In bid to revive GTL refinery, PetroSA plans gas-to-condensate swing

South Africa’s embattled national oil company, PetroSA, has confirmed yet another, albeit smaller, loss for 2015/16, while revealing that it is planning to use more heavy condensate as a feedstock at its gas-to-liquids (GTL) refinery in Mossel Bay, as indigenous gas resources dwindle.

The swing from gas to condensate is also held up as central to a turnaround plan, which has been submitted to the Department of Energy (DoE) for ratification and approval.

The group, which reported a whopping R14.6-billion loss in 2014/15, announced a loss of R449-million for 2015/16, including another R254-million impairment charge relating to its onshore and offshore production assets.

Gross revenue fell 13% to R15.7-billion (R18-billion), as a result of lower product prices and declining GTL production. Output at the refinery, previously known as Mossgas, fell a further 17% to 7.9-million barrels.

The company operates offshore gas production facilities and the GTL refinery, which has a theoretical nameplate of 45 000 bbl/d, but has been operating well below that level for a number of years as a result of feedstock constraints.

Production has come under extreme pressure in recent years as a result of depleting gas resources, exacerbated by the failure of an initiative known as Project Ikhwezi to replenish gas resources. Gas reserves arising from the project were far less, at 25-billion cubic feet (bfc), than the 242 bcf initially forecast.

The failure of the project has resulted in falling GTL output, as well as large impairments, which precipitated the R14.6-billion loss last year and raised going-concern worries.

In addition, PetroSA has confirmed that, in light of its financial predicament, it is unable to make the necessary provision for an abandonment liability, as required to comply with environmental legislation. The liability is estimated at R10.7-billion, but the company has ring-fenced only R2-billion for the obligation.

Acting CEO Siphamandla Mthethwa says it is exploring various options to manage the liability, including a deferment, or a government guarantee.

Mthethwa argues that the financial position of the company remains “precarious” and is being compounded by the weak oil-price environment and currency swings.

PetroSA is working with its shareholder, the Central Energy Fund, on a “two-pronged” turnaround plan, which focuses on restoring the sustainability of the GTL refinery and optimising company processes.

The plan, which had been delivered to the DoE for approval, includes a proposal to increase the ability of the GTL plant to process liquid feedstock, instead of gas.

The company introduced the processing of imported heavy condensate towards the end of the second quarter of 2016, which enabled the GTL refinery to remove the constraints that limited the processing of condensate to 12 000 bbl/d.

The condensate processing rates of 18 000 bbl/d can now reportedly be achieved and PetroSA is confident it can increase condensate throughput by a further 28% to 25 000 bbl/d. In 2016/17, PetroSA is aiming to process at least 18 000 bbl/d of condensate through the GTL refinery.

The balance of the turnaround plan focuses on cost containment and the creation of partnerships to “de-risk investments”.

The board has approved a funding and strategic partnership strategy to enable the company to pursue strategic partners, particularly from hydrocarbon-rich countries in Africa, the Middle East and within the Brics bloc of Brazil, Russia, India, China and South Africa. An expression of interest has been issued for industry participants to take equity in some of the group’s upstream assets.

But Mthethwa stresses that PetroSA is “not out of the woods”, with its feedstock and financial challenges described as “ a persistent and ever-present reality”.