Lagia disappointment drives SacOil downstream

06 December 2016, Week 48, Issue 668

South Africa’s SacOil Holdings has reported a tough six months with difficulties likely to continue, including under-performance at its Egyptian asset. The pressure has been such that it announced a potential deal, on December 1, with an unnamed product wholesaler in its sights in order to shore up its cash generation goals. The deal would be structured as a reverse takeover, it said, and as such its shareholders would end up with a minority stake in the business. 

On November 30, SacOil provided an update on its work covering the six months ending on August 31. The company had previously warned that earnings would be down by at least 20% year on year. One change from 2015 has been the strengthening of the rand against the US dollar. 

 

The company posted a loss of 221.4 million rand (US$15.7 million) for the period, from a profit of 2.8 million rand (US$196,000) for the same six months of 2015. 

“Notwithstanding the challenging backdrop of volatile global oil markets for the duration of the first half of this financial year, we have made positive strides towards the attainment of our key strategic priorities,” said SacOil’s CEO, Thabo Kgogo. “Our key focus areas this period were the expansion of business development activities, optimisation of production from the Lagia oil field, improvement in the group’s cost structure, resolution of legacy issues, recovery of funds owed to the group, the safe running of our operations and engagement with stakeholders on strategic issues. We are satisfied with the progress we have made in each of these initiatives with the limited resources at the group’s disposal.”

SacOil picked out a number of problems, including litigation in Nigeria and disappointing results from a thermal project at Lagia, in Egypt. 

Exploration plans for the company are also under pressure, with deadlines looming in June 2017 in Botswana, August 2017 in Malawi and January 2018 in the Democratic Republic of Congo (Kinshasa). 

 

Nigeria

SacOil said it was pursuing a debt of US$19.1 million owed to it by Nigeria’s Transcorp. This was linked to the South African company’s planned participation in Nigeria’s Oil Prospecting Licence (OPL) 281. Lawyers for SacOil have suggested the issue should be resolved in the first half of 2018, with SacOil taking an impairment of 48.1 million rand (US$3.4 million) on the amount it expects to recover, based on the delay it has experienced in recovering funds. 

Another potential impairment looms on the 115.8 million rand (US$8.2 million) that SacOil is owed by the Encha Group. Auditors for Encha had previously confirmed the debt and its recoverability but since the debt agreement expired, and Encha defaulted, SacOil said it had been unable to confirm the recoverability. 

While taking the impairment, SacOil’s CEO said Encha had “significant assets that the group will target for the recovery of the amount as it continues to progress the legal matter”.

 

Egypt

The greatest blow is likely to be the disappointment at Lagia. The company had commissioned cyclic steam stimulation (CSS) facilities at the field as of February, with a targeted wellhead production of 1,000 bpd. 

However, SacOil said in its update at the end of November, that performance remains below expectations, while the asset has also suffered as a result of low oil prices and exchange rates. Revenue from the field was 3.2 million rand (US$227,000), while operating costs were up by 2.7 million rand (US$191,000). 

A presentation from the company in September said breakeven costs were US$46-51 per barrel.