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’s
business
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 to
remain 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

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 huge
capital investment.
Tighter financial
market
regulations

profitability
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

profitability
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 NOCs
investing 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,

I thank you
Ngiyabonga
Rea le boga
Enkosi

Faizel mulla's presentation slides from the 2010 World National Oil Companies Congress

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Faizel mulla's presentation slides from the 2010 World National Oil Companies Congress