A Focus on South Africa - Part II

Although the rise of the African continent as an exploration and production hotspot has largely bypassed South Africa, the country boasts a strong service industry and aspires to become the continent’s service hub for the whole of the oil and gas industry. “South Africa has a lot to offer to the upstream oil and gas sectors,” stated Buyelwa Sonjica, Minister for Minerals and Energy of South Africa.

Geographic proximity as well as South Africa’s supplier and service capabilities all serve as the foundation on which the South Africa Oil and Gas Alliance (SAOGA) is determined to position South Africa as the preferred supply hub and fabrication centre for the offshore oil and gas community in West Africa. SAOGA is a public-private partnership between the provincial government of the Western Cape, the city of Cape Town and the private industry. It is supported by the national government and the National Ports Authority and was founded in 2001 under the name Cape Oil and Gas Supply Initiative (COGSI).

In 2004, the Western Cape initiative was re-branded. According to Gary Schwabe, executive director of SAOGA, this strategic decision was made recognizing that there is no brand value for an international audience in ‘Cape’. This is underlined by the fact that the strongest brand value would be derived by using the ‘South Africa’ positioning. In addition to the brand value criterion, this repositioning outlined that the Western Cape alone does not have the broad spectrum of industry that is required to service the oil and gas industry. The complementary capabilities of the large industrial players from the Gauteng region are enabling SAOGA to position South Africa as a preferred supply hub and fabrication centre for the West African offshore oil and gas community.

The bottom line is focused on positioning South African capability in the West African market through the corridor of the Western Cape. At the heart of the public private partnership is the promotion of economic development, job creation, and transformation in South Africa in general and in particular the Western Cape.

Although South Africa is taking a one-stop shop approach, there is the widespread consensus that the country should not aspire to compete head-on with Houston and Aberdeen on the high-tech end. While South Africa is the most sophisticated engineering and manufacturing base in Africa, its leading companies are looking for strategic partnerships with both Houston and Aberdeen based companies to jointly fill the gaps where South Africa does not have the capability.

Being African is a key competitive advantage that is becoming an increasingly prominent factor as local content requirements and the ideals of the New Partnership for Africa’s Development (NEPAD) are climbing onto the agendas of the African nations. This is exemplified by the actions taken by the two leading players in the West African oil and gas industry: Nigeria and Angola. “Nigeria has set some very aggressive local content targets, requiring 45 percent local content by 2006, which is destined to rise to 75 percent by 2010,” stated Mr. Schwabe. “It is admirable that they want to do that, and our objective is not to try and compete with them. Our objective is to support West Africa. There is $10 billion spent on exploration and production in West Africa every year, and potentially we could support 10 percent of that.” While continuing to explain the rationale behind SAOGA’s ambitions he stated: “Of course that does make a dent in other competitors’ targets, but is it not that significant. The rest of the world keeps emphasizing that Africa should stand on its own feet and help itself, but most of the European and American majors continue to rely on suppliers from their home countries. The world has got to realize that if you want Africa to stand on its own feet then you have to give Africa the flexibility to do that.”

The current under-capacity in the international offshore fabrication, maintenance and supply markets create a unique opportunity for South Africa to enter into the market at this point in time. The challenge will be to build a reputation of quality, delivery and competitiveness.

The first piece of the puzzle

The Western Cape government has identified oil and gas as one of the key drivers of the province’s economy. “The Western Cape doesn’t have oil and we may have gas off our west coast, but we are determined to become the service hub for the West African oil and gas industry,” proclaimed Ebrahim Rasool, premier of Western Cape. “The world will be surprised, because they expect us to be a jungle, a place where lions and elephants roam the streets,” he stated before continuing that “the Western Cape offers the required skills base and infrastructure to service the oil and gas industry.”

Identifying the business potential of the Western Cape’s ambition of becoming the preferred service hub for the African oil and gas industry, MAN Ferrostaal has decided to invest Rand 1.7 billion (US$240 million) over a five-year period. The investment will be in infrastructure for the ports of Cape Town and Saldanha - the largest and deepest natural harbor in the Southern Hemisphere. The Western Cape province is committed to providing the road and rail network and, for the first time, the ambitions of the local service industry are beginning to be realized. MAN Ferrostaal announced the investment in March during Oil Africa 2006, the African equivalent of OTC in Houston.

“I think that MAN Ferrostaal is the foundation of our ambitions; it is the first piece of the puzzle that has to fit before the rest of the puzzle to come together,” realized Premier Rasool. “It is the vote of confidence that we needed.”

Before the investment

The development of the African oil and gas offshore industry is now limited by the extent to which the international market can supply new equipment. “If we could participate in the local content and become a supplier of new equipment or refurbishment, Africa’s oil producing nations could activate new fields faster,” explained Brian Blackbeard, managing director of Atlantis Marine Projects.

Atlantis Corporation and MAN Ferrostaal are the new entrants that gave South Africa the ultimate push in servicing the offshore oil and gas industry. “Back in 2003, together with MAN Ferrostaal, we identified that the establishment of infrastructure to service the offshore oil and gas industry would be very good for South Africa,” recalled Mr. Blackbeard. Although there was a lot of interest, the question was how South Africa could enter into this market. Atlantis looked at the opportunities lying beyond the entry barriers and encouraged MAN Ferrostaal to consider the investment into South African infrastructure to allow local companies entry into the business.

“In this context, in 2003, we started the feasibility studies and due diligences, and over two years developed a business plan in association with the South African industry to determine whether they were interested. Were they willing to participate, what were their entry barriers to the market and what could we facilitate as Atlantis and MAN Ferrostaal?” Mr. Blackbeard asked.

The first issue, negotiating rental structures with the National Ports Authority to put in place a soft start mechanism, has successfully been completed. The next step was putting in place the required infrastructure to start the business. The old facilities at the Port of Saldanha have been abandoned for the past 13 years and are now being rehabilitated. “Relaunching the Port of Saldanha as a viable fabrication yard for the oil and gas industry required a huge amount of investment,” Brian Blackbeard noted.

Likewise, the required upgrades for the Port of Cape Town were assessed. The port is being positioned as the preferred repair and refurbishment hub for the ageing fleet of West African offshore platforms. Currently, these have an average age of 26 years.

MAN Ferrostaal and Atlantis Corporation have formed FerroMarine Africa, which has become the local equity partner in the business. While Mr. Blackbeard believes that South Africa is in the right position geographically, politically and economically, he recognizes that the success of FerroMarine’s investment is largely dependent on its South African tenants and their international partners.

The two tenants in Saldanha, which will be operational in April 2007, are Grinaker-LTA and DCD Dorbyl Heavy Engineering. The facilities in the Port of Cape Town will be operated by DCD Dorbyl Marine, Globe Engineering and SA Five Engineering, which was recently acquired by Aberdeen-based RBG. In addition, the complete spectrum of the service providers, ranging from hydraulic equipment, electronics and marine services to IT and software, can be subcontracted from an existing base. Such a depth of industry is not available in the rest of Africa, and South Africa’s capability to offer a one-stop-shop approach is serving as its competitive edge.

Port of Saldanha: Restoring old glory

In the Port of Saldanha, located 60 nautical miles NNW of Cape Town, a fabrication site was established in the late 1980s. At the end of the apartheid era, which required the South African oil and gas industry to be self-sufficient, these facilities were used to fabricate the 14,000 tonne fixed leg platform jacket for Mossgas and the FA platform, which is still operational off the South African coast. At present, the site is being recommissioned and will be reopened in April 2007. The Port of Saldanha is not constrained by limited available space and we see a huge opportunity for construction and fabrication,” stated Khomotso Philela, CEO of the National Ports Authority. “Physical and environmental limitations will prevent major developments in the Port of Cape Town, so a smart company in the oil and gas industry will look at Saldanha,” he continued. In this context, Mr. Philela must agree that Grinaker-LTA is a smart company because it jumped on the opportunity to operate the Saldanha fabrication centre in cooperation with DCD Dorbyl Heavy Engineering Vereeniging.

Historically, the petroleum industry in South Africa is mainly a downstream industry, a field where Grinaker-LTA has been a dominant constructor for the last 20 years. On the other hand, DCD Dorbyl Heavy Engineering Vereeniging operates a large facility in Gauteng where the pre-fabrication will be carried out that cannot currently be done in Saldanha. Over the last 6 years, the company has been looking for growth opportunities in the upstream oil and gas market, both in and outside of South Africa.

In 1999, Grinaker-LTA established a facility in Port Harcourt. Serving clients such as ExxonMobil, Chevron, Total, FMC and Technip, the company has become a well recognized fabricator providing local content, which is a strong business driver in Nigeria. Although the Nigerian operation has grown significantly and is already operating close to full capacity, Grinaker-LTA has continued to evaluate opportunities to expand its involvement in upstream oil and gas from a South African base. “From the outset our aim was to compete with the established countries servicing the oil and gas industry. However, the costs associated with putting required infrastructure into place made this ambition quite a challenge,“ recalled Eddie du Rand, managing director of Grinaker-LTA Construction. Then the Saldanha opportunity came about, where there was potential to participate in the facility without actually being the developer and investor. “It was an opportunity to match our existing market know-how and client base with a new facility to suit the South African requirements,“ noted Mr. du Rand. “That has been the journey we have been on for the past five years.”

The Saldanha facility will be twice the size of Grinaker-LTA’s Port Harcourt facility and will target Southern Africa and the West Coast of Africa, but it won’t necessarily be restricted to that. However, South African companies need to be mindful that a lot of the African countries are driving their own local content programs. The brand-new facility in Saldanha will add a lot of capacity to the region. Its operators are emphasizing that they aim to complement rather than compete with existing African facilities. “One of the main challenges we have been looking at is marrying local content with more complex high specification work out of South Africa, like a sub sea manifold,” confirmed Mr. du Rand.

The Saldanha site will boost Grinaker-LTA’s capacity in the West African market by 200 percent, so the order book will have to be filled in the short term. According to Mr. du Rand, the timing is right. “We couldn’t approach the market at a better time and we need to make sure that the facility comes to the market quickly to take advantage of this opportunity,” he concluded.

Grinaker-LTA and DCD Dorbyl are not the only ones eager to see the Saldanha fabrication yard materialize. In the past, Johnson Crane Hire (JCH) was one of the main service providers during the construction of the Mossgas project and peaked at 104 cranes. While the oil and gas industry is presently at the brink of making a comeback in Saldanha Bay, Martin Bekker, managing director of Johnson Crane Hire, is actually considering closing down his operations in the Port of Saldanha. “They have fantastic plans for the Port of Saldanha, and when it happens I will go back,” he explained. “In other areas of South Africa there is a shortage of cranes. I’d rather move away today and return when eventually the Port of Saldanha lives up to the current ambitions.”

Following a management buyout in 2002, Johnson Crane Hire has spent just under Rand 200 million (US$30 million) on new equipment, underlining its position as South Africa’s leader in technological advancement. During this process, JCH’s management was brutally reminded of the international market forces that govern the natural resources sector.

Large expansion programs were taking place in the platinum mining industry and JCH decided to buy new cranes to service these projects. “We were still stupid at the time; we had lots of cash so we paid for the cranes in cash,” he recalled. Only weeks before the delivery of the new cranes the Rand strengthened sharply against the dollar and the platinum mines shelved most of their expansion projects. As JCH already owned the suddenly idle cranes, banks proved to be unwilling to provide financing. Looking back, Mr. Bekker remembers this period as a terrible time, but a good lesson. He remembers: “I saw myself sitting at the street corner with a cardboard stating ‘seven kids, no job’, and I wasn’t ready for that!” JCH got through that period, and since then strengthened its position as the main crane contractor during shutdowns at South Africa’s petrochemical plants. Currently the company’s workload is split 50-50 between mining/construction and oil and gas/petrochemicals. “You can never do without the oil and gas industry,” recognized Mr. Bekker. “When MAN Ferrostaal starts developments, we will be there.”

Cape Town: One-stop shop

Cape Town, undoubtedly the economic centre of the Western Cape, offers distinct advantages such as its strong industrial base and infrastructure. Helen Zille, Mayor of Cape Town, is confident that the city has the potential to become one of the world’s leading cities, and that the city has to use all economic opportunities to achieve this ambition.

As part of the ambition, oil rigs and FPSOs are destined to become an inseparable part of Cape Town’s skyline in the years to come. The oil and gas related workload in the Port of Cape Town is rising rapidly. A critical challenge for the port is a matter of space and the compatibility of developing the oil and gas industry, which is perceived to be a hazardous activity, alongside tourism-oriented developments such as the V&A Waterfront.

“There are about 600 globally competitive engineering companies in Cape Town that service the oil and gas industry and have experience with international projects,” boasted the mayor. “In addition, Cape Town has the largest dry dock in the Southern Hemisphere and is located on a strategic geographic position.”

While Cape Town’s leading engineering companies are gearing up to attract oil and gas projects, an international company was awarded South Africa’s first dry-docked rig project. RBG, headquartered in Aberdeen, brought the upgrade project for the Sedco 709, Transocean’s semi-submersible drilling rig, to the Western Cape. To execute this project, RBG teamed up with Cape Town’s largest ship repair and engineering companies: DCD Dorlbyl Marine, Globe Engineering and SA Five. The Sedco 709 project illustrates the Western Cape’s ambitions as it is the first joint venture project servicing the West African oil and gas industry from a Western Cape base. The project is expected to inject US$20 million into the Western Cape economy. This is instrumental in positioning this developing region as a preferred location for the future dry docking of rigs, offering a cost saving alternative for rig owners operating in West Africa.

Underlining the confidence in the Western Cape’s potential, SA Five was recently acquired by Ashley, which is 100 percent owned by Executive Chairman John Ray, also the 50 percent share-holder of RBG. As illustrated by the Sedco 709 project, SA Five is already working very closely with RBG and will become officially part of the RBG Group, effective 1 March 2007, after the completion of RBG’s due diligence and formal board approval.

Pursuing offshore opportunities from a Cape Town base

In addition to being a humanitarian milestone, the end of apartheid in 1994 exposed South Africa to the globalizing world. While foreign companies rushed into the attractive South African market, South Africa’s service providers to the oil and gas industry saw the barriers to internationalization diminish. Consequently, Anchor Industries and Cape Diving, both based in Cape Town, were quick to move into the international offshore industry.

Anchor Industries, a DNV ISO 9001 accredited supplier of mooring equipment, was started as a family business in 1994. “About eight years ago we saw an opportunity to extend our business,” explained Dale Hutcheson, managing director. Based on the good fit with Anchor Industries’ marine business, the company decided to enter the offshore industry. However, with South Africa’s limited offshore industry, Anchor Industries couldn’t really grow the business locally. Dale Hutcheson boasted: “Last year we did a job in Russia, in Sakhalin Island, for a Norwegian company and this week alone we supplied products to Angola, Australia, Uganda and America.”

Nowadays the tide is changing for the South African service industry as opportunities emerge closer to home. Every rig or FPSO that enters the Port of Cape Town for repair or maintenance brings extra business to the entire service industry. “On the back of that we also do reciprocal business with other companies within the offshore business, and the busier they get, the busier we will get as well,” Mr. Hutcheson explained. “I think that we will see the same positive spin-off from the offshore industry as they have seen in Aberdeen, Singapore, Stavanger and Houston. Anchor Industries does not aim to be the biggest supplier of mooring equipment, but aspires to be the best in its field and be recognized as a leader in our region. There is a huge opportunity to exponentially increase the business, it must be a focus,” he concluded.

Established in 1962, Cape Diving is South Africa’s oldest underwater services contractor and was initially servicing the marine industry. Over a decade ago, the company entered the offshore industry. Fezekile Mahlati, Cape Diving’s chairman, recalls that at that time there were few upstream developments in South African waters which meant that his company should look for opportunities elsewhere, for example, Middle East and West Africa.

In 1995, Alan Thomas was recruited as Cape Diving’s managing director to implement the strategic decision to move into the international offshore industry. That proved to be very difficult. “South Africa had just come out of the political wilderness and had limited exposure to, in particular, the offshore industry,” he recalled. The first steps towards becoming a supplier of choice were taken by obtaining ISO 9001-2000 certification and becoming contractor members of the International Marine Contractor Association. Traditionally, the industry in West Africa would hire international contractors to undertake their underwater work. At present, the industry is starting to realize that South Africa has the capability and capacity to execute the work using local resources. “There is a lot of professional expertise in the country, and we are South Africa’s only sub sea service provider that offers a full range of sub sea services in-house, which is what the oil and gas industry requires,” boasted Alan Thomas.

Cape Diving offers services which include topside and sub sea NDT services, air diving, saturation diving and ROV services and has become an African ‘niche’ service company, with sound knowledge of West, East and South Africa. Aspiring to ride the wave of the exploration and production boom in West Africa, Mr. Mahlati strongly believes that Cape Diving should be the flag bearer of South African offshore support services with a limited fleet of support vessels while acting as the preferred partner of choice for both local and international exploration and production companies.

Today South Africa has become a platform for international expansion, but over a century ago the country itself was a magnet for entrepreneurs and fortune seekers. In 1884, Lauritz H. Marthinusen arrived in South Africa from Norway and joined the gold rush. His entrepreneurial mind was quick to see the opportunity for winding electrical rotating machines locally which, in the absence of a repair facility in South Africa, were being returned to Europe. This marked the birth of LHMarthinusen in 1913, which has grown to become the leading electrical repairer in Southern Africa, operating the largest facility in the southern hemisphere.

Core businesses comprise the repair of electric rotating machines of all designs and sizes, as well as transformers up to 200 MVA. “Historically, gold was the driver of this business, but over the past five or six years we have diversified considerably,” underlined Altino da Silva, LHM’s managing director. Today, the company is very strong in the petrochemical industry, platinum mining, gold mining, paper, steel and the general industries. Although LHMartinusen’s Cape Town subsidiary is involved in oil rigs for Angola, the company is just scratching the surface in the offshore oil and gas industry at the moment. Altino da Silva is determined to capture this rising opportunity over the next 18 to 24 months, adding a new chapter to his company’s long history.

Deep water and rope access

The oil and gas industry’s gradual shift from shallow to deep water exploration and production is transforming the industry’s operating infrastructure. Floating rigs and FPSOs are replacing traditional forms of production. Challenges related to the reduced accessibility must be addressed in the inspection and maintenance strategies for these offshore installations.

Rope access companies have been emerging since the early 1990s, but their innovative approach to inspection and maintenance proved almost too revolutionary for the traditional oil and gas industry in the early days. “It took a long time for us to convince the oil industry that our service is actually safer than scaffolding,” reflected Neil Schreibe. As managing director of Ropetec, one of Cape Town’s two rope access companies, he described the service offered by his company as “any elevated work you need scaffolding for, we can do it safely, cost effectively and on time.”

Ropetec has an overall workforce of around 140 people and operates in two basic divisions: maintenance and inspection. As the company grew, it became a class-approved inspection company for Lloyds and DNV, ABS, Rina and Bureau Veritas.

On the maintenance side, the services offered include painting, grit blasting, welding, electrical maintenance and rigging. “In addition, we often work in conjunction with divers, wherein we do the topside work and the divers work sub sea, so it is quite a phenomenal way of working,” noted Mr. Schreibe.

The rig industry in West Africa is offering tremendous growth opportunities. The track record in the rope access industry is critical. “We have been operating in Angola for five years and we have yet to have a lost time incident, and that determines our growth,” he boasted. While Ropetec’s growth will be controlled growth, the company is undoubtedly gearing up to capitalize in the opportunities in its backyard: West Africa.

Daniel Bottomley, a mountain climber and construction engineer by background, felt privileged to be part of the birth of the industrial rope access industry in Africa. In 1991, he started Toprope, which immediately became involved in the oil and gas industry. Although Toprope tends to focus on work in the Port of Cape Town, the company has executed projects throughout the world, operating both in the various ports and offshore.

“At the moment we are involved in offshore work in Nigeria, we have just finished a job in Gabon and we are heading for Brazil next month,” he noted. Having built the business based on quality, sound work ethic and can-do attitude, Mr. Bottomley emphasized that Toprope’s critical success factor is the “willingness to bend over backwards for the international client base without causing a safety hazard.” Whether this is enough to realize his ambition of “establishing an office in every country pumping oil” remains to be seen, but it may prove to be invaluable in Toprope’s upcoming challenge: opening a next branch in West Africa.

Business challenges in Africa

“Obviously our president, Thabo Mbeki wants to see South African companies work more and more in Africa to achieve his African dream and to create awareness in the international community that there are certain centers of excellence in Africa,” noted Barry Wickins. As CEO of RJ Southey, the largest industrial painting and thermal insulation company in South Africa, he is one of the people who will have to make this dream come true. Whilst RJ Southey was founded in 1939, the focus was on South Africa and its expansion into Africa has really only occurred in the past seven years.

It took RJ Southey nearly three years to break into the market, a period during which the company tried unsuccessfully to operate from the Congo. Being an African company proved not to be sufficient enough to win business and RJ Southey experienced the difficulty of operating in these markets as a private company because of the bureaucracy, logistical difficulties and long supply lines.

“Consequently we changed our strategy and are now targeting West Africa from a Cape Town base,” explained Mr. Wickins. “We have the skills and equipment to be successful in this market, but what we lack is an established onshore facility and successful references from past work in West Africa.” Some of RJ Southey’s major clients have encouraged the company to enter the offshore market of West Africa through a strategy of organic growth, joint ventures or acquisitions.

At present, RJ Southey is committed to increasing its market share in the offshore oil and gas industry, based on the belief that this will dramatically enhance our profitability without a disproportionate increase in risks to the group. “Our technical skills allow us to enter industries with high barriers to entry which in turn enables us to capture high market share. Typically we go into any industry where we can get a good return on our capital employed, leveraging our technical expertise in industries that offer long term, sustainable returns,” outlined Mr. Wickins.

Currently, RJ Southey sees Angola as a major business opportunity and is currently registering a company there. “Having a presence onshore will give us a springboard to undertake more work on the supply vessels, rigs and FPSOs which are located offshore,” concluded Mr. Wickins. “We are investing heavily into expanding our activities in the offshore industry.”

Commitment is critical

Angola has one of the fastest growing economies in the world, and its economic growth rate is estimated to reach 20.6 percent in 2006. This eye-catching statistic is placing the country in the international spotlight. However, after weighing up the commercial benefits and political risk, many companies want the cart before the horse; they want to first generate sales before establishing a local presence.

After 3 years of trading in Angola, the country has become an anchor market for The RARE Group, a South African-based company that provides a comprehensive range of supply pipes, valves and fittings to the refinery, onshore and offshore oil and gas markets in southern and West Africa. Success in Angola spurred the company’s decision to make a long-term commitment to this booming market, and RARE Angola was established last August.

The RARE Group aspires to bring innovation to the mature piping industry, which implies the capacity of being able to get products to market faster and more efficiently than the traditional sources. David Scheepers, managing director of The RARE Group, explains his philosophy, “We are not trading in commodities, we are trading in service. Service, in essence, has gone from a concept to a commodity and our core commodity is service.” Typically, for Angola there could be turnaround times of between two and 6 months for commodities coming out of the traditional markets. “We can get material into these markets within 21 days. This service enables our customers to become leaner and reduce their inventory,” he stressed.

Ultimately, RARE Angola will serve as a hub for the company’s entry into the oil and gas market along the West Coast of Africa targeting Angola, Nigeria, São Tomé, Equatorial Guinea and Gabon. According to Mr. Scheepers, local commitment will prove to be critical when offering service levels at international standards while doing business in Africa.

Bringing the Gulf of Guinea on South Africa’s doorstep

Implementing efficient logistics is a critical success factor and major operational challenge for any company entering the African marketplace. Over past decades, specialized service providers such as CHC Helicopters Africa and Safcor Panalpina have proven themselves to be core contributors to the success of many oil and gas companies operating across the continent.

CHC Helicopters Africa is part of CHC Helicopter Corporation, the world’s largest provider of helicopter services to the global offshore oil and gas industry. Operating in Africa since 1964, the company has gradually grown its fleet. Currently the fleet consists of 37 aircrafts, making it one of the largest civilian helicopter fleets on the African continent.

Past decades have shown CHC the multidimensional nature of doing business in Africa, giving the company a profound understanding of the continents’ business cultures, political and regulatory landscapes and its sometimes hostile geography. Through operating agreements with local companies in Angola, Mozambique, Namibia, Equatorial Guinea, Congo, Chad, Cameroon, Ivory Coast and Nigeria, CHC Helicopters is bringing North American and European standards into the African operating environment.

Africa’s prominence as an exploration hotspot has increased exponentially in recent years, boosting the demand for helicopter services while tightness in the market is driving the rates up. The operating environment is rapidly changing. “Doing business in Africa is an exciting challenge for me,” said Jide Adebayo, managing director of CHC Helicopters Africa, “but opportunities are plentiful.”

Panalpina established operations in Nigeria in the 1950s. Since then the Swiss forwarder, with a presence in every oil centre in the world, has expanded across West Africa from its Nigerian base. Despite increasing exploration and production activity in West Africa over the past 50 years, procurement from South Africa only commenced a few years ago.

For over 30 years Panalpina has co-operated on the major South African trade lane with Safcor Panalpina, a wholly-owned subsidiary of the Bidvest Group. The Safcor Panalpina branding was formalized in 2000 and the company operates as a fully-fledged member of the Panalpina global network.

“Panalpina is undoubtedly the number one player in the global oil and gas industry,” stated Philip Womersley, chairman of Safcor Panalpina. “In particular, shipping into West Africa is far more complex than anywhere else in the world.”

Womersley underlined that “a really strong operation on the ground in West Africa is a prerequisite to success on this route.” Panalpina’s oil and gas competence centers in Basel and Houston have been very supportive of Safcor Panalpina’s West African activities, enabling Safcor Panalpina to offer solid supply chain solutions into West Africa.

South Africa will never be able to quote on the very high tech slice of the West African oil and gas procurement pie, since the country simply doesn’t have the necessary length of production runs. “However, if we look at the rest of the pie, South Africa is the source for less than 10 percent of the West African oil and gas industry’s procurement,” assessed Mr. Womersley. “We must be able to provide a lot more than 10 percent. To do so, South Africa needs to deliver on three fronts: offer reliable logistics solutions, foster a strong export mentality in the South African manufacturing industry, and strengthen the recognition of South Africa as a source of technology.”

A slightly weaker, but stable, Rand would really add the last few percentage points to South Africa’s pricing competitiveness. According to Womersley, this would enable South Africa to offer very good transit times and a highly competitive dollar landed price. Of course, Safcor Panalpina’s success on the route to West Africa is intertwined with the advancement of South African suppliers in the Gulf of Guinea. “Let’s be aggressive suppliers into that zone, go there and put your feet on the ground,” he said. “It is a little bit like a symphony, there is no point having all the brass instruments if the woodwind instruments or the strings are not there, it just doesn’t sound the same.”

Katrina: threat or opportunity

Historically, southern Africa has had a very small oil and gas support requirement. Subtech has focused on coastal construction; shipping and pipeline work with a fair amount of marine casualty response and salvage work thrown on top. For many years Subtech has been interested in opportunities offered by the offshore oil and gas industry. However, it wasn’t until about four years ago that the company made its debut in the oil and gas industry through a mixed gas intervention in Equatorial Guinea for Marathon Oil.

Between the increased development driven by high oil price and the added pressure of Hurricane Katrina, international demand for diving service providers has reached unprecedented levels. In October of last year Subtech was approached to supply divers to Superior Offshore International in the Gulf of Mexico to assist with the post Katrina clean up operation.

“In November 2005 a contract was signed and by July this year we had around 120 divers working with them in the gulf. Subtech has invested much time and effort bringing young divers into the industry; training them only to lose them to the offshore oil and gas industry,” put Neil Scott-Williams. “With the opportunity in the Gulf of Mexico, the vast majority of divers that worked for Subtech in the past, and who left to join the oil and gas industry, have returned. To us this is a greatcompliment.” Currently Subtech Diving has an average of 100 divers in the Gulf of Mexico, approximately 100 people working in the Southern African region, and 9 in the Middle East.

As a result of this positive cooperation and realizing the joint potential, Subtech Diving was acquired by Superior Offshore International. This has created one of the largest diving companies in the world. Outlining the implications for the company’s strategic direction, Neil Scott-Williams noted; “First, we will continue to support the Superior operation in the Gulf of Mexico until the industry is back on its natural development curve after hurricane Katrina. The second role is to assist in developing the international offshore interests of Superior, looking at opportunities in the Middle East and West and East Africa using the experience gained from having worked successfully in over 20 countries around the world.”

The company’s future challenge is capitalizing on the opportunities presented in the oil and gas industry internationally over the next few years. “We have learned that the diving industry is constantly changing according to industry demands,” emphasized Scott-Williams. “Our aim is to maintain the flexibility and entrepreneurial initiative required to evolve and meet the challenges as they present themselves.”

New boys on the block

“South Africa is largely a consumer country, a price taker,” stated Buyelwa Sonjica, South Africa’s Minister for Minerals and Energy. “Our economy is very energy intensive.” The challenge faced by the South African government is to reduce the continued dependence of the country on foreign sources of crude oil. With 78 percent of primary fuel energy being generated from imported crude oil, the risks to which the country is exposed are significant. “Not only is crude oil the single biggest item on the import account, but there are also indications that the cost of foreign oil purchases will continue to escalate,” warned Minister Sonjica.

Although the oil majors have a tight grip on South Africa’s oil imports, Rev. S.S. Zulu has identified a window of opportunity to enter this market. Through the creation of Palm Energy Resources, which will legally exist and operate in South Africa, West Africa and Iran, he is determined to combine the forces of the two strongest African economies as well as Iran in the oil and gas sector.

Rev. Zulu, executive chairman of Palm Energy Resources, explained that his company will be involved in oil production and refining in Nigeria. This will target the South African market. In addition, the company is currently in discussion with Arkan Gas of the Islamic Republic of Iran to construct a Gas Plant in South Africa. “Our revenue will be ploughed back into both economies to build refineries because no refineries have been built in either country for about forty years,” stated Rev. Zulu. “We are determined.”

In the beginning, Palm Energy Resources is aspiring to handle about two million barrels per month. “This amount exceeds the demand in South Africa and we will therefore also be supplying the markets in Asia, America and Europe,” proclaimed Rev. Zulu. “It is a strategy of saying ‘we are the new boys on the block; can we please play the game together’?”

Palm Energy Resources intends to work with all multinational oil companies. “We need each other, we need their expertise, and we need them to leave room for us to fully participate in the sector,” recognized Rev. Zulu. He strongly believes that the African economy, through NEPAD, will not be developed by Africans alone. “We need the skills that have been developed in any sector of the economy by the multinational corporations over the years.”

According to Rev. Zulu, “Palm Energy Resources has private investors who are interested in the sector and act on behalf of the over-exploited African people. They are investors who are fed up with the status quo. The 21st century will see a new breed of African businessmen and politicians. The first Africans who held PhDs in the 1920s and 1930s did not go to Europe flying by plane, they walked there. There were all kinds of risks along the way, but in terms of capitalist economies the risk is much more excessive when it is defined in financial terms. Why should it be that way?”

Rev. Zulu doesn’t want Africa’s natural resources to be governed by the Europeans and the Americans. “The proceeds from our oil and gas industry should be shared equally between those who have and those who don’t have. These resources are for the children of Africa and not only for the capitalists,” he emphasized. “It will be a long road but we are prepared to sweat, just like the first Africans who walked to Europe to get their PhDs. “

MOZAMBIQUE

Turning Mozambique around

While remaining one of the world’s poorest countries, Mozambique has made remarkable economic progress over the past decade. Vasco da Gama claimed Mozambique for Portugal in 1498 and it wasn’t until 1975 that Mozambique gained its independence. Since then the country has been ruled by Frelimo, the National Front for the Liberation of Mozambique. The first 17 years of independence were characterized by civil war and political instability, before Mozambique finally returned to a state of normality in 1992. In the decade that followed the country’s first multiparty elections in 1994, Mozambique’s economic growth rate accelerated and at present Mozambique ranks among the fastest growing economies in the world.

Mega-projects in the natural resources sector have boosted GDP and the country’s upstream oil and gas industry is finally becoming a significant source of foreign direct investment. In the future, the contribution of mineral resources to GDP will increase from less than five percent to more than 10 percent,” declared Esperança Bias, Minister of Mineral Resources. “We will fight for that.”

Mozambique’s first exploration success was the discovery of the Pande Gas Field in 1961 by Gulf Oil followed by the gas discoveries of the Búzi and Temane fields in 1962 and 1967 respectively. The absence of a suitable market for the gas and rising political unrest did not allow for the development of the reserves and exploration activity started declining in the early 1970’s.

At present, 4 decades after their discovery, the Pande 2.029 (Tcf) and Temane (1.161 Tcf) fields have finally been taken into production. In 2000, the Mozambican government entered into an agreement with Sasol, in consortium with ENH, for the development of the gas resources in the Pande and Temane fields. Sasol, the operator and 70 percent owner, has been transporting the natural gas through an 865 kilometer pipeline from Temane to Secunda in South Africa’s Gauteng Province since the start of production in February 2004. “The Pande/Temane project brought large scale investment to Mozambique and set the stage for further investment in our oil and gas industry,” pronounced Minister Bias. Simultaneously, the Mozambican government is using its royalty gas, taken from the tie-in points along the pipeline route, to develop a domestic market for natural gas. “We intend to increase the quantity of natural gas used in Mozambique, because it is one way to create development in our country,” he emphasized.

Emerging exploration hotspot?

Following its creation in 1981, ENH held a monopoly over all exploration activity in the country. As a result, although the monopoly situation has been put to an end, Mozambique’s extensive sedimentary basins are still under-explored. “Only about 100 wells have been drilled, both onshore and offshore, which is not enough if you want to look for oil,” noted Arsenio Mabote. He became the Chairman of the National Petroleum Institute (NPI) when it was created in 2004. The NPI is the arm of the government when it comes to licensing petroleum acreage, promoting, administrating and regulating all petroleum activities in the country. At the moment, it is a small institution which will develop according to the market. If current exploration activities in Mozambique prove to be successful it might have to restructure to cater for the dimension of the sector.

The NPI’s first milestone was the Mozambique Second Licensing Round, which was launched in July 2005. The Rovuma Basin, the focus of this licensing round, is about 400 km long and 160 km wide and is centered on the Rovuma Delta near the border between Mozambique and Tanzania. In the Rovuma Basin only one wildcat well was drilled by Exxon in 1986. “Mozambique has significant potential, but we still have a lot of work to do,” stated Mr. Mabote.

Prior to the licensing round the Rovuma basin was divided into 7 areas, which created one onshore and 6 offshore blocks. Two of these areas were already under license to Norsk Hydro and applications were received for the remaining 5 blocks.

“We launched a licensing round to take advantage of the momentum in the industry,” explained Minister Bias. At the moment, Mozambique is finalizing the Exploration and Production Concession Contracts with the four companies who won the bids for the different blocks available, which are Artumas, Anadarko, ENI and Petronas. “In addition to the latest licensing round, Petronas is carrying out work in the offshore Zambezi Delta Block while Sasol is operating in two blocks in the north of Inhambane,” emphasized Minister Bias. “There is a lot of interest in the oil and gas industry in Mozambique.”

The next step

Exploration and production companies are looking more at frontier areas on the east coast of Africa, evaluating the exploration potential in countries such as Mozambique, Tanzania and Madagascar. Over the past 5 years, Mozambique has upgraded its data centre and put in place a new legal and regulatory framework which is completely in line with international standards. The next step will be to launch another licensing round, which the National Petroleum Institute expects to announce at the beginning of 2007. “We just need to make sure that exploration activity is on the rise. Mozambique has an adequate exploration environment. We have strong political backing, there is an adequate legal framework and the potential is there. Welcome to Mozambique,” concluded Arsenio Mabote.

Road to success?

With a land area of 799,380 sq. km and a coastline that stretches for 2,515 kilometers, Mozambique presents a challenge for any company entering the market. The majority of Mozambique’s road infrastructure is in bad condition and therefore the airports play a crucial role in the country’s economic progress. While the airports are critical in bringing development to the regions, only 3 of Mozambique’s 19 airports are creating revenues and are subsidizing the other 16 airports. These are Maputo International Airport, which represents 52 percent of the total revenue of Aeroportos de Moçambique, Beira and Vilanculos. Closing the unprofitable is not an option. “If we would do that, we would kill Mozambique,” said Diodino Cambaza, chairman of Aeroportos de Moçambique. “Air travel is the only way to travel at this moment, especially for business purposes.”

Some of Mozambique’s regions have good tourism potential, and the airports will have to push tourism development in these regions rather than restrict it. Especially Pemba, which is located in the heart of the Rovuma Basin, is rising as a tourism destination and its airport plays a fundamental role in this development. Pemba Airport, which is running at full capacity, will be able to receive the Airbus 340 once the current expansion project is completed. “We are planning to have one Airbus 340 per week and on a daily basis we will be serving this route with aircraft such as the Boeing 737,” boasted Diodino Cambaza. The Maputo to Pemba route is part of the Maputo - Pemba - Dar Es Salaam - Nairobi connection and flights on this route will be carried out by Kenya Airways, LAM and Air Corridor while others might enter in the future. “Positive exploration results in the Rovuma Basin would significantly add to our passenger numbers and make our expansion project particularly interesting,” recognized Mr. Cambaza. Aeroportos de Moçambique is destined to play a key role in Mozambique’s economic growth, enabling the country to cater for the needs of rapidly growing number of business people that are attracted by Mozambique’s economic growth and natural resource wealth.

Dreaming about the future

Oil and gas is a high priority because Mozambique has to import all petroleum products to meet the domestic demand. The recent increase in oil price has made this a heavy burden on Mozambique in terms of foreign exchange and the balance of imports and exports. “That is why it is important for Mozambique to become an oil producing country,” explained Mario Marques, general manager of ENH and advisor to Minister Bias. “Mozambique has the potential to discover and produce more oil than the required to meet domestic petroleum demand.”

What was a dream 25 years ago is a reality today. Large volumes of natural gas are exported through the Temane - Secunda pipeline. “The energy content of the gas we are exporting is about 6 times the demand for petroleum products in Mozambique, so in energy terms we are already a net exporter,” noted Mr. Marques. “A dream has come true and we hope to see more of these projects coming off the ground.”