an Australian-based African oil explorer.

“All we are doing now is giving them much

bigger marbles to play with; we now have

big world-class blocks and are primar-

ily involved in deepwater concessions,”

explained Mark Willcox.

Since its inception in February 2004,

Ophir has developed an extensive explora-

tion portfolio covering projects in Equato-

rial Guinea, Gabon, Congo Brazzaville,

the Nigeria-Sao Tomé/Principe Joint

Development Zone, South Africa, Tanzania,

Somaliland, and Saharawi Arab Democratic

Republic. Ophir’s net exploration acreage

has expanded at a breakneck pace and

today only Royal Dutch Shell, Sonatrach,

Exxon Mobil, and BHP Billiton supersede

Ophir in terms of net deepwater acreage.

However, Alan Stein is quick to point out

that while this sends a message of what has

been achieved it is not a real measure of the

value of the business. Nevertheless, Ophir’s

rapid growth is remarkable when taking into

account that the oil and gas industry has

woken up and realized that Africa is a good

place to do business and in recent years

competition for the continent’s resources has

rapidly intensifi ed.

“We move quickly and aggressively and

the African governments, who are eager to

develop their resource potential, are very

interested in that” said Alan Stein, explain-

ing one of the critical success factors for his

company’s development. In order to grow

a balanced portfolio of exploration and

production projects, Ophir has expanded

its focus beyond the African continent and

is pursuing opportunities in Kazakhstan.

Moving outside of Africa could have been

an issue for an African oil company, but

from day one Ophir has been pursuing the

ambition of building a leading independent

global African energy company. Ultimately,

Ophir aims to be competing with the mid-

sized US independents. “Ophir is a company

that was born in Africa but aspires to be a

global business,” said Alan Stein, before

concluding that, “Fusion was kindergarten,

Ophir is Cambridge.”

“The most exciting thing about Ophir,”

Mark Willcox said, “Is that we are breaking

out of the label of a Black Economic Empow-

erment company, which is what Tokyo has

always wanted. He has always found BEE

a shackle and has always said that he just

wants to be known as a successful South

African industrialist and philanthropist who

happens to be black, not a Black Economic

Empowerment player.”

The century of Africa“Opportunities are everywhere and you have

to dream in order to succeed, but remem-

ber to develop a sound strategy to make

your dreams come true,” began Desnos T.

Yed. Being a citizen of the Ivory Coast, but

operating from a South African base, his

dream is creating the leading African invest-

ment consulting fi rm. As chairman and CEO

Mark Willcox (top) and Tokyo Sexwale (right)

Geda_OGFJ_0611 1 10/17/06 2:38:11 PM


of Yedcor International he realizes that, “in

South Africa you can wake up in the morning

with a brilliant idea, but when you check

the yellow pages you see that there are two

thousand people doing the same thing.

However, when you open your eyes to the

rest of Africa you will

fi nd only one person

or nobody who is

pursuing the same

idea, so you have the

freedom to imple-

ment whatever you

dream about.”

However, South

Africa has today

become the entry

to the rest of Africa.

For South Africans,

operating in Africa is

just a continuity of their

business, while for Europeans or Americans this

means breaking the barrier between the Western

and African business culture. “By showing inves-

tors the way of doing business in Africa we allow

people to operate successfully on our continent,”

noted Yed. “Going to Africa is not like going to

Canada, where you arrive at the airport, put your

suitcase down, register your company and start

to compete in the local market.”

Africa’s reserves

of natural resources

are vast and even

after the coloni-

zation of Africa,

which was aimed at

exploiting Africa’s

resources, Africa still

holds the largest

resources worldwide

in many raw materi-

als. “When you know

and respect the

business culture of

the African continent

you can still be rich in Africa overnight,” said

Desnos Yed, “Africa has a lot of potential,

and this century is the century of Africa.”

World leadership in gas-to-liquids and coal-to-liquids technologyIn 1927 the South African government

already realized that the country did not

have signifi cant crude oil reserves and that

it was imperative to protect the country’s

balance of payments against increasing

crude oil imports. That year South Africa’s

parliament adopted the white paper to

investigate the establishment of a South

African oil-from-coal industry which marked

the start of Sasol’s history. Nevertheless,

it would take many years of research and

international negotiations before Sasol was

formed in 1950 to commercially develop

the unique Fischer-Tröpsch technology for

the conversion of both low grade coal and

natural gas into value-added synthetic fuels

and chemicals. At present, Sasol operates

the only coal based synthetic fuels facility in

the world, producing liquefi ed petroleum

gas from low grade coal, and is a global

leader in the commercialization of gas-to-

liquids technology. Today, Sasol’s operational

footprint extends to more than 20 countries

and the company has grown to become one

of the top fi ve publicly listed companies in

South Africa and maintains listings on both

the JSE and the NYSE.

The South African government’s visionary

decision to explore the potential of synthetic

fuels continues to provide signifi cant return

on tax payers’ money invested in the com-

pany during the fi rst three decades before

privatization. Today, Sasol provides direct

and indirect employment for approximately

170,000 people, which represents 2% of

South Africa’s formal employment sector,

and the company contributes to over US$7

billion, or 4%, of South Africa’s GDP. In

addition, Sasol provides the country with

over US$5 billion in foreign exchange sav-

ings and contributes around US$1 billion

to the South African government in taxes

and levies, making the company the major

private contributor to the South African

economy. Pat Davies, who was appointed to

the board in 1997 and became Sasol’s chief

executive on July 1 2005, confi rmed: “we are

very proud of being South African and are

committed to our country. Over the coming

years about 63 to 65% of our capital spent is

going to be in this country.” Although Sasol

remains a proudly South African company it

Desnos T. Yed, chairman and CEO of Yedcor International

Yedcor_OGFJ_0611 1 10/18/06 2:09:18 PM

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has become a player of global signifi cance in

the industry.

Commercializing its world-class tech-

nology has been the main building block

of Sasol’s success, and the conversion of

both coal and gas to liquid fuels is based

on two steps: synthesis gas production and

the Fischer-Tröpsch process. The syngas

production process uses steam and oxygen

at high temperatures to gasify coal and

reform natural gas to produce synthesis gas,

a mixture of carbon monoxide and hydro-

gen. The heart of GTL and CTL technology is

Fischer-Tröpsch synthesis, the conversion of

synthesis gas into a range of hydrocarbons

using a catalyst. This process creates syn-

thetic fuel components that are converted

into a range of liquid fuels, such as dieses,

naphtha, kerosene, and liquefi ed petroleum

gas, as well as chemical intermediates that

are subsequently converted into polymers,

olefi ns and surfactants, waxes and other

products. Technology development is critical

for Sasol’s future. “Clearly we believe that

we are the world leaders at the moment,

but will we stay ahead? Yes, I believe we will,

although I cannot guarantee that we will.

The only way you stay ahead of this game is

by continuously improving your technology,”

realized Pat Davies.

Sasol has developed two new-generation

Fischer-Tröpsch technologies which are utiliz-

ing two sources of gas: the high-temperature

Sasol Advanced Synthol (SAS) process and

the low-temperature Slurry Phase Distil-

late (SPD) process. In Sasol’s SAS reactors,

synthesis gas from coal is converted to yield

gasoline and light olefi ns. In the SPD pro-

cess, natural gas is reformed into synthesis

gas and then converted to high-quality

diesel. Pioneering these new generation

technologies on a global scale currently is a

key priority for Sasol.

The increasing global discoveries of natu-

ral gas reserves particularly create a positive

environment for the widespread application

of the Slurry Phase Distillate process on the

global stage. The commercialization of the

unique gas-to-liquids technology plays a key

role in Sasol’s development. “The fi rst plant

is being started up in Qatar at the moment,

which is a signifi cant step forward, and a sec-

ond plant in Nigeria is under construction,”

stated Pat Davies. The Oryx project in Qatar

marks the fi rst time that Sasol’s GTL technol-

ogy is applied on a large scale outside of

South Africa. “It is a very important project

for us, said Pat Davies, “we have done coal-

to-gas and gas-to-liquids in this country for

the last 50 years and

we have produced

over 1.5 billion bar-

rels of oil from coal,

but it has all been in

South Africa.”

The Oryx GTL

plant will be the

Middle East’s fi rst

commercial gas-to-

liquids plant. Sasol

produces 160,000

b/d of oil equivalent

in South Africa and

the Oryx project will

contribute 34,000

b/d. “This is a fairly

small percentage

increase of our total

existing volume base,

but its signifi cant

potential lies in the

future that it holds,”

emphasizes Davies.

“It is like a shop

window to showcase

our technology and expertise, and we believe

that the anticipated success of this project will

generate a lot more interest in gas to liquids.”

However, Sasol is betting on two horses as

the company is also taking its coal-to-liquids

(CTL) technology to the international stage.

CTL has attracted China’s interest, and in

June 2006 Sasol signed a landmark coal-to-

liquids agreement with the Chinese govern-

ment regarding the

construction of two

80,000 b/d CTL

facilities. “We think

that coal-to-liquids

in China is a great

opportunity because

we will just be repli-

cating what we did in

this country,” noted

Pat Davies, “however,

the potential of CTL

lies not only in China

of course, but also

in countries such as

India and the United

States.”

The success of the

commercialization

of the GTL and CTL

technologies will be

dependent on future

oil prices. “Coal-

to-liquids is more

capital intensive, so

if the oil price stays

anywhere near the

current level, or

even drops down to

around US$40/bbl,

then I think that the

potential for CTL

is probably higher

than the potential

for GTL in the longer

term. If oil prices

drop down to below

US$40/bbl then I

think that we will see

GTL being stronger,”

he explained. “The

future development

is oil price scenario

dependent, but I am

optimistic that both

are going to be really marvelous. The future

looks very exciting, and Sasol in 10 years

time will easily have doubled or tripled its

production capacity in GTL and CTL.”

Top: Pat Davies, chief executive

of Sasol

Middle: The Oryx GTL plant at Ras

Laffan, Qatar, will start supply-ing high-quality diesel to world markets early

in 2007

Bottom: Sipho Mkhize, CEO of PetroSA

Petrosa_OGFJ_0611 1 10/17/06 2:54:29 PM

PetroSA: Pioneering Energy Solutions

The Petroleum Oil and Gas Corporation of South Africa (PTY) Limited, known as PetroSA,

is South Africa’s national oil company. It owns, operates and manages the South African

government’s commercial assets in the petroleum industry.

PetroSA, a pioneer in the field of Gas-to-Liquids (GTL) technology, is recognized

internationally for operating the first commercial GTL refinery. This patented technology

converts natural gas into high value liquid petroleum products. The GTL Refinery, in

operation since 1992, is the largest in the world and produces high quality fuels from

natural gas and condensate.

PetroSA is committed to providing global markets with quality products. These unique

products open up international markets to PetroSA.

Petrosa_OGFJ_0611 1 10/17/06 2:54:29 PM


Sasol has positioned itself as the global

frontrunner in the commercialization of GTL

technology, but this development does

not worry Sipho Mkhize, CEO of PetroSA.

“I think it creates an opportunity for both

PetroSA and Sasol to move outside of South

Africa. We are more than happy that GTL

is now known globally,” he stated. South

Africa’s national oil company has been oper-

ating the world’s largest GTL plant for 12

years, and Mkhize claimed: “we are the most

experienced in gas-to-liquids in the world.”

PetroSA, formed in 2001 through the

merger of the state’s exploration company

Soekor and its GTL company Mossgas, has

been operating below the radar while it was

realigning the business. At the 2005 World

Petroleum Congress in South Africa, a new

PetroSA emerged. GTL commercialization,

which has been an activity within PetroSA

since 2001, has become one of the compa-

ny’s strategic priorities. Conventional GTL

technology, which PetroSA applies under

license from Sasol to produce approximately

36,000 b/d at its Mossel Bay GTL facility, is

based on High Temperature Fisher Tröpsch

synthesis. This process takes place at over

900°C, but technological advances are open-

ing up new opportunities.

PetroSA has teamed up with Statoil and

Lurgi to develop a Low Temperature Fisher

Tröpsch (LTFT) synthesis technology which

requires a process temperature of 200-250°C.

In 2005, the technology joint venture consist-

ing of PetroSA, Statoil, and Lurgi commis-

sioned a 1000 b/d semi-commercial process

demonstration LTFT plant, the only plant of its

kind in the world. The joint venture partners

will jointly own and commercialize the technol-

ogy. The successful pioneering of the LTFT

technology positions PetroSA as an African

NOC with unique niche technology compe-

tency, a competitive edge that might prove

too hard to match in future bidding rounds for

GTL projects across Africa.

Currently, PetroSA is rivaling Sasol and Shell

in the bidding round for the construction of a

GTL plant in Algeria. Sipho Mkhize assumes

that PetroSA derives a slight competitive

advantage from being an African NOC, but

agrees it looks like all parties stand an equal

chance. “For PetroSA being successful in this

bidding round is of great importance, since it

would give us the opportunity to show that we

are able to build GTL plants outside of South

Africa.” He continued, “It would also underline

that our technology is commercially available,

and that national oil companies are able to

work together and create value.” In addition,

PetroSA has intensifi ed its exploration activi-

ties in the region. Sipho Mkhize emphasized

that, “any natural gas discovery of over three

Tcf would be large enough to support a GTL

plant, and in such a case PetroSA would con-

sider building a gas-to-liquids plant, because

it is our core technology and the center of

PetroSA’s operations. In the new blocks that

we are exploring it looks likely that there will

be gas reserves that could support such devel-

opments,” he concluded.

Walking the talk“Dream no small dreams for they have no

power to move the hearts of men,” as stated

by Goethe, has been taken to heart by

Anthony Van der Merwe. As chairman and

president of Drako Oil & Energy, his ambition

is to establish a new, technologically advanced,

crude oil refi nery in South Africa. Given the

fact that he is only 39, and started Drako Oil &

Energy four years ago, many of the established

players in the industry thought that he was

a front for an Arab

country, or inves-

tors with too much

money for their own

good. Anthony Van

der Merwe chose to

set up his operation

in South Africa, a

strategic location

to cover the globe

enabling Drako

Oil to link into the

European, Asian, and

US markets. “This is

essential since we intend to compete with oil

majors such as ExxonMobil,” said Anthony Van

der Merwe.

His business plan is based on mismatches

in both the global and South African refi ning

environments. Worldwide there are about

714 refi neries left while the world accounted

for 724 refi neries in 1994-95, over the same

period of time demand for refi ned product

has grown by 5% per year, so the whole

globe is running out of refi ning capacity. The

fact that Drako Oil & Energy’s refi neries will

be new is of strategic importance. “Nowa-

days, very expensive crude oils, or high API

crude oils such as the Saudi light sweets,

are being processed worldwide because all

refi neries strive to simplify their capital costs,

and most global refi neries were designed

for this type of crude oil feedstock. These

high API crudes will be depleted sooner than

the heavier crudes,” explained Anthony Van

der Merwe. “Drako Oil’s current refi nery

project will apply unparalleled technology,

and by processing heavier crudes is destined

to achieve an internal rate of return of 20%,

which is about 5% to 10% higher than the

current global standard. Given the fact

that most crudes in and around the African

continent are sour and heavier crudes, it is a

pleasure to have those on our doorstep.”

According to Van der Merwe the South

African refi ning environment is a total mess.

A looming fuel crisis and fundamental risk of

South Africa running out of fuel, coupled to

the high economic growth rate and the fact

that no new refi neries were planned, created

a window of opportunity for his ambition.

Ayanda Mjekula, chairman of the CEF, agrees

that refi ning capacity in South Africa may be

suffi cient today, but he can foresee that in the

next couple of years

the country will be

running out of refi ning

capacity. “Our situa-

tion is very precarious;

if there is a hiccup

in any one of our

current refi neries it

always translates into

downstream petro-

leum shortages. We

have very little spare

capacity, and that

spare capacity will be

exhausted within this year,” he stated.

“Although Sasol, Engen, Chevron, BP,

Shell, and Total want to play it down, the

South African refi neries are in a shocking

condition and barely EURO II compliant,”

Van der Merwe claimed. “None of the

South African refi neries are world class

refi neries, and the newest refi nery that we

have is the Sasol facility which was built in

1973.” Anthony Van der Merwe makes no

effort to be a diplomat, and underlines that:

“the South African refi neries are blaming

Anthony van der Merwe, chairman and president of Drako Oil & Energy Corp.

Mvelap_OGFJ_0611 1 10/17/06 2:51:34 PM

An African Energy Company

Email: [email protected]: www.ophir-energy.com

Mvelap_OGFJ_0611 1 10/17/06 2:51:34 PM


the recent fuel shortage on the upgrading

from the old fuels to the new fuels, but the

reality is that the refi neries are obsolete and

ancient, requiring replacement now.”

“Let’s look at South Africa as a whole,”

he continued. “The Caltex (Chevron) refi n-

ery in Cape Town has an installed capacity

of 105,000 b/d which is operating at 67%.

PetroSA’s refi ning capacity is 45,000 b/d but

is operating at 69%. Engen’s installed capacity

is 124,000 b/d and operates at 68%. Sapref,

which is a joint venture between Shell and BP,

has installed capacity to refi ne 180,000 b/d,

but is probably operating at around 70%. Sasol

1 is not running at peak performance either,

while the other refi nery is operating over its

safe operating limit to counteract lack of pro-

duction of the other South African refi neries.”

According to Van der Merwe’s calculations

the combined South African environment is

refi ning around 479,000 b/d, while Drako Oil’s

planned 300,000 b/d refi nery will produce 63%

of that total on its own.

Within the African continent everybody is

forming a network in the context of NEPAD.

That is why Drako Oil & Energy putting up

a second refi nery in Mozambique, which

will be servicing Zambia, Malawi, Botswana,

Zimbabwe, and Mozambique itself as well as

Madagascar and the surrounding islands in

the Indian Ocean. “We will offset the remain-

ing capacity to Asian and European mar-

kets,” stated Anthony Van der Merwe, “and

we are also looking at putting up a refi nery

in the USA, to supply North America, the

Caribbean, as well as Central America, but

this is still in the planning phase.” Ultimately,

Drako Oil aims to be competing in the

global markets, so South Africa is insignifi -

cant in its long-term strategy.

While the construction and planning phases

for the initial South African refi nery will take

another four to fi ve years, Van der Merwe

looked into the future when stating that,

“there is no question that our refi nery will be

the most technologically advanced refi nery

ever built, and simply due to the fact that it will

be the latest one built, thus it will employ the

latest in global refi nery design technology.”

In addition to the refi nery, Drako Oil is

looking at constructing a main strategic facility,

probably 100 to 200 million barrels of crude,

which will dwarf South Africa’s current Strategic

Fuel Fund. “We will be using a different con-

struction approach which we have been work-

ing on for a while, and one which we intend

patenting worldwide,” stated Van der Merwe.

Drako Oil’s ambition is to participate and

compete throughout the global petroleum

value chain, being exploration and production,

refi ning, distribution, all the way down to retail.

Van der Merwe recognized, “I want to cover

and control all aspects from A to Z.” In addi-

tion, “through Drako Shipping Ltd. we will be

building our own oil and gas tankers and we

want to set up the shipbuilding yard in Saudi

Arabia as a joint venture between Drako Oil

and the Saudi Arabian government, which will

be a US$20 billion project,” he boasted.

Drako Oil will be pursuing a listing in

the USA and UK shortly. Additional project

funding will come from the large interna-

tional banks and companies Drako Oil will

approach, which include BAE Systems, the

Saudi oil company, Royal Bank of Scotland,

Barclays UK, HSBC, Citigroup and ABN Ao.

“I have a lot of respect of Exxon and I am

using them as an example,” stated Van der

Merwe. His goal and ambition is to use the

best and the biggest in the industry as a role

model and exceed their performance. “Once

we reach that point it will be our turn to

bring the whole oil industry to a completely

new level,” he concluded.

Gauteng: Africa’s fi nancial services capitalHistorically, Gauteng has been relying on

mining as the backbone of the economy, and

since the early days Province’s minerals wealth

generated a lot of international interest. The

importance of gold as one of the precious

metals that were used to benchmark foreign

exchange gave impetus to South Africa moving

rapidly into the fi nancial sector. This process

has accelerated since 1994, and Cas Coovadia,

managing director of the Banking Association,

confi rms that “post-democracy the government

created a macroeconomic environment which

positioned South Africa as an attractive fi nancial

services market and platform for the continent.”

South Africa has a world class fi nancial system,

and Stanley Subramoney, deputy CEO of Price-

waterhouseCoopers, emphasized that “strong

capital markets are critical to the African Renais-

sance, and banking is an important element of a

strong capital market.”

Over the past few years, the fi nancial

services sector has become a leading sector

in the South African economy, while Gauteng

emerged as the fi nancial services capital of

Africa. Nowadays, more than 70 foreign banks

have their head offi ces in Gauteng, and that

amount is vastly exceeded by the number of

South African banks, stockbrokers, and insur-

ance giants. The CEO of the Johannesburg

Stock Exchange, Russell Loubser, has seen the

direct impact of the overhaul of South Africa’s

political landscape and macroeconomic funda-

mentals. “Many people have been stimulated

to ‘buy South Africa’,” he stated.

It was no coincidence that the fi nancial

sector located in Gauteng, South Africa’s

smallest province and economic powerhouse

accounts for 33% of the country’s GDP,

while it also represents 11% of the African

continent’s GDP. Home of the Johannesburg

Stock Exchange, Gauteng’s economy already

offered critical mass for the development

of a fi nancial services center, which was also

stimulated by the proactive approach of the

Gauteng government towards broadening

its economic horizons.

“In Gauteng we looked at new pillars and

our economy has become highly diversifi ed

with particular emphasis on fi nancial markets

and the high-end, secondary manufacturing

sectors. In Gauteng we call them the smart

industries,” stated Keith Khosa, CEO of the

Gauteng Economic Development Agency

(GEDA). At present, the fi nancial sector

contributes over 25% of Gauteng’s gross

geographic product, a percentage that is

expected to continue its rise over the coming

years. Gauteng offers the fi rsthand experience

that fi rms locate around fi nancial centers, posi-

tioning Gauteng well ahead of the rest of the

country in terms of investment potential.

Building on its success in attracting invest-

ment, GEDA is now striving to elevate the oil

industry as a primary sector for investment and

further development. “Oil is an essential ele-

ment in managing our affairs as people, indus-

tries and countries,” Khoza acknowledged. In

terms of communication and transportation

infrastructure Gauteng is an area that can be

compared to most developed cities in the

world. “The provinces competitive edge,” said

Keith Khoza, “lies in the presence of both the

fi nancial institutions and the key decision mak-

ers of the South African economy. Gauteng is

serious about business.”

November 2006 Oil & Gas Financial Journal • www.ogfj.com 67

South Africa’s ‘Big Four’Prior to democracy, South Africa’s banking

sector was very concentrated, and was domi-

nated by the country’s four main banks: First

National Bank, Absa, Standard Bank, and

Nedbank. “The South African banking sector

is very competitive and South African banks

are hard-working, have good capital ratios,

deliver exceptional returns, and have always

been technologically well advanced. It is

a very effi cient banking industry by global

standards and South Africa’s banking regula-

tion is very good and stringent,” stated Tom

Boardman, chief executive of Nedbank.

Post-democracy, the sector opened up sub-

stantially, particularly in the corporate, mer-

chant, high-net worth banking environment,

creating considerable competition through

the entry of international banks. “By increas-

ing competitiveness and bringing interna-

tional best practice as well as innovation into

the sector, the international banks have done

the South African banking system a great

deal of good,” refl ected Cas Coovadia.

While many international banks set up

branch offi ces, Barclays Bank bought a major-

ity share in Absa, one of South Africa’s four big

banks, in July 2005. The R33 billion (US$4.7

billion) acquisition, making it the largest for-

eign direct investment in South Africa, created

the country’s only bank that can truly claim to

bundle local perspective and global expertise.

The philosophy driving the acquisition has

been to combine the best of Barclays and the

best of Absa to create the pre-eminent bank

on the African continent.

Less than a year after the acquisition, a

new investment bank was unveiled to the

South African landscape. Representing a

combination of the global expertise of Bar-

clays Capital and the specialist local knowl-

edge of Absa, Absa Capital was created

to replace Absa Corporate and Merchant

Bank. “Absa Capital is set to challenge the

market and shake up investment banking

in South Africa with fully local, fully global

capabilities,” said John Vitalo who is heading

up the new investment bank. “Through our

affi liation with Barclays, Absa can now claim

a dominant position in both the national and

global markets,” he continued.

Inevitably, these changes impacted Absa’s

positioning in the oil and gas industry. Bobby

Jurd, head of resources for Absa Capital, has

been with the bank for a long time and notes

that “before Barclays came on the scene we

were a formidable player in the resources

sector.” The main changes that occurred when

Barclays came on the scene relate to geogra-

phy. From an oil and gas perspective Absa’s

domain was more or less Southern Africa,

including Angola and Sonangol as well as

Mozambique and the Pande fi eld. “With Bar-

clays’ arrival on the scene we have been given

the geographic responsibility for Africa in oil

and gas,” stated Bobby Jurd. “That is the main

change; we were very much Southern Africa

bound, but Africa became our playground.”

Absa’s investment banking activities could

have been continued under the Barclay’s

Capital brand, but a clear choice was made

to operate under the Absa Capital name.

Energetic Petroleum is an African Exploration and Production company focused on the development of oil & gas resources on the African continent. For information go to www.energetic.co.za, email: [email protected] or phone +27 (11) 799 8900.

the emerging force of African energy

EnePet_OGFJ_0611 1 10/17/06 2:40:43 PM


opportunities and ambitions in the African oil

and gas industry. Germany’s second largest

bank is a strong player in the South African

market and has maintained a presence in

the country for nearly fi fty years. Operating

through a representative offi ce until 1995,

Commerzbank was the fi rst foreign bank

to obtain a branch license after the ANC

had come into power. Clive Kellow, CEO

of Commerzbank’s Johannesburg branch,

explained that “since then Commerzbank has

been concentrating on corporate banking and

merchant banking with a strong focus on the

top 100 South African companies, multination-

als in South Africa, and fi nancial institutions.”

By 2002, Commerzbank had become

the biggest foreign bank in the country but

as more and more

banks entered

the South Africa’s

banking sector,

obviously more and

more liquidity came

into the market

and Commerbank

experienced that

the dynamics of

supply and demand

shrank its margins.

Clive Kellow stated,

“Commerzbank

tried so safeguard its

position as market

leader, but the

enormous infl ux of

the other big banks

has put an extreme

amount of pressure

on this market. This

has emphasized

our need to move

towards a matrix

driven business

where we use sec-

tor specialists from overseas.” He believes

that you have two choices in South Africa,

either you buy a local bank or you use the

strengths that you have overseas; something

in the middle is not going to work, and Com-

merzbank has chosen to use the strength of

its global offi ces in London and Frankfurt.

“These days Commerzbank is the best

mid-cap bank in Europe and we are partly

bringing that strategy down to South Africa,”

stated Clive Kellow. He quickly notes that one

“The primary reason is one of size,” explained

Bobby Jurd, “Barclays Capital has got a small

oil and gas team that is involved in extremely

big projects, while African projects tend to be

smaller and thus tend to be below Barclays’

radar. In addition, ABSA Capital has the exper-

tise required to operate successfully in Africa.”

ABSA Capital’s oil and gas unit operates in

Africa and has full access to Barclays Capital,

enabling the bank to provide global solutions

to African clients. At the same time, Barclays

Capital brings international expertise to the

table and for the period April 2004-April 2006

was ranked in the top three worldwide as man-

dated arranger of oil and gas project fi nance

loans. Strengthened by its affi liation with

Barclays Capital, Absa Capital is well equipped

to increase its penetration in the exploitation

of Africa’s oil and gas resources. The invest-

ment bank derives a competitive edge from

its access to the Absa/Barclays network in

Africa in terms of ability to source and service

projects across Africa. “When this network

is combined with the expertise available in

Johannesburg, where Absa Capital has a dedi-

cated oil and gas team, and London, it puts

Absa Capital in a unique position and gives us

a defi nite advantage over our competitors,”

put Bobby Jurd. “In oil and gas our reach in

Africa is increasing on a monthly basis. Our

footprint in Africa is formidable; we are well

represented in fourteen countries in Africa and

those countries are the resources rich coun-

tries. A well-strategized plan is being executed

to perfection at the moment, it is not idle talk,

we want to be the best and we want to be the

best as soon as possible,” he concluded.

While Absa joined forces with Barclays

Bank, and Standard Bank and First National

Bank embarked on successful independent

growth strategies, it seemed that Nedbank

would be left behind. At the end of 2003,

a big shake-up in Nedbank’s senior ranks

brought Tom Boardman the position of chief

executive, charged with the task to turn the

bank around. During those days the bank

was experiencing very bad publicity. “On the

day Nedbank announced that I was the new

chief executive the share price of fell 5%,”

remembered Tom Boardman, “the second

day I drove to work, the headline of every

newspaper read ‘Nedbank share price falls

on Boardman’s appointment’, so that was a

nice way to start.” Two and a half years into

the four-year turnaround plan, people can

see that Nedbank is back on track and its

chief executive is highly rated and respected

by his people, clients, shareholders, and

even competitors for getting the vision right.

Part of getting the vision right was real-

izing that even if you are a big bank you can-

not be everything to everybody. Therefore,

in its corporate and investment banking busi-

ness, Nedbank has chosen particular sectors

in which it has attracted people who have

sector-specifi c skills. “It would take many

years to make our bankers experts in oil or

synthetic fuels, while we can take experts in

synthetic fuels or petroleum and teach them

about the bank in six months to a year,”

stated Brian Ken-

nedy, the managing

director of Nedbank

Capital. Nedbank

fi rmly believes in the

strategy of recruit-

ing experts from

deep-level min-

ing, gold mining,

platinum mining,

coal, synthetic fuels,

petroleum, and gas

and turn them into

bankers.

“There is a lot of

activity in the oil and

gas industry so over

the next three to

fi ve years we expect

to build reasonable

income streams

out of the industry

from both risk-free

and risk income.

Our focus will be

on the Southern

African region, which

is clearly in our comfort zone, but we will

closely monitor opportunities on the West

coast of Africa,” concluded Boardman.

German banks roaming the African savannaWhile Germany’s national football team kicked

off for the fi rst match in the FIFA World Cup

2006, Clive Kellow, Christian Nägele and

Volker Stein were discussing Commerzbank’s

Top: Bobby Jurd, head of resources of Absa Capital

Bottom: Tom Boardman, chief executive of Nedbank Group

Absa_OGFJ_0611 1 10/17/06 2:49:26 PM

Absa_OGFJ_0611 1 10/17/06 2:49:26 PM


has got to put that into perspective, because

a mid-cap in South Africa and a mid-cap in

Europe are slightly different. “One of our

main competitive advantages is our ability to

offer exactly the right products for the right

development phase,” boasted Volker Stein,

Commerzbank’s head of structured fi nance.

This ability has been derived from Commerz-

bank’s experience of supporting the develop-

ment of Central and Eastern Europe where

the various markets are in different stages of

development. Stein remarked, “of course we

know that the situation here is different, but

the point is that supporting emerging markets

is nothing new for Commerzbank.”

Clive Kellow underlined that “the experi-

ence that Commerzbank gathered in Eastern

Europe and Russia through dealing in econo-

mies with a very strong single government

involvement, and structuring deals around

that can be applied in many sub-Saharan

African countries as well.” This experience,

which some of the other foreign banks here

cannot offer, forms the basis of Commerz-

bank’s niche market approach.

“In South Africa we want to specialize

in structured fi nance, and we feel that we

could present particular strengths in energy,

transport and telecommunications. In our

world energy covers power, oil, and gas,”

he added. Head of corporate banking at

Commerzbank’s Johannesburg branch,

Christian Nägele outlined that oil and gas

has very much become and African issue,

both in terms of resources as well as because

of geo-politics, and that is why the big

banks, both locally and globally, which have

knowledge in these sectors are focusing on

Africa at the moment.

Volker Stein, who is based in Frankfurt,

emphasized that the natural resources situation

in sub-Saharan Africa is becoming increasingly

important for European decision makers as

they are looking to develop new sources of

supply for oil and gas. Ready to take advan-

tage of the momentum in the industry, Clive

Kellow is eager to note that Commerzbank’s

matrix structure enables the bank to assess

opportunities quicker and better than the

other banks, and to use the opportunities.

“Commerzbank is well positioned, and we are

prepared to take on the challenges that are

ahead of us,” Stein concluded.

Deutsche Bank generally is not a big lend-

ing bank like Citibank or Commerzbank, but

is more a sales and trading bank. One leg of

the business is corporate fi nance and trans-

action banking while the other leg of the

business is global markets, which includes

debt and equity with a focus on sales and

trading. Deutsche Bank South Africa, which

is one of the bigger international investment

banks in the country, mirrors Deutsche Bank

globally from an

investment banking

perspective. Murray

Winckler, Deutsche’s

CEO in South Africa,

puts that “from an

opportunity point

of view we focus on

structuring packages

and distribute them

to investors, which

also is one of the

differentiating fac-

tors that Deutsche

Bank has from a

global perspec-

tive.” Deutsche

Bank has a strong

commitment on the

ground in South

Africa and lever-

ages the group’s

global resources.

“In the derivative

space and the debt

and equity markets

we top the league

tables with Goldman

Sachs globally and

we leverage this

very strong offshore

franchise in South

Africa. Our domestic

operation links very

well with the off-

shore capabilities.”

Deutsche Bank tends to be on the fore-

front of any debt-raising in South Africa, but

“the cross border transactions are the space

where we really have a competitive advan-

tage,” said Winckler. “In addition, we have

been rated as the number one equity sales

house in the last four years while in trading

we have been consistently rated in the top

three over the last fi ve years.”

Deutsche Bank covers more than 10%

of trade in the equity market and part of its

business would be with foreigners. “The last

two years we have seen huge net buying

into emerging markets, and we have obvi-

ously done a lot of that through our desks

into South Africa,” noted Winckler. “Clearly

Sasol is a favorite with international inves-

tors, about 35% of Sasol is held by foreign

investors, and we

play an important

role in marketing

them internationally

in Europe, the US

and the East.”

Having estab-

lished a strong

position in the debt

and equity busi-

nesses, Deutsche

Bank clearly focuses

on about twenty

large companies in

South Africa. “In the

oil space Sasol is

one of the compa-

nies we work close

with,” noted Winkler,

before explaining

that “Deutsche

Bank has just done

a hedging of the oil

price for Sasol, a zero

cost collar with an

upside of US$83 and

a downside of US$62

for 30% of their oil

production.”

He continues,

“The oil and gas

industry is such a

huge industry and

there will always be

a lot of opportunities

out there.” Deutsche

Bank aims to continually differentiate itself

through its cross-boarder expertise, its

ability to raise capital whether it is equity or

debt, and its capabilities in foreign exchange

and commodity hedging. “We have an array

of products that we are able to offer to the

major players and we are the number one

equity house in South Africa, so I think we

have a lot to offer the industry.”

Top: Dr. Christian Nägele (left), head of corporate banking, and Clive Kellow, CEO, of Commerzbank’s Johannesburg Branch

Bottom: Murray Winckler, CEO of Deutsche Bank South Africa

IOF_Petro_060523 1 5/23/06 3:17:14 PM

A Focus on

January 2007 Oil & Gas Financial Journal • www.ogfj.com 73

South AfricaPart II

This supplement was produced by Focus Reports LLC. For more

information and exclusive interviews, log on to www.focusreports.net.

74 January 2007 Oil & Gas Financial Journal • www.ogfj.com

South Africa, what do you expect to achieve?

South Africa has a unique geographic positioning in that the country is just down the coast from the major development hot-spot in the oil industry: West Africa. The off-shore oil and gas fi elds in the Gulf of Guinea are drawing enormous investment from the multi-national majors and independents, as well as the African national oil companies. Thirty four percent of global exploration and production investment is currently concen-trated in West Africa and with that in mind; South Africa is the closest industrialized nation able to offer fabrication, repair and refurbishment capacity. Therefore, it is up to South Africa to put this together.

Although the rise of the African con-tinent as an exploration and production hotspot has largely bypassed South Africa, the country boasts a strong service indus-try and aspires to become the continent’s service hub for the whole of the oil and gas industry. “South Africa has a lot to offer to the upstream oil and gas sectors,” stated

Buyelwa Sonjica, Minister for Minerals and Energy of South Africa.

Geographic proximity as well as South Africa’s supplier and service capabilities all serve as the foundation on which the South Africa Oil and Gas Alliance (SAOGA) is determined to position South Africa as the preferred supply hub and fabrication centre for the offshore oil and gas community in West Africa. SAOGA is a public-private part-nership between the provincial government of the Western Cape, the city of Cape Town and the private industry. It is supported by the national government and the National Ports Authority and was founded in 2001 under the name Cape Oil and Gas Supply Initiative (COGSI).

In 2004, the Western Cape initiative was re-branded. According to Gary Schwabe, execu-tive director of SAOGA, this strategic decision was made recognizing that there is no brand value for an international audience in ‘Cape’. This is underlined by the fact that the strongest brand value would be derived by using the ‘South Africa’ positioning. In addition to the brand value criterion, this repositioning outlined

that the Western Cape alone does not have the broad spectrum of industry that is required to service the oil and gas industry. The comple-mentary capabilities of the large industrial players from the Gauteng region are enabling SAOGA to position South Africa as a preferred supply hub and fabrication centre for the West African offshore oil and gas community.

The bottom line is focused on positioning South African capability in the West African market through the corridor of the Western Cape. At the heart of the public private part-nership is the promotion of economic devel-opment, job creation, and transformation in South Africa in general and in particular the Western Cape.

Although South Africa is taking a one-stop shop approach, there is the widespread con-sensus that the country should not aspire to compete head-on with Houston and Aberdeen on the high-tech end. While South Africa is the most sophisticated engineering and manufac-turing base in Africa, its leading companies are looking for strategic partnerships with both Houston and Aberdeen based companies to jointly fi ll the gaps where South Africa does not have the capability.

Being African is a key competitive advan-tage that is becoming an increasingly promi-nent factor as local content requirements and the ideals of the New Partnership for Africa’s Development (NEPAD) are climbing onto the agendas of the African nations. This is exempli-fi ed by the actions taken by the two leading players in the West African oil and gas indus-try: Nigeria and Angola. “Nigeria has set some very aggressive local content targets, requiring 45 percent local content by 2006, which is destined to rise to 75 percent by 2010,” stated Mr. Schwabe. “It is admirable that they want to do that, and our objective is not to try and compete with them. Our objective is to support West Africa. There is $10 billion spent on exploration and production in West Africa every year, and potentially we could support 10 percent of that.” While continu-

Gary Schwabe, Executive Director of SAOGA (South African Oil and Gas Alliance)

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ing to explain the rationale behind SAOGA’s ambitions he stated: “Of course that does make a dent in other competitors’ targets, but is it not that signifi cant. The rest of the world keeps emphasizing that Africa should stand on its own feet and help itself, but most of the European and American majors continue to rely on suppliers from their home countries. The world has got to realize that if you want Africa to stand on its own feet then you have to give Africa the fl exibility to do that.”

The current under-capacity in the international offshore fabrication, maintenance and supply markets create a unique opportunity for South Africa to enter into the market at this point in time. The challenge will be to build a reputation of quality, delivery and competitiveness.

The fi rst piece of the puzzleThe Western Cape government has identi-fi ed oil and gas as one of the key drivers of the province’s economy. “The Western Cape doesn’t have oil and we may have gas off our west coast, but we are determined to become the service hub for the West African oil and gas industry,” proclaimed Ebrahim Rasool, premier of Western Cape. “The world will be surprised, because they expect us to be a jungle, a place where lions and elephants roam the streets,” he stated before continuing that “the Western Cape offers the required skills base and infrastruc-ture to service the oil and gas industry.”

Identifying the business potential of the Western Cape’s ambition of becoming the preferred service hub for the African oil and gas industry, MAN Ferrostaal has decided to invest Rand 1.7 billion (US$240 million) over a fi ve-year period. The investment will be in infrastructure for the ports of Cape Town and Saldanha - the largest and deepest natural harbor in the Southern Hemisphere. The Western Cape province is committed to providing the road and rail network and, for the fi rst time, the ambitions of the local service industry are beginning to be realized. MAN Ferrostaal announced the investment in March during Oil Africa 2006, the African equivalent of OTC in Houston.

“I think that MAN Ferrostaal is the foun-dation of our ambitions; it is the fi rst piece of the puzzle that has to fi t before the rest of the puzzle to come together,” realized Premier Rasool. “It is the vote of confi dence that we needed.”

Before the investmentThe development of the African oil and gas offshore industry is now limited by the extent to which the international market can supply new equipment. “If we could participate in the local content and become a supplier of new equipment or refurbishment, Africa’s oil producing nations could activate new fi elds faster,” explained Brian Blackbeard, manag-ing director of Atlantis Marine Projects.

Atlantis Corporation and MAN Ferrostaal are the new entrants that gave South Africa the ultimate push in servicing the offshore

oil and gas industry. “Back in 2003, together with MAN Ferrostaal, we identifi ed that the establishment of infrastructure to service the offshore oil and gas industry would be very good for South Africa,” recalled Mr. Blackbeard. Although there was a lot of interest, the question was how South Africa could enter into this market. Atlantis looked at the opportunities lying beyond the entry barriers and encouraged MAN Ferrostaal to consider the investment into South African infrastructure to allow local companies entry into the business.

“In this context, in 2003, we started the feasibility studies and due diligences, and over two years developed a business plan in association with the South African industry to determine whether they were interested. Were they willing to participate, what were their entry barriers to the market and what could we facilitate as Atlantis and MAN Fer-rostaal?” Mr. Blackbeard asked.

The fi rst issue, negotiating rental struc-tures with the National Ports Authority to put in place a soft start mechanism, has suc-cessfully been completed. The next step was putting in place the required infrastructure to start the business. The old facilities at the Port of Saldanha have been abandoned for the past 13 years and are now being rehabili-tated. “Relaunching the Port of Saldanha as

Ebrahim Rasool, Premier of Western Cape

Brian Black-beard, Manag-ing Director of FerroMarine Africa / Atlantis Corporation

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a viable fabrication yard for the oil and gas industry required a huge amount of invest-ment,” Brian Blackbeard noted.

Likewise, the required upgrades for the Port of Cape Town were assessed. The port is being positioned as the preferred repair and refurbishment hub for the ageing fl eet of West African offshore platforms. Currently, these have an average age of 26 years.

MAN Ferrostaal and Atlantis Corporation have formed FerroMarine Africa, which has become the local equity partner in the busi-ness. While Mr. Blackbeard believes that South Africa is in the right position geographically, politically and economically, he recognizes that the success of FerroMarine’s investment is largely dependent on its South African tenants and their international partners.

The two tenants in Saldanha, which will be operational in April 2007, are Grinaker-LTA and DCD Dorbyl Heavy Engineering. The facilities in the Port of Cape Town will be operated by DCD Dorbyl Marine, Globe Engineering and SA Five Engineering, which was recently

acquired by Aberdeen-based RBG. In addition, the complete spectrum of the service provid-ers, ranging from hydraulic equipment, elec-tronics and marine services to IT and software, can be subcontracted from an existing base. Such a depth of industry is not available in the rest of Africa, and South Africa’s capability to offer a one-stop-shop approach is serving as its competitive edge.

Port of Saldanha: Restoring old gloryIn the Port of Saldanha, located 60 nautical miles NNW of Cape Town, a fabrication site was established in the late 1980s. At the end of the apartheid era, which required the South African oil and gas industry to be self-suffi cient, these facilities were used to fabricate the 14,000 tonne fi xed leg platform jacket for Mossgas and the FA platform, which is still operational off the South African coast. At present, the site is being recommis-sioned and will be reopened in April 2007. The Port of Saldanha is not constrained by

limited available space and we see a huge opportunity for construction and fabrication,” stated Khomotso Philela, CEO of the National Ports Authority. “Physical and environmental limitations will pre-vent major devel-opments in the Port of Cape Town, so a smart com-pany in the oil and gas industry will look at Saldanha,” he continued. In this context, Mr. Philela must agree that Grinaker-LTA is a smart company because it jumped on the opportunity to operate the Saldanha fabrica-tion centre in cooperation with DCD Dorbyl Heavy

Engineering Vereeniging. Historically, the petroleum industry in

South Africa is mainly a downstream indus-try, a fi eld where Grinaker-LTA has been a dominant constructor for the last 20 years. On the other hand, DCD Dorbyl Heavy Engi-neering Vereeniging operates a large facility in Gauteng where the pre-fabrication will be carried out that cannot currently be done in Saldanha. Over the last 6 years, the company has been looking for growth opportunities in the upstream oil and gas market, both in and outside of South Africa.

In 1999, Grinaker-LTA established a facility in Port Harcourt. Serving clients such as Exx-onMobil, Chevron, Total, FMC and Technip, the company has become a well recognized fabricator providing local content, which is a strong business driver in Nigeria. Although the Nigerian operation has grown signifi -cantly and is already operating close to full capacity, Grinaker-LTA has continued to evaluate opportunities to expand its involve-ment in upstream oil and gas from a South African base. “From the outset our aim was to compete with the established countries

Eddie du Rand, Managing Direc-tor of Grinaker-LTA Construction

Khomotso Philela, Chief Executive of the National Ports Authority

Martin Bekker, Managing Direc-tor of Johnson Crane Hire

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servicing the oil and gas industry. However, the costs associated with putting required infrastructure into place made this ambition quite a challenge,“ recalled Eddie du Rand, managing director of Grinaker-LTA Construc-tion. Then the Saldanha opportunity came about, where there was potential to partici-pate in the facility without actually being the developer and investor. “It was an opportu-nity to match our existing market know-how and client base with a new facility to suit the South African requirements,“ noted Mr. du Rand. “That has been the journey we have been on for the past fi ve years.”

The Saldanha facility will be twice the size of Grinaker-LTA’s Port Harcourt facility and will target Southern Africa and the West Coast of Africa, but it won’t necessarily be restricted to that. However, South African companies need to be mindful that a lot of the African countries are driving their own local content programs. The brand-new facility in Saldanha will add a lot of capacity to the region. Its operators are emphasiz-

ing that they aim to complement rather than compete with existing African facilities. “One of the main challenges we have been looking at is marrying local content with more complex high specifi cation work out of South Africa, like a sub sea manifold,” confi rmed Mr. du Rand.

The Saldanha site will boost Grinaker-LTA’s capacity in the West African market by 200 percent, so the order book will have to be fi lled in the short term. According to Mr. du Rand, the timing is right. “We couldn’t approach the market at a better time and we need to make sure that the facility comes to the market quickly to take advantage of this opportunity,” he concluded.

Grinaker-LTA and DCD Dorbyl are not the only ones eager to see the Saldanha fabrica-tion yard materialize. In the past, Johnson Crane Hire (JCH) was one of the main service providers during the construction of the Mossgas project and peaked at 104 cranes. While the oil and gas industry is presently at the brink of making a comeback in Saldanha

Bay, Martin Bekker, managing director of Johnson Crane Hire, is actually considering closing down his operations in the Port of Saldanha. “They have fantastic plans for the Port of Saldanha, and when it happens I will go back,” he explained. “In other areas of South Africa there is a shortage of cranes. I’d rather move away today and return when eventually the Port of Saldanha lives up to the current ambitions.”

Following a management buyout in 2002, Johnson Crane Hire has spent just under Rand 200 million (US$30 million) on new equipment, underlining its position as South Africa’s leader in technological advance-ment. During this process, JCH’s manage-ment was brutally reminded of the interna-tional market forces that govern the natural resources sector.

Large expansion programs were taking place in the platinum mining industry and JCH decided to buy new cranes to service these projects. “We were still stupid at the time; we had lots of cash so we paid for the

JohCra_OGFJ_0701 1 12/29/06 9:27:00 AM


cranes in cash,” he recalled. Only weeks before the delivery of the new cranes the Rand strengthened sharply against the dollar and the platinum mines shelved most of their expansion projects. As JCH already owned the suddenly idle cranes, banks proved to be unwilling to provide fi nancing. Looking back, Mr. Bekker remembers this period as a terri-ble time, but a good lesson. He remembers: “I saw myself sitting at the street corner with a cardboard stating ‘seven kids, no job’, and I wasn’t ready for that!” JCH got through that period, and since then strengthened its position as the main crane contractor during shutdowns at South Africa’s petrochemical plants. Currently the company’s workload is split 50-50 between mining/construction and oil and gas/petrochemicals. “You can never do without the oil and gas industry,” recog-nized Mr. Bekker. “When MAN Ferrostaal starts developments, we will be there.”

Cape Town: One-stop shopCape Town, undoubtedly the economic centre of the Western Cape, offers distinct advantages such as its strong industrial base and infrastructure. Helen Zille, Mayor of Cape Town, is confi dent that the city has the potential to become one of the world’s leading cities, and that the city has to use all economic opportunities to achieve this ambition.

As part of the ambition, oil rigs and FPSOs are destined to become an inseparable part of Cape Town’s skyline in the years to come. The oil and gas related workload in the Port of Cape Town is rising rapidly. A critical chal-lenge for the port is a matter of space and the compatibility of developing the oil and gas industry, which is perceived to be a hazardous activity, alongside tourism-oriented develop-ments such as the V&A Waterfront.

“There are about 600 globally competi-tive engineering companies in Cape Town that service the oil and gas industry and have experience with international projects,” boasted the mayor. “In addition, Cape Town has the largest dry dock in the Southern Hemisphere and is located on a strategic geographic position.”

While Cape Town’s leading engineering companies are gearing up to attract oil and gas projects, an international company was awarded South Africa’s fi rst dry-docked rig project. RBG, headquartered in Aberdeen, brought the upgrade project for the Sedco

709, Transocean’s semi-submersible drilling rig, to the Western Cape. To execute this project, RBG teamed up with Cape Town’s largest ship repair and engineering compa-nies: DCD Dorlbyl Marine, Globe Engineer-ing and SA Five. The Sedco 709 project illustrates the Western Cape’s ambitions as it is the fi rst joint venture project servicing the West African oil and gas industry from a

Helen Zille, Mayor of Cape Town

CityCape_OGFJ_0701 1 12/28/06 4:57:02 PM


Western Cape base. The project is expected to inject US$20 million into the Western Cape economy. This is instrumental in posi-tioning this developing region as a preferred location for the future dry docking of rigs, offering a cost saving alternative for rig own-ers operating in West Africa.

Underlining the confi dence in the West-ern Cape’s potential, SA Five was recently acquired by Ashley, which is 100 percent owned by Executive Chairman John Ray, also the 50 percent share-holder of RBG. As illustrated by the Sedco 709 project, SA Five is already working very closely with RBG and will become offi cially part of the RBG Group, effective 1 March 2007, after the completion of RBG’s due diligence and formal board approval.

Pursuing offshore opportuni-ties from a Cape Town baseIn addition to being a humanitarian milestone, the end of apartheid in 1994 exposed South Africa to the globalizing world. While foreign companies rushed into the attractive South African market, South Africa’s service providers to the oil and gas industry saw the barriers to internationalization diminish. Consequently, Anchor Industries and Cape Diving, both based in Cape Town, were quick to move into the international offshore industry.

Anchor Industries, a DNV ISO 9001 accredited supplier of mooring equipment, was started as a family business in 1994. “About eight years ago we saw an opportu-nity to extend our business,” explained Dale Hutcheson, managing director. Based on the good fi t with Anchor Industries’ marine business, the company decided to enter the offshore industry. However, with South Africa’s limited offshore industry, Anchor Industries couldn’t really grow the business locally. Dale Hutcheson boasted: “Last year we did a job in Russia, in Sakhalin Island, for a Norwegian company and this week alone we supplied products to Angola, Australia, Uganda and America.”

Nowadays the tide is changing for the South African service industry as opportunities emerge closer to home. Every rig or FPSO that enters the Port of Cape Town for repair or maintenance brings extra business to the entire service industry. “On the back of that we also do reciprocal business with other com-panies within the offshore business, and the

The Port of Cape Town situated in Table Bay

The Sedco 709 in the Port of Cape Town

Cape Town’s central business district


busier they get, the busier we will get as well,” Mr. Hutcheson explained. “I think that we will see the same positive spin-off from the off-shore industry as they have seen in Aberdeen, Singapore, Stavanger and Houston. Anchor Industries does not aim to be the biggest supplier of mooring equipment, but aspires to be the best in its fi eld and be recognized as a leader in our region. There is a huge opportu-nity to exponentially increase the business, it must be a focus,” he concluded.

Established in 1962, Cape Diving is South Africa’s oldest underwater services contrac-tor and was initially servicing the marine

capability and capacity to execute the work using local resources. “There is a lot of pro-fessional expertise in the country, and we are South Africa’s only sub sea service provider that offers a full range of sub sea services in-house, which is what the oil and gas industry requires,” boasted Alan Thomas.

Cape Diving offers services which include topside and sub sea NDT services, air diving, saturation diving and ROV services and has become an African ‘niche’ service company, with sound knowledge of West, East and South Africa. Aspiring to ride the wave of the exploration and production boom in West Africa, Mr. Mahlati strongly believes that Cape Diving should be the fl ag bearer of South African offshore support services with a limited fl eet of support vessels while acting as the preferred partner of choice for both local and international exploration and production companies.

Today South Africa has become a plat-form for international expansion, but over a century ago the country itself was a magnet

industry. Over a decade ago, the company entered the offshore industry. Fezekile Mahlati, Cape Diving’s chairman, recalls that at that time there were few upstream developments in South African waters which meant that his company should look for opportunities elsewhere, for example, Middle East and West Africa.

In 1995, Alan Thomas was recruited as Cape Diving’s managing director to imple-ment the strategic decision to move into the international offshore industry. That proved to be very diffi cult. “South Africa had just come out of the political wilderness and had limited exposure to, in particular, the offshore industry,” he recalled. The fi rst steps towards becoming a supplier of choice were taken by obtaining ISO 9001-2000 certifi cation and becoming contractor members of the Interna-tional Marine Contractor Association. Tradi-tionally, the industry in West Africa would hire international contractors to undertake their underwater work. At present, the industry is starting to realize that South Africa has the

Fezekile Mahlati, Chairman of Cape Diving

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for entrepreneurs and fortune seekers. In 1884, Lauritz H. Marthinusen arrived in South Africa from Norway and joined the gold rush. His entrepreneurial mind was quick to see the opportunity for winding electri-cal rotating machines locally which, in the absence of a repair facility in South Africa, were being returned to Europe. This marked the birth of LHMarthinusen in 1913, which has grown to become the leading electrical repairer in Southern Africa, operating the largest facility in the southern hemisphere.

Core businesses comprise the repair of electric rotating machines of all designs and sizes, as well as transformers up to 200 MVA. “Historically, gold was the driver of this busi-ness, but over the past fi ve or six years we have diversifi ed considerably,” underlined Altino da Silva, LHM’s managing director. Today, the company is very strong in the petrochemical industry, platinum mining, gold mining, paper, steel and the general industries. Although LHMartinusen’s Cape Town subsidiary is involved in oil rigs for

Angola, the company is just scratching the surface in the offshore oil and gas industry at the moment. Altino da Silva is determined to capture this rising opportunity over the next 18 to 24 months, adding a new chapter to his company’s long history.

Deep water and rope accessThe oil and gas industry’s gradual shift from shallow to deep water exploration and pro-duction is transforming the industry’s operat-ing infrastructure. Floating rigs and FPSOs are replacing traditional forms of production. Challenges related to the reduced accessibil-ity must be addressed in the inspection and maintenance strategies for these offshore installations.

Rope access companies have been emerging since the early 1990s, but their innovative approach to inspection and maintenance proved almost too revolution-ary for the traditional oil and gas industry in the early days. “It took a long time for us to convince the oil industry that our service

is actually safer than scaffolding,” refl ected Neil Schreibe. As managing director of Rop-etec, one of Cape Town’s two rope access companies, he described the service offered by his company as “any elevated work you need scaffolding for, we can do it safely, cost effectively and on time.”

Ropetec has an overall workforce of around 140 people and operates in two basic divisions: maintenance and inspection. As the company grew, it became a class-approved inspection company for Lloyds and DNV, ABS, Rina and Bureau Veritas.

On the maintenance side, the services offered include painting, grit blasting, welding, electrical maintenance and rigging. “In addi-tion, we often work in conjunction with divers, wherein we do the topside work and the divers work sub sea, so it is quite a phenomenal way of working,” noted Mr. Schreibe.

The rig industry in West Africa is offering tremendous growth opportunities. The track record in the rope access industry is critical. “We have been operating in Angola for fi ve years and we have yet to have a lost time incident, and that determines our growth,” he boasted. While Ropetec’s growth will be controlled growth, the company is undoubt-edly gearing up to capitalize in the opportu-nities in its backyard: West Africa.

Daniel Bottomley, a mountain climber and construction engineer by background, felt privileged to be part of the birth of the indus-trial rope access industry in Africa. In 1991, he started Toprope, which immediately became involved in the oil and gas industry. Although Toprope tends to focus on work in the Port of Cape Town, the company has executed projects throughout the world, operating both in the various ports and offshore.

“At the moment we are involved in off-shore work in Nigeria, we have just fi nished a job in Gabon and we are heading for Brazil next month,” he noted. Having built the business based on quality, sound work ethic and can-do attitude, Mr. Bottomley empha-sized that Toprope’s critical success factor is the “willingness to bend over backwards for the international client base without causing a safety hazard.” Whether this is enough to realize his ambition of “establishing an offi ce in every country pumping oil” remains to be seen, but it may prove to be invaluable in Toprope’s upcoming challenge: opening a next branch in West Africa.

CapeDiv_OGFJ_0701 1 12/28/06 5:23:37 PM


Business challenges in Africa“Obviously our president, Thabo Mbeki wants to see South African companies work more and more in Africa to achieve his African dream and to create awareness in the international community that there are certain centers of excellence in Africa,” noted Barry Wickins. As CEO of RJ Southey, the largest industrial painting and thermal insulation company in South Africa, he is one of the people who will have to make this dream come true. Whilst RJ Southey was founded in 1939, the focus was on South Africa and its expansion into Africa has really only occurred in the past seven years.

It took RJ Southey nearly three years to break into the market, a period during which the company tried unsuccessfully to operate from the Congo. Being an African company proved not to be suffi cient enough to win busi-ness and RJ Southey experienced the diffi culty of operating in these markets as a private company because of the bureaucracy, logistical diffi culties and long supply lines.

“Consequently we changed our strategy and are now targeting West Africa from a Cape Town base,” explained Mr. Wickins. “We have the skills and equipment to be successful in this market, but what we lack is an estab-lished onshore facility and successful refer-ences from past work in West Africa.” Some of RJ Southey’s major clients have encouraged the company to enter the offshore market of West Africa through a strategy of organic growth, joint ventures or acquisitions.

At present, RJ Southey is committed to increasing its market share in the offshore oil and gas industry, based on the belief that this will dramatically enhance our profi tability with-out a disproportionate increase in risks to the group. “Our technical skills allow us to enter industries with high barriers to entry which in turn enables us to capture high market share. Typically we go into any industry where we can get a good return on our capital employed, leveraging our technical expertise in industries that offer long term, sustainable returns,” outlined Mr. Wickins.

Currently, RJ Southey sees Angola as a major business opportunity and is currently registering a company there. “Having a pres-ence onshore will give us a springboard to undertake more work on the supply vessels, rigs and FPSOs which are located offshore,” concluded Mr. Wickins. “We are investing heavily into expanding our activities in the offshore industry.”

Commitment is criticalAngola has one of the fastest growing econ-omies in the world, and its economic growth rate is estimated to reach 20.6 percent in 2006. This eye-catching statistic is placing the country in the international spotlight. However, after weighing up the commercial benefi ts and political risk, many companies want the cart before the horse; they want to fi rst generate sales before establishing a local presence.

After 3 years of trading in Angola, the country has become an anchor market for The RARE Group, a South African-based

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Talk to Southey Contracting, the largest multi-disciplinedengineering service company, with nearly 70 years of experience inthe southern African region. We have branches in all major centresas well as international offices in Malaysia and Australia.

WE ARE SPECIALISTS IN:

Branches at:Gauteng, Cape Town,Mossel Bay, Durban,Richards Bay, Namibia, Botswana,Mocambique, ZambiaMalaysia & Australia

Johannesburg: Tel: + 27 11 579-4600 Fax: +27 11 579-4637/38 E-mail: [email protected]

For further information, contact:

Cape Town:Tel: + 27 21 552 6020 Fax: + 27 21 552 6024E-mail: [email protected] www.southey.co.za

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Panalpina established operations in Nige-ria in the 1950s. Since then the Swiss for-warder, with a presence in every oil centre in the world, has expanded across West Africa from its Nigerian base. Despite increasing exploration and production activity in West Africa over the past 50 years, procurement from South Africa only commenced a few years ago.

For over 30 years Panalpina has co-oper-ated on the major South African trade lane with Safcor Panalpina, a wholly-owned subsidiary of the Bidvest Group. The Safcor Panalpina branding was formalized in 2000 and the company operates as a fully-fl edged member of the Panalpina global network.

“Panalpina is undoubtedly the number one player in the global oil and gas indus-try,” stated Philip Womersley, chairman of Safcor Panalpina. “In particular, shipping into West Africa is far more complex than anywhere else in the world.”

Womersley underlined that “a really strong operation on the ground in West

company that provides a comprehensive range of supply pipes, valves and fi ttings to the refi nery, onshore and offshore oil and gas markets in southern and West Africa. Success in Angola spurred the company’s decision to make a long-term commitment to this booming market, and RARE Angola was established last August.

The RARE Group aspires to bring innovation to the mature piping industry, which implies the capacity of being able

to get products to market faster and more effi ciently than the traditional sources. David Scheepers, managing director of The RARE Group, explains his philosophy, “We are not trading in commodities, we are trading in service. Service, in essence, has gone from a concept to a commodity and our core commodity is service.” Typically, for Angola there could be turnaround times of between two and 6 months for commodities com-ing out of the traditional markets. “We can get material into these markets within 21 days. This service enables our customers to become leaner and reduce their inventory,” he stressed.

Ultimately, RARE Angola will serve as a hub for the company’s entry into the oil and gas market along the West Coast of Africa targeting Angola, Nigeria, São Tomé, Equatorial Guinea and Gabon. According to Mr. Scheepers, local commitment will prove to be critical when offering service levels at international standards while doing business in Africa.

Bringing the Gulf of Guinea on South Africa’s doorstepImplementing effi cient logistics is a critical success factor and major operational chal-lenge for any company entering the African marketplace. Over past decades, specialized service providers such as CHC Helicopters Africa and Safcor Panalpina have proven

themselves to be core contributors to the success of many oil and gas companies oper-ating across the continent.

CHC Helicopters Africa is part of CHC Helicopter Corporation, the world’s largest provider of helicopter services to the global offshore oil and gas industry. Operating in Africa since 1964, the company has gradually grown its fl eet. Currently the fl eet consists of 37 aircrafts, making it one of the largest civil-ian helicopter fl eets on the African continent.

Past decades have shown CHC the multidimensional nature of doing business in Africa, giving the company a profound understanding of the continents’ business cultures, political and regulatory land-scapes and its sometimes hostile geogra-phy. Through operating agreements with local companies in Angola, Mozambique, Namibia, Equatorial Guinea, Congo, Chad, Cameroon, Ivory Coast and Nigeria, CHC Helicopters is bringing North American and European standards into the African operat-ing environment.

Africa’s prominence as an explora-tion hotspot has increased exponentially in recent years, boosting the demand for helicopter services while tightness in the market is driving the rates up. The operat-ing environment is rapidly changing. “Doing business in Africa is an exciting challenge for me,” said Jide Adebayo, managing director of CHC Helicopters Africa, “but opportuni-ties are plentiful.”

CHC Helicopters Africa

Philip Womersley, Chairman of Saf-cor Panalpina

David Scheepers, Managing Direc-tor of The RARE Group


Africa is a prerequisite to success on this route.” Panalpina’s oil and gas compe-tence centers in Basel and Houston have been very supportive of Safcor Panalpina’s West African activities, enabling Safcor Panalpina to offer solid supply chain solu-tions into West Africa.

South Africa will never be able to quote on the very high tech slice of the West African oil and gas procurement pie, since the country simply doesn’t have the neces-sary length of production runs. “However, if we look at the rest of the pie, South Africa is the source for less than 10 percent of the West African oil and gas industry’s procurement,” assessed Mr. Womersley. “We must be able to provide a lot more than 10 percent. To do so, South Africa needs to deliver on three fronts: offer reliable logistics solutions, foster a strong export mentality in the South African manufacturing industry, and strengthen the recognition of South Africa as a source of technology.”

A slightly weaker, but stable, Rand would really add the last few percentage points to South Africa’s pricing competi-tiveness. According to Womersley, this would enable South Africa to offer very good transit times and a highly competi-tive dollar landed price. Of course, Safcor Panalpina’s success on the route to West Africa is intertwined with the advancement of South African suppliers in the Gulf of Guinea. “Let’s be aggressive suppliers into that zone, go there and put your feet on the ground,” he said. “It is a little bit like a symphony, there is no point having all the brass instruments if the woodwind instru-ments or the strings are not there, it just doesn’t sound the same.”

Katrina: threat or opportunityHistorically, southern Africa has had a very small oil and gas support requirement. Subtech has focused on coastal construction; shipping and pipeline work with a fair amount of marine casualty response and salvage work thrown on top. For many years Subtech has been interested in opportunities offered by the offshore oil and gas industry. However, it wasn’t until about four years ago that the com-pany made its debut in the oil and gas industry through a mixed gas intervention in Equatorial Guinea for Marathon Oil.

As a result of this positive cooperation and realizing the joint potential, Subtech Diving was acquired by Superior Offshore International. This has created one of the largest diving companies in the world. Outlining the implications for the company’s strategic direction, Neil Scott-Williams noted; “First, we will continue to support the Superior operation in the Gulf of Mexico until the industry is back on its natural development curve after hurricane Katrina. The second role is to assist in developing the international offshore interests of Superior, looking at opportunities in the Middle East

Between the increased development driven by high oil price and the added pressure of Hurricane Katrina, international demand for diving service providers has reached unprecedented levels. In October of last year Subtech was approached to supply divers to Superior Offshore International in the Gulf of Mexico to assist with the post Katrina clean up operation.

“In November 2005 a contract was signed and by July this year we had around 120 divers working with them in the gulf. Subtech has invested much time and effort bringing young divers into the industry; training them only to lose them to the offshore oil and gas industry,” put Neil Scott-Williams. “With the opportunity in the Gulf of Mexico, the vast majority of divers that worked for Subtech in the past, and who left to join the oil and gas industry, have returned. To us this is a greatcompliment.” Currently Subtech Diving has an average of 100 divers in the Gulf of Mexico, approxi-mately 100 people working in the Southern African region, and 9 in the Middle East.

Neil Scott-Wil-liams, Director of Subtech Diving

THE RARE GROUP

MOTIVATED SOLUTIONS!

RARE is a dedicated solutions provider and leading supplier of valves, pipes and fittings to the Oil, Gas and Petrochemical markets in Sub

Saharan Africa.

RARE provides Supply Chain Management and Project Management Services to refineries and on large projects and has gained and

enviable reputation for its excellent after sales and technical support.

Tel : +27 11 908 1510 Fax : +27 11 908 1519PO Box 124186, Alrode, 1451, South Africae mail: [email protected] web: www.rare.co.za

TheRare_OGFJ_0701 1 12/28/06 5:28:16 PM


and West and East Africa using the experi-ence gained from having worked successfully in over 20 countries around the world.”

The company’s future challenge is capital-izing on the opportunities presented in the oil and gas industry internationally over the next few years. “We have learned that the diving industry is constantly changing according to industry demands,” empha-sized Scott-Williams. “Our aim is to maintain the fl exibility and entrepreneurial initiative required to evolve and meet the challenges as they present themselves.”

New boys on the block“South Africa is largely a consumer country, a price taker,” stated Buyelwa Sonjica, South Africa’s Minister for Minerals and Energy. “Our economy is very energy intensive.” The challenge faced by the South African gov-ernment is to reduce the continued depen-dence of the country on foreign sources of crude oil. With 78 percent of primary fuel energy being generated from imported crude oil, the risks to which the country is exposed are signifi cant. “Not only is crude oil the single biggest item on the import account, but there are also indications that the cost of foreign oil purchases will continue to escalate,” warned Minister Sonjica.

Although the oil majors have a tight grip on South Africa’s oil imports, Rev. S.S. Zulu has identifi ed a window of opportunity to enter this market. Through the creation of Palm Energy Resources, which will legally exist and operate in South Africa, West Africa and Iran, he is determined to combine the forces of the two strongest African economies as well as Iran in the oil and gas sector.

Rev. Zulu, executive chairman of Palm Energy Resources, explained that his com-pany will be involved in oil production and refi ning in Nigeria. This will target the South African market. In addition, the company is currently in discussion with Arkan Gas of the Islamic Republic of Iran to construct a Gas Plant in South Africa. “Our revenue will be ploughed back into both economies to build refi neries because no refi neries have been built in either country for about forty years,” stated Rev. Zulu. “We are determined.”

In the beginning, Palm Energy Resources is aspiring to handle about two million

barrels per month. “This amount exceeds the demand in South Africa and we will therefore also be supplying the markets in Asia, America and Europe,” proclaimed Rev. Zulu. “It is a strategy of saying ‘we are the new boys on the block; can we please play the game together’?”

Palm Energy Resources intends to work with all multinational oil companies. “We need each other, we need their expertise, and we need them to leave room for us to

fully participate in the sector,” recognized Rev. Zulu. He strongly believes that the African economy, through NEPAD, will not be developed by Africans alone. “We need the skills that have been developed in any sector of the economy by the multinational corporations over the years.”

According to Rev. Zulu, “Palm Energy Resources has private investors who are interested in the sector and act on behalf of the over-exploited African people. They are investors who are fed up with the status quo. The 21st century will see a new breed of African businessmen and politicians. The fi rst Africans who held PhDs in the 1920s and 1930s did not go to Europe fl ying by plane, they walked there. There were all kinds of risks along the way, but in terms of capitalist economies the risk is much more excessive when it is defi ned in fi nancial terms. Why should it be that way?”

Rev. Zulu doesn’t want Africa’s natural resources to be governed by the Europeans and the Americans. “The proceeds from our oil and gas industry should be shared equally between those who have and those who don’t have. These resources are for the children of Africa and not only for the capitalists,” he emphasized. “It will be a long road but we are prepared to sweat, just like the fi rst Africans who walked to Europe to get their PhDs. “

MOZAMBIQUETurning Mozambique aroundWhile remaining one of the world’s poorest countries, Mozambique has made remarkable economic progress over the past decade. Vasco da Gama claimed Mozambique for Portugal in 1498 and it wasn’t until 1975 that Mozambique gained its independence. Since then the country has been ruled by Frelimo, the National Front for the Liberation of Mozambique. The fi rst 17 years of indepen-dence were characterized by civil war and political instability, before Mozambique fi nally returned to a state of normality in 1992. In the decade that followed the country’s fi rst multiparty elections in 1994, Mozambique’s economic growth rate accelerated and at present Mozambique ranks among the fastest growing economies in the world.

Mega-projects in the natural resources sector have boosted GDP and the country’s upstream oil and gas industry is fi nally becom-ing a signifi cant source of foreign direct invest-ment. In the future, the contribution of mineral resources to GDP will increase from less than fi ve percent to more than 10 percent,” declared Esperança Bias, Minister of Mineral Resources. “We will fi ght for that.”

Mozambique’s fi rst exploration success was the discovery of the Pande Gas Field in 1961 by Gulf Oil followed by the gas discov-eries of the Búzi and Temane fi elds in 1962 and 1967 respectively. The absence of a suit-able market for the gas and rising political unrest did not allow for the development of the reserves and exploration activity started declining in the early 1970’s.

At present, 4 decades after their dis-covery, the Pande 2.029 (Tcf) and Temane (1.161 Tcf) fi elds have fi nally been taken into production. In 2000, the Mozambican government entered into an agreement with Sasol, in consortium with ENH, for the development of the gas resources in the Pande and Temane fi elds. Sasol, the operator and 70 percent owner, has been transporting the natural gas through an 865 kilometer pipeline from Temane to Secunda in South Africa’s Gauteng Province since the start of production in February 2004. “The Pande/Temane project brought large scale investment to Mozambique and set the stage for further investment in our oil and gas industry,” pronounced Minister Bias.

Rev. S.S. Zulu Executive Chair-man of Palm En-ergy Resources

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Aeropo_OGFJ_0701 1 1/3/07 11:11:35 AM


Simultaneously, the Mozambican govern-ment is using its royalty gas, taken from the tie-in points along the pipeline route,

to develop a domestic market for natural gas. “We intend to increase the quantity of natural gas used in Mozambique, because it is one way to create development in our country,” he emphasized.

Emerging exploration hotspot?Following its creation in 1981, ENH held a monopoly over all exploration activity in the country. As a result, although the monopoly situation has been put to an end, Mozam-bique’s extensive sedimentary basins are still

under-explored. “Only about 100 wells have been drilled, both onshore and offshore, which is not enough if you want to look for oil,” noted Arsenio Mabote. He became the Chairman of the National Petroleum Institute (NPI) when it was created in 2004. The NPI is the arm of the government when it comes to licensing petroleum acreage, promoting, administrating and regulating all petroleum activities in the country. At the moment, it is a small institution which will develop according to the market. If current explora-tion activities in Mozambique prove to be successful it might have to restructure to cater for the dimension of the sector.

The NPI’s fi rst milestone was the Mozam-bique Second Licensing Round, which was launched in July 2005. The Rovuma Basin, the focus of this licensing round, is about 400 km long and 160 km wide and is cen-tered on the Rovuma Delta near the border between Mozambique and Tanzania. In the Rovuma Basin only one wildcat well was drilled by Exxon in 1986. “Mozambique has signifi cant potential, but we still have a lot of work to do,” stated Mr. Mabote.

Prior to the licensing round the Rovuma basin was divided into 7 areas, which created one onshore and 6 offshore blocks. Two of these areas were already under license to Norsk Hydro and applications were received for the remaining 5 blocks.

“We launched a licensing round to take advantage of the momentum in the indus-try,” explained Minister Bias. At the moment, Mozambique is fi nalizing the Exploration and Production Concession Contracts with the four companies who won the bids for the dif-ferent blocks available, which are Artumas, Anadarko, ENI and Petronas. “In addition to the latest licensing round, Petronas is carry-ing out work in the offshore Zambezi Delta Block while Sasol is operating in two blocks in the north of Inhambane,” emphasized Minister Bias. “There is a lot of interest in the oil and gas industry in Mozambique.”

The next stepExploration and production companies are looking more at frontier areas on the east coast of Africa, evaluating the exploration potential in countries such as Mozambique, Tanzania and Madagascar. Over the past 5 years, Mozambique has upgraded its data centre and put in place a new legal and

Esperança Bias, Minister of Min-eral Resources of Mozambique

NPI_OGFJ_0701 1 12/28/06 5:11:08 PM


regulatory framework which is completely in line with international standards. The next step will be to launch another licensing round, which the National Petroleum Insti-tute expects to announce at the beginning of 2007. “We just need to make sure that exploration activity is on the rise. Mozam-bique has an adequate exploration environ-ment. We have strong political backing, there is an adequate legal framework and the potential is there. Welcome to Mozam-bique,” concluded Arsenio Mabote.

Road to success?With a land area of 799,380 sq. km and a coastline that stretches for 2,515 kilometers, Mozambique presents a challenge for any company entering the market. The majority of Mozambique’s road infrastructure is in bad condition and therefore the airports play a crucial role in the country’s economic progress. While the airports are critical in bringing devel-opment to the regions, only 3 of Mozam-bique’s 19 airports are creating revenues and are subsidizing the other 16 airports. These are Maputo International Airport, which represents 52 percent of the total revenue of Aeroportos de Moçambique, Beira and Vilanculos. Closing the unprofi table is not an option. “If we would do that, we would kill Mozambique,” said Diodino Cambaza, chairman of Aeroportos de Moçambique. “Air travel is the only way to travel at this moment, especially for business purposes.”

Some of Mozambique’s regions have good tourism potential, and the airports will have to push tourism development in these regions rather than restrict it. Especially Pemba, which is located in the heart of the Rovuma Basin, is rising as a tourism destina-tion and its airport plays a fundamental role in this development. Pemba Airport, which is running at full capacity, will be able to receive the Airbus 340 once the current expansion project is completed. “We are planning to have one Airbus 340 per week and on a daily basis we will be serving this route with aircraft such as the Boeing 737,” boasted Diodino Cambaza. The Maputo to Pemba route is part of the Maputo – Pemba – Dar Es Salaam – Nairobi connection and fl ights on this route will be carried out by Kenya Airways, LAM and Air Corridor while others might enter in the future. “Positive exploration results in the Rovuma Basin would signifi cantly add to our passenger numbers and make our expansion project particularly interesting,” recognized Mr. Cambaza. Aeroportos de Moçambique is destined to play a key role in Mozambique’s economic growth, enabling the country to cater for the needs of rapidly growing number of business people that are attracted by Mozambique’s economic growth and natural resource wealth.

Dreaming about the futureOil and gas is a high priority because Mozambique has to import all petroleum products to meet the domestic demand. The recent increase in oil price has made this a heavy burden on Mozambique in terms of foreign exchange and the balance of imports and exports. “That is why it is impor-tant for Mozambique to become an oil produc-

ing country,” explained Mario Marques, gen-eral manager of ENH and advisor to Minister Bias. “Mozambique has the potential to dis-cover and produce more oil than the required to meet domestic petroleum demand.”

What was a dream 25 years ago is a real-ity today. Large volumes of natural gas are exported through the Temane – Secunda pipeline. “The energy content of the gas we are exporting is about 6 times the demand for petroleum products in Mozambique, so in energy terms we are already a net exporter,” noted Mr. Marques. “A dream has come true and we hope to see more of these projects coming off the ground.”

Mario Marques, General Manager of ENH and Advi-sor to Minister Bias

Arsenio Mabote, Chairman of the National Petro-leum Institute

Diodino Cam-baza, Chairman of Aeroportos de Moçambique

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email: [email protected]

Documents

South Africa - EnergyBoardroom50 November 2006 Oil & Gas Financial Journal • Land of opportunity S ince South Africa’s leap into democ-racy in 1994, the country has entered the