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OIL & GAS DECISIONS 2015: SacOil is changing the game

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25 Sep 2015

Strategic partnerships, strong investment and a well-balanced portfolio are key priorities for SacOil, says its CEO Thabo Kgogo. By Kerry Dimmer
Oil & Gas Decisions 2015 Cover

In the oil and gas sector, a debt-free business is a rare creature, which is why SacOil Holdings stands out as an attractive proposition for investors seeking a discerning partner, says its CEO Dr Thabo Kgogo.

SacOil’s ambitious campaign to rebalance its portfolio by adding production to its exploration assets is already under way in Egypt, where 100% SacOil-owned Lagia is on track to produce 1 000 barrels of crude oil per day (bbl/day) by the end of the year. On initial production in January, Lagia was producing 404 bbl/day. By year-end, with the installation of steam facilities and five additional thermal wells, the number of barrels will be boosted along its already upward trajectory. So rapid is the turnaround that SacOil is touting Lagia as a sample of what is to come as part of the company’s rebirth – this from a business that a year ago appeared to have a bleak future.

The turnaround guy is Kgogo. His extensive experience in the oil and gas sector, most recently at PetroSA, allowed him to identify SacOil’s weakness quickly: its heavy focus on exploration proved to be too long-term oriented, putting income generation through production too far on the horizon to create any excitement and interest from the right kind of investors.

‘My strategy since joining SacOil was to systematically move the business into the entire exploration and production value chain,’ says Kgogo. ‘We embarked on a process of balancing our portfolio, which plays out as SacOil eventually having assets in exploration, development and production.’ This strategy saw the company shedding non-producing assets OPL 233 and OPL 281 in Nigeria earlier this year, immediately putting SacOil into a positive cash-flow scenario and therefore ready to advance its penetration of Africa’s vast oil and gas reserves.

Offering greater insights into the process of change, Kgogo says that you need production to generate cash flow for exploration. ‘There are not many companies willing to put money at risk solely for exploration,’ he says. ‘But when you service the entire value chain and rebalance your portfolio accordingly, the playground widens enormously and presents new prospects in oil and gas exploration, production and its associated midstream opportunities.’ SacOil’s Vision 2025 presents a strategy with an integrated approach to meeting market demands, sustainable operations and basic economics.

‘In the first five years of our new growth path, we are focused on acquiring development and production assets, developing the upside of those assets and completing feasibility studies on infrastructure projects,’ says Kgogo. ‘By 2020, we will be generating even more cash and able to expand on our existing exploration activities. ‘In realising this we are very cognisant that oil and gas requires sustainability; that continued production translates into the replenishment of resources, which must be replaced, hence a need to continue with exploration and appraisal of assets.’

Due consideration is therefore given to Africa’s unique environment and efforts towards greener and cleaner energies. As an indigenous African business based in Johannesburg, South Africa, SacOil sees itself as a conduit to facilitate access for African people to reap the benefits of the continent’s natural resources and to be part of its energy security efforts. ‘Being independent means we are not encumbered by the burden of old legacy infrastructure investments,’ says Kgogo. ‘We are also intent on ensuring that our strategic collaborations include African partners with optimal shareholding within any jurisdiction. Strategic partnerships are a fundamental component of our business strategy and model,’ he says. ‘We have forged relationships with Total and EGPC across geographies where we can together avail of significant returns on investment and capital programmes. Such partnerships not only help us to spread the risk, especially in the exploration phase, but also ensures that technical expertise is shared.’

New partnerships are currently being sought, given that SacOil is in an acquisition phase. It’ll also be looking to take advantage of the recent oil market downturn. ‘Many companies will be feeling the pinch,’ says Kgogo. ‘We can already see a 40% to 50% drop in net asset value of many of our peers as a result of the current oil price. SacOil is therefore in a very strong position to acquire some of these deals. ‘Further, we are really bullish on gas projects. Gas prices are not linked to oil prices, effectively cushioning your risk due to exposure to oil price fluctuations. The only challenge is that generally Africa’s oil and gas is not supported by the required infrastructure. We’ll meet this head on by entering the mid- and downstream projects that cater well to the African environment and, in so doing, stimulate gas as a feasible alternative through infrastructure development on the continent.’ It helps that SacOil is a US dollar-based business listed on the Johannesburg Stock Exchange, with a secondary listing on the London Stock Exchange’s Alternative Investment Market. It also has few competitors, given its boutique size managed by a technically experienced and specialised team.

Kgogo, despite his youth, has more than 13 years experience in the oil and gas sector – more specifically in exploration, appraisal, development and integrated gas operations. Finance director Damain Matroos brings another 15 years of corporate finance to the group. Bradley Cerff, executive director: operations, adds his 19 years of gas exploration and production. Between the three executives, there is a broad understanding not only of the industry as a whole, but also the continent, its dynamics and a thorough comprehension of stakeholder needs. Such stakeholders are not just partners, shareholders, suppliers and employees. The broader SacOil vision includes being responsible to suppliers, communities, the media, governments and regulatory authorities, and NGOs and lobby groups. In fact, anyone that may be affected by or interested in SacOil operations.

Given that Africa is becoming rather irresistible to global investors experiencing such a low rate of growth in their own developed regions, SacOil’s current operations also appeal to those looking for proof of sustainability. SacOil operations span Malawi, the DRC, Botswana and Mozambique, not forgetting Egypt. ‘Having operations in only one country can be somewhat naive on a continent that still experiences instability,’ says Kgogo. ‘SacOil is somewhat unique within the smaller boutique oil and gas businesses
in this regard because we understand that when you diversify across the continent, you put your business in a position to geographically diversify your sources of cash flow.’

Onshore exploration block licences that cover some 50 000 km2 are 100% owned by SacOil in Botswana and Malawi, with a 12.5% interest in a 3 177 km2 block in the DRC. Together with the Public Investment Corporation SOC Limited (PIC), and Instituto de Gestão das Participações do Estado in Mozambique, SacOil is also focused on the distribution of gas to that country and South Africa. The project involves the building of a gas pipeline of 2 600 km from Rovuma in north Mozambique to Richards Bay, South Africa. Pressure on South Africa’s national power grid has escalated in the past year, and the country needs alternative energy sources that are not just cleaner but cost-effective to prevent a burgeoning economic crisis.

It is in identifying needs such as this and acting on them promptly – as well as embracing new technologies and industry advances – that puts SacOil ahead of its peers. Future growth plans for SacOil are being explored in Ghana, Gabon, Equatorial Guinea and Nigeria in the short to medium term, as well as other sub-Saharan nations such as Angola.

This footprint indicates that SacOil is ‘well on the road to becoming a sustainable, profitable and independent pan-African oil and gas company’, says Kgogo.