82 PETROSA Annual Report 2008
Country of incorporation SouthAfrica
Nature of business Explorationforandproductionofoilandgas,refiningoperationsconvertinggasandgascondensatetoliquidfuelsandpetrochemicalsandthemarketingthereof.
Directors DrPSMolefe
MrSMkhize
MrNGNika
MrANkuhlu
MrMBDamane
Prof.BFigaji
MrDRZihlangu
MsCWNMolope
MsNYVukuza‑Linda
MsBBSiwisa
MrMKajee
MrMWMkhize
Business address 151FransConradieDrive
Parow
7500
Holding company CEF(Proprietary)Limited
incorporatedinSouthAfrica
Bankers StandardBankofSouthAfricaLtd
Auditor Auditor‑General
Secretary AdvPSVNgaba
Company registration 1970/008130/07
Corporate Information
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PETROSA Annual Report 2008 83
Thereportsandstatementssetoutbelowcomprisethegroupannualfinancialstatementspresentedtotheshareholder:
PageStatementofcorporategovernance 84‑88Reportoftheboardauditcommittee 89Materialityandsignificantframework 90Performanceagainstobjectives 91‑96Valueaddedstatement 97Statementofresponsibility 98ReportoftheAuditor‑General 99‑100Companysecretary’scertificate 101Reportofthedirectors 102‑106Balancesheets 107Incomestatements 108Statementsofchangesinequity 109Cashflowstatements 110Notestotheannualfinancialstatements 111‑155Keytoabbreviations 156
Thefollowingsupplementaryscheduledoesnotformpartofthefinancialstatements,andisunaudited.
Supplementarydisclosureofreserves 157‑158
Contents
for the year ended 31 March 2008
84 PETROSA Annual Report 2008
1. Introduction
CorporategovernanceatPetroSAreflectsanattitudepremisedonethosratherthanamerestatement.Thegrouphasaformalisedsystemofcorporategovernancethatisacatalystforimprovedcomplianceandenhancedperformance.ThePetroSAgroupiscommittedtotheprinciplesoftransparency,integrityandaccountabilityasadvocatedbytheKingCommitteeReportonCorporateGovernanceforSouthAfrica2002(KingII),aswellasProtocolonCorporateGovernanceinthePublicSector.
Keyinitiativesundertakentoensurecomplianceandgoodcorporategovernance:
AnannualreviewoftheBoardcharterandtermsofreferenceofBoardcommittees;AnannualevaluationoftheperformanceofPetroSAboardofdirectors;Puttinginplacethepolicyondirectorsaccesstoindependentprofessionaladvice;AnnualupdateofPetroSAlevelsofauthoritymatrix;CompilationandannualreviewofacomprehensiveBoardinductionpack;DevelopmentofaPetroSAsubsidiaryshareholdercompact;andEnsuringthatBoardmembersarecontinuouslyexposedtotrainingoncorporategovernanceanddevelopmentswithintheindustry.
2. Governing bodies
2.1. Board of directorsThegrouphasaunitaryboardstructuremadeupofamajorityofnon‑executivedirectors,appointedbytheshareholder.Theboardofdirectors(theBoard)meetsatleastonceeveryquarter,andexecutivemanagersattendbyinvitation.TheBoardchargesexecutivemanagementwithregardtotheday‑to‑dayrunningofbusiness,withtheBoardaddressingarangeofkeyissuestoensurethatitretainsthestrategicdirectionof,andpropercontrolover,thegroup.Thenon‑executivedirectorsareappointedonathree‑year
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cycleandreappointmentisnotautomatic.TheofficesoftheChairpersonandChiefExecutiveOfficerareseparate.InaccordancewiththePublicFinanceManagementAct(ActNo1of1999)theboardistheaccountingauthorityofPetroSA.InkeepingwiththerecommendationsoftheKingReport,theBoardadoptedaboardcharterthatsetsouttheroleoftheBoardasfollows:TheBoard’sprimaryresponsibilitiesincludetheappointmentoftheCEO,determiningthecompany’sobjectivesandvaluesandgivingstrategicdirectiontothecompany,takingeffectiveandappropriatestepstoensurethatkeyriskareasandkeyperformanceindicatorsofthecompany’sbusinessareidentified,monitoringtheperformanceofthecompanyagainstagreedobjectives,advisingonsignificantfinancialmattersandreviewingtheperformanceofexecutivemanagementagainstdefinedobjectivesandapplicableindustrystandards,aswellas:
Approvingkeypolicies,investments,riskmanagementandrelevanttransactionsthatexceedmanagement’slevelsofauthority;Reviewingandapprovingthecompany’sstrategy,objectives,andplans;Consideringandapprovingannualfinancialstatementsandsubmissionstotheshareholder;Ensuringadherencetogoodcorporategovernanceandethics;Monitoringanddirectingtriplebottomlineperformance;andReviewingeffectivenessofcontrols.
2.2. Company SecretaryTheCompanySecretaryprovidestheboardofdirectorswithguidanceandadviceonmattersofbusinessethicsandgoodgovernance,aswellasthenatureandextentoftheirdutiesandresponsibilitiesandhowsuchdutiesandresponsibilitiesshouldbeproperlydischarged.EachoftheDirectorshasunrestrictedaccesstotheadviceandservicesoftheCompanySecretarialTeam,companyinformation,andisentitledtoseekindependentprofessional
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statement of
Corporate Governance
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PETROSA Annual Report 2008 85
advice,attheCompany’sexpenseinpursuanceoftheirdutiesasdirector.
2.3. Board committeesTheBoardestablishedseveralcommitteestoassistitinthedischargeofitsduties.Eachcommitteeoperateswithinthedefinedtermsofreferenceandischairedbya
non‑executivedirector.
Board audit committee (BAC): Theauditcommitteeconsistsofnon‑executivedirectorsappointedbytheboardofdirectors.Thiscommitteemeetsatleastfourtimesperyearandischairedbyanindependentnon‑executivedirectorwhoisnottheChairpersonoftheBoard.TheAuditor‑GeneralandChiefInternalAuditorhaveunrestrictedaccesstothecommitteeandattendauditcommitteemeetings.Appropriateexecutivemanagers,includingthoseresponsibleforfinanceandinternalaudit,attendthesemeetingsbyinvitation.Theauditcommitteereviewstheadequacyandeffectivenessofinternalcontrolsofthegroupwithspecialreferencetothefindingsofbothinternalandexternalauditors.Areascoveredincludethereviewofimportantaccountingandcontrolissues,materialpendinglitigation,specificdisclosuresintheannualfinancialstatementsandareviewoftheperformanceoftheInternalAuditdepartment.
Board human capital committee (HCC): Thiscommitteeischairedbyanon‑executivedirectorandcomprisesnon‑executivedirectorsappointedbytheboard.ThePresidentandCEOandtheVice‑President:HumanCapitalattendthecommitteemeetingsbyinvitation.Thiscommitteereviewsandrecommendsannualremunerationincreases,termsandconditionsofemployment,thepaymentofincentivesandbonuses,generalfringebenefits,humancapital‑relatedpoliciesandtheappointmentofseniorstaffatanexecutivelevel.
risk management and compliance committee (rMCC):TheRMCCisresponsibleforidentifyingandensuringthatallcommongroupriskdenominators,weaknessesandopportunitiesareidentifiedandmanagedonagroup‑widebasis.Thiscommitteeischairedbyanindependentnon‑executivedirectorandcomprisesnon‑executivedirectorsappointedbytheBoard.Whilstitisimportantthatseniormanagement(withintheirdivisions)manageriskasbeingintegraltobusinessprocesses,itisvitalthatthemanagementofrisklinkstotheoverallstrategyanddirectionofPetroSA.TheoverallPetroSAriskpolicyensuresthatopportunitiesareidentifiedandduplicationofriskmanagementeffortisavoided.ThecommitteeassiststheBoardinreviewingtheriskmanagementprocessandthesignificantrisksfacingPetroSA,andinprovidingafocalpointforreportingonwiderriskissuestotheboard.
Business performance and strategy committee (BPSC):Thiscommitteeischairedbyanon‑executivedirectorandcomprisesnon‑executivedirectorsappointedbytheboard.ThepurposeoftheBPSCistoensurethatcompanyprocessesarealignedwiththeoverallvisionandstrategicdirection,strategymanagement,businessmanagement,capitalinvestment,jointventureformationsandperformancemeasurementframework.
for the year ended 31 March 2008
86 PETROSA Annual Report 2008
Composition of Board and Board Committees for the financial year under review:
Board Board Audit committee
Human capital
committee
Business performance
& strategy committee
risk management & compliance
committee
Non‑executive directors: Board BAC HCC BPSC rMCC
DrPSMolefe Chairman Member
MrMBDamane Director Member
ProfBFigaji Director Member Member Member
MrANkuhlu Director Member Chairman
MrDRZihlangu Director Chairman Member
MsCWNMolope Director Chairman
MrMKajee Director Member Chairman
MsNVukuza‑Linda Director Member
MsBBSiwisa Director Member
MrMWMkhize Director Member
MrRJAngel(Resigned) Director Member
MrNHGumede(Resigned) Director Member
MsTCPChikane(Resigned) Director Chairman Member Member
MsRJHuntley(Resigned) Director Member Chairman
executive directors:
MrSMkhize PresidentandCEO/Director
Invitee Invitee Invitee Invitee
MrNGNika CFO/Director Invitee Invitee Invitee
Corporate Governancestatement of
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PETROSA Annual Report 2008 87
3. Directors’ responsibility for the annual financial statements
Thedirectorsofthecompanyareresponsibleforthegroupannualfinancialstatementsandotherinformationpresentedintheannualreport.TheAuditor‑Generalisresponsibleforperforminganindependentauditoftheannualfinancialstatements.
TheannualfinancialstatementsandnotestheretoarepreparedinaccordancewithSouthAfricanStatementsofGenerallyAcceptedAccountingPractice(GAAP).Accountingpoliciesareconsistentlyappliedexceptwhereotherwisestated,inwhichcasefulldisclosureofchangesismade.Thedirectorsbelievethatthecompanyandgroupwillcontinueasagoingconcernintheyearahead.
4. Internal audit
TheprimaryobjectiveoftheInternalAuditdepartmentistodeterminewhethertheorganisation’snetworkofriskmanagement,controlandgovernanceprocesses,asdesignedandrepresentedbymanagement,areadequateandfunctioninginamannertoensurethat:
Risksareappropriatelyidentifiedandmanaged;Goodcorporategovernanceisachieved;Significantfinancial,managerialandoperatinginformationisaccurate,reliableandtimely;Employees’actionsareincompliancewithpolicies,standards,proceduresandapplicablelawsandregulations;Resourcesareacquiredeconomically,usedefficientlyandadequatelyprotected;Programmes,plansandobjectivesareachieved;andQualityandcontinuousimprovementarefosteredinPetroSA’scontrolprocess.
Nothinghascometotheattentionofthedirectors,nortotheattentionofmanagementortheinternal
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auditors,toindicatethatanymaterialbreakdowninthefunctioningoftheabove‑mentionedinternalcontrolsandsystemshasoccurredduringtheyearunderreview.
5. Enterprise Risk management
InPetroSA,enterpriseriskmanagementreferstotheproactivemanagementofthreatswhilstexhaustingtherelatedopportunitiesthatarepresentedbytakingbalanceddecisions.ThePresidentandCEOthroughtheRiskManagementandCompliancedepartmentisaccountableforassuringtheboardthattheriskmanagementprocessisinplaceandintegratedintoeverydaybusinessactivitiesofPetroSA.Thekeyobjectivesoftheriskmanagementandcompliancedepartmentare:
AssistingtheboardinsettingpolicyandstrategyforriskmanagementandcomplianceinPetroSA;Facilitatingtheappointmentofprimarychampionsofriskmanagementandcomplianceatbothstrategicandoperationallevels;Buildingariskawarenessculturewithintheorganisation,includingappropriateeducation.Establishinginternalriskpolicy,complianceandfraudpoliciesaswellasfacilitatingthecreationofstructuresfortheeffectiveroleoftheenterprise‑wideriskmanagementfunction.Designingandreviewingprocessesforriskmanagement;Coordinatingthevariousfunctionalactivities,whichadvisemanagementandstaffonriskmanagementandcomplianceissueswithintheorganisation;andAssistingtheorganisationindevelopingriskresponseprocessesfortransversalrisks,includingcontingencyandbusinesscontinuityprogrammes.
Throughtheriskmanagementandcompliancedepartment,thecompanyendeavourstominimiseriskbyensuringthatriskmanagementandthecultureofcomplianceisintegratedintomanagementprocessesthroughouttheorganisation.
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88 PETROSA Annual Report 2008
AnintegratedcommunicationstrategyhasbeendevelopedforallemployeesatalllevelstoensurethatriskawarenessisincorporatedintothePetroSAworkingcultureandlanguage.MajorrisksthatcouldinfluencetheachievementofPetroSA’sstrategicobjectivesareidentified,assessedandprioritisedregularlythroughariskassessmentandaccountabilityframeworkandcontrolmechanismsareimplemented
tomanageandmonitortheserisks.
6. Management reporting
Therearecomprehensivemanagementreportingdisciplinesinplace,whichincludethepreparationofannualbudgetsbyalldivisionsandreportingthereononaquarterlybasis.ThebudgetandcapitalexpenditurearereviewedandapprovedbytheBoard.Quarterlyperformanceresultsandthefinancialstatusofthecompanyandgrouparereportedagainstapprovedtargets.Profitprojectionsandforecastedcashflowsareupdatedmonthly,whileworkingcapitalandborrowinglevelsaremonitoredonanongoingbasis.Executivemanagementmeetsonaregularbasistoconsiderday‑to‑dayissuespertainingtothebusinessofthegroup.Moreformalbi‑weeklymeetingsaddressissuessuchasreport‑backfromthevariousdivisionsonresultsachieved,andissuesoropportunitiesthatcouldimpactonthegroup,itstradingactivitiesandshort‑termplanning.
7. Code of Ethics
Directorsandemployeesarerequiredtomaintainthehighestethicalstandards,ensuringthatbusinesspracticesareconductedinamannerthat,inall
reasonablecircumstances,isbeyondreproach.TheCodeofEthicsalsoarticulatesconductwithrespecttoconflictsofinterest,confidentialityandfairdealingamongothers.PetroSAhascontractedtheservicesofanindependenthotlineserviceprovidingfortheconfidentialreportingoffraudandotherinappropriatebehaviour.Employeebreachesaredealtwithinaccordancewiththedisciplinarypolicy.InadditiondirectorsarerequiredtoannuallydeclaretheirinterestsincontractsaswellasDirectorshipsinothercompaniesinaccordancewiththeCompaniesAct.
8. Social responsiblility
8.1. employment equity (ee) and black economic empowerment (Bee) ThePetroSAgrouphasbeenengagedinEEanddevelopmentprocessesforthepastsixyearsasamergedentity,andpriortothisforanumberofyearsasindividualcompanies.Thisprocessisdesignedtoincreasethenumberofemployeesfromdesignatedgroupsandfurtherempowerandtrainsuchemployeesatalllevels.AnEEpolicyhasbeenapprovedbytheBoard.Tothatend,the60:40designatedtonon‑designatedemployeeratioguidelineassetbytheBoardisbeingfollowed.
8.2. worker participationThegrouphasparticipativestructuresatvariouslevelsforhandlingissuesthathaveadirectimpactonemployees.Thesestructures,whichhavebeensetupinconsultationwiththetworecognisedunions,aredesignedtoachievegoodemployer‑employeerelations.Theyarealsoaimedatupholdingcompanyvaluesthroughtheeffectivesharingofrelevantinformation,consultation,identificationandresolutionofconflict.
statement of
Corporate Governancefor the year ended 31 March 2008
PETROSA Annual Report 2008 89
Theboardauditcommitteehasadoptedappropriateformaltermsofreferenceasitsauditcommitteecharterandhasdischargedallofitsresponsibilitiesassetoutinthecharter.
Inperformingitsdutiestheboardauditcommitteehasreviewedthefollowing:
Theeffectivenessoftheinternalcontrolsystems;Theeffectivenessoftheinternalauditdepartment;Theriskareasoftheentity’soperationscoveredinthescopesoftheinternalandexternalaudits;Theadequacy,reliabilityandaccuracyoffinancialinformationprovidedbymanagementandotherusersofsuchinformation;Theaccountingandauditingconcernsidentifiedasaresultoftheinternalandexternalaudits;Theentity’scompliancewithapplicablelegalandregulatoryprovisions;Theactivitiesoftheinternalauditfunction,includingitsannualworkprogramme,coordinationwiththeexternalauditors,thereportofsignificantinvestigationsandtheresponsesofmanagementtospecificrecommendations;andTheindependenceandobjectivityoftheexternalauditors.
Theauditcommitteeisoftheopinion,basedontheinformationandexplanationsgivenbymanagementandtheinternalauditdepartment,thattheinternalaccountingcontrolsareadequatetoensurethatthefinancialrecordsmayberelieduponforpreparingthefinancialstatements,andaccountabilityforassetsandliabilitiesismaintained.Nothinghascometotheattentionoftheauditcommitteetoindicatethatanymaterialbreakdowninthefunctioning
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ofthesecontrols,proceduresandsystemshasoccurredduringtheperiodunderreview.
HavingreviewedandevaluatedthefinancialstatementsofPetroSAandthegroupfortheyearended31March2008,themembersoftheboardauditcommitteebelievethatthefinancialstatementsfairlypresentthestateofaffairsofthecompany,itsbusiness,financialresults,performanceagainstpredeterminedobjectivesandfinancialpositionattheendofthefinancialyearandconcludethattheycomply,inallmaterialrespects,withtherequirementsoftheCompaniesAct(Act61of1973,asamended),thePublicFinanceManagementAct(Act1of1999,asamended)andSouthAfricanStatementsofGAAP.
Theboardauditcommitteeconcursthattheadoptionofthegoingconcernpremiseisappropriateinpreparingtheannualfinancialstatements.
Theboardauditcommitteehasrecommendedtheadoptionofthefinancialstatementsbytheboardofdirectorsattheirmeetingon17July2008.
MsCWNMolopeChairperson17July2008
Boardauditcommitteemembers:Prof.BFigajiMrMKajee
Report of the Board Audit Committee in terms of regulations 27(1) (10) (b) and (c) of the Public Finance Management Act, 1 of 1999, as amended.
RePoRt of tHe
Board Audit Committeefor the year ended 31 March 2008
90 PETROSA Annual Report 2008
ThecriteriaforassessingthematerialityandsignificantframeworkforThePetroleumOilAndGasCorporationofSouthAfrica(Pty)Ltdarecontainedinthetablebelow:
QuALITATIVe QuANTITATIVe
1.MATerIAL DISCLoSure of INforMATIoN To THe MINISTer
DisclosurebythePetroSABoardofmaterialfactstotheMinisterofMineralsandEnergy.
Factsthatmayinfluencethedecisionsoractionsofthestakeholdersofapublicentity.
Riskstothepublicentitythatmayimpactonthefuturesustainabilityoftheentityorthegroup.
2.ANNuAL rePorT, fINANCIAL STATeMeNT AND eXeCuTIVe AuTHorITY DISCLoSureS
Materiallosses Criminal conductExpenditurethatresultsfromanillegalact,fraudulentactand/oracriminalbehaviour.Allinstanceswillbefullydisclosedtotheboardauditcommittee.Disclosuresintheannualreportandthefinancialstatementswillbemadeforalllossesduetocriminalconduct.Irregular expenditureOtherthanunauthorisedexpenditure,incurredincontraventionoforthatisnotinaccordancewiththerequirementsofanyapplicablelegislation.fruitless and wasteful expenditureMadeinvainandwouldhavebeenavoidedhadreasonablecarebeenexercised.
AllexpenditureAllexpenditureAllexpenditure
3.BorrowINGS, GuArANTee, INDeMNITY or SeCurITY
Borrowings,guarantees,indemnityorsecuritymustbeapprovedbytheBoard.
4. APProVAL froM THe eXeCuTIVe AuTHorITY oN PArTICIPATIoN IN CerTAIN TrANSACTIoNS
Significantpartnership ApprovalfromtheexecutiveauthorityisneededwhencapitalatriskforPetroSAexceeds2%oftotalassets.
>R360000000
PetroSAdevelopmenttrust Approvalfromtheexecutiveauthorityisneededwhenfundingofthetrustexceeds2%oftotalassetsofPetroSA.
>R360000000
Significantunincorporatedjointventure
Approvalfromtheexecutiveauthorityisneededwhenven‑turecapitalatriskforPetroSAexceeds2%oftotalassets.
>R360000000
Significantshareholding ApprovalfromtheexecutiveauthorityisneededwhenacquisitionanddisposalofshareholdinginatradingcompanywherePetroSA’sinvestmentexceeds2%oftotalassets.
>R360000000
Significantassets Approvalfromtheexecutiveauthorityisneededwhenacquisitionanddisposalofanyimmovablepropertysuchasland,buildingsandmovableassetswhenthecostexceeds2%ofthetotalassetsofPetroSA.
>R360000000
Significantbusiness Approvalfromtheexecutiveauthorityisneededwhencom‑mencementandcessationofabusinessactivityrepresentsorwillrepresentmorethan2%ofPetroSA’stotalassets.
>R360000000
Significantchange Approvalfromtheexecutiveauthorityisneededwhenengaginginnewbusinessthatisunrelatedtothebusinessandwheretheinvestmentexceeds2%oftotalassets.
>R360000000
frameworkfor the year ended 31 March 2008
mateRiality and significant
PETROSA Annual Report 2008 91
AsummaryofThePetroleumOilAndGasCorporationofSouthAfrica(Pty)Ltdgroup’sbusinessperformanceagainstobjectivesiscontainedinthetablebelow.
Notesareappendedforclarificationoftheperformanceresults.
objective Key performance indicator
Target Actual Performance result
1 People 1.1 employment equity People Development 1.2Employeestrained1.3%returnfromCHIETATalent Attraction 1.4Turnaroundtimeretention Strategy 1.5Turnoverinspecialistcategories
74%74%75%100%placementwithin3monthsforallcandidates<2%ofexodusofscarceandcriticalskills
79%80%98%54%6.6%
AchievedAchievedAchievedNotAchieved(seenotesbelow)NotAchieved
2 finance Volumes 2.1GTLRefineryoutput2.2Non‑feedstockproduction(includingAbana)Bee2.3Procurementspend2.4BEEsalesProfitability Analysis 2.5Costtoincomeratio:Operations
AsperbudgetAsperbudget40%ofprocurementspend
15%oftotalproduction40%
85%ofbudget100%ofbudget70%17%oftotalproduction35%
NotAchievedAchievedAchievedAchievedNotAchieved
PeRfoRmance against
objectivesfor the year ended 31 March 2008
for the year ended 31 March 2008
92 PETROSA Annual Report 2008
Objective Keyperformanceindicators Target Actual Performanceresults
3 Internal Business Process
SHeQ3.1Disablinginjuries(DIFR)3.2EnvironmentalspillagesDiversifying from Mou 3.3Implementationofdownstreamstrategy
3.4SaleofChemicalsintoRSA
3.5ULDexports
3.6IntroductionofvariousgradesofcondensatePlant Performance 3.7OverallutilisationGTL and CoD Commercialisation 3.8LTFTtechnologydevelopment
3.9CODcommercialisationstudiesfeedstock and non‑feedstock 3.10Long‑termfeedstocksolutionforGTLRefinery3.11ReplacementratioInfrastructure Initiatives 3.12Liquidfuelsinfrastructureprojects3.13Completedraftpre‑feasibilitystudiesonCTL
3.14Completedraftpre‑feasibilitystudiesoncruderefinery
3.15LNGimportterminalatCoega
<0.4030October2007
asperbudget
MarginaboveBFP
1newgradeby31March2008
72%TechnologyOptimisationPhaseIIMilestone1:31October2007
TechnologyCommercialisationPhaseI:31March2008Developmentandapprovaloffeedstocksolution31March20081yearSubmissiontoExco31March2008Technicalsolutiontobecompletedby31March2008
Technicalsolutiontobecompletedby31March2008
SubmissiontoExco31March2008
0.38030September2007
65%ofbudget
Marginachieved
None
73%30November2007Nosolutionby31March200831March20080.2531March200831March2008
31January2008
31March2008
AchievedAchievedAchieved
NotAchieved
Achieved
NotAchieved
AchievedNotAchievedNotAchievedAchievedNotAchievedAchievedAchieved
Achieved
Achieved
PeRfoRmance against
objectives
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Notes1. People employment equity1.1 ee Plan ThetargetforthenumberofBlackemployeesatPetroSAfor2007/8is74%aspertheEEPlan.Thedesignatedemployeesasat31March2008forpermanentstaffis76%andfortotalemployees(permanentandFTC)is79%.
People Development 1.2Thetargetofemployeestrained,accordingtothesubmissiontoCHIETA,was74%perannumofthetotalnumberofemployees.Eightypercentofemployeesweretrainedthisyear.
1.3ThetargetpercentagereturnfromCHIETAwas75%.Dependingonaccreditedcourses,CHIETAwillrefundPetroSAonanannualbasis.Theamountpaidbackthisyearwas98%.
Talent Attraction 1.4Ofthe193candidatesemployedatPetroSA,104wereplacedwithinathree‑monthperiod.
retention Strategy 1.5Duetothehighturnoverintheindustryaswellasthehighdemandforspecialisedskills,aturnoverrateof6,6%wasobtainedforspecialisedcategories.Thefollowingjobcategoriesaretargeted:
•ReservoirEngineering; •ControlSystemsDesign/Engineering;•ProcessEngineering; •Geophysics/Geology; •ProjectEngineering.
2. Finance Volumes 2.1 GTL refinery ProductionThe14.9%decreaseinoutputagainstbudgetwasduetothefollowing: •IndustrialAction
•GasAvailability •EMlineplugging •DelayedSCGcommissioningandFAreliability•OutagesandreliabilityatGTLRefinery
2.2 Non‑feedstock production Sable: BetterthanexpectedperformanceofE‑BD3afterrestartinFebruary2008,whichmadeupforthe6‑monthshutdownduetothegasliftleak.ThebetterproductionperformancewasachieveddespitecuttingbackproductionfromDecember2006toadheretoanewminimumflaringstrategy.
oribi/oryx: Wellperformancewasgenerallybetterthanexpected,partiallyduetogoodpressuremaintenance.Loweringofseparatorpressureshadasmallpositiveeffectonproduction.TheE‑AR02Pacidcleanimprovedproductionfrommid‑April2007. Bee 2.3 Bee Procurement Fortheperiodunderreview,paymentsmadetoBEEsuppliersofgoodsandservicesequalled23.9%ofthetotalprocurement.However,intermsofthenewBEEcodesofgoodpractice,thetotalpreferentialprocurementfortheyearwas70%. 2.4 Bee sales BEEfuelsaleswere17%oftotalproduction.
Profitability Analysis
2.5 Cost to Income ratio Thecosttoincomeratioof35%wasachieved,whichwasbelowthebudgetof40%.Thiswasduetohighercostsattributabletotheimporteddieselthatwasnotbudgetedfor.Theimporteddieselresaleshaveimpairedoverallmargins.
for the year ended 31 March 2008
94 PETROSA Annual Report 2008
3. Internal Business Processes
SHeQ3.1 DIfr (Disabling Injury frequency rate)TheDIFRiscalculatedonthebasisofarolling12‑monthformula,asshownbelow,fromJuly2007toJune2008.
DIFR=Numberofinjuriesx200000(hours)No.ofhoursworked(Duringperiodunderreview)
PetroSAachievedanexcellentrate0.38ascomparedtoaninternationalindustrystandardof1.0.DespiteachievingtheDIFRtarget,therewasatotalof15(non‑permanent)disablinginjuriesduringthefinancialyear.Thesehavebeeninvestigatedandmeasuresarebeingtakentocontainsuchincidents.Thereis,forexample,aspecialisedfocusoncontractorsafetymanagement.PetroSAnowdemandssafetymanagementplansfromcontractedcompaniesforapproval,andtheirlettersofgoodstandingfromtheCOIDCommissionerarecheckedforcompliance.
Further,withrespecttotheimplementationoftheISOsystems,100%ofallunits,withintheOperationsdivsion,wereontheISO9001:2000certificateby31March2008.
3.2 environmental spillagesNosignificantenvironmentalincidentshaveoccurredduringthefinancialyear.However,therewere6incidentswhichhadariskratingof1(Impact:slighteffect)thatoccurredattheGTLRefineryandtheFAPlatform.Necessaryactionsweretakentodealwiththeseincidentswithoutanyinvolvementfrommunicipalorotheremergencyservices.Diversifying from Mou3.3 Downstream strategy Thedownstreamstrategywasmulti‑prongedinapproachinthatnewsupplyagreementswithoilcompaniesweretobe
pursuedwhilstconcurrentlydevelopingamarketentrystrategy.Newagreementswiththeindustryhavebeenconcludedwhilstthedownstreammarketentrystrategyisbeingdeveloped.3.4 Chemical sales to rSA Localpetrochemicalsalesfortheyeartotalled65%ofthetarget,ofwhich55%werealcoholsand45%distillates.TofacilitatepetrochemicalsalesintothelocalmarketthecommissioningofpermanentroadloadingfacilitiesforalcoholsattheMosselBayrefinerytookplaceinNovember2007.Storagetankswithatotalcapacityof1,600mtweresecuredinDurbanfromwhichsalesofpetrochemicaldistillatestakeplace.3.5 uLD exportsTheaveragemarginforULDexportswasabovetheBFP.
3.6 Introduction of various grades of condensateTheplanstoincreasethecondensatebasketarecontinuing.NewgradespresentlybeingevaluatedareSnohvitandOrmenLange.Nofinalisationofresultsavailableasyet.Plant Performance 3.7 utilisation of fA to GasloopOverallutilisationisdefinedasthemeasurementtakingalllossesintoaccount,includingtimelostduetonon‑operationaswellaslossesduetoproductionatlowerproductionratesduetoslowdownetc.Inthisinstance,itwasdecidedtomeasurethisatasinglepoint,whichreflectedthetotalutilisation.Theoverallutilisationrateof73%wascalculatedasfollows:
OverallUtilisation=ActualruntimeXActualproductionrateCalendartimeXMaxprovencapacity
PeRfoRmance against
objectives
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GTL and CoD Commercialisation 3.8 LTfT Technology Development
ThefinalisationofPhaseIIoftheLTFTtechnologydevelopmentrequiresthatthefollowingtwomilestonesarereached:
Firstmilestone:The2Gcatalystconceptualtestsuccessfullyachieved/completedbytheendofNovember2007.Secondmilestone:The2ndgenerationcatalystlong‑termstabilityverificationtobecommissionedinAugust2008andcompletedinFebruary2009.
3.9 CoD Commercialisation ThereisongoingdiscussionbetweenPetroSAandCEFregardingthemarketingoftheCODtechnology.
feedstock and non‑feedstock 3.10 Long‑term feedstock solution for the GTL refinery.MidstreamNewVenturescoordinatedGTLRefineryMasterplandevelopment,CNG,LNGandothergassupplyprojects.GasSummitfacilitatedprojectscreening/prioritisationandexecutionofplansthatresultedinthefocusbeingonoffshoreLNG,CNGandProjectJabulani.
3.11 replacement ratioThereplacementratioiscalculatedastheratiooftheTotalReservesAddedtotheCurrentProductionRate.Fromthisfinancialyeararatioof0.25wasobtained.
Infrastructure Initiatives 3.12 Liquid fuels Infrastructurewestern, Southern and eastern Cape: SubstantialandsignificantprogresswasachievedwithregardtotheLiquidFuelsInfrastructuredespitestrategicstock
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mandateuncertainties.Also,significantprogresswasmadeduringtheyearindefiningprojectrequirementsastowhetherornottoproceedwithprojects,specificallyforcrude.MarkedprogresswasmadetowardsunderstandingtherequirementsforinfrastructuredevelopmentssupportiveofthenewrefineryandanyDMEstrategicstockrequirements.Strongandrelevantrelationshipswereestablishedwithindustryplayersandstakeholders.Apre‑feasibilitystudyforMilnertonandaconceptstudyfornewCoegaterminalwascompleted.Apre‑feasibilitystudyforLPGterminalinWesternCapewasinitiated.
KwaZulu‑Natal and Gauteng: SubstantialprogresswasmadetowardsunderstandingrequirementsforinfrastructuredevelopmentssupportiveofthenewrefineryandanyDMEstrategicstockrequirements.
3.13 CTL refineryACTLrefinerypre‑feasibilitystudy,includingCTLconfiguration,capexestimate,siteselection,executionplanandproductmarketimpactassessment,hasbeencompleted.Significantprogresswasmadeduringtheyearindefiningtheprojectexecutionrequirements.Allaspectsofpre‑feasibility,asnotedinKPA,wereachieved,includingCTLconfiguration,capexestimate,siteselection,executionplanandproductmarketimpactassessment.Adraftbusinesscasehasbeencompleted.Sufficientunderstandingisnowavailabletomakedecisionsonwhethertheprojectisfeasible,whetherornottoproceedandhowtoaddress“show‑stoppers”.CTLProject:Searchandappraisalforcoalresources,includingdraftpartneragreementsandfarm‑inagreements,werecompleted.Keygovernmentapprovals(PFMAandMPRDA)havebeenreceivedfortheproject.ThelatereceiptoftheMPRDAprocurementprocesshasdelayedthestartoftheappraisalprogramme.Appraisalcommencedand9ofthe12appraisalholeswerecompletedattheendofMarch.Analysesareinprogressandfinalpartneragreementshavebeensigned.
for the year ended 31 March 2008
96 PETROSA Annual Report 2008
3.14 Crude refineryAtechnicalpre‑feasibilitystudy,includingrefineryconfiguration,30%accuracycapexestimates,siteselectionandexecutionplan,havebeencompleted.
Commercialpre‑feasibilitystudy:Crudeselectionhasbeencompletedanddownstreaminvestigationisunderway.AdraftproductmarketstudywascompletedinMarch2008andacommercialbusinesscasewasdeveloped.Furtherrefinementwillbeinitiatedduringthefeasibilityphase.
3.15 LNG TerminalAtthebeginningofthe2007/8financialyearseveralmeetingswereheldwithEskomandi‑GasrepresentativestogettheircooperationontheCoegaLNGTerminal.Atthetimeitwas
envisagedthata2400MWcombined‑cyclegas‑turbine(CCGT)wouldbebuiltintheCoegaIndustrialDevelopmentZone.TomaketheCoegaLNGTerminaleconomicallyviable,whatwasrequiredwastheeconomiesofscaleforEskomandPetroSA(MosselBay)volumesgoingthroughtheterminal.EskomthenreportedthatwiththeregulatedelectricitytariffatthetimetheCCGTwasnoteconomicallyfeasibleandthatthePFMAprohibitedthemfrominvestinginaprojectthatdidnotmeettheireconomicbenchmarks.Asaninterimmeasure,itwasdecidedthatLNGbesuppliedutilisingspecialisedLNGtransportandre‑gasificationvesselsthatunloadgasatanewbuoyandpipelineconnectedtotheGTLplantatMosselBay.Theproject
wasapprovedbymanagement.
PeRfoRmance against
objectives
PETROSA Annual Report 2008 97
Group
2008 2007
r’000 r’000
Revenue
11,344,156
9,593,486
Paidtosuppliersformaterialandservices 7,834,402 5,411,369
3,509,754 4,182,117
Incomefrominvestments 1,192,002 869,192
wealth created 4,701,756 5,051,309
wealth distributed as follows:
Managementandemployees 805,460 744,684
Remunerationandbenefits 805,460 744,684
Providersofcapital 436,544 766,756
Dividendstoshareholders 425,000 690,000
Interestonborrowingsnetofforeignloanrevaluation 11,544 76,756
Government 894,081 326,434
Taxation 889,551 317,895
Otherpayments 4,530 8,539
Totaldistributions 2,136,085 1,837,874
Retainedforre‑investment 2,565,671 3,213,435
Depreciation 657,044 909,807
Incomeretainedinthebusiness 1,908,627 2,303,628
4,701,756 5,051,309
Thevalueaddedstatementmeasuresperformanceintermsofvalueaddedbythegroupthroughthecollectiveeffortsofmanagement,employeesandtheprovidersofcapital.Thestatementshowshowvalueaddedhasbeendistributedtothosecontributingtoitscreation.
Value Added Statementfor the year ended 31 March 2008
98 PETROSA Annual Report 2008
ThereportispresentedintermsofthePublicFinanceManagementAct1of1999(PFMA),asamended,andisfocusedonthefinancialresultsandfinancialpositionofthecompany.Informationpertainingtothecompany’sstateofaffairs,itsbusinessoperationsandperformanceagainstpredeterminedobjectivesisdisclosedelsewhereintheannualreport.Thedirectorsareresponsibleforthepreparation,integrityandfairpresentationoftheconsolidatedannualfinancialstatementsandsupplementaryinformationofThePetroleumOilandGasCorporationofSouthAfrica(Pty)Ltdanditssubsidiaries.Inorderforthedirectorstodischargetheseresponsibilities,aswellasthosebestowedonthemintermsofthePFMAandotherapplicablelegislation,theyhavedevelopedandmaintainasystemofinternalfinancialcontrols.Thefinancialstatements,presentedonpages102to158,havebeenpreparedinaccordancewiththeSouthAfricanStatementsofGenerallyAcceptedAccountingPracticeandtheCompaniesActofSouthAfrica,1973,andincludeamountsbasedonappropriateaccountingpolicies,supportedbyreasonableandprudentjudgmentsandestimatesmadebymanagement.Thedirectorsacknowledgetheirresponsibilitiesasstatedaboveandhaveestablishedinternalfinancialcontrolsandriskmanagementsystemsthatmaintainastrongcontrolenvironment.Thesesystemsaredesignedtoprovidereasonable,butnotabsolute,assuranceagainstmaterialmisstatementsandlosses.Basedoninformationandexplanationsreceivedfrommanagement,andtheinternalauditorsonthemaintenanceoftheinternalfinancialcontrols,thedirectorsareoftheopinionthatproperaccountingrecordshavebeenmaintainedandthatreliancecanbeplacedonthefinancialinformationusedforthisannualreport.Thegoingconcernbasishasbeenadoptedinpreparingthefinancialstatements.Thedirectorshavenoreasontobelievethatthegroupwillnotbeagoingconcerninthe
foreseeablefuture,basedonforecastsandavailablecashresources.Theviabilityofthegroupissupportedbythefinancialstatements.ThefinancialstatementshavebeenauditedbytheAuditorGeneralwhowasgivenunrestrictedaccesstoallfinancialrecordsandrelateddata,includingminutesofallmeetingsofshareholders,theboardofdirectors,committeesoftheboard,andmanagement.Thedirectorsbelievethatallrepresentationsmadetotheindependentauditorsduringtheirauditwerevalidandappropriate.TheAuditor‑General’sauditreportisattached.Intheopinionofthedirectorsbasedoninformationavailabletodate,theannualfinancialstatementsfairlypresentthefinancialpositionofPetroSAat31March2008,andtheresultsofitsoperationsandcashflowinformationfortheyearunderreview.Thegroupannualfinancialstatementsassetoutonpages102to158,fortheyearended31March2008,wereapprovedbytheboardofdirectorsintermsofSection51(1)(f)ofthePublicFinanceManagementActon21July2008andaresignedonitsbehalfby
Director
Director
Cape Town21 July 2008
statement of
responsibilityfor the year ended 31 March 2008
PETROSA Annual Report 2008 99
RePoRt of tHe
Auditor‑General
REPoRt oN thE FINaNCIal StatEMENtSIntroduction1. Ihaveauditedtheaccompanyinggroupannualfinancial
statementsofThePetroleumOilandGasCorporationofSouthAfrica(Pty)Ltd(PetroSA)whichcomprisetheconsolidatedandseparatebalancesheetasat31March2008,consolidatedandseparateincomestatement,consolidatedandseparatestatementofchangesinequityandtheconsolidatedandseparatecashflowstatementfortheyearthenendedandasummaryofsignificantaccountingpoliciesandotherexplanatorynotesandthedirectors’reportassetoutonpages102to156.
responsibility of the accounting authority for the financial statements
2. TheaccountingauthorityisresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithSouthAfricanStatementsofGenerallyAcceptedAccountingPracticeandinthemannerrequiredbythePublicFinanceManagementAct,1999(ActNo.1of1999)(PFMA),theCompaniesActofSouthAfrica,1973(ActNo.61of1973)andtheCentralEnergyFundAct,1977(ActNo.38of1977)asamended.Thisresponsibilityincludes:• Designing,implementingandmaintaininginternal controlrelevanttothepreparationandfairpresentation offinancialstatementsthatarefreefrommaterial misstatement,whetherduetofraudorerror;• Selectingandapplyingappropriateaccounting policies;and• Makingaccountingestimatesthatarereasonable inthecircumstances.
responsibility of the Auditor‑General3. Asrequiredbysection188oftheConstitutionoftheRepublic
ofSouthAfrica,1996readwithsection4ofthePublicAuditAct,2004(ActNo.25of2004)(PAA),section300oftheCompaniesActofSouthAfrica,andsection1E(3)oftheCentralEnergyFundAct,1977(ActNo.38of1977)asamended,myresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonmyaudit.
4. IconductedmyauditinaccordancewiththeInternationalStandardsonAuditingandGeneralNotice616of2008,issuedinGovernmentGazetteNo.31057of15May2008.Those
standardsrequirethatIcomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceonwhetherthefinancialstatementsarefreefrommaterialmisstatement.
5. Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.
6. Anauditalsoincludesevaluatingthe:• Appropriatenessofaccountingpoliciesused;• Reasonablenessofaccountingestimatesmadeby management;and• Overallpresentationofthefinancialstatements.
7. IbelievethattheauditevidenceIhaveobtainedissufficientandappropriatetoprovideabasisformyauditopinion.
opinion 8. Inmyopinionthegroupannualfinancialstatementspresent
fairly,inallmaterialrespects,thefinancialpositionofThePetroleumOilandGasCorporationofSouthAfrica(Pty)Ltdasat31March2008,inaccordancewithSouthAfricanStatementsofGenerallyAcceptedAccountingPracticeandinthemannerrequiredbythePFMAandtheCompaniesActofSouthAfrica.
othER MattERSWithoutqualifyingmyauditopinion,Idrawattentiontothefollowingmattersthatrelatetomyresponsibilitiesintheauditofthefinancialstatements:
Matters of governance9. ThePFMAtaskstheaccountingauthoritywithanumberof
responsibilitiesconcerningfinancialandriskmanagementandinternalcontrol.Fundamentaltoachievingthisistheimplementationofcertainkeygovernanceresponsibilities,whichIhaveassessedasfollows:
to Parliarment on the Group Financial Statements and Performance Information of the Petroleum Oil and Gas Company of South Africa
(Proprietary) Limited for the year ended 31 March 2008
for the year ended 31 March 2008
100 PETROSA Annual Report 2008
unaudited supplementary schedules
10. Thesupplementaryinformationsetoutonpages157to158doesnotformpartofthefinancialstatementsandispresentedasadditionalinformation.IhavenotauditedthisscheduleandaccordinglyIdonotexpressanopinionthereon.
othER REPoRtING RESPoNSIBIlItIES REPoRt oN PERFoRMaNCE INFoRMatIoN
11. Ihavereviewedtheperformanceinformationassetoutonpages91to97.
responsibility of the accounting authority for the performance information
12. Theaccountingauthorityhasadditionalresponsibilitiesasrequiredbysection55(2)(a)ofthePFMAtoensurethattheannualreportandauditedfinancialstatementsfairlypresenttheperformanceagainstpredeterminedobjectivesofthepublicentity.
responsibility of the Auditor‑General13. Iconductedmyengagementinaccordancewithsection13
ofthePAAreadwithGeneralNotice616of2008,issuedinGovernmentGazetteNo.31057of15May2008.
14. Intermsoftheforegoingmyengagementincludedperformingproceduresofanauditnaturetoobtainsufficientappropriateevidenceabouttheperformanceinformationandrelatedsystems,processesandprocedures.Theproceduresselecteddependontheauditor’sjudgement.
15. IbelievethattheevidenceIhaveobtainedissufficientandappropriatetoreportthatnosignificantfindingshavebeenidentifiedasaresultofmyreview.
aPPRECIatIoN
16. TheassistancerenderedbythestaffofThePetroleumOilandGasCorporationofSouthAfrica(Pty)Ltdduringtheauditissincerelyappreciated.
Pretoria
31July2008
Matterofgovernance Yes No
Auditcommittee• The entity had an audit committee in operation throughout the financial
year.X
• The audit committee operates in accordance with approved, written terms of reference.
X
• The audit committee substantially fulfilled its responsibilities for the year, as set out in section 77 of the PFMA and Treasury Regulation 27.1.8.
X
Internalaudit• The entity had an internal audit function in operation throughout the finan-
cial year.X
• The internal audit function operates in terms of an approved internal audit plan.
X
• The internal audit function substantially fulfilled its responsibilities for the year, as set out in Treasury Regulation 27.2.
X
OthermattersofgovernanceThe group annual financial statements were submitted for audit as per the legislated deadlines (section 55 of the PFMA for public entities).
X
The group annual financial statements submitted for audit were not subject to any material amendments resulting from the audit.
X
No significant difficulties were experienced during the audit concerning delays or the unavailability of expected information and/or the unavailability of senior management.
X
The prior year’s external audit recommendations have been substantially implemented.
X
RePoRt of tHe
Auditor‑General
PETROSA Annual Report 2008 101
InmycapacityasCompanySecretary,Iherebyconfirm,intermsofsection268G(d)oftheCompaniesAct,1973,thatfortheyearended31March2008thecompanyhaslodgedwiththeRegistrarofCompaniesallsuchreturnsasarerequiredofacompanyintermsofthisAct,andthatallsuchreturnsare,tothebestofmyknowledgeandbelief,true,correctanduptodate.
Name: AdvPSVNgaba
Date: 21July2008
comPany secRetaRy’s
Certificatefor the year ended 31 March 2008
102 PETROSA Annual Report 2008
1. Introduction
Thedirectorspresenttheirannualreportthatformspartoftheauditedannualfinancialstatementsofthegroupfortheyearended 31 March 2008.
2. Directors
2.1. The directors of the company during the year were as follows:
DrPSMolefe Non‑executive‑ChairmanMrMKajee Non‑executive,appointed01July2007MrRJAngel Non‑executive,appointed01July2007,resigned07December2007MrSMkhize Executive‑PresidentandCEOMrMWMkhize Non‑executive,appointed26July2007MrANkuhlu Non‑executiveMsCWNMolope Non‑executiveMrNGNika ExecutiveProf.BFigaji Non‑executiveMrMBDamane Non‑executiveMsNYVukuza‑Linda Non‑executive,appointed01July2007MsBBSiwisa Non‑executive,appointed26July2007MrNHGumede Non‑executive,resigned30June2007MsRJHuntley Non‑executive,resigned30June2007MsTChikane Non‑executive,resigned30June2007MrDRZihlangu Non‑executive
Attendanceatmeetings
23/05/2007 20/07/2007 06/08/2007 21/09/2007 15/11/2007 15/02/2008 30/03/2008
MrRJAngel ‑ ‑ Y Y Y R
MrDRZihlangu Y Y Y Y Y Y Y
DrPSMolefe Y N N Y Y Y N
MrMBDamane Y Y Y Y Y Y Y
Prof.BFigaji N Y Y N Y N N
MrSMkhize Y Y Y Y Y Y Y
MrNGNika Y Y Y Y Y Y Y
MrANkuhlu Y N Y Y N Y Y
MsCWNMolope ‑ Y N Y Y Y N
MsNYVukuza‑Linda ‑ Y Y Y Y Y Y
MrMWMkhize ‑ ‑ Y N Y Y N
MrMKajee ‑ Y N Y Y Y Y
MrNHGumede N R
MsBBSiwisa ‑ ‑ Y Y Y Y Y
MsRJHuntley Y R
MsTChikane N R
Y =Attendedmeeting N=Apologyreceived ‑=Notyetappointed R=ResignedfromBoard
for the year ended 31 March 2008DirectorsRePoRt of tHe
THe fuTure IS Now ... VISIoN 2020
PETROSA Annual Report 2008 103
2.2. Board audit committee
Thiscommitteeoftheboardofdirectorscomprisedthefollowingmembers:MrMKajee ‑Non‑executive(Appointed21September2007)MsRJHuntley ‑Non‑executive(Resigned30June2007)MsCWNMolope‑Non‑executive(Chairman)(Appointed21September2007)ProfBFigaji ‑Non‑executiveMsTCPChikane ‑Non‑executive(Chairman)(Resigned30June2007)Attendanceatmeetings
14/05/2007 11/07/2007 12/09/2007 28/01/2008MsCWNMolope N Y Y YProf.BFigaji N Y Y YMrMKajee ‑ ‑ Y YMsTChikane Y RMsRJHuntley Y R
Y =Attendedmeeting N=Apologyreceived ‑=Notyetappointed R=ResignedfromBoard
2.3. Board human capital committee
Thiscommitteeoftheboardofdirectorscomprisedthefollowingmembers:MrDRZihlangu ‑Non‑executive(Chairman)MrANkuhlu ‑Non‑executiveDrPSMolefe ‑Non‑executiveMsNVukuza‑Linda ‑Non‑executive(Appointed01July2007)MsTChikane‑Non‑executive(Resigned30June2007)
Attendanceatmeetings
10/05/2007 09/07/2007 20/09/2007 25/01/2008 14/02/2008 21/02/2008
MrDRZihlangu Y Y Y Y Y YDrPSMolefe Y Y Y N Y NMrANkuhlu Y Y Y Y Y NMsNYVukuza‑Linda ‑ ‑ Y Y Y YMsTChikane Y R
Y =Attendedmeeting N=Apologyreceived ‑=Notyetappointed R=ResignedfromBoard
104 PETROSA Annual Report 2008
2.4. Board business performance & strategy committee
Thiscommitteeoftheboardofdirectorscomprisedthefollowingmembers:MrANkuhlu ‑Non‑executive(Chairman)Prof.BFigaji ‑Non‑executiveMrNHGumede ‑Non‑executive(Resigned30June2007)MrMBDamane ‑Non‑executiveMrRJAngel ‑Non‑executive(Appointed21September2007,Resigned07December2007)MrMWMkhize‑Non‑executive(Appointed08February2008)Attendanceatmeetings
08/05/2007 04/07/2007 20/09/2007 22/10/2007 08/02/2008
MrANkuhlu Y Y Y Y YProf.BFigaji Y Y Y N YMrRJAngel ‑ ‑ ‑ Y RMrNHGumede N Y R
MrMBDamane N N Y N YMrMWMkhize ‑ ‑ ‑ ‑ Y
Y =Attendedmeeting N=Apologyreceived ‑=Notyetappointed R=ResignedfromBoard
2.5. Board risk management and compliance committee
Thiscommitteeoftheboardofdirectorscomprisedthefollowingmembers:MsRJHuntley ‑Non‑executive(Chairmanresigned30June2007)MrDRZihlangu ‑Non‑executiveProfBFigaji ‑Non‑executiveMsTChikane ‑Non‑executive(Resigned30June2007) MsBBSiwisa ‑Non‑executive(Appointed21September2007)MrMKajee ‑Non‑executive(Chairmanappointed21September2007)
Attendanceatmeetings
14/05/2007 11/07/2007 21/09/2007 06/02/2008
MrMKajee ‑ ‑ Y YProf.BFigaji N Y Y Y
MrDRZihlangu Y Y Y Y
MsRJHuntley Y R
MsTChikane Y R
MsBBSiwisa ‑ ‑ ‑ Y
Y =Attendedmeeting N=Apologyreceived ‑=Notyetappointed R=ResignedfromBoard
for the year ended 31 March 2008DirectorsRePoRt of tHe
THe fuTure IS Now ... VISIoN 2020
PETROSA Annual Report 2008 105
3. Secretary
TheCompanySecretaryisAdvPSVNgabaandherbusinessandpostaladdressesareasfollows:
151FransConradieDriveParow7500
PrivateBagX5Parow7499
4. Nature of business
Activities Themainareasofactivitywithinthegroupduringtheyearareasfollows:
Theexplorationandproductionofcrudeoilandnaturalgasoffthesouth‑easterncoastofSouthAfricaandinNigeriaandparticipationintheacquisitionofinternationalupstreampetroleumventures;TheproductionandmarketingofsyntheticfuelsproducedfromoffshoregasandcondensateattheGTLplantatMosselBaytothelocalmarket,andhigh‑valuechemicalsinternationally;andThemanagementofstrategiccrudeoilstockandstoragefacilitiesonbehalfofthegovernment.
objectivesThekeyelements/objectivesofPetroSA’scorebusinessstrategyareasfollows:
1. exploration for feedstock and non‑feedstock1.1 PrimaryfocusongasprojectsinSouthernAfrica.1.2 Selectivelydevelopopportunitiestoaccessgas
orcrudeinotherpartsoftheworld.1.3 ImplementSouthCoastGasprojectby30
October2008.
2. Commercialisation of GTL and CoD 2.1 DevelopprojectstoenhanceGTLandCOD
commercialisationefforts.
3. Diversifying from the Mou3.1 Entertheretailandcommercialmarkets.
•
•
•
4. Developing related infrastructure4.1 Developmentofrefiningfacility.4.2 Building/Upgradingofrelatedinfrastructure.4.3 SecurefeedstockfortheMosselBayplant
beyond2010(currentreservesestimate).
5. Review of financial position
Group financial results and operating activitiesAnalysis and review of results and financial position ThegroupachievedanetprofitofR1,83billion(2007:R2,71billion)fortheyearunderreview.SalesrevenuewasparticularlyhighatR11billion(2007:R8,95billion)andisattributedtothehighoilpricesthataveragedUSD82.29perbarrelversusthepreviousyear’sUSD64.15.ThegrouprevenuereflectstheconsolidationofBrassExplorationUnlimited,theNigeriansubsidiary,fortheperiodJanuary2007toDecember2007(BEU’sfinancialyear‑end).Salesvolumeswere14%lowerthanlastyeardespitebeingboostedbythedieselimports,whichmadeup21%oftotalvolumes.ProductionvolumesdeclinedsignificantlythisyearduetotheOrcarecertification(Oribi/Oryxcrude)andweakgas‑flowratesfromboththeSableandFA‑EMfields.Overallgroupoperatingcosts(R9,5billion)increasedby34%onthepreviousyear(2007:R7,1billion).Thiswasmainlyduetotheincreasedcostoffeedstockpurchasesasaresultofthehighoilpricesandtheweakerrand.Thegrouprecordedapre‑taxprofitofR2,72billion,whichreflectsadecreaseof10%ontheprioryearprofitofR3,03billion.AtaxchargeforBEUinNigeria,aswellasexplorationactivitiesinsubsidiarycompaniesinSudan,EgyptandEquatorialGuineaandthechangeinthetaxationlegislation,whichplacesPetroSAinataxablepositionforthefirstyear,resultedinadecreaseingroupprofitaftertaxtoR1,83billionfromR2,71billionin2007.Thegroupbalancesheetremainsstrong,withtotalassetsofR23,8billion(2007:R19,1billion).Theincreaseismainlyduetothecashgeneratedbythegroupduringtheyear.AcashbalanceofR12,9billion(2007:R11,0billion)versusalong‑termloanbookofR0,11billion(2007:R0,18billion)reflectsthegroup’sstrongnetcashposition.TheImvumemattercontinuestobepursuedwithinthecorridorsoftheWitwatersrandHighCourt.Interlocutoryactionshavebeenbroughtbybothpartieswiththeintendedresolutionofthesame.Itisexpectedtofinalisetherecovery
106 PETROSA Annual Report 2008
ofthecapitalamountofR8millionandR6,3millioninterestpayablebytheendofJuly2008.
6. Share capital
Detailsofthesharecapitalofthecompanyaresetoutinnote14totheannualfinancialstatements.Therehavebeennochangestothesharecapitalofanyoftheothergroupcompaniesduringtheyearunderreview.
7. Dividends
AdividendofR425millionwasdeclared,ofwhichR220millionwaspaidduringthefinancialyear(2007:R690million)andR205millionisstilltobepaidbutaccruedfor.
8. Materiality and significant framework
Amaterialityandsignificantframeworkhasbeendevelopedforreportinglossesthroughcriminalconductandirregular,fruitlessandwastefulexpenditure,aswellasforsignificanttransactionsenvisagedpersection54(2)ofthePFMAthatrequiresministerialapproval.TheframeworkwasfinalisedafterconsultationwiththeexternalauditorsandhasbeenformallyapprovedbytheBoard.DuringtheyearanamountofR189,000waspaidforthestandingtimeoftransportvehicles.AfurtherR202,505waspaidasaninterestchargeonlatepaymentofaninvoice,whichwasincurredduetoPetroSAwaitingforthetransferofstocktoitstankfacilities.AnamountofR4,463,756wasincurredandpaidwithrespecttopenaltiesandinterestforindirecttaxes.On5May2008PetroSAreceivedadefaultjudgementfortheamountofR952,579againstaformeremployeefortherecoveryofsettlementamountspaidtoWesbankforoutstandingvehicleloans.HoweverPetroSAisnotpursuingthisjudgementcurrentlyastheformeremployeeisinvolvedinanarbitrationmatterwithPetroSA.
9. holding company
TheholdingcompanyisCEF(Pty)Ltd(CEF)andtheultimateshareholderistheSouthAfricanGovernment.AllsharesheldbytheGovernmentinCEFarenottransferableintermsoftheCentralEnergyFundAct(ActNo.37of1977).
10. Subsidiaries and associates
ThePetroSAgroupstructureisexpandingatarapidrate,with
thegrowthmostlydrivenbythecompany’spursuitofexplorationandproductionopportunitiesinAfricaandelsewhereinlinewiththecompany’sobjectives.Thecompanieswithinthegrouparesubsidiarieswhoseexistenceisdrivenbybusinessneeds.TheBrassExplorationUnlimited(BEU)financialyearendis31DecemberinaccordancewithNigerianlegislation,whichisnotincompliancewiththePFMArequirements.ThegroupresultsincludetheperformanceofBEUfortheyearended31December2007.SalimaPetroleumOperatingCompanywasincorporatedinMauritiusduringthecurrentfinancialyear,withPetroSAholding80%ofitssharecapitalandtheSudanesenationalpetroleumcompanyholdingtheremaining20%.Thesharecapitalwillbeissuedinthe2009financialyear.PetroSAhasa37.5%interestintheassociatecompanyGTL.F1AG,aSwissincorporatedtechnologycompanythatholdsthelicencesoftheGTLtechnology.ThegroupresultsincludetheperformanceofGTL.F1AGfortheyearended31December2007.DuringthepreviousfinancialyearPetroSAacquireda30%interestinSudChemieZeolites(Pty)Ltd,aSouthAfricanincorporatedcompany.ThegroupresultsincludetheperformanceofSudChemiefortheyearended31December2007.ThisaccountingtreatmentispermittedbyInternationalAccountingStandard27paragraphs26and27.Thedetailsofthegroup’ssubsidiariesaresetoutinnote6andassociatesinnote8tothefinancialstatements.
11. Post‑balance sheet events
On16May2008SudChemieSA(Pty)LtdexerciseditscalloptionintermsoftheShareholderAgreementtobuybackthe30%investmentthatPetroSAholdsinSudChemieZeolites(Pty)Ltd.Thistransactionwillbeconcludedinthe2009financialyear.AdecisionwastakentodivestfromtheNigeriansubsidiaryBrassExplorationUnlimited.Theplanwillbeformalisedinthenextfinancialyear.
12. Going concern
Thedirectorsbelievethatthegroupwillcontinueasagoingconcernintheyearahead.
for the year ended 31 March 2008DirectorsRePoRt of tHe
PETROSA Annual Report 2008 107
Group Company 2008 2007 2008 2007 Notes r’000 r’000 r’000 r’000
ASSeTS NoN‑CurreNT ASSeTS 6,018,550 5,312,818 6,294,361 5,362,390Property,plantandequipment 4 5,202,428 4,533,504 4,867,849 4,250,429Assetspendingdetermination 5 54,793 54,793 54,793 54,793Investmentsinsubsidiaries 6 ‑ ‑ 2,137 1,854Intangibleassets 7 79,256 79,236 94 74Investmentsinassociatecompanies 8 11,019 25,609 31,123 31,123Loansreceivable 9 133,406 82,028 800,717 486,469Amountsheldbyholdingcompany 10 537,648 537,648 537,648 537,648
CurreNT ASSeTS 17,106,490 13,788,003 15,821,416 12,817,017Inventories 11 1,870,213 972,345 1,847,577 933,382Tradeandotherreceivables 12 2,360,387 1,557,734 2,140,349 1,484,971Cashandcashequivalents 13 12,875,890 11,257,924 11,833,490 10,398,664ToTAL ASSeTS 23,125,040 19,100,821 22,115,777 18,179,407
eQuITY AND LIABILITIeSCAPITAL AND reSerVeS 14,920,594 13,497,146 15,073,396 13,512,463Sharecapital 14 2 2 2 2Sharepremium 14 2,755,934 2,755,934 2,755,934 2,755,934Non‑distributablereserve 17,640 (440) (7,718) (7,718)
Retainedearnings 12,147,018 10,741,650 12,325,178 10,764,245
NoN‑CurreNT LIABILITIeS 4,362,463 3,559,222 4,126,759 3,306,943
Long‑termloans:shareholder’sloans 15 105,149 175,089 105,149 175,089
Deferredtaxliability 16 423,289 139,958 307,060 ‑
Provisions 17 3,834,025 3,244,175 3,714,550 3,131,854
CurreNT LIABILITIeS 3,841,983 2,044,453 2,915,622 1,360,001
Incometax 1,080,450 537,537 357,250 ‑
Tradeandotherpayables 18 2,375,899 1,055,460 2,172,738 908,545
Short‑termportionoflong‑termloans 15 90,134 80,813 90,134 80,813
Bankoverdraft 13 ‑ 236,643 ‑ 236,643
Dividend 205,000 ‑ 205,000 ‑
Currentprovisions 17 90,500 134,000 90,500 134,000
ToTAL eQuITY AND LIABILITIeS 23,125,040 19,100,821 22,115,777 18,179,407
Balance Sheetsas at 31 March 2008
for the year ended 31 March 2008
108 PETROSA Annual Report 2008
Group Company 2008 2007 2008 2007 Notes r’000 r’000 r’000 r’000
Revenue 21 11,018,772 8,951,756 10,283,291 8,094,870
Costofsales (7,990,774) (6,133,327) (7,597,908) (5,732,962)
Grossprofit 3,027,998 2,818,429 2,685,383 2,361,908
Otheroperatingincome 325,384 641,730 326,921 652,327
Operatingexpenses (1,554,060) (993,829) (1,354,432) (879,195)
Operatingprofit 22 1,799,322 2,466,330 1,657,872 2,135,040
Investment income 23 1,192,002 869,192 1,249,178 918,933Financecosts 24 (256,815) (297,805) (256,807) (292,470)
Lossfromassociates 25 (14,590) (5,515) ‑ ‑Profitbeforetaxation 2,719,919 3,032,202 2,650,243 2,761,503
Taxation 26 (889,551) (317,895) (664,310) ‑Profitfortheyear 1,830,368 2,714,307 1,985,933 2,761,503
Income Statements
PETROSA Annual Report 2008 109
Group Share capital
r’000
Share premium
r’000
Non‑distributable reserve
r’000
retained earnings
r’000
Total
r’000
Balance at 01 April 2006 2 2,755,934 (7,549) 8,745,663 11,494,050
Changeinaccountingpolicy/Priorperioderrors
(28,320)
(28,320)
restated balance 2 2,755,934 (7,549) 8,717,343 11,465,730
Profitfortheyear 2,729,087 2,729,087
Dividends (690,000) (690,000)
Priorperioderror(Refernote31) (14,780) (14,780)
Foreigncurrencytranslationreserve 7,109 7,109
Balance at 01 April 2007 2 2,755,934 (440) 10,741,650 13,497,146Profitfortheyear 1,830,368 1,830,368
Dividends (425,000) (425,000)
Foreigncurrencytranslationreserve 18,080 18,080
Balance at 31 March 2008 2 2,755,934 17,640 12,147,018 14,920,594
Company Share capital
r’000
Share premium
r’000
Non‑distributable reserve
r’000
retained earnings
r’000
Total
r’000
Balance at 01 April 2006 2 2,755,934 (7,718) 8,692,742 11,440,960
Profitfortheyear 2,785,511 2,785,511
Dividends (690,000) (690,000)Priorperioderror(Refernote31) (24,008) (24,008)
Balance at 01 April 2007 2 2,755,934 (7,718) 10,764,245 13,512,463
Profitfortheyear 1,985,933 1,985,933
Dividends (425,000) (425,000)
Balance at 31 March 2008 2 2,755,934 (7,718) 12,325,178 15,073,396
statement of
Changes in equityas at 31 March 2008
110 PETROSA Annual Report 2008
Group Company 2008 2007 2008 2007 Notes r’000 r’000 r’000 r’000
Cash flow from operating activities 3,202,281 3,198,649 3,152,950 2,880,754
Cashreceiptsfromcustomers 28.1 10,526,913 9,049,555 9,954,834 8,293,835
Cashpaidtosuppliersandemployees 28.2 (8,210,331) (6,051,013) (7,808,074) (5,616,947)
Cashgeneratedbyoperations 28.3 2,316,582 2,998,542 2,146,760 2,676,888
Interestreceived 1,191,132 868,322 1,248,308 918,063
Interestpaid (22,996) (25,188) (22,988) (25,067)
Dividendsreceived 870 870 870 870
Dividendspaid (220,000) (690,000) (220,000) (690,000)
Taxation(paid)/refunded 28.4 (63,307) 46,103 ‑ ‑
Cash flow from investing activities (1,343,498) (1,335,570) (1,477,307) (1,469,328)
expenditure to maintain operating capacity
Property,plantandequipmentacquired (1,306,782) (1,645,681) (1,162,848) (1,594,008)
Intangibleassetsacquired ‑ (7,164) ‑ ‑
Disposalsofproperty,plantandequipment 72 ‑ 72 ‑
Recoupmentofcashheldbyholdingcompany ‑ 339,070 ‑ 339,070
expenditure for expansion
Increaseininvestmentloans (51,378) (19,724) (51,378) (19,724)
Investments(acquired)/lossesrealised 14,590 (2,071) ‑ (7,585)
Loanstosubsidiaries ‑ ‑ (263,153) (187,081)
Cash flow from financing activities
Loansrepaid (58,488) (105,195) (58,488) (105,195)
Increaseincashandcashequivalents 1,800,295 1,757,884 1,617,155 1,306,231
Effectsofexchangeratechanges 54,314 192,918 54,314 192,918
Cashandcashequivalentsatbeginningoftheyear 11,021,281 9,070,479 10,162,021 8,662,872
Cashandcashequivalentsatendoftheyear 12,875,890 11,021,281 11,833,490 10,162,021
Cash flow Statementsfor the year ended 31 March 2008
PETROSA Annual Report 2008 111
1 Principal accounting policies Thefollowingaretheprincipalaccountingpoliciesofthe
groupwhichare,inallmaterialrespects,consistentwiththoseappliedinthepreviousyear,exceptasotherwiseindicated:
1.1 Basis of preparation Thefinancialstatementsarepreparedunderthehistorical
costbasis,exceptwhereotherwisespecified.ThegroupannualfinancialstatementsarepreparedinaccordancewithSouthAfricanStatementsofGenerallyAcceptedAccountingPracticeandtheCompaniesActofSouthAfrica.
1.2 Basis of consolidation Theconsolidatedfinancialstatementsincorporatethe
annualfinancialstatementsoftheentityandenterprisescontrolledbytheentityat31Marcheachyear.
Controlisachievedwheretheentityhasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeenterprisesoastoobtainbenefitsfromitsactivities.
Onacquisition,theassetsandliabilitiesoftherelevantsubsidiariesaremeasuredattheirfairvaluesattheeffec‑tivedateofacquisition.
Theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestate‑mentfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.
Wherenecessary,adjustmentsaremadetotheannualfinancialstatementsofsubsidiariestobringtheaccount‑ingpoliciesusedinlinewiththegroupaccountingpoli‑cies.
Allsignificantinter‑entitytransactions,unrealisedprofitandlossesandbalancesbetweengroupenterprisesareeliminatedonconsolidation.
Themostrecentauditedannualfinancialstatementsofassociates,jointventuresandsubsidiariesareusedwhereavailable,whichareallwithinthreemonthsoftheyear‑endofthegroup.Adjustmentsaremadetothefinan‑cialresultsformaterialtransactionsandeventsintheinterveningperiod.Lossesinexcessofthegroup’sinter‑estarenotrecognisedunlessthereisabindingobligationtocontributetothelosses.
1.2.1 Company financial statements Investmentsinsubsidiaries,associatesandjointventuresinthefinancialstatementspresentedbythecompanyarerecognisedatcost,exceptwherethereisapermanentdeclineinthevalue,inwhichcasetheyarewrittendowntofairvalue.1.2.2 Consolidated financial statements
Interest in subsidiaries Subsidiariesareentitiescontrolledbytheholdingcompany.Controlisachievedwherethecompanyhasthepowertogovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Theconsolidatedfinancialstatementsincorporatetheassets,liabilities,income,expensesandcashflowsofthecompanyandallentitiescontrolledbythecompanyasiftheyareasingleeconomicentity.
Interest in associates Anassociateisanenterpriseinwhichthegrouphassignificantinfluence,throughparticipationinthefinancialandoperatingpolicydecisionsoftheinvestee,butnotcontrol.Theresultsandassetsandliabilitiesofassociatesareincorporatedinthefinancialstatementsbyusingtheequitymethodofaccounting,fromtheeffectivedatesoftheiracquisitionuntiltheeffectivedatesoftheirdisposal.
Interest in joint ventures Ajointventureisacontractualagreementbetweentwoormorepartiestoundertakeaneconomicactivity,whichisunderjointcontrol.Investmentsinjointlycontrolledentitiesareaccountedforbywayoftheproportionateconsolidationmethodwherebythegroup’sproportionateshareofassets,liabilities,revenuesandexpensesofthejointventurearecombined,onalinebylinebasis,withsimilaritemsinthefinancialstatementsofthegroup.Theresultsofjointventuresareincludedfromtheeffectivedatesoftheiracquisitionuptotheeffectivedatesoftheirdisposal.Allsignificantinter‑companytransactionsandbalancesbetweengroupentitiesareeliminatedonproportionateconsolidationtotheextentofthegroup’sinterestinthejointventure.
1.3 Comparative figuresComparativefiguresarerestatedintheeventofachangeinaccountingpolicyorpriorperioderror.
notes to tHe annual
financial Statementsfor the year ended 31 March 2008
financial Statementsfor the year ended 31 March 2008
112 PETROSA Annual Report 2008
Financial Statement Items
1.4 Property, plant and equipment 1.4.1 Carrying amountsThecarryingamountsofproperty,plantandequipmentarereviewedforimpairmentwheneventsorchangesincircumstancesindicatethecarryingamountmaynotberecoverable.Ifanysuchindicationexistsandwherethecarryingvaluesexceedtheestimatedrecoverableamount,theassetsorcashgeneratingunitsarewrittendowntotheirrecoverableamount.Therecoverableamountofproperty,plantandequipmentisthegreaterofnetsellingpriceandvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre‑taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Foranassetthatdoesnotgeneratelargelyindependentcashinflows,therecoverableamountisdeterminedforthecashgeneratingunittowhichtheassetbelongs.Impairmentlossesarerecognisedintheincomestatement.
Allproperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandaccumulatedimpairmentlosses.
1.4.2 CostCostincludesallcostsdirectlyattributabletobringingtheassetstoworkingconditionfortheirintendeduse.Improvementsarecapitalised.Maintenance,repairsandrenewalswhichneithermateriallyaddtothevalueofassetsnorappreciablyprolongtheirusefullivesarechargedagainstincome.Financecostsdirectlyassociatedwiththeconstructionoracquisitionofmajorassetsarecapitalisedatinterestratesrelatingtoloansspecificallyraisedforthatpurpose,orattheaverageborrowingratewherethegeneralpoolofborrowingsisutilised.
1.4.3 DisposalsGainsorlossesondisposalofproperty,plantand
equipmentaredeterminedbyreferencetotheircarryingamount.Ondisposalofrevaluedassets,amountsintherevaluationreserverelatingtothatassetaretransferredtoretainedearnings.
1.4.4 DepreciationAllproperty,plantandequipmentaredepreciatedexceptfreeholdland,investmentpropertiesandmineralrights.
Depreciationiscalculatedonthestraightlinemethodtowriteoffthecostofeachasset,ortherevaluedamounts,totheirresidualvaluesovertheirestimatedusefullivesasfollows:Buildings 40years,Plantandequipment 3‑8years,Motorvehicles 5years,Furnitureandfittings 5‑6years,Explorationequipment 3‑8years,
Computerequipment 3years,withtheexceptionofProductionassetsandRestorationcostswheretheunitsofproductionmethodisusedtocalculatedepreciation.Referencetothesupplementaryreservedisclosurecanbemadeformoreinformationonthereservesused.Improvementstoleasedpremisesarewrittenoffovertheperiodofthelease.
Themethodsofdepreciation,usefullivesandresidualvaluesarereviewedannually.
1.4.5 Production assets (oil and gas fields)Subsequentexpenditurethatenhancesorextendstheperformanceofproperty,plantandequipmentbeyondtheiroriginalspecificationsisrecognisedascapitalexpenditureandaddedtotheoriginalcostoftheasset.Productionassetsthatrepresentthecapitalisedshareoftotalexpenditureontheexploration,appraisalanddevelopmentofoilandgasfieldsaredepreciatedovertheirexpectedusefullives.Thisappliesfromthedateproductioncommences,onaunitofproductionbasis,usingtheprovedand
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probabledevelopedreservesrecoverablefromthesefields.Thecarryingamountinrespectofeachfield(reservoir)isreviewedforimpairmentateachbalancesheetdate.Forevaluatedfields,thenetcarryingamountsarecomparedtotheestimatednetrevenuestobederivedfromtherelatedprovedandprobablereservesofoilandgaswithinthatfield.Evaluatedfieldsandotherassetsforwhichcarryingamountsarenotexpectedtobefullyrecoveredarewrittendowntotheirrecoverableamounts.
1.4.6 restoration costs
Costofproperty,plantandequipmentalsoincludestheestimatedcostsofdismantlingandremovingtheassetsandsiterehabilitationcosts.Estimateddecommissioningandrestorationcostsarebasedoncurrentrequirements,technologyandpricelevels.Provisionismadeforallnetestimatedrestorationcostsassoonasanobligationtorehabilitatetheareaexists,basedonthepresentvalueofthefutureestimatedcosts.Thesecostsaredeferredanddepreciatedovertheusefullivesoftheassetstowhichtheyrelateusingtheunitofproductionmethodbasedonthesamereservequantitiesasareusedforthecalculationofdepletionofoilandgasproductionassets.Anadditionalrestorationprovisionchargewillbemadetoincomeannually,basedontheriskfreerateofreturn.Changesinestimatesofreservequantitiesandrestorationcostsarerecognisedprospectively.
1.5 exploration, evaluation and development of oil and gas wells
The“successfulefforts”principleisusedtoaccountforoilandgasexplorationandevaluationactivities.
1.5.1 Pre‑licensing costsThesearecostsincurredpriortotheacquisitionofalegalrighttoexploreforoilandgas.Theymayincludespeculativeseismicdataandsubsequentgeologicalandgeophysicalanalysisofthisdata,butmaynotbeexclusivetosuchcosts.Ifsuchanalysissuggeststhe
presenceofreserves,thenthecostsarecapitalisedtoanidentifiedstructure(fieldorreservoir).However,iftheanalysisisnotdefinitivethenthesecostsareexpensedintheyeartheyareincurred.
1.5.2 exploration and evaluation costsAllcostsrelatingtotheacquisitionoflicences,explorationandevaluationofawell,fieldorexplorationareaarecapitalisedandreflectedasanintangibleasset(ifpotentialreservesarediscovered).
1.5.3 Assets pending determinationExploratorywellsthatdiscoverpotentiallycommercialreservesarecapitalisedpendingadecisiontofurtherdeveloporafirmplantodevelophasbeenapproved.Thesewellsmayremaincapitalisedforthreeyears.Ifnosuchplanordevelopmentexistsorinformationisobtainedthatraisesdoubtabouttheeconomicoroperatingviabilitythenthesecostswillberecognisedintheprofitorlossofthatyear.Ifaplanorintentiontofurtherdevelopthesewellsorfieldsexists,thecostsaretransferredtodevelopmentcosts.
1.5.4 Development costsCostsofdevelopmentwells,platforms,wellequipmentandattendantproductionfacilitiesarecapitalised.Thecostofproductionfacilitiescapitalisedincludesfinancecostsincurreduntiltheproductionfacilityiscompletedandreadyforthestartoftheproductionphase.Alldevelopmentwellsarenotdepreciateduntilproductionstartsandthentheyaredepreciatedontheunitsofproductionmethodcalculatedusingtheestimatedprovedreserves.
1.5.5 Dry wellsGeologicalandgeophysicalcosts,aswellasallothercostsrelatingtodryexploratorywellscosts,arerecognisedintheprofitandlossintheyeartheyareincurred.
1.6 Intangible assets
Anintangibleassetisanidentifiablenon‑monetaryassetwithoutphysicalsubstance.Intangibleassetsareinitiallyrecognisedatcostifacquiredseparatelyorinternallygeneratedoratfairvalueifacquiredaspartofabusinesscombination.
financial Statementsfor the year ended 31 March 2008
114 PETROSA Annual Report 2008
Ifassessedashavinganindefiniteusefullife,theintangibleassetisnotamortisedbuttestedforimpairmentannuallyandimpairedifnecessary.Ifassessedashavingafiniteusefullife,itisamortisedoveritsusefullifeusingastraightlinebasisandtestedforimpairmentifthereisanindicationthatitmaybeimpaired.
Researchcostsarerecognisedinprofitorlosswhenincurred.
Developmentcostsarecapitalisedonlyiftheyresultinanassetthatcanbeidentified;itisprobablethattheassetwillgeneratefutureeconomicbenefitsandthedevelopmentcostcanbereliablymeasured.Otherwiseitisrecognisedinprofitorloss.
1.7 ImpairmentAteachbalancesheetdate,thegroupreviewsthecarryingamountsofitstangibleandintangibleassetstodeterminewhetherthereisanyindicationthatthoseassetsmaybeimpaired.Ifsuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss(ifany).Whereitisnotpossibletoestimatetherecoverableamountforanindividualasset,therecoverableamountisdeterminedforthecashgeneratingunittowhichtheassetbelongs.Valueinuseisestimatedtakingintoaccountfuturecashflows,forecastmarketconditionsandtheexpectedlivesoftheassets.Iftherecoverableamountofanasset(orcashgeneratingunit)isestimatedtobelessthanitscarryingamount,itscarryingamountisreducedtothehigherofitsrecoverableamountandzero.Impairmentlossesarerecognisedinprofitorloss.Subsequenttotherecognitionoftheimpairmentloss,thedepreciationoramortisationchargefortheassetisadjustedtoallocateitsremainingcarryingvalue,lessanyresidualvalue,overitsremainingusefullife.
Ifanimpairmentlossissubsequentlyreversed,thecarryingamountoftheasset(orcashgeneratingunit)isincreasedtotherevisedestimateofitsrecoverableamountbutlimitedtothecarryingamountthatwouldhavebeendeterminedhadanimpairmentlossnotbeenrecognisedinprioryears.Areversalofanimpairmentlossisrecognisedinprofitorloss.
1.8 LeasesLeasesareclassifiedasfinanceleasesoroperatingleasesattheinceptionofthelease.Financeleasesarerecognisedasassetsandliabilitiesatthelowerofthefairvalueoftheassetsandthepresentvalueoftheminimumleasepaymentsatthedateoftheacquisition.Financecostsrepresentthedifferencebetweenthetotalleasingcommitmentsandthefairvalueoftheassetsacquired.Financecostsarechargedtotheprofitandlossoverthetermoftheleaseattheinterestratesapplicabletotheleaseontheremainingbalanceoftheobligation.
Rentalspayableunderoperatingleasesarerecognisedinprofitorlossonastraightlinebasisoverthetermoftherelevantleasewheresignificantoranothersystematicbasisifmorerepresentativeofthetimepatternoftheuser’sbenefit.
Whenanoperatingleaseisterminatedbeforetheleaseperiodhasexpired,anypaymentrequiredtobemadetothelessorbywayofpenaltyisrecognisedasanexpenseintheperiodinwhichterminationtakesplace.
1.9 Inventories 1.9.1 Trading inventoryFinishedandintermediateinventoryismeasuredatthelowerofcostandnetrealisablevalueaccordingtotheweightedaveragemethod.Costincludesproductionexpenditure,depreciationandaproportionoftriennialturnaroundexpensesand
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replacementofcatalysts,aswellastransportandhandlingcosts.Thevalueofrawmaterialsandworkinprogresshasnotbeentakenintoaccountpriortoitreachingintermediatestoragetanks.Provisionismadeforobsolete,slowmovinganddefectiveinventories.
1.9.2 Spares, catalysts and chemicalsTheseinventoriesaremeasuredatthelowerofcostonaweightedaveragecostbasisandnetrealisablevaluelessappropriateprovisionforobsolescenceinarrivingatthenetrealisablevalue.
1.10 Taxation
Thechargeforcurrenttaxisbasedontheresultsoftheyearasadjustedforincomethatisexemptandexpensesthatarenotdeductibleusingtaxratesthatareapplicabletothetaxableincome.
Deferredtaxisrecognisedatlegislatedratesusingthebalancesheetliabilitymethod.Fullprovisionismadeforalltemporarydifferencesbetweenthetaxbaseofanassetorliabilityanditsbalancesheetcarryingamount.
Deferredtaxassetsarenotraisedinrespectofthedeferredtaxationonassessedlossesunlessitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichthedeferredtaxassetcanberealisedintheforeseeablefuture.
1.11 Translation of foreign currencies
1.11.1 TransactionsForeigncurrencytransactionsarerecognised,initiallyinRandbyapplyingtheforeigncurrencyamounttotheexchangeratebetweentheRandandtheforeigncurrencyatthedateofthetransaction,andisrestatedateachreportingdatebyusingtherulingexchangerateatthatdate.
1.11.2 Balance sheetAteachbalancesheetdate:(a)foreigncurrencymonetaryitemsaremeasuredusingtheclosingrate;
(b)non‑monetaryitems,whicharecarriedintermsofhistoricalcostdenominatedinaforeigncurrency,arereportedusingtheexchangerateatthedateofthetransaction;(c)non‑monetaryitemsthatarecarriedatfairvaluedenominatedinaforeigncurrencyarereportedusingtheexchangeratesthatexistedwhenthevaluesweredetermined.
1.11.3 exchange differencesExchangedifferencesarisingonthesettlementofmonetaryitemsoronreportingacompany’smonetaryitemsatratesdifferentfromthoseatwhichtheywereinitiallyrecordedduringtheperiod,orreportedinpreviousfinancialstatements,arerecognisedasincomeorexpensesintheperiodinwhichtheyarise.Exchangedifferencesarecapitalisedwheretheyrelatetothepurchaseorconstructionofproperty,plantandequipment.
1.11.4 foreign entitiesIntranslatingthefinancialstatementsofaforeignentityforincorporationinthegroupfinancialstatements,thefollowingisapplied:(a)Theassetsandliabilities,bothmonetaryandnon‑monetary,oftheforeignentityaretranslatedattheclosingexchangerateatthefinancialyearenddate;(b)Incomeandexpenseitemsoftheforeignentityaretranslatedattheweightedaverageratesofexchangefortheyear;(c)Allresultingexchangedifferencesaretakendirectlytotheforeigncurrencytranslationreserve,whichisclassifiedasanon‑distributablereserve.Ondisposaltherelatedamountinthisreservewillberecognisedinprofitorloss.
1.12 financial instruments 1.12.1 recognitionFinancialassetsandfinancialliabilitiesarerecognisedonthegroup’sandcompany’sbalancesheetwhenthecompanyandgroupbecomepartytothecontractualprovisionsoftheinstrument.Financialassetsandliabilitiesasaresultoffirm
financial Statementsfor the year ended 31 March 2008
116 PETROSA Annual Report 2008
commitmentsareonlyrecognisedwhenoneofthepartieshasperformedunderthecontract.Financialinstrumentsrecognisedonthebalancesheetincludecashandcashequivalents,tradereceivables,investments,tradepayables,andborrowings.
1.12.2 MeasurementFinancialassetsandliabilitiesareinitiallymeasuredatfairvalue,plustransactioncosts.Howevertransactioncostsoffinancialassetsandliabilitiesclassifiedasfairvaluethroughprofitorlossareexpensed.Subsequentmeasurementwilldependontheclassificationofthefinancialinstrumentasdetailedbelow.
1.12.3 financial assetsThegroup’sprincipalfinancialassetsareinvestmentsandloansreceivable,accountsreceivableandcashandcashequivalents.InvestmentsThefollowingcategoriesofinvestmentsaremeasuredatsubsequentreportingdatesatamortisedcostbyusingtheeffectiveinterestratemethod:(a)Loansandreceivablesoriginatedbythegroupwithfixedmaturity;(b)Heldtomaturityinvestments;(c)Aninvestmentthatdoesnothaveaquotedmarketpriceinanactivemarketandwhosefairvaluecannotbemeasuredreliablyusinganappropriatevaluationmodel.Loansandreceivableswithnofixedmaturityperiodandotherinvestmentsnotcoveredaboveareclassifiedasfairvaluethroughprofitandlossoninitialrecognition.Fairvalueforthispurposeismarketvalueiflistedoravaluederivedbyusinganappropriatevaluationmodel,ifunlisted.
Trade and other receivablesTradeandotherreceivablesareclassifiedasloansandreceivablesandaresubsequentlymeasuredatamortisedcost,lessanallowanceforanyuncollectableamounts.Anestimateforimpairmentismadewhenobjectiveevidenceisavailablethatindicatesthecollectionofanyamountoutstandingisnolongerprobable.Baddebtsarewrittenoffwhenidentified. CashandcashequivalentsCashandcashequivalentscomprisecashatbankandonhandandinstrumentsthatarereadilyconvertibletoknownamountsofcashandaresubjecttoaninsignificantriskofchangeinvalue.
1.12.4 financial liabilitiesThegroup’sprincipalfinancialliabilitiesareinterestbearingborrowings,accountspayableandbankoverdraft.
Allfinancialliabilitiesaremeasuredatamortisedcost,comprisingoriginaldebtlessprincipalpaymentsandamortisations,exceptforfinancialliabilitiesheldfortradingandderivativeliabilities,whicharesubsequentlymeasuredatfairvalue.Achangeinfairvalueisrecognisedinprofitorloss.
1.12.5 Derivative financial instrumentsDerivativefinancialinstruments,principallyinterestrateswapcontractsandforwardforeignexchangecontracts,areusedbythegroupandcompanyintheirmanagementoffinancialrisks.Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueonthecontractdate,andarere‑measuredtofairvalueatsubsequentreportingdates.Paymentsandreceiptsunderinterestrateswapcontractsarerecognisedintheincomestatementonabasisconsistentwiththecorrespondingfluctuationsintheinterestpaymentonfloatingratefinancialliabilities.
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Thecarryingamountsofinterestrateswaps,whichcomprisenetinterestreceivablesandpayablesaccruedareincludedinassetsandliabilitiesrespectively.
1.12.6 Gains and losses on subsequent measurementAllgainsandlossesarisingfromachangeinfairvalueoforondisposalofheldfortradingfinancialassetsarerecognisedinprofitorloss.Gainsandlossesarisingfromachangeinthefairvalueofavailableforsalefinancialassetsarerecognisedinequity,untiltheinvestmentisdisposedoforisdeterminedtobeimpaired,atwhichtimethegainorlossisincludedintheprofitorlossfortheperiod.Gainsandlossesarisingfromcashflowhedgesarerecognisedinprofitorloss.Inrelationtofairvaluehedges,whichmeettheconditionsforhedgeaccounting,theportionofthegainorlossonahedginginstrumentthatisdeterminedtobeaneffectivehedgeisrecogniseddirectlyinequityandtheineffectiveportionisrecognisedinprofitorloss.Ifahedgedfirmcommitmentorforecastedtransactionresultsintherecognitionofanassetoraliability,thentheassociatedgainsorlossesrecognisedinequityareadjustedagainsttheinitialmeasurementoftheassetorliability.Forallothercashflowhedges,amountsrecognisedinequityareincludedinprofitorlossinthesameperiodduringwhichthecommitmentorforecastedtransactionaffectsprofitorloss.
1.12.7 DerecognitionAfinancialassetorpartthereofisderecognisedwhenthegrouprealisesthecontractualrightstothebenefitsspecifiedinthecontract,therightsexpire,thegroupsurrendersthoserightsorotherwiselosescontrolofthecontractualrightsthatcomprisethefinancialasset.On
derecognition,thedifferencebetweenthecarryingamountofthefinancialassetandthesumoftheproceedsreceivableandanyprioradjustmenttoreflectthefairvalueoftheassetthathadbeenreportedinequityisincludedinnetprofitorlossfortheperiod.
Afinancialliabilityorapartthereofisderecognisedwhentheobligationspecifiedinthecontractisdischarged,cancelledorexpires.Onderecognition,thedifferencebetweenthecarryingamountofthefinancialliability,includingrelatedunamortisedcostsandtheamountpaidforitisincludedinnetprofitorlossfortheperiod.
1.12.8 fair value considerationsThefairvaluesatwhichfinancialinstrumentsarecarriedatthebalancesheetdatehavebeendeterminedusingavailablemarketprices.Wheremarketpricesarenotavailable,fairvalueshavebeencalculatedbydiscountingexpectedfuturecashflowsatprevailinginterestrates.Thefairvalueshavebeenestimatedusingavailablemarketinformationandappropriatevaluationmethodologies,butarenotnecessarilyindicativeoftheamountsthatthegroupcouldrealiseinthenormalcourseofbusiness.Thecarryingamountsoffinancialassetsandfinancialliabilitieswithamaturityoflessthanoneyearareassumedtoapproximatetheirfairvaluesduetotheshort‑termtradingcycleoftheseitems.
1.12.9 offsettingFinancialassetsandfinancialliabilitiesareoffsetifthereisanintentiontoeithernettheassetandliabilityortorealisetheassetandsettletheliabilitysimultaneouslyandalegallyenforceablerighttosetoffexists.
1.13 Post‑employment benefit costs1.13.1 Defined contribution costsContributionstoadefinedcontributionplaninrespectofserviceinaparticularperiodarerecognisedasanexpenseinthatperiod.
financial Statementsfor the year ended 31 March 2008
118 PETROSA Annual Report 2008
1.13.2DefinedbenefitcostsCurrentservicecostsinrespectofdefinedbenefitplansarerecognisedasanexpenseinthecurrentperiod.Pastservicecosts,experienceadjustments,theeffectsofchangesinactuarialassumptionsandtheeffectsofplanamendmentsinrespectofexistingemployeesinadefinedbenefitplanarerecognisedinprofitorlosssystematicallyovertheremainingworklivesofthoseemployees(exceptinthecaseofshorterplanamendmentswheretheuseofashortertimeperiodisnecessarytoreflecttheeconomicbenefitsbytheenterprise).Theeffectsofplanamendmentsinrespectofretiredemployeesinabenefitplanaremeasuredasthepresentvalueoftheeffectoftheamendedbenefits,andarerecognisedasanexpenseorincomeintheperiodinwhichtheplanamendmentismade.Thecostofprovidingretirementbenefitsunderadefinedbenefitplanisdeterminedusingaprojectedunitcreditvaluationmethod.Actuarialgainsandlossesarerecognisedasincomeorexpenseinprofitorlossimmediately.Thegroupoperatesbothdefinedcontributionanddefinedbenefitplans,theassetsofwhichareheldinseparatetrusteeadministeredfunds.Theplansarefundedbypaymentsfromthegroupandemployees,takingaccountoftherecommendationsofindependentqualifiedactuaries.Fordefinedbenefitplansthedefinedbenefitobligation,therelatedcurrentservicecost,andwhereapplicable,thepastservicecostsaredeterminedbyusingtheprojectedunitcreditmethod.
1.13.3 other post‑employment obligationsPost‑employmenthealthcarebenefitsareprovidedtoretirees.Theentitlementtopostretirementhealthcarebenefitsisbasedontheemployeeremaininginserviceuptoretirementage.Theexpectedcostsofthesebenefitsareaccruedovertheperiodofemploymentusinganaccounting
methodologysimilartothatfordefinedbenefitpensionplans.Valuationsoftheseobligationsarecarriedoutannuallybyindependentqualifiedactuaries.
1.14 ProvisionsProvisionsarerecognisedwhenthecompanyandgrouphaveapresentobligationasaresultofapasteventanditisprobablethatthiswillresultinanoutflowofeconomicbenefitsthatcanbeestimatedreliably.Provisionsaremeasuredattheexpenditurerequiredtosettlethepresentobligation.
Thegroupisexposedtoenvironmentalliabilitiesrelatingtoitsoperations.Provisionforthecostofenvironmentalandotherremedialwork,suchasreclamationcosts,closedownandrestorationcostsismadewhensuchexpenditureisprobableandthecostcanbeestimatedwithareasonablerangeofpossibleoutcomes.
1.15 revenue recognitionRevenueisrecognisedwhenitisprobablethatfutureeconomicbenefitswillflowtotheenterpriseandthesebenefitscanbemeasuredreliably.ThemeasurementisattheamountreceivedorreceivablenetofVAT,cashdiscounts,rebatesandsettlementdiscounts.Revenuefromthesaleofgoodsisrecognisedwhensignificantrisksandrewardsofownershipofthegoodshavebeentransferredtothebuyer,whendeliveryhasbeenmadeandtitlehaspassed,whentheamountofrevenueandtherelatedcostscanbereliablymeasuredandwhenitisprobablethatthedebtorwillpayforthegoods.
Interestincomeisaccruedonatimeproportionbasis,takingintoaccounttheprincipalamountoutstandingandtheeffectiveinterestrateovertheperiodtomaturity.
Dividendincomefrominvestmentsisrecognisedwhentherighttoreceivepaymenthasbeenestablished.
notes to tHe annual
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1.16 Borrowing costsBorrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofqualifyingassetsareaddedtothecostofthoseassets,untiltheassetsaresubstantiallyreadyfortheirintendeduseorsale.Qualifyingassetsareassetsthatnecessarilytakeasubstantialperiodtogetreadyfortheirintendeduseorsale.Investmentincomeearnedonthetemporaryinvestmentofspecificborrowingspendingtheirexpenditureonqualifyingassetsisdeductedfromthecostofthoseassets.Otherborrowingcostsarerecognisedasanexpenseintheperiodinwhichtheyareincurred.
1.17 Irregular and fruitless and wasteful expenditure
Irregularexpendituremeansexpenditureincurredincontraventionof,ornotinaccordancewith,arequirementofanyapplicablelegislation,includingthePFMA.Fruitlessandwastefulexpendituremeansexpenditurethatwasmadeinvainandwouldhavebeenavoidedhadreasonablecarebeenexercised.Anyirregularandfruitlessandwastefulexpenditureischargedagainstincomeintheperiodinwhichitis
incurred.
2. Standards and interpretationsNew accounting policies adopted ThegrouphasadoptedIFRS7‑FinancialInstruments:Disclosure.Theimpactofthisnewstandardhasresultedintheincreaseddisclosurerelatingtothesignificanceofthefinancialinstrumentsonthefinancialpositionandperformanceandthenatureandextentoftheriskarisingfromthesefinancialinstrumentstowhichitisexposedduringtheperiodandatyearendandthemannerinwhichitmanagestheserisks.
Standards and interpretations issued but not yet adoptedThefollowingaccountingstandards,interpretationsandamendmentstothepublishedaccountingstandardsthatarerelevanttoPetroSA,butnotyeteffective,havenotbeenadoptedinthecurrentyear:1. IFRS3Businesscombinations2. IAS1Presentationoffinancialstatements3. IAS23Borrowingcosts4. IAS27Consolidatedandseparatefinancial statements5. IAS32FinancialInstruments:PresentationTheeffectoftheadoptionofthesestandards,interpretationsandamendmentsrelatemainlytowordingandadditionaldisclosureinthefinancialstatements.Theadoptionoftheabovelistedstandardswillhavenomaterialimpactonthefinancialstatementsofthegroupintheperiodofinitialapplication.
3. Critical accounting estimates and judgments
InpreparingtheannualfinancialstatementsintermsofSAGAAP,thegroup’smanagementisrequiredtomakecertainestimatesandassumptionsthatmaymateriallyaffectreportedamountsofassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportedperiodandtherelateddisclosures.Astheseestimatesandassumptionsconcernfutureevents,duetotheinherentuncertaintyinvolvedinthisprocess,theactualresultsoftenvaryfromtheestimates.Theseestimatesandjudgmentsarebasedonhistoricalexperience,currentandexpectedfutureeconomicconditionsandotherfactors,includingexpectationsofthefutureeventsthatarebelievedtobereasonableunderthecircumstances.
financial Statementsfor the year ended 31 March 2008
120 PETROSA Annual Report 2008
4. Property, plant and equipment 4.1.Group
Cost/valuation
2008Accumulateddepreciation
Carryingamount
Cost/valuation
2007Accumulateddepreciation
Carryingamount
R’000 R’000 R’000 R’000 R’000 R’000
Land 12,153 ‑ 12,153 12,153 ‑ 12,153Productionassets 19,834,489 16,180,671 3,653,818 17,741,622 15,548,978 2,192,644Furniture,fittings,officeequipmentandvehicles 458,349 217,090 241,259 240,618 195,660 44,958Shutdowncostcapitalised 371,218 239,629 131,589 354,902 118,301 236,601Restorationcosts 804,725 481,161 323,564 740,615 445,344 295,271Assetsunderdevelopment 840,045 ‑ 840,045 1,751,877 ‑ 1,751,877
22,320,979 17,118,551 5,202,428 20,841,787 16,308,283 4,533,504
Thecarryingamountsofproperty,plantandequipmentcanbereconciledasfollows:
2008
Carryingamountatbeginning
ofyear Additions
Exchangedifferencescapitalised Transfers Disposals
Changeinestimate Depreciation
Carryingamountatendofyear
R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000Land 12,153 ‑ ‑ ‑ ‑ ‑ ‑ 12,153Productionassets 2,192,644 619,441 16,345 1,339,808 ‑ ‑ (514,420) 3,653,818Furniture,fittings,officeequipmentandvehicles 44,958 243,047 (25,359) (20) (72) ‑ (21,295) 241,259Shutdowncostcapitalised 236,601 16,317 ‑ ‑ ‑ ‑ (121,329) 131,589Restorationcosts 295,271 260,035 2,716 ‑ ‑ 30,444 (264,902) 323,564Assetsunderdevelopment 1,751,877 427,976 ‑ (1,339,808) ‑ ‑ ‑ 840,045
4,533,504 1,566,816 (6,298) (20) (72) 30,444 (921,946) 5,202,428
2007
Carryingamountatbeginning
ofyear Additions
Exchangedifferencescapitalised Transfers
Changeinestimate Depreciation
Carryingamountatendofyear
R’000 R’000 R’000 R’000 R’000 R’000 R’000Land 12,153 ‑ ‑ ‑ ‑ ‑ 12,153Productionassets 2,838,703 52,934 39,499 35,242 ‑ (773,734) 2,192,644Furniture,fittings,officeequipmentandvehicles 33,736 30,135 (187) (74) ‑ (18,652) 44,958Shutdowncostcapitalised ‑ 354,902 ‑ ‑ ‑ (118,301) 236,601Restorationcosts 107,279 ‑ 4,414 ‑ 414,604 (231,026) 295,271Assetsunderdevelopment 579,408 1,207,711 ‑ (35,242) ‑ ‑ 1,751,877
3,571,279 1,645,682 43,726 (74) 414,604 (1,141,713) 4,533,504
notes to tHe annual
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4.2. Company
Cost/valuation
2008Accumulateddepreciation
Carryingamount
Cost/valuation
2007Accumulateddepreciation
Carryingamount
R’000 R’000 R’000 R’000 R’000 R’000Land 12,153 ‑ 12,153 12,153 ‑ 12,153Productionassets 18,313,107 14,973,710 3,339,397 16,463,123 14,529,405 1,933,718Furniture,fittings,officeequipmentandvehicles 438,330 206,293 232,037 231,743 187,394 44,349Shutdowncostcapitalised 371,218 239,629 131,589 354,902 118,301 236,601Restorationcosts 793,789 481,161 312,628 687,267 415,536 271,731Assetsunderdevelopment 840,045 ‑ 840,045 1,751,877 ‑ 1,751,877
20,768,642 15,900,793 4,867,849 19,501,065 15,250,636 4,250,429
Thecarryingamountsofproperty,plantandequipmentcanbereconciledasfollows:
2008
Carryingamountatbeginning
ofyear Additions Transfers DisposalsChangeinestimate Depreciation
Carryingamountatendofyear
R’000 R’000 R’000 R’000 R’000 R’000 R’000Land 12,153 ‑ ‑ ‑ ‑ ‑ 12,153Productionassets 1,933,718 510,176 1,339,808 ‑ ‑ (444,305) 3,339,397Furniture,fittings,officeequipmentandvehicles 44,349 208,379 (20) (72) ‑ (20,599) 232,037Shutdowncostcapitalised 236,601 16,317 ‑ ‑ ‑ (121,329) 131,589Restorationcosts 271,731 260,035 ‑ ‑ 43,106 (262,244) 312,628Assetsunderdevelopment 1,751,877 427,976 (1,339,808) ‑ ‑ ‑ 840,045
4,250,429 1,422,883 (20) (72) 43,106 (848,477) 4,867,849
2007
Carrying amount at beginning
of year Additions TransfersChange in estimate Depreciation
Carrying amount
at end of year
r’000 r’000 r’000 r’000 r’000 r’000Land 12,153 ‑ ‑ ‑ ‑ 12,153Productionassets 2,523,139 1,340 35,242 ‑ (626,003) 1,933,718Furniture,fittings,officeequipmentandvehicles 32,951 30,055 (74) ‑ (18,583) 44,349Shutdowncostcapitalised ‑ 354,902 ‑ ‑ (118,301) 236,601Restorationcosts 81,930 ‑ ‑ 405,901 (216,100) 271,731Assetsunderdevelopment 579,408 1,207,711 (35,242) ‑ ‑ 1,751,877
3,229,581 1,594,008 (74) 405,901 (978,987) 4,250,429
financial Statementsfor the year ended 31 March 2008
122 PETROSA Annual Report 2008
Aregisteroflandandbuildingsisavailableforinspectionbymembersortheirnomineesattheregisteredofficeofthecompany. Restorationexpenditurerelatestotheprovisionforrestorationcostsandisamortisedonaunits‑of‑productionbasisovertheexpectedusefullifeofthereserves.TheMineralsActof1991requiresthatamountsforrestorationbesetasideasprescribedintheAct.TherestorationfundrequirementhasbeenmetthroughtheissueofaguaranteebyCEF(Pty)Ltd.
Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’000
4.3 Production assets
Ownedproductionassetsatcost
19,834,48917,741,622
18,313,107
16,463,123
5. assets pending determination
Balanceatthebeginningoftheyear 54,793 54,793 54,793 54,793
Assetspendingdeterminationat31March2008consistofexpenditureinrespectofexplorationactivities,whichhavebeeninitiallycapitalisedpendingadeterminationoftheeconomicreserves.Theaccountingpolicy(refertonote1.5)recommendsthatintangibleassetsofthisnatureshouldberecognisedasproductionassetsafteraperiodof3yearsorexpended.AssetspendingdeterminationconsistofthewellA‑X1,whichiswithinBlock2A.AdevelopmentplanwassenttothePetroleumAgencyofSouthAfricaforapproval.
notes to tHe annual
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PETROSA Annual Report 2008 123
Group Company2008 2007 2008 2007r’000 r’000 r’000 r’000
6. Investments in subsidiaries
PetroSA Synfuel International (Pty) Ltd (100%)
‑ ‑ ‑ ‑
Shares ‑ ‑ 501 501Provisionforimpairment ‑ ‑ (501) (501)
PetroSA Sudan (Pty) Ltd (100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.12 0.12Loans ‑ ‑ (0.12) (0.12)
Petroleum oil and Gas Corporation of South Africa (Namibia) (Pty) Ltd (100%)
‑ ‑ ‑ ‑
Shares ‑ ‑ 0.12 0.12Loans ‑ ‑ (0.12) (0.12)
PetroSA North America (100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.07 0.07Loans ‑ ‑ (0.07) (0.07)
PetroSA egypt (Pty)Ltd(100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.10 0.10Loans ‑ ‑ (0.10) (0.10)
PetroSA Nigeria Limited (100%) ‑ ‑ 1,970 1,688Shares ‑ ‑ 1,235 1,235Loans ‑ ‑ 735 453
PetroSA europe BV (100%) ‑ ‑ 166 166Shares ‑ ‑ 166 166
PetroSA Brass (Pty) Ltd (100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.06 0.06Loans ‑ ‑ (0.06) (0.06)
PetroSA Gryphon Marin Permit (Pty) Ltd (100%)
‑ ‑ ‑ ‑
Shares ‑ ‑ 0.06 0.06Loans ‑ ‑ (0.06) (0.06)
financial Statementsfor the year ended 31 March 2008
124 PETROSA Annual Report 2008
Group Company2008 2007 2008 2007r’000 r’000 r’000 r’000
6. Investments in subsidiaries continued
PetroSA Iris (Pty) Ltd (100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.06 0.06Loans ‑ ‑ (0.06) (0.06)
PetroSA Themis (Pty) Ltd (100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.12 0.12Loans ‑ ‑ (0.12) (0.12)
PetroSA equatorial Guinea (Pty) Ltd (100%) ‑ ‑ ‑ ‑Shares ‑ ‑ 0.06 0.06Loans ‑ ‑ (0.06) (0.06)
Total ‑ 2,137 1,854Shares ‑ ‑ 1,903 1,903Loans ‑ ‑ 735 452Provisionsforimpairment ‑ ‑ (501) (501)
notes to tHe annual
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7. Intangible assets
Group Cost / valuation
2008 Accumulated amortisation
Carrying value
Cost / valuation
2007 Accumulated amortisation
Carrying value
r’000 r’000 r’000 r’000 r’000 r’000EquatorialGuinea‑Licensingfee 79,162 ‑ 79,162 79,162 ‑ 79,162Software 1,142 1,048 94 1,120 1,046 74
80,304 1,048 79,256 80,282 1,046 79,236
Thecarryingamountsofintangibleassetscanbereconciledasfollows:
Carryingvalueatbeginningof
year Additions Transfers
Carryingvalueatend
ofyearR’000 R’000 R’000 R’000
EquatorialGuinea‑Licensingfee 79,162 ‑ ‑ 79,162Software 74 20 94
79,236 ‑ 20 79,256
Carryingvalueatbeginningof
year Additions TransfersCarryingvalueatendofyear
R’000 R’000 R’000 R’000EquatorialGuinea‑Licensingfee 71,998 7,164 ‑ 79,162Software ‑ 74 74
71,998 7,164 74 79,236
Cost/valuation
2008Accumulatedamortisation
Carryingvalue
Cost/valuation
2007Accumulatedamortisation
Carryingvalue
R’000 R’000 R’000 R’000 R’000 R’000Software 1,142 1,048 94 1,120 1,046 74
Thecarryingamountsofintangibleassetscanbereconciledasfollows:Carryingvalueat
beginningofyear Transfers
Carryingvalueatendofyear
R’000 R’000 R’000
Software 74 20 94
Carryingvalueat
beginningofyear Transfers
Carryingvalueatendofyear
R’000 R’000 R’000Software ‑ 74 74
2007
2008
2007
Company
2008
financial Statementsfor the year ended 31 March 2008
126 PETROSA Annual Report 2008
Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’000
8. Investments in associate companies
Associatecompanies
11,019
25,609 31,123 31,123
8.1.Carrying value of investment in GTL.f1 AG
37.5%interestinunlistedsharesofGTL.F1AG,acompanyincorporatedinSwitzerlandandinvolvedinthemarketingofproventechnology.
Carryingvalueofinvestment:
Sharesatcost 23,490 23,490 23,490 23,490Accumulatedlossessinceacquisition (22,579) (8,901) ‑ ‑
911 14,589 23,490 23,490
SummaryfinancialinformationofGTL.F1AG
AssetsNon‑current 22,923 10,640 ‑ ‑Current 84,131 51,432 ‑ ‑ 107,054 62,072 ‑ ‑
equity and liabilitiesEquityandreserves 39,918 53,756 ‑ ‑Non‑currentliabilities ‑ ‑ ‑ ‑Currentliabilities 67,136 8,316 ‑ ‑ 107,054 62,072 ‑ ‑
Netloss (29,542) (22,634) ‑ ‑
8.2.Carrying value of investment in Sud‑Chemie Zeolites (Pty) Ltd
30%interestinunlistedsharesofSud‑ChemieZeolites(Pty)Ltd,acompanyincorporatedinSouthAfricaandinvolvedintheproductionofcatalysts.
Carryingvalueofinvestment:
Sharesatcost 12,176 12,176 7,633 7,633Accumulatedlossessinceacquisition (2,068) (1,156) ‑ ‑
10,108 11,020 7,633 7,633
notes to tHe annual
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Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’0008. Investments in associate companies continued
SummaryfinancialinformationofSud‑ChemieZeolites(Pty)Ltd
AssetsNon‑current 33,744 28,413 ‑ ‑Current 17,833 32,130 ‑ ‑ 51,577 60,543 ‑ ‑
equity and liabilitiesEquityandreserves 33,691 36,731 ‑ ‑Non‑currentliabilities 3,948 5,845 ‑ ‑Currentliabilities 13,938 17,967 ‑ ‑ 51,577 60,543 ‑ ‑
Net(loss)/profit (140) 2,470 ‑ ‑
9. loans receivable
ForestOilGryphonMarin 1,603 1,603 1,603 1,603BrassExplorationUnlimited ‑ ‑ 289,747 255,250PetroSAEgypt ‑ ‑ 19,382 ‑Lurgi 113,286 80,425 113,286 80,425PetroSAEquatorialGuinea ‑ ‑ 220,161 149,191GTL.F1 18,517 ‑ 18,517 ‑PetroSASudan ‑ ‑ 135,903 ‑PetroSANorthAmerica ‑ ‑ 2,118 ‑ 133,406 82,028 800,717 486,469
TheloantoBrassincursinterestatLIBOR+14%,whiletheloantoForestOilisinterestfree.
TheamountowingbyLurgiisinrespectofapurchaseofa12.5%shareinthePetroSAStatoilJointVenture.TheloanaccruesinterestatEUROBOR+3%.TheloanisrepayablebasedondividendsreceivablebyLurgifromtheGTL.F1AGtechnologycompany.
TheloanstoPetroSAEquatorialGuinea(Pty)Ltd;PetroSASudan(Pty)LtdandPetroSAEgypt(Pty)LtdforR220.2million;R135.9millionandR19.3millionrespectivelyhavenofixedrepaymenttermsandinterestaccruesatprime+2%.TheloanforPetroSANorthAmericaalsohasnofixedrepaymenttermsandaccruesinterestatLIBOR+2%.PetroSAhassubordinatedtheseloansinfavourofothercreditorsoftheabove‑mentionedcompaniesuntilsuchtimethattheassetsfairlyvaluedexceedtheliabilities.
financial Statementsfor the year ended 31 March 2008
128 PETROSA Annual Report 2008
notes to tHe annual
Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’000
10. amounts held by holding company
CEF(Pty)Ltd 537,648 537,648 537,648 537,648
ThisdepositisbeingheldbyCEF(Pty)LtdassecurityforguaranteesissuedbyitselftothirdpartiesonbehalfofPetroSA.
11. Inventories
Theamountsattributabletothedifferentcategoriesareasfollows:Petroleumfuels 1,221,413 599,342 1,221,413 599,342Consumablestores,sparesandcatalysts 599,052 280,243 594,289 276,120Crudeoil 49,748 92,760 31,875 57,920 1,870,213 972,345 1,847,577 933,382
12. trade and other receivables
Tradereceivables 1,778,143 1,317,832 1,515,466 1,225,192Sundryreceivables 467,116 145,628 518,497 184,308Provisionfordoubtfuldebt (25,562) (13,948) (25,562) (13,948) 2,219,697 1,449,512 2,008,401 1,395,552Pre‑payments 140,690 108,222 131,948 89,419 2,360,387 1,557,734 2,140,349 1,484,971TheprovisionfordoubtfuldebtconsistsofthreecustomeraccountbalancesandthebalanceisagedasR14,5million(2007:R13,9million)atover120daysandR11millionisbetween90‑120days.
Movementinprovisionfordoubtfuldebtsisasfollows:
Balanceatbeginningofyear 13,948 13,404 13,948 13,404Impairmentlossesrecognisedonreceivables 12,364 1,051 12,364 1,051Amountsrecoveredduringtheyear (750) (507) (750) (507 25,562 13,948 25,562 13,948
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Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’000
13. Cash and cash equivalentsShort‑terminvestmentsinmoneymarketandcashonhand
12,855,773 11,240,693 11,833,490 10,398,664
Termdeposits 20,117 17,231 ‑ ‑12,875,890 11,257,924 11,833,490 10,398,664
Bankoverdraft ‑ (236,643) ‑ (236,643)
Balanceatendofyear 12,875,890 11,021,281 11,833,490 10,162,021
AtermdepositofR20077025isheldinthecompanyEnergyAfricaRehabilitation(associationincorporatedunders21),andiscommittedsolelyfortheabandonmentexpenditurefortheOribifield.
14. Share capital
Authorised5,000ordinarysharesofR1each 5 5 5 5
Issued1,914ordinarysharesofR1each 2 2 2 2Sharepremium 2,755,934 2,755,934 2,755,934 2,755,934 2,755,936 2,755,936 2,755,936 2,755,936
15. long‑term loans: shareholder’s loans
CEF(Pty)LtdThisunsecuredUSdollarloanisrepayableinequalhalf‑yearlyinstalmentsofUSD3097879(R25136501)withafinalinstalmentofUSD2492115(R20221274)dueon28February2010.Interestrate‑floatingtoLIBOR.
95,631 130,815 95,631 130,815
CEF(Pty)LtdThisunsecuredUSdollarloanisrepayableinequalhalf‑yearlyinstalmentsofUSD2456286(R19930550)withafinalinstalmentdueon15September2010.Interestrate‑floatingtoLIBOR.
99,652 125,087 99,652 125,087
Less:Short‑termportionoflong‑termloans (90,134) (80,813) (90,134) (80,813)
105,149 175,089 105,149 175,089
financial Statementsfor the year ended 31 March 2008
130 PETROSA Annual Report 2008
Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’000
16. Deferred tax
16.1. Deferred tax liabilitiesBalanceatbeginningofyear 139,958 90,469 ‑ ‑Movementsduringyearattributableto:Chargedtotheprofitorloss 283,331 49,489 307,060 ‑Balanceatendofyear 423,289 139,958 307,060 ‑
Thebalancecomprises:Capitalallowances 1,069,324 144,381 913,680 ‑Provision (693,693) (97,828) (629,502) ‑Unrealisedexchangedifferences 24,776 1 ‑ ‑Taxexpense ‑ 93,404 ‑ ‑Loans 22,882 ‑ 22,882 ‑
423,289 139,958 307,060 ‑
notes to tHe annual
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17. Provisions
Group
Carrying amount at
beginning of year
Additional provisions
exchange differences
Current year interest expense
Change in estimate
Carrying amount at end of year
2008 r’000 r’000 r’000 r’000 r’000 r’000Restorationcosts 3,072,045 261,912 10,241 252,968 30,444 3,627,610Post‑retirementmedicalaidbenefits 172,130 34,285 ‑ ‑ ‑ 206,415Bonus 134,000 ‑ ‑ ‑ (43,500) 90,500
3,378,175 296,197 10,241 252,968 (13,056) 3,924,525
Group
Carrying amount at
beginning of year
Additional provisions
exchange differences
Current year interest expense
Change in estimate
Carrying amount at end
of year2007 r’000 r’000 r’000 r’000 r’000 r’000Restorationcosts 2,423,379 ‑ 11,810 222,252 414,604 3,072,045Post‑retirementmedicalaidbenefits 173,759 (1,629) ‑ ‑ ‑ 172,130Bonus 120,000 ‑ ‑ ‑ 14,000 134,000
2,717,138 (1,629) 11,810 222,252 428,604 3,378,175
Company
Carrying amount at beginning of
yearAdditional provisions
Current year interest expense
Change in estimate
Carrying amount at end of year
2008 r’000 r’000 r’000 r’000 r’000Restorationcosts 2,959,763 260,035 245,271 43,105 3,508,174Post‑retirementmedicalaidbenefits 172,091 34,285 ‑ ‑ 206,376Bonus 134,000 ‑ ‑ (43,500) 90,500
3,265,854 294,320 245,271 (395) 3,805,050
Company
Carrying amount at
beginning of year
Additional provisions
exchange differences
Current year interest expense
Change in estimate
Carrying amount at end
of year2007 r’000 r’000 r’000 r’000 r’000 r’000Restorationcosts 2,338,027 ‑ ‑ 215,835 405,901 2,959,763Post‑retirementmedicalaidbenefits 173,759 (1,629) (39) ‑ ‑ 172,091Bonus 120,000 ‑ ‑ ‑ 14,000 134,000
2,631,786 (1,629) (39) 215,835 419,901 3,265,854
financial Statementsfor the year ended 31 March 2008
132 PETROSA Annual Report 2008
Group Company
2008 2007 2008 2007
r’000 r’000 r’000 r’000
17. Provisions continuedNon‑current 3,834,025 3,244,175 3,714,550 3,131,854Current 90,500 134,000 90,500 134,000
3,924,525 3,378,175 3,805,050 3,265,854
18. trade and other payables
Tradepayables 1,418,489 655,329 1,364,648 623,420Accruals 957,410 400,131 808,090 285,125
2,375,899 1,055,460 2,172,738 908,545
notes to tHe annual
19. Employee benefits
Itisthepolicyofthegrouptoprovideretirementbenefitsforallitseligiblepermanentemployees.AlleligiblepermanentemployeesareeithermembersoftheMossgasPensionFund,adefinedbenefitfund,orPetroSARetirementFund,adefinedcontributionfund,bothsubjecttothePensionFundsAct,1956.
19.1 Pension and retirement funds
19.1.1 Defined benefit pension plan
Soekor retirement fund ThevaluationoftheSoekorRetirementFundasat1January2002showedasurplusasatthatdateofR34million,reflectingassetsofapproximatelyR82millionandliabilitiesofapproximatelyR46million.NocontributionwasrecognisedasanexpenseduringtheyearasallemployeesweretransferedtothePetroSARetirementFund.Thecompanyisuncertainoftheextentofitsentitlementtothesurplusandhasnotaccountedforitpendingfinalisationoftheactuarialvaluation.ThetrusteesareintheprocessofasurplusapportionmentintermsofthePensionFundsSecondAmendmentAct,afterwhichthefundwillbedissolved.
PetroSA retirement fund ThecompanyoperatesadefinedcontributionretirementplanforthebenefitofemployeeswhoarenotmembersoftheMossgasPensionFund.Allemployeeswhocommencedemploymentafter1April1996qualifyformembershipofthisfund.TheamountrecognisedasanexpenseduringtheyearunderreviewwasR57,4million(2007:R49,1million)fortheretirementfund.
19.2 Medical benefitsPostretirementmedicalaidbenefitsThegrouphasprovidedanamountofR201,2million(2007:R172,1million)towardsthefundingofpost‑retirementmedicalschemecostsforemployeeswhocommencedemploymentbefore1April2006andpensioners.Thiscommitmentisactuariallyvaluedannually,themostrecentvaluationperformedasat31March2008.Theactuary’srecommendationthatredemptionofR1,7millionbemadeforthepreviousfinancialyearwasimplemented,withthecreditmadeagainstincome.Employeeswhocommencedemploymentafter1April2006arenotentitledtothisbenefit.Theactuarialpresentvalueofpromisedretirementmedicalbenefitsat31March2008isR201,2million.Theobligationisunfundedandwasvaluedusingtheprojectedunitmethod.Adiscountrateof10%andmedicalaidinflationrateof8%wasassumed.MortalityassumptionswereinlinewithstandardtablesSA56/62(inservice)andPA(90)(inretirement).Asensitivityanalysiswasperformedonthemedicalaidinflation
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rateassumptionusedinthevaluation.A9%and7%medicalaidinflationrateassumptionwouldresultinanaccumulatedobligationat31March2008ofR215,8millionandR189,0millionrespectively.ThecombinedinterestandservicecostsvaryaccordingtothemedicalaidinflationassumptionsandareR26,1million(8%);R27,3million(9%)andR23,1million(7%).
20. Financial instruments
20.1 IntroductionThegrouphasariskmanagementandcentraltreasuryfunctionthatmanagesthefinancialrisksrelatingtothegroup’soperations.Thegroup’sliquidity,credit,foreignexchange,interestrateandcrudeoilpricerisksaremonitoredcontinually.Approvedpoliciesexistformanagingtheserisks.
20.2 risk profileInthecourseofthegroup’sbusinessoperationsitisexposedtoliquidity,credit,foreignexchange,interestrateandcrudeoilpricerisk.Theriskmanagementpolicyofthegrouprelatingtoeachoftheserisksisdiscussedbelow.
20.3 risk management objectives and policiesThegroup’sobjectiveinusingfinancialinstrumentsistoreducetheuncertaintyoverfuturecashflowsarisingfrommovementsinforeignexchange,interestratesandcrudeoilprices.Throughouttheyearunderreviewithasbeen,andremains,thegroup’spolicythatnospeculativetradinginderivativeinstrumentsbeundertaken.
20.4 foreign currency managementThegroupisexposedtoforeigncurrencyfluctuationsasitraisesfundingontheoffshorefinancialmarkets,importsrawmaterialandsparesandfurthermoreexportsfinishedproductandcrudeoil.Alllocalsalesoffinishedproductsaresoldonaforeigncurrencydenominatedbasis.Thegrouptakescoveronforeignexchangetransactionswherethereisafuturecurrencyexposure.Thegroupalsomakesuseofanaturalhedgesituationtomanageforeigncurrencyexposure.Asensitivityanalysiswasdonefortheneteffectonrevenueandexpenses,andtheweakeningorstrengtheningoftheRand/DollarexchangeratebyR1basedonactualrevenueandcostwillincreaseordecreaseprofitbyR909,8million
respectively. FinancialAssetsThegroupismainlyexposedtofluctuationintheEUR,CHFandUSD.Thegroupmeasuresitsmarketriskexposurebyrunningvarioussensitivityanalysesincluding10%favourableandadversechangesinthekeyvariables.Thesensitivityanalysesincludeonlyoutstandingforeigncurrencydenominatedmonetaryitemsandadjuststheirtranslationattheperiodendfora10%changeinforeigncurrencyrates.
Asat31March2008a10%increaseinZARagainsttherelevantcurrencieswouldhaveresultedinadecreaseinforeigncurrencydenominatedassetsofR122,7million(2007:R105million)anda10%decreaseinZARagainsttherelevantcurrencieswouldhaveresultedinanincreaseinforeigncurrencydenominatedassetsofR122,7million(2007:R105million). FinancialLiabilities ThegroupismainlyexposedtofluctuationintheEUR,GBPandUSD.Thegroupmeasuresitsmarketriskexposurebyrunningvarioussensitivityanalysesincluding10%favourableandadversechangesinthekeyvariables.Thesensitivityanalysesincludeonlyoutstandingforeigncurrencydenominatedmonetaryitemsandadjuststheirtranslationattheperiodendfora10%changeinforeigncurrencyrates.Asat31March2008a10%increaseinZARagainsttheUSDollarwouldhaveresultedinadecreaseinforeigncurrencydenominatedliabilitiesofR30,7million(2007:R46million)anda10%decreaseinZARagainstUSDollarwouldhaveresultedinanincreaseinforeigncurrencydenominatedliabilitiesofR30,7million(2007:R46million).
20.5 Interest rate risk managementExposuretointerestrateriskonliabilitiesandinvestmentsismonitoredonaproactivebasis.Thefinancingofthegroupisstructuredonacombinationoffloatingandfixedinterestrates.
Thefollowingtablesetsoutthecarryingamount,bymaturity,ofthegroup’sfinancialinstrumentsthatareexposedtointerestrateriskandtheeffectiveinterestratesapplicable:
financial Statementsfor the year ended 31 March 2008
134 PETROSA Annual Report 2008
CompanyYear ended 31 March 2008Fixedrate rate < 1 year 1‑5 years > 5 years Non Interest Bearing r’000 r’000 r’000 r’000
Cashandcashequivalents11.38% 6,501,359 ‑ ‑ ‑Cashondeposit11.06% 537,648 ‑ ‑ ‑
Floatingrate rate < 1 year 1‑5 years > 5 years Non Interest Bearing r’000 r’000 r’000 r’000
Cashandcashequivalents11.47% 5,333,244 ‑ ‑ ‑ForestOilGryphonMarinloan0% ‑ ‑ ‑ 1,603Foreignloan‑USD3.43% (90,134) (105,149) ‑ ‑Tradereceivables ‑ ‑ ‑ 2,140,349Tradepayables ‑ ‑ ‑ (2,172,738)BrassExplorationUnlimitedloan16.5% ‑ ‑ 289,747 ‑Lurgi5.54% ‑ ‑ 113,286 ‑PetroSAEgypt16.5% ‑ ‑ 19,382 ‑PetroSANorthAmerica4.69% ‑ ‑ 2,118 ‑PetroSASudan16.5% ‑ ‑ 135,903 ‑GTL.F10% ‑ ‑ ‑ 18,517PetroSAEquatorialGuinea16.5% ‑ ‑ 220,161 ‑
Yearended31March2007
Fixedrate rate < 1 year 1‑5 years > 5 years Non Interest Bearing r’000 r’000 r’000 r’000
Cashandcashequivalents9.13% 9,732,764 ‑ ‑ 6,000Cashondeposit9.07% 537,648 ‑ ‑ ‑
notes to tHe annual
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Floatingrate rate < 1 year 1‑5 years > 5 years Non Interest Bearing r’000 r’000 r’000 r’000Cashandcashequivalents8.57% 472,641 ‑ ‑ ‑PetroSAEquatorialGuinea14.5% ‑ ‑ 149,191 ‑Foreignloan‑USD5.87% (80,813) (175,089) ‑ ‑Tradereceivables ‑ ‑ ‑ 1,484,971ForestOilGryphonMarinloan0% ‑ ‑ ‑ 1,603BrassExplorationUnlimitedloan19.35% ‑ ‑ 255,250 ‑Lurgi6.9% ‑ ‑ 80,425 ‑Tradepayables ‑ ‑ ‑ (908,545)Bankoverdraft‑USD6.48% (199,731) ‑ ‑ ‑
financial assetsThegroupismainlyexposedtofluctuationinUSDLIBOR,EURIBORandZARinterestrates.Thegroupmeasuresitsinterestrateriskexposurebyrunningvarioussensitivityanalysesincluding10%favourableandadversechangesinthekeyvariables.Thesensitivityanalysesincludeonlyinterestbearingmonetaryitemsandadjuststheirvalueattheperiodendfora10%changeininterestrates.Asat31March2008a10%relativechangeinthe:a)ZARinterestratewouldhaveimpactedonprofitandlossfortheyearbyR1,3billion(2007:R1,09billion)b)EURIBORinterestratewouldhaveimpactedonprofitandlossfortheyearbyR8,5million(2007:R8,04million)c)USDLIBORinterestratewouldhaveimpactedonprofitandlossfortheyearbyR29,2million(2007:R25,5million).financial liabilities ThegroupismainlyexposedtofluctuationinUSDLIBOR.Thegroupmeasuresitsinterestrateriskexposurebyrunningvarioussensitivityanalysesincluding10%favourableandadversechangesinthekeyvariables.Thesensitivityanalysesincludeonlyinterestbearingmonetaryitemsandadjuststheirvalueattheperiodendfora10%changeininterestrates.Asat31March2008a10%relativechangeintheUSD
LIBORinterestratewouldhaveimpactedprofitandlossfortheyearbyR19,5million(2007:R37,3million).
20.6 Credit risk managementFinancialassets,whichpotentiallysubjectthegrouptoconcentrationsofcreditrisk,pertainprincipallytotradereceivablesandinvestmentsintheSouthAfricanmoneymarket.Tradereceivablesarepresentednetoftheallowancefordoubtfuldebts.Theexposuretocreditriskwithrespecttotradereceivablesisnotconcentratedduetoalargecustomerbase.Thegroupmanagescounter‑partyexposuresarisingfrommoneymarketandderivativeinstrumentsbyonlydealingwithwell‑establishedfinancialinstitutionsofahighcreditrating.Lossesarenotexpectedasaresultofnon‑performancebythesecounterparties.CreditlimitswithfinancialinstitutionsarerevisedandapprovedbytheBoardquarterly.
20.7 Cross currency interest rate swapSetoutbelowisthemark‑to‑market(MTM)valuationoftheinterestandforeignexchangeportionofthecrosscurrencyinterestrateswap.
financial Statementsfor the year ended 31 March 2008
136 PETROSA Annual Report 2008
Company 2008 2007 r’000 r’000 fair fair value value
financial assetsAssetfromforeignexchangeportion 5,564 ‑Assetfrominterestportion 2,352 ‑
financial liabilitiesLiabilityfromforeignexchangeportion ‑ 7,466Liabilityfrominterestportion ‑ 836
Asat31March2008theinterestrateandforeignexchangederivativepositionrelatingtothecrosscurrencyinterestrateswapwasin‑the‑moneytoanamountofR7.9million(2007:out‑of‑the‑moneytoanamountofR8.29million)andduetoimmaterialitynosensitivityanalysishasbeenperformedonthepositionin2007and2008.
20.8 Categories of financial instrumentsAtyear‑endtherearenosignificantconcentrationsofcreditriskforloanreceivablesdesignatedasfairvaluethroughprofitandloss(FVTPL).Thecarryingamountreflectedbelowrepresentsthemaximumexposuretocreditriskforsuchloanreceivables.
Company
2008 2007 r’000 r’000
financial Assets:LoanreceivabledesignatedasFVTPL 800,717 486,469Loansandreceivables(includingcashandcashequivalents) 14,511,487 12,184,640financial Liabilities:Amortisedcost 2,368,021 1,164,447
20.9 Market riskThegroup’sactivitiesexposeitprimarilytothefinancialrisksofchangesincommoditypricesandforeigncurrencyexchangerates.Referto20.4forforeigncurrencyriskmanagementand20.13forpriceriskmanagement.
20.10 forward exchange contractsThecompanyhasenteredintocertainforwardexchangecontractsthatdonotrelatetospecificitemsappearingonthebalancesheetbutwhichwereenteredintotocoverforeigncommitmentsnotyetdueandproceedsnotyetreceived.Thecontractswillbeutilisedforpurposesoftrade.
notes to tHe annual
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20.11 forward exchange contracts ‑ liability
Company fair value estimated fair value gain 2008 2007 2008 2007 r’000 r’000 r’000 r’000
Forwardexchangecontracts 799,050 433,660 20,473 599
Totalforeigncurrency2008 Averageforward
exchangerateDateofmaturity
87,046,659USD 8.1238 Lessthan3months9,481,024USD 8.2171 3to6months866,175GBP 16.1594 Lessthan3months
2007 54,727,204USD 7.302 Lessthan3months4,611,165USD 7.366 3to6months
Asat31March2007,a10%relativechangeintheUSDtotheZARwouldhaveimpactedonprofitandlossfortheyearbyR72,1million(2007:R43,4million).
Asat31March2008,a10%relativechangeintheEURtotheZARwouldhaveimpactedonprofitandlossfortheyearbyR7,7million(2007:n.a.).
20.12 Liquidity riskThegroupmanagesliquidityriskbymonitoringforecastcashflowsandensuringthatadequatecashresourcesareavailabletomeetcashcommitments.
20.13 Price riskExternalsalesandpurchasesaresubjecttopriceandbasisrisksassociatedwithvolumeandtimingdifferences.
Priceriskismitigatedusingvariousoperationalandfinancialinstruments.Instrumentsusedareliquidandcanbetradedandvaluedatanytime.Thehedgeportfoliomayconsistofexchange‑tradedoptionsandfuturesaswellasnon‑exoticoverthecounteroptionsandswaps.Options,however,areonlytradedwithinzerocostcollars.ThesellingpricesarehedgedusingtheInternationalPetroleumExchange(IPE),NewYorkMercantileExchange(Nymex),orSingaporeMonetaryExchange(Simex).
Asensitivityanalysiswasperformedforrevenueandevery$1increaseordecreaseintheBrentcrudeoilpricewillincreaseordecreaseprofitbyR70,9millionrespectively,basedonthe2007/8financialresults.
20.14 Maturity riskThematurityprofilesoffinancialassetsandfinancialliabilitiesatbalancesheetdateareasfollows:
financial Statementsfor the year ended 31 March 2008
138 PETROSA Annual Report 2008
notes to tHe annual
Company1 year or less
r’0001 to 5 years
r’000over 5 years
r’000Year ended 31 March 2008AssetsCash 11,833,490 ‑ ‑ Tradereceivables 2,140,349 ‑ ‑
Totalfinancialassets 13,973,839 ‑ ‑
LiabilitiesInterest‑bearingborrowings 90,134 105,149 ‑Tradepayables 2,172,738 ‑ ‑
Totalfinancialliabilities 2,262,872 105,149 ‑
1 year or less r’000
1 to 5 years r’000
over 5 years r’000
Year ended 31 March 2007Assets
Totalfinancialassets 11,646,992 ‑ ‑
Liabilities
Totalfinancialliabilities 966,231 175,088 ‑
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Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
21. Revenue
Grossrevenuerepresentstheinvoicedvalueofcrudeoilandfuelsalesandothergoodsandservicessupplied,excludingvalueaddedtax.
Majorclassesofrevenuecomprise:Crudeoilsales 1,728,192 2,092,413 992,711 1,235,527Salesfromfuelproduction 9,290,580 6,859,343 9,290,580 6,859,343 11,018,772 8,951,756 10,283,291 8,094,870
22. operating profit
Operatingprofitisstatedafter:
22.1. IncomeIncomefromsubsidiaries
Administrationfees ‑ ‑ 38,432 3,480Profitonforeignexchange ‑ 440,522 13,312 440,113Baddebtsrecovery 750 507 750 507Insuranceproceeds ‑ 83,000 ‑ 83,000
22.2. expenditure ‑ cost by functionCostofsales 7,990,774 6,133,327 7,597,908 5,732,962Sellinganddistributioncosts 397,293 392,925 397,293 392,925Operatingexpenses 1,156,767 600,904 957,139 486,270 9,544,834 7,127,156 8,952,340 6,612,157
Theabovecostsarestatedaftertakingthefollowingintoaccount:Auditors’remuneration 3,427 2,867 3,420 2,239Auditfee 3,244 2,732 3,237 2,104Expenses 183 129 183 129Otherservices ‑ 6 ‑ 6Depreciation 904,972 1,141,712 831,503 978,987Property,plantandequipment 657,044 910,687 586,233 762,888Amortisationofrestorationcosts:Currentyear 235,474 68,745 232,816 53,819Changeinprioryear 12,454 162,280 12,454 162,280
Leaserentals 10,671 7,049 6,550 5,852Premises 10,671 6,704 6,550 5,852Motorvehicles ‑ 345 ‑ ‑Lossonforeignexchange 29,322 ‑ ‑ ‑(Increase)/Decreaseofstockprovision (6,104) 10,308 (6,104) 10,308Impairmentofaccountsreceivable 12,364 1,051 12,364 1,051Salariesandwages 704,526 649,721 684,986 634,782Pensionandmedicalcosts 100,934 94,963 100,934 90,786
financial Statementsfor the year ended 31 March 2008
140 PETROSA Annual Report 2008
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
23. Investment income Interestincomeinvestments 1,191,132 868,322 1,248,308 918,063Dividendincomefromassociates 870 870 870 870 1,192,002 869,192 1,249,178 918,933
24. Finance costs Long‑termloans 15,234 20,564 15,226 20,443Bankoverdraftsandacceptances 7,762 4,624 7,762 4,624Notionalinterestonrestorationcosts 245,271 221,049 245,271 215,835
268,267 246,237 268,259 240,902Exchange(gain)/lossonforeignloan(unrealised) (11,452) 51,568 (11,452) 51,568 256,815 297,805 256,807 292,470
25. loss from associates Attributableshareofretainedfortheyearexcludingextraordinaryitems (14,590) (5,515) ‑ ‑Netlossfortheyear (14,590) (5,515) ‑ ‑
26. taxation26.1NormaltaxSouthAfrican‑incometax 357,250 ‑ 357,250 ‑SouthAfrican‑deferredtax 307,060 ‑ 307,060 ‑ 664,310 ‑ 664,310 ‑Foreigndeferredtax (20,726) (48,290) ‑ ‑Foreignincometax 245,967 366,185 ‑ ‑Taxfortheyear 889,551 317,895 64,310 ‑
reconciliation of rate of taxation % % % %
SouthAfricannormaltaxrate 29.0 29.0 29.0 29.0Adjustedfor:Permanentdifferences 3.5 ‑ 3.5 ‑Utilisationofassessedlosses (12.5) ‑ (12.5) ‑Foreigntaxation 6.8 1.6 ‑ ‑Timingdifferences 5.5 ‑ 5.5 ‑Ratechange 0.4 ‑ 0.4 ‑Taxlosses ‑ (29.0) ‑ (29.0)Netreduction 3.7 (27.4) (3.1) 29.0)Effectiverate 32.7 1.6 25.9 ‑estimated tax losses:AvailableforsetoffagainstfutureSouthAfricantaxableincome ‑ 1,160,407 ‑ 1,160,407
notes to tHe annual
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ProvisionforSAtaxationismadefortheEuropeanoperationswheretheDutchtaxrateis24.5%,versus29%inSA.ThesignificantincreaseinthetaxchargeisattributabletoachangeinthetaxregimefromOP26tothe10thScheduledispensation.UndertheOP26regime,deductionsforminingcapitalexpenditurewerelimitedtominingincomeanda12%uplift.Underthenew10thSchedule,additionaldeductionsof50%or100%forminingcapitalexpenditureareallowed.TheforeigntaxchargerelatesmainlytotheNigerianoperationsofBrassExplorationUnlimited,wheretheNigeriantaxrateis85%,versus29%inSA.
27. Restoration provision
ThetotalcostoffuturerestorationexpenditureisestimatedatR3772million.Thiscostincludesthenetexpendituretoabandonandrehabilitateboththeonshoreandoffshore
facilitiesaswellasallotherrelatedclosurecosts.
Thecostsareexpectedtobeincurredasfollows:
Financialyear R’million2009: 6482010: 27802011: 3443772
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
28. Notes to the cash flow statements28.1 Cash receipts from customersTurnoverandotherrevenue 12,536,158 10,462,678 11,859,390 9,666,130Equitylossesofassociates (14,590) (5,515) ‑ ‑Movementintradeandotherreceivables (802,653) (538,416) (655,378) (453,362)Interestreceived (1,192,002) (869,192) (1,249,178) (918,933)
10,526,913 9,049,555 9,954,834 8,293,835
28.2 Cash paid to suppliers and employeesCostofsales (7,990,774) (6,133,327) (7,597,908) (5,732,962)Operatingcosts (1,810,875) (1,291,634) (1,611,239) (1,171,665)Movementininventories (897,868) (132,942) (914,195) (96,478)Movementintradeandotherpayablesandshorttermborrowings 1,329,760 271,523 1,273,514 293,288Non‑cashitems 1,136,430 1,210,179 1,018,766 1,065,803Interestpaid 22,996 25,188 22,988 25,067
(8,210,331) (6,051,013) (7,808,074) (5,616,947)
financial Statementsfor the year ended 31 March 2008
142 PETROSA Annual Report 2008
28.3 reconciliation of cash generated by operations with net profit before taxation
Net profit before taxation 2,719,919 3,032,202 2,650,243 2,761,503Non‑cashitems:Depreciation 657,044 910,687 586,233 762,888Movementinprovisions 546,350 661,037 539,196 634,068Amortisationofrestorationcosts (28,292) (187,992) (40,897) (189,801)Foreignexchange(gain)/loss (27,220) (225,121) (54,314) (192,920)Revaluationofloans (11,452) 51,568 (11,452) 51,568 3,856,349 4,242,381 3,669,009 3,827,306Otheradjustments:Investmentincome (1,192,002) (869,192) (1,249,178) (918,933)Financecosts 22,996 25,188 22,988 25,067
(1,169,006) (844,004) (1,226,190) (893,866)
MovementsinworkingcapitalIncreaseininventories (897,868) (132,942) (914,195) (96,478)Increaseintradeandotherreceivables (802,653) (538,416) (655,378) (453,362)Increaseintradeandotherpayablesandshort‑termborrowings 1,329,760 271,523 1,273,514 293,288
2,316,582 2,998,542 2,146,760 2,676,888
28.4 Taxation paid Charge in income statement (889,551) (317,895) (664,310) -Movement in deferred taxation 283,331 49,489 307,060 -Movement in taxation balance 542,913 314,509 357,250 -(Payments made)/amounts refunded (63,307) 46,103 - -
notes to tHe annual
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
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29. Contingent liabilities 29.1 GuaranteesThegrouphasissuedguaranteesinfavouroffinancialinstitutionsinrespectofhousingloansgrantedbysuchinstitutionstoemployeesofthegroupamountingto: 1,160 1,653 1,160 1,653
Thegroup’sshareof55%ofcostsbeingUSD3.356millionwouldbepayablefromPetroSA’sshareofrevenuesfromanyfutureproductionwithintheE‑Ptract,shouldthetractbesuccessfulthusrepresentingacontingentliability. 27,231 24,413 27,231 24,413
Thegrouphasissuedguaranteesinfavourofafinancialinstitutioninrespectofvehicleloansgrantedbysuchinstitutiontoemployeesofthegroupamountingto: 23,682 45,075 23,682 45,075
ThegrouphasissuedguaranteesfortherehabilitationoflanddisturbedbyminingontheSablefield,amountingto: 180,000 180,000 180,000 180,000
ThegrouphasissuedperformancebondsinfavouroftheEgyptianGeneralPetroleumCorporationinrespectofminimumworkobligationsrequiredforexplorationoperationsinEgypt(USD21million). 170,396 152,775 170,396 152,775
ThegrouphasissuedperformancebondsinfavouroftheRepublicofSudaninrespectofminimumworkobligationsrequiredforexplorationinSudan(USD8million). 64,912 58,200 64,912 58,200
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
financial Statementsfor the year ended 31 March 2008
144 PETROSA Annual Report 2008
notes to tHe annual
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
29. Contingent liabilities continuedThegrouphasissuedperformanceguaranteesinfavouroftheRepublicofEquatorialGuineainrespectofminimumworkobligationsrequiredforexplorationinEquatorialGuinea(USD18million). 146,054 130,950 146,054 130,950ThegrouphasissuedamanufactureandexcisablebondinfavouroftheSouthAfricanRevenueServices 5,000 ‑ 5,000 ‑
618,435 593,066 618,435 593,066
29.2 ClaimsPetroSAisintheprocessofnegotiatingasettlementonacontractualdisputewithasupplier. 4,000 ‑ 4,000 ‑
622,435 593,066 622,435 593,066
30. Commitments
30.1 Capital expenditureApprovedbythedirectorsContractedfor 1,722,145 2,325,766 1,722,145 2,068,919Notcontractedfor 3,372,862 253,237 2,333,297 253,237
5,095,007 2,579,003 4,055,442 2,322,156
ThecompanyexpenditurerelatesmainlytotheJabulaniprojectanditisintendedtofinancethisexpenditurefrominternallygeneratedfundsandavailablecashresources.ThegroupcommitmentsincludeR26millionforBEU
foragascompressionunit;R436.6millionforPetroSAEquatorialGuinea(Pty)LtdandR491.4millionforPetroSAEgypt(Pty)LtdforthedrillingofwellsandR86.2millionforPetroSASudanfortheprocessingofseismicdata.
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Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
30. Commitments continued30.2 operating lease commitmentsOperatingleasePetroSAPetroSAleasedofficespaceattheV&AWaterfrontfromVictoria&AlfredWaterfrontProperties(Pty)Ltd,effectivefrom1January2003.TheleasepaymentwasfixedatR583605permonth,witha10%escalationperannum.Theperiodoftheleaseagreementwasfiveyearsandendedon31December2007,atwhichtimePetroSAhadtheoptiontorenewtheleaseforafurtherfive‑yearperiodending31December2013.ThisofficespacehadbeensubletfromAugust2006until31December2007.
Withinoneyear ‑ 8,520 ‑ 8,520
30.3 operating lease ‑ PetroSA europe BV PetroSAEuropeBVleasesofficespaceatWillemswerf,13thFloor,Boompjes40,3011XB,effective1December2004.TheleasepaymentisfixedatEur23,360perannum,withaninflationaryescalationperannum.Theperiodoftheleaseisfiveyearsandendson30November2009,atwhichtimePetroSAEuropeBVhastheoptiontorenewtheleaseforafurtherfive‑yearperiodendingin2014.
Withinoneyear 389 374 ‑ ‑Afteroneyearbutnotmorethanfiveyears 259 624 ‑ ‑
648 998 ‑ ‑
financial Statementsfor the year ended 31 March 2008
146 PETROSA Annual Report 2008
notes to tHe annual
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
30. Commitments continued
30.4 operating lease ‑ PetroSA europe PetroSAEuropeBVleasesmotorvehiclesonbehalfofitsemployees.Thestandardcontractperiodis48months.TheeffectivestartingdatewasOctober2004andendsinNovember2009.
Withinoneyear 335 343 ‑ ‑Afteroneyearbutnotmorethanfiveyears 108 426 ‑ ‑ 443 769 ‑ ‑
PetroSAEuropeBVleasesapartmentsforitsemployees.Therentalisnowonamonth‑to‑monthbasiswithanoticeperiodofonemonth.Theannualrentalwillbeadjustedinlinewithconsumerpriceindex‑allhouseholdseries.
Within one year 101 631 - -
30.5 operating lease ‑ PetroSA equatorial GuineaThecompanyisleasingofficespacein Malaboforatwo‑yearperiod,effectivefrom 1February2008to31January2010. TheleasepaymentsareCFA4000000per month,andwerepaidinadvanceforayear.
Withinoneyear 941 591 ‑ ‑Afteroneyearbutnotmorethanfiveyears 784 ‑ ‑ ‑ 1,725 591 ‑ ‑
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Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
30. Commitments continued
30.6 operating lease ‑ PetroSA egyptPetroSAEgyptleasesofficespaceandaccommodationfortwoofitsemployeesinCairo.Theleaseperiodis36monthsforthethreeleaseswithamonthlypaymentofUSD20700intotal.Anescalationof5%atthebeginningofthethirdyearisapplicabletotheofficespace,withthetwoaccommodationleaseshaving5%and10%escalationannually.Thecompanyhasanoptiontorenewtheleases.
Withinoneyear 2,050 880 ‑ ‑Afteroneyearbutnotmorethanfiveyears 2,722 1,809 ‑ ‑ 4,772 2,689 ‑ ‑30.7 operating lease ‑ PetroSA SudanPetroSASudanleasesofficespaceandaccommodationforitsemployeesatNo.45A,Square2,GardenCityDistrict,Mugran.Theleaseperiodis12monthswithamonthlypaymentofEUR8427.50andanescalationof10%forofficespaceand5%foraccommodationforemployeesatthebeginningofthesecondyear.Thecompanyhasanoptiontorenewtheleaseforanotherthree‑yearperiod.
Withinoneyear 2,045 ‑ ‑ ‑Afteroneyearbutnotmorethanfiveyears 4,090 ‑ ‑ ‑ 6,135 ‑ ‑ ‑
financial Statementsfor the year ended 31 March 2008
148 PETROSA Annual Report 2008
notes to tHe annual
Group Company 2008 2007 2008 2007 r’000 r’000 r’000 r’000
31. Prior period errors
Thecomparativefigureshavebeenrestatedforthecorrectionoftheclassificationofproperty,plantandequipmenttointangibleassetsandbuildings.Thisreclassificationerrorhasincreasedthe2007depreciationchargeandconsequentlyreducedtheprofitforthe2007yearbyR880658.Expensesthatrelatedtothepreviousfinancialyearbutwerenotaccruedforwerecorrectedinthecomparativesandhavereducedprofitforthe2007yearfurtherbyR23127490,andincreasedaccountspayablebythesameamount.
ThepriorperioderrorsinthegrouprelatetoPetroSA
EquitorialGuinea(Pty)LtdandPetroSASudan(Pty)Ltd.TheerrorrelatingtoPetroSAEquatorialGuineawasforemployeestaxandprepaymentsinthepreviousfinancialyear.ThisresultedinanincreaseinretainedincomeofR402000andadecreaseinaccountspayableofR380000andinsalariesofR8000withanincreaseinprepaidrentalsofR30000.TheerrorrelatingtoPetroSASudanwasinrespectofprepaidexpensesbeingexpensedintheincorrectperiod.Thecorrectionresultedinadecreaseintheexpensesandnetlossinthe2007yearofR8827088.51withacorrespondingincreaseintradeandotherreceivablesbythesameamount.
30. Commitments continued
30.8 operating lease ‑ PetroSA North AmericaPetroSANorthAmericaleasesofficespace atLyricCentreOfficeBuilding,440Louisiana Street,Houston,HarrisCounty,Texas,77002. Theleaseperiodis36monthswithamonthly paymentofUSD4251.99andanescalationof0.692%
linkedtotheincreaseintaxes,operatingexpensesandutilitycosts.
Withinoneyear 414 ‑ ‑ ‑Afteroneyearbutnotmorethanfiveyears 690 ‑ ‑ ‑ 1,104 ‑ ‑ ‑
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PETROSA Annual Report 2008 149
32. Directors and executive management emoluments
PetroSAYear ended 31 March 2008
Salary or fee
r’000
Bonuses and performance
payments r’000
Pension contrib.
r’000
Medical contrib.
r’000
expense allowances
r’000
other
r’000
Total
r’000
Executivedirectors: 5,263 1,490 392 145 ‑ 125 7,415SMkhize 3,336 949 200 75 ‑ 70 4,630NGNika 1,927 541 192 70 ‑ 55 2,785
Non‑executivedirectors:
2,204 ‑ ‑ ‑ 864 ‑ 3,068
PSMolefe 381 ‑ ‑ ‑ 288 ‑ 669MWMkhize ‑ ‑ ‑ ‑ 27 ‑ 27BBSiwisa 152 ‑ ‑ ‑ 41 ‑ 193NVukuza‑Linda 231 ‑ ‑ ‑ 80 ‑ 311DRZihlangu 382 ‑ ‑ ‑ 175 ‑ 557JHuntley 53 ‑ ‑ ‑ 19 ‑ 72RJAngel 113 ‑ ‑ ‑ 40 ‑ 153MBDamane ‑ ‑ ‑ ‑ 75 ‑ 75NGumede ‑ ‑ ‑ ‑ 7 ‑ 7MKajee 197 ‑ ‑ ‑ 17 ‑ 214CWNMolope* 145 ‑ ‑ ‑ 41 ‑ 186TChikane 54 ‑ ‑ ‑ 8 ‑ 62BFigaji 210 ‑ ‑ ‑ 11 ‑ 221ANkuhlu 286 ‑ ‑ ‑ 35 ‑ 321
Executivemanagement:
7,533 2,278 526 188 ‑ 211 10,736
WdeMeyer 713 395 71 21 ‑ 24 1,224ESeptember 1,018 59 61 34 ‑ 12 1,184DMarokane 1,138 377 114 34 ‑ 36 1,699NSiswana 1,647 477 99 17 ‑ 50 2,290JMMaisela 1,612 444 97 41 ‑ 50 2,244JEPFalbe 1,405 526 84 41 ‑ 39 2,095
Yearended31March2007
11,518 4,175 786 307 596 337 17,719
Executivedirectors: 4,049 1,621 335 135 ‑ 121 6,261Non‑executivedirectors:
1,546 ‑ ‑ ‑ 596 ‑ 2,142
Executivemanagement:
5,923 2,554 451 172 ‑ 216 9,316
*Thedirectorsfeesofthisdirectorhavebeenpaidtoheremployer.
financial Statementsfor the year ended 31 March 2008
150 PETROSA Annual Report 2008
Cef (Pty) Ltd ‑ holding company Recoveries 188 269 188 269Loansowingto 195,283 255,902 195,283 255,902Cashondeposit 537,648 537,648 537,648 537,648Interestreceived ‑ 66,137 ‑ 66,137Interestpaid 15,226 20,443 15,226 20,443Tradeandotherreceivables 150 ‑ 150 ‑Servicesrendered 205 448 205 448
PASA ‑ fellow subsidiary Royaltiespaid 71,650 63,067 71,650 63,067Tradeandotherpayables 15,587 13,569 15,587 13,569Rentreceivedandotherservices 1,429 1,222 1,429 1,222Tradeandotherreceivables 130 134 130 134
Sff Association ‑ fellow subsidiary Servicesrendered 1,243 144 1,243 144Tradeandotherreceivables 4,123 24,725 4,123 24,725Managementfeesandotherservices 57,054 65,421 57,054 65,421
Subsidiaries and associates Loansowing ‑ ‑ 0.80 0.80Loansreceivable ‑ ‑ 686,563 440,081Goodsandservices 18,901 21,654 18,901 21,654Interestreceived ‑ ‑ 88,209 68,411Servicesrendered ‑ ‑ 12,414 19,890Managementfee ‑ ‑ 12,459 3,480Tradeandotherreceivables ‑ ‑ 54,921 4,580Commissionpaid ‑ ‑ 24,066 23,644Tradeandotherpayables ‑ ‑ 5,671 2,984Recoveriespaid ‑ ‑ 1,026 ‑
oPCSA ‑ fellow subsidiary Tradeandotherpayables 890 1,320 890 1,320Recoveries 7,806 9,875 7,806 9,875
notes to tHe annual
Group Company
2008 2007 2008 2007 r’000 r’000 r’000 r’000
33. Related parties
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PETROSA Annual Report 2008 151
Industrial Development Corporation of SA Ltd
Servicesrendered ‑ 294 ‑ 294
SABCServicesrendered 12 14 12 14
SArSPaymentsmade 2,824,884 2,224,578 2,824,884 2,224,578
Airports CompanyServicesrendered 133 111 133 111
eskom GroupServicesrendered 177,260 177,221 177,260 177,221Productssold ‑ 58,090 ‑ 58,090
TelkomServicesrendered 19,992 15,677 19,992 15,677
SAAServicesrendered 14,270 24,549 14,270 24,549
* Refer to note 32 for key management remuneration
Group Company
2008 2007 2008 2007 r’000 r’000 r’000 r’000
financial Statementsfor the year ended 31 March 2008
152 PETROSA Annual Report 2008
34. Interest in joint operating agreements
Thegroup’sandcompany’sproportionateshareintheassetsandliabilitiesofunincorporatedjointventures,whichareincludedinthefinancialstatementsareasfollows:
Percentage Holding/Tracts 55% 55% 55% 55% 55% 55%
e‑BA e‑AG e‑AD e‑CB e‑CN e‑DC 2008 r’000Currentassets 36 134 89 53 121 ‑Totalassets 36 134 89 53 121 ‑
Currentliabilities 37 ‑ ‑ 40 24 ‑Retainedincome (2,161) (705) (424) (31,152) (1,483) (43,970)Companycontributiontoventure 2,160 839 513 31,165 1,580 43,970Totalliabilities 36 134 89 53 121 ‑
Revenue 2 12 7 6 8 ‑Expenses 209 17 10 315 707 274Netloss (207) (5) (3) (309) (699) (274)
Partner’s name Pioneer Pioneer Pioneer Pioneer Pioneer Pioneer 45% 45% 45% 45% 45% 45%
Nature of project Exploration Exploration Exploration Exploration Exploration Exploration
Percentage Holding/Tracts 55% 55% 22.86% 22.86% 10% 31.25%
e‑CC e‑Ao Iris Themis Namibia North
Gryphon Marin
2008 r’000Currentassets 801 8 ‑ ‑ ‑ ‑Totalassets 801 8 ‑ ‑ ‑ ‑
Currentliabilities ‑ ‑ ‑ ‑ ‑ ‑Retainedincome (153,050) (280) (26,259) (10,747) (987) (987)Companycontributiontoventure 153,851 288 26,259 10,747 987 59,017Totalliabilities 801 8 ‑ ‑ ‑ 58,030
Revenue 70 1 ‑ ‑ ‑ ‑Expenses 97 36 2 27 5 1Netloss (27) (35) (2) (27) (5) (1)
Partner’s name Pioneer Pioneer
Sterling
Sterling
BHP
Forest
45% 45% 38.57% 20.57% 75% 50% PanAfrica PanAfrica Mitsui TullowOil 25.71% 25.71% 15% 18.75% Afren Afren 12.86% 12.86%
Premier18%
Nature of project Exploration Exploration Exploration Exploration Exploration Exploration
notes to tHe annual
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PETROSA Annual Report 2008 153
34. Interest in joint operating agreement continued
Percentage Holding/Tracts
55%E‑BA
55%E‑AG
55%E‑AD
55%E‑CB
55%E‑CN
55%E‑DC
2007 r’000Currentassets 17 132 92 125 140 213Totalassets 17 132 92 125 140 213
Currentliabilities 1 4 9 24 123 ‑Retainedincome (1,752) (624) (377) (27,653) (703) (43,696)Companycontributiontoventure
1,768 752 460 27,754 720 43,909
Totalliabilities 17 132 92 125 140 213
Revenue 2 4 12 7 2 12Expenses 24 109 138 453 413 24Netprofit/(loss) (22) (105) (126) (446) (411) (12)
Partners Pioneer45%
Pioneer45%
Pioneer45%
Pioneer45%
Pioneer45%
Pioneer45%
Nature of project Exploration Exploration Exploration Exploration Exploration Exploration
PercentageHolding/Tracts55%E‑CC
55%E‑AO
22.86%Iris
22.86%Themis
31.25%Gryphon
Marin
25%Block402d
2007 r’000
Currentassets 749 5 ‑ ‑ ‑ ‑
Totalassets 749 5 ‑ ‑ ‑ ‑
Currentliabilities‑interestfree 1 ‑ ‑ ‑ ‑ ‑Retainedincome (137,193) (219) (26,257) (10,720) (59,016) (31,950)Companycontributiontoventure 137,941 224 26,257 10,720 59,016 31,950Totalliabilities 749 5 ‑ ‑ ‑ ‑
Revenue 45 ‑ ‑ ‑ ‑ ‑Expenses 999 1 2,974 2,854 24,153 211Netprofit/(loss) (954) (1) (2,974) (2,854) (24,153) (211)
Partners Pioneer Pioneer Sterling Sterling Forest BurlingtonResources
45% 45% 38.57%PanAfrica
25.71%Afren
12.86%
20.57%PanAfrica
25.71%Afren
12.86%Premier
18%
50%TullowOil18.75%
75%
Nature of project Exploration Exploration Exploration Exploration Exploration Exploration
financial Statementsfor the year ended 31 March 2008
154 PETROSA Annual Report 2008
Percentage Holding/Tracts
55%E‑P
60%Sable
55%E‑BB
24%Block2A
24%BlockC
55%F‑Q
2007
r’000Productionfacilities 36,011 50,365 14,404 53,812 ‑ ‑Currentassets ‑ 62,594 101 ‑ ‑ ‑Totalassets 36,011 112,959 14,505 53,812 ‑ ‑
Currentliabilities‑interestfree 3 58,345 ‑ ‑ ‑ ‑Retainedincome (31,740) (908,466) (51,588) (162,544) (2,338) (547)Companycontributiontoventure 67,748 963,080 66,093 216,356 2,338 547Totalliabilities 36,011 112,959 14,505 53,812 ‑ ‑
Revenue ‑ 895,875 4 ‑ ‑ ‑Expenses 3 414,882 68 3,424 548 526
Netprofit/(loss) (3) 480,993 (64) (3,424) (548) (526)
Partners Pioneer45%
Pioneer40%
Pioneer45%
Anschutz22.8%Forest53.2%
Anschutz22.8%Forest53.2%
Pioneer45%
Nature of Project Exploration Production Exploration Exploration Exploration Exploration
Percentage Holding/Tracts
24%Ibhubezi
55%E‑AA
55%SCG
Capex
60%SableCapex
55%E‑P
25.5%Zambezi
Block
2007r’000Productionfacilities ‑ ‑ 1,377,270 656,198 ‑ ‑Currentassets ‑ 73 301,928 5,578 ‑ ‑TotalAssets ‑ 73 1,679,198 661,776 ‑ ‑
Currentliabilities ‑ 9 310,187 ‑ ‑ ‑RetainedIncome (364) (171) ‑ ‑ (275) (5,719)Companycontributiontoventure 364 235 1,369,011 661,776 275 5,719Totalliabilities ‑ 73 1,679,198 661,776 ‑ ‑
Revenue ‑ 14 ‑ ‑ ‑ ‑Expenses ‑ 185 ‑ ‑ 275 5,719Netprofit/(loss) ‑ (171) ‑ ‑ (275) (5,719)
Partners Anschutz22.8%Forest53.2%
Pioneer45%
Pioneer45%
Pioneer40%
Pioneer45%
Petronas42.5%
ENH15%
Petrobras17%
Nature of Project Exploration Exploration Development Development Exploration Exploration
notes to tHe annual
34. Interest in joint operating agreement continued
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PETROSA Annual Report 2008 155
PercentageHolding/Tracts
10%NamibiaNorth
10%NamibiaSouth
2007r’000
Productionfacilities ‑ ‑Currentassets ‑ ‑Totalassets ‑ ‑
Currentliabilities‑interestfree ‑ ‑Retainedincome (982) (17,503)Companycontributiontoventure 982 17,503Totalliabilities ‑ ‑
Revenue ‑ ‑Expenses 982 17,503Netexpenditure (982) (17,503)
Partners BHP75%
Mitsui15%
Exploration
BHP75%
Mitsui15%
Exploration
Nature of Project
Joint Venture with energy Africa ThecompanyhasbeeninvolvedinproductionintheOribioilfieldsinceMay1997.ThisprojectwasbeingconductedthroughthemechanismofaJointOperatingagreementwithEnergyAfricaBredasdorp(Pty)Ltd,whichhassinceendedon15March2004,asthepartnerhaswithdrawn.Joint venture with Statoil ASA Thecompanyhasenteredintoa50:50jointventure
withStatoilASA,theNorwegianStateOilcompany,todevelopGTL‑FisherTropschtechnologyandtoexploreanddevelopGTLopportunitiesinIranandelsewhere.ThePetroSAshareofassetsamountstoR287.9million(2007:R174million)atyear‑end.Joint venture with Pioneer PetroSAhasaproductionsharingagreementwithPioneerfortheSouthCoastGasfieldproduction.Theholdingis55:45respectively.
34. Interest in joint operating agreement continued
156 PETROSA Annual Report 2008
bbl barrel(equals159litres)
bbls barrels
bpd barrelperday
Bscf billionstandardcubicfeet
Cef CEF(Proprietary)Limited
Cef Act CentralEnergyFundAct(ActNo38of1977)asamended
MMbbl millionbarrels
MMBoe millionbarrelsofoilequivalent
GTL GastoLiquids
MT metricton
PASA South African Agency for Promotion of Petroleum Exploration and Exploitation(Proprietary)Limited
PetroSA ThePetroleumOilandGasCorporationofSouthAfrica(Proprietary)Limited
PfM Act PublicFinanceManagementAct(ActNo1of1999)asamended
Sff SFFAssociation(AssociationincorporatedunderSection21)
SHeQ SafetyHealthEnvironmentandQuality
NoSA NationalOccupationalSafetyAssociation
NoSCAr NationalOccupationalSafetyCreditedAwardRecognition
ISo InternationalStandardsOrganisation
oPCSA OilPollutionControlSouthAfrica
NIPP NationalIndustrialParticipationProgramme
SorP StandardsOfRecommendedPractice
SCG SouthCoastGas
oHSA OccupationalHealthandSafetyAct
Key Abbreviations
PETROSA Annual Report 2008 157
Fields in production and under development
2008 2008 2007 2007
Crude oil/ Condensate
MMbbl
Gas
Bscf
Crude oil/ Condensate
MMbbl
Gas
BscfMovement in net remaining proved and probable reservesAtbeginningofyear 16.0 162.2 23.2 353.7
Revisionsofpreviousestimates ‑ ‑ (1.8) (133.2)
Production (4.6) (52.8) (5.4) (58.3)
Additions ‑ 20.0 ‑ ‑
Atendofyear 11.4 129.4 16.0 162.2
Proved and probable reserve by type of field
Fieldsinproduction 10.9 101.1 14.5 131.0
Fieldsunderdevelopment 0.5 28.3 1.5 31.2
11.4 129.4 16.0 162.2
reserves by category
Proved 7.9 85.1 10.6 117.3
Provedandprobable 11.4 129.4 16.0 162.2
Totalprovedandprobablereservesatendofyear
11.4 129.4 16.0 162.2
Notes
1. oilFieldsinproductionandunderdevelopmentcomprisetheOribi(80%)andOryx(100%)andSable(60%)oilfields.
GasFieldsinproductionandunderdevelopmentcomprisetheF‑AandF‑ASatelliteandE‑MandE‑MSatellitegasfieldsrespectively.Theadditionsin2008relatetotheSouthCoastGasproject.
2. Fieldsunderappraisalcomprisediscoveries.Thereservesshownareeitheralloilorallgas,excludinggasliquids.OilincludescondensateandLPG.
3. Reservesandproductionareshownonworkinginterestbasis(100%).
4. Oilandgasreservescannotbemeasuredexactlysinceestimationofreservesinvolvessubjectivejudgmentandarbitrarydeterminationsandthereforeallestimationsaresubjecttorevision.Thegasandoilreservesreflectedabovehavebeendeterminedbyanindependentsurveyor.
Disclosure of reservesunaudited suPPlementaRy
for the year ended 31 March 2008
for the year ended 31 March 2008
158 PETROSA Annual Report 2008
5.1 Proved reserves oilMeanstheamountofpetroleumwhichgeophysical,geologicalandengineeringdataindicatetobecommerciallyrecoverabletoahighdegreeofcertainty.Forthepurposesofthisdefinition,thereisa90%chancethattheactualquantitywillbemorethantheamountestimatedasprovedanda10%chancethatitwillbeless.GasMeanstheamountofgaswhichgeophysical,geologicalandengineeringdataindicatetobecommerciallyrecoverabletoahighdegreeofcertainty.Forthepurposesofthisdefinition,thereisa90%chancethattheactualquantitywillbemorethantheamountestimatedasprovedanda10%chancethatitwillbeless.
5.2 Proved and probable reserves oilMeansprovedreservesplustheamountofpetroleumwhichgeophysical,geologicalandengineeringdataindicatetobecommerciallyrecoverablebutwithagreaterelementofriskthaninthecaseofproved.Forthepurposesofthisdefinition,thereisa50%chancethattheactualquantitywillbemorethantheamountestimatedasprovedandprobableanda50%chancethatitwillbeless.GasMeansprovedreservesplustheamountofgaswhichgeophysical,geologicalandengineeringdataindicatetobecommerciallyrecoverable,butwithagreaterelementofriskthaninthecaseofproved.Forthepurposesofthisdefinition,thereisa50%chancethattheactualquantitywillbemorethantheamountestimatedasprovedandprobableanda50%chancethatitwillbeless.
5.3 reserves under appraisal oilComprisequantitiesofpetroleum,whichareconsidered,onthebasisofinformationcurrentlyavailableandcurrenteconomicforecasts,tobecommerciallyrecoverablebypresentproducingmethodsfromfieldsthathavebeendiscoveredbutwhichrequirefurtherappraisalpriortocommercialitybeingestablished.GasComprisequantitiesofgas,whichareconsidered,onthebasisofinformationcurrentlyavailableandcurrenteconomicforecasts,tobecommerciallyrecoverablebypresentproducingmethodsfromfieldsthathavebeendiscovered,butwhichrequirefurtherappraisalpriortocommercialitybeingestablished.
5. Definitions
Disclosure of reservesunaudited suPPlementaRy
PETROSA Annual Report 2008 159
user Notes
160 PETROSA Annual Report 2008
Physical address:ThePetroleumOilandGasCorporationofSouthAfrica(Pty)Ltd151FransConradieDriveParow7500RepublicofSouthAfricaTel:+2721929‑3000fax:+2721929‑3144
Postal address:ThePetroleumOilandGasCorporationofSouthAfrica(Pty)LtdPrivateBagX5Parow7499RepublicofSouthAfrica
Website:www.petrosa.com