A $359m deal between Russia's geological exploratory firm Rosgeologia or Rosgeo and SA's state oil company, PetroSA, has been delayed by ministerial changes and other terms of the negotiation which yet to be resolved, members of Parliament heard.
The department of energy, as well as officials from the Central Energy Fund and its subsidiary, PetroSA, on Tuesday briefed Parliament's portfolio committee on mineral resources and energy on international agreements pertaining to the oil and gas industry.
One of the agreements relates to a farmout deal with Russia. A farmout agreement involves the owner of mineral leases – in this case PetroSA – granting another company, in this case Rosgeo, a percentage of ownership of the lease in exchange for the provision of services.
It is envisioned that Rosgeo would provide exploration drilling, at around $50m per well, Reuters previously reported. The deal is valued at $359m or about R5.2bn, but officials have stuck to the dollar price, as the fluctuating exchange rate distorts the value of the deal in rand terms.
Long time coming
The deal has "been coming a long time, since 2015," acting CEO of PetroSA Bongani Sayidini said. However "nothing tangible" has come of it yet. No wells have been drilled a the deal is not concluded, he confirmed.
PetroSA and Rosgeo entered into a memorandum of understanding on March 9, 2015, to explore areas of possible cooperation. PetroSA had marked areas Block 9 and Block 11A on the South Coast of SA as priority areas for exploration, especially given that PetroSA was facing a declining gas feedstock, members of Parliament heard.
In late 2015, the farmout process commenced, when Block 9 and Block 11A were advertised in the market, with the aim of attracting partners.
By the bid deadline of April 30, 2016, two offers were received - one from Rosgeo and another bid from Solihulltz Energies Limited, an indigenous Nigerian oil and gas company. The latter was submitted under Sel SA, a South African entity which was 49% owned by Solihulltz. PetroSA said there were no BBBEE companies at this stage of the process.
Through clarification meetings that followed to choose the "most favourable deal" for PetroSA, Rosgeo was chosen. According to Siyadini, Sel SA could not demonstrate financial capability for the partnership, which is why it lost.
'Financial muscle' needed
"We needed a company with technical depth and financial muscle. They fell short of explaining where the money would come from," he said.
In September 2017, at the Brics Summit in China, PetroSA, CEF and Rosgeo signed a framework agreement for Block 9 and Block 11A.
However, there have since been delays in finalising the deal.
"Yes indeed, it is unfortunate the process has taken long," Siyadini said. "Ordinarily, these farm-out processes are concluded within six to 12 months. Three years later, the partnership is not concluded," he said.
There are a number of factors contributing to this delay.
"The parties were not finding each other in negotiations," he explained. PetroSA and Rosgeo had to negotiate commercial terms in terms of the farmout agreement.
While Rosgeo is seeking a certain gas price, PetroSA wants to negotiate it down. There are various terms the parties have not yet agreed on which is why the process is taking long, he said.
High minister turnover
The turnover of ministers has also impacted the finalisation of the deal, he said.
For example, negotiations require international travel. New ministers had to acquaint themselves with the mater, before being comfortable enough to take a decision in relation to approving international travel, Siyadini said.
"We have had four ministers," he said. This includes Tina Joemat-Pettersson, Mmamoloko Kubayi-Ngubane, David Mahlobo, Jeff Radebe and, more recently, Gwede Mantashe.
"The negotiations themselves have not been smooth," he said. Sayidini said that PetroSA had to "push back" on some terms Rosgeo wanted in the agreement.
Rosgeo also has to modify its proposal, seeing it appears PetroSA may run out of gas by the end of next year (December 2020) and not the envisioned 2025/26.
Sayidni said that after meeting with Rosgeo in October, both parties decided the initial proposal might need to be modified to take into account PetroSA will need feedstock much sooner.
Parties are now discussing how to optimise production, so that PetroSA will be able to process gas beyond December 2020, and then exploration can follow afterwards.