PetroSA eyes Russia for $359m farmout deal

2019-11-05 18:20

National oil company PetroSA and Russia’s state geological company Rosgeologia (Rosgeo) are in talks to finalise a $359 million (about R5.3 billion) farmout deal to give Russia its first foothold in a prospective oil and gas field offshore South Africa, three sources say.

PetroSA is under pressure to boost dwindling domestic resources that have imperilled its flagship Mossel Bay gas-to-liquid refinery, which is operating well below capacity.

The company is hoping the tie-up with Rosgeo and other partners, including Norway’s Equinor, will accelerate exploration in the acreage it holds.

Farmout deals, which are commonplace in the global petroleum industry, see a licence-holding party give another party a percentage of that licence in exchange for services – in this case paying for exploration drilling, which can cost up to $50 million a well.

Rosgeo and PetroSA’s negotiations are focused on Block 9/11A, adjacent to where Total has made a huge oil and gas discovery.

“There are certain parts of the block that are unexplored, so Rosgeo made an offer,” said one PetroSA source, adding that the exploration rights also cover the smaller 11A block.

A Rosgeo source said they expected the deal – shrouded in secrecy after first being touted in 2017 at a Brics summit in China – to have been finalised last month at a Russia-African summit.

Rosgeo told Reuters that it was “working on a series of proposals for PetroSA on the project implementation”.

PetroSA and South Africa’s mineral resources and energy department did not immediately respond to request for comment.

In an October presentation to Parliament’s portfolio committee on mineral resources and energy seen by Reuters, South Africa’s state-run Central Energy Fund (CEF), the holding company for PetroSA, said it wanted to conclude the Rosgeo deal this year.

It said the deal would entail geophysical surveys, geochemical studies and the drilling of six exploration and appraisal wells, adding that investment would be based on funding from loans repayable if the exploration was not successful.

CEF said it was also dealing with a farmout offer along South Africa’s west coast from a prospective partner it identified in the presentation as Statoil, now known as Equinor, for Blocks 5/6/7, as well as Block 2C.

An Equinor spokesperson said the entity did not currently have any drilling planned in South Africa. – Reuters

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November 17 2019