PetroSA Warns Its Bumper Profit is Unlikely to Be Repeated

Johannesburg — STATE oil company PetroSA's record revenue and positive bottom line for the financial year ended in March would be short-lived due to its refinery shutdown and lower crude oil prices, CEO Sipho Mkhize told Parliament's energy portfolio committee yesterday.

The parastatal reported record revenue of R12,1bn, up 18% on the previous year, and a 3% rise in net profit after tax of R1,96bn -- leading to a dividend payment of R725m to its shareholder, the Central Energy Fund .

The projected profit, however, was expected to be short-lived as the parastatal's cost-cutting measures could make it leaner as it emerged from a maintenance shutdown that was due to end "next week", Mkhize said.

"Next time I'm here the board will not smile -- there will not be a profit," he said.

Answering questions from the committee members, Mkhize said the trading environment following the financial market crash last year was "tough".

"Our financial year was split in two; we had an excellent first six months and a disastrous second half. On average, we remained profitable and made progress on the security of supply and operating profitability," Mkhize said.

Chief financial officer Nkosemntu Nika said crude oil prices of about 140 a barrel during the first half of the 2008-09 financial year helped maintain a positive profit even when oil prices dropped to 33 a barrel by December last year.

"However, our cost of sales increased 24% due to the fact that to supply indigenous production we had to import finished products, which has the tendency to dilute profits.

"Other operating expenses grew 127%. The bulk of those costs are exploration expenses in the effort of finding reserves elsewhere," Nika said. These were not running costs and would not recur in the next year, he said.

Cost-cutting at PetroSA saw it dispose of an exploration interest in Sudan and its Nigeria-based Abana operation.

In addition, its gas field off Mossel Bay is unreliable and expected to last only up to 2011. To counter this trend, PetroSA will switch to importing liquid natural gas (LNG) in the medium term until its development of the Jabulani gas fields off SA's south coast starts paying off in about 2012.

"The best way would be for us to buy stakes in gas suppliers and then to feed these supplies into our facilities. Maybe we will also look at deep-water gas resources," Mkhize said.

In the longer term, PetroSA plans to progress beyond its focus on exploration projects and into the managing of capital infrastructure. A major project on the horizon is its proposed R70bn oil refinery in the Coega Industrial Development Zone.

Mkhize said PetroSA had not secured funding for the refinery project, known as Project Mthombo, but had held "positive" discussions with funders and were analysing their proposals.

It was looking for a partner who could add value and bring skills.

The parastatal has added R12bn to the Central Energy Fund's R16bn in reserves.

This money was "waiting" for future projects such as the LNG gas terminal and Coega refinery to take off, Mkhize said. (All Africa)