Private and confidential

BALANCING GAS AND POWER IN

SOUTH AFRICA

Paul Eardley-Taylor 18 February 2016

1 Contents

Section Page

1. Why Standard Bank? 2

2. Introduction 5

3. Global Gas Elements 7

4. South Africa Gas RFI 13

5. Unlocking Indigenous Resources 18

6. Africa Gas Forum: IPP Office Speech 23

WHY STANDARD BANK?

Section 1:

3 Standard Bank in Africa

Distinctive Presence Distinctive People Strong Market Conditions

Largest Pan-African footprint

Increased quality deal flow in/out of

Africa

Excellent Cross-Border Connectivity

Local balance sheet

Very strong specialist teams in

Johannesburg, Lagos, London, Nairobi

and New York

Full range of expertise in-country

Improving fundamentals

Movement towards market based

economies

Increased foreign investor interest

Commodity-led economic growth

Over 150 years of experience in Africa

Largest bank in Africa by assets and headcount

Approximately 49,000 employees in 20 African countries

Headquartered in Johannesburg

Growth on the continent is a key strategic focus area

Investment banking presence across the region and in key

markets strengthened by recent acquisitions:

– IBTC Chartered Bank, Nigeria

– CFC Bank, Kenya

– Recently opened in South Sudan

– Recently opened offices in Cote d’Ivoire and Ethiopia

Ability to provide corporate and investment banking

solutions including advisory, transaction structuring and

bespoke debt funding packages in local and foreign

currencies

Standard Bank has

an unrivalled

presence in sub-

Saharan Africa with

on-the-ground

presence in 20

African countries

Operational Overview

Investment Banking in Africa

Ghana

Nigeria

South

Sudan

Kenya D.R.C

Angola

Namibia

South

Africa Lesotho

Swaziland

Mauritius Botswana

Zambia

Zimbabwe

Mozambique

Malawi

Tanzania

Uganda

Standard Bank

Stanbic Bank

Stanbic IBTC Bank

CFC Stanbic Bank

Cote

d’Ivoire

Ethiopia

Representative Office

4 Oil & Gas Client Coverage

Oil & Gas is one of Standard Bank’s six key sector focuses

A dedicated Oil & Gas team provides:

– The full corporate and investment banking product range to clients active in the industry

– Oil & Gas expertise

– Local industry knowledge and connections

– Strong client relationships

– Team of 11 in London, with offices in Johannesburg, Beijing, New York, Dubai, Johannesburg, Nairobi, Accra and Lagos

Oladele Kuti

Oil & Gas, Nigeria

+234 803 555 5777

oladele.kuti@

stanbic.com

Dinis Mendes

Oil & Gas, Angola

+244 226 432 538

Dinis.Mendes@

standardbank.co.ao

Fernando Docters

Oil & Gas, Americas

+1 212 407-5165

fernando.docters@

standardny.com

Jonathan Ross

Oil & Gas, London

+44 20 3167 5173

jonathan.ross@

standardsbg.com

Power &

Infrastructure

Oil & Gas

Mining & Metals

Telecoms & Media

Key Industry Sectors

Neill Farney

Chief Petroleum Engineer

+44 20 3167 5194

neil.fairnie@

standardsbg.com

Charlie Houston

Oil & Gas, London

+44 20 3167 5175

charlie.houston@

standardsbg.com

Damien Mauvais

Oil & Gas, London

+44 20 3167 5205

damien.mauvais@

standardsbg.com

+27 11 721 7829

paul.eardley-taylor@

standardbank.co.za

Paul Eardley-Taylor

O&G, SA & Southern Africa

+44 20 3167 5202

simon.ashby-rudd@

standardsbg.com

Simon Ashby-Rudd

Global Head, Oil & Gas

+27 11 344 5168

khwezi.tiya@

standardbank.co.za

Khwezi Tiya

Oil & Gas, South Africa

Strong technical

understanding

through reservoir

and production

engineer

Fan Bing Business Origination & Cross Border

Debt Advisory

+86 10 6649 6700

Bing.Fan@

standardbank.com.cn

Oscar Kang’oro

Coverage, East Africa

+254 20 326 8400

Oscar.kang’oro@

standardbank.com

Simon Reeves

Coverage, Middle East

+971 4302 1104

simon.reeves@

standardbank.com

Nii Okyne

Oil & Gas, Ghana

+233 302 610690

OkyneN@

stanbic.com.gh

Financial

Institutions

Consumer

INTRODUCTION

Section 2:

6

Over the last year, Standard Bank has observed the challenges facing coal-fired power in South Africa, namely:

Only one unit of Medupi is in operation (after 8 years of construction) with no more operational until 2017. The first

unit of Kusile will not be operational until 2018 (after a decade of construction)

There were limited bidders for the first round of coal-fired IPPs

In December 2015, COP21’s commitment to limit temperature increases to below 2 degrees makes large numbers

of new coal-fired plant unlikely, noting the OECD has limited ECA support for non-super critical plants from 2017

Therefore, it appears there is a major strategic opportunity to develop gas-fired power in South Africa (N.B. nuclear

operates to a long-term timetable and renewables still has intermittency to deal with). In April 2015, the Department of

Energy started a process to design a Gas to Power procurement programme (“Gas RFI”) for a combined 3,126MW

allocation. This is aligned to IRP 2010’s plane to introduce Gas to Power (‘’GTP’’) to SA and is an indication of

Government’s support for this (backed up yesterday by a new Ministerial determination for an additional 1,500 MW of gas-

fired power).

Standard Bank believes that there is a major opportunity to develop a broader gas-driven growth sector that can

comprise IPPs, LNG imports, wholesale gas supply among others. This presentation will highlight the following:

Elements of the Global Gas industry;

South Africa Gas RFI;

Unlocking indigenous gas; and

Analysing the IPP Office’s recent speech on Gas RFI (supplemented by DOE Minister)

Introduction

Overview

Standard Bank

defines “Energy” as

the nexus between

Mining, O&G and

Power (i.e feedstock

and KWhs)

We believe South

Africa’s energy

nexus is rapidly

changing

GLOBAL GAS ELEMENTS

Section 3:

8

The first Combined Cycle Gas Turbine (‘’CCGT’’) was commissioned approximately 25 years ago in Japan and was

fuelled by LNG. It can therefore be considered as proven technology. Feedstock utilized in a gas-fired IPP can

comprise of either of the following:

Indigenous gas: gas sourced domestically, this can either be associated gas or non-associated gas

Associated gas: gas which is produced as a byproduct of the production of petroleum. Abu Dhabi uses

associated gas in its gas-fired IPP’s;

Non-associated gas: gas extracted from standalone gas fields. Qatar or the United Kingdom uses the gas

from its gas field as feedstock in their IPP’s.

Cross Border Pipeline: if the country has no or limited indigenous gas reserves compared to its neighboring

countries, it can then import gas from its neighbors using pipelines. In most Western European countries, the

majority of their gas is imported from Russia through a pipeline (or for Spain, Algeria). A local example is the gas

which Sasol imports from their Mozambique Pande/Temane field through the ROMPCO gas pipeline to utilize the

gas at their Sasolburg gas-fired plant (as well as fuel wider operations).

Liquefied Natural Gas (“LNG”): LNG is imported into a country then regasified either at a land based

regasification unit or on a Floating Storage Regasification Unit (“FSRU”) before being transported to a gas-fired

IPP. Global examples of countries who have imported LNG include Brazil, Egypt and Chile.

CCGT is the same age as Pretty Woman

Overview

Globally gas-fired

IPP’s have been

utilized to generate

power for over 25

years using

Indigenous gas,

cross border gas

pipelines or LNG as

feedstock

Pretty Woman is the same age as the CCGT plant – over 25 years old

9

For the gas to be utilized in the gas-fired IPP the infrastructure network needs to be in place. In some countries, an

infrastructure network already exists. Examples of countries where an infrastructure network currently exists include:

Middle East – the infrastructure network was created as a result of the associated gas from the petroleum

deposits. In 2010, Dubai began importing LNG by means of an FSRU. Due to the existing infrastructure network,

the natural gas from the FSRU could be piped straight into gas-fired power plants;

USA – indigenous gas in the USA has resulted in an enormous large pipeline network;

United Kingdom – the North Sea oil & gas discoveries in the 1970s led to the construction of a national trunk and

local distribution pipeline network;

Italy – as mentioned earlier, the infrastructure network in Italy was created as a result of imported gas with all of

Italy’s gas being imported [42% Russia, 22% Algeria and 10% Libya];

Japan – Japan began importing LNG in 1969. The LNG was initially used for industrial and residential purposes.

Subsequent to CCGT’s development. Japan has built the largest fleet of CCGT plants

The source of Gas Infrastructure

Overview

Global examples

illustrate that in

most countries the

infrastructure

network was

available before the

gas-fired IPP’s were

built

In most cases, gas infrastructure was built as a result of indigenous gas or pipeline imports.

The main exceptions are in East Asia

Unusually, South Africa is seeking to import LNG through FSRUs without having in place a

domestic gas network

10 Gas Utilisation

LNG

Pipeline

Reserves

Gas has diverse uses globally, with industrial, power and residential demand the most

common uses

Europe has a balanced gas utilisation. Countries such as the UK, Norway and Germany use gas for Industrial purposes.

These countries utilise domestic gas or piped gas from Russsia to power industry.

LNG importing countries such as Portugal and Spain allocate a majority of the gas to power production, with some being

used for re-exports.

In South America 75% of imported and domestic gas is used for power production with 20% being utilised in industry,

mostly in the Oil and gas sector

Asia and Asia Pacific utilise LNG imports for Gas to Power mostly driven by Japan which replaced lost nuclear capacity

with Gas Power. 7% of the gas is used in transportation, mostly in cryogenic tanks in India

Overview

Austria

35% 0.1% 24%

Croatia

Czech Republic

Slovakia

Hungary

Portugal

Spain

France

Italy

UK

Switzerland

Norway

Sweden Finland

Germany Poland

Romania

Bulgaria

Greece

Iceland

Estonia Latvia

Lithuania

Argentina Chile

Brazil

Bolivia

Paraguay

Uruguay

Peru

Ecuador

Colombia

Venezuela Guyana

Suriname French Guina

India

China

Thailand

Japan

South Korea

Taiwan

Malaysia

Indonesia

40.9% 58% 7% 21% 14% 20% 5% 75%

Europe South America Asia and Asia Pacific Gas can be used to

drive

industrialisation if

domestic gas is

available, per the

following

breakdown of

utilisation

* US EIA June 2015;OECD/IEA 2015:IADB

11 Gas Policy Drivers

Overview

Globally, Gas policy is driven by different factors which can be influenced by local, regional and international factors. In

the case of South Africa four factors can be identified as critical drivers to Gas policy: the developing Gas and

Renewables energy nexus, insufficient security of supply, climate policy (Paris Climate Deal) and Offshore/Shale

development.

Rise of Renewables adds to need for GTP:

South Africa has successfully invested in the Renewable Energy Independent Power Producer Procurement

Program (REIPPPP) procuring c. 6,328 MW. The Renewable energy program though successful does not

produce base load power and is intermittent. Intermittency can be addressed by installing hybrid solutions that

allow for gas to switch on to supply power when Renewables are intermittent. Europe is currently facing the

same challenge of balancing its renewables with gas-fired power

Electricity demand is fast outpacing supply:

One market analyst estimated that power outages shaved off 0.4% of South Africa’s GDP in 2015 (a meaningful

amount). Therefore, South Africa has to increase capacity to power the economy.

COP 21 agreement:

Current global climate change policy requires countries to undertake absolute reductions in greenhouse-gas

emissions to limit global increases to two degrees. A finance clause from the COP21 agreement was intended

to monitor fossil fuel power development. This has the strong chance of indirectly restricting the ability of

developing countries to use coal for new power generation

Intentional gas policy meant to unlock upstream development:

Following Upstream success the UK was able to develop a domestic gas sector. South Africa does not currently

have an Upstream sector, hence the Gas policy needs to lead by spurring further industrialisation in South

Africa’s economy and follow by setting the appropriate environment to unlock South Africa’s Upstream (whether

shale or offshore)

Gas power stations

can be turned on

and off relatively

quickly, making

them ideal for filling

in supply gaps on

cloudy or windless

days when

renewables falter

The COP 21 climate

change deal has

provisions that

declare “making

global finance flows

consistent with a

pathway towards

low greenhouse-gas

emissions and

climate resilient

development”

The policy drivers that South Africa is facing are not globally unique, but are being faced by a

number of developing countries seeking to diversify their primary energy supply

12 Gas Storage

Comparator Overview

An FSRU creates a permanent look forward stockpile, It allows for reasonable storage and if the shipping delivery timetable

is managed well, FSRU’s can be reliable storage vessels.

In the South African context an FSRU is immune to weather and industrial action risks. This makes FSRU as a form of

storage a good counterbalance to the risks faced by coal storage (or diesel)

Gas also has the added advantage of being able to be stored in the pipeline network by altering the deliverability rates

If any of the potential risks materialise, and there is a delay in LNG delivery, an FSRU with 160,000m3 storage capability has

over 20 days of reserve LNG to power a 1,000MW power plant

A FSRU diversifies South Africa’s energy storage options and its output can be increased by

more frequent shipping deliveries

Feedstock Storage Risks and limitations

Coal

Weather risks (drought and rain)

Industrial action

Logistics for non-mine mouth coal (i.e. road transport)

Diesel

Limited terminal storage capacity

Transportation, scale and logistics risk

CSP

Technology although maturing is still developing

Storage (in MW) is still costly and limited in scale

Grid energy storage

Requires production to exceed demand

Requires a well maintained grid and a good demand response system

If any of the

potential risks

materialise, and

there is a delay in

LNG delivery, an

FSRU with

160,000m3 storage

capability has over

20 of reserve LNG to

power a 1,000MW

power plant

SOUTH AFRICA GAS RFI

Section 4:

14

On 19th of May 2015, the DoE in SA released the Gas RFI. The DoE intends to use the responses received to design a

procurement programme for 3,126 MW of generation capacity.

Through the GTP programme the DoE envisages creating a market where the demand for gas and its supply becomes

available simultaneously, this creates an opportunity for the development of the SA gas industry to supply the demand

created by GTP. In the absence of indigenous gas, gas will have to be imported.

The RFI outlined the GTP programme can be commissioned in either of the two ways:

– Bundled (Integrated) Project: a project for all the elements, where elements describes the different participants

from gas supplier, regasification facility, power generation facility and early power generation facility.

– Unbundled (Non-Integrated) Project: a project for some, but not, all elements

Depending on the type of project chosen, these are the options available to the respondents

Gas RFI

The Gas RFI is

influencing

numerous elements

of Government

policy (per DOE

disclosure to

Parliament Portfolio

Committee on

Energy)

Eskom will be the

sole Power Buyer of

Power Capacity

given their current

capacity as the

single buyer of

electrical energy

Overview Key points

*Bundled Project

Option 1 Single Project Company, made up of one or more related or unrelated entities

as a consortium, responding to provide a Bundled Project

Option 2 Not yet a member of a consortium but wishes to form/ join a consortium to

provide a Bundled Project

Unbundled Project Option 3 Responding to provide one or more Elements

Gas has been defined as any natural gas which occurs naturally underground or

unconventional gas such as shale or CBM

The other gasses include: syngas, underground coal gasification (“UCG”) or conventional coal

gasification as part of integrated gasification and combined cycle (“IGCC”), LNG, CNG or LPG

*The RFI states that if no LNG is to be procured or less than 500MW solution is provided, the respondents must automatically offer a bundled solution

15 Gas Market Vision

Overview

Standard Bank believes the Gas RFP needs to have in mind a gas market vision as well as an IPP objective. This vision will

assist in making choices around, inter alia, the options between Bundled and Unbundled Projects and the nature/design of

import terminals. Some important issues we see are the following:

Market Design (Vertically Integrated v Unbundled)

– In many markets (e.g. European Union), vertically integrated (i.e. molecules and infrastructure commonly owned and

operated in concert) gas markets have been curtailed. However, in SA, this approach was explicitly permitted for

Sasol’s SA to Mozambique Bundled Project. Will this approach be repeated for the RFP?

The Role of The State

– What role is the State going to take in the domestic market? Will it own infrastructure (per Transnet now)? Will it supply

natural gas (currently carried out by private companies?) Or lead with economic regulation (per NERSA)?

Is Third Party Access desired?

– Due to inherent technical limitations, this is more challenging with FSRUs than with land-based terminals. Is

competition on LNG Supply desired? Or competition for gas supply? The Gas Amendment Bill indicates open access is

sought

Is a Gas Market Desired? And Transition Period

– Historically, the limited SA gas market has functioned on the basis of economically regulated (by NERSA) geographical

monopolies. The Gas RFP can help change this over time (if desired). What would be the transition period to a market?

If indigenous gas was discovered, would gas on gas competition be encouraged?

– Would the procurement/ trading of LNG for the Gas Distribution Market form part of the procurement process?

Re-Industrialisation

– Natural gas offers opportunities for fuel-switching and more efficient energy usage, which could boost industrialisation

(including by black industrialists) and in turn boosting investment and employment

SA does not

presently have a

policy on natural

gas

Ongoing

initiatives such as

the Gas

Amendment Bill

and the Gas

Utilisation Master

Plan are being re-

thought in the

context of the

developing Gas

RFI (per DOE

presentation to

Parliament

Portfolio

Committee on

Energy)

There is the potential for conflicting objectives between procuring IPPs and developing a gas industry

(especially with Bundled Projects) but equally the potential for synergies and growth

16 The Physical Reality

Overview

One potential ‘technical gas hub” at any location is the building of an individual connection for regasification flow (whether

FSRU or Land-Based) connecting to [up to] three 1,000MW IPP’s, with the building of enabling infrastructure able to connect a

future onshore pipeline and/or an offshore pipeline. We would argue that ‘’Common Facilities’’ could optimally be built by

the initial IPP for future benefit (assuming a Bundled Project).

Why? For a given location, assuming an initial RFP procures 1,000MW, the winning FSRU bidder will then build the necessary

infrastructure for a 1,000MW CCGT. Should the Government decide to procure more MW at the same location the existing

FSRU send out rate will need to be increased to allow for more LNG imports (e.g. ships every 7 or 10 days compared to 21 or

so).

If the initial deal was structured in a way that does not allow for third party access to FSRUs and Pipelines then the Bundled

Project IPP/FSRU winner from the first RFP has a natural advantage to supply future IPP’s which then will create a potential

monopoly (unless this risk has been explicitly addressed in the PPA).

Even though the

send out rate of an

FSRU can be

increased to fuel

increased MWs (e.g.

1000 to 3000), the

operational

complexity of the

FSRU structure (e.g.

the need to

schedule shipping),

especially for a

bundled project,

may raise

challenges of

ensuring future IPP

competition

It is important to

understand at each

location the

relationship

between port access

and availability of

sites for the actual

power plant and /or

terminals and other

infrastructure

Pipelines and

terminals should be

separated from gas

trading

IPP 3

1,000MW

IPP 1

1,000MW

IPP 2

1,000MW

Offshore Pipeline Onshore Pipeline

Potential first phase

monopoly risk

[Future possibility] [Future possibility]

FSRU/

Land-Based

Regas Terminal

17

Regulation

Whether FSRU or land-based options are selected, multiple regulations are required to be taken into consideration,

for a long term successful gas industry for example: MPRDA, Gas Act, National Ports Act, Electricity Regulation

Act; each of which have timeline and potentially fatal flaw implications. As a bottom line, multiple tariffs must be

worked out, regulated and coordinated (potentially following a time-constrained bid evaluation) which is

not easy in the SA energy environment

Commodity, Currency & Liquidity Risks

There appears no doubt that the commodity and currency risks of purchasing LNG (always in USD or USD-linked

and linked to oil price movements (% of Brent) and / or Henry Hub price movements) will need to be transferred to

the State (one way or another) either via their guarantee of the PPA or a state sponsored gas aggregator .

Otherwise, other countries will buy the LNG (perhaps cheaper than SA would have paid).

The debate appears whether these are held by the Aggregator (who then could supply fuel in ZAR, with the risk

assumed by NT/Reserve Bank) or by the IPP (who will then pass on the risk under the PPA tariffs/guarantee) (with

volatility implications for Eskom and NERSA, which risks may be better assumed by National Treasury / Reserve

Bank). In passing, we note Eskom’s tariff application cycle and regular submission to NERSA of Regulatory

Clearing Account submissions

There are implications for the currency of the PPA tariffs together with its funding plans and risks. In addition,

major swings in LNG prices may also expose liquidity risks for the LNG buyer (whether IPP or Aggregator);

ESIA Approval Process

From the outside, the ESIA process appears complex:

► Multiple sites; multiple assets; no current knowledge on who will be the winning project sponsor, noting certain

elements have not yet been clarified

Prima facie, we expect a FSRU approach could be quicker than a land-based Terminal although prospective IPPs

will need clarity on siting and process to be able to commence their own ESIAs

Could different ESIA timings be permitted?

► E.g. IPP ESIA approval needed only after once the LNG import / site requirements are determined. This could

challenge the target first power dates, although we understand at least one site has already started its ESIA

Generic Issues

Overview

Aside from the

above, developing

and executing any

LNG import

transaction in South

Africa will require a

number of generic

issues to be

resolved, for

example, the

following…

UNLOCKING INDIGENOUS

RESOURCES

Section 5:

19 Introduction

Overview

The three targeted LNG Import locations are all reasonably proximate to the following offshore and shale exploration blocks:

– Coega: Total/CNR (offshore), Shell (two shale blocks), Challenger Energy (Shale)

– Richards Bay: Exxon Mobil/Statoil/Impact; ENI/Sasol (offshore) as well as long-term pipeline connection to

Mozambique

– Saldanha: Anadarko, Shell, Sunbird (offshore) with Shell and Falcon/Chevron of longer distance shale

In designing the procurement model, Standard Bank believes it is important not to ignore the long-term indigenous resource

potential of South Africa. For example:

– The LNG procurement process could optimally be designed such that, as and when indigenous resources become

available at a particular site, there is the possibility to reduce LNG purchases and / or terminate the LNG supply

contract. For example, if material shale gas is discovered and then produced at Shell’s Eastern Precinct, then it could

be supplied to any Coega IPP (in preference to LNG). A potential time to do this is after [10] years of commercial

operations. The advancements within the LNG market have led to contracts which provide a high degree of quantity

flexibility, with an ability to scale down quantities over time. Clearly, the location needs to be designed for this, e.g. with

Common Facilities built by IPP1

– Upstream Oil & Gas exploration is renowned as a risky industry. However, if a potential route to market (the IPP) exists

in reasonable proximity to the block with a potential sales mechanism, the O&G company is incentivised to drill

additional wells (as a subsequent discovery can be marketed). An example is ENI’s recent Zohr discovery in Egypt,

170kms offshore but with market visibility. A Field Development Plan was submitted in only three months from

discovery.

– With a Non-Integrated / Aggregator model, the above is easy to solve (e.g. a single entity buys and sells all gas on

behalf of the State and can make the calls). It needs careful thought if an Integrated Model is selected . In that model,

IPPs have optimised a bid for private interests at a single site centered on LNG imports. Their priority is operating their

Project successfully under specified contracts not unlocking SA’s indigenous resources. For example, why would an

IPP spend time negotiating a future GSA with a shale player unless incentivized to do so? Who does the infrastructure

planning to connect them? And who builds and funds that infrastructure? Standard Bank observes that the Gas IPP

process is opening up broader gas issues that may need resolution, to ensure the country has future optionality

Standard Bank

believes the Gas RFI

process needs to

also consider the

‘’what if’’ of South

Africa discovering

material indigenous

hydrocarbons

For example, after

importing LNG,

Egypt then found

the giant Zohr field

(which can fuel

domestic

requirements)

The Gas

Amendment Bill will

be aligned with the

Gas to Power

Procurement

Programme

20 Offshore Developments

5/6 9 11B/12B

1

Cairn India and PetroSA

signed a farm-in agreement

for crude oil and natural

gas exploration in the

offshore Block 1

2A

Anadarko and PetroSA

recently signed an

agreement for

Exploration Rights over

blocks 2C, 5/6 and 7

Project Ikhwezi: PetroSA started drilling at

the F-O Field in 2013

In June 2012, Total submitted an application for

exploration rights South of block 9.

Canadian Natural Resources

completed conversion of their

licence in blocks 11B/12B and Total

have farmed-in. Drilling commenced

in Q3/2014 but was suspended due

to mechanical issues with marine

equipment on the drilling rig. Drilling

operations are unlikely to resume in

the area before 2016.

ExxonMobil acquired a 75%

participating interest in

Impact’s Tugela South

Exploration Right, into which

Statoil have just taken 35%

7

Shell plan to

drill 1-2

exploration

wells in 2015

There is increasing

investor interest

and activity

regarding offshore

South African

acreage…

...We list the recent

events, with

existing offshore

investors also

including Shell and

BHP Billiton...

Noting the

Falklands Islands

discoveries,

offshore investors

are explicitly

targeting oil as well

as natural gas

ENI farmed into Sasol

Petroleum International’s

Exploration Right, acquiring

a 40% interest as well as

Operatorship of the block

Overview

2C

Ibhubesi Gas Field

Sunbird acquired 76%

of production license;

PetroSA holds 24%

ExxonMobil have

submitted an application

for exploration rights

South-East of Sasol

Petroleum International’s

offshore block on the

East Coast

Standard Bank understands that work on the revised MPRDA is progressing with OPASA and

ONPASA out of the glare of the public eye

Map: PASA

21 Shale Developments

Sungu Sungu Gas has

applied for two TCPs

for the highlighted

areas (combined

100,000km2)

Shell has applied for

Exploration Rights for their

Western, Central and

Eastern Precincts (each

block 30,000km2)

Falcon Oil & Gas has applied for an

Exploration Right for their 30,000km2 block.

Chevron will jointly co-operate in exploration

for an initial 5 year period

Bundu Gas has applied for an

Exploration Right for a

4,600km2 block

Sasol / Statoil /

Chesapeake were

awarded a TCP for the

yellow highlighted area,

but subsequently

withdrew the application

A

B

C

D

E

Overview

Map: PASA

A: Sungu Sungu

Gas verbally advises

its TCP applications

have been accepted

B, C & D: Each Party

has applied for

Exploration Rights,

including

submission of an

EMP (following

granting of a TCP)

E: Sasol / Statoil /

Chesapeake were

awarded a TCP, but

let it lapse by not

applying for

Exploration Rights

In addition, Cairn

India has applied for

a TCP in the Eastern

Cape (near Port

Elizabeth) and Rhino

Resources Ltd in

Kwazulu-Natal

(inland from Durban) In November 2014 PASA announced that it will begin processing existing applications to

explore for shale gas in the Karoo Basin

PASA has also requested Falcon/Bundu to review and update its already drafted

Environmental Management Programme where necessary

22

Multiple Scenarios (SBSA illustration)

The Potential Endgame?

Non-Shale Prospects

Shale Gas Prospects

Offshore O&G Prospects

Eskom’s fleet

Gourikwa

Mossel Bay GTL

Durban

?

Kudu IPP?

Ibhubesi IPP?

CBM potential being evaluated in the Region

– Botswana estimates a reported 60Tcf

– Zimbabwean potential est. 40Tcf

– SA est. approx. 15-40Tcf

Port Elizabeth Ankerlig

Pipeline to Area 1/4?

SA Gas Infrastructure Requirements:

– LNG import terminals

– OCGT plants

(fuel switching/CCGT)

– New CCGT plants

– Pipeline network

Key centres

Fuel Switch Peaker

New Gas

Potential New IPP Peaker

Gas-to-Liquids

Potential New Transmission

Gas Pipeline

Pande/Temane

Maputo ?

Secunda Johanneburg

Pretoria Potential Gas Pipeline

Coal-to-Liquids

Refined Product Pipeline

?

? ?

? ?

? ?

?

?

Richards Bay

Saldanha

Potential FSRU

?

Key

AFRICA GAS FORUM:

IPP OFFICE SPEECH

Section 6:

24

On 15th February 2016, Karen Breytenbach of the IPP Office presented to Africa Gas Forum on the 3,126 MW Gas to Power (”GTP”)

programme. Standard Bank’s summary of the speech is as follows:

GTP has resulted in the re-drafting of the Integrated Energy Plan and Integrated Resources Plan;

One of the main objectives of GTP is to unlock the opportunities which are presented by SA O&G upstream developments

(both offshore and shale), as the importation of LNG for GTP is potentially expensive;

Government will backstop the credit risks of Eskom’s PPA;

Developing a domestic gas market is very important, Department of Trade Industry has established a team to unpack

downstream industrialization and take forward developments;

A State Owned Company may be tasked with developing new domestic pipelines;

Government is currently conducting ESIA’s at all three ports (Saldanha, Richards Bay and Coega) as well analyzing

necessary servitudes and pipelines. The State will allocate a common IPP site for all bidders but if a bidder has its own site a

better site then they may use their own;

FSRU to be used initially (land-based terminals may be constructed at a later stage if the country never finds indigenous gas)

A bundled procurement approach will be taken, with enforced third party access to the FSRU and pipelines. The different

elements will not be permitted to cross-subsidise each other in a Bundled Project

Future IPP programs at the initial site (with the FSRU) will use the same FSRU as the initial IPP (as only one FSRU is

permitted per port)

Request for Qualification targeted to be issued in April / May 2016

Africa Gas Forum – IPP Office Speech

Overview

The IPP Office

made a speech

on 15th

February 2016

to the Africa

Gas Forum

DoE Minister

made a

Parliament

speech dated

17th February

2016, that

disclosed a

new

determination

for 1500 MW of

gas-fired power

relating to

Ankerlig,

Gourkiwa and a

new plant

25

Third party access to Pipelines and FSRUs

How will this be technically achieved? There are potential LNG carrier scheduling constraints and challenges if

the IPP is not operated at base load

How will this be commercially tendered? How will capacity be allocated to local gas market suppliers?

A consequence is the Bundled/Integrated group will be required to be unpacked into individual separate elements

(i.e. LNG purchaser, FSRU operator, Pipeline Operator, Gas Seller, IPP). Will NERSA have capacity to regulate

up to five separate entities in each Project?

Gas market development risk

Will the IPP Group also be allowed to sell gas locally (to other IPPs or industrial users)? It appears so. If there

were no other future gas supply bidders, the IPP Group could become the regulated gas seller/ marketer for the

geographic region

A State Owned Company is being targeted to develop new local gas pipelines for “delivering the gas to the

people”. Which State Owned Company will be responsible? How will this role interface with the allocation of future

capacity?

Necessarily, Day 1 FSRU and Pipeline capacity will be more than the capacity used to generate kWhs. Who will

pay for this excess capacity? Will the market take a risk on it? Or the State? How will the enabling regulations

and projects be developed?

Africa Gas Forum – IPP Office Speech

Implications

Several issues

arise from what

was a very

positive speech

by the IPP

Office, for

example

26 Our Schematic Understanding of the ‘’Bundled Group’’ @ Financial Close

Paul Group

Paul A Paul B Paul C Paul D [and Third

Parties post tender]

Paul E

LNG

Purchaser FSRU Pipeline Gas Sale IPP

Regional Gas Market

We understand the Bundled Group will be responsible for the separate ring-fenced companies

that perform the individual activities falling under the Project scope

TPA TPA

27 Our Schematic Understanding of the Bundled Group Post Indigenous Gas

Paul Group

Paul A Paul B Paul C Paul E

LNG

Purchaser FSRU Pipeline Gas Sale IPP

We understand the long term policy intention is to be able to replace imported LNG with

indigenous gas (shale or offshore) as and when it is available in sufficient quantities

Shale?

Offshore Gas? TPA

Paul D [and Third

Parties post tender]

Regional Gas Market

28 Disclaimer

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On receipt of this document, you agree to be bound and are deemed to understand that:

This presentation is provided to you for information purposes only on the understanding that such information is strictly confidential. This presentation must not be delivered

or its contents disclosed to anyone other than the entity (including its employees) to which it is provided and must not be used or reproduced, in whole or part, for any

purpose other than in the consideration of the transaction or financing of such transaction described in this presentation.

This presentation is intended to be a commercial communication and is not to be construed as a recommendation or the constitution or solicitation of an offer for the sale

and purchase of any financial product, service, investment or security. The information, investments and/or strategies discussed in this presentation may not be suitable for

all investors and where you have any concerns you should approach an investment advisor.

We do not accept liability for any loss (direct or consequential) arising from use of this presentation. You must not rely on any communication (written or oral) from us as

investment advice, a recommendation to enter into a transaction (which includes the information and explanations related to the terms and conditions of a transaction) or

deem it to be an assurance or guarantee as to the expected results of a transaction. Investments discussed in this presentation may fluctuate in price or value over time

and past performance is not indicative of future results. While we have taken care in preparing this presentation, we give no representation, warranty or undertaking and

accept no responsibility or liability as to the accuracy or completeness of the information set out in this presentation. This presentation does not represent an offer of

funding and any facility to be granted in terms of this presentation is subject to us obtaining the requisite internal and external approvals.

Our duties and responsibilities do not include tax advisory, legal, regulatory accounting or other specialist or technical advice or services. You must procure

and rely on independent assessments and investigations into all matters contemplated in this presentation.

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© 2014 Standard Bank Group. All rights reserved.

29 Disclaimer

If you received this document in error, please immediately return the document and other related documents to Standard Bank.

On receipt of this document, you agree to be bound and are deemed to understand that:

This presentation is provided to you for information purposes only on the understanding that such information is strictly confidential. This presentation must not be delivered

or its contents disclosed to anyone other than the entity (including its employees) to which it is provided and must not be used or reproduced, in whole or part, for any

purpose other than in the consideration of the transaction or financing of such transaction described in this presentation.

This presentation is intended to be a commercial communication and is not to be construed as a recommendation or the constitution or solicitation of an offer for the sale

and purchase of any financial product, service, investment or security. The information, investments and/or strategies discussed in this presentation may not be suitable for

all investors and where you have any concerns you should approach an investment advisor.

We do not accept liability for any loss (direct or consequential) arising from use of this presentation. You must not rely on any communication (written or oral) from us as

investment advice, a recommendation to enter into a transaction (which includes the information and explanations related to the terms and conditions of a transaction) or

deem it to be an assurance or guarantee as to the expected results of a transaction. Investments discussed in this presentation may fluctuate in price or value over time

and past performance is not indicative of future results. While we have taken care in preparing this presentation, we give no representation, warranty or undertaking and

accept no responsibility or liability as to the accuracy or completeness of the information set out in this presentation. This presentation does not represent an offer of

funding and any facility to be granted in terms of this presentation is subject to us obtaining the requisite internal and external approvals.

Our duties and responsibilities do not include tax advisory, legal, regulatory accounting or other specialist or technical advice or services. You must procure

and rely on independent assessments and investigations into all matters contemplated in this presentation.

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licence number BA/95/005.

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