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Oil & Gas Report: SacOil Nails It Up and Paddles down

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19 May 2016

JSE listed operator diversifies into gas transportation and crude oil and product logistics.

Just when SacOil was getting a grip on its upstream portfolio, it decided to venture into other aspects of the hydrocarbon value chain.The JSE listed company founded by Southern Africans, announced in March 2016, that it was now a card carrying member of the crude oil producers' club.

With 10 wells placed on production in its Lagia field in the Sinai, onshore Egypt, SacOil had reached a targeted wellhead output of 1,000Barrels of Oil Per Day (BOPD).

But just at the time it was exulting in the fulfillment of the dream to be a relevant upstream player, the company dramatically declared its interest in what may become the largest cross border gas transportation project on the continent. In terms of the gas transportation deal, SacOil has an agreement with the China Petroleum Pipeline Bureau (CPPB) for the possible construction of a gas processing facility near the Rovuma basin, in Mozambique, as well as a 2,600km-long, large-diameter pipeline to transport natural gas from the basin to Gauteng, the heartland of South African commerce. The project also involves ENH, the Mozambican state hydrocarbon firm and Profin Consulting, a private-sector consortium in the country.

SacOil had, much earlier, (September 20015), announced that it would join the consortium of Taleveras Group, Gunvor Group, and the (South African state owned) Strategic Fuel Fund in developing the Bioko oil terminal tank farm in Equatorial Guinea.

While the privately initiated gas processing and gas transportation project in Southern Africa is estimated at around $6Billion, the government promoted oil terminal in West Africa does not yet have a tentative price tag, but the fact that the Equatoguinean authorities themselves describe the project as 'massive', is an indication that SacOil, an E&P minnow by current description, is an ambitious African owned company.

Thabo Kgogo, the company's Chief Executive since mid-2014, is aggressively leading the portfolio diversification. “We believe that, if we are only an upstream producer solely focused on oil, the success of the business will depend heavily on the oil price”, the South African business news website, Engineering News reports him as saying. “To avoid this, we had to derisk our portfolio and consider gas projects, which are generally not affected by the oil price, affording us the opportunity to negotiate a fixed price over 20 years.”

Front end engineering (FEED) study of the Rovuma-Gauteng gas project is expected to be awarded sometime between the second and third quarters of 2016. The project will be 70% debt-financed by Chinese and international banks, while the remaining 30% will be equity- financed, part of which will be covered by CPPB. Indeed, the project is anchored on the technical expertise and the deep pockets of the CPPB. Project promoters hope that Final Investment Decision (FID) can take place in 2018, after which construction will start. This means that gas flow is possible by 2022.

None of the current partners on the project is a gas producer in the target assets, so the primary interests of every member of the group include (1) equity in the pipeline ownership, (2) gas offtake agreements with the producers in the Rovuma Basin as well as (3) distribution rights. What SacOil is bringing to the table is, in part, its grasp of South Africa's regulatory and environmental impact assessment issues.

The project's main business driver is that the South African economy can do with more gas than the 300MMscf/d currently imported from the Temane field in Mozambique to Secunda in South Africa.

MEANWHILE, THROUGH THE BIOKO OIL TERMINAL PROJECT, the Equatorial Guinea government aims to establish Equatorial Guinea as the premier storage location in West and Central Africa, and a major transit point for global oil and gas deliveries. SacOil will participate in the project under the agreement that established the terms of funding and initial development of the tank farm.

SaccOil has had its share of challenges in Nigeria, where it pulled out from its equity in upstream assets in 2015, but Kgogo says that the problems not withstanding (SacOil is in court on two different cases), the company is interested in doing business in the country, perhaps downstream.

While SacOil plays more actively in these mid and downstream spaces, it is still determined to grow the value of its upstream producing assets in Egypt and exploratory assets in the DRC, Malawi, Mozambique, and Botswana. The proposed reorganisation of its indirect participating interest in Block III, Albertine Graben in the DRC, is to “enable SacOil to represent its interest in Block III directly and to have direct line of sight to the activities of Block III”.