NPA FINAL REPORT – OFFSHORE OIL & GAS

7.4COMPETITIVE ANALYSIS

7.4.1GEOGRAPHIC POSITIONING

South Africa is well positioned as the gateway to Sub-Saharan Africa. From a transportation point of view, South Africa is the nearest sophisticated engineering and fabrication destination to the heart of Africa. Figure 1 highlights the relative distances from Central West Coast of Africa to the main fabrication destinations around the world.

Figure 1: Distance Map from Central West Coast of Africa

Cape Town and Saldanha on the West coast of South Africa are particularly well positioned to service the upstream oil and gas development market in West and sub Saharan Africa. Table 1 below also gives comparative distances and travel times from Lagos in Nigeria to key fabrication centers around the world.

The distance traveled over the number of envisaged trips to a field development in Central West Africa from a South African fabrication destination would be significantly reduced and would result in significant transportation cost savings to.

Table 1: Comparative Distances

COMPARATIVE DISTANCES FROM LAGOS / KM’S / NAUTICAL
MILES / VOYAGE
ONE-WAY
(DAYS @ 120 MILES/DAY) / VOYAGE
ONE-WAY
(DAYS @ 168 MILES/DAY)
Saldanha – South Africa / 4 700 / 2537 / 21 / 15
Cape Town - South Africa / 4 800 / 2591 / 22 / 15
Durban – South Africa / 6 800 / 3671 / 31 / 22
Barcelona – Spain / 7 400 / 3995 / 33 / 24
Methil – Scotland / 9 400 / 5075 / 42 / 30
Houston – USA / 10 900 / 5885 / 49 / 35
Dubai – UAE / 14 700 / 7937 / 66 / 47
Singapore / 16 400 / 8855 / 73 / 53

7.4.2ENGINEERING AND PROJECT MANAGEMENT CAPABILITY

South Africa has an exemplary track record of a number of successfully completed offshore structures which have been exported to international production destinations including the Gulf of Mexico, the Cabinda enclave in Angola, as well as to South African waters.

7.4.3FABRICATION FACILITIES AND CAPABILITY

South Africa offers a number of major port and inland fabrication facilities capable of handling major projects such as offshore structures.

Although a number of heavy engineering and fabrication companies operate from permanent facilities within the ports, special project facilities are usually established to handle major offshore projects

A purpose built site, at Saldanha, was established for assembling cans and nodes into frames for roll-up into the jacket structure, load out and launching. The site facilities developed for the project included launch way, offices and staff accommodation. Mobile heavy lift cranes, rigging and dollies for site transportation were brought in from centers around South Africa.

The ARMADAH and Cabinda Projects were executed in the Port of Durban where the permanent fabrication facilities were bolstered to meet the project needs.

The Mossgas Project utilized port acreage in almost all of the main ports in South Africa. Table 3 indicates the port facilities used and the respective modules fabricated at these sites.

In addition to these fabrication sites, certain critical elements such as the jacket bottles were fabricated in Methil, Scotland and shipped to South Africa for incorporation in the jacket construction.

Table 3: Ports used for the Mossgas FA Platform Project

PORT / FABRICATION PURPOSE - MODULE / APPROXIMATE TONNAGE (METRIC)
Saldanha / Jacket / 14 600
Cape Town / Drilling/Mud Treatment / 2 700
Port Elizabeth / Piles
Process, Wellhead, Power Generation, Utilities
Flare Boom / 11 100
)
) 5 300
)
245
Durban / Main Support Frame
Accommodation
Helideck / 4 500
2 400
TOTAL TONNAGE / 40 845

A survey of fabrication sites up the West Coast of Africa shows that the vast majority of these facilities operated by international companies are situated in Nigeria. The vast majority of all the sites are fully equipped with undercover fabrication facilities and workshops, craneage, office space, accommodation for labour and space for other supply industries to supply the fabrication yard on the periphery.

Saldanha Bay and Cape Town are not equipped and do not have all the facilities. This is left for the contractors to provide.

7.4.4DRY-DOCK FACILITIES


Cape Town on the West Coast of Africa has the largest dry-dock available in the region. Cape Town is thus a preferred place of call for any repairs or modifications but limited to the size of the dry-dock.

Although South Africa has the largest dry-dock in West Africa, the competition in Europe, Middle East and South East Asia have dry docks that comfortably accommodate VLCC’s and FPSO’s due to their width.

Although the dry-docks on the West Coast of Africa are not the size of the Sturrock Dock in Cape Town, dry-docks internationally overshadow this dock.

Comparisons with dry-docks in Dubai, Singapore and Cadiz demonstrate the limits of the

Sturrock dry-dock, particularly the width.

7.4.5INFRASTRUCTURE

South Africa has a well established transport and telecommunications infrastructure, which facilitates a seamless border between both national and global markets for goods and services. This is made possible through the well established air, sea, road and rail transportation infrastructure and services and the well developed telecommunications and data transmission infrastructure and services.

This infrastructure places South Africa ahead of its African neighbors and on an equal footing with first world countries offering the advantages of real time communication, access to information and global markets and rapid transportation and delivery of goods and services to and from national and international destinations.

Transportation Infrastructure and Services

While South Africa has an advanced industrial base capable of supplying a substantial portion of materials from local suppliers to meet the needs of offshore projects, specialized equipment is invariably limited to a handful of international suppliers in these niche markets.

The well established transportation infrastructure and freight forwarding services provides for rapid transportation from world wide sources by air or sea to fabrication destinations in South Africa to meet tight programme and project schedules.

Seaports

South Africa has five major ports along the western, southern and eastern seaboards capable of handling heavy and large cargoes of plant and equipment each supported by a network of road and rail infrastructure to national fabrication destinations. The main ports include:

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NPA FINAL REPORT – OFFSHORE OIL & GAS
  • Saldanha
  • Cape Town
  • Port Elizabeth
  • Durban
  • Richards Bay

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NPA FINAL REPORT – OFFSHORE OIL & GAS

In addition there are two smaller ports located at Mossel Bay and East London.

The upgrading of the Port of Maputo in Mozambique will also provide a gateway from the East Coast to the industrial heartland of Gauteng. At present the Port facilities are minimal and the maximum depth is only 7, 5 m deep and will require dredging.

Airports

South Africa has three international airports and a further four national airports capable of handling large volumes of passengers and air cargo all linked to national and international air route networks on all the major continents. The international airports are:

  • Cape Town International Airport
  • Johannesburg International Airport
  • Durban International Airport

National Airports include:

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NPA FINAL REPORT – OFFSHORE OIL & GAS
  • George ● Bloemfontein
  • Port Elizabeth● East London

Major equipment and specialist services for the Mossgas FA Platform were sourced on a competitive bid basis and shipped from various international centers to South Africa for incorporation into the South African content.

7.4.6PROCUREMENT

South Africa has the capability of supplying a major portion of the material content (by weight), skilled and semi-skilled labour and services content required for major offshore structures.

South Africa’s strengths of supply lie in:

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NPA FINAL REPORT – OFFSHORE OIL & GAS
  • Steel plate and structural steel elements
  • Stainless steel elements
  • Aluminum elements
  • Piping in all types of materials (except alloys)
  • Cables
  • Scaffolding
  • Electrical components and fittings
  • Joinery elements
  • Paint Systems
  • Helicopter Services
  • Work boat and tug services
  • Fuels & lubricants

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NPA FINAL REPORT – OFFSHORE OIL & GAS

South Africa would rely on International suppliers for the following elements:

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NPA FINAL REPORT – OFFSHORE OIL & GAS
  • Specialist Process Packages
  • Specialist Pipe Fittings and Instrumentation
  • Specialist Electronic Equipment
  • Specialist Pumps, Machinery, Turbines etc.
  • Towing and Crane Barges

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NPA FINAL REPORT – OFFSHORE OIL & GAS

The choice of South Africa as a supply and fabrication destination balanced by short transportation distances to West Central Africa could deliver significant economic benefits.

7.4.7LABOUR AVAILABILITY

South Africa has an abundance of quality skilled and semi-skilled labour in all disciplines and categories concentrated around the major industrial nodes of Cape Town, Durban, Port Elizabeth and Gauteng, particularly in the mechanical trades, such as:

  • Fitters
  • Boilermakers
  • Welders
  • Riggers
  • Pipe Fitters etc.

as well as a large man power resource base with a high potential for training.

Due to the irregular nature of large structural and mechanical project opportunities in South Africa and Southern Africa, such as large onshore and offshore petro-chemical projects, the continuity in demand for a large resource pool of quality skilled labour is erratic. Consequently, even though skilled labour is capable of performing to the high standards demanded in these industries, the resource pool is not fully utilized and tends to migrate to new industries or be laid off and become idle. As a result, when there is a high demand for skilled labour on new large projects, mobilization and re-training, as well as recruitment and training is almost always required. In spite of this phenomenon, the quality of workmanship and standards of continuously employed labour and re-trained labour is exemplary and comparable with imported ex-patriot skills.

The skilled labour resource pool is well backed by a second tier semi-skilled labour pool experienced in most of the mechanical skills, but is not proficient enough to be classified as tradesmen. This tier of labour is readily available and easily trained to do repetitive type skills tasks.

There is no shortage of unskilled labour and the majority of unemployed labour is extremely keen to learn and to make the effort to advance their opportunities.

Despite all of the above, there is an urgent need to train the South African workforce to the exacting standards of the Offshore Oil and Gas industry and build up a pool of skilled personnel.

7.4.8TRANSPORTATION COSTS

Selective rates for transportation and delivered costs for offshore development projects are indicated in Tables 5 and 6 respectively for comparison with US rates. All rates are in US dollars.

Table 5: Indicative Transportation Times and Rates

TRANSPORTATION TIME TO CENTRAL WEST AFRICA / FROM
Saldanha
(Days) / Spain
(Days) / Methil
(Days) / GOM
(Days) / Dubai
(Days) / Jakarta
(Days)
Travel One way (2) / 15 / 24 / 30 / 35 / 47 / 53
Travel Return (2) / 30 / 48 / 60 / 70 / 94 / 106
TRANSPORTATION RATES TO CENTRAL WEST AFRICA – ONE WAY / FROM
Saldanha
$/Trip / Spain
$/Trip / Methil
$ /Trip / GOM
$/Trip / Dubai
$/Trip / Jakarta
$/Trip
4000 t Flat top barge / 120 000 / 192 000 / 240 000 / 280 000 / 376 000 / 424 000
7000 t Flat top barge / 225 000 / 360 000 / 450 000 / 525 000 / 705 000 / 795 000
TRANSPORTATION COSTS PER TON TO CENTRAL WEST AFRICA / FROM
Saldanha
$/ton / Spain
$/ton / Methil
$ /ton / GOM
$/ton / Dubai
$/ton / Jakarta
$/ton
CPP/Accommodation (3) / 50 / $80 / 100 / 117 / 156 / 176
Minimal Platform (4) / 33 / 53 / 67 / 78 / 104 / 118

Table 6: Estimated Delivered Costs of Structures (US Dollars)

DELIVERED COSTS TO CENTRAL WEST AFRICA / FROM
Saldanha
$ Million / Spain
$ Million / Methil
$ Million / GOM
$ Million / Dubai
$ Million / Jakarta
$ Million
CPP/Accommodation 4500t / 24,3 / 26,0 / 27,1 / 26,9 / N/A / 24,5
Minimal platform 1200t / 5,6 / 6,3 / 6,1 / 6,3 / N/A / 5,6

Foot Notes to Tables:

(1)Rates are based on rates obtained from consultants in the industry and where available, from past Tenders.

(2)Tow out travel times are based on 7 nautical miles per hour per 24 hour period.

(3)Travel rates per ton are based on a single tow out of accommodation platform including jacket, top sides and piles (approximate mass of 4500 tonnes) on a 7000 t flat top barge.

(4)Travel rates per ton are based on a single tow out of three minimal platforms including jackets, topsides and piles (approximate mass of 1200 tonnes per minimal) on a single 4000 t flat top barge. Rates will vary depending on the number of structure carried.

(5)Delivered costs exclude:

  • Engineering & Project Management
  • Hook up & commissioning
  • All equipment including process, control, utilities, communications etc.
  • Barge crane type construction equipment and float out barge mobilization and demobilization costs.

7.4.9STEEL SUPPLY

South Africa has five steel producers who produce a total of some 8 million tons of steel per year, of which 50% is exported due to insufficient demand from the Southern African market. Two of the producers, Iscor and Highveld Steel, have the ability to supply plate and heavy sections for offshore applications. A preliminary survey indicated that capacity currently exists to supply more than 8000t of structural plate to BS 4360 Grade 50B to E or EN 10025 S355 JR/JO/J2G3 (of which 3,500t can be normalized*) and 1,500t of heavy sections per month to the offshore industry in lieu of exports. Plate thicknesses range from 6mm to 63 or 80mm, depending on the specification. Only the very thick plates, which constitute a small percentage of the requirements, may have to be imported.

The mills for these products are located at Vanderbijlpark** and Witbank, close to the heavy engineering industry in Gauteng that can do the fabrication of components, offering a logistical cost advantage compared with imported steel. These components will be transported to the coast for assembly. The major pipe and tube manufacturers are also based in Gauteng, and could supply large bore pipe up to grade API LX 65, as well as welded and seamless tube in a range of specifications.

As the steel mills largely use locally available raw materials, continuity of supply at internationally competitive rates offers a further competitive advantage. The proximity to the fabricators furthermore eliminates the need to build up massive stocks of steel, reducing inventory costs.

If fabrication facilities are established at coastal locations, the cost of transport by Spoornet is in the region of R300.00/ton. This is a cost that our main competitors do not have and will affect our competitiveness in the world market.

*heat treatment required for the more sophisticated steel grades

**Iscor’s Saldanha Works produces thin gauge hot rolled strip, and cannot produce Plate

7.4.10COMMUNICATIONS

South Africa has an established world class fixed line and satellite communications infrastructure to support national and international long distance multi-media communication including video imaging, video streaming, electronic data transfer (EDT), e-mail, internet and e-commerce transacting.

The well distributed points of presence of the Internet and data networks throughout South Africa enables real time communication and transacting nationally and internationally providing significant opportunities for cost and time reduction without impacting on the quality of communication or on project delivery schedules.

e - Commerce and EDT contribute significantly towards cost benefits by providing opportunities in:

  • Virtual Project Offices Globally
  • Global Procurement Network Access
  • Real Time Communication, Access to Information, Procurement Processing, Expediting and Procurement Tracking

The infrastructure supports the design, engineering and procurement from virtual offices resulting in significant cost reductions in man-hours onsite and traveling time, the establishment and operational costs of project specific offices, and travel and disbursement costs of project personnel between project sites.

7.4.11COMMERCIAL INFRASTRUCTURE

Investors into the South African economy historically have had access to capital and general financial resources through various public and private institutions that can be characterised as having all the attributes of a Western “first world” industrialised country.

The provision of capital

The requirements to fund direct capital investment, have been accessed through the following supply channels:

  • The South African Banking Industry
  • The Johannesburg Stock exchange
  • The Grey or Secondary Market
  • Overseas Market

The following types of banks represent the Industry:

  • Four major ‘Transaction Banks’ dominate the industry.
  • Specialist ‘Investment Banks’
  • The branch offices of overseas international banks.

The state has established specialist lending or financial agencies/institutions like the Land Bank and The Industrial Development Corporation (IDC)

The characteristics of the large Transaction Banks:

  • The banks are all tiered to service three market segments, namely Corporate, Commercial and retail
  • The banks are all aligned to the major Life companies
  • The banks all have their individual Investment or Merchant Banks
  • The banks all have a national branch network
  • The banks largely operate as an economic cartel differentiating their brands on service

levels

  • The banks services are multi-disciplined and supported by the necessary competencies and professional resources.

Products and Services of Corporate or Investment banks

Services
  • Mergers and acquisitions
  • Listings
  • Structured finance
  • Limited recourse finance
  • Public finance
  • Asset based finance
  • Project finance
  • Trade finance
  • International finance
  • Debt syndication
  • Transaction banking
  • Empowerment deals
  • Compliance management and administration
Products
  • The investment banks can provide both short and long term debt and equity funding through their access to the various financial markets such as Shareholders funds, treasury deposits, bond market and unit trust funds.
  • The cost of capital will essentially be a function of the risks associated with each transaction and the pricing can be innovative.
The Grey or Secondary Markets

The following financial institutions can be grouped in this market:

  • The Industrial Investment Corporation. The IDC could be classified as the State Bank and is at the vanguard of a number of development initiatives including empowerment deals and NEPAD projects
  • The Life/Pension Fund companies
  • Private venture capital funds
  • Listed strategic business partners: Major listed utility companies, industrial conglomerates and mining houses have access to their own substantial shareholders funds
  • Universities: These institutions will consider commercial Joint Ventures whereby the university introduces intellectual capital on risk. Selectively, universities also have access to venture funds both on and offshore.

Overseas Market