Total’s gas exit – PetroSA blunder loses SA R80bn investment, R100bn in lost taxes

SA’s Government of National Unity faces a major stress test after oil major Total yesterday announced its exit from a highly prospective gas field off the Southern Cape coast. The French multinational and its partners had already invested R8bn in exploring the field, around 10% of the total investment to get a project of this size operational. JSE-listed company HCI is a 10% shareholder in the abandoned field. DA shadow minister James Lorimer has been regularly updating the BizNews community on SA’s oil and gas story. He explains to BizNews editor Alec Hogg how Total’s exit from the Brulpadda and Luiperd fields will cost the country at least R100bn in foregone tax revenues and calls for the cause – a dysfunctional PetroSA – to be urgently addressed.

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Highlights from the interview

In a recent discussion, Democratic Alliance shadow minister James Lorimer addressed the implications of Total’s withdrawal from two highly prospective oil and gas areas off the Southern Cape Coast. Total’s pullout, alongside other major partners, leaves only HCI with a 10% stake, which will require significant investment to develop. Lorimer noted that this was South Africa’s first serious offshore hydrocarbon discovery, with the potential to add 6,500 jobs and contribute 22 billion to the GDP. The gas was expected to support operations at the Mossgas gas-to-liquids plant and the Harikwa peaking plant, reducing reliance on diesel during power shortages.

Total cited the lack of commercial viability, technical difficulties, and the inability to secure an offtake agreement as reasons for its exit. Lorimer highlighted concerns about Petro SA’s credibility, referencing dubious contracts with the Russian Gazprom Bank and the now-liquidated Equator Holdings.

The departure raises significant issues for the South African government, particularly regarding the management of the petroleum portfolio. The DA has made progress in other areas, but the handling of mineral resources and petroleum remains problematic. Lorimer expressed hope that Total’s continued interest in the Oteniqua South area might still bring benefits, speculating that it could contain a larger resource.

The withdrawal represents a substantial loss, with the project estimated to generate around 10 billion rand in annual tax revenues. Lorimer emphasized the broader impact, including job creation and cost savings on fuel imports. While Total shifts focus to the West Coast, the immediate prospects for the Southern Cape’s oil and gas development remain uncertain.

Edited transcript of the interview ___STEADY_PAYWALL___

Alec Hogg (00:10.544)
Democratic Alliance shadow minister James Lorimer has a new portfolio, but he was our go-to man on oil and gas. With Total pulling out of two areas in the Southern Cape Coast, we have him here to unpack it.

Alec Hogg (00:45.638)
We heard about Brillpader and Leipert, and the huge resources there. Total pulled out of those and Blocks 5, 6, and 7. Can you unpack it for us?

James Lorimer (02:09.568)
It was the first serious offshore discovery of hydrocarbons, estimated at a billion barrels of oil condensate. The Petroleum Agency of South Africa estimated it would add about 6,500 jobs and 22 billion to South Africa’s GDP. Gas from these fields would have powered the old Mossgas gas-to-liquids plant and the Harikwa peaking plant. But Total and other major partners pulled out, leaving only HCI with 10%, needing billions to develop it.

Alec Hogg (04:06.492)
Why did Total pull out?

James Lorimer (04:09.134)
They said it wasn’t commercially viable. Possible reasons include the technical difficulty of the field, lack of a secure offtake agreement, and concerns over Petro SA’s credibility. Recent contracts given to dubious companies, like the Russian Gazprom Bank and Equator Holdings, might have played a role.

Alec Hogg (07:27.89)
Is this a problem for the government?

James Lorimer (09:27.119)
Yes, it’s a huge issue. The government needs to change how it handles this portfolio. The DA ministers have made progress in other areas, but not in mineral resources and petroleum. This could be a test of whether the DA can influence the cabinet.

Alec Hogg (10:35.228)
What about Total’s Oteniqua South area?

James Lorimer (10:54.203)
It’s likely a bigger resource, justifying the building of a plant to liquefy the gas or it might have oil, which is easier to handle. This would still benefit South Africa.

Alec Hogg (11:48.475)
What investment and tax revenues did we miss?

James Lorimer (12:09.927)
The project was worth about $4 billion, with $400 million already spent. It was estimated to generate about 10 billion rand in tax revenues annually. The project would have created jobs and reduced diesel costs for peaking plants.

Alec Hogg (13:31.276)
Could the investment shift to the West Coast?

James Lorimer (14:21.511)
Yes, Total seems serious about exploring the West Coast blocks. While we lost out on the Southern Cape, there’s still potential on the West Coast.

Alec Hogg (15:00.985)
Is HCI looking for new partners?

James Lorimer (15:27.144)
Yes, HCI will likely seek partners. Other super majors might be interested in the already proven resource, but the customer offtake issue needs resolution first.

Alec Hogg (15:56.064)
Any similarities to Shell’s pullout?

James Lorimer (16:09.66)
Shell’s pullout is part of a global strategy affecting its downstream operations, not just South Africa.

Alec Hogg (16:40.567)
Total has been in South Africa for 70 years. Is it just this project that failed?

James Lorimer (17:13.045)
Yes, it’s a major credibility issue for Petro SA and the minister. Heads need to roll for allowing such mismanagement.

Alec Hogg (17:58.272)
Could we miss out on the oil and gas boom?

James Lorimer (18:30.636)
The world will need oil and gas for a long time. We are already missing out on jobs and tax revenues, though.

Alec Hogg (19:04.308)
What about Mossel Bay property investments?

James Lorimer (19:20.854)
Those prospects are on hold. HCI needs to find new partners, which could take years.

Alec Hogg (19:42.707)
James Lorimer, the Shadow Minister for the Democratic Alliance on Mineral Resources. I’m Alec Hogg from BizNews.com