Cash squeeze puts PetroSA under strain

South Africa's national oil and gas company PetroSA is facing a cash squeeze as it enters the final stage of talks to buy Engen's petrol stations for a price said to be between R11-billion and R18-billion.

The deal, which was expected to be finalised by June after many years of negotiations, will add a significant new string to PetroSA's bow, but the state-owned fuel company might now have to ask the South African taxpayer to fund its purchase, through government.

Asked when a deal could be expected, CEO Nosizwe Nokwe-Macamo provided no clarity, responding: "How long is a piece of string?"

What makes the deal even more tricky to finalise is that PetroSA could run dry in the next two years if it does not find additional gas feedstock, and get billions of rands needed to expand its business.

PetroSA's only natural gas fuel source just off the coast of Mossel Bay is drying up fast, and the company is pumping cash into drilling for gas at its Ikhwezi project off the same coastline.

But the group's cash is also running dry - developing the Ikhwezi project and an acquisition in Ghana drained the group's cash from R12.8-billion in 2012 to R7.4-billion.

In total, five wells will be drilled at Ikhwezi up to 2015 - during which time PetroSA desperately needs to find gas or run the risk of running out of feedstock for Mossel Bay refinery.

The organisation has already been forced to import liquefied natural gas (LNG) from the Middle East to keep its refinery going during the past financial year, putting a squeeze on its margins until an additional gas source is found. While the group's turnover for 2013 was up to R19.7-billion, margins were so tight that its profits were down 54% from the previous year to R593-million.

This week, PetroSA placed the task of finding enough monies to ensure the group's future existence on the shoulders of the relatively unknown Lindiwe Bakoro.

As group chief financial officer she replaces Nkosemntu Nika, the man who questioned former acting CEO Yekani Tenza on abuse of public funds and flouting procurement policies relating to the Ghana acquisition and negotiations to buy downstream assets that led to a R1-billion scandal.

Because of PetroSA's somewhat wanting cash position and the fact that the company is not that well known on the money markets, it would have to focus on getting project-based financing.

Nokwe-Macamo said PetroSA had big plans to supply at least 25% of South Africa's liquid fuel needs within the next six years. Currently, the company is at the bottom end in terms of supplying fuels to SA consumers, meeting only about 5% of total demand.

"I know you're asking yourself - what are we smoking . but if we are able to roll out our planned projects in the next couple of years, I am sure that this target can be achieved," she said.

Plans on PetroSA's boardroom table to achieve this include finding gas at its Ikhwezi project that could last up to 2020, pulling through a downstream acquisition, topping up its supplies by importing LNG gas and getting involved in the possible exploitation of shale gas in SA.

The company said it had been in strategic discussions with entities with expertise in shale gas exploration and production. PetroSA also hopes to build a $10-billion (about R100-billion) oil refinery, Mthombo, at Coega, for which it has brought on board Chinese investors, Sinopec.

"National oil companies are increasingly playing an important role in the different countries, as PetroSA we hope to do the same," said Nokwe-Macamo.