faizel mulla's presentation slides from the 2010 world national oil companies congress

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

Strategies, Challenges and Partnership Opportunities for NOCs Investing

Abroad

Presented by

Faizel Mulla

at the World National Oil Companies Congress

21-24 June 2010

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

Agenda

• The international plans of NOCs: key drivers

• The impact of oil market trends and economic uncertainty on expansion plans

• Managing the challenges of moving to multi country operations

• Making partnerships work


NOC’s Business Strategy

•Fulfil the Strategic requirements of the country•Contribute to growth requirements.•Sustaining its business on a commercial basis•Transform the business

•Developing and securing oil and gas opportunities, internationally, regionally and domestically

•Gaining access to producing opportunities will be pursued to strengthen and balance the corporate portfolio and income stream as well as contribute towards security of supply for the country.

NOC’sbusiness strategy

This will be achieved by…


International Expansion Plans: Key Drivers

• Access to feedstock

• Storage of crude and white product as reserves

• Access to oil & gas infrastructure and logistics

• Role of sustainable alternate forms of energy.

• Proximity & Accessibility to fields

• Affordability, Costs and Funding strategies

• Business and political environment

• Technology development

• Environment: Carbon Capture and Storage


Impact of oil market trends & economic uncertainty on expansion plans: affects on profitability

The Euro plunges to historic levels as the debt crisis intensifies.

•The value of the Euro against the rand weakens SA bilateral trade with Europe is adversely impacted as SA exports loose their competiveness.

•The US dollar gains strength at the back of increased volatility and geopolitical tensions

•Exports of alcohols and chemicals to Europe are also expected toremain under enormous pressure

•The demand for speciality products tends to be heavily affected during periods of severe economic contraction.

Strong demand growth for commodities, including the recovery of the oil price

•Increase in commodity prices has been currently stimulated by growing expectations that the global economic recovery will be sustained as consumer and business confidence, global trade, employment and industrial activity are improving across the world.

Exchange rates

Commodity prices


Impact of oil market trends & economic uncertainty on expansion plans; affects on profitability

In Africa, the refining and downstream markets are dominated by large IOCs, driven solely by the pursuit for commercial gain, which poses the following risks to the economy:

•Divestment: should the market or environment be deemed unfavourable for continued operation. For example, since 2000, ExxonMobil, in 2010 Chevron and BP have exited several African countries;

•Domination of the market by a few well established majors gives them pricing power in free markets and, in the South African regulated market, renders the regulator (the State) a price taker.

Divestment of IOCs

Impact

•it will increase the cost of capital or borrowing costs both amongst and to the consumers at large. This does not bode well for mega projects especially amongst emerging markets that require a hugecapital investment.

Tighter financial market

regulations



More tighter controls and implementation of environmental regulation due to the BP oil spill in the Gulf of Mexico

•drilling costs to sky rocket due to relief wells being drilled?? –partially killing-off the off-shore drilling business

Icelandic ash: act of God!

•The impact was largely felt by Europe with a loss of 54 percent of jet fuel demand, followed by the US and Canada with a loss of 4 percent of jet fuel demand

Investments to meet regulatory imperatives

•Role of the State to financially intervene with no commercial return, to persuade the private sector to invest in new or upgraded capacity. In South Africa, the level of such intervention may be up to $5 billion just for the local refineries to meet Euro IV/V specifications.

Environmental concerns



GTL technology

•At present use HTFT technology.

•Development of LTFT technology.

•Meeting Euro V standards

COD (Conversion of Olefins to Distillates) technology

•Propylene, butylenes and synthol light naphtha is converted to catalytic oligomerisation to longer chain molecule

CTL technology

•Development of improved gasifiers, Environmental costs; CCS

Refining of heavy, sour, acidic crude

• technology to process this crude and produce diesel in excess of 60% and meet Euro V standardsand 64%:17% D:P

Unconventional wells:

•horizontal drilling on FO wells

Alternative energies and feedstocks :

•Feedstocks:biofuel,CBM

•ALternative energies: solar, nuclear (PBMR), wind

Technology development & application


COD Diesel Characteristics


Managing the challenges of moving to multi country operations

•Attempts by companies to acquire assets in an oil/gas producing country trounced by pre-emptive bids by hosts countries or NOCs

•Unfavourable fiscal terms :This makes long term reserve valuation difficult as fiscal stability cannot be guaranteed.

•Security concerns in Angola, DRC, Niger Delta

•Competition is stiff, with all the majors represented in oil-rich states, and high entry/bidding costs and high billion dollar signature bonuses a high entry barrier.

•Sonaref’s Lobito refinery is in direct competition with Mthombo, potentially making full co-operation on the downstream challenging.

Resource nationalism

Security concerns

Competition


Managing the challenges of moving to multi country operations

•Sanctity of contracts and fiscal stability are difficult to guarantee

•Legislative changes (Algeria hydrocarbon Law; Nigeria)

•Legal challenges are prevalent if bilateral agreements do not exists for “Mixed Companies”.

•Recent major reserve finds are in the central to parts of the country where infrastructure requirements increase the cost and lead time for any projects

•Ease of doing business:

•Iran:situation worsened by UN sanctions

•Iraq

•Access to finance for mega projects

•Access to suitably qualified people

•infrastructure

Legal & Legislation challenges

Accessibility

Politics & War

Resources


Making partnerships work

•Leverage G-G relations to create more opportunities

•Strengthen NOC-NOC relations with hosts countries.

•Pursue deals in direct negotiations with NOCs

•Co-investment opportunities should be explored

•Re-establish/strengthen partnerships with companies that

have been successful in hard-to-work-in countries

•Review fiscal terms with host countries to enhance the

commerciality of the project

Mutual respect and trust


Conclusions

What is required is access to opportunities for NOCsinvesting abroad:

• a fairly stable business and political environment

• abundance of oil and gas industry experience

• relatively favourable fiscal terms

• significant appropriately sized deal flow and

• significant regional /basin knowledge within the NOC

• significant gas and oil reserves,


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