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conquer Supply and

As reserves mature and dwindle, major oil firms have turned their attentions to Africa. This represents a huge opportunity for South African-based companies that supply products and services to the upstream oil and gas sector.. By Ian Armitage 2



nvestors in the oil and gas sector are a fickle bunch. Last year it was all about the Falklands. Focus then shifted to the North Sea. Now it is all about Africa. Africa is comparatively under-explored; Oil firms have spent the last few decades scouring North America, the Gulf of Mexico, Eastern Europe and the North Sea. Existing reserves have matured and dwindled. The major oil firms have turned their attentions to Africa to refresh their portfolios. This represents a huge opportunity for South Africa and companies that supply products and services to the upstream oil and gas in particular, says Warwick Blyth, executive director of the South African Oil and Gas Alliance (Saoga). He believes South Africa’s West Coast could become a major oil and gas hub for the entire sub-Saharan Africa region. “The offshore area from Saldanha up to the Orange River Basin is an important area for oil and gas exploration and shows great potential for development,” Blyth tells South Africa Magazine. Licences for the West Coast blocks were recently finalised and exploration and development activities are likely to pick up over the next 18 months with



Very visible to residents of Cape Town and Saldanha Bay at the moment are a couple of rig projects from Pride/ Ensco and Transocean respectively

Forest Oil’s Ibhubesi project potentially leading with a large offshore development, pipeline to shore and a gas plant and power station near Hondeklipbaai, Blyth explains. “I think the biggest opportunity exists in the provision of support, services and equipment to the oil and gas exploration and production activities in the sub-Saharan Africa region,” he says. “The supply industries serving these projects could be very labour intensive; the ship and rigrepair business in particular has great potential to expand and create many jobs.” Saldanha Bay, because of its available land, deepwater port and established engineering community, has the potential to develop significantly as a hub for regional oil and gas activity. 4

“It could mean that one day South Africa is seen in a similar light as Singapore,” Blyth says. Saldanha could overtake Cape Town as the maritime maintenance and repair hub of the Western Cape, he adds. “The finalisation of licenses for the West Coast blocks means that exploration and development activities are likely to pick up. Very visible to residents of Cape Town and Saldanha Bay at the moment are a couple of rig projects from Pride/ Ensco and Transocean respectively. The Pride project is the first big one on the newly refurbished A-Berth facility. The Transocean one is the first large rig project in Saldanha and promises to establish that port as a second hub for ship/rig repair and maintenance projects going forward. It is important that we continue to drive the development of this sector.” Saoga was formed as an umbrella body for the country’s supply hub and fabrication centres, Blyth continues. “One of our remits is promoting and developing the Western Cape in South Africa. Saoga was set up in 2004 and is a nonprofit organisation. It started due to industrial development work in the provincial government of the Western Cape, which identified an interesting cluster of companies that served the upstream oil and gas market in the region. These firms were providing all sorts of services into that industry, most visibly around our harbour undertaking marine repair, upgrading and maintenance for rigs and various vessels. Clearly it was important for development to be encouraged, so Saoga was formed to do just that.”



How does the scheme work?

Terms and conditions

• • • • •

Funding will be made available at prime less 3% to businesses that will create jobs. A minimum of R1 million with a maximum of R1 billion per project will be allowed. The funding is available over five years or until the scheme is exhausted, whichever occurs first. The first draw must be within a year from approval of funding. If not, pricing reverts to normal IDC pricing. Reduced loan pricing will be available for five years, after which normal IDC pricing will apply. Finance required in excess of the scheme’s limit can be accessed through normal IDC funding.

Business support • •

The IDC will also assist businesses with capacity building, where needed. Businesses are encouraged to consider this support, which is partially grant funding.

• •

The funding period will be structured to meet the cash flow needs of the business. Appropriate capital and interest payment holidays will be applied, depending on the financial needs of the business. There is no prescribed minimum for owner contribution. This will be determined by the financial capacity of the entrepreneur and the cash flow profile of the business.

Contact For more information on the scheme, please contact the IDC on 086 069 3888 • •

email: website:

What sectors does the IDC fund? In line with Government’s New Growth Path and Industrial Policy Action Plan (IPAP2), businesses in the following sectors will be considered for funding: Green industry • Renewable energy • Energy efficiency • Pollution mitigation • Waste management and recycling • Biofuels


Manufacturing activities • Advanced manufacturing • Automotives, components, medium and heavy commercial vehicles manufacturing • Clothing textiles, footwear and leather • Forestry, paper & pulp, and furniture • Metals fabrication, capital & transport equipment • Pharmaceuticals • Plastics and chemicals

For further information, please contact: IDC Call Centre: 086 069 3888 Email: Website:

Agricultural value chain • Agro-processing Mining value chain • Downstream mineral beneficiation • Mining • Mining technologies Tourism and high-level services • Business process services • Tourism Knowledge economy • Healthcare • ICT • Biotechnology

Media and motion pictures • Media pictures production • Media value chain – broadcasting (radio and television) • Media expansion – new media included • Music value chain • Film production and animation

This is an exciting time for Saoga and there is a lot happening upstream. “What’s happening in upstream is very exciting,” says Blyth. “South Africa remains a largely unexplored region in which there have been only modest, mainly gas, discoveries to date. But, current upstream interest is high and we anticipate a significant increase in the amount of upstream activity over the next few years. “It seems as though the industry is waking from its long sleep!” Blyth is right; the industry is waking up. PetroSA’s FO project in Mossel Bay has been approved and a good number of the tender bids are closed or closing. Drilling will start in February 2012 with installation of most of the subsea components in March the following year production should start soon after that. The biggest opportunities though are offshore. “Offshore in the Orange River Basin things are hotting up,” says Blyth. “Forest Oil has said publicly that they are close to concluding commercial power sales agreements that will allow them to proceed with an initial $2.5 billion investment on a gas-to-power project near Island Point in the Northwest Cape. At the same time the clock is ticking on the exploration licenses held by BHP and Forest in the area 6

The offshore area from Saldanha up to the Orange River Basin is an important area for oil and gas exploration


so it is also likely that rigs will be in the water for exploration drilling in 2012. “Saldanha Bay is becoming increasingly important,” he continues. “There is growing recognition that the natural port and abundant space, not to mention the existing engineering capacity in the area, make it an ideal place for oil and gas activity. I am aware of plans for an oil and gas supply base, an LPG import terminal as well as for long-awaited activity in the dormant fabrication yard. The Provincial government also sees the potential of the area and is pressing ahead with the studies required for an IDZ free zone in Saldanha Bay. No doubt there are a number of other initiatives underway as well that I am not party to. “On the policy front, the upstream oil and gas services sector is being included in the national government’s Industrial Policy Action Plan (IPAP), a huge boost.” There has also been significant interest in onshore unconventional gas resources. Shale gas resources in the Karoo Basin are of huge significance. “Shell is really leading the way,” says Blyth. “This is significant because the power situation in SA is dire. Even with new coal-fired power stations coming on stream in



2013/14 we still face a huge hole. There are definitely opportunities for natural gas. “How does that relate to our members? Well there will be huge opportunity to fabricate and provide a variety of technical services to the industry.” In terms of the African picture, Ghana and Nigeria are obvious oil and gas hotspot. South Africa is already a significant supplier of services and equipment to West Africa, Blyth says. However, he stresses that there is potential for more still. “South Africa’s advanced industrial base and high engineering standards provides a broad base of suppliers and service providers to the upstream industry. South Africa is geographically and politically well positioned to be a base for supplying sub-Saharan 8

oil and gas projects. Geographically the country is on the southern tip of the African continent and provides easy access to both East and West Africa by sea and air. Politically, South Africa is sound and an active player as well as a leader and partner in the African community.” Blyth has overseen huge transformation in his 18 months at Saoga – at an operational and strategic level. He is determined to make the world aware of what South Africa has to offer. “Over the past few months we have taken a hard look at what we are doing and what we could be doing and have made some significant decisions about where we will spend our energy going forward,” he concludes. END

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SA Mag - Issue 14 - SAOGA FEATURE

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