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ANNUAL REPORT 2011

WWW.PETROSA.CO.ZA

Physical Address: The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd, 151 Frans Conradie Drive, Parow 7500, Republic of South Africa

Tel: +27 21 929 3000, Fax: +27 21 929 3144

Postal Address: The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd, Private Bag X5, Parow 7499, Republic of South Africa

PetroSA 2011 A

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UA

L REPORT

PetroSA ANNUAL REPORT 2011 137

WORLD CUP EXPENDITURE

The total expenditure on the 2010 Soccer World Cup (inclusive of travel and excursions) amounted to R16 816 439.

Quantity2011

R'0002010 R'000

Total R'000

Ticket costsTickets acquired 1 240 569 13 952 14 521

Distribution of ticketsClients/Stakeholders 368* 569 4 696 5 265Accounting authority

Executive 26 – 359 359Non-executive 43 – 587 587

Senior management 80 – 884 884Other employees 597 – 5 899 5 899Other government entities 113 – 1 474 1 474Media 13 – 54 54

Total ticket costs 569 13 952 14 521

*Two tickets were missappropriated.

Travel costs (includes accommodation)Clients/Stakeholders – – –Accounting authority

Executive 158 – 158Non-executive 201 – 201

Senior management 327 – 327Other employees 233 – 233Transport to !nal and tour to Soweto 34 – 34

953 – 953

Purchase of other World Cup apparelBafana Bafana authentic soccer jerseys 2 000 1 198 – 1 198Vuvuzelas 140 5 – 5Bafana Bafana beanies 1 500 59 – 59Bafana Bafana scarves 1 500 76 – 76World Cup memorabilia 140 4 – 4

Total other costs 1 342 – 1 342

Total 2010 World Cup expenditure 2 864 13 952 16 816

This report is printed on triple green paper. By using certi!ed green paper we have the assurance that the manufacturing process was environmentally responsible, contributing to the sustainability of the planet’s resources. Triple green paper is produced using renewable !bres such as sugar cane, elemental chlorine-free bleaching and sustainable afforestation. The paper is recyclable and biodegradable.

PetroSA has reduced the number of copies printed and we have posted an electronic version on our website for quick and easy referencing. Our web address is www.petrosa.co.za

Our Mission, Our Vision, Our Values 2

Group Pro!le 3

Business Highlights 4

Organisational Structure 6

The Board 8

Chairman’s Statement 12

Executive Directors 14

Executive Management 14

Chief Executive Of!cer’s Report 16

Chief Financial Of!cer’s Report 20

Vision 2020 22

• Ensuring our sustainability 23

• Growing our company and securing South Africa’s liquid fuel supply 30

• Transforming the company, the sector and society 33

• Ensuring safety, health, environment and quality 39

• Signi!cant contributions to corporate social investment 42

Annual Financial Statements 46

CONTENTS

!"#"$"%&'

Our VisionTo be the leading African energy company

Our Values• Integrity • Competitiveness • Corporate Citizenship • Harmonious Relationships

with all Stakeholders

Our MissionPetroSA will be the leading provider of hydrocarbons and related quality products, by leveraging its proven technologies and harnessing its human capital for the benefit of its stakeholders

2 PetroSA ANNUAL REPORT 2011

The Petroleum Oil and Gas Corporation of South Africa (SOC) Limited (PetroSA) is the national oil company of South Africa and is registered as a commercial entity under South African law. PetroSA is a subsidiary of the Central Energy Fund (CEF), which is wholly owned by the State and reports to the Department of Energy.

The company holds a portfolio of assets that spans the petroleum value chain, with all operations run according to world-class safety and environmental standards. PetroSA was formed in 2002 upon the merger of Soekor E and P (Pty) Limited, Mossgas (Pty) Limited and parts of the Strategic Fuel Fund, another subsidiary of CEF.

The core business activities of PetroSA are:

• the exploration and production of oil and natural gas;

• the participation in, and acquisition of, local as well as international upstream petroleum ventures;

• the production of synthetic fuels from offshore gas at one of the world’s largest Gas-to-Liquid (GTL) re!neries in Mossel Bay, South Africa;

• the development of domestic re!ning and liquid fuels logistical infrastructure; and

• the marketing and trading of oil and petrochemicals.

PetroSA operates the FA-EM, South Coast gas !elds as well as the Oribi and Oryx oil !elds. The producing gas !elds provide feedstock to the Mossel Bay GTL re!nery. Outside South Africa, the company has exploration acreage in Equatorial Guinea and Namibia.

PetroSA’s GTL re!nery produces ultra-clean, low-sulphur, low-aromatic synthetic fuels and high-value products converted from natural methane-rich gas and condensate using a unique GTL Fischer Tröpsch technology. Key commodities produced include unleaded petrol, kerosene (paraf!n), diesel, propane, liquid oxygen and nitrogen, distillates, eco-fuels and alcohols. Its world-class synthetic fuels and petrochemicals are marketed internationally.

GROUP PROFILE


BUSINESS HIGHLIGHTS

MOSSEL BAY GTL REFINERY: THE WORLD’S 2ND LARGEST

COMMERCIAL GTL REFINERY

SAFETY RECORD ACHIEVES TARGET OF LESS THAN 0.4 DISABLING INJURY FREQUENCY RATE

F-O FIELD DEVELOPMENT

WILL SUSTAIN GTL REFINERY

DEVELOPMENT OF SOUTH AFRICA’S

LARGEST SEAWATER DESALINATION PLANT

AT MOSSEL BAY

WORKING TOWARDS DEVELOPING WOMEN LEADERSHIP SKILLS IN OIL AND ENERGY

BUILDING OUR TEAM AND STAKEHOLDER

RELATIONS THROUGH THE WORLD CUP

STRIVING TO BECOME A SIGNIFICANT

PLAYER IN SOUTHERN AFRICA’S PETROLEUM

INDUSTRY BY 2020

F-O OFFSHORE GAS PROJECT

APPROVED

R831 million net profit


R36 million spent on employee training and development

R30 MILLION SPENT ON

CORPORATE SOCIAL INVESTMENT

SUBSTANTIAL PROGRESS MADE IN EVALUATING WEST

COAST GAS AND OIL POTENTIAL

VALUES DRIVEN LEADERSHIP PROGRAMME

INITIATED

DOWNSTREAM MARKET ENTRY OPPORTUNITIES

EXPLORED

RECERTIFICATION OF ISO 9001 SHOWS OUR WORLD-CLASS

QUALITY

14% INCREASE IN BBBEE VOLUMES


ORGANISATIONAL STRUCTURE

The company structure comprises the Office of the CEO and seven other divisions, namely: Finance; Corporate Strategy and Planning; Operations; Trading, Supply and Logistics; New Ventures: Upstream; New Ventures: Midstream; and Human Capital.

HUMAN CAPITALNEW VENTURES: MIDSTREAM

NEW VENTURES: UPSTREAM

TRADING, SUPPLY AND

LOGISTICSOPERATIONS

CORPORATE STRATEGY AND

PLANNINGFINANCE

PRESIDENT AND CEO

INTERNAL AUDITCORPORATE SECRETARIAT

OFFICE OF THE CEO RISK AND COMPLIANCE


FinanceThe Finance Division manages the company’s !scal resources and advises the business on its !nancial and commercial transactional responsibilities in a manner that guarantees compliance. The division manages all accounting, treasury, procurement, information systems and insurance functions of the company.

Corporate Strategy and PlanningThe Corporate Strategy and Planning Division facilitates the development and monitoring of the company’s corporate strategy. It manages a planning and reporting framework that monitors and promotes organisational performance. The Corporate Investment Portfolio, Economics, Business Intelligence, Intellectual Property, Broad-based Black Economic Empowerment, Government

Office of the CEO The Office of the CEO is

responsible for the company’s overall strategic direction as well as the facilitation of governance within the

organisation.

It comprises the following departments:

• Company Secretariat• Internal Audit• Legal Services• Safety, Health, Environment and

Quality (Corporate SHEQ)• Risk and Compliance

Relations, Corporate Image and Communications fall within this division. In addition, this division manages the company’s growing portfolio of corporate social investments.

OperationsThe Operations Division is responsible for the commercial exploitation of the company’s producing assets. These include the GTL re!nery in Mossel Bay, the FA-EM and South Coast gas !elds as well as the Oribi and Oryx oil !elds located in Block 9, offshore South Africa. A logistics base in Mossel Bay supports PetroSA and third-party offshore activities. Through Brass Exploration Unlimited, the division also managed the company’s 40% interest in the Abana oil !eld, offshore Nigeria. A strategic disinvestment from this asset was being !nalised at the close of the year under review.

Trading, Supply and LogisticsThe Trading, Supply and Logistics Division markets the GTL re!nery’s products in South African and international markets, and procures supplementary feedstock and blendstock for the GTL re!nery. PetroSA trades in condensate, crude oil, fuel and petrochemical products through this division. The division also manages the downstream marketing of PetroSA’s products to wholesale customers.

New Ventures: UpstreamThe New Ventures: Upstream Division oversees the exploration and production business of PetroSA and is responsible for growing the company’s reserve portfolio through the acquisition of equity in joint ventures with other oil and gas companies, as well as through exploration, appraisal and development activities.

New Ventures: MidstreamThe New Ventures: Midstream Division is responsible for infrastructure projects to ensure the sustainable growth of PetroSA and uninterrupted security of liquid fuels supply for South Africa. The division has been primarily focused on the development of re!ning capacity in South Africa, the development of logistical infrastructure for strategic and commercial fuel stocks, as well as the technology solutions, particularly Gas-to-Liquid (GTL) technology.

Human CapitalThe Human Capital Division provides human resource capacity to the business. The division ensures that the company attracts and retains the best talent, with the right balance of skills, experience and desire to develop to their full potential to enable PetroSA to deliver on its strategy.


THE BOARD

Mr Dalikhaya R ZihlanguBSc (Min Eng), MDP, MBA Appointed to the Board: December 2006Mr Zihlangu is a director of various investment and mining companies. He has held positions as CEO and executive in various well-known companies, including Alexkor and Impala Platinum.

Dr Zavareh RustomjeeBSc (Chem Eng), MPhil (Development Economics), PhD (Economics) Appointed to the Board: September 2009Dr Rustomjee is an independent consultant. He currently serves on the Boards of the Electricity Distribution Industry Holdings, and South African Gas Development Company and Business Partners Limited. His previous Board memberships include Sasol, BHP Billiton SA, the Industrial Development Corporation, National Empowerment Fund, and the Council for Scientific and Industrial Research. Dr Rustomjee was formerly a Director-General of the Department of Trade and Industry and executive director: Southern African Energy at BHP Billiton.He also served as an adviser to the Ministers of Trade and Industry, and Minerals and Energy.

Dr Benny AM Mokaba Chairman BA (Hons), PhD (SOC Policy) Appointed to the Board: March 2011Dr Mokaba is a former executive director of Sasol Ltd., with responsibility for the company's South African energy cluster. He has served as chairman of the Boards of Sasol Oil, Synfuels, Sasol Mining and Sasol Gas companies. Dr Mokaba has previously held the positions of vice-president of the Shell (Southern Africa) Group and Group Managing Director and CEO at Steinmuller Africa.

Ms Nondumiso MedupeBCom (CA)SA Appointed to the Board: January 2010Ms Medupe is a founding director of Indyebo Consulting and has many years’ experience in internal auditing, risk management and financial management. She was director: financial planning and budgeting in the Gauteng Department of Finance and general manager of the Johannesburg City Parks. Ms Medupe is a Board member of City Lodge and Metro File.

Mr Mputumi B DamaneBSc, MBA, CIS, Quality Auditor Appointed to the Board: January 2005Mr Damane is CEO of the Central Energy Fund and a former chairman of the Strategic Fuels Fund. He is also currently interim CEO of the Nuclear Energy Corporation of South Africa. He was instrumental in drafting the Liquid Fuels Charter.

Mr Yekani R TenzaBCom (Acc), BCompt (Hons), MBA, CPA Appointed to the Board: September 2009Mr Tenza is a director of Highbury Solutions (Pty) Limited and a non-executive director of the Central Energy Fund and Strategic Fuel Fund Association. He is a former president and CEO of the Foskor Group Limited. Previous directorships include Foskor Limited, Telkom Limited and Medscheme (Pty) Limited.

Ms Esther LetlapeB Admin, BA (Hons) (Industrial Psychology) Appointed to the Board: March 2011Ms Letlape is currently HR director at SAPPI Southern Africa. She previously served at Sasol Oil as a human resources executive. Ms Letlape has extensive experience in human resource management and has served at various organisations including JIC Mining, a division of Mvela Mining; Murray & Roberts Construction; and Transwerk, a division of Transnet.

Adv. Linda MakatiniBA (Law), LLM Appointed to the Board: January 2010Adv. Makatini is an admitted advocate of the High Court and is currently CEO of Pinnacle Incubator Hub. She was an adviser to the Minister of Minerals and Energy and to the then Deputy President Zuma. She is currently chairperson of the State Diamond Trader and a member of the Central Energy Fund and Strategic Fuels Fund Boards. She also chairs the Mamane Jah Foundation & Education Trust and has held various positions in the Petroleum Agency, the National Energy Regulator of South Africa, the Council for Geoscience and the Jacob Zuma Educational Trust.


Mr Zingisa MavusoBA, MSc (Energy, Oil and Gas Management) Appointed to the Board: June 2009Mr Mavuso is the chief director: petroleum controller responsible for licensing and compliance at the Department of Energy. He has extensive experience in trade negotiations and international trade with the Department of Trade and Industry. Mr Mavuso is a former South African Trade Representative to the World Trade Organisation in Geneva.

Mr Musa M ZwaneMSc (Industrial Chemistry), MBA Appointed to the Board: March 2011 Mr Zwane is currently CEO of South African Airways Technical. He previously held various positions at Sasol, including managing director, Sasol Gas; General Manager Sales and Marketing, Sasol Gas and General Manager: Heating Fuels, Sasol Oil and was also a member of the executive team at Sasol Synthetic Fuels. Prior to Sasol, Mr Zwane was chemical services manager with Eskom and a Senior research scientist at AECI.

Ms Nonhlanhla JiyaneND (Analytical Chemistry), BCom, MA Acc (Taxation), CA(SA) Appointed to the Board: March 2011 Ms Jiyane has extensive experience in cost accounting, general auditing, business consulting, bookkeeping and taxation. She is currently managing partner at Chili & Co (a firm of accountants and auditors). Her previous positions include director and manager at Ngubane & Co, part-time audit lecturer at the University of Zululand, manager for special projects at SARS, and cost and chemical analyst at Shell & BP Lubricants. She currently serves on the Boards of Kwezi Mining, Thebe Investments and Gannet.

Mr Andrew Conway Gaorekwe MolusiBA (Journalism), MA Appointed to the Board: March 2011 Mr Molusi is a veteran of the media industry in South Africa. He serves on the Boards of African Media and Entertainment, Caxton CTP Printers and Publishers, Johannesburg Tourism Company, Rhodes University, Sishen Iron Ore Company and Business Against Crime SA. His numerous previous Board directorships include Print Media South Africa, Newspaper Association, World Association of Newspapers and South African Union of Journalists.


THE BOARD (CONTINUED)


CHAIRMAN’S STATEMENT

Foundations for sustainability and growth in place

We are set to achieve our Vision 2020 strategic objective

Despite a global environment fraught with challenges, ranging from commodity price volatility and increased competition for hydrocarbon resources, through to tightening climate and environmental constraints, PetroSA was able to return to pro!tability in the year under review.

Poised to Enact Vision 2020The 2010/2011 !nancial year provided a !rm platform not only for PetroSA’s sustainability, but also for the growth envisaged by the company’s Vision 2020 Growth Strategy, which will see PetroSA becoming a more signi!cant player in the South African and regional petroleum industry by 2020.

Overview Since this is my first report as Chairman of PetroSA, it is more of an account of the efforts and diligence of my two predecessors, Dr Popo Molefe and Advocate Linda Makatini. This is particularly so in the case of Advocate Makatini, who acted as chair of the Board for a large part of the year under review. The contribution of both to PetroSA is highly appreciated. I am humbled by the appointment and mandate to serve our country as chairman of South Africa’s national oil company, in the midst of all the challenges and opportunities ahead of us.

Benny Mokaba

While we are under no illusion about the enormity of the socio-economic developmental needs of South Africa and the region, we believe that the company is on a !rm footing to make a meaningful contribution to the cause of security of energy supply, job creation, poverty alleviation and societal transformation.


F-O Field Development will Sustain GTL Re!nery for Some YearsSome progress has been achieved towards the goal of sustaining the company’s main revenue earner, the Mossel Bay Gas-to-Liquids (GTL) re!nery. It gives me comfort to note that, through the development of a key domestic offshore gas !eld, the F-O !eld off the South Coast, the productive lifespan of this re!nery has been extended.

This creates further opportunities for the continued sustainability of the plant, which remains the world’s second largest commercial GTL re!nery and is by far the largest employer in Mossel Bay, the economic hub of South Africa’s Southern Cape region.

The extension of the GTL re!nery’s lifespan serves to underscore PetroSA’s commitment to South Africa’s call for the continued bene!ciation of local hydrocarbon reserves, while minimising the country’s carbon footprint through the exploitation of natural gas.

Review of New Re!ning Options Under WayThe quest for growth and national energy supply security has seen some progress in the company’s proposal for new re!ning capacity. While the organisation had targeted the commencement of the !nal technical engineering studies – the Front-End Engineering and Design (FEED) studies – by the close of the !nancial year, concerns raised by various stakeholders regarding the size of the project and market demand have been taken on board.

Therefore, we are now in the process of reviewing this aspect of the project. This will include exploration of a broader range of national re!ning capacity-expansion options, still with the intention of commissioning a re!nery in the latter part of this decade.

F-O field development will extend life of Mossel Bay GTL refinery

Largest Desalination Plant in South Africa Under ConstructionWe have also made progress in other areas, including averting a potentially disastrous water crisis resulting from a drought of historic proportions, through interventions with other stakeholders. This saw the construction in Mossel Bay of what is set to be the largest desalination plant in the country.

Gender Equity a Pressing ChallengeWhile some progress has been made regarding the company’s gender pro!le, we are still not where we need to be in this important area. My Board and the Executive Management team have committed to leaving no stone unturned to address this challenge.

Already I am pleased to see a growing number of suitably-quali!ed women moving up the ranks and making an increasingly meaningful contribution towards the success of the organisation. It is equally encouraging that the make-up of the Board is such that 30% of the members are women.

Ensuring Organisational StabilityThe Board is committed to !lling the vacant position of chief executive of!cer as a matter of urgency. This is vital for the stabilisation of the organisation at this crucial moment, especially in view of our growth. This will require all hands on deck on the part of the company and its leadership.

Finally, I wish to express my sincere gratitude to our customers, our partners, the Minister of Energy and the Government of South Africa, other key stakeholders, my fellow Board members (including those who left the Board in the year under review), the Executive Management team and all staff members for their unrelenting efforts to make PetroSA a success. I wish to assure all stakeholders – both external and internal – that we intend to do our utmost to build this organisation to be the leading African energy company.

Thank you.

AMB Mokaba (PhD)

In October 2010, we successfully hosted the President of South Africa, Jacob Zuma, and the Minister of Energy, Dipuo Peters, at the GTL refinery in Mossel Bay. This was the first such event in the history of the company and reaffirms the national significance of PetroSA as the national oil company.


Mr Nkosemntu G Nika CFOBCom, BCompt (Hons), CA(SA), AMP Appointed as an executive director: September 2003

Mr Nika was previously Executive Manager: Finance at the Development Bank of Southern Africa. He has held various internal auditing positions at Eskom, Shell and Anglo American Corporation Limited. He is a non-executive Board member of the Industrial Development Corporation and chairs the Board Audit Committee, and Governance and Ethics Committee.

Adv. Sindi V NgabaCompany Secretary

BJuris, LLB, LLM, MDP, SMP

Appointed as company secretary: November 2002

Adv. Ngaba is an admitted advocate of the High Court. She has held various legal advisory positions at the Cape Peninsula University of Technology and Transnet National Ports Authority.

EXECUTIVE DIRECTORS

EXECUTIVE MANAGEMENT

Dr Nompumelelo SiswanaVice-president: Trading, Supply and Logistics

MSc, PhD (Chemical Engineering and Industrial Chemistry)

Dr Siswana has been in the oil and gas industry for more than 10 years, and has held various positions in organisations such as BP (Southern Africa) and Engen Petroleum Limited as well as in the former Department of Minerals and Energy. Dr Siswana joined PetroSA in 2002 as General Manager: Corporate Planning, Strategy and New Ventures. She was appointed to the position of Vice-president: Trading Supply and Logistics In 2005. Dr Siswana resigned from PetroSA in March 2011.


Mr Godwin SwetoVice-president: Corporate Strategy and Planning

BSc (Min Eng), MBA

An architect of PetroSA’s Vision 2020 strategy, Mr Sweto has broad domestic and international investment valuation, planning and production experience. His experience spans over 20 years in both the private and public sectors of the minerals and energy industry and includes companies such as BHP Billiton, RTZ (Palaborwa), Maptek (Johannesburg and Perth) and Lonrho (Harare). He was appointed Vice-president: Corporate Strategy and Planning on 1 June 2008.

Mr Darrin Arendse Vice-president: Human Capital

B Admin, B Admin (Hons)

Mr Arendse began his career in the public sector as a generalist HR practitioner in 1984. His career experiences have been shaped by serving in various senior HR roles in organisations such as the City of Cape Town, De Beers and Standard Bank. Mr Arendse joined PetroSA in February 2009.

Mr Everton G SeptemberVice-president: New Ventures (Upstream)

BA, BCom, MBA

Mr September has been in the petrochemical business for more than 20 years, mostly in marketing positions in South Africa, the United States and Europe. He spearheaded a successful project to set up the PetroSA sales and marketing office in Rotterdam, Holland. He joined PetroSA in 2003 and was appointed to his current position in 2008.

Mr Joern Falbe Vice-president: New Ventures (Midstream)

A Graduate in Chemical and Industrial Engineering, Technical University of Hamburg, Germany

Mr Falbe formerly ran a highly integrated petrochemical and refinery complex at Shell in Europe. He joined PetroSA in 2005 as Vice-president: Operations and also represents PetroSA as a director in GTL.F1 AG, a joint venture with Lürgi that seeks to commercialise the GTL technology. He was appointed to the position of Vice-president: New Ventures (Midstream) in June 2007.


CHIEF EXECUTIVE OFFICER’S REPORT

OverviewPetroSA operated throughout this !nancial year without major incidents, achieving relative success on most fronts. The company maintained its excellent safety and environmental records, and made signi!cant strides towards its sustainability and growth ambitions, continuing its drive for societal transformation.

A Return to Pro!tabilityA key highlight this year was a return to pro!tability. The company achieved a turnaround from a net loss of R356 million in 2009/2010 to a net pro!t of R831 million.

A company wide focus on cost control and capital discipline helped us overcome a raft of challenges, including reduced gas throughput from the depleting offshore !elds, as well as a strong Rand that signi!cantly eroded the company’s revenues.

Timely Action to Prevent a Water Crisis at the GTL Re!neryFaced with a potentially devastating drought that threatened the entire Southern Cape region, we successfully implemented interventions that, together with some unseasonal, but timely rainfall, averted a water supply crisis at the GTL re!nery. Among the key interventions was the construction of the country’s largest seawater desalination plant in Mossel Bay. This 15-million-litres-a-day plant is set to be commissioned early in the next !nancial year.

Leveraging Relationships Through the 2010 Soccer World CupIn a year in which South Africa successfully hosted the FIFA 2010 Soccer World Cup, the company not only helped ensure security of fuel supply, but leveraged the euphoria of the tournament for team-building and general stakeholder relationship building.

R831 million net profit

Yekani R Tenza

Returning to

profitability despite challenging environment


Minister of Energy, Dipuo Peters, noted that President Zuma had brought much-needed rain with him to the drought-stricken Mossel Bay area. It had started to rain the day before the visit and continued while he was in town.

Ensuring Our Sustainability Final Investment Decision for F-O FieldOur efforts to build and sustain the company continues. Key to this is the sustainability of the GTL re!nery in Mossel Bay. We are continuously searching for additional gas reserves for the re!nery and found proven gas reserves in the F-O !eld, which is located off the south coast of South Africa.

This year, the project received a !nal investment decision from the PetroSA Board. This implies that the development of the F-O !eld has been sanctioned. Production from this !eld is expected by 2013 and it is estimated that production from the F-O !eld, together with continued optimisation of existing !elds, will maintain commercial operations to 2019/2020. The development of the

F-O !eld will also serve as an enabler of further development of gas prospects near F-O, which could provide a further !ve year life for GTL re!nery to 2025.

Seismic Acquisition Programme to Further Derisk the F-O FieldA seismic acquisition programme covering the greater Block 9 area, including F-O, was embarked upon towards the end of the !nancial year. The aim of the programme is to further derisk the F-O !eld and possibly identify other indigenous hydrocarbon prospects for future exploitation.

LNG and Shale Gas Other Possible Sustainability MeasuresFor the longer-term sustainability of PetroSA, the LNG project has been revived. The aim is to import LNG for use as future supplementary feedstock for the GTL re!nery.

President Jacob Zuma and Minister of Energy Dipuo Peters with members of the PetroSA Board and Executive in Mossel Bay


CHIEF EXECUTIVE OFFICER’S REPORT (CONTINUED)

Growing PetroSA and Ensuring Security of Liquid Fuels Supply for South AfricaConsidering Phased-in Options for Project MthomboConsultations with the shareholder with respect to the sanctioning of project Mthombo’s Front-End Engineering and Design (FEED) study continued.

Our engagements with various stakeholders, including the South African Petroleum Industry, have resulted in us strengthening the original business case for this project and considering alternatives and other scenarios. We expect a !nal decision on the project before the end of the next !nancial year.

Pursuing Downstream Acquisitions in Sub-Saharan AfricaPlans to participate in the South African downstream market were !rmed up. Divestments by the international oil companies from the downstream sub-Saharan market presented us with additional opportunities to pursue our downstream objectives.

The focus remains on the acquisition of existing downstream logistical infrastructure, together with a desire to penetrate the sub-Saharan Africa markets.

Developing a Joint Business Plan in VenezuelaThis year, we !nalised the reserves quanti!cation and certi!cation study in Venezuela’s Boyaca 4 Block. The next step is for PetroSA and Petróleos de Venezuela S.A. (PDVSA) – Venezuela’s national oil company – to jointly work on a business plan for the development of this block. We also evaluated a number of mature !elds offered by PDVSA as part of the memorandum of understanding between the companies. We are currently doing an economic assessment of revitalising these !elds.

14%increase in BEE sales

Processing Seismic Data in Block Q, Equatorial GuineaIn Block Q, Equatorial Guinea, the processing and interpretation of the 1 000 km2 seismic data acquired over the block continued.

The seismic data covers almost 50% of this block in which we hold 75% technical operating interest. We are also looking at divesting up to 40% equity in the block.

Transforming the Company, the Sector and SocietyAn Increase in BEE VolumesWe continued to make strides to support BBBEE, particularly in preferential procurement. Our BEE volumes increased from 186 million litres in 2009/2010 to 212 million litres in 2010/2011. This translates to a 14% increase in BEE sales from the previous year.


Efforts to Increase Representation and Opportunities for WomenWomen representation in the company remained unchanged at 26% of the total workforce. Efforts are being made to further empower and advance women. To this end, we sponsored and led an industry-wide women empowerment workshop. The focus was on identifying barriers to progress, as well as creating opportunities to advance women.

Promoting a Value-based Culture in the CompanyA company wide values driven leadership programme was initiated to instil a high performance culture within the organisation, underpinned by ethics and sound governance principles.

Numerous Corporate Social Investment InitiativesOn the corporate social investment front, we made several interventions and spent over R30 million in targeted and sustainable investments.

Learners in some townships in the Vredenberg area in Saldanha had no school until PetroSA, together with the provincial government, intervened to provide the Masiphathisane Primary School. Built for R22 million, the school has over 800 learners, and is the only school providing Xhosa lessons in this predominantly Afrikaans-speaking community.

We continued our support of the University of Johannesburg’s New Generation of Scholars programme. This involved a R9 million grant over three years to support black, in particular women, students, doing postgraduate studies.

We are sponsoring the building of the KwaNonqaba community centre to the tune of R13 million. Work on this centre began this year under review. We also provided a R2.125 million donation as part of the Healdtown Restoration Project, and committed R8.5 million to the Mossel Bay municipality for community projects.

Ensuring Safety, Health, Environment and Quality On the safety front, the well-being of the company’s employees remained key. There were no fatalities and 15 non-permanent disabling injuries were recorded. This translates to a disabling injury frequency rate of 0.39 against a target of less than 0.4.

Three environmental incidents occurred in this period. One related to the discharge to sea of ef"uent that did not comply with permit conditions. The other two incidents related to diesel that entered the storm water system and was discharged with the storm water to the beach adjacent to the Voorbaai tankfarm.

The company remained committed and continued to support efforts towards a cleaner and healthier natural environment.

We were awarded ISO 9001 certi!cation by the South African Bureau of Standards for the second time, which represents a guarantee of quality and of the company’s ability to ful!l customer needs and expectations.

R30 millionin corporate social investment

Received ISO 9001 recertification. This code is a world-class certification system, benchmarked against international excellence models

YR Tenza

My thanks go to my colleagues on the Executive Committee for their support and hard work and to the rest of our staff.


CHIEF FINANCIAL OFFICER’S REPORT

Key Performance IndicatorsThe key performance indicators for the Group are:

2011R'm

2010R'm % change

Turnover 10 565 8 090 31%Operating pro!t (loss) 64 (1 337) 105%

Pro!t (loss) for the year 831 (356) 333%Cash generated by operating activities 2 011 392 413%

Total assets 25 006 21 991 14%Capital expenditure 197 1 275 (85%)Total debt 1 629 1 490 (9%)Net asset value 16 645 15 846 5%

Year-end exchange ratesZAR/USD 6.78 7.32 (7%)ZAR/EURO 9.64 9.85 (2%)

Average exchange ratesZAR/USD 7.19 7.81 (8%)ZAR/EURO 9.50 11.04 (14%)

Average crude prices 86.65 68.78 26%

31%in revenue due to higher prices and increase in sales

Nkosemntu G Nika Performance ReviewFor the year under review, the group achieved a net pro!t of R831 million, compared to a net loss of R356 million the previous year. The company made R10.5 billion in revenues, a 31% increase from the previous year (R8 billion: 2010). The increase in revenue can be ascribed to higher product prices resulting from higher crude oil prices, as well as an increase in volumes sold. Crude oil prices increased by 26% ($87/bbl in 2010/2011 vs $69/bbl in 2009/2010). There was no shutdown and no major operational challenges at the GTL re!nery. This resulted in a 25% increase in production volumes compared to the previous year.

The SA Rand was 8% stronger against the US Dollar (R7.22 in 2010/2011 vs R7.81 in 2009/2010). The negative effect of this was however countered by the positive volume, price and mix variances year on year.

Cash reserves increased by 18%, from R10 billion the previous year to R11.8 billion in the period under review. Despite this, investment income was lower as a result of declining market rates during the year.

Operating margins increased by 105% due to the increase in revenue and a reduction in other operating expenditure. The reduction in operating expenditure was largely a result of the once-off 4-well drilling campaign in PetroSA Egypt SE Warda in the prior year. The effort was not successful commercially and the block was subsequently relinquished in the current year.

Limited capital expenditure was incurred in the year under review, as all efforts were geared towards the sustainability of the GTL re!nery.

TaxationIn November 2010, the tax legislation was amended retrospectively to allow for a deduction of OP26 capital expenditure in the 2008/2009 !scal year.


19%of total company spend on BEE suppliers with 25.1% black ownership

The South African Revenue Service (SARS) reopened PetroSA’s 2008 tax assessment to accommodate this deduction. Consequently, the company expects a refund of R385 million plus interest, paid as provisional tax to SARS in 2008.

Accounting PoliciesThe accounting policies used in the preparation of the annual !nancial statements for the year ended 31 March 2011 are in accordance with SA GAAP, and consistent with those used in the previous year.

Management JudgementsIn preparing the annual !nancial statements in terms of SA GAAP, the group’s management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the !nancial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgements are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.

Liquidity ManagementPetroSA manages its cash and cash equivalents in line with Board-approved policies. The cash portfolio is split into a core and liquid portfolio to ensure that short-term liquidity needs are met, whilst maximising the return on surplus cash. Investment counterparties are approved based on their assessed ratings and are actively monitored.

Cash under management for the group increased from R9.9 billion the previous year to R11.8 billion, mainly due to cash generated by operations and a delay in the approval of projects for which internally generated cash had been earmarked.

As at 31 March 2011, South African Rand cash and cash equivalents were invested at a !xed rate of 6.25% (2010: 7.71%) and a "oating rate of 7.50% (2010: 8.03%). The rate of return achieved on investments declined throughout the !nancial year, in line with declining market rates. The declining interest rate environment contributed to a 19% decrease in interest income from R972 million the previous year to R860 million in the period under review.

PetroSA paid off the long-term loans raised for the EM gas !eld development resulting in an un-geared balance sheet at 31 March 2011. The optimal funding structure for the F-O gas !eld development to ensure sustainability of the company’s Mossel Bay operations is being considered. A long-term gearing ratio of 30% to 40% is being targeted, in line with the group’s long-term strategy and growth initiatives.

Dividends No dividends were declared in this !nancial year.

Preferential Procurement For the period under review, payments made to suppliers of goods and services totalled R7.38 billion. Of these payments, R1.36 billion was spent on Black Economic Empowered (BEE) Suppliers with a minimum of 25.1% black ownership. This equates to 18.52% of the company’s total procurement spend.

In terms of the BBBEE codes of good practice, certain expenditure may be excluded from total procurement (i.e. procurement from other organs of state, imported goods and services that cannot be sourced locally, as well as speci!c branded sole-source procurement). The total procurement expenditure from organs of state, sole source suppliers and foreign entities was R4.82 billion.

The company’s total discretionary procurement for the period under review, in terms of the codes, equalled R2.56 billion. 53% of this procurement was from BBBEE organisations.

Financial Strategy and OutlookThe company’s biggest internal challenge is the continued reliance on a single source of income, namely the GTL re!nery. After nearly 20 years in operation, the PetroSA GTL re!nery is faced with the serious challenge of declining feedstock. This impacts the company’s sustainability and dictates that the primary focus be directed at securing feedstock.

As a result, the company will continue to produce at moderated production rates. This, together with the optimisation of current !elds, is expected to prolong commercial operations beyond 2013 when !rst gas from the planned F-O Field development, aimed at augmenting current gas !elds, is expected.

NG Nika


THE REPORT THAT FOLLOWS REVIEWS OUR PERFORMANCE AGAINST THESE FOUR STRATEGIC PILLARS FOR THE 2010/11 FINANCIAL YEAR.

Our Vision 2020 strategic objective is to become a fully

integrated, commercially competitive national oil

company, supplying at least 25% of South Africa’s liquid fuel

needs by 2020. We aim to achieve this through:

THE REPORT THAT FOLLOWS REVIEWS OUR PERFORMANCE AGAINST THESE FOUR STRATEGIC PILLARS FOR THE 2010/2011 FINANCIAL YEAR.

TRANSFORMING THE COMPANY, THE SECTOR

AND SOCIETY

ENSURING THAT THE ABOVE ARE CARRIED OUT

IN LINE WITH THE HIGHEST SAFETY, HEALTH, QUALITY

AND ENVIRONMENTAL STANDARDS

GROWING OUR COMPANY TO A SIGNIFICANT

INDUSTRY PLAYER, WHILE ENSURING SECURITY OF

ENERGY SUPPLY FOR THE COUNTRY

SUSTAINING THE MOSSEL BAY

GTL REFINERY AS A PROFITABLE

OPERATION AND USE AS A PLATFORM TO

SUSTAIN OUR COMPANY


Production While non-feedstock production was unchanged during the year under review, feedstock production was higher than the previous year.

The table below shows the non-feedstock and feedstock production over two years.

2010/11 2009/10Year-on-year

variance

Oribi and Oryx (MMbbl) 1.26 1.07 18%

Abana (MMbbl) 0.96 1.15 (17%)

NON-FEEDSTOCK (MMBBL) 2.22 2.22 0%

FA-EM Gas (MMboe) 5.70 3.97 43%

FA-EM Condensate (MMbbl) 1.07 1.10 (3%)

SC Gas (MMboe) 2.17 2.04 7%

SC Condensate (MMbbl) 0.29 0.20 43%

FEEDSTOCK 9.22 7.31 26%

TOTAL 11.44 9.52 20%

GTL REFINERY (MMBOE) 7.15 5.30 35%

ENSURING OUR SUSTAINABILITY

Non-feedstock Production Constant at 2.2 Million BarrelsNon-feedstock production remained constant at 2.2 million barrels of oil over the two years, as a result of two factors:

• The domestic Oribi and Oryx oil !elds production was 18% higher than the previous year, as a result of a number of interventions that improved the performance of the wells. This is a remarkable performance, given the !eld’s depleting reserves.

• However, this performance was off-set by the poorer performance of the Abana oil !eld that is situated in OML114 offshore Nigeria and operated by Moni Pulo (Ltd), the major equity holder in the !eld. Production from Abana was 17% lower than the previous year as a result of key wells being down for prolonged periods. A strategic disinvestment from this asset was being !nalised at the close of the year under review.

The Oribi and Oryx fields reached a 45-million-barrel milestone this year, a feat credited to innovative engineering and a dedicated team

PetroSA’s priority is to ensure the short-, medium- and long-term commercial sustainability of the company. The immediate focus is on the supply of feedstock to the GTL refinery in Mossel Bay.


ENSURING OUR SUSTAINABILITY (CONTINUED)

Feedstock Production Increases Feedstock production for the year was 26% higher than the previous year (9.22 vs 7.31 million barrels of oil equivalent). This positive variance was mainly due to a decrease in production interruptions at the GTL plant, which resulted in an increase in feedstock demand.

The GTL re!nery production was 35% higher, an increase from 5.3 million barrels of oil equivalent the previous year to 7.15 million barrels of oil equivalent in the year under review.

Product SupplyCurtailing Throughput to Ensure Long-term SustainabilityThis year, we adopted a production philosophy that curtailed the GTL re!nery throughput to about 60% of its capacity. This was done to prolong commercial operations at the plant until the start of supplementary feedstock production from the F-O !eld in 2013. The F-O !eld development will start in 2012.

To supplement the reduced GTL re!nery production and ensure that the company was able to meet our obligations to the market, we imported !nished petroleum products. Diesel import amounted to 425.889 m3 while 62.463 m3 of petrol was imported.

Optimising Storage Results in Reduced Storage Costs and Higher Product MarginsSupply and distribution optimisation remained a key focus area for the company. The supply chains associated with the various business streams were further rationalised through optimising storage, thereby reducing storage costs. This had a positive contribution on product margins.

Freight Savings and Higher Prices Result in Higher Product MarginsAs part of optimisation, PetroSA consolidated its shipping contracts for supply to the Mediterranean markets and the Far East. This resulted in freight savings, which, combined with higher prices in this region, resulted in higher product margins.

Building an Ef!cient Electronic Data Interchange System for TradingThe electronic data interchange system aims to facilitate trade with other oil companies. The system continued to operate ef!ciently, with the turnaround between receiving orders from customers, placing orders with oil industry trading partners for supply execution and billing of customers improving signi!cantly. We enhanced the system this year to extend it to industry orders for road and shipping.

An electronic data interchange portal will be rolled out in the next !nancial year to commercial customers so that orders can be placed online, rather than the current e-mail ordering process. This will also be extended to rail and pipeline.

Successfully Meeting all Requirements for REACH Registration In December 2006, the European Union enacted legislation for the handling of chemicals within the EU. The legislation with the acronym REACH (Registration, Evaluation, Authorisation

26%feedstock production

35%GTL refinery production

increased product margins through supply and distribution optimisation

We have reduced our throughput at the GTL refinery as a strategic measure towards sustainability


20%sales in EU

The F-O field development will sustain operations to 2019/2020

of Chemicals) prescribed that chemicals sold with an annual tonnage of more than 1 000 mt per annum had to be registered by 30 November 2010 in order to continue being sold in the EU. PetroSA successfully met all requirements for registration by October 2010. The next phase of the REACH programme that is currently under way entails the drafting of extended safety data sheets.

Increase in Sales in European Union Our sales in the European Union grew by 20% year on year from 2009/2010 levels. Demand outstripped supply and tanks ran dry by January 2011. The uncertainty and unrest in the Middle East !ltered through to Europe as higher crude and commodity chemical prices resulted in higher net-backs throughout the business.

The price of isopropanyl (IPA) remained above pre-crisis levels, despite persistent problems in Greece, Ireland and Spain. This worked well for PetroSA’s revenue base. Mosstanol L prices also rose in the period under review, but the bene!t of the price increase could not be taken full advantage of due to limited supply. For a fourth consecutive year, the demand for mosspar1925, the specialty distillate grade, was high and it was sold out by December 2010.

Exploration and Development Efforts in South AfricaThis year saw PetroSA continuing to evaluate gas potential off the South and West Coasts. The go-ahead by the PetroSA Board on the F-O !eld off the South Coast enables PetroSA to begin preparations for drilling, planned to begin next year. In addition, signi!cant work was done in the various blocks off the West Coast, which we believe hold great potential.

Evaluations on the South Coast Continue The sustainability of PetroSA’s GTL re!nery rests to a large extent on the exploration and development activities within the South Coast. There are several discovered gas

accumulations and prospects in the South Coast, which are being evaluated to de!ne an exploration drilling programme to prove up additional gas resources that could be used as supplementary feedstock for the GTL re!nery.

F-O Development Approved by Board Key among our evaluations is the F-O !eld development, over which we have a 100% exploration right, and which received a !nal investment decision this year.

Following the Board approval to go ahead with development of this !eld, preparations to convert the exploration right to a production right were initiated. This will facilitate development drilling which is planned to start in 2012.

We estimate that production from the F-O !eld – which is expected in 2013 – together with continued optimisation of existing !elds, will maintain commercial operations to 2019/2020. The development of the F-O !eld will also serve as an enabler of further development of gas prospects near F-O, which could provide a further !ve-year life for the GTL re!nery to 2025.

On the next page is a schematic of the planned F-O !eld development tied back to the existing infrastructure.

Seismic Acquisition Programme Embarked onTowards the end of the !nancial year, we embarked on a seismic acquisition programme covering the greater Block 9 area, including F-O. The aim of the programme is to further derisk the F-O !eld and possibly identify other indigenous hydrocarbon prospects for future exploitation.

West Coast Exploration Shows PotentialThe West Coast holds great promise for the unlocking of gas resources that could provide additional life to the PetroSA GTL re!nery, having the potential for both shallow- and deep-water oil and gas resources. The map on the next page shows PetroSA’s West Coast exploration acreage.



PetroSA’s WEST COAST EXPLORATION ACREAGE

F-0 DEVELOPMENT PROJECT OVERALL FIELD DEVELOPMENT CONCEPT


BLOCK 2C: NEW-ORDER RIGHTS ON THE WAYWe have a 24% participating interest in Block 2C with our joint-venture partners Forest Oil (53.2%) and Anschutz (22.8%). This is part of our strategy to gain acreage on the West Coast. Excellent progress has been made to convert the exploration right to new-order rights over this block.

BLOCK 3A/4A: NEW-ORDER RIGHTS SIGNEDNew-order rights over block 3A/4A were signed in September 2010. With our joint-venture partners – BHP Billiton (60%) and Sasol (10%) – we have reviewed past work in anticipation of the drilling of one well in the !rst exploration phase.

BLOCK 2A: PROJECT IN A GAS DEVELOPMENT MARKETING PERIODA production right for Block 2A was signed in August 2009 where PetroSA holds a 24% stake in a joint venture with Forest Oil (53.2%) and Anschutz (22.8%). At present the joint venture is in the gas development marketing period, which is for !ve years, during which the work programme associated with the development plan will be suspended, allowing the joint venture to:

• prove additional reserves through acquisition of 3D seismic data and by drilling wells;

• negotiate and sign a gas sales agreement; and

• review the construction of feasible gas infrastructure.

BLOCK 5/6: TECHNICAL CO-OPERATION PERMITS STUDY UNDER WAYPetroSA executed the second Technical Co-operation Permit over Block 5/6 on 8 July 2010. The objective of this 12-month desktop study is to fully evaluate the oil and gas prospectivity of the block, in order to determine the commercial viability of obtaining an exploration right.

BLOCK 1: SIGNIFICANT TECHNICAL WORK CONDUCTEDWe have conducted signi!cant technical work in Block 1, including completing acquisition, processing and inversion studies of a 1 500 km2 3D seismic survey. We have also identi!ed numerous leads and plays and preliminary well targets have been proposed.

Below, we detail work done in each of the Blocks.


PetroSA’s Southern African Exploration Activities as at 31 March 2011The table below summarises the location of our southern African activities.

Area Block PetroSA Equity Partners Operator Status

West Coast Block 1 100% PetroSA First exploration phase

Block 2A 24% Forest, Anschutz Forest Production right

Block 2C 24% Forest, Anschutz Forest First exploration phase

Block 3A/4A 30% BHP Billiton, Sasol BHP Billiton First exploration phase

Block 5/6 100% PetroSA Technical Co-operation Permit (desktop studies)

South Coast

Block 9 Tracts

E-CB, E-AA, E-CN, E-W, E-CC, E-AG

55% Pioneer PetroSA Initial exploration period

Block 9 – Tracts F-Q, E-P, E-DC

55% Pioneer Pioneer Initial exploration period

Block 9 – Tracts F-E, F-O

100% PetroSA Initial exploration period

Block 11a 100% PetroSA Initial exploration period



Talent ManagementPetroSA views our workforce as a cornerstone to our sustainability and growth. Accordingly, the company adopted a talent management framework, essentially a holistic approach that will help it attain our talent goals.

The implementation of the talent management framework is running over !ve years and started in 2010. For the period under review the following milestones were achieved:

• the establishment of talent committees that will review the company’s talent pro!le on an annual basis and ensure continual alignment with the business needs and strategic thrust;

• a values driven leadership programme was rolled out with the objective of fostering an environment and culture where management at the various levels leads through set values; and

• job pro!les were created and updated for all the functions within the organisation. This will serve as a building block for a number of talent management interventions as outlined pictorially below.

Employee Relations ForumEngagements between management and labour are ongoing and are conducted within an agreed-upon employee relations framework/forum. A breakaway session, where representatives of management and labour representatives retreated to an away location over two days, served to provide the space to thrash out issues of concern and common interest. This was done as part of the ongoing effort to ensure harmonious industrial relations within the company.

Darrin Arendse, PetroSA’s vice-president for human capital, on its talent management framework: “It is critical to get everyone in the company to think the same way on how to manage, attract and retain the best talent. Talent management is a cornerstone of business today.”

Job Design and Profiles

Recruitment

Workforce Planning (Talent

Demand)

Retention Strategy

Learning and

Development

Performance Management

Career Paths

Succession Planning

and Management


Growth and security of supply centre on projects that support South Africa’s energy security masterplan, will grow the company’s oil and gas reserves and provide long-term income growth and diversification, while increasing PetroSA’s role as a catalyst for growth in the liquid fuels sector.

GROWING OUR COMPANY AND SECURING SOUTH AFRICA’S LIQUID FUEL SUPPLY

PLANNED CRUDE OIL REFINERY IN COEGA Planning for Project Mthombo, a crude oil re!nery in Coega in the Eastern Cape continued. We continued our consultations with the shareholder with respect to the sanctioning of project Mthombo’s Front-End Engineering and Design (FEED) study. Numerous engagements between the company and various stakeholders, including the South African petroleum industry, have resulted in the company strengthening the original business case and considering alternatives and other scenarios. We expect to have a !nal decision on the project in the 2011/2012 !nancial year.

Engagements with relevant ministries, including the Ministries of Rural Development and Land Reform, Public Enterprises and Trade and Industry took place, focusing largely on the progress of the project. We are in the process of developing a project development and construction support agreement to formalise a host of essential agreements between PetroSA and the Coega Development Corporation (CDC).

This agreement follows on the heads of agreement between PetroSA and CDC signed in 2008 and an amendment and restatement of the heads of agreement to formalise PetroSA’s appointment as a preferred developer in the industrial zone at Coega signed in 2009.

Various feasibility studies of the re!nery’s inside and outside battery limits infrastructure requirements were completed. These include:

• the single-point mooring;

• marine studies and oil movement and storage; and

• the transportation of dry bulk coke and sulphur from the re!nery to the Port of Ngqura.

A detailed execution strategy, speci!cally for the detailed engineering, procurement and construction phase of the project will be !nalised before entering FEED. In the interim, we have prepared a draft procurement and contracting strategy, in line with the execution strategy.

Work continued on the project’s sustainability framework to provide a strategic basis for the environmental impact assessment process and a sustainability management

Project Mthombo was nominated in the KPMG and Infrastructure Journal as one of the top 10 most impactful infrastructure undertakings globally. This is an important endorsement that reinforces PetroSA’s view that Project Mthombo will not only ensure security of liquid fuels supply for South Africa but will also have huge macroeconomic benefits for the country.

CDC: Coega Development CorporationFEED: Front-End Engineering and DesignCOD: Conversion of Olefins to DistillatePDVSA: Petróleos de Venezuela S.A.


framework for the project. An update on the risk matrix for the project was also completed.

Limited Recourse Project Financing Structure Pursued Due to its magnitude, Project Mthombo needs to be !nanced by a variety of debt and equity providers, with the full support of stakeholders and shareholders. We have therefore engaged potential funding partners to explore partnership opportunities within Project Mthombo.

We are pursuing a limited recourse project !nancing structure – which is the strongest and best-proven methodology for Project Mthombo’s !nancing needs – with appropriate shareholder support pre-completion and limited recourse post-completion.

Study to Establish Infrastructure Needs CompletedA social management feasibility study to determine the infrastructure requirements for construction personnel, including housing, town planning, personnel transport, catering, shopping, medical facilities and industrial relations in the vicinity of the Coega Industrial Development Zone was completed and ready to issue for tender when FEED approval is obtained.

Focus on Pursuing Downstream Acquisitions and penetrating sub-Saharan marketsPlans to participate in the South African downstream market were !rmed up. Divestments by the international oil companies from the downstream sub-Saharan markets presented us with additional opportunities to pursue our downstream objectives: focusing on the acquisition of existing downstream infrastructure and penetrating the sub-Saharan Africa markets.

INTERNATIONAL EXPLORATION OR DEVELOPMENT EFFORTS Equatorial Guinea – Block Q: New 3D Seismic Dataset to Assist in Identifying New Prospects Block Q is a deep-water exploration asset that is located offshore Equatorial Guinea in which PetroSA Equatorial Guinea, a subsidiary of PetroSA, has 75% operating equity.

To date one exploration well has been drilled in Block Q and several risk mitigating technical studies have been undertaken to reduce sub-surface uncertainty. This year, PetroSA Equatorial Guinea acquired a new 3D seismic survey on the western portion of the block. Processing of this dataset has commenced and is expected to be completed in the second quarter of the next !nancial year. The new seismic data was acquired with a view to increasing the identi!cation of new prospects and potential drilling targets.

Continued sub-surface evaluation focuses on understanding the geological regime and identifying new plays.

Namibia – Licence Area 1711: Post-well Evaluation ContinuedBlock 1711 is a high-risk, deep-water exploration area in which PetroSA holds 10% interest in a joint venture with Nakor Investments (70%), Energulf (10%), Namcor (7%) and Kunene (3%). This year, post-well evaluation of the Kunene-1 exploration well progressed.

Egypt – SE Warda: Relinquished due to no Commercial Hydrocarbons Being EncounteredPetroSA is the operator of the SE Warda Block, located in the Gulf of Suez. To ful!l our four-well commitment under a production sharing contract with the Egyptian petroleum authorities, the four wells were drilled in the block between November 2008 and December 2009. These wells did not encounter commercial hydrocarbons and the SE Warda Block was relinquished in the period under review.

Venezuela – Boyaca 4: Finalisation of Studies Allows for Development of Business PlanWork continued under the co-operation agreement that was signed in 2008 between Petróleos de Venezuela S.A. (PDVSA), Venezuela’s national oil company, and PetroSA, and that led to our participation in exploration and production activities in Venezuela. The reserves quanti!cation and certi!cation study in Venezuela’s Boyaca 4 Block was !nalised.

The next step is for PetroSA and PDVSA to work jointly on a business plan for the development of this block.

Venezuela – Economic Assessment of Mature Fields Being ConductedWe also evaluated a number of mature !elds offered by PDVSA as part of the memorandum of understanding between the two companies. The company is currently doing an economic assessment of revitalising these !elds.

GTL.F1 AG: TECHNOLOGY DEVELOPMENT STRATEGIC MEANS TO ACCESS OIL AND GAS RESERVESFollowing Statoil’s withdrawal from GTL.F1 AG, a Swiss-incorporated joint-venture company that licenses proprietary technologies for GTL investments, PetroSA increased its share in the GTL.F1 AG Joint Venture from 37.5% to 50%, with Lürgi also increasing its equity in the venture to 50%. GTL.F1 AG remains strategic to PetroSA as a means to leveraging GTL.F1 technology in order to get preferential access to oil and gas reserves.

PetroSA SYNTHETIC FUELS RESEARCH CENTRE DEDICATED TO COD RESEARCHFollowing a R36 million sponsorship to the University of the Western Cape the previous year, a PetroSA Synthetic Fuels Research Centre has been established in the South African Institute for Advanced Materials Chemistry at the University of the Western Cape (UWC). PetroSA’s conversion of ole!ns to distillates (COD) pilot plant was relocated from the GTL re!nery in Mossel Bay and occupies a prestigious site in a custom-built laboratory at UWC.


The research will focus on ef!ciency improvements of the conversion of ole!ns to distillates process that could lead to improvements of the quality of the diesel yield. The COD process produces specialty fuels and solvents that are low in aromatic content, and are used as indoor fuels and biodegradable drilling "uids.

An intellectual property framework was designed to provide guidelines on how to effectively protect and manage PetroSA’s intellectual property during research collaborations with UWC.

The research centre is staffed by seconded PetroSA personnel and students recruited from UWC. The project has awarded bursaries to two MSc students and !ve graduate trainees to act as COD pilot plant monitors. The research centre is dedicated to research and development programmes that bene!t both PetroSA and UWC. The agreement of co-operation underpins a commitment by PetroSA for a !ve-year project ending 31 March 2015.

GROWING OUR COMPANY AND SECURING SOUTH AFRICA’S LIQUID FUEL SUPPLY (CONTINUED)

Conversion of olefins to distillates (COD) technology is an essential part of the intricate Gas-to-Liquid (GTL) process, in which PetroSA is a world leader. COD is recognised throughout the world for producing some of the “cleanest” fuels, through an environmentally-friendly process


Signi!cant progress has been made with respect to transformation within the company. However, challenges remain with respect to increasing women representation at all levels, increasing the representation of people living with disabilities and enterprise development.

In the period under review the company’s BBBEE status was veri!ed by Empowerdex, a SANAS-accredited veri!cation agency. The company’s BBBEE rating dropped from a level 2 status previously to a level 3 contributor. This is attributed to little progress on employment equity, in particular women representation and enterprise development.

EMPLOYMENT EQUITYWhile we made signi!cant progress regarding transformation in the company in this !nancial year, we fell short in achieving our goals around women representation and enterprise development. This accounts for our BBBEE status, as veri!ed by Empowerdex, a SANAS-accredited veri!cation agency, dropping from a level 2 status to a level 3 contributor.

Women Empowerment The statistics on gender in the liquid fuels industry show an unequal picture between men and women in the sector.

This is both due to imbalances created by social engineering in the past, which provided little opportunity for women to acquire the technical skills required in the industry, as well as limited skills development opportunities currently offered to women within the industry.

The shortage of industry-speci!c skills amongst women in South Africa posed a challenge for PetroSA’s desire to increase women representation in the organisation. Women representation within the company, therefore, remains unchanged from the previous year, at 26% of the total workforce. The company, however, remains committed to identifying and developing women to actively participate throughout the liquid fuels industry value chain.

People Living with DisabilitiesA disability awareness campaign was conducted in the year under review, and resulted in 30 more employees disclosing their disability. The company has also, as part of its efforts to increase the representation of people living with disabilities, identi!ed and ring-fenced functions where vacancies could be !lled by people living with disabilities.

TRANSFORMING THE COMPANY, THE SECTOR AND SOCIETY

The company’s transformation efforts focused on employment equity, skills development, preferential procurement, supplier development and socio-economic development/corporate social investment.

“PetroSA should play a central role in the achievement of the Government’s transformation and empowerment agenda” President Jacob Zuma, during a visit to the PetroSA GTL Refinery


Form EEA2 – PetroSA’s Employment Equity Status as at 31 March 2011The table below shows the breakdown of employees by gender, nationality and race.

Occupational Levels

Male FemaleForeign

Nationals

Totalby

LevelTotalBlack

TotalFemale

A C I W A C I W Male Female

Top and senior management

6 5 2 10 1 2 26 14 1

Professionally quali!ed and experienced specialists and mid-management

125 63 16 101 58 20 5 17 11 1 417 287 100

Skilled technical and academically quali!ed workers, junior management, supervisors, foremen and superintendents

179 216 11 205 90 75 4 47 1 828 575 216

Semi-skilled and discretionary decision-making

89 102 1 19 66 31 1 5 314 290 103

Unskilled and de!ned decision-making

51 43 5 6 39 4 2 2 152 144 47

TOTAL PERMANENT

450 429 35 341 254 130 12 71 13 2 1 737 1 310 467

Temporary employees

28 33 23 8 4 1 2 – – 99 74 15

GRAND TOTAL 478 462 35 364 262 134 13 73 13 2 1 836 1 384 482

TRANSFORMING THE COMPANY, THE SECTOR AND SOCIETY (CONTINUED)

SKILLS DEVELOPMENTPetroSA reviews the skills levels within the organisation on an annual basis in order to align training and development needs with its employment equity plan. Ongoing training and development opportunities were afforded to employees through various training institutions. R35.9 million was spent on training and development including travel and accommodation, in the period under review. The following skills development initiatives were advanced:

Study Assistance for Permanent EmployeesThe PetroSA Study Assistance programme continued to !nancially support the company’s employees towards studies that are aimed at increasing their competence in the job and invariably their prospects for career growth. The study assistance programme is open to all the company’s employees for part-time tertiary studies. This ranges from postgraduate studies in engineering, commerce, law and various other !elds of interest at any level, including starting from !rst year.

R36 millionemployee training and development


Leadership in Oil and Energy The Leadership in Oil and Energy Certi!cate programme offered by Wits Business School through SAPIA is aimed at developing women leadership skills within the petroleum industry. To date 30 PetroSA employees successfully completed the programme, with seven employees completing the programme during 2010.

High Performance Culture AcademyThe High Performance Culture programme played an important role in developing the functional management competencies needed within the organisation. The programme also served to increase awareness of the importance of sound management and leadership practices for business. The programme consisted of a supervisory and management development programme, with 16 employees completing the programme during the reporting period. This brought the number of PetroSA employees that have completed the programme to 57 over the three years of its existence.

Graduate-in-Training and In-service TrainingDuring the reporting period a total number of 23 graduates joined PetroSA from several of its student development programmes. These graduates were given a two-year !xed-term contract within the various business areas, where they will be mentored by skilled professionals depending on their career of choice. The breakdown of the intake is as follows:

• Graduates-in-Training = 13

• Experiential learners = 10

BursariesBursaries are offered to South African students from previously disadvantaged communities to complete undergraduate studies at South African tertiary institutions. For the !nancial year 2010/2011 PetroSA’s bursary programme consisted of a total number of 91 full-time students in primarily the various !elds of engineering, geosciences and commerce. For 2010/2011 there were no new intakes into the programme, with the objective of lowering the number and also with 13 of the students having graduated and being accommodated into the Graduate-in-Training programme.

Centre of ExcellenceThe PetroSA Centre of Excellence (COE) in Mossel Bay is accredited by the Chemical Industry and Energy Training Authority (CHIETA) to provide learnerships, NQF Levels 2 – 4, and quali!cations in the National Trade Test for electricians, instrument mechanics, !tters, riggers, welders and boilermakers.

For the period under review the COE had an intake of 42 new learners. This increased the total enrolment at the COE to 172 learners. Established in 2002, the COE quali!ed more than 732 learners to date. The COE has also trained about 420 safety watchers, 258 mechanical operators and 504 "oggers. These skills are primarily used by the industry during their statutory shut-downs.

David Maripane, PetroSA’s intellectual property manager, is not shy to acknowledge the company’s generous support to him while he qualified as one of the few black patent attorneys in South Africa. “It’s payback time,” he says. “Now that I am qualified, we at PetroSA can register patents on our own.”

The PetroSA Centre of Excellence attempts to address much-needed industry skills while assisting the country to develop the skills needed. In ten years, it has:• qualified 732 learners• trained 420 safety

watchers• trained 258 mechanical

operators• trained 504 floggers


TRANSFORMING THE COMPANY, THE SECTOR AND SOCIETY (CONTINUED)

BBBEE sales

61%of commercial business sales volume

Trading Purchases

2010/11 Budget

(mt)

Ytd import

volume (mt)

Ytd BEE volume

(mt)

Ytd % BEE

volume (mt)

Finished product 295 022 389 479 220 832 57%

Toluene/Reformate 92 920 74 697 0 0%

Condensate 197 620 121 785 9 113 7%

Total 585 562 585 962 229 945 39%

Also, a total of 49 candidates were assessed and quali!ed using the Recognition of Prior Learning (RPL) process.

PetroSA’s efforts at the Centre of Excellence will go a long way in addressing the much-needed industry skills while assisting the country in its efforts to develop the skills so needed by its developing economy.

PREFERENTIAL PROCUREMENT SIGNIFICANTLY INCREASEDOur support for BBBEE paid off, with our BEE volumes increasing in the period under review.

BBBEE Product Sales More than Half of Commercial Business Sales VolumesThrough commercial and industrial business-to-business sales and marketing activities, the company continued to advance transformation by supporting BBBEE companies. PetroSA’s efforts in securing hospitality supply agreements with the major oil companies have boosted our ability to supply BBBEE companies. BBBEE sales accounted for 61% of the commercial business sales volume in the period under review.

BBBEE Sales as at 31 March 2011 The table below depicts BBBEE sales in volume terms (m3) as a percentage of total commercial business sales.

BBBEE sales

Non-BBBEE sales

Total commercial

business%

BBBEE

Main fuels 71 571 70 064 141 635 51%

Specialties 140 759 67 084 207 846 68%

Total 212 330 137 148 349 478 61%

The actual sales to BBBEE companies increased by 14%, from 186 million litres in 2009/10 to 212 million litres in 2010/2011. PetroSA has made further inroads in implementing improved pricing structures for our BBBEE customers. By leveraging the company’s own production from the GTL re!nery, the company has been able to offer our BBBEE customers discounts, while not eroding value.

BBBEE sales volumes for 2010/2011 were 9.2% of total PetroSA sales.

Transactions with BBBEE suppliers for the procurement of feedstock and !nished products also increased considerably from 21% in 2009/2010 to 39% in 2010/2011 of total volumes purchased, as the table shows:

Local fuels

Imports

Crude oil

Petrochemicals

BEE fuels

53%

21%

9%

9%

8%


ENTERPRISE DEVELOPMENT STRATEGY REVISITED The company’s enterprise development programme focused on four enterprises to be developed in the initial period up to December 2011 to ensure they are sustainable. These companies provide services to PetroSA in the areas of scaffolding, painting, insulation, fabrication and !re-!ghting. This has meant that no new companies could be recruited into the programme until the four initial companies completed their development tenure. This approach impacted negatively on the company’s BBBEE rating.

A new strategy was formulated to address this shortcoming and culminated in a competitive supplier development programme which has been submitted to the shareholder ministry (Department of Energy) for approval.

FINALISATION OF GROUP MANAGEMENT FRAMEWORK PROJECTThe development phase of the Group Management Framework project, which began in 2008, was completed in September 2010. The main deliverables were:

• a governance guide that details how PetroSA will operate in all its jurisdictions;

• an integrated business process system aimed at yielding best-practice processes for the company; and

• change management and branding.

The project culminated in a business practice model which began rolling out in November 2010 and will run for 24 months, overseen by a specialised committee.


PetroSA is committed to promoting world-class safety standards, practices and a culture that ensures the health and safety of employees and all those who may be affected by the company’s operations. The company safeguards the environment and reduces the environmental impacts in areas where it operates, while ensuring that products and services meet internationally recognised quality standards.

ENSURING SAFETY, HEALTH, ENVIRONMENT AND QUALITY


Health and Safety Well Managed with No FatalitiesIn the period under review, there were no fatalities, while 15 disabling injuries (non-permanent) were recorded. This translates to a disabling injury frequency rate of 0.39, against a target of less than 0.4.

A quantitative risk assessment for the GTL re!nery was !nalised and a plan to resolve the process safety management gaps that were identi!ed, was put in place.

Quality Reaf!rmed with Recerti!cation of ISO 9001The South African Bureau of Standards conducted audits at the GTL re!nery in Mossel Bay and at head of!ce in Parow in October 2010. The audits were performed as part of the bureau’s surveillance programme to ascertain the company’s maintenance and continued compliance with the requirements of ISO 9001. These audits con!rmed that the company retains its certi!cation in the year under review.

Compliance with Health and Safety Legislation and Other MeasuresThe Inspectorate from the Department of Mineral Resources continues to visit PetroSA to assess compliance with the Mine Health and Safety Act. The inspectorate visits covered health and machinery audits and no major !ndings were noted. The Lloyds Register Certi!cate of Fitness was retained for the F-A Platform, with 97% compliance achieved.

The ORCA oil production facility and F-A Platform also went through a SAMSA oil pollution safety certi!cate audit and the certi!cate was retained. A national key point assessment audit was conducted and no major !ndings were noted. Moreover, the GTL re!nery’s annual national key point emergency exercise was successfully conducted.

An Integrated Health, Safety and Environmental Policy to be DraftedWe have reviewed the company’s health, safety and environmental policies with a view to creating an integrated health, safety and environmental policy.

Environmental Programme Reports Aligned with best Practice and LegislationPetroSA continues to work at improving its environmental management system and ensure that it is integrated with the safety, health and quality systems and with other key business processes.

A key focus for the year was the updating of the environmental management programme reports for exploration in Block 9, bringing the reports in line with international practice and current legislation. A similar process was initiated for the GTL re!nery and this work will be completed in the next !nancial year. The emphasis of these updated reports is on performance monitoring and measurement, rather than simply compliance.

Considerable effort was also directed at the environmental liability associated with closure or abandonment. Two techno-

environmental studies were conducted for the GTL land!ll and for the offshore production infrastructure to provide a risk-based environmentally sound basis for liability provision.

Three Environmental Incidents OccurredWith respect to environmental incidents, de!ned as a high-impact incident that threatens the company’s operating licence and permits and may result in evacuation of employees and local communities, three incidents occurred in the period under review.

The !rst incident occurred in July 2010 when ef"uent that did not comply with discharge permit conditions was released to the sea. The incident was related to the ongoing and severe problems associated with the anaerobic digesters at the GTL plant. The two other incidents occurred in February 2011, at the Voorbaai tankfarm, where diesel entered the storm water system and discharged onto the beach adjacent to the tankfarm.

Compliance with Environmental Regulations and Incident ReportingThe Environmental Management Inspectorate of the Department of Environment Affairs made its quarterly visits to PetroSA to assess compliance and review incident reports as part of the national strategic compliance project for re!neries.


The company remains committed to transforming society at large through our corporate social investment programme. This year, the company invested R30 million on various educational and community development initiatives. We have spent over R200 million in the past five years.

SIGNIFICANT CONTRIBUTIONS TO CORPORATE SOCIAL INVESTMENT

Corporate social investment spend

R30 millionR200 millionin last five years

Anglican Archbishop, Njongonkulu Ndungane, who heads up the Historic Schools Restoration Project, praised the company: “PetroSA operates a dynamic corporate social investment programme that focuses on funding upliftment initiatives in the areas of health, education, the environment and community development.”


Contributing to Restoring the Historic Healdtown Comprehensive High School

PetroSA donated R2.125 million to restore Healdtown Comprehensive High School. The project falls under the auspices of the Historic Schools Restoration Project, which refurbishes historically signi!cant secondary institutions of learning to their former status. The school had fallen into a state of disrepair and neglect, resulting in damaged buildings and infrastructure. Healdtown has been an incubator of African intellectual excellence since 1855. The school produced several prominent leaders, including former President Nelson Mandela and John Tengo Jabavu, a leading intellectual who became editor of Imvo Zabantsundu, the !rst African-language newspaper in 1884. Other prominent alumni of the school include Robert Sobukwe, the founder of the Pan-Africanist Congress; the Rivonia trialists, Govan Mbeki and Raymond Mhlaba; and the Rev. Seth Mokitimi, the !rst black president of the Methodist Church of Southern Africa.

The funding we provided will contribute towards the construction of a state-of-the-art computer laboratory, a science laboratory, ablution facilities and the general refurbishment of the school facilities.

PetroSA was the first South African company to contribute to the restoration of the 155-year-old Healdtown Comprehensive High School.


Bringing Education Closer to the People with Masiphathisane Combined SchoolPetroSA contributed R15.5 million and the Western Cape Department of Education R6.4 million to build a state-of-the-art school to help alleviate the educational infrastructure challenges in Vredenburg, Saldanha. Prior to this intervention, Vredenburg’s Louwville and Chris Hani townships did not have a school and learners had to walk long distances to overcrowded schools.

The new Masiphathisane Primary has over 800 learners in grades R to 9 and boasts a communication and media centre, a computer laboratory, a sickroom, two store rooms, a library, paraplegic ramps and toilets, a furnished school hall, a netball court and a fully equipped feeding scheme kitchen.

During construction, about 170 Vredenburg community members were employed at the school.


South African Youth Choir Performs at FIFA World CupPetroSA has been funding the South African Youth Choir for the last four years to a cumulative R8 million. The year 2010 was an exciting one for the choir as they were invited to perform at the momentous World Cup festivities in the City of Cape Town, affording PetroSA media publicity locally and internationally.

By funding these students, the company hopes to rid these young people of !nancial worries about tuition and boarding, enabling them to reach their full potential by concentrating on their studies while developing their singing talent.

Packing Parcels for Needy Young and Old at Christmas with Stop Hunger NowPetroSA donated R100 000 to the Western Cape branch of Stop Hunger Now to assist with setting up of!ces in Cape Town. In addition, our enthusiastic employees worked with the organisation to pack food parcels for non-governmental organisations involved in hunger and poverty

alleviation on World AIDS Day, 1 December 2010. In about two hours, 6 400 parcels were packed and ready to go to the following organisations:

• Fikelela, the Anglican Diocesan AIDS Foundation, for distribution to AIDS sufferers in Khayelitsha and other centres;

• The Langa AIDS Action Group, for distribution primarily to children affected by AIDS, and particularly child-headed homes. This included Christmas gifts for these children; and

• Lily Haven Old Age Home in Bonteheuwel. The home also received three months’ supply of disposable diapers for its residents. PetroSA employees visited the home carrying toiletry hampers addressed to grandpa or grandma, which were gratefully received by around 150 men and women who are often forgotten at this special time of year.

Donation to Mossel Bay Marine Life Project Enables Research into SharksThe company donated R50 000 to Oceans Research team to track the movements of three sharks in the Mossel Bay area for a total of 319 hours last year. In June 2010, the research team broke the world record for the longest continuous manual track of a white shark by following her for 106 hours straight.

The project also enabled an estimate of the white shark population in this region by making it possible for team members to take daily trips into the bay for dorsal !n photo-identi!cation to generate this vital data. This research also empowered young minds as its !ndings were shared with the local schools.

The research was featured in the National Geographic documentary, Dangerous Encounters with Brady Barr. Our contribution will give PetroSA international repeated exposure for the next !ve years that the programme will run.


ANNUAL FINANCIAL STATEMENTSGENERAL INFORMATION

Country of incorporation and domicile South Africa

Nature of business and principal activities Exploration for and production of oil and gas, re!ning operations converting gas and gas condensate to liquid fuels and petrochemicals and the marketing thereof

Directors Adv. L Makatini

Mr N Nika

Mr MB Damane

Mr DR Zihlangu

Dr ZR Rustomjee

Mr Z Mavuso

Mr YR Tenza

Ms N Medupe

Dr AMB Mokaba

Mr ACG Molusi

Ms GN Jiyane

Ms FE Letlape

Mr MM Zwane

Registered of!ce 151 Frans Conradie Drive Parow7500

Postal address Private Bag X5 Parow 7499

Holding company CEF (Proprietary) Limited incorporated in South Africa

Auditors Auditor-General of South Africa

Secretary Adv. PSV Ngaba

Company registration number 1970/008130/07


CONTENTS

The reports and statements set out below comprise the annual report presented to the shareholders:

Page

Report of the Auditor-General 48

Directors’ Responsibilities and Approval 50

Statement on Corporate Governance 51

Performance Against Objectives 56

Value Added Statement 60

Directors’ Report 61

Report of the Board Audit Committee 68

Materiality and Signi!cant Framework 69

Statement from Company Secretary 72

Statement of Financial Position 74

Statement of Comprehensive Income 75

Statement of Changes in Equity 76

Statement of Cash Flows 77

Accounting Policies 78

Notes to the Annual Financial Statements 90

The following supplementary information does not form part of the annual !nancial statements and is unaudited:

Fields in Production and Under Development 131

De!nition of Financial Terms 133

World Cup Expenditure Inside Back Cover


REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT on the financial statements of the Petroleum Oil and Gas Corporation of South Africa (Pty) Limited for the year ended 31 March 2011

REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTSIntroductionI have audited the accompanying consolidated and separate !nancial statements of the Petroleum Oil and Gas Corporation of South Africa (Pty) Limited (PetroSA), which comprise the consolidated and separate statement of !nancial position as at 31 March 2011, and the consolidated and separate statement of comprehensive income, statement of changes in equity and statement of cash "ows for the year then ended, and a summary of signi!cant accounting policies and other explanatory information, and the accounting authority’s report as set out on pages 61 to 130.

Accounting Authority’s Responsibility for the Financial StatementsThe Board of Directors, which constitute the accounting authority, is responsible for the preparation and fair presentation of these consolidated and separate !nancial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa No. 1 of 1999 (PFMA) and the Companies Act of South Africa No. 61 of 1973 and for such internal control as management determines necessary to enable the preparation of consolidated and separate !nancial statements that are free from material misstatement, whether due to fraud or error.

Auditor-General’s ResponsibilityAs required by section 188 of the Constitution of the Republic of South Africa No. 108 of 1996 and section 4 of the Public Audit Act of South Africa No. 25 of 2004 (PAA) and section 1E3 of the Central Energy Fund Act of South Africa No. 38 of 1977, as amended, my responsibility is to express an opinion on these consolidated and separate !nancial statements based on my audit.

I conducted my audit in accordance with International Standards on Auditing and General Notice 1111 of 2010, issued in Government Gazette 33872 of 15 December 2010. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate !nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate !nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks

of material misstatement of the consolidated and separate !nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated and separate !nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate !nancial statements.

I believe that the audit evidence I have obtained is suf!cient and appropriate to provide a basis for my audit opinion.

OpinionIn my opinion, the consolidated and separate !nancial statements present fairly, in all material respects, the !nancial position of PetroSA as at 31 March 2011, and its !nancial performance and cash "ows for the year then ended in accordance with SA Statements of GAAP and the requirements of the PFMA and the Companies Act of South Africa.

Emphasis of MatterI draw attention to the matter below. My opinion is not modi!ed in respect of this matter:

Signi!cant UncertaintiesWith reference to note 9 in the Directors’ Report of the !nancial statements, the Company has disposed of Brass Exploration Unlimited during the !nancial year. As this disposal is currently the subject of litigation, the balances and transactions of this entity continue to be consolidated as at period-end.

Material ImpairmentsAs disclosed in note 8 to the !nancial statements, material impairments to an intercompany loan account to the amount of R945 million was incurred due to its recoverability being doubtful. The loan amounting to R270 million to PetroSA Gryphon Marin from PetroSA was written off as at 31 March 2011.

Additional MatterI draw attention to the matter below. My opinion is not modi!ed in respect of this matter:

The “Value Added Statement”, “Fields in Production and Under Development” schedule and the “De!nition of Financial Terms” list, set out on page 60, pages 131 to 132 and pages133 to 136 respectively of the !nancial statements, does not


form part of the !nancial statements and is presented as additional information. I have not audited these schedules and accordingly I do not express an opinion thereon.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSIn accordance with the PAA and in terms of General Notice 1111 of 2010, issued in Government Gazette 33872 of 15 December 2010, I include below my !ndings on the annual performance report as set out on pages 56 to 59 and material non-compliance with laws and regulations applicable to the Company.

Predetermined ObjectivesThere were no material !ndings on the annual performance report concerning the presentation, usefulness and reliability of the information.

Compliance with Laws and RegulationsIncluded below are !ndings on material non-compliance with laws and regulations applicable to the Schedule 2 public entity.

National Environmental Management ActThere is a contravention of the “duty of care” principle as envisaged in section 28(1) as well as section 28(14) and (15) of the National Environmental Management Act No.107 of 1998 (NEMA), as timely corrective action has not been implemented with regards to the sub-surface contamination at the Voorbaai terminal. In this regard the effectiveness of the environmental management system, particularly in respect of monitoring has been identi!ed as a key weakness in managing compliance risk.

Expenditure ManagementThe accounting authority did not take effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure, as per the requirements of section 51(1)(b)(ii) of the PFMA and as disclosed in the Directors’ Report (note 7) and note 39 in the consolidated annual !nancial statements.

Annual Financial StatementsThe !nancial statements submitted for audit did not comply with section 55(1)(c)(i) of the PFMA. The following material misstatements were identi!ed during the audit; these were subsequently corrected by management.

• A provision at year-end was not included in the annual !nancial statements presented for audit.

• A subsidiary had not been consolidated in the Group annual !nancial statements.

• A journal has been passed using an incorrect currency.

INTERNAL CONTROLIn accordance with the PAA and in terms of General Notice 1111 of 2010, issued in Government Gazette 33872 of 15 December 2010, I considered internal control relevant to my audit, but not for the purpose of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the signi!cant de!ciencies that resulted in the !ndings on compliance with laws and regulations included in this report.

LeadershipThe non-compliance matters noted in respect of compliance with laws and regulations are due to the leadership of the Company not overseeing management’s actions to address the matters identi!ed and assessing whether management’s actions are effective.

Financial and Performance ManagementThe !nancial statements submitted for audit were subject to material corrections as a result of:

• company processes not being completed at the time of submission of the !nancial statements;

• applying the incorrect accounting treatement as a result of acting on incomplete information; and

• a lapse in the oversight responsibilities over the processing of material journal entries.

OTHER REPORTSAgreed-upon Procedures EngagementAs requested by the accounting authority, an engagement was conducted during the year under review concerning the accuracy of the IP tracer levy. The reports covered the period April 2010 to March 2011.

Pretoria 31 July 2011


DIRECTORS’ RESPONSIBILITIES AND APPROVAL for the year ended 31 March 2011

The report is presented in terms of the Public Finance Management Act No. 1 of 1999 (PFMA), as amended, and is focused on the !nancial results and !nancial position of the Company information pertaining to the Company’s state of affairs. Its business operations and performance against predetermined objectives are disclosed elsewhere in the annual report.

The directors acknowledge their responsibility for the preparation, integrity and fair presentation of the annual !nancial statements and related information included in the annual report. In order for the directors to discharge these responsibilities, as well as those bestowed on them in terms of the PFMA and other applicable legislation, they have developed and maintain a system of internal control.

Internal controls include a risk-based system of internal accounting and administrative controls designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that transactions are executed and recorded in accordance with generally accepted business practice, as well as policies and procedures established by the directors and independent oversight by the Board Audit Committee.

The annual !nancial statements have been prepared in accordance with South African Statements of

Generally Accepted Accounting Practice (GAAP), including any interpretations of such Statements issued by the Accounting Practices Board, and the Companies Act, together with the Corporate Laws Amendment Act. The annual !nancial statements are based on appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors have no reason to believe that the Company will not be a going concern in the foreseeable future based on forecasts, available cash resources and ongoing support from the holding company and has, for this reason, adopted the going concern basis in preparing the !nancial statements.

The annual !nancial statements have been audited by the Auditor-General who was given unrestricted access to all !nancial records and related data, including minutes of all meetings of the shareholders, the Board of Directors and management. The directors believe that all representations made to the independent auditors during their audit were valid and appropriate. The Auditor-General’s report is attached.

The annual !nancial statements for the year ended 31 March 2011, which appear on pages 61 to 130, were approved by the Board of Directors on 20 July 2011 and were signed on its behalf by:

Dr AMB Mokaba Mr N Nika

Cape Town 20 July 2011


STATEMENT ON CORPORATE GOVERNANCE for the year ended 31 March 2011

1. INTRODUCTIONPetroSA embraces the principles of good corporate governance as outlined in the King Reports and Protocol on Corporate Governance in the Public Sector. This is to ensure that an ethical foundation exists which promotes responsibility, accountability, fairness and transparency. To achieve these, the Group has a formalised system of corporate governance which is a catalyst for improved compliance and enhanced performance.

The Company continuously strives to uphold these tenets of governance and for the !nancial year 2010/2011, the development of a framework in preparation towards the implementation of the King III Code and the new Companies Act No. 71 of 2008 (which became effective 1 May 2011), was initiated. The Board and Management have attended various presentations on King III and the new Companies Act to gain a better understanding of the imminent legislative landscape.

These efforts include the following key developments initiated within the Company during the !nancial year under review:

• implementation of action plans emanating from a high-level governance audit conducted to identify possible gaps within the Company in relation to King lll and the new Companies Act;

• revision of the current memorandum and articles of association with the view of amending the memorandum of incorporation as envisaged in the Companies Act of 2008;

• revision of policies, terms of references and procedures to align them to the new governance framework;

• revision of the Board Charter to align it with King III and other amendments in the legislative framework;

• evaluation of the performance of PetroSA’s Board of Directors;

• review and update of code of ethics;

• review of the PetroSA’s levels of authority matrix;

• a comprehensive induction programme for newly-appointed directors which includes presentations on King III and the new Companies Act of 2008; and

• ensuring that Board members are continuously exposed to training on governance and developments within the industry and legislative landscape at cost to the Company.

The process of formalising and documenting governance processes and structures which culminated in a PetroSA Governance Manual, is in the !nal stage, pending Board approval. This manual provides a comprehensive set of high-level guidelines

for the operation of the PetroSA Group’s activities and details on how the Group will operate in all its jurisdictions globally. The manual summarises the governing principles in terms of which PetroSA operates; sets out the roles and responsibilities of the PetroSA governance structures, e.g. Board and Board Committees; provides an overview of the governance operations, e.g. Board meetings; and provides an overview of the PetroSA Group assurance activities.

2. GOVERNING BODIESBoards of DirectorsIn accordance with the Public Finance Management Act No. 1 of 1999 the Board is the accounting authority of PetroSA. The Group has a unitary Board structure made up of a majority of non-executive directors, appointed by the shareholder. The Board retains overall accountability for the running of the Company and reserves, for itself, decisions on matters that could have a material impact on the business. To that end, Executive Management is charged with the day to day running of the business, with the Board addressing a range of key issues to ensure that it retains the strategic direction of, and proper control over, the Group. The non-executive directors are appointed on a three-year cycle and reappointment is not automatic. The Board meets at least once every quarter. The Board met eleven times during the period under review.

The Board’s primary responsibilities include the appointment of the CEO, giving strategic direction to the Company, ensuring that policies and procedures are in place, monitoring the performance of the Company against agreed objectives, identifying key performance and risk areas, providing effective leadership on an ethical foundation, ensuring that there is an effective risk-based Internal Audit function, de!ning levels of materiality, reserving speci!c powers to itself and delegating other matters, with the necessary written authority, to the CEO, ensuring that timelines for submission of reports in compliance with the PFMA are adhered to, including submission of !nancial statements, and ensuring that annually a shareholder’s compact is concluded with the shareholder in respect of agreed performance indicators for the Company in the next year.

Company Secretary The Company Secretary is responsible for ensuring that the Company’s affairs as well as the Board proceedings are properly carried out in accordance with the relevant laws and standards.

She is also responsible to provide the Board of Directors with guidance as to how they should properly discharge their duties and responsibilities in the best interest of the Company.


STATEMENT ON CORPORATE GOVERNANCE (CONTINUED) for the year ended 31 March 2011

Each of the directors has unrestricted access to the advice and services of the Company Secretarial team, Company information, and is entitled to seek independent professional advice, at the Company’s expense, in pursuance of their duties as director.

Board Committees The Board established several committees in order to assist it in the discharge of its duties. All committees operate under Board-approved terms of reference, which may be updated from time to time to align with the latest developments in corporate governance. Each committee operates within these de!ned terms of reference and is chaired by a non-executive director.

Board Audit Committee (BAC) The Board Audit Committee comprises non-executive directors appointed by the Board of Directors and meets at least four times per annum. The committee is chaired by an independent non-executive director who is not the Chairman of the Board.

The Board Audit Committee function is shared across all the subsidiaries under the ownership control of the PetroSA Group and is responsible for ensuring the integrity of !nancial reporting and monitoring the adequacy and effectiveness of the governance, risk management and control processes of the Group.

The Board Audit Committee is responsible for overseeing the Internal Audit function and the external audit process. The External Auditor and Chief Internal Auditor have unrestricted access to the committee and attend all Board Audit Committee meetings.

The Chief Executive Of!cer and Chief Financial Of!cer are permanent invitees to the Board Audit Committee meetings. Other executive managers are invited to the committee meetings when appropriate.

Board Human Capital Committee (HCC) This committee is chaired by a non-executive director and comprises non-executive directors appointed by the Board. The President and CEO and the Vice-president: Human Capital attend the committee meetings by invitation. This committee reviews and recommends annual remuneration increases, terms and conditions of employment, the payment of incentives and bonuses, general fringe bene!ts, human capital related policies and the appointment of senior staff at an executive level.

2. GOVERNING BODIES (CONTINUED) Risk Management and Compliance Committee (RMCC) Governance of Risk Management The PetroSA Board of Directors (the Board) is charged with ensuring that the Company has and maintains an effective, ef!cient and transparent system of !nancial and risk management and internal controls. The Board remains accountable but has delegated its risk management function to the Risk Management and Compliance Committee (RMCC).

The RMCC is a properly-constituted committee consisting of only non-executive directors and chaired by a non-executive director. It is dedicated to reviewing and optimising risk within the Group. It also has a delegated responsibility to ensure implementation and maintenance of the risk management policy throughout the PetroSA Group.

The RMCC assumes overall Group responsibility for monitoring adherence to the risk management policy and risk management performance and for providing a high-level risk assessment to the Board of Directors on an ongoing basis.

Group Responsibility for Risk ManagementEnterprise wide risk management

The Risk Management and Compliance function is a department that reports to the President and CEO and RMCC on all risk and compliance matters. The primary role of the risk function is to design, implement and monitor the process of risk management and its integration into the day to day activities of the Company. The Group is working on providing combined assurance on enterprise wide risk management to ensure a broad coverage of risks by different parties in the organisation. This assurance will provide more comfort to the Board moving forward.

PetroSA’s philosophy on enterprise wide risk management is that of proactive management of risks whilst exploiting any related opportunities that could present themselves as risks. To this end, the Risk Management and Compliance department under the guidance of the President and CEO has put in place a number of governance structures and documents and these are subject to annual reviews to ensure alignment with best practices. These documents are served before both Exco and the Board and approved by them respectively. The current governance policies in place include:


• Group compliance policy;

• enterprise wide risk management policy;

• business continuity management policy;

• fraud prevention policy;

• gift register procedure and declarations of related party interests; and

• code of ethics.

Some of these governing policies and structures have been supplemented with work procedures, practice frameworks and terms of references. Risks are continuously identi!ed throughout the organisation, including mitigation strategies and, where appropriate, management action plans. This process is rolled into the development of a corporate strategic risk register that is dynamic in nature and reviewed quarterly by Exco, RMCC and the Board.

In line with integrating and embedding a culture of enterprise wide risk management, risk management plays a pivotal role and informs key decisions taken by management and the Board.

Fraud risk managementThe Company is committed to the eradication of fraud, corruption, misconduct and any irregularities. The fraud prevention policy addresses fraud risk management from both proactive and reactive parts.

The Group has outsourced its whistle blower hotline, which in the last !nancial year was kept available to staff, various stakeholders and members of the public. All reported cases are treated with the utmost con!dentiality to protect the rights of both the whistle blower and the alleged party.

Compliance risk managementThe PetroSA Board of Directors is accountable for ensuring that there is compliance with laws, regulations, policies and procedures, and any adopted standards applicable to the Company. The function of compliance has been delegated throughout the Company based on specialist areas. In addition, the Group compliance function is charged with assisting management to discharge its responsibility to comply with statutory, regulatory and supervisory requirements by facilitating the development, establishment and maintenance of an ef!cient and effective compliance risk management process.

2. GOVERNING BODIES (CONTINUED) Through the compliance department, the recording of non-compliance company wide, using the materiality levels (quantitative and qualitative) de!ned in the Group compliance policy, is an initiative designed to provide Exco and the Board with the status of issues of compliance and non-compliance.

In order to enable this function the Board has approved a Group Compliance policy.

PetroSA has developed compliance procedures to ensure that every employee and every stakeholder in the compliance function are fully aware of their responsibilities within the compliance risk management framework. As part of inculcating the culture of compliance within the Group, the Executive Management signs off a management representation letter to the CEO and the Board declaring and attesting to either issues of con"ict of interest or absence thereof, compliance to laws, policies and procedures, and pronounce that they have applied risk management techniques in the discharge of their duties.

As a principle, PetroSA does not tolerate non-compliance with laws, regulations and any of its own standards. The Group is working on providing combined assurance on compliance to the Board going forward.

Business Continuity Management as a discipline, within the compliance function, maintains a collection of plans readily accessible and available for use in the event of a disaster or major disruptions to business activities. These plans are empowered by an approved Business Continuity Management policy. This policy requires that all business continuity plans across the organisation be kept in ready mode for execution and be updated, at a minimum, yearly or as and when material changes to business processes occur. PetroSA maintains Business Continuity Plans for all of its locations and business critical processes. These plans were all updated and tested for their relevance and ability to mitigate scenarios described in the plans and strategy. The Compliance function through training and awareness ensured their continued relevance through allocation of these plans to different role players in the Company.

Quarterly Group Compliance Reports are tabled to Exco and the Board in which key risks, major developments and issues and compliance incidents are brought to their attention in line with the de!ned materiality levels.


STATEMENT ON CORPORATE GOVERNANCE (CONTINUED) for the year ended 31 March 2011

Business Performance and Strategy Committee (BPSC)This committee is chaired by a non-executive director and comprises non-executive directors appointed by the Board.

The purpose of the BPSC is to ensure that the Company

processes are aligned with the overall vision and

strategic direction, strategy management, business

management, capital investment, joint-venture

formations and performance measurement framework.

Composition of Board and Board Committees for the !nancial year under review

Board

Board Audit Committee (BAC)

Human Capital Committee (HCC)

Business Performance and Strategy Committee (BPSC)

Risk Management and Compliance Committee (RMCC)

Non-executive Directors

Dr PS Molefe Chairman Member

Adv. L Makatini Acting Chairman

Member

Mr MB Damane Director Member Member

Prof. B Figaji Director Member Chairman Member

Mr DR Zihlangu Director Chairman Member

Mr MW Mkhize Director Member

Mr M Kajee Director Chairman Chairman

Ms BB Siwisa Director Member Member

Mr YR Tenza Director Member Member

Mr Z Mavuso Director

Dr ZR Rustomjee Director Member Member Member

Ms N Medupe Director Member Member

Dr AMB Mokaba Chairman

Mr ACG Molusi Director

Ms GN Jiyane Director

Ms FE Letlape Director

Mr MM Zwane Director

Executive Directors

Mr S Mkhize President and CEO/Director

Invitee Invitee Invitee Invitee

Mr N Nika CFO/Director

Invitee Invitee Invitee Invitee


3. DIRECTORS’ RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS

The directors of the Company are responsible for the Group annual !nancial statements and other information presented in the annual report. The Auditor-General is responsible for performing an independent audit of the annual !nancial statements.

The annual !nancial statements and notes thereto are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (GAAP). Accounting policies are consistently applied except where otherwise stated, in which case full disclosure of changes is made.

The directors believe that the Company and Group will continue as a going concern in the year ahead.

4. INTERNAL AUDITThe Internal Audit activity is governed by an Internal Audit Charter which is reviewed and approved annually by the Board Audit Committee. The Internal Audit function is shared across all subsidiaries under the ownership control of the PetroSA Group.

In order to provide for the independence of the Internal Audit activity, the chief internal auditor reports functionally to the Board Audit Committee and administratively to the President and CEO. The chief internal auditor and internal auditors do not perform any operational duties for the Group. The chief internal auditor has unrestricted access to the President and CEO and Board Audit Committee chairman.

The primary objective of the Internal Audit activity is to assess the adequacy and effectiveness of the PetroSA Group’s governance, risk management and control processes as designed and represented by management. In order to achieve this, the Internal Audit department prepares a three-year rolling audit plan and a "exible annual audit plan following a risk-based approach. The Board Audit Committee reviews the performance of the Internal Audit activity on a quarterly basis.

5. MANAGEMENT REPORTINGThere are comprehensive management reporting disciplines in place, which include the preparation of annual budgets by all divisions and reporting thereon on a quarterly basis. The budget and capital expenditure are reviewed and approved by the Board. Quarterly performance results and the !nancial status of the Company and Group are reported against approved targets. Pro!t projections and forecasted cash "ows are updated monthly, while working capital and borrowing levels are monitored on an ongoing basis.

Executive Management meets on a regular basis to consider day to day issues pertaining to the business of the Group. More formal bi-weekly meetings address issues such as feedback from the various divisions on results achieved, and issues or opportunities which could impact on the Group, its trading activities and short-term planning.

6. CODE OF ETHICSDirectors and employees are required to maintain the highest ethical standards, ensuring that business practices are conducted in a manner which, in all reasonable circumstances, is beyond reproach. The code of ethics serves as a guide to assist the Board, Executive Management, staff and contractors of PetroSA in making ethical decisions and engaging in appropriate and lawful conduct.

PetroSA has contracted the services of an independent hotline service providing for the con!dential reporting of fraud and other inappropriate behaviour. Employee breaches are dealt with in accordance with the disciplinary policy. In addition, directors are required to annually declare their interests in contracts, as well as directorships in other companies in accordance with the Companies Act.


PERFORMANCE AGAINST OBJECTIVES for the year ended 31 March 2011

A summary of The Petroleum Oil And Gas Corporation of South Africa (Pty) Limited Group's business performance against objectives is contained in the table below:

Objective Key performance indicator Target Actual

Perform-anceresults

1. PEOPLE 1.1 Manage Talent1.1.1 Employee Engagement 55% 72% Achieved

1.1.2 Implement Talent Management Strategy

50% implementation

Refer to note 1.1.2

Achieved

1.2 Governance Framework1.2.1 GMF Completion and Roll Out

Completion of GMF programme by 31 July 2010 and development of implementation plan

September 2010 Not achieved

2. FINANCE 2.1 Optimise Volumes2.1.1 GTL Re!nery Output 6.427 MMbbls 6.054 MMbbls Not achieved

2.1.2 Non-feedstock Production 1.198 MMbbls 1.26 MMbbls Achieved

2.2 Manage Pro!tability Analysis2.2.1 Gross Margin Percentage 23% 15% Not achieved

2.3 Managing Operating Costs2.3.1 Actual vs Annual Budget Variance +5% 3% Not achieved

2.3.2 Actual vs Quarterly Forecast Variance ±15% 5% Achieved

3. STAKEHOLDER 3.1 Sustainable Corporate Citizenship3.1.1 Preferential Procurement 40% 53.4% Achieved

3.1.2 BEE Sales 5% increase 14% increase Achieved


Objective Key performance indicator Target Actual

Perform-anceresults

4. INTERNAL BUSINESS PROCESSES

4.1 Sustainable SHEQ

4.1.1 Disabling Injuries (DIFR) < 0.4 0.39 Achieved

4.1.2 Environmental Incidents 0 3 Not achieved

4.1.3 Fatalities 0 0 Achieved

4.2 Mossel Bay Re!nery Solution4.2.1 Feedstock – F-O Business Case 31 July 2010 Refer to note

4.2.1Achieved

4.2.2 Concept Study Complete feasibility study by 31 March 2011

Refer to note 4.2.2

Not achieved

4.3 Ensure Non-feedstock Solution4.3.1 Reserve Addition 10 MMbbls Refer to note

4.3.1Not achieved

4.4 Execute Infrastructure Initiatives4.4.1 Crude Re!nery Finalise all FEED

contracts by 31 March 2011 ready for award

Refer to note 4.4.1

Not achieved

4.5 Secure Access to Downstream4.5.1 Downstream Market Entry Finalise

shareholder's agreement ready for approval by 31 March 2011

Refer to note 4.5.1

Not achieved

4.5.2 Logistics Infrastructure Finalise Logistics development plan for Coega and Cape Town by end of March 2011

Refer to note 4.5.2

Achieved

4.6 Technology Development4.6.1 Finalise Corporate Business Case

By 31 August 2010 Refer to note 4.6.1

Not achieved


PERFORMANCE AGAINST OBJECTIVES (CONTINUED) for the year ended 31 March 2011

1. PEOPLE1.1 Manage Talent1.1.1 Employee EngagementAn engagement level of 55% was targeted. PetroSA achieved an aggregated score of 72% on the employee engagement survey that was conducted in March 2011. The survey was targeted at employees who report directly to managers to measure employee satisfaction with managers.

1.1.2 Implement Talent Management Strategy1.1.2.1 Complete talent evolution projectThe talent evolution project was scoped to complete approximately 400 job pro!les across the organisation. The job pro!ling project has been successfully completed in November 2010 with 884 job pro!les being completed.

1.1.2.2 Implement Values Driven Leadership (VDL) programmeThe business was targeting 35% participation and completion of the values driven leadership development programme (VDL) by eligible candidates by 31 March 2011. The target group is EE occupational levels 1 – 3 and this includes executives, senior and middle management, professionals and specialists. In all, 30 employees attended an introductory session to VDL in Mossel Bay. An additional 56 employees attended a two-day workshop before the end of the 2010/2011 !nancial year. Additional workshops are scheduled for the new !nancial year.

1.1.2.3 Roll out Talent CommitteesThe purpose of the Talent Committee Forums is to make objective, strategic decisions about the sourcing, development, deployment and retention of key talent to optimise performance and potential and to minimise business risk. The outcome was that the Talent Committee structure was agreed upon and presented to the business through conversations in August 2010. Training of the Mancos on talent management was completed by end September 2010.

1.2 Governance Framework1.2.1 GMF Completion Roll outGMF will provide an approved governance manual, brand strategy and integrated business process system. The implementation plan was to be approved by the Board by 31 July 2010.

2. FINANCE2.1 Optimise Volumes2.1.1 GTL Re!nery OutputThe GTL re!nery output was 6% below budget mainly due to lower volumes produced as a result of changes in the FEED composition and unplanned operational challenges at the plant and reduced throughput due to lower feedstock availability.

2.1.2 Non-feedstock ProductionNon-feedstock production is mainly made up of production from Oribi-Oryx. The actual production was 5.1% above budget. This is mainly attributable to an acid job that was done during the period under review.

2.2 Managing Pro!tability Analysis2.2.1 Gross Margin PercentageThe gross margin percentage of 15% vs a target of 23% was mainly due to:

• the strength of the SA Rand against the US Dollar, which contributed to lower revenues; and

• lower volumes produced as a result of changes in the FEED composition and some operational challenges at the plant.

2.3 Managing Operating Costs2.3.1 Actual Costs vs Annual BudgetOperating costs were 3% below budget during the period under review.

2.3.2 Actual vs Quarterly ForecastThe actual total operating costs were 5% above the forecast.

3. STAKEHOLDERS3.1 SUSTAINABLE CORPORATE

CITIZENSHIP3.1.1 Preferential ProcurementFor the period under review, PetroSA’s BEE procurement expenditure of R1 368 485 298 equates to 53.41% of the total discretionary procurement expenditure. This is a remarkable accomplishment for PetroSA given the industry charter requirements of 25% BEE participation across the value chain.


3.1.2 BEE SalesThe total BEE sales were 9% above target due to a new fuel supply agreement, higher demand for LPG and propane due to power outages at the Engen and Chevron re!neries and supply problems at one of the re!neries.

4. INTERNAL BUSINESS PROCESSES4.1 SHEQ4.1.1 Disabling Injury Frequency Rate (DIFR)The industry disabling injuries frequency rate (DIFR) standard is 1, compared to PetroSA’s benchmark of 0.4. PetroSA achieved 0.39 DIFR during the period under review.

4.1.2 Environmental IncidentsThere were three environmental incidents during the period under review. The !rst two incidents, namely the contamination of sand due to poor drainage of the Voorbaai tankfarm area and the over"ow of diesel into stormwater were managed. In managing the third incident, being the release of off-spec ef"uent to the ocean, interim treatment measures have been put in place to prevent a reoccurrence and to manage the ef"uent quality to within permit conditions whilst a longer term measure is being explored.

4.1.3 FatalitiesThere were no fatalities during the year.

4.2 Mossel Bay Re!nery Solution4.2.1 Feedstock – F-O Business CaseThe F-O business case was approved in 2011. The following milestones were achieved:

• ITT for pipeline, subsea facilities installation contractor was issued in November and December 2010.

• Long Lead items: some outstanding orders.

• F-O FEED (including drilling): 95% complete. Target date was 31 January 2011.

• Cost estimates were issued in December 2010.

• Approval for the drill rig: 2 February 2011.

4.2.2 Concept StudyThe target is to conduct a feasibility study for the sweet crude feedstock case for the GTL re!nery by 31 March 2011. In November 2010 the project was put on hold in order to reprioritise it.

4.3 Ensure Non-feedstock Solution4.3.1 Reserve AdditionThe 10 MMbbls target for the year is in the quest to achieve the growth levels envisaged by Vision 2020. The target was not achieved even though the Oribi-Oryx reserves were considered.

4.4 Execute Infrastructure Projects4.4.1 Crude Re!neryThe target is to !nalise all FEED contracts by 31 March 2011 but was not met due to the fact that Project Mthombo is awaiting approval from the Minister of Energy to proceed with its FEED phase.

4.5 Secure Access to Downstream4.5.1 Downstream Market EntryThe target to !nalise the shareholder’s agreement and have it ready for approval by 31 March 2011 was not met due to lack of agreement on the terms of the shareholder’s agreement.

4.5.2 Logistics InfrastructureA !nalised Logistics development plan for Coega and Cape Town was approved by Exco in October 2010 and the Board in December 2010.

4.6 Technology Development4.6.1 Finalise Corporate Business CaseThe GTL.F1 AG business case was approved by Exco in December 2010 to continue negotiations related to a shareholder’s exit from the joint venture.


VALUE ADDED STATEMENT for the year ended 31 March 2011

The value added statement measures performance in terms of value added by the Group through the collective efforts of management, employees and the providers of capital. The statement shows how the value added has been distributed to those contributing to its creation.

Group Company

2011R’000

2010R’000

2011R’000

2010R’000

Revenue 10 821 890 8 623 259 10 761 756 8 440 627

Paid to suppliers for material and services (8 526 203) (8 251 913) (8 143 021) (8 531 445)

Income from investments 859 887 971 939 974 810 1 176 522

Wealth created 3 155 574 1 343 285 3 593 545 1 085 704

Wealth distributed as follows:Management and employees

Remuneration and bene!ts 991 871 954 713 975 230 940 233

Providers of capital

Dividends – – – –

Interest on borrowings net of foreign loan revaluations 2 565 105 259 2 561 104 986

Government

Taxation (308 519) (348 634) (312 897) (349 173)

Other payments 5 715 7 952 5 715 7 952

Total distributions 691 632 719 290 670 609 703 998

Retained for reinvestmentDepreciation 1 240 014 753 258 1 238 121 751 285

Income retained in the business 1 223 928 (129 263) 1 684 815 (369 579)

3 155 574 1 343 285 3 593 545 1 085 704


DIRECTORS’ REPORTfor the year ended 31 March 2011

The directors present their annual report that forms part of the audited annual !nancial statements for the Group for the year ended 31 March 2011.

1. DIRECTORSThe directors of the Company during the year and to the date of this report are as follows:

Name Appointed Resigned

Adv. L Makatini Non-executive (Acting Chairman)

Dr PS Molefe Non-executive (Chairman) 31 July 2010

Mr S Mkhize Executive (President and CEO) 24 August 2010

Mr N Nika Executive (Chief Financial Of!cer)

Mr MB Damane Non-executive

Prof. B Figaji Non-executive 31 July 2010

Mr DR Zihlangu Non-executive

Mr M Kajee Non-executive 9 March 2011

Ms BB Siwisa Non-executive 30 June 2010

Mr MW Mkhize Non-executive 3 November 2010

Dr ZR Rustomjee Non-executive

Mr Z Mavuso Non-executive

Mr YR Tenza Non-executive

Ms N Medupe Non-executive

Dr AMB Mokaba Non-executive (Chairman) 1 March 2011

Mr ACG Molusi Non-executive 1 March 2011

Ms GN Jiyane Non-executive 1 March 2011

Ms FE Letlape Non-executive 1 March 2011

Mr MM Zwane Non-executive 1 March 2011

Attendance at meetings: 2010

/05/

04

2010

/05/

25

2010

/07/

24

2010

/08/

14

2010

/08/

20

2010

/09/

27

2010

/10/

29

2010

/11/

18

2010

/11/

19

2011

/02/

01

2011

/02/

14

2011

/02/

24

2011

/03/

24Adv. L Makatini Y Y Y Y Y Y Y Y Y Y Y Y YMr N Nika Y Y Y Y N N Y Y Y Y Y Y YMr MB Damane Y Y Y N Y Y N Y Y N Y Y NMr DR Zihlangu Y Y Y Y Y Y Y Y Y Y Y Y YMr M Kajee Y Y Y Y Y Y Y Y Y Y Y Y RDr ZR Rustomjee Y Y Y Y Y N Y Y Y Y Y Y YMr Z Mavuso Y Y Y N N N Y Y Y Y Y Y YMr YR Tenza Y Y Y Y Y Y Y Y Y Y Y Y YMs N Medupe N Y Y N Y Y Y Y Y Y N Y NMs BB Siwisa N Y R R R R R R R R R R RDr PS Molefe Y N Y R R R R R R R R R RProf. B Figaji N Y Y R R R R R R R R R RMr S Mkhize Y Y Y Y Y R R R R R R R RMr MW Mkhize N N Y Y Y N Y Y N R R R RDr AMB Mokaba – – – – – – – – – – – – YMr ACG Molusi – – – – – – – – – – – – YMs GN Jiyane – – – – – – – – – – – – YMs FE Letlape – – – – – – – – – – – – YMr MM Zwane – – – – – – – – – – – – Y

Y = Attended meeting N = Apology received – = Not yet appointed R = Resigned from the Board


DIRECTORS’ REPORT (CONTINUED)for the year ended 31 March 2011

1. DIRECTORS (CONTINUED)Board Audit CommitteeThe committee consists of the following members and invitees:

Mr M Kajee Non-executive (Chairman) Resigned 9 March 2011

Mr YR Tenza Non-executive

Ms N Medupe Non-executive

Mr N Nika Executive

Dr ZR Rustomjee Non-executive Redeployed to committee as from 27 September 2010

Mr S Mkhize Executive Resigned 24 August 2010

Prof. B Figaji Non-executive (Chairman) Resigned 31 July 2010


/04/

26

2010

/05/

14

2010

/07/

16

2010

/10/

26

2011

/03/

09

Mr M Kajee Y Y Y Y Y

Mr YR Tenza Y Y Y Y Y

Ms N Medupe Y Y Y Y N

Mr N Nika Y Y Y Y Y

Mr S Mkhize Y Y Y R R

Prof. B Figaji Y Y Y R R

Dr ZR Rustomjee – – – Y Y

Due to the expiry of the terms of Board members, the Board Audit Committee, and Risk Management and Compliance Committee were temporarily collapsed into one committee.

Board Human Capital CommitteeThis committee of the Board of Directors consists of the following members and invitees:

Mr DR Zihlangu Non-executive (Chairman)

Mr MB Damane Non-executive Redeployed to committee as from 27 September 2010

Adv. L Makatini Non-executive Redeployed to committee as from 27 September 2010

Ms BB Siwisa Non-executive Term expired 30 June 2010


Dr PS Molefe Non-executive Term expired 31 July 2010




/05/

14

2010

/05/

18

2010

/07/

19

2010

/09/

26

2011

/02/

11

Mr MB Damane N N N Y Y

Mr DR Zihlangu Y Y Y Y Y

Mr N Nika Y Y Y N Y

Dr ZR Rustomjee Y Y Y N RE

Mr MW Mkhize Y Y Y Y R

Prof. B Figaji Y Y Y R R

Mr S Mkhize Y Y N R R


/04/

16

2010

/07/

23

2010

/12/

09

2011

/02/

09

Mr DR Zihlangu Y Y Y Y

Ms BB Siwisa Y R R R

Mr S Mkhize Y Y R R

Dr PS Molefe N Y R R

Mr MB Damane – – Y Y

Adv. L Makatini – – N Y

Board Business Performance and Strategy CommitteeThis committee of the Board of Directors consists of the following members and invitees:

Mr MB Damane Non-executive

Mr DR Zihlangu Non-executive

Mr N Nika Executive

Dr ZR Rustomjee Non-executive Redeployed to Board Audit Committee

Mr MW Mkhize Non-executive (Chairman) Resigned 31 November 2010

Prof. B Figaji Non-executive (Chairman) Term expired 31 July 2010


Y = Attended meeting N = Apology received RE = Redeployed – = Not yet appointed R = Resigned from the Board


Due to the expiry of the terms of Board members, two members were temporarily redeployed to this committee.

Mr MW Mkhize was temporarily appointed as chairman on 27 September 2010.



/04/

23

2010

/07/

16

2010

/10/

26

2011

/03/

09Mr M Kajee Y Y Y Y

Mr N Nika Y Y Y Y

Dr ZR Rustomjee Y Y Y Y

Prof. B Figaji Y Y R R

Ms BB Siwisa Y R R R

Mr S Mkhize Y Y R R

Mr YR Tenza – – Y Y

Ms N Medupe – – Y N

Due to the expiry of the terms of Board members, the Board Audit Committee, and Risk Management and Compliance Committee were temporarily collapsed into one committee.

1. DIRECTORS (CONTINUED)

Board Risk Management and Compliance CommitteeThis committee of the Board of Directors consists of the following members and invitees:

Mr M Kajee Non-executive (Chairman) Resigned 9 March 2011

Mr N Nika Executive

Dr ZR Rustomjee Non-executive

Mr YR Tenza Non-executive Redeployed 27 September 2010

Ms N Medupe Non-executive Redeployed 27 September 2010

Prof. B Figaji Non-executive Term expired 31 July 2010

Ms BB Siwisa Non-executive Term expired 30 June 2010


2. SECRETARYThe secretary of the Company is Adv. PSV Ngaba and her business and postal addresses are as follows:

Business address 151 Frans Conradie DriveParow7500

Postal address Private Bag X5Parow7449

3. NATURE OF BUSINESSActivitiesThe main areas of activity within the Group during the year are as follows:• to focus on projects aimed at sustaining the GTL re!nery through the securing of long-term feedstock

and cash "ow maximisation;




3. NATURE OF BUSINESS (CONTINUED)• to ensure security of supply, growth of the Group

and increase its share of the local market through the development of a crude oil re!nery in Coega, entry into the downstream market, and ensuring upstream reserves and production growth;

• to deliver sustainable development of the economy and communities through the targeting of skills development, the implementation of competitive supplier development programmes and the investment in social upliftment programmes, and investment in the social upliftment of targeted groups through corporate social investment programmes; and

• to ensure adherence to world class environmental, safety, health and quality standards.

ObjectivesThe key elements/objectives of PetroSA’s core business strategy are as follows:

• ensure security of supply of liquid fuels for the country;

• be a competitive, commercially viable company on a sustained basis along the value chain for the petroleum, oil, gas and petrochemical sectors;

• to achieve transformation on a continuous basis through the implementation of employment equity and broad-based black economic empowerment policies;

• operate PetroSA in line with best international practices with regard to safety, product quality, the protection of the environment and health of the people employed by the Company; and

• actively contribute to macroeconomic objectives related to the fuel price to the end-user, security of supply and reduction of exposure to forex requirements.

4. REVIEW OF FINANCIAL POSITIONGroup Financial Results and Operating ActivitiesAnalysis and Review of Results and Financial PositionThe Group achieved a net pro!t of R0.8 billion (2010: loss R0.4 billion) for the year under review. Although sales revenues were higher at R10.5 billion (2010: R8 billion), cost of sales increased by 17% (R8.8 billion vs R7.6 billion in 2010) mainly because of the increased abandonment costs following a revised study.

Other Group operating costs have a positive variance (R1.9 billion vs R2.3 billion in 2010) due to the four- well drilling campaign in PetroSA Egypt SE Warda in

the prior year which was unsuccessful. The block has been relinquished in the current year. Accordingly, ministerial and SARB approvals have been obtained. A decrease in expenditure in PetroSA Equatorial Guinea has also contributed to the positive variance compared to the prior year. A moratorium on recruitment and the Group wide cost savings drive contributed also to the decrease in operating costs.

The Group recorded a pre-tax pro!t of R0.5 billion for continuing operations, which re"ects an increase from the prior year loss of R0.76 billion. PetroSA Nigeria and Brass Exploration Unlimited have been classi!ed as discontinuing operations and re"ect a pro!t of R0.02 billion (2010: R0.06 billion) net of taxation.

The Group statement of !nancial position remains strong with total assets of R24.2 billion (2010: R21.9 billion). A cash balance of R11.8 billion (2010: R10 billion) versus a long-term loan of nil (also zero in 2010) re"ects the Group’s strong net cash position. Various options are being explored to optimise our currently low-geared statement of !nancial position as the organisation embarks on signi!cant capital expansion programmes in the short-to-medium term. The increase in non-current liabilities is due to the updated abandonment study that was !nalised in the current year.

5. AUTHORISED AND ISSUED SHARE CAPITAL

Details of the share capital of the Company are set out in note15 to the annual !nancial statements. In 2010/2011, a decision was taken to close the PetroSA North America of!ce and exit the US market and, as a result, share capital was repaid.

6. DIVIDENDSNo dividends were declared to the shareholder during the year.

7. MATERIALITY AND SIGNIFICANT FRAMEWORK

A materiality and signi!cant framework has been developed for reporting losses through criminal conduct and irregular, fruitless and wasteful expenditure, as well as for signi!cant transactions envisaged per section 54(2) of the PFMA that requires ministerial approval. The framework was !nalised after consultation with the external auditors and has been formally approved by the Board.

Study reimbursements paid to employees for textbooks, contrary to SARS Practice Note 17, resulted in interest and penalties of R720 882. F-A allowances previously treated as non-taxable subsistence allowances are now being correctly


treated as taxable subsistence allowances and resulted in penalties of R3 602 057. Interest and penalties for the late payment of VAT by PetroSA Equatorial Guinea amounted to R16 394 611. Damage to two outboard motors, on loan from a supplier, which was not insured amounted to R228 142. Other fruitless and wasteful expenditure incurred by the Group amounts to R0.67 million.

The country manager in PetroSA Equatorial Guinea incurred valid expenditure outside of his levels of authority, to the value of R12 427 417. This expenditure has subsequently been condoned.

PetroSA is investigating irregularities in its corporate social investment programme. Appropriate disciplinary action has been taken and governance processes are being tightened to prevent the recurrence, as well as to maximise the bene!ts from such investments.

An employee stole money amounting to R16 673 which was recovered from the !nal salary payout. In 2010, it was reported that interest on management fees charged to subsidiaries was fruitless and wasteful expenditure of R12 874 816. Subsequently, SARS has ruled to waive such interest and the money will be refunded. Total expenditure recovered during the !nancial year is R12.9 million.

8. HOLDING COMPANYThe Company's holding Company is CEF (Pty) Limited incorporated in South Africa and the ultimate shareholder is the South African Government. All shares held by the government in CEF are not transferable in terms of the Central Energy Fund Act No. 37 of 1977.

9. SUBSIDIARIES AND ASSOCIATESThe PetroSA Group structure has remained relatively stable and is mostly driven by the Company’s pursuit of exploration and production opportunities in Africa and elsewhere in line with the Company’s objectives.

The companies within the Group are subsidiaries whose existence are driven by business needs.

The Brass Exploration Unlimited (BEU) !nancial year-end is 31 December in accordance with Nigerian legislation, which is not in compliance with the PFMA requirements. The Group results include the performance of BEU for the year ended 31 December 2010. Pursuant to a PetroSA Executive Management and Board decision, the shareholders of BEU sold their share in the company in order to dispose of its interest in Oil Mining Lease 114 (OML114). The sale and purchase agreement for the BEU shares was subject to a resolutive condition that PetroSA and its subsidiary, in turn, sell their respective shareholding in PetroSA Nigeria, the legal owner of OML114. The purchase price of the BEU and PetroSA Nigeria shares is the indivisible amount of US$55 million. The BEU sale closed on 22 February 2011 subject to the sale of PetroSA Nigeria, which is expected to close during the 2011/2012 !nancial year. The purchaser will manage and operate BEU, pending the closing of the PetroSA Nigeria sale, as owners without any restrictions or limitations, in exchange for which they have provided PetroSA with an appropriately extensive indemnity and parent company guarantee. In terms of the International Financial Reporting Standards (IFRS 5) the results and performance of these companies have been re"ected as a discontinuing operation in the Group !nancial statements.

Moni Pulo Limited, our joint-venture partner, is contesting the disposal of BEU and have approached the Nigerian High Court to obtain relief on the matter. PetroSA is defending its case and is con!dent of success in this regard.

PetroSA holds 100% of the shares in PetroSA North America. Due to declining sales volumes, continuing with market development in the US would be counter productive and therefore does not warrant PetroSA to have a physical presence in the US. As a result, a decision was taken to close the PetroSA North America of!ce and exit the US market.



10. SUBSEQUENT EVENTSPetroSA has a 37.5% interest in the associate company GTL.F1 AG, a Swiss-incorporated technology company which holds the licences of the GTL technology. The Group results include the performance of GTL.F1 AG for the year ended 31 December 2010. One of joint-venture partners have indicated their intent to withdraw from GTL.F1 AG in the forthcoming year. This will result in PetroSA’s share increasing from 37.5% to 50%.

The directors are not aware of any other matters or circumstances arising since the end of the !nancial year, not otherwise dealt with in the !nancial statements which signi!cantly affect the !nancial position of the Company or the results of the operations.

11. GOING CONCERNThe directors believe that the Group will continue as a going concern in the year ahead.

Dr AMB Mokaba Mr N Nika



REPORT OF THE BOARD AUDIT COMMITTEE for the year ended 31 March 2011

The Board Audit Committee has adopted formal terms of reference as its Board Audit Committee Charter and has discharged all its responsibilities as set out in the charter.

1. RESPONSIBILITIESIn performing its responsibilities the Board Audit Committee has reviewed the following:

• the annual !nancial statements prior to submission and approval by the Board;

• the effectiveness of the internal control systems including computerised information system controls and security;

• the risk areas of the Company’s operations covered in the scope of internal and external audits;

• the reliability and integrity of !nancial information provided by management;

• accounting and auditing concerns identi!ed as a result of internal and external audits;

• the Auditor-General’s audit of the !nancial statements and the reports thereon;

• the activities of the Internal Audit function, including its effectiveness, annual work programme, co-ordination with the external auditors and the responses of management to speci!c recommendations;

• the Company’s compliance with legal and regulatory provisions;

• the independence and objectivity of the chief internal auditor;

• the independence and objectivity of the Auditor-General;

• the activities of the external auditors, including effectiveness, its annual work programme and planned audit fees, co-ordination with the internal auditors, the reports of signi!cant investigations and the responses of management to speci!c recommendations; and

• the going concern assumptions and assessment prepared by management.

The Board Audit Committee is satis!ed that generally an effective system of internal controls, including internal !nancial controls, has been implemented and maintained based on:

• the information and explanations provided by

management;

• Internal Audit reports; and

• external audit reports.

The Board Audit Committee concurs with the

Auditor-General of South Africa’s opinion on the

annual !nancial statements after having reviewed:

• changes in accounting policies;

• unaudited and audited annual !nancial

statements;

• unaudited and audited performance against

predetermined objectives;

• the management letter issued by the Auditor-

General of South Africa and management’s

response thereto; and

• signi!cant adjustments resulting from the audit.

The Board Audit Committee con!rms that in

discharging its responsibilities it has complied with

the Companies Act No. 61 of 1973, as amended and

the Public Finance Management Act No. 1 of 1999.

2. LEGAL AND REGULATORY

COMPLIANCE

The Board Audit Committee concurs that the

adoption of the going concern premise is appropriate

in preparing the annual !nancial statements and

has recommended the adoption of the !nancial

statements by the Board of Directors at their meeting

on 11 July 2011.

Ms GN Jiyane

Chairman

20 July 2011


MATERIALITY AND SIGNIFICANT FRAMEWORK for the year ended 31 March 2011

The criteria for assessing the materiality and signi!cant framework for The Petroleum Oil and Gas Corporation of South Africa (Pty) Limited are contained in the table below:

QUALITATIVE QUANTITATIVE1. MATERIAL DISCLOSURE OF INFORMATION TO THE MINISTER

Disclosure by the PetroSA Board of material facts to the Minister of Minerals and Energy

Facts that may in"uence the decisions or actions of the stakeholders of a public entity.

Risks to the public entity that may impact on the future sustainability of the entity or the Group

2. ANNUAL REPORT, FINANCIAL STATEMENT AND EXECUTIVE AUTHORITY DISCLOSURES

Material losses Criminal conduct: Expenditure that results from an illegal act, fraudulent act and/or a criminal behaviour. All instances will be fully disclosed to the Board Audit Committee. Disclosures in the annual report and the !nancial statements will be made for all losses due to criminal conduct.

All expenditure

Irregular expenditure: Other than unauthorised expenditure, incurred in contravention of or that is not in accordance with the requirements of any applicable legislation.

All expenditure

Fruitless and wasteful expenditure: Made in vain and would have been avoided had reasonable care been exercised.

All expenditure

3. BORROWINGS, GUARANTEE, INDEMNITY OR SECURITY

Borrowings, guarantees, indemnity or security must be approved by the Board.

4. APPROVAL FROM THE ACCOUNTING AUTHORITY ON PARTICIPATION IN CERTAIN TRANSACTIONS

Signi!cant partnership Approval from the executive authority is needed when capital at risk for PetroSA exceeds 2% of total assets.

< R467 000 000

Signi!cant trust Approval from the executive authority is needed when funding of the trust exceeds 2% of total assets of PetroSA.

< R467 000 000

Signi!cant unincorporated joint venture

Approval from the executive authority is needed when venture capital at risk for PetroSA exceeds 2% of total assets.

< R467 000 000

Signi!cant shareholding Approval from the executive authority is needed on acquisition and disposal of shareholding in a trading company where PetroSA’s investment exceeds 2% of total assets.

< R467 000 000

Signi!cant assets Approval from the executive authority is needed on acquisition and disposal of any immovable property such as land, buildings and movable assets when the cost exceeds 2% of the total assets of PetroSA.

< R467 000 000

Signi!cant business Approval from the executive authority is needed when commencement and cessation of a business activity represents or will represent more than 2% of PetroSA’s total assets.

< R467 000 000


QUALITATIVE QUANTITATIVE4. APPROVAL FROM THE ACCOUNTING AUTHORITY ON PARTICIPATION IN CERTAIN TRANSACTIONS

(CONTINUED)

Signi!cant change Approval from the executive authority is needed when engaging in new business that is unrelated to the business and where the investment exceeds 2% of total assets.

< R467 000 000

5. APPROVAL FROM CEF BOARD ON PARTICIPATION IN CERTAIN TRANSACTIONS

Signi!cant partnership Approval from the CEF Board is needed when capital at risk for PetroSA is exceeding 2% of total assets.

R467 000 001 < R655 000 000

Signi!cant trust Approval from the CEF Board is needed when funding of the trust is exceeding 2% of total assets of PetroSA.

R467 000 001 < R655 000 000


Approval from the CEF Board is needed when venture capital at risk for PetroSA is exceeding 2% of total assets.

R467 000 001 < R655 000 000

Signi!cant assets Approval from the CEF Board is needed on acquisition and disposal of any immovable property such as land and buildings, and movable assets when the cost exceeds 2% of the total assets of PetroSA.

R467 000 001 < R655 000 000

Signi!cant business Approval from the CEF Board is needed on commencement and cessation of a business activity that is representing or will be representing more than 2% of PetroSA’s total assets.

R467 000 001 < R655 000 000

Signi!cant change Approval from the CEF Board is needed when engaging in new business that is unrelated to the business and where the investment exceeds 2% of all assets.

R467 000 001 < R655 000 000

6. APPROVAL FROM DOE/EXECUTIVE AUTHORITY AND INFORM NATIONAL TREASURY VIA CEF

Signi!cant partnership Approval from the DOE/executive authority is needed when capital at risk for PetroSA exceeds R655 million.

> R655 000 000

Signi!cant trust Approval from the DOE/executive authority is needed when funding of the trust exceeds R655 million.

> R655 000 000


Approval from the DOE/executive authority is needed when venture capital at risk for PetroSA exceeds R655 million.

> R655 000 000

Signi!cant assets Approval from the DOE/executive authority is needed on acquisition and disposal of any immovable property such as land and buildings, and movable assets when the cost exceeds R655 million.

> R655 000 000

Signi!cant business Approval from the DOE/executive authority is needed on commencement and cessation of a business activity that is representing or will be representing more than R655 million.

> R655 000 000

MATERIALITY AND SIGNIFICANT FRAMEWORK (CONTINUED) for the year ended 31 March 2011


QUALITATIVE QUANTITATIVE6. APPROVAL FROM DOE/EXECUTIVE AUTHORITY AND INFORM NATIONAL TREASURY VIA CEF

(CONTINUED)

Signi!cant change Approval from the DOE/executive authority is needed when engaging in new business that is unrelated to the business and where the investment exceeds R655 million.

> R655 000 000

7. APPROVAL FROM DOE/EXECUTIVE AUTHORITY AND INFORM NATIONAL TREASURY VIA CEF

Signi!cant shareholding Approval from DOE/executive authority is needed for the establishment or participation in the establishment of a company.

Approval from DOE/executive authority is needed when an acquisition or disposal of a shareholding in a company results in a change of at least 20% of the company’s equity.


STATEMENT FROM COMPANY SECRETARY for the year ended 31 March 2011

In my capacity as Company Secretary, I hereby con!rm, in terms of section 268G(d) of the Companies Act No. 61 of 1973, that for the year ended, 31 March 2011, the Company has lodged with the Registrar of Companies all such returns as are required of a company in terms of this Act, and that all such returns are, to the best of my knowledge and belief, true, correct and up to date.

Adv. PSV Ngaba



STATEMENT OF FINANCIAL POSITION as at 31 March 2011

Group Company

Note(s)2011

R’0002010

R’0002011

R’0002010

R’000

ASSETS

Non-current assetsProperty, plant and equipment 2 7 240 534 6 657 675 7 238 126 6 653 384

Intangible assets 3 80 273 81 694 1 111 2 532

Deferred tax 5 – 72 478 – 72 478

Investments in subsidiaries 6 – – 6 279 5 787

Investments in associates 7 – – 23 490 23 490

Other !nancial assets 8 116 975 135 402 1 323 655 896 330

Amounts held by holding company 9 489 021 537 648 489 021 537 648

7 926 803 7 484 897 9 081 682 8 191 649

Current assetsInventories 10 1 575 827 1 415 751 1 510 043 1 352 360

Current tax receivable 413 157 286 566 413 157 284 851

Trade and other receivables 12 2 070 344 1 788 367 2 072 184 1 754 863

Deferred tax – 286 – –

Cash and cash equivalents 13 11 852 498 10 027 026 11 795 852 9 979 415

15 911 826 13 517 996 15 791 236 13 371 489

Non-current assets held for sale and assets of disposal groups 14 1 167 772 988 186 – –

TOTAL ASSETS 25 006 401 21 991 079 24 872 918 21 563 138

EQUITY AND LIABILITIES

EquityShare capital 15 2 755 936 2 755 936 2 755 936 2 755 936

Reserves (87 004) (54 845) 142 (1 951)

Retained income 13 975 837 13 144 482 14 643 933 13 373 372

16 644 769 15 845 573 17 400 011 16 127 357

LiabilitiesNon-current liabilities

Loans from Group companies 11 – – 1 –

Provisions 17 5 649 819 3 913 618 5 623 427 3 888 901

5 649 819 3 913 618 5 623 428 3 888 901

Current liabilities

Loans from Group companies 11 – – – 1 292

Loans from shareholders 16 – 17 991 – 17 991

Current tax payable 2 880 37 – –

Provisions 17 363 128 95 242 362 601 94 751

Trade and other payables 18 1 626 409 1 471 322 1 486 878 1 313 420

Bank overdraft 13 – 119 426 – 119 426

1 992 417 1 704 018 1 849 479 1 546 880

Liabilities of disposal groups 14 719 396 527 870 – –

Total liabilities 8 361 632 6 145 506 7 472 907 5 435 781

TOTAL EQUITY AND LIABILITIES 25 006 401 21 991 079 24 872 918 21 563 138


STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2011

Group Company

Note(s)2011

R’0002010 R’000

2011 R’000

2010 R’000

CONTINUING OPERATIONS

Revenue 19 10 565 385 8 090 168 10 565 042 8 088 421

Cost of sales (8 854 583) (7 580 057) (8 846 840) (7 571 866)

GROSS PROFIT 1 710 802 510 111 1 718 202 516 555

Other income 256 505 533 091 196 714 352 206

Operating expenses (1 903 505) (2 379 814) (1 509 532) (2 653 057)

OPERATING PROFIT (LOSS) 20 63 802 (1 336 612) 405 384 (1 784 296)

Investment income 22 859 887 971 939 974 810 1 176 522

Finance costs 23 (422 534) (397 532) (422 530) (397 259)

PROFIT (LOSS) BEFORE TAXATION 501 155 (762 205) 957 664 (1 005 033)

Taxation 24 308 519 348 634 312 897 349 173

PROFIT (LOSS) FROM CONTINUING OPERATIONS 809 674 (413 571) 1 270 561 (655 860)

DISCONTINUED OPERATIONS

Pro!t for the year from discontinuing operations 14 21 681 57 120 – –

PROFIT (LOSS) FOR THE YEAR 831 355 (356 451) 1 270 561 (655 860)

OTHER COMPREHENSIVE INCOME:

Exchange differences on translating foreign operations (32 159) (131 719) 2 093 5 767

TOTAL COMPREHENSIVE INCOME (LOSS) 799 196 (488 170) 1 272 654 (650 093)

NET PROFIT (LOSS) ATTRIBUTABLE TO:

Owners of the parent:Pro!t(loss) for the year from continuing operations 809 674 (413 571) 1 270 561 (655 860)

Pro!t for the year from discontinuing operations 21 681 57 120 – –

Exchange differences on translating foreign operations (32 159) (131 719) 2 093 5 767

799 196 (488 170) 1 272 654 (650 093)


STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2011

Sharecapital R’000

Sharepremium

R’000

Totalshare

capitalR’000

Foreign currency

translation reserve

R’000

Retained income

R’000

Total equity R’000

GROUP

Balance at 1 April 2009 2 2 755 934 2 755 936 76 874 13 500 933 16 333 743

Changes in equity

Total comprehensive loss for the year – – – (131 719) (356 451) (488 170)

Total changes – – – (131 719) (356 451) (488 170)

Balance at 1 April 2010 2 2 755 934 2 755 936 (54 845) 13 144 482 15 845 573

Changes in equity

Total comprehensive income for the year – – – (32 159) 831 355 799 196

Total changes – – – (32 159) 831 355 799 196

Balance at 31 March 2011 2 2 755 934 2 755 936 (87 004) 13 975 837 16 644 769

Note 15 15 15

COMPANY

Balance at 1 April 2009 2 2 755 934 2 755 936 (7 718) 14 029 232 16 777 450

Changes in equity

Total comprehensive loss for the year – – – 5 767 (655 860) (650 093)

Total changes – – – 5 767 (655 860) (650 093)

Balance at 1 April 2010 2 2 755 934 2 755 936 (1 951) 13 373 372 16 127 357

Changes in equity

Total comprehensive income for the year – – – 2 093 1 270 561 1 272 654

Total changes – – – 2 093 1 270 561 1 272 654

Balance at 31 March 2011 2 2 755 934 2 755 936 142 14 643 933 17 400 011

Note 15 15 15


STATEMENT OF CASH FLOWS for the year ended 31 March 2011

Group Company

Note(s)2011

R’0002010 R’000

2011 R’000

2010 R’000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated (utilised) by operations 25 862 967 (1 069 883) 1 183 924 (208 537)

Interest income 859 886 971 939 973 087 1 176 522

Dividends received 1 – 1 723 –

Dividend paid 26 – (375 000) – (375 000)

Finance costs (2 561) (18 713) (2 561) (18 440)

Tax received (paid) 27 257 536 (11 429) 257 069 (9 315)

Cash !ows of held for sale/discontinued operations 28 33 621 503 478 – –

NET CASH FROM OPERATING ACTIVITIES 2 011 450 392 2 413 242 565 230

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment 2 (197 071) (1 274 583) (196 922) (1 273 036)

Sale of property, plant and equipment 2 1 866 976 1 728 72

Purchase of other intangible assets 3 – (19) – (19)

Loans to Group companies impaired/written off – (355) 35 402 (1 234 488)

Loans (advanced to) paid by Group companies – – – 3 206

Purchase of "nancial assets 18 427 (1 474) (427 325) 704 651

Repayment of amounts held by holding company 48 627 – 48 627 –

Cash !ow from subsidiaries – – (492) (135)

NET CASH FROM INVESTING ACTIVITIES (128 151) (1 275 455) (538 982) (1 799 749)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of shareholder’s loan (17 995) (193 186) (17 991) (193 186)

NET CASH FROM FINANCING ACTIVITIES (17 995) (193 186) (17 991) (193 186)

CASH AND CASH EQUIVALENTS MOVEMENT FOR THE YEAR 1 865 304 (1 468 249) 1 856 269 (1 427 705)

Cash and cash equivalents at the beginning of the year 9 907 600 11 314 712 9 859 989 11 226 557

Effect of exchange rate movement on cash balances 79 594 61 137 79 594 61 137

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 13 11 852 498 9 907 600 11 795 852 9 859 989



ACCOUNTING POLICIES for the year ended 31 March 2011

1. PRESENTATION OF ANNUAL FINANCIAL STATEMENTS

The following are the principal accounting policies of the Group which are, in all material respects, consistent with those of the previous year, except as otherwise indicated:

1.1 Basis of PreparationThe !nancial statements are prepared under the historical cost basis, except where otherwise speci!ed.

The Group annual !nancial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice, the Companies Act of South Africa and the Corporate Laws Amendment Act.

These annual !nancial statements are presented in South African Rands. Rounding is to the nearest Rand in thousands.

Assets and liabilities or income and expenditure will not be off set, unless it is required or permitted by a standard.

1.2 Basis of ConsolidationThe consolidated !nancial statements incorporate the annual !nancial statements of the entity and enterprises controlled by the entity at 31 March each year.

Control is achieved where the entity has the power to govern the !nancial and operating policies of an investee enterprise so as to obtain bene!ts from its activities.

On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the effective date of acquisition.

The results of subsidiaries, associates and joint ventures acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the annual !nancial statements of subsidiaries to bring the accounting policies used in line with the Group's accounting policies.

All signi!cant intercompany transactions, unrealised pro!t and losses, and balances between Group enterprises are eliminated on consolidation.

The most recent audited annual !nancial statements of associates, joint ventures and subsidiaries are used where available, which are all within three months of the year-end of the Group. Adjustments are made to the !nancial results for material transactions and events in the intervening period. Losses in excess of the Group’s interest are not recognised unless there is a binding obligation to contribute to the losses.

Company Financial StatementsInvestments in subsidiaries, associates and joint ventures in the !nancial statements presented by the Company are recognised at cost, except where there is a permanent decline in the value in which case they are written down to fair value.

Consolidated Financial StatementsBusiness combinationsSubsidiaries are entities controlled by the holding Company. The consolidated !nancial statements incorporate the assets, liabilities, income, expenses and cash "ows of the company and all entities controlled by the Company as if they are a single economic entity.

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of the business combination is measured as the aggregate of the fair values (at the date of acquisition) of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Acquisition related costs are expensed as incurred. The acquiree’s identi!able assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (AC 140): Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classi!ed as held for sale in accordance with IFRS 5 (AC 142): Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition date fair value of any existing equity interests in the acquiree over the acquisition date fair values of net identi!able assets. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identi!able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in pro!t or loss.

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control or signi!cant in"uence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in pro!t or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or !nancial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassi!ed to pro!t or loss.

Interest in associatesAn associate is an enterprise in which the Group has signi!cant in"uence, through participation in the !nancial and operating policy decisions of the investee, but not control.

The results and assets and liabilities of associates are incorporated in the !nancial statements by using the equity method of accounting, except when the investment is classi!ed as held for sale, in which case it is accounted for in accordance with IFRS 5 (AC 142): Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated statement of !nancial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identi!able assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value of the identi!able assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in pro!t or loss.

If the ownership interest in an associate is reduced but signi!cant in"uence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassi!ed to pro!t or loss where appropriate.

Interest in joint venturesA joint venture is a contractual agreement between two or more parties to undertake an economic activity which is under joint control, that is when the strategic !nancial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

Where a Group entity undertakes its activities under joint venture arrangements directly, the Group’s share of jointly-controlled assets and any liabilities incurred jointly with other venturers are recognised in the !nancial statements of the relevant entity and classi!ed according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic bene!ts associated with the transactions will "ow to/from the Group and their amount can be measured reliably.

Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation, except when the investment is classi!ed as held for sale, in which case it is accounted for in accordance with IFRS 5 (AC 142): Non-current Assets Held for Sale and Discontinued Operations. The Group’s share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated !nancial statements on a line-by-line basis.

Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in accordance with the Group’s accounting policy for goodwill arising on the acquisition of a subsidiary.

All signi!cant intercompany transactions and balances between Group entities are eliminated on proportionate consolidation to the extent of the Group’s interest in the joint venture.

1.2 Basis of Consolidation (continued)



1.3 Translation of Foreign CurrenciesTransactionsForeign currency transactions are recognised, initially in Rand, by applying the foreign currency amount to the exchange rate between the Rand and the foreign currency at the date of the transaction, and is restated at each reporting date by using the ruling exchange rate at that date.

Statement of Financial PositionAt each reporting date:

• foreign currency monetary items are measured using the closing rate;

• non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction; and

• non-monetary items which are carried at fair value denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

Exchange DifferencesExchange differences arising on the settlement of monetary items or on reporting a company’s monetary items at rates different from those at which they were initially recorded during the period, or reported in previous annual !nancial statements, are recognised as income or expenses in the period in which they arise. Exchange differences are capitalised where they relate to the purchase or construction of property, plant and equipment.

Foreign EntitiesIn translating the !nancial statements of a foreign entity for incorporation in the Group !nancial statements, the following is applied:

• The assets and liabilities, both monetary and non-monetary, of the foreign entity are translated at the closing exchange rate at the !nancial year-end date.

• Income and expense items of the foreign entity are translated at the weighted average rates of exchange for the year.

• All resulting exchange differences are taken directly to the foreign currency translation reserve which is classi!ed as a non-distributable reserve. On disposal the related amount in this reserve will be recognised in pro!t or loss.

1.4 Comparative FiguresComparative !gures are restated in the event of a change in accounting policy or prior period error.

1.5 Property, Plant and EquipmentProperty, plant and equipment represent tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period.

Carrying AmountsAll property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

CostCost includes all costs directly attributable to bringing the assets to the working condition for their intended use. Improvements are capitalised. Maintenance, repairs and renewals which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income.

Finance costs directly associated with the construction or acquisition of major assets are capitalised at interest rates relating to loans speci!cally raised for that purpose, or at the average borrowing rate where the general pool of borrowings is utilised.

DerecognitionThe carrying amount of an item of property, plant and equipment is derecognised on disposal.

Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount. On disposal of revalued assets, amounts in the revaluation reserve relating to that asset are transferred to retained earnings.

The gain or loss arising from derecognition of an item of property, plant and equipment is included in pro!t or loss. Gains on disposal will not be classi!ed as revenue.

DepreciationDepreciation is charged so as to write off the depreciable amount of the assets, other than land, over their estimated useful lives to estimated residual values, using the straight line method or other acceptable method to write off the cost of each asset that re"ects the pattern in which the asset’s future economic bene!ts are expected to be consumed by the entity.

Where signi!cant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives.

The following methods and rates are used during the year to depreciate property, plant and equipment to estimated residual values:

ACCOUNTING POLICIES (CONTINUED) for the year ended 31 March 2011

Item Average useful life

Land Not depreciated

Buildings 40 years

Furniture, !ttings and communication equipment

2 – 10 years

Motor vehicles 4 – 5 years

Computer equipment 3 – 6 years

An exception is made for production assets and Restoration costs, where the units of production method is used to calculate depreciation. Reference to the supplementary reserves disclosure can be made for more information on the reserves used.

Improvements to leased premises are written off over the period of the lease.

The methods of depreciation, useful lives and residual values are reviewed annually.

Production Assets (Oil and Gas Fields)Oil and gas production assets are the aggregated exploration and evaluation tangible assets, and development expenditure associated with the production of proved reserves.

Subsequent expenditure which enhances or extends the performance of oil and gas production assets beyond their original speci!cations is recognised as capital expenditure and added to the original cost of the asset.

Production assets are depreciated over their expected useful lives. This applies from the date production commences, on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of proved and probable reserves at the end of the period plus the production in the period, on a !eld-by-!eld basis. Units of production rates are based on the proved and probable developed reserves, which are oil, gas and other mineral reserves estimated to be recoverable from existing facilities using current operating methods.

Where there has been a change in economic conditions that indicates a possible impairment in a discovery !eld, the recoverability of the net book value relating to that !eld is assessed by comparison with the estimated discounted future cash "ows based on management’s expectations of future oil and gas prices and future costs. Where there is evidence of economic interdependency between !elds, such as common infrastructure, the !elds are grouped as a single cash-generating unit for impairment purposes.

1.5 Property, Plant and Equipment (continued)

Any impairment identi!ed is charged to the statement of comprehensive income as additional depreciation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the statement of comprehensive income, net of any depreciation that would have been charged since the impairment.

Restoration CostsCost of property, plant and equipment also includes the estimated costs of dismantling and removing the assets and site rehabilitation costs.

Estimated decommissioning and restoration costs are based on current requirements, technology and price levels. Provision is made for all net estimated abandonment costs as soon as an obligation to rehabilitate the area exists, based on the present value of the future estimated costs. These costs are deferred and are depreciated over the useful life of the assets to which they relate using the unit of production method based on the same reserve quantities as are used for the calculation of depletion of oil and gas production assets.

The amount recognised is the estimated cost of restoration, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the restoration provision is included as a !nance cost.

1.6 Exploration, Evaluation and Development of Oil and Gas Wells

The “successful efforts” principle is used to account for oil and gas exploration and evaluation activities.

Pre-licensing CostThese are costs incurred prior to the acquisition of a legal right to explore for oil and gas. They may include speculative seismic data and subsequent geological and geophysical analysis of this data, but may not be exclusive to such costs. If such analysis suggests the presence of reserves, then the costs are capitalised to an identi!ed structure (!eld or reservoir). However, if the analysis is not de!nitive then these costs are expensed in the year they are incurred.



Exploration and Evaluation CostsAll costs relating to the acquisition of licences, exploration and evaluation of a well, !eld or exploration area are initially capitalised. Directly attributable administration costs and interest payable are capitalised in so far as they relate to speci!c development activities.

These costs are then written off as exploration costs in the statement of comprehensive income unless commercial reserves have been established or the determination process has not been completed and there are no indications of impairment.

Assets Pending DeterminationExploratory wells that discover potentially commercial reserves are capitalised pending a decision to further develop or a !rm plan to develop has been approved. These wells may remain capitalised for three years. If no such plan or development exists or information is obtained that raises doubt about the economic or operating viability then these costs will be recognised in the pro!t or loss of that year. If a plan or intention to further develop these wells or !elds exists, the costs are transferred to development costs.

Development CostsCosts of development wells, platforms, well equipment and attendant production facilities are capitalised. The cost of production facilities capitalised includes !nance costs incurred until the production facility is completed and ready for the start of the production phase. All development wells are not depreciated until production starts and then they are depreciated on the units of production method calculated using the estimated proved and probable reserves.

Dry WellsGeological and geophysical costs, as well as all other costs relating to dry exploratory wells costs are recognised in the pro!t and loss in the year they are incurred.

1.7 Intangible AssetsAn intangible asset is an identi!able non-monetary asset without physical substance.

Intangible assets are initially recognised at cost if acquired separately or internally generated or at fair value if acquired as part of a business combination. If assessed as having an inde!nite useful life, the intangible asset is not amortised but tested for impairment annually and impaired if necessary. If assessed as having a !nite useful life, it is amortised over its useful life using a straight-line basis and tested for impairment if there is an indication that it may be impaired.

1.6 Exploration, Evaluation and Development of Oil and Gas Wells (continued)

Research costs are recognised in pro!t or loss when incurred.

Development costs are capitalised only if they result in an asset that can be identi!ed, it is probable that the asset will generate future economic bene!ts and the development cost can be reliably measured. Otherwise it is recognised in pro!t or loss.

1.8 Impairment of Non-!nancial AssetsAt each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Value in use is estimated taking into account future cash "ows, forecast market conditions and the expected lives of the assets.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, its carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in pro!t or loss. Subsequent to the recognition of the impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life.

If an impairment loss is subsequently reversed, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but limited to the carrying amount, that would have been determined had an impairment loss not been recognised in prior years. A reversal of an impairment loss is recognised in pro!t or loss.

1.9 LeasesFinance leases are recognised as assets and liabilities at the lower of the fair value of the assets and the present value of the minimum lease payments at the date of the acquisition. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to the pro!t and loss over the term of the lease at the interest rates applicable to the lease on the remaining balance of the obligations.

Rentals payable under operating leases are recognised in pro!t or loss on a straight-line basis over the term of the relevant lease where signi!cant or another basis if more representative of the time pattern of the user’s bene!t.


1.9 Leases (continued)When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

Contingent rentals are recognised in pro!t or loss as they accrue.

1.10 InventoriesTrading InventoryFinished and intermediate inventory is measured at the lower of cost and net realisable value according to the weighted average method. Cost includes production expenditure, depreciation and a proportion of triennial turnaround expenses and replacement of catalysts, as well as transport and handling costs. No account is taken of the value of raw materials and work-in-progress prior to it reaching intermediate storage tanks. Provision is made for obsolete, slow-moving and defective inventories.

Spares, Catalysts and ChemicalThese inventories are measured at the lower of cost on a weighted average cost basis and net realisable value less appropriate provision for obsolescence in arriving at the net realisable value.

1.11 Financial InstrumentsRecognitionFinancial assets and !nancial liabilities are recognised on the Group and Company’s statement of !nancial position when the Group and Company becomes a party to the contractual provisions of the instrument.

Financial assets and liabilities as a result of !rm commitments are only recognised when one of the parties has performed under the contract.

Financial instruments recognised on the statement of !nancial position include cash and cash equivalents, trade receivables, investments, trade payables and borrowings.

MeasurementFinancial assets and liabilities are initially measured at fair value, plus transaction costs. However, transaction costs of !nancial assets and liabilities classi!ed as fair value through pro!t or loss are expensed. Subsequent measurement will depend on the classi!cation of the !nancial instrument as detailed below.

Financial AssetsThe Group’s principal !nancial assets are investments and loans receivable, accounts receivable, and cash and cash equivalents. All !nancial assets except for those at fair value through pro!t or loss are subject to review for impairment at each reporting date.

InvestmentsThe following categories of investments are measured at subsequent reporting dates at amortised cost by using the effective interest rate method:

(a) loans and receivables originated by the Group with !xed maturities;

(b) held-to-maturity investments; and

(c) an investment that does not have a quoted market price in an active market and whose fair value cannot be measured reliably using an appropriate valuation model.

Loans and receivables with no !xed maturity period and other investments not covered above are classi!ed as fair value through pro!t and loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted.

Trade and Other ReceivablesTrade and other receivables are classi!ed as loans and receivables and are subsequently measured at amortised cost, less an allowance for any uncollectible amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable. Bad debts are written off when identi!ed.

Cash and Cash EquivalentsCash and cash equivalents comprise cash at bank and on hand and instruments which are readily convertible to known amounts of cash and are subject to an insigni!cant risk of change in value.

Financial LiabilitiesThe Group’s principal !nancial liabilities are interest-bearing borrowings, accounts payable and bank overdraft.

All !nancial liabilities are measured at amortised cost, comprising original debt less principal payments and amortisation, except for !nancial liabilities held for trading, borrowings with no !xed maturity period and are classi!ed as fair value through pro!t and loss on initial recognition and derivative liabilities, which are subsequently measured at fair value. A change in fair value is recognised in pro!t or loss.

Derivative Financial InstrumentsDerivative !nancial instruments, principally interest rate swap contracts and forward foreign exchange contracts, are used by the Company in its management of !nancial risks.

Derivative !nancial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates.



Payments and receipts under interest rate swap contracts are recognised in the statement of comprehensive income on a basis consistent with the corresponding !uctuations in the interest payment on !oating rate "nancial liabilities.

The carrying amounts of interest rate swaps, which comprise net interest receivables and payables accrued are included in assets and liabilities respectively.

Gains and Losses on Subsequent MeasurementAll gains and losses arising from a change in fair value of or on disposal of held-for-trading "nancial assets are recognised in pro"t or loss.

Gains and losses arising from a change in the fair value of available-for-sale "nancial assets are recognised in equity, until the investment is disposed of or is determined to be impaired, at which time the gain or loss is included in the pro"t or loss for the period.

Gains and losses arising from cash !ow hedges are recognised in pro"t or loss.

In relation to fair value hedges, which meet the conditions for hedge accounting, the portion of the gain or loss on a hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in pro"t and loss.

If a hedged "rm commitment or forecasted transaction results in the recognition of an asset or a liability, then the associated gains or losses recognised in equity are adjusted against the initial measurement of the asset or liability. For all other cash !ow hedges, amounts recognised in equity are included in pro"t or loss in the same period during which the commitment or forecasted transaction affects pro"t or loss.

DerecognitionA "nancial asset or part thereof is derecognised when the Group realises the contractual rights to the bene"ts speci"ed in the contract, the rights expire, the Group surrenders those rights or otherwise loses control of the contractual rights that comprise the "nancial asset. On derecognition, the difference between the carrying amount of the "nancial asset and the sum of the proceeds receivable and any prior adjustment to re!ect the fair value of the asset that had been reported in equity is included in net pro"t or loss for the period.

A "nancial liability or a part thereof is derecognised when the obligation speci"ed in the contract is discharged, cancelled, or expires. On derecognition, the difference between the carrying amount of the "nancial liability, including related unamortised costs,

1.11 Financial Instruments (continued) and the amount paid for it is included in net pro"t or loss for the period.

Fair Value ConsiderationsThe fair values at which "nancial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash !ows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the Group could realise in the normal course of business. The carrying amounts of "nancial assets and "nancial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short-term trading cycle of these items.

OffsettingFinancial assets and "nancial liabilities are off-set if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists.

1.12 Post-employment Bene!t CostsDe!ned Contribution CostsContributions to a de"ned contribution plan in respect of service in a particular period are recognised as an expense in that period.

De!ned Bene!t CostsCurrent service costs in respect of de"ned bene"t plans are recognised as an expense in the current period.

Past service costs, experience adjustments, the effects of changes in actuarial assumptions and the effects of plan amendments in respect of existing employees in a de"ned bene"t plan are recognised in pro"t or loss systematically over the remaining working lives of those employees (except in the case of shorter plan amendments where the use of a shorter time period is necessary to re!ect the economic bene"ts by the enterprise).

The effects of plan amendments in respect of retired employees in a bene"t plan are measured as the present value of the effect of the amended bene"ts, and are recognised as an expense or as income in the period in which the plan amendment is made.

The cost of providing retirement bene"ts under a de"ned bene"t plan is determined using a projected unit credit valuation method.

Actuarial gains and losses are recognised as income or expense in pro"t or loss immediately.

The Group operates both de"ned contribution and de"ned bene"t plans, the assets of which are held in separate trustee administered funds. The plans are


funded by payments from the Group and employees, taking account of the recommendations of independent quali!ed actuaries. For de!ned bene!t plans the de!ned bene!t obligation, the related current service cost, and where applicable, the past service costs are determined by using the projected unit credit method.

Other Post-employment ObligationsPost-employment health care bene!ts are provided to retirees. The entitlement to post-retirement health care bene!ts is based on the employees remaining in service up to retirement age. The expected costs of these bene!ts are accrued over the period of employment, using an accounting methodology similar to that for de!ned bene!t pension plans. Valuations of these obligations are carried out annually by independent quali!ed actuaries.

1.13 ProvisionsProvisions represent liabilities of uncertain timing or amounts.

Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an out"ow of economic bene!ts will be required to settle the obligation and a reliable estimate can be made for the amount of the obligation.

Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that re"ects the current market assessment of the time value of money and the risks for which future cash "ow estimates have not been adjusted.

Provision for the cost of environmental and other remedial work such as reclamation costs, close down and restoration costs is made when such expenditure is probable and the cost can be estimated with a reasonable range of possible outcomes.

1.14 Revenue RecognitionRevenue is recognised when it is probable that future economic bene!ts will "ow to the enterprise and these bene!ts can be measured reliably. The measurement is at the fair value received or receivable net of VAT, cash discounts, rebates and settlement discounts.

Revenue from the rendering of services is measured using the stage of completion method based on the services performed to date as a percentage of the total services to be performed. Revenue from the rendering of services is recognised when the amount of the revenue, the related costs and the stage of completion

can be measured reliably and when it is probable that the debtor will pay for the services.

Revenue from the sale of goods is recognised when the signi!cant risks and rewards of ownership of the goods are transferred, when delivery has been made and title has passed, when the amount of the revenue and the related costs can be reliably measured and when it is probable that the debtor will pay for the goods.

1.15 Cost of SalesWhen inventories are sold, the carrying amount is recognised as part of cost of sales. Any write-down of inventories to net realisable value and all losses of inventories or reversals of previous write-downs or losses are recognised in cost of sales in the period the write-down, loss or reversal occurs.

1.16 Income from InvestmentsInterest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Dividend income from investments is recognised when the shareholder’s right to receive payment has been established.

1.17 TaxationCurrent Tax Assets and LiabilitiesThe charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income.

Deferred tax is recognised for all temporary differences, unless speci!cally exempt, at the tax rates that have been enacted or substantially enacted at the reporting date.

Deferred Tax AssetsA deferred tax asset is only recognised to the extent that it is probable that taxable pro!ts will be available against which deductible temporary differences can be utilised, unless speci!cally exempt. It is measured at the tax rates that have been enacted or substantially enacted at reporting date.

Deferred Tax LiabilityA deferred tax liability is recognised for taxable temporary differences, unless speci!cally exempt, at the tax rates that have been enacted or substantially enacted at the reporting date.

Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

1.12 Post-employment Bene!t Costs (continued)



1.18 Finance CostsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period to get ready for their intended use or sale. Investment income earned on the temporary investment of speci!c borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets.

Other borrowing costs are recognised as an expense in the period in which they are incurred.

1.19 Government GrantsGovernment grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate.

1.20 Discontinued OperationsThe results of discontinued operations are presented separately in the statement of comprehensive income and the assets associated with these operations are included with non-current assets held for sale in the statement of !nancial position.

They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.

1.21 Post-balance Sheet EventsRecognised amounts in the annual !nancial statements are adjusted to re"ect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note.

1.22 Irregular and Fruitless and Wasteful Expenditure

Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA.

Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised.

All irregular and fruitless and wasteful expenditure is charged against income in the period in which it is incurred.

1.23 Adoption of Generally Accepted Accounting Practice

The Group has adopted the following new and amended IFRS as of 1 January 2010:

1. IFRS 3 (revised): Business Combinations (effective from 1 July 2009) The revised standard continues to apply the acquisition method to business combinations, with some signi!cant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classi!ed as debt subsequently remeasured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at fair vale or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition related costs should be expensed. The Group will apply IFRS 3 (revised) prospectively to all business combinations from 1 April 2010.

2. IFRS 5 (amendment): Non-current Assets Held for Sale and Discontinued Operations (effective 1 January 2010) The amendment clari!es that IFRS 5 speci!es the disclosures required in respect of non-current assets (or disposal groups) classi!ed as held for sale or discontinued operations. It also clari!es that the general requirement of IAS 1 still applies, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.

3. IFRS 7 (amendment): Financial Instruments – Disclosures (effective 1 January 2009) The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosure, there is no impact on earnings per share.

4. IAS 1 (revised): Presentation of Financial Statements (effective 1 January 2011) The amendments to IAS 1 clarify that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the !nancial statements. The Group will present the required analysis of other comprehensive income in the statement of changes in equity. The amendments have been applied retrospectively. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share. The Group has applied the amendment in advance to their effective date.

5. Statement of Cash Flow (effective date 1 January 2010) The amendments (part of Improvements to IFRS (2009)) specify that only expenditures that result in a recognised asset in the statement of !nancial


position can be classi!ed as investing activities in the statement of cash "ow. Consequently, cash "ows in respect of development costs that do not meet the criteria in IAS 28: Intangible Assets for capitalisation as part of an internally-generated intangible asset (and, therefore, are recognised in pro!t or loss as incurred) have been reclassi!ed from investing activities to operating activities in the statement of cash "ow. Prior year amounts have been restated for consistent presentation.

6. IAS 21 (amended): The Effects of Changes in Foreign Exchange Rates (effective 1 July 2010) Consequential amendments were made to IAS 21 due to the changes to IAS 27: Consolidated and Separate Financial Statements. The amendment clari!es the transition rules in respect of the disposal or partial disposal of an interest in a foreign operation.

7. Revised IAS 24 (revised): Related Party Disclosures The !rst amendment to IAS 24 modi!es the de!nition of a related party and removes inconsistencies. The second amendment to IAS 24 simpli!es disclosures for government related entities. Until now, if a government controlled, or signi!cantly in"uenced, an entity, the entity was required to disclose information about all transactions with other entities controlled, or signi!cantly in"uenced, by the same government. The revised standard still requires disclosures that are important to users of !nancial statements, but eliminates requirements to disclose information that is costly to gather and of less value to users. It achieves this balance by requiring disclosure about these transactions only if they are individually or collectively signi!cant.

8. IAS 27 (revised): Consolidated and Separate Financial Statements (effective from 1 July 2010) The revised standard has affected the Group’s accounting policies regarding changes in ownership interests in its subsidiaries that do not result in loss of control. In prior years, in the absence of speci!c requirements in IFRS, increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised, when appropriate; for decreases in interests in existing subsidiaries that did not involve a loss of control, the difference between the consideration received and the adjustment to the non-controlling interests was recognised in pro!t or loss. Under IAS 27 (2008), all such increases or decreases are dealt with in equity, with no impact on goodwill or pro!t or loss. The

Group will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010.

9. IAS 38 (amendment): Intangible Assets The amendment is part of the IASB’s annual improvements project published in April 2009 and the Group and Company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clari!es guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on the Group or Company’s !nancial statements.

The following standards and amendments to existing standards have been published and are not yet effective and the Group has not adopted them earlier.

1. IFRS 3 (amended): Business Combinations (effective from 1 July 2010) When IFRS 3 (2008) was issued, it was unclear as to whether the new requirement for contingent consideration should be applied to contingent consideration arising from business combinations that took place before the application of IFRS 3. Consequently, the IASB amended IFRS 3 as part of Improvements to IFRS’s issued in 2010 to clarify that the new requirements for contingent consideration set out in IFRS 3 should not be applied to business combinations whose acquisition date preceded the application of IFRS 3. The amendments are effective for annual periods beginning on or after 1 July 2010, with earlier application permitted. At the date of the application of IFRS 3, where entities have outstanding contingent consideration arrangements arising from business combinations whose acquisition dates preceded the application of IFRS 3, they should consider early application of the amendments.

As part of Improvements to IFRS issued in 2010, IFRS 3 was amended to clarify that the measurement choice regarding non-controlling interests at the date of acquisition (see above) is only available in respect of non-controlling interests that are present ownership interests and that entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation. All other types of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by other standards.

In addition, as part of Improvements to IFRS issued in 2010, IFRS 3 was amended to give more

1.23 Adoption of Generally Accepted Accounting Practice (continued)



guidance regarding the accounting for share-based payment awards held by the acquiree’s employees. Speci!cally, the amendments specify that share-based payment transactions of the acquiree that are not replaced should be measured in accordance with IFRS 2: Share-based Payment at the acquisition date (“market-based measure”).

2. IFRS 7 (amended): Financial Instruments – Disclosures (effective from 1 January 2011) The !rst amendment to IFRS 7 clari!es the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. The amendments have been applied retrospectively. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

The second amendments to this standard require additional disclosure on transfer transactions of !nancial assets, including the possible effects of any residual risks that the transferring entity retains. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.

3. IFRS 9: Financial Instruments (issued in November 2009)This standard is the !rst step in the process to replace IAS 39: Financial Instruments – Recognition and Measurement. IFRS 9 introduces new requirements for classifying and measuring !nancial assets and is likely to affect the Group’s accounting for its !nancial assets. The standard is not applicable until 1 January 2013.

4. IAS 12: Income Taxes (effective 1 January 2012) IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be dif!cult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40: Investment Property. The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will, normally, be through sale.

As a result of the amendments, SIC 21: Income Taxes – Recovery of Revalued Non-depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is accordingly withdrawn.

1.23 Adoption of Generally Accepted Accounting Practice (continued)

1.24 Key Assumptions Made by Management in Applying Accounting Policies

Critical Accounting Estimates and JudgementsIn preparing the annual !nancial statements in terms of SA GAAP, the Group’s management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual !nancial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgements are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.

Environmental and Decommissioning ProvisionProvision is made for environmental and decommissioning costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are made in determining the present obligation of environmental and decommissioning provisions, which include the actual estimate, the discount rate used and the expected date of closure of mining activities in determining the present value of environmental and decommissioning provisions. Estimates are based upon costs that are regularly reviewed by internal and external experts, and adjusted as appropriate for new circumstances.

Other ProvisionsFor other provisions, estimates are made of legal or constructive obligations resulting in the raising of provisions and the expected date of probable out"ow of economic bene!ts to assess whether the provision should be discounted.

Impairments and Impairment ReversalsImpairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash "ows and discount rates used. In estimating the cash "ows, management bases cash "ow projections on reasonable and supportable assumptions that represent management’s best estimate of the


range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that re!ect the current market assessment of the time value of money and the risks speci"c to the assets for which the future cash !ow estimates have not been adjusted.

Contingent LiabilitiesManagement considers the existence of possible obligations which may arise from legal action as well as the possible non-compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible out!ow of economic bene"ts should there be a present obligation.

Evaluation of the Useful Life of AssetsOn an annual basis, management evaluates the useful life of all assets. In carrying out this exercise, experience of assets’ historical performance and the medium-term business plan are taken into consideration.



NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 March 2011

2. PROPERTY, PLANT AND EQUIPMENT2011 2010

Cost/valuation

R’000

Accumulated depreciation

R’000

Carrying value R’000

Cost/valuation

R’000


R’000

Carrying value

R’000

GROUP

Land 26 645 – 26 645 16 715 – 16 715

Production assets 19 861 937 (16 295 126) 3 566 811 18 873 930 (15 632 034) 3 241 896

Furniture, !ttings, of!ce equipment and vehicles 584 751 (430 835) 153 916 580 798 (355 115) 225 683

Restoration costs 1 889 355 (582 124) 1 307 231 601 029 (582 123) 18 906

Shutdown costs capitalised 461 705 (307 804) 153 901 461 705 (153 902) 307 803

Assets under development 2 032 030 – 2 032 030 2 846 672 – 2 846 672

Total 24 856 423 (17 615 889) 7 240 534 23 380 849 (16 723 174) 6 657 675

COMPANY

Land 26 645 – 26 645 16 715 – 16 715

Production assets 19 861 937 (16 295 126) 3 566 811 18 873 930 (15 632 034) 3 241 896

Furniture, !ttings, of!ce equipment and vehicles 577 618 (426 110) 151 508 572 984 (351 592) 221 392

Restoration costs 1 889 355 (582 124) 1 307 231 601 029 (582 123) 18 906

Shutdown costs capitalised 461 705 (307 804) 153 901 461 705 (153 902) 307 803

Assets under development 2 032 030 – 2 032 030 2 846 672 – 2 846 672

Total 24 849 290 (17 611 164) 7 238 126 23 373 035 (16 719 651) 6 653 384


2. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)RECONCILIATION OF PROPERTY, PLANT AND EQUIPMENT: GROUP – 2011

Opening balance

R’000Additions

R’000Disposals

R’000

Written back

during the year

R’000Transfers

R’000

Foreign exchange

move-mentsR’000

Change in estimate

R’000

De-preciation

R’000Total

R’000

Land 16 715 9 930 – – – – – – 26 645

Production assets 3 241 896 – (836) – 988 858 – – (663 107) 3 566 811

Furniture, !ttings, of!ce equipment and vehicles 225 683 12 109 (214) – – (1) – (83 661) 153 916

Restoration costs 18 906 – – 107 292 – – 1 518 956 (337 923) 1 307 231

Shutdown costs capitalised 307 803 – – – – – – (153 902) 153 901

Assets under development 2 846 672 175 032 (816) – (988 858) – – – 2 032 030

6 657 675 197 071 (1 866) 107 292 – (1) 1 518 956 (1 238 593) 7 240 534

RECONCILIATION OF PROPERTY, PLANT AND EQUIPMENT: GROUP – 2010

Opening balance

R’000Additions

R’000Disposals

R’000

Written back

during the year

R’000Transfers

R’000

Foreign exchange

move-mentsR’000

Change in estimate

R’000

De-preciation

R’000Total

R’000

Land 16 715 – – – – – – – 16 715

Production assets 3 383 891 24 531 – – 304 477 – – (471 003) 3 241 896

Furniture, !ttings, of!ce equipment and vehicles 259 374 48 379 (976) – – (13) – (81 081) 225 683

Restoration costs 79 438 28 255 – 314 235 – – (357 256) (45 766) 18 906

Shutdown costs capitalised – 22 – – 461 705 – – (153 924) 307 803

Assets under development 2 409 846 1 201 651 – – (764 825) – – – 2 846 672

6 149 264 1 302 838 (976) 314 235 1 357 (13) (357 256) (751 774) 6 657 675

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2011


2. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)RECONCILIATION OF PROPERTY, PLANT AND EQUIPMENT: COMPANY – 2011

Opening balance

R’000Additions

R’000Disposals

R’000

Writtenback

duringthe year

R’000Transfers

R’000

Change in estimate

R’000

De-preciation

R’000TotalR’000

Land 16 715 9 930 – – – – – 26 645

Production assets 3 241 896 – (836) – 988 858 – (663 107) 3 566 811

Furniture, !ttings, of!ce equipment and vehicles 221 392 11 960 (76) – – – (81 768) 151 508

Restoration costs 18 906 – – 107 292 – 1 518 956 (337 923) 1 307 231

Shutdown costs capitalised 307 803 – – – – – (153 902) 153 901

Assets under development 2 846 672 175 032 (816) – (988 858) – – 2 032 030

6 653 384 196 922 (1 728) 107 292 – 1 518 956 (1 236 700) 7 238 126

RECONCILIATION OF PROPERTY, PLANT AND EQUIPMENT: COMPANY – 2010

Opening balance

R’000Additions

R’000Disposals

R’000

Writtenback

duringthe year

R’000Transfers

R’000

Other changes,

move-mentsR’000

De-preciation

R’000Total

R’000

Land 16 715 – – – – – – 16 715

Production assets 3 383 891 24 531 – – 304 477 – (471 003) 3 241 896

Furniture, !ttings, of!ce equipment and vehicles 253 740 46 832 (72) – – – (79 108) 221 392

Restoration costs 79 438 28 255 – 314 235 – (357 256) (45 766) 18 906

Shutdown costs capitalised – 22 – – 461 705 – (153 924) 307 803

Assets under development 2 409 846 1 201 651 – – (764 825) – – 2 846 672

6 143 630 1 301 291 (72) 314 235 1 357 (357 256) (749 801) 6 653 384

A register containing the information required by paragraph 22(3) of Schedule 4 of the Companies Act is available for inspection at the registered of!ce of the Company.

Restoration expenditure relates to the provision for restoration costs and is amortised on a units-of-production basis over the expected useful life of the reserves.

PetroSA entered into an agreement with the Mossel Bay Municipality to jointly construct a desalination plant in Mossel Bay. PetroSA’s portion has been included as an asset under construction. Total spend at 31 March 2011 amounts to R53 million (excluding VAT).

The units-of-production method is used in calculating depreciation on producing assets. Due to the nature of the business the gas and oil reserves at the end of each !nancial year differs from the previous year. This necessitates a change in the estimated remaining useful lives of these producing assets at the end of each !nancial year. The effect on the current year is an increase in pro!t of R232 million and the effect on pro!ts in future years is 2012: R148 million (2013: R41 million; 2014: R17 million; 2015 – 2020: loss of R420 million).


3. INTANGIBLE ASSETS2011 2010

Cost/valuation

R’000

Accumu-lated

amortisationR’000

Carrying valueR’000

Cost/valuation

R’000

Accumu-lated

amortisationR’000


GROUP

Exploration licensing fee 79 162 – 79 162 79 162 – 79 162

Software 5 573 (4 462) 1 111 5 573 (3 041) 2 532

Total 84 735 (4 462) 80 273 84 735 (3 041) 81 694

COMPANY

Software 5 573 (4 462) 1 111 5 573 (3 041) 2 532

RECONCILIATION OF INTANGIBLE ASSETS: GROUP – 2011

Opening balance

R’000Amortisation

R’000TotalR’000

Exploration licensing fee 79 162 – 79 162

Software 2 532 (1 421) 1 111

81 694 (1 421) 80 273

RECONCILIATION OF INTANGIBLE ASSETS: GROUP – 2010

Opening balance

R’000Additions

R’000Amortisation

R’000Total

R’000

Exploration licensing fee 79 162 – – 79 162

Software 3 997 19 (1 484) 2 532

83 159 19 (1 484) 81 694

RECONCILIATION OF INTANGIBLE ASSETS: COMPANY – 2011

Opening balance

R’000Amortisation

R’000TotalR’000

Software 2 532 (1 421) 1 111

RECONCILIATION OF INTANGIBLE ASSETS: COMPANY – 2010

Opening balance

R’000Additions

R’000Amortisation

R’000Total

R’000

Software 3 997 19 (1 484) 2 532



4. ASSETS PENDING DETERMINATION2011 2010

Cost/valuation

R’000


R’000


Cost/valuation

R’000


R’000

Carrying value

R’000

GROUP

Exploratory wells – – – – – –

COMPANY

Exploratory wells – – – – – –

RECONCILIATION OF ASSETS PENDING DETERMINATION: GROUP – 2011

Openingbalance

R’000Total

R’000

Exploratory wells – –

RECONCILIATION OF ASSETS PENDING DETERMINATION: GROUP – 2010

Opening balance

R’000Transfers

R’000Total

R’000

Exploratory wells 54 793 (54 793) –

RECONCILIATION OF ASSETS PENDING DETERMINATION: COMPANY – 2011

Opening balance

R’000TotalR’000

Exploratory wells – –

RECONCILIATION OF ASSETS PENDING DETERMINATION: COMPANY – 2010

Opening balance

R’000Transfers

R’000 TotalR’000

Exploratory wells 54 793 (54 793) –


Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

5. DEFERRED TAXDEFERRED TAX ASSET (LIABILITY)

Loans (1 139) 1 139 (1 139) 1 139

Tax losses available for set off against future taxable income (122 706) 195 184 (122 706) 195 184

Provisions (794 776) 794 776 (794 776) 794 776

Capital allowances 918 621 (918 621) 918 621 (918 621)

Deferred tax – current portion – 286 – –

– 72 764 – 72 478

RECONCILIATION OF DEFERRED TAX ASSET (LIABILITY)

At the beginning of the year 72 764 80 964 72 478 80 964

Originating and reversing temporary differences (72 764) (8 200) (72 478) (8 486)

BALANCE AT THE END OF YEAR – 72 764 – 72 478

RECOGNITION OF DEFERRED TAX ASSETIn the current year, the deferred tax asset was written back as it is not expected to be utilised against taxable pro!ts in the foreseeable future.

The current portion of deferred tax relates to PetroSA Europe BV.



Group Company

2011 R’000

2010 R’000

2011 R’000

2010R’000

6. INVESTMENTS IN SUBSIDIARIESThe carrying amounts of subsidiaries are shown net of impairment losses.

PetroSA SYNFUEL INTERNATIONAL (PTY) LIMITED (100%)

SharesBalance at the beginning of the year – – 501 501

Provision for impairment – – (501) (501)

Balance at the end of the year – – – –

Shares – – 501 501

PetroSA SUDAN (PTY) LIMITED (100%)

LoansBalance at the beginning of the year – – (0.12) (0.12)

SharesBalance at the beginning of the year – – 0.12 0.12

Loans – – (0.12) (0.12)

Shares – – 0.12 0.12

Carrying amount of investment – – – –

PETROLEUM OIL AND GAS CORPORATION OF SOUTH AFRICA (NAMIBIA) (PTY) LIMITED (100%)



Loans – – (0.12) (0.12)

Shares – – 0.12 0.12


PetroSA NORTH AMERICA (100%)


Dissolution of subsidiary – – 0.07 –

Balance at the end of the year – – – (0.07)


Dissolution of subsidiary – – (0.07) –

Balance at the end of the year – – – 0.07

Loans – – – (0.07)

Shares – – – 0.07



Group Company

2011 R’000

2010 R’000

2011 R’000

2010R’000

6. INVESTMENTS IN SUBSIDIARIES (CONTINUED)

PetroSA EGYPT (PTY) LIMITED (100%)



Loans – – (0.10) (0.10)

Shares – – 0.10 0.10


PetroSA NIGERIA LIMITED (100%)

LoansBalance at the beginning of the year – – 1 421 1 285

Advances (repayments) during the year – – 492 136

Balance at the end of the year – – 1 913 1 421

SharesBalance at the beginning of the year – – 1 235 1 235

Loans – – 1 913 1 421

Shares – – 1 235 1 235

Carrying amount of investment – – 3 148 2 656

PetroSA EUROPE BV (100%)

SharesBalance at the beginning of the year – – 166 166

Share premiumBalance at the beginning of the year – – 2 965 2 965

Shares – – 166 166

Share premium – – 2 965 2 965

Carrying amount of investment – – 3 131 3 131

PetroSA BRASS (PTY) LIMITED (100%)



Loans – – (0.06) (0.06)

Shares – – 0.06 0.06




Group Company2011

R’000 2010 R’000

2011 R’000

2010R’000

6. INVESTMENTS IN SUBSIDIARIES (CONTINUED)

PetroSA GRYPHON MARIN PERMIT (PTY) LIMITED (100%)LoansBalance at the beginning of the year – – (0.06) (0.06)


Loans – – (0.06) (0.06)Shares – – 0.06 0.06Carrying amount of investment – – – –

PetroSA IRIS (PTY) LIMITED (100%)LoansBalance at the beginning of the year – – (0.06) (0.06)



PetroSA THEMIS (PTY) LIMITED (100%)




PetroSA EQUATORIAL GUINEA (PTY) LIMITED (100%)LoansBalance at the beginning of the year – – (0.06) (0.06)



TOTALLoans – – 1 912 1 420Shares – – 1 903 1 903Share premium – – 2 965 2 965Provision for impairment – – (501) (501)Carrying amount of investment – – 6 279 5 787


7. INVESTMENTS IN ASSOCIATES

Name of companyCountry of

incorporation% holding

2011% holding

2010

Carrying amount

2011R’000

Carrying amount

2010R’000

GROUP

GTL.F1 AG Switzerland 37.50% 37.50% – –

COMPANY

GTL.F1 AG Switzerland 37.50% 37.50% 23 490 23 490

ASSOCIATES WITH DIFFERENT REPORTING DATESThe reporting date of the associate is not the same as that of the Group. The Group results include the performance of GTL.F1 AG for the year end 31 December 2010.

ASSOCIATES EQUITY ACCOUNTED FORSummary of associate’s !nancial information:

GTL.F1 AG 2011R’000

2010R’000

Total assets 83 029 92 642

Total liabilities (102 155) (92 378)

Revenue 25 032 –

Pro!t or (loss) (10 554) (18 243)



Group Company

2011 R’000

2010 R’000

2011 R’000

2010R’000

8. OTHER FINANCIAL ASSETSLOANS AND RECEIVABLES

GTL.F1 AG 30 367 31 031 30 367 31 031

This loan is interest free and has no !xed repayment terms.

Lürgi 86 608 104 371 86 608 104 371

The amount owing by Lürgi is in respect of a purchase of 12.5% share in the PetroSA Statoil Joint Venture. The loan accrues interest at EUROBOR +0.75%. The loan is repayable based on dividends receivable by Lürgi from the GTL.F1 AG technology company.

Brass Exploration Unlimited – – – –

The loan to Brass incurs interest at LIBOR +14% and has no !xed repayment terms.

PetroSA Equatorial Guinea – – 1 206 680 759 980

The loan has no !xed repayment terms and interest accrues at prime +2%.

PetroSA Sudan – – – –


PetroSA North America – – – 949

The loan for PetroSA North America also has no !xed repayment terms and accrues interest at LIBOR +2%.

PetroSA Egypt – – 945 158 990 351


PetroSA Gryphon Marin – – – 261 341


SUBTOTAL 116 975 135 402 2 268 813 2 148 023

LOANS AND RECEIVABLES (IMPAIRMENTS) – – (945 158) (1 251 693)

116 975 135 402 1 323 655 896 330

During the year, a decision was taken to write off PetroSA’s loan to PetroSA Gryphon Marin due to its irrecoverability. PetroSA has impaired its loans to PetroSA Egypt of R945 million (2010: R990 million and 2010: PetroSA Gryphon Marin for the value of R261 million), due to their recoverability being doubtful.

PetroSA has subordinated the loans to various subsidiaries in favour of other creditors of the above-mentioned companies until such time as the assets fairly valued exceed the liabilities.


Group Company

2011 R’000

2010 R’000

2011 R’000

2010R’000

9. AMOUNTS HELD BY HOLDING COMPANYThis deposit is held by CEF (Pty) Limited as security for guarantees issued by itself to third parties on behalf of PetroSA.

CEF (Pty) Limited 489 021 537 648 489 021 537 648

10. INVENTORIESThe amounts attributable to the different categories are as follows:

Petroleum fuels 923 146 733 128 923 146 733 128

Work-in-progress 84 276 82 226 84 276 82 226

Consumable stores, spares and catalysts 568 405 600 397 502 621 537 006

1 575 827 1 415 751 1 510 043 1 352 360

11. LOANS FROM GROUP COMPANIESSUBSIDIARIES

PetroSA Sudan – – – 1 292


PetroSA Brass – – 1 –


– – 1 1 292

Non-current liabilities – – 1 –

Current liabilities – – – 1 292

– – 1 1 292

12. TRADE AND OTHER RECEIVABLESTrade receivables 1 230 963 1 413 063 1 230 143 1 411 608

Prepayments 320 036 91 210 317 758 87 430

Deposits 207 209 – –

VAT 245 33 672 – –

Foreign receivables – 373 – –

Provision for bad debts (49 768) (50 964) (49 768) (50 958)

Sundry receivables 568 661 300 804 574 051 306 783

2 070 344 1 788 367 2 072 184 1 754 863

The provision for doubtful debts consists of a number of customer account balances. The balance is aged as R43.5 million (2010: R49.7 million) at over 120 days, R5.3 million (2010: R1.3 million) between 90 – 120 days, R0.1 million between 60 – 90 days, R0.1 million between 30 – 60 days and R0.7 million as current.



Group Company

2011 R’000

2010 R’000

2011 R’000

2010R’000

12. TRADE AND OTHER RECEIVABLES (CONTINUED)RECONCILIATION OF PROVISION FOR IMPAIRMENT OF TRADE AND OTHER RECEIVABLES

Opening balance 50 964 48 076 50 958 48 070

Impairment losses recognised on receivables 12 495 3 894 12 495 3 888

Written off (11 409) – (11 403) –

Amounts recovered during the year (2 282) (1 006) (2 282) (1 000)

49 768 50 964 49 768 50 958

13. CASH AND CASH EQUIVALENTSCash and cash equivalents consist of cash on hand and balances with banks, and investments in money market instruments. Cash and cash equivalents included in the statement of !nancial position comprise the following:

Short-term investments in money market and cash on hand 11 825 512 10 002 688 11 795 852 9 979 415

Bank balances 1 449 – – –

Term deposits 25 537 24 338 – –

Bank overdraft – (119 426) – (119 426)

11 852 498 9 907 600 11 795 852 9 859 989

Current assets 11 852 498 10 027 026 11 795 852 9 979 415

Current liabilities – (119 426) – (119 426)

11 852 498 9 907 600 11 795 852 9 859 989

A term deposit of R25 537 212 (2010: R24 338 385) is held in the company Energy Africa Rehabilitation (association incorporated under section 21), and is committed solely for the abandonment expenditure for the Oribi !eld.


Group Company2011

R’000 2010 R’000

2011 R’000

2010R’000

14. DISCONTINUED OPERATIONS OR DISPOSAL GROUPS OR NON-CURRENT ASSETS HELD FOR SALEThe Group has decided to discontinue its operations in PetroSA Nigeria and Brass Exploration Unlimited. The assets and liabilities of the disposal group are set out below.

PROFIT AND LOSSRevenue 594 770 576 319 – –Expenses (344 128) (378 005) – –Net pro!t before tax 250 462 198 314 – –Tax (228 961) (141 194) – –

21 681 57 120 – –

ASSETS AND LIABILITIESAssets of disposal groupsProperty, plant and equipment 80 499 154 577 – –Inventories 6 604 8 574 – –Trade and other receivables 144 456 111 957 – –Cash and cash equivalents 936 213 713 078 – –

1 167 772 988 186 – –

Liabilities of disposal groupsOther !nancial liabilities 177 393 110 604 – –Other payables 542 003 417 266 – –

719 396 527 870 – –

15. SHARE CAPITALAUTHORISED5 000 ordinary par value shares of R1 each 5 5 5 5

Issued1 914 ordinary par value shares of R1 each 2 2 2 2Share premium 2 755 934 2 755 934 2 755 934 2 755 934

2 755 936 2 755 936 2 755 936 2 755 936

16. LOANS FROM SHAREHOLDERCEF – 17 991 – 17 991This unsecured US Dollar loan was repayable in equal half-yearly instalments of US$3 097 879 (R29 793 851) with a !nal instalment of US$2 492 115 (R23 967 916) due on 28 February 2010. Interest rate – "oating to LIBOR.

Non-current liabilities – – – –Current liabilities – 17 991 – 17 991

– 17 991 – 17 991



17. PROVISIONSRECONCILIATION OF PROVISIONS: GROUP – 2011

Opening balance

R’000Additions

R’000

Utilised during

the yearR’000

Interest expense

R’000

Changein estimate

R’000Total

R’000Abandonment/Environment 3 565 595 1 737 – 419 969 1 518 956 5 506 257Post-retirement medical aid bene!ts 343 345 80 868 (280 625) – – 143 588Rehabilitation provision 7 500 – – – – 7 500Bonus 92 420 373 207 (110 025) – – 355 602

4 008 860 455 812 (390 650) 419 969 1 518 956 6 012 947

RECONCILIATION OF PROVISIONS: GROUP – 2010Abandonment/Environment 3 600 400 30 178 – 292 273 (357 256) 3 565 595Post-retirement medical aid bene!ts 300 230 45 287 (2 172) – – 343 345Rehabilitation provision 7 500 – – – – 7 500Bonus 104 306 71 110 (82 996) – – 92 420

4 012 436 146 575 (85 168) 292 273 (357 256) 4 008 860

RECONCILIATION OF PROVISIONS: COMPANY – 2011Abandonment/Environment 3 540 914 – – 419 969 1 518 956 5 479 839Post-retirement medical aid bene!ts 343 345 80 868 (280 625) – – 143 588Rehabilitation provision 7 500 – – – – 7 500Bonus 91 893 372 705 (109 497) – – 355 101

3 983 652 453 573 (390 122) 419 969 1 518 956 5 986 028

RECONCILIATION OF PROVISIONS: COMPANY – 2010Abandonment/Environment 3 577 642 28 255 – 292 273 (357 256) 3 540 914Post-retirement medical aid bene!ts 300 230 45 287 (2 172) – – 343 345Rehabilitation provision 7 500 – – – – 7 500Bonus 104 306 70 583 (82 996) – – 91 893

3 989 678 144 125 (85 168) 292 273 (357 256) 3 983 652

Group Company

2011 R’000

2010 R’000

2011 R’000

2010R’000

Non-current liabilities 5 649 819 3 913 618 5 623 427 3 888 901Current liabilities 363 128 95 242 362 601 94 751

6 012 947 4 008 860 5 986 028 3 983 652

POST-RETIREMENT MEDICAL AID BENEFITSThe assumptions surrounding the provision were amended to be more aligned with the lifespan of the GTL re!nery. This change has resulted in a decrease in current year pro!ts of R34 million (2012: R16 million). PetroSA contributes to a medical aid scheme for retired and medically un!t employees.

REHABILITATION PROVISIONThis amount is for the rehabilitation of the land at the Voorbaai terminal.


17. PROVISIONS (CONTINUED)ABANDONMENT/ENVIRONMENTThe R5 480 million provided for is based on the present value of the results of a new study conducted in 2010. The new study indicated that the base cost of the provision would increase from R2 614 million to R6 926 million, which resulted in a change in the provision estimate. The change to the abandonment provision will result in a decrease in pro!ts of R697 million in the current year (2012: R456 million; 2013: R421 million; 2014: R394 million; 2015 – 2020: R1 349 million). Other major assumptions include the risk-free rate decreasing from 9% to 8.3%, South African in"ation and US in"ation decreased from 6.5% to 5.5% and 3% to 1.5% respectively.

A sensitivity analysis indicates that an increase of 1% in the in"ation and risk-free rates will result in a movement in the interest charge and a change in estimate of the abandonment provision. The quantitative effect would be an increase of R51.9 million (2010: R32.2 million) with respect to the in"ation rate and an increase of R400.9 million (2010: R189.4 million) for the risk-free rate.

The resulting provision could also be in"uenced by changing technologies and political, environmental, safety, business and statutory considerations.

The total cost of future restoration costs is estimated at R10 339 million. This cost includes the gross expenditure to abandon and to rehabilitate both the onshore and offshore facilities, as well as other related closure costs. The costs are expected to be incurred as follows:

Financial year R’m2012 4552013 4932014 1 1682015 – 2034 8 223

BONUSThe provision is for incentives for PetroSA employees who qualify in terms of their individual as well as company performance during the !nancial year.

18. TRADE AND OTHER PAYABLESGroup Company

2011R’000

2010 R’000

2011 R’000

2010R’000

Trade payables 931 859 976 923 933 302 969 505VAT 6 621 – –Accrued leave pay 60 200 61 240 59 670 60 191Accrued expenses 515 791 421 609 492 557 272 795Deposits received 22 – 22 –Other payables 118 531 10 929 1 327 10 929

1 626 409 1 471 322 1 486 878 1 313 420

19. REVENUEGross revenue represents the invoiced value of crude oil, fuel sales and other goods and services supplied, excluding value added tax.

MAJOR CLASSES OF REVENUE COMPRISE

Fuel production sales 10 016 319 7 434 516 10 015 976 7 432 769Crude oil sales 549 066 655 652 549 066 655 652

10 565 385 8 090 168 10 565 042 8 088 421



Group Company2011

R’0002010 R’000

2011 R’000

2010 R’000

20. OPERATING PROFIT (LOSS)Operating pro!t (loss) pro!t for the year is stated after accounting for the following:

INCOME FROM SUBSIDIARIESAdministration and management fees 323 369 2 238 14 756

OPERATING LEASE CHARGESPremises

• Contractual amounts 5 820 4 340 2 426 1 927Motor vehicles

• Contractual amounts 16 9 – –Equipment

• Contractual amounts 49 38 – –5 885 4 387 2 426 1 927

Bad debts recovered 2 282 1 006 2 282 1 006Stock provision 3 030 72 180 3 030 72 180Loss on foreign exchange 48 287 177 263 54 165 177 263Impairment of accounts receivable 12 495 3 894 12 495 3 888(Pro!t) loss on dissolution of subsidiary 2 612 – (1 723) –Impairment/write-off on loans to Group companies – 355 (36 693) 1 235 780Amortisation on intangible assets 1 421 1 484 1 421 1 484Depreciation on property, plant and equipment 1 238 593 751 774 1 236 700 749 801Salaries and wages 855 770 825 269 839 129 810 789Pension and medical costs 136 101 129 444 136 101 129 444

21. AUDITORS’ REMUNERATIONAudit fee 5 072 5 643 4 551 5 115Expenses 62 228 62 33

5 134 5 871 4 613 5 148

22. INVESTMENT INCOMEDIVIDEND REVENUEDividends 1 – 1 723 –

INTEREST INCOMEBank 15 284 – –Investment 859 871 971 655 973 087 1 176 522

859 886 971 939 973 087 1 176 522859 887 971 939 974 810 1 176 522

23. FINANCE COSTSNon-current borrowings 89 1 395 89 1 122Bank 2 472 17 318 2 472 17 318Notional interest 419 969 292 273 419 969 292 273Foreign exchange difference on revaluation of foreign loans 4 86 546 – 86 546

422 534 397 532 422 530 397 259


Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

24. TAXATIONMAJOR COMPONENTS OF THE TAX (INCOME) EXPENSE

CurrentLocal income tax – current period 779 – – –

Local income tax – recognised in current tax for prior periods (386 526) (357 554) (386 468) (357 658)

Foreign income tax or withholding tax – current period 4 687 328 1 092 –

Foreign income tax or withholding tax – recognised in current tax for prior periods 62 427 – –

(380 998) (356 799) (385 376) (357 658)

DeferredBene!t of unrecognised tax loss 317 890 189 721 317 890 190 041

Movement of deferred tax (245 411) (181 556) (245 412) (181 556)

72 479 8 165 72 478 8 485

(308 519) (348 634) (312 898) (349 173)

Reconciliation of the tax expenseReconciliation between applicable tax rate and average effective tax rate.

Applicable tax rate 28.00% (28.00%) 28.00% (28.00%)

Permanent differences (47.20%) 20.37% (36.47%) 31.31%

Utilisation of assessed losses 0% 0% 0% 0%

Foreign taxes 0.13% (0.11%) 0.09% 0%

Remeasurement of deferred tax – Tenth Schedule 0% (2.46%) 0% (2.46%)

Assessed loss not recognised 6.34% 0% 11.71% 0%

Over accrual for previous tax year (48.83%) (35.66%) (36.00%) (35.66%)

(61.56%) (45.86%) (32.67%) (34.81%)

The Tax Amendment Act promulgated in November 2010, retrospectively inserted a new paragraph into the Tenth Schedule which allows for the deduction of PetroSA’s unredeemed capital expenditure balance, carried forward from the OP26 regime, a legislative predecessor to the Tenth Schedule. The effect of this amendment is a deduction of R10.8 billion in 2008. Upon reopening of PetroSA’s 2008 corporate tax return it is expected that SARS will refund R385 million (PetroSA’s provisional tax payments in 2008) together with accumulated interest.

As a direct result of the unredeemed capital expenditure deduction claimed in 2008, PetroSA is in an assessed loss position for 2011 and it is envisaged that in the foreseeable future PetroSA will remain in this position.

The unused tax loss for the year is R9.8 billion.



Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

25. CASH GENERATED FROM (USED IN) OPERATIONSPro!t (loss) before taxation 501 155 (762 205) 957 664 (1 005 033)

ADJUSTMENTS FOR:

Depreciation and amortisation 902 091 707 492 900 198 705 519

Notional interest (419 969) (292 273) (419 969) (292 273)

Dividends received (1) – (1 723) –

Interest received (859 886) (971 939) (973 087) (1 176 522)

Finance costs 422 534 397 532 422 530 397 259

Impairment loss (reversal) – 355 (36 693) 1 235 780

Movements in provisions 2 004 087 (3 576) 2 002 376 (6 026)

Movement in restoration costs (1 288 325) 60 532 (1 288 325) 60 532

Foreign exchange (gain) loss (111 753) (192 843) (77 501) (55 370)

Transfer of property, plant and equipment – 53 436 – 53 436

CHANGES IN WORKING CAPITAL

(Increase) decrease in inventories (160 076) 89 762 (157 683) 46 561

(Increase) decrease in trade and other receivables (281 977) 190 324 (317 321) 181 022

(Decrease) increase in trade and other payables 155 087 (346 480) 173 458 (353 422)

862 967 (1 069 883) 1 183 924 (208 537)

26. DIVIDENDS PAIDBalance at the beginning of the year – (375 000) – (375 000)

Dividends – – – –

Balance at the end of the year – – – –

– (375 000) – (375 000)

27. TAX REFUNDED (PAID)Charge to pro!t and loss 308 519 348 634 312 897 349 173

Movement in deferred taxation 72 765 8 200 72 478 8 486

Movement in taxation balance (123 748) (368 263) (128 306) (366 974)

(PAYMENTS MADE) AMOUNTS REFUNDED 257 536 (11 429) 257 069 (9 315)


Group Company

2011 R’000

2010 R’000

2011R’000

2010 R’000

28. CASH FLOWS OF HELD FOR SALE/DISCONTINUED OPERATIONSNon-current assets held for sale (179 586) 1 064 116 – –

Liabilities of disposal groups 191 526 (617 758) – –

Pro!t from discontinuing operations 21 681 57 120 – –

33 621 503 478 – –

29. GOVERNMENT GRANTS RECEIVABLEPetroSA receives a government grant for training on projects. In terms of the signed agreement, PetroSA will receive a refund based on the cost incurred in order to provide specialised training on the project.

Grants received 3 469 3 720 3 469 3 720

30. EMPLOYEE BENEFITSIt is the policy of the Group to provide retirement bene!ts for all its eligible permanent employees. All eligible permanent employees are either members of the Mossgas Pension Fund, a de!ned bene!t fund, or PetroSA Retirement Fund, a de!ned contribution fund, both subject to the Pension Funds Act No. 24 of 1956.

PENSIONS AND RETIREMENT FUNDS

De!ned bene!t pension planThe Company operated a de!ned bene!t pension plan for the bene!t of employees. The plan was governed by the Pension Funds Act No. 24 of 1956. The assets of the plan were administered by trustees in a fund independent of the Company.

The Mossgas Pension Fund was closed to new entrants during 1996. With effect from 1 October 2007 all in-service members were transferred out of the fund to the PetroSA Retirement Fund, and future accrual of bene!ts under the pension fund ceased. Application was made to the Registrar to transfer the accrued bene!ts of in-service members to the PetroSA Retirement Fund, and to transfer the pensioner liabilities to individual annuity policies with Old Mutual. The Registrar's approval was granted and all liabilities have been fully transferred. The trustees have appointed a liquidator, the Registrar approved of this appointment and the fund was placed into liquidation in October 2010.

The last actuarial valuation was performed as at 31 January 2010 and the independent actuary was of the opinion that the fund was !nancially sound. As the fund as been placed into liquidation, the actuarial present value of promised retirement bene!ts as at 31 January 2010 was zero. The fair value of the plan assets had an actuarial value of R12.2 million and a market value of R12.2 million as at 31 January 2010, which also equates to the actuarial surplus. The Fund was valued using the “attained age method”.

De!ned contribution pension planPetroSA Retirement FundThe Company operates a de!ned contribution retirement plan for the bene!t of employees who are not members of the Mossgas Pension Fund. All employees who commenced employment after 1 April 1996 qualify for membership of this fund. The amount recognised as an expense during the year under review was R81.9 million (2010: R78.1 million) for the retirement fund.



30. EMPLOYEE BENEFITS (CONTINUED)MEDICAL BENEFITS

Post-employment medical bene!tsThe Group has provided an amount of R143.6 million (2010: R343.3 million) towards the funding of post-retirement medical scheme costs for all employees and pensioners. This commitment is actuarially valued annually, the most recent valuation performed as at 31 March 2011.

During the year, PetroSA offered in-service employees the opportunity to have their post-retirement medical bene!ts transferred to the PetroSA retirement fund. The total liability transferred amounted to R280.6 million.

The actuarial present value of promised retirement medical bene!ts at 31 March 2011 is R143.6 million. The obligation is unfunded and was valued using the projected unit credit method. A discount rate of 8.9% and medical aid in"ation rate of 7.0% was assumed. Mortality assumptions were in line with standard tables SA56/62 (in service) and PA(90) (in retirement). A sensitivity analysis was performed on the medical aid in"ation rate assumption used in the valuation. An 8.0% and 6.0% medical aid in"ation rate assumption would result in an accumulated obligation at 31 March 2011 of R163.8 million and R126.7 million respectively. The combined interest and service costs vary according to the medical aid in"ation assumptions and are R15.8 million (7.0%), R18.2 million (8.0%) and R13.8 million (6.0%).

Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

31. CONTINGENCIESGUARANTEES

1. The Group has issued guarantees in favour of !nancial institutions in respect of housing loans granted by such institutions to employees of the Group amounting to – 969 – 969

2. The Group’s share of 55% of costs being US$3.356 million would be payable from PetroSA’s share of revenues from any future production within the E-P tract should the tract be successful, thus representing a contingent liability. 22 766 24 581 22 766 24 581

3. The Group has issued guarantees in favour of a !nancial institution in respect of vehicle loans granted by such institution to employees of the Group amounting to – 957 – 957

4. The Group has issued guarantees for the rehabilitation of land disturbed by mining on the Sable !eld, amounting to 180 000 180 000 180 000 180 000

5. The Group has issued performance bonds in favour of the Egyptian General Petroleum Corporation in respect of minimum work obligations required for exploration operations in Egypt (US$17.7 million) – – – –

6. The Group has issued performance guarantees in favour of the Republic of Equatorial Guinea in respect of minimum work obligations required for exploration in Equatorial Guinea (US$18 million) 122 107 131 841 122 107 131 841

7. The Group has issued a parent company guarantee in favour of Aban Abraham in respect of rig hire for PetroSA Equatorial Guinea for US$24.4 million valid until 15 March 2010 – – – –


Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

31. CONTINGENCIES (CONTINUED)GUARANTEES (CONTINUED)

8. The Group has issued a manufacture and excisable bond in favour of the South African Revenue Services 5 000 5 000 5 000 5 000

9. The Group has issued an evergreen VAT guarantee in favour of the Dutch VAT Authorities (!0.455 million) 4 386 4 482 4 386 4 482

11. A bank guarantee of LE96 000 for the leasing of land at Marsa Marina was issued by PetroSA Egypt (Pty) Limited – 480 – –

12. A bank guarantee of LE250 000 for the leasing of the jetty at Marsa Marina was issued by PetroSA Egypt (Pty) Limited – 7 – –

13. The Group has issued a stand-by letter of credit in favour of Heraeus, Germany, for the loan of platinum for US$2.5 million valid until 30 April 2010 – 18 311 – 18 311

334 259 366 628 334 259 366 141

CLAIMS

PetroSA is considering settling a claim made by a former employee 1 092 600 1 092 600

PetroSA is considering settling a claim made in terms of a contract 13 225 – 13 225 –

14 317 600 14 317 600



Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

32. COMMITMENTSAUTHORISED CAPITAL EXPENDITURE

Approved by the directorsContracted for 1 924 174 2 321 129 1 924 174 2 321 129

Not contracted for 9 814 029 1 049 859 9 814 029 1 049 859

11 738 203 3 370 988 11 738 203 3 370 988

OPERATING LEASE COMMITMENTS

PetroSA– within one year 443 2 465 443 2 465

– in second to !fth years inclusive – 416 – 416

443 2 881 443 2 881

Of!ce space was leased at the Tyger Valley Chambers in Parow, Cape Town, effective from 1 June 2008. The lease payment was !xed at R178 345 per month, with an 8% escalation per annum.The period of the lease agreement is three years and ends on 31 May 2011.

PetroSA Europe BV – of!ce space– within one year 470 264 – –

– in second to !fth years inclusive 1 253 967 – –

1 723 1 231 – –

Of!ce space was leased at 3011XB Willemswerf, 13th Floor, Boomjes, effective 1 December 2004. The lease payment is "40 960 per annum, with an in#ationary escalation per annum. The period of the lease agreement was initially for !ve years and was extended for a further !ve-year period ending on 30 November 2014, at which time PetroSA Europe BV has the option to renew the lease for a further !ve year period.

PetroSA Europe BV – motor vehicles

– within one year 253 242 – –

– in second to !fth years inclusive 265 403 – –

518 645 – –

Motor vehicles are leased on behalf of the company’s employees. The standard contract period is 48 months. The expiry dates are 18 January 2013 and 27 May 2013.


Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

32. COMMITMENTS (CONTINUED)PetroSA Europe BV – apartments– within one year 535 727 – –

– in second to !fth years inclusive – 622 – –

535 1 349 – –

Apartments are leased for its employees. There are currently two apartment leases. One is operated on a month-to-month basis with a notice period of one month and the other is renewable on a six-monthly basis with 1 May 2011 being the date of renewal. The annual rental will be adjusted in line with CPI – all household series.

Equatorial Guinea– within one year 614 614 – –

Of!ce space was leased in Malabo for a two-year period, effective from 1 February 2011 to 31 January 2012. The lease payments are CFA4 000 000 per month and were paid in advance for a year.

Equatorial Guinea– within one year – 321 – –

The Company entered into lease agreements for staff accommodation for two employees, effective until 14 May 2010 and 31 August 2010, payable monthly in advance.

PetroSA Egypt– within one year 184 1 070 – –

– in second to !fth years inclusive 148 – – –

332 1 070 – –

Of!ce space was leased for employees in Cairo. The lease has a three-year period from 1 January 2010 to 31 December 2012 with a monthly lease payment of U$2 000, payable six months in advance. The lease payments will escalate annually on 1 January by 10%.

PetroSA North America– within one year – 335 – –

– in second to !fth years inclusive – – – –

– 335 – –

Of!ce space was leased at Lyric Centre Of!ce Building, 440 Louisiana Street, Houston, Harris County, Texas, 77002. The effective starting date was 1 December 2007 and the lease period is 36 months with a monthly payment of US$4 251.99 and US$4 425.99 and an escalation of 0.692% linked to the increase in taxes, operating expenses and utility costs.



33. FINANCIAL INSTRUMENTSINTRODUCTIONThe Group has a risk management and central treasury function that manages the !nancial risks relating to the Group’s operations. The Group’s liquidity, credit, foreign exchange, interest rate and crude oil price risks are monitored continually. Approved policies exist for managing these risks.

RISK PROFILEIn the course of the Group’s business operations it is exposed to liquidity, credit, foreign exchange, interest rate and crude oil price risk. The risk management policy of the Group relating to each of these risks is discussed below.

RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s objective in using !nancial instruments is to reduce the uncertainty over future cash "ows arising from movements in foreign exchange, interest rates and crude oil prices. Throughout the year under review it has been, and remains, the Group’s policy that no speculative trading in derivative instruments be undertaken.

FOREIGN CURRENCY MANAGEMENTThe Group is exposed to foreign currency "uctuations as it raises funding on the offshore !nancial markets, imports raw material and spares, and furthermore exports !nished product and crude oil. All local sales of !nished products are sold on a foreign currency denominated basis.

The Group takes cover on foreign exchange transactions where there is a future currency exposure. The Group also makes use of a natural hedge situation to manage foreign currency exposure.

A sensitivity analysis was done for the net effect on revenue and expenses, and the weakening or strengthening of the Rand/Dollar exchange rate by R1 based on actual revenue and cost will increase or decrease pro!t by R885.4 million (2010: R585.3 million) respectively.

FOREIGN CURRENCY INSTRUMENTSThe Group is mainly exposed to "uctuation in the Euro, GBP and USD. The Group measures its market risk exposure by running various sensitivity analyses including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only outstanding foreign currency denominated monetary items and adjusts their translation at the period-end for a 10% change in foreign currency rates.

FINANCIAL ASSETSAs at 31 March 2011 a 10% strengthening in ZAR against the relevant currencies would have resulted in a decrease in foreign currency denominated assets of R122.5 million (2010: R152.0 million) and a 10% weakening in ZAR against the relevant currencies would have resulted in an increase in foreign currency denominated assets of R122.5 million (2010: R152.0 million).

FINANCIAL LIABILITIESAs at 31 March 2011 a 10% strengthening in ZAR against the US Dollar would have resulted in a decrease in foreign currency denominated liabilities of R15.6 million (2010: R20.7 million) and a 10% weakening in ZAR against the US Dollar would have resulted in an increase in foreign currency denominated liabilities of R15.6 million (2010: R20.7 million).

CURRENCY RISKThe Company has entered into certain forward exchange contracts which do not relate to speci!c items appearing on the statement of !nancial position but which were entered into to cover foreign commitments not yet due and proceeds not yet received. The contracts will be utilised for purposes of trade.


2011 2010 2009

33. FINANCIAL INSTRUMENTS (CONTINUED)CURRENCY RISK (CONTINUED)

Exchange rates used for conversion of foreign items were:

CLOSING RATE:

USD 6.7837 7.3245 9.6175

Euro 9.6403 9.8511 12.8510

AVERAGE:

USD 7.1948 7.81366 8.33012

Euro 9.5031 11.04319 12.7700

FORWARD FOREIGN EXCHANGE CONTRACTS

2011Total foreign currency Average forward exchange rate Maturity date

Liability

US$2 186 184 6.7837 Less than three months

2010Total foreign currency

Liabilities

GBP3 389 11.1007 Less than three months

As at 31 March 2011, a 10% relative change in the USD to the ZAR would have impacted pro!t and loss for the year by R1.5 million (2010: R0 million).

As at 31 March 2011, a 10% relative change in the GBP to the ZAR would have impacted pro!t and loss for the year by R0 million (2010: R0.004 million).

Fair valueEstimated fair value

loss/(gain)

2011 R’000

2010 R’000

2011 R’000

2010 R’000

Forward exchange contracts – assets – – – –

Forward exchange contracts – liabilities (14 830) (37) 170 –

(14 830) (37) 170 –

CREDIT RISKFinancial assets, which potentially subject the Group to concentrations of credit risk, pertain principally to trade receivables and investments in the South African money market. Trade receivables are presented net of the allowance for doubtful debts.

The exposure to credit risk with respect to trade receivables is not concentrated due to a large customer base.

The Group manages counterparty exposures arising from money market and derivative !nancial instruments by only dealing with well-established !nancial institutions of a high credit rating. Losses are not expected as a result of non-performance by these counterparties.

Credit limits with !nancial institutions are revised and approved by the Board quarterly.



33. FINANCIAL INSTRUMENTS (CONTINUED)CROSS CURRENCY INTEREST RATE SWAPSet out below is the mark-to-market (MTM) valuation of the interest and foreign exchange portion of the cross currency interest rate swap.

2011R’000

2010R’000

2011R’000

2010R’000

Financial assetsAssets from foreign exchange portion – – – –

Financial liabilitiesLiabilities from foreign exchange portion – – – (895)

Liabilities from interest portion – – – (226)

As at 31 March 2011, no interest rate and foreign exchange derivative position relating to the cross currency interest rate swaps existed (2010: out-of-the-money amounts to R1.1 million).

MATURITY PROFILEThe maturity pro!les of !nancial assets and liabilities at the reporting date are as follows:

Less than one year

R’000

Between one and !ve years

R’000

Over !ve yearsR’000

Non-interest bearing

R’000Total

R’000

GroupAt 31 March 2011

Assets

Cash 11 852 498 – – – 11 852 498

Loans receivable – – 86 608 30 367 116 975

Trade and other receivables 2 070 344 – – – 2 070 344

Total !nancial assets 13 922 842 – 86 608 30 367 14 039 817

Liabilities

Trade and other payables 1 626 409 – – – 1 626 409

At 31 March 2010

Assets

Cash 10 027 026 – – – 10 027 026




Liabilities


Interest-bearing borrowings 17 991 – – – 17 991

Bank overdrafts 119 426 – – – 119 426

Total !nancial liabilities 1 608 739 – – – 1 608 739


33. FINANCIAL INSTRUMENTS (CONTINUED)MATURITY PROFILE (CONTINUED)

Less than one year

R’000

Between one and !ve years

R’000


Non-interest bearing

R’000Total

R’000

CompanyAt 31 March 2011

Assets

Cash 11 795 852 – – – 11 795 852

Loans receivable – – 1 293 288 30 367 1 323 655


Total !nancial assets 13 868 036 – 1 293 288 30 367 15 191 691

Liabilities


At 31 March 2010

Assets

Cash 9 979 415 – – – 9 979 415




Liabilities


Interest-bearing borrowings 17 991 – – – 17 991

Bank overdrafts 119 426 – – – 119 426

Total !nancial liabilities 1 450 837 – – – 1 450 837

LIQUIDITY RISKThe Group manages liquidity risk by monitoring forecast cash !ows and ensuring that adequate cash resources are available to meet cash commitments.

PRICE RISKExternal sales and purchases are subject to price and basis risks associated with volume and timing differences.



33. FINANCIAL INSTRUMENTS (CONTINUED)PRICE RISK (CONTINUED)

Price risk is mitigated using various operational and !nancial instruments. Instruments used are liquid and can be traded and valued at any time. The hedge portfolio may consist of exchange-traded options and futures as well as non-exotic over the counter options and swaps. Options, however, are only traded within zero cost collars. The selling prices are hedged using the International Petroleum Exchange (IPE), New York Mercantile Exchange (Nymex), or Singapore Monetary Exchange (Simex).

A sensitivity analysis was performed for revenue and every $1 increase or decrease in the Brent crude oil price will increase or decrease pro!t by R65.0 million (2010: R55.8 million) respectively, based on the 2010/2011 !nancial results.

INTEREST RATE RISKExposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The !nancing of the Group is structured on a combination of "oating and !xed interest rates.

The following table sets out the carrying amount, by maturity, of the Group’s !nancial instruments that are exposed to interest rate risk and the effective interest rates applicable:

Less than one year

R’000

Between one

and !ve yearsR’000


TotalR’000

At 31 March 2011Fixed rate

Cash and cash equivalents (6.25%) 7 342 824 – – 7 342 824

Cash on deposit (5.57%) 489 021 – – 489 021

Floating rate

Cash and cash equivalents (7.50%) 3 103 027 1 350 000 – 4 453 027

Trade and other receivables 2 072 184 – – 2 072 184

Trade and other payables (1 486 878) – – (1 486 878)

Lürgi (4.24%) – – 86 608 86 608

PetroSA Egypt (11%) – – 945 158 945 158

GTL.F1 AG (0%) – – 30 367 30 367

PetroSA Equatorial Guinea (11%) – – 1 206 680 1 206 680

At 31 March 2010Fixed rate

Cash and cash equivalents (7.76%) 2 951 199 – – 2 951 199

Cash on deposit (7.09%) 537 648 – – 537 648

Floating rate

Cash and cash equivalents (8.03%) 5 558 804 1 350 000 – 6 908 804

Bank overdraft (1.22%) 119 426 – – 119 426

Foreign loan – USD (0.92%) (17 991) – – (17 991)

Trade and other receivables 1 754 863 – – 1 754 863

Trade and other payables (1 313 420) – – (1 313 420)

PetroSA Gryphon Marin (12%) – – 261 341 261 341

Lürgi (3.63%) – – 104 371 104 371

PetroSA Egypt (12%) – – 990 351 990 351

PetroSA North America (2.92%) – – 949 949

GTL.F1 AG (0%) – – 31 031 31 031

PetroSA Equatorial Guinea (12%) – – 759 980 759 980


INTEREST RATE INSTRUMENTSThe Group is mainly exposed to !uctuation in USD LIBOR, EURIBOR and ZAR interest rates. The Group measures its interest rate risk exposure by running various sensitivity analyses including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only interest-bearing monetary items and adjusts their value at the period-end for a 10% change in interest rates.

FINANCIAL ASSETSAs at 31 March 2011 a 10% relative change in the:

• ZAR interest rate would have impacted pro"t and loss for the year by R90 million (2010: R89 million)• EURIBOR interest rate would have impacted pro"t and loss for the year by R0.38 million (2010: R0.39 million)• USD LIBOR interest rate would have impacted pro"t and loss for the year by R0 million (2010: R0.002 million)

FINANCIAL LIABILITIESAs at 31 March 2011 a 10% relative change in the USD LIBOR interest rate would have impacted pro"t and loss for the year by R0 million (2010: R0.016 million; 2009: R0.26 million).

MARKET RISKThe Group’s activities expose it primarily to the "nancial risks of changes in commodity prices and foreign currency exchange rates. Refer to note 33 for foreign currency risk management and price risk management.

34. FINANCIAL ASSETS BY CATEGORYThe accounting policies for "nancial instruments have been applied to the line items below:

Loans andreceivables

Fair valuethrough

pro!tor loss –

designatedTotal

R’000

GROUP – 2011

Loans receivable – 116 975 116 975

Other "nancial assets 489 021 – 489 021

Trade and other receivables 2 070 344 – 2 070 344

Cash and cash equivalents 11 852 498 – 11 852 498

14 411 863 116 975 14 528 838

GROUP – 2010


Other "nancial assets 537 648 – 537 648



12 353 041 135 402 12 488 443



34. FINANCIAL ASSETS BY CATEGORY (CONTINUED)

Loans andreceivables

Fair valuethrough

pro!tor loss –

designatedTotal

R’000

COMPANY – 2011

Loans receivable – 1 323 655 1 323 655

Other !nancial assets 489 021 – 489 021



14 357 057 1 323 655 15 680 712

COMPANY – 2010


Other !nancial assets 537 648 – 537 648



12 271 926 896 330 13 168 256

35. FINANCIAL LIABILITIES BY CATEGORYThe accounting policies for !nancial instruments have been applied to the line items below:

Financialliabilities at

amortised cost

R’000

Fair valuethrough pro!tor loss – held

for tradingR’000

Fair valuethrough

pro!tor loss –

designatedR’000

TotalR’000

GROUP – 2011

Trade and other payables 1 626 409 – – 1 626 409

GROUP – 2010


COMPANY – 2011


COMPANY – 2010



36. DIRECTORS’ EMOLUMENTS

Salary/Fee

R’000

Bonuses and

perform-ance

paymentsR’000

Pensioncontri-

butionsR’000

Othercontri-

butionsR’000

ExpensesR’000

Compen-sation

for loss of of!ce

R’000OtherR’000

TotalR’000

YEAR ENDED 31 MARCH 2011

Executive directorsS Mkhize 1 708 – 112 57 – – – 1 877N Nika 2 244 461 262 151 – – – 3 118Total 3 952 461 374 208 – – – 4 995

Non-executive directorsAdv. L Makatini 670 – – – 236 – – 906

PS Molefe 165 – – – 22 – – 187MB Damane – – – – 59 – – 59Prof. B Figaji 211 – – – 7 – – 218DR Zihlangu 604 – – – 198 – – 802M Kajee 452 – – – 25 – – 477BB Siwisa 78 – – – 18 – – 96MW Mkhize – – – – 55 – – 55ZR Rustomjee 378 – – – 78 – – 456Z Mavuso – – – – 63 – – 63YR Tenza 377 – – – 129 – – 506N Medupe 290 – – – 78 – – 368Total 3 225 – – – 968 – – 4 193

Salary/Fee

R’000

Bonuses and

perform-ance

paymentsR’000

Pensioncontri-

butionsR’000

Othercontri-

butionsR’000

Actingallowance

R’000

Compen-sation

for loss of of!ce

R’000

Expatri-ate

allow-ance

R’000TotalR’000

Executive ManagementE September 1 722 230 295 123 – – – 2 370N Siswana 2 046 278 133 68 15 – – 2 540G Sweto 1 699 240 113 96 – – – 2 148JEP Falbe 2 104 373 145 200 – – 604 3 426D Arendse 1 575 165 180 84 – – – 2 004Total 9 146 1 286 866 571 15 – 604 12 488



36. DIRECTORS' EMOLUMENTS (CONTINUED)

Salary/Fee

R’000

Bonuses and

perform-ance

paymentsR’000

Pensioncontri-

butionsR’000

Othercontri-

butionsR’000

ExpensesR’000

Compen-sation

for loss of of!ce

R’000OtherR’000

TotalR’000

YEAR ENDED 31 MARCH 2010

Executive directorsS Mkhize 3 908 410 256 132 – – – 4 706

N Nika 2 087 433 243 137 – – – 2 900

Total 5 995 843 499 269 – – – 7 606

Non-executive directorsPS Molefe 535 – – – 159 – – 694

Prof. B Figaji 405 – – – 38 – – 443

BB Siwisa 355 – – 57 – – 412

N Vukuza-Linda 36 – – – 7 – – 43

DR Zihlangu 505 – – – 120 – – 625

MW Mkhize – – – – 80 – – 80

MB Damane – – – – 95 – – 95

YR Tenza 208 – – – 45 – – 253

Z Mavuso – – – – 26 – – 26

M Kajee 502 – – 58 – – 560

CWN Molope 198 – – – 31 – – 229

ZR Rustomjee 202 – – – 38 – – 240

N Medupe 80 – – – 15 – – 95

A Nkuhlu 116 – – – 48 – – 164

L Makatini 50 – – – 15 – – 65

Total 3 192 – – – 832 – – 4 024

Salary/Fee

R’000

Bonuses and

perform-ance

paymentsR’000

Pensioncontri-

butionsR’000

Othercontri-

butionsR’000

Payment for con-

version to !xed-term

contractsR’000

Compen-sation

for loss of of!ce

R’000

Expatri-ate

allow-ance

R’000TotalR’000

Executive managementD Marokane 1 294 216 137 149 – – – 1 796

E September 1 574 307 216 134 1 766 – – 3 997

N Siswana 1 903 307 124 65 – – – 2 399

G Sweto 1 395 245 93 95 – – – 1 828

JEP Falbe 2 505 254 134 193 – – 560 3 646

D Arendse 1 179 – 149 96 – – – 1 424

Total 9 850 1 329 853 732 1 766 – 560 15 090


Group Company2011

R’000 2010 R’000

2011 R’000

2010 R’000

37. RELATED PARTIESRELATED PARTY TRANSACTIONSCEF (Pty) LimitedDividends declared – 375 000 – 375 000Cash on call 489 021 537 648 489 021 537 648Interest paid 89 1 122 89 1 122Services received 119 – 119 –Interest received 28 904 38 208 28 904 38 208Amounts owing – 17 991 – 17 991Recoveries 416 397 416 397Trade receivables – 38 – 38Trade payable 25 260 25 260

PASAServices received 398 978 398 978Royalties paid 64 237 50 648 64 237 50 648Rentals received – 913 – 913Trade payable 18 642 12 456 18 642 12 456

SFFTrade payable 8 676 – 8 676 –Trade receivables – 16 203 – 16 203Management fee – 2 076 – 2 076Recoveries 6 622 66 747 6 622 66 747Transfer of assets 988 – 988 –

SubsidiariesLoan to – – 2 153 751 2 012 750Loan impairment – – 945 198 1 251 693Loans owing – – 1 1Management fee – – 4 262 14 387Recoveries – – 5 992 8 643Loan written off – – 269 841 –Interest received – – 114 979 220 903Commission paid – – 33 387 20 933Dividend received – – 1 723 –Trade receivable – – 5 947 7 942Trade payable – – 4 023 6 253

OPCSATrade payables – 1 104 – 1 104Recoveries 968 9 254 968 9 254

SAAServices received/rendered 12 350 8 427 12 350 8 427

SABCServices received/rendered 40 18 40 18

Airports CompanyServices received/rendered 263 96 263 96



Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

37. RELATED PARTIES (CONTINUED)Eskom GroupServices received/rendered 357 461 277 178 357 461 277 178

Product 410 167 75 651 410 167 75 651

Rental 599 744 599 744

Storage 29 400 24 411 29 400 24 411

Trade receivable 32 055 159 32 055 159

TelkomServices received/rendered 11 232 12 803 11 232 12 803

SARSPayments 3 409 160 2 622 342 3 409 160 2 622 342

Tuinroete AgriServices received/rendered 70 68 70 68


38. INTEREST IN JOINT OPERATING AGREEMENTSThe Group’s proportionate share in the assets and liabilities of unincorporated joint ventures, which are included in the !nancial statements are as follows:

Percentage holding/tracts

55% E-AA

55% E-AG

55% E-W

55% E-CB

55% E-CN

55% SCG

Explore

2011 R’000Current assets 188 73 499 583 810 238

Total assets 188 73 499 583 810 238

Current liabilities 156 27 200 381 270 214Retained income (1 147) (807) (2 052) (28 668) (2 233) (53 256)Company contribution to venture 1 179 853 2 351 28 870 2 773 53 280

Total liabilities 188 73 499 583 810 238

Revenue 8 2 13 11 7 4Expenses (308) (92) (752) (820) (620) (468)

Net pro!t (loss) (300) (90) (739) (809) (613) (464)

Partners: Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 45%

Nature of project Exploration Exploration Exploration Exploration Exploration Exploration

Percentage holding/tracts55% E-CC

55% SCG Capex

55% E-P

60% Sable

24% Block 2A

24% Block 2C

2011 R’000Current assets 90 998 – 45 935 54 793 –

Total assets 90 998 – 45 935 54 793 –

Current liabilities 39 – – – – –Retained income (125 916) (2 039 455) (39 965) (1 441 585) (184 503) (10 091)Company contribution to venture 125 967 2 040 453 39 965 1 487 520 239 296 10 091

Total liabilities 90 998 – 45 935 54 793 –

Revenue 6 7 032 – 145 – –Expenses (106) – (176) (5 273) (5 716) (710)

Net pro!t (loss) (100) 7 032 (176) (5 128) (5 716) (710)

Partners:

Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 40%

Anschutz 22.80%

Forest 53.20%

Anschutz 22.80%

Forest 53.20%




38. INTEREST IN JOINT OPERATING AGREEMENTS (CONTINUED)Percentage holding/tracts

55% F-Q

30% Block

3A/4A55% E-DC

10% Namibia

South

10% Namibia

North

10% Namibia

1711

2011 R’000

Retained income (3 486) (3 675) (44 502) (18 699) (1 983) (112 209)

Company contribution to venture 3 486 3 675 44 502 18 699 1 983 112 209

Total liabilities – – – – – –

Expenses (2 102) (1 536) (176) – – –

Partners:

Pioneer 45%

BHP Billiton 60% Sasol 10%

Pioneer 45%

BHP Billiton 75% Mitsui 15%

BHP Billiton 75% Mitsui15%

Nakor70%

Energulf 10%

Namcor 7%

Kunene Energy 3%


25.5%Zambezi

Block

2011 R’000

Retained income (183 926)

Company contribution to venture 183 926

Total liabilities –

Partners: Petronas 42.50%

ENH 15%

Petrobras 17%

Nature of project Exploration



55% E-AA

55% E-AG

55% E-W

55% E-CB

55% E-CN

55% E-DC

Explore

2010 R’000

Current assets 202 46 268 335 143 18

Current liabilities 5 2 185 211 9 –

Retained income (914) (774) (1 418) (30 079) (1 749) (57 000)

Company contribution to venture 1 111 818 1 501 30 203 1 883 57 018

Total liabilities 202 46 268 335 143 18

Revenue 9 3 22 28 7 35

Expenses (189) (79) (1 377) (1 748) (326) –

Net pro!t (loss) (180) (76) (1 355) (1 720) (319) 35

Partners: Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 45%



55% E-CC

55% SCG

Capex55%

E-P60% Sable

24% Block 2A

24% Block 2C

2010 R’000

Current assets 166 998 – 72 703 54 793 –

Current liabilities 3 – – 16 700 – –

Retained income (135 846) (2 039 455) (39 789) (1 544 678) (178 787) (9 381)

Company contribution to venture 136 009 2 040 453 39 789 1 600 681 233 580 9 381

Total liabilities 166 998 – 72 703 54 793 –

Revenue 35 7 032 – – – –

Expenses (28) – (3 256) 8 006 (5 789) (504)

Net pro!t (loss) 7 7 032 (3 256) 8 006 (5 789) (504)

Partners:

Pioneer 45%

Pioneer 45%

Pioneer 45%

Pioneer 40%

Anschutz 22.8% Forest

53.2%

Anschutz 22.8% Forest

53.2%

Nature of project Exploration Exploration Exploration Production Exploration Exploration



38. INTEREST IN JOINT OPERATING AGREEMENTS (CONTINUED)Percentage holding/tracts

55% F-Q

30% Block

3A/4A55% E-DC

10% Namibia

South

10% Namibia

North

10% Namibia

1711

2010 R’000

Retained income (1 384) (2 139) (44 326) (18 699) (1 983) (122 209)

Company contribution to venture 1 384 2 139 44 326 18 699 1 983 122 209

Total liabilities – – – – – –

Expenses (203) (211) (143) (263) (188) (2 490)

Net pro!t (loss) (203) (211) (143) (263) (188) (2 490)

Partners:

Pioneer 45%

BHP Billiton

60% Sasol 10%

Pioneer 45%

BHP Billiton

75% Mitsui 15%

BHP Billiton

75% Mitsui

15%

Nakor 70%

Energulf 10%

Namcor 7%

Kunene Energy

3%


22.50% Zambezi

Block

2010 R’000

Production facilities 1

Retained income (183 926)

Company contribution to venture 183 926

Total liabilities –

Expenses (11 844)

Net pro!t (loss) (11 844)

Partners: Petronas 42.5%

ENH 15%

Petrobras 17%

Nature of project Exploration


JOINT VENTURE WITH STATOIL ASAThe Company has entered into a 37.5% joint venture with Statoil ASA, the Norwegian State Oil company, and Lürgi to develop GTL-Fisher Tröpsch technology and to explore and develop GTL opportunities in Iran and elsewhere. The PetroSA share of assets amounts to R360 million (2010: R325 million) at year-end.

JOINT VENTURE WITH PIONEERPetroSA has a production-sharing agreement with Pioneer for the South Coast gas !eld production. The holding is 55:45 respectively.

Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

39. PUBLIC FINANCE MANAGEMENT ACT (PFMA)FRUITLESS AND WASTEFUL EXPENDITURE

Standing time of transport vehicles – 9 – 9

Flight missed – 2 – 2

Penalties and interest paid to tax authorities 20 718 13 133 4 323 13 133

Interest on late payment of invoices 96 26 96 26

Penalties and interest for late payment of cargo dues 114 20 114 20

Penalties and interest on settlement of dispute – 1 960 – 1 960

Cancellation fee 1 – 1 –

Addition travel costs 4 – 4 –

Overpayment of vendor 22 – 22 –

Damage to outboard motors 228 – 228 –

Unauthorised event 25 – 25 –

Penalties and interest on CCMA award 77 – 77 –

Irrecoverable study assistance 31 – 31 –

Interest on late payment of investment 122 – 122 –

Penalties on outstanding cost recovery reports 67 – – –

Additional registration fees 114 154 – –

21 619 15 304 5 043 15 150

Refer to page 65 to 66 of the Directors’ Report for further details. The appropriate corrective and/or disciplinary actions have been taken (where necessary).

FRUITLESS AND WASTEFUL EXPENDITURE MOVEMENT

Incurred during the year 21 619 15 304 5 043 15 150

Recovered during the year (12 977) – (12 977) –

Recognised as income (expense) during the year (8 642) (15 304) 7 934 (15 150)

Closing balance – – – –

IRREGULAR EXPENDITURE

Contravention of Company policy 13 602 309 1 175 309

Contravention of legislation 3 350 – 3 350 –

16 952 309 4 525 309



Group Company

2011 R’000

2010 R’000

2011 R’000

2010 R’000

40. COMPARATIVE FIGURESCertain comparative !gures in the notes to the Group annual !nancial statements have been reclassi!ed.

The effects of the reclassi!cation are as follows:

STATEMENT OF FINANCIAL POSITION

Sundry receivables (1 393 919) – (1 393 919) –

Trade payables 1 393 919 – 1 393 919 –

Accrued leave pay 956 – – –

Accrued expenses (956) – – –


FIELDS IN PRODUCTION AND UNDER DEVELOPMENT for the year ended 31 March 2011

Group Company

Crude oil/Condensate

MMbbl 2011

Gas Bscf 2011

Crude oil/Condensate

MMbbl 2010

Gas Bscf 2010

1. MOVEMENT IN NET REMAINING PROVED AND PROBABLE RESERVES

At the beginning of the year 3.60 57.80 6.50 106.10

Revisions of previous estimates – – 0.60 (14.00)

Production (2.60) (45.00) (3.50) (34.30)

Additions 7.40 536.10 – –

At the end of the year 8.40 548.90 3.60 57.80

2. PROVED AND PROBABLE RESERVE BY TYPE OF FIELD

Fields in production 8.40 298.90 3.60 57.80

Fields under development – 249.90 – –

8.40 548.80 3.60 57.80

3. RESERVES BY CATEGORY

Proved 5.22 399.90 1.60 34.10

Proved and probable 8.40 548.80 3.60 57.80

Total proved and probable reserves at the end of the year 8.40 548.80 3.60 57.80

NOTESOilFields in production and under development comprise the Oribi (100%) and Oryx (100%) oil !elds.

GasFields in production and under development comprise the SCG (55%), F-A and F-A Satellite, E-M and E-M Satellite and F-O gas !elds respectively.

Fields under appraisal comprise discoveries. The reserves shown are either all oil or all gas, excluding gas liquids. Oil includes condensate and LPG.

Reserves and production are shown on a working interest basis (100%).

Oil and gas reserves cannot be measured exactly since the estimation of reserves involves subjective judgement and arbitrary determinations and therefore all estimations are subject to revision. The gas and oil reserves re"ected above have been determined by an independent surveyor.

DEFINITIONSProved reservesOilMeans the amount of petroleum which geophysical, geological and engineering data indicate to be commercially recoverable to a high degree of certainty. For the purposes of this de!nition, there is a 90% chance that the actual quantity will be more than the amount estimated as proved and a 10% chance that it will be less.

GasMeans the amount of gas which geophysical, geological and engineering data indicate to be commercially recoverable to a high degree of certainty. For the purposes of this de!nition, there is a 90% chance that the actual quantity will be more than the amount estimated as proved and a 10% chance that it will be less.

The supplementary information presented does not form part of the annual !nancial statements and is unaudited


FIELDS IN PRODUCTION AND UNDER DEVELOPMENT (CONTINUED) for the year ended 31 March 2011

Proved and probable reservesOilMeans proved reserves plus the amount of petroleum which geophysical, geological and engineering data indicate to be commercially recoverable but with a greater element of risk than in the case of proved. For the purposes of this de!nition, there is a 50% chance that the actual quantity will be more than the amount estimated as proved and probable and a 50% chance that it will be less.

GasMeans proved reserves plus the amount of gas which geophysical, geological and engineering data indicate to be commercially recoverable, but with a greater element of risk than in the case of proved. For the purposes of this de!nition, there is a 50% chance that the actual quantity will be more than the amount estimated as proved and probable and a 50% chance that it will be less.

Reserves under appraisalOilComprise quantities of petroleum, which are considered, on the basis of information currently available and current economic forecasts, to be commercially recoverable by present producing methods from !elds that have been discovered but which require further appraisal prior to commerciality being established.

GasComprise quantities of gas, which are considered, on the basis of information currently available and current economic forecasts, to be commercially recoverable by present producing methods from !elds that have been discovered, but which require further appraisal prior to commerciality being established.



DEFINITION OF FINANCIAL TERMS for the year ended 31 March 2011

Below is a list of de!nitions of !nancial terms used in the annual report of PetroSA (Pty) Limited and the Group:

ACCOUNTING POLICIESThe speci!c principles, bases, conventions, rules and practices applied in preparing and presenting annual !nancial statements.

ACCRUAL ACCOUNTINGThe effects of transactions and other events are recognised when they occur rather than when the cash is received.

ACTUARIAL GAINS AND LOSSESThe effects of differences between the previous actuarial assumptions and what has actually occurred, as well as changes in actuarial assumptions.

AMORTISED COSTThe amount at which a !nancial asset or !nancial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectibility.

ASSETA resource controlled by the entity as a result of a past event from which future economic bene!ts are expected to "ow.

ASSOCIATEAn entity over which the investor has signi!cant in"uence and that is neither a subsidiary nor an interest in a joint venture. Signi!cant in"uence is the power to participate in the !nancial and operating policy decisions of the associate but has no control or joint control over those policies.

BORROWING COSTSInterest and other costs incurred in connection with the borrowing of funds.

CARRYING AMOUNTThe amount at which an asset is recognised after deducting any accumulated depreciation or amortisation and accumulated impairment losses.

CASH AND CASH EQUIVALENTSCash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insigni!cant risk of changes in value.

CASH FLOW HEDGEA hedge of the exposure to variability in cash "ows that is attributable to a particular risk associated with an asset, or a liability that could affect pro!t or loss or a highly probable forecast transaction that could affect pro!t or loss.

CHANGE IN ACCOUNTING ESTIMATEAn adjustment to the carrying amount of an asset, liability or the amount of the periodic consumption of an asset that results from new information or new developments.

CONSOLIDATED ANNUAL FINANCIAL STATEMENTSThe annual !nancial statements of a Group presented as those of a single economic entity.

CONTINGENT ASSETA possible asset that arises from past events and whose existence will be con!rmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

CONTINGENT LIABILITYA possible obligation that arises from past events and whose existence will be con!rmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity, or a present obligation that arises from past events but is not recognised because it is not probable that an out"ow of resources embodying economic bene!ts will be required to settle the obligation, or the amount of the obligation cannot be measured with suf!cient reliability.

DATE OF TRANSACTIONThe date on which the transaction !rst quali!es for recognition in accordance with Generally Accepted Accounting Practice.

DEPRECIATION (OR AMORTISATION)The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset, or other amount substituted for cost, less its residual value.

DERECOGNITIONThe removal of a previously recognised asset or liability from the statement of !nancial position.

DERIVATIVEA !nancial instrument whose value changes in response to an underlying item, requires no initial



or little net investment in relation to other types of contracts that would be expected to have a similar response to changes in market factors and is settled at a future date.

DEVELOPMENTThe application of research !ndings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before starting commercial production or use.

DISCONTINUED OPERATIONA component that has either been disposed of or is classi!ed as held for sale and represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operation, or a subsidiary acquired exclusively with a view to resale.

EMPLOYEE BENEFITSAll forms of consideration (excluding share options granted to employees) given in exchange for services rendered by employees.

EQUITY INSTRUMENTA contract or certi!cate that evidences a residual interest in the total assets after deducting the total liabilities.

EQUITY METHODA method in which the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the share of net assets of the investee. Pro!t or loss includes the share of the pro!t or loss of the investee.

EXPENSESThe decreases in economic bene!ts in the form of out"ows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

FAIR VALUEThe amount for which an asset could be exchanged or a liability settled, between knowledgeable and willing parties in an arm’s length transaction.

FAIR VALUE HEDGEA hedge of exposure to changes in fair value of a recognised asset, liability or !rm commitment.

FINANCE LEASEA lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.

FINANCIAL ASSET OR LIABILITY AT FAIR VALUE THROUGH PROFIT OR LOSSA !nancial asset or !nancial liability that is classi!ed as held for trading or is designated as such on initial recognition other than investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured.

FINANCIAL INSTRUMENTA contract that gives rise to a !nancial asset of one entity and a !nancial liability or equity instrument of another entity.

FINANCIAL RISKThe risk of a possible future change in one or more of a speci!ed interest rate, !nancial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-!nancial variable that the variable is not speci!c to a party to the contract.

FIRM COMMITMENTA binding agreement for the exchange of a speci!ed quantity of resources at a speci!ed price on a speci!ed future date or dates.

FORECAST TRANSACTIONAn uncommitted but anticipated future transaction.

GOING CONCERN BASISThe assumption that the entity will continue in operation for the foreseeable future. When making this assumption management assesses a period of twelve months from reporting date.

GROSS INVESTMENT IN LEASEThe aggregate of the minimum lease payments receivable by the lessor under a !nance lease and any unguaranteed residual value accruing to the lessor.

HEDGED ITEMAn asset, liability, !rm commitment, highly probable forecast transaction or net investment in a foreign operation that exposes the entity to risk of changes in fair value or future cash "ows and is designated as being hedged.

DEFINITION OF FINANCIAL TERMS (CONTINUED) for the year ended 31 March 2011



HEDGING INSTRUMENTA designated derivative or non-derivative !nancial asset or non-derivative !nancial liability whose fair value or cash "ows are expected to off-set changes in the fair value or cash "ows of a designated hedged item.

HEDGE EFFECTIVENESSThe degree to which changes in the fair value or cash "ows of the hedged item that are attributable to a hedged risk are off-set by changes in the fair value or cash "ows of the hedging instrument.

HELD-FOR-TRADING FINANCIAL ASSET OR FINANCIAL LIABILITYOne that is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or as part of a portfolio of identi!ed !nancial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term pro!t-taking or a derivative (except for a derivative that is a designated and effective hedging instrument).

HELD-TO-MATURITY INVESTMENTA non-derivative !nancial asset with !xed or determinable payments and !xed maturity where there is a positive intention and ability to hold it to maturity.

IMMATERIALIf individually or collectively it would not in"uence the economic decisions of the users of the annual !nancial statements.

IMPAIRMENT LOSSThe amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

IMPRACTICABLEApplying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.

INCOMEIncrease in economic bene!ts in the form of in"ows or enhancements of assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants.

JOINT VENTUREA contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

KEY MANAGEMENT PERSONNELThose persons having authority and responsibility for planning, directing and controlling the activities of the entity. In terms of this de!nition, the members of the Board of Directors of PetroSA qualify as key management personnel of the Group. In individual companies, the Board of Directors and Executive Management committees qualify.

LEGAL OBLIGATIONAn obligation that derives from a contract, legislation or other operation of law.

LIABILITYA present obligation of the entity arising from a past event, the settlement of which is expected to result in an out"ow from the entity of resources embodying economic bene!ts.

LOANS AND RECEIVABLESNon-derivative !nancial assets with !xed or determinable payments that are not quoted in an active market.

MINIMUM LEASE PAYMENTSPayments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor including in the case of a lessee, any amounts guaranteed by the lessee or by a party related to the lessee or in the case of a lessor, any residual value guaranteed to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is !nancially capable of discharging the obligations under the guarantee.

NET ASSETSNet operating assets plus cash and cash equivalents.

OPERATING LEASEAny lease other than a !nance lease.

OWNER-OCCUPIED PROPERTYProperty held by the owner or by the lessee under a !nance lease for use in the production or supply of goods or services or for administrative purposes.

PAST SERVICE COSTThe increase or decrease in the present value of the de!ned bene!t obligation for employee service in prior periods resulting from the introduction of, or changes to, post-employment bene!ts or other long-term employee bene!ts.



POST-EMPLOYMENT BENEFITSEmployee bene!ts (other than termination bene!ts) that are payable after the completion of employment.

POST-EMPLOYMENT BENEFIT PLANSFormal or informal arrangements under which an entity provides post-employment bene!ts to employees. De!ned contribution bene!t plans are where there are no legal or constructive obligations to pay further contributions if the fund does not hold suf!cient assets to pay all employee bene!ts relating to employee service in the current and prior periods. De!ned bene!t plans are post-employment bene!t plans other than de!ned contribution plans.

PRESENTATION CURRENCYThe currency in which the annual !nancial statements are presented.

PRIOR PERIOD ERRORAn omission from or misstatement in the annual !nancial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when annual !nancial statements for those periods were authorised for issue and could reasonably be expected to have been obtained and taken into account in the preparation of those annual !nancial statements.

PROSPECTIVE APPLICATIONApplying a new accounting policy to transactions, other events and conditions occurring after the date the policy changed or recognising the effect of the change in an accounting estimate in the current and future periods.

RECOVERABLE AMOUNTThe higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use.

RESEARCHThe original and planned investigation undertaken with the prospect of gaining new scienti!c or technical knowledge and understanding.

RESIDUAL VALUEThe estimated amount which an entity would currently obtain from disposal of the asset, after

deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

RESTRUCTURINGA programme that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted.

RETROSPECTIVE APPLICATIONApplying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.

RETROSPECTIVE RESTATEMENTCorrecting the recognition, measurement and disclosure of amounts as if a prior period error had never occurred.

TAX BASEThe tax base of an asset is the amount that is deductible for tax purposes if the economic bene!ts from the asset are taxable or is the carrying amount of the asset if the economic bene!ts are not taxable. The tax base of a liability is the carrying amount of the liability less the amount deductible in respect of that liability in future periods. The tax base of revenue received in advance is the carrying amount less any amount of the revenue that will not be taxed in future periods.

TEMPORARY DIFFERENCESThe differences between the carrying amount of an asset or liability and its tax base.

TRANSACTION COSTSIncremental costs that are directly attributable to the acquisition, issue or disposal of a !nancial asset or !nancial liability, i.e. those that would not have been incurred if the entity had not acquired, issued or disposed of the !nancial instrument.

USEFUL LIFEThe period over which an asset is expected to be available for use or the number of production or similar units expected to be obtained from the asset.


DEFINITION OF FINANCIAL TERMS (CONTINUED) for the year ended 31 March 2011

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