Petrosa Integrated Annual Report 2019 | 1 ABBREVIATIONS and ACRONYMS

INTEGRATED ANNUAL REPORT 20 19 Our Business 2 Abbreviations and acronyms REVIEW OF THE 2018/2019 3 About this Report FINANCIAL YEAR

OUR BUSINESS 46 Strategic focus area 1: Business sustainability 50 Strategic focus area 2: Health, safety, 6 About us environment and quality 6 What we do 56 Strategic focus area 3: Transforming Company, 6 Our mandate sector and society 6 Our vision, Our mission, Our values 8 Organisational structure 9 Our global footprint FINANCIAL PERFORMANCE 10 Our strategy 11 Performance against objectives 68 Report of the Auditor-General to Parliament on the Petroleum Oil and Gas Corporation of 14 Stakeholder management South Africa SOC Limited 73 Directors’ responsibilities and approval PetroSA BOARD 74 Directors’ Report 78 Report of the Board Audit Committee 18 Statement by Interim Chairperson 79 Statement of the Company Secretary 20 Board of Directors 80 Statements of financial position 22 Corporate governance statement 81 Statements of profit or loss and other 26 Remuneration philosophy comprehensive income 28 Directors’ and Executives’ remuneration 82 Statements of changes in equity 30 Governance processes 83 Statements of cash flows 32 Enterprise risk management 84 Accounting policies 33 Internal audit 100 Notes to the consolidated and separate annual financial statements PetroSA LEADERSHIP The following supplementary information does not form part of the audited annual financial 36 Acting Group Chief Executive Officer’s review statements and is unaudited: 38 Acting Group Chief Financial Officer’s review 142 Fields in production and under development 42 Executive Management team 143 Definition of financial terms

PetroSA Integrated Annual Report 2019 | 1 ABBREVIATIONS AND ACRONYMS

AG Auditor-General IFRS International Financial Reporting Standards AGM Annual General Meeting IHRDC International Human Resources Development AGSA Auditor-General of South Africa Corporation AOE Additional Oil Entitlement JIBAR Johannesburg Interbank Average Rate BAC Board Audit Committee JOA joint operating agreement B-BBEE Broad-Based Black Economic Empowerment JV joint venture Bcsf billions of standard cubic feet King IV King Report on Corporate Governance for South BEE Black Economic Empowerment Africa BFP Basic Fuel Price KPI key performance indicator BPSD barrels per stream day LIBOR London Inter-bank Offered Rate BRICS Brazil, Russia, India, China and South Africa LNG liquefied natural gas CAE Chief Audit Executive LPG liquid petroleum gas CCMA Commission for Conciliation, Mediation and LTFT low temperature Fischer–Tropsch Arbitration LTI lost time injury CEF CEF SOC Limited LTIFR Lost Time Injury Frequency Rate CEO Chief Executive Officer MMbbls million barrels CGU cash-generating unit MMscf/d million standard cubic feet per day COD conversion of olefins to distillate MoU Memorandum of Understanding COE Centre of Excellence MPRDA Mineral and Petroleum Resources CPI Consumer Price Index Development Act CRCO Chief Risk and Compliance Officer NBCCI National Bargaining Council for the CSI corporate social investment Chemical Industry DEA Department of Environmental Affairs NDP National Development Plan DoE Department of Energy NEMA National Environmental Management Act dti Department of Trade and Industry NGO non-governmental organisation DWT Deepwater Tano Block NIPP National Industrial Participation Programme DYSA Disabled Youth South Africa NPC non-profit company E&P exploration and production NYDA National Youth Development Agency EBITDA earnings before interest, tax, depreciation OCI other comprehensive income and amortisation PAYE pay as you earn ECD early childhood development PetroSA Petroleum Oil and Gas Corporation of South Africa ECL expected credit loss SOC Limited ECP enhanced condensate processing PFMA Public Finance Management Act EE employment equity PLFCC Petroleum Liquid Fuels Charter Code EIR effective interest rate PLWD people living with disability ERF Employee Relations Forum PSM process safety management ERM enterprise risk management PSPI process safety performance indicator ESD enterprise and supplier development QMS quality management system EURIBOR Euro Interbank Offered Rate RAP Remediation Action Plan EXCO Executive Committee RBL reserve-based lending FAO farmout agreement SADC Southern African Development Community FEED front end engineering design S&E Social and Ethics Committee FPSO floating production storage and offloading SALGA South African Local Government Association FSU floating storage unit SAOGA SA Oil & Gas Alliance FVLCD fair value less costs of disposal SAPIA South African Petroleum Industry Association GCEO Group Chief Executive Officer SARS South African Revenue Service GCFO Group Chief Financial Officer SHIRT stewardship, honesty, integrity, respect and GiT graduate-in-training transparency GJFFDP Greater Jubilee Full Field Development Plan SME small and medium-sized enterprise GNPC Ghana National Petroleum Corporation SOE state-owned enterprise GRA Ghana Revenue Authority SPM single-point mooring GSA gas sales agreement SSF Strategic Fuel Fund GTL gas-to-liquid STIP Short-Term Incentive Plan GTL.F1 Air Liquide joint venture gas-to-liquid technology STP Strategic Turnaround Plan company TEN Tweneboa, Enyenra, Ntomme HCC Human Capital Committee TSL Trading, Supply and Logistics HCP heavy condensate processing UK United Kingdom HFO heavy fuel oil UOP units of production HSE health, safety and environment USD United States dollar HSEQ health, safety, environment and quality VAT value-added tax HSSE health, safety, security and the environment VIU value in use IASB International Accounting Standards Board VP Vice-President

2 | PetroSA Integrated Annual Report 2019 The 2019 PetroSA Integrated Annual ABOUT Report (or “integrated report”) offers a comprehensive review of our Company’s THIS performance, challenges and opportunities during the 2018/2019 financial year. This REPORT report provides our Stakeholders with insights into our recent financial, operational, social and environmental performance as well as ongoing efforts to create sustainable value going forward.

SCOPE AND BOUNDARY ASSURANCE

The integrated report provides information on Assurance regarding the contents of this report is achieved PetroSA’s main business operations, functions, projects, through an internal assurance process. At an internal level, investments and joint ventures. The report narrative the Acting Group Chief Executive Officer (AGCEO) takes (pages 5 to 63) combined with the consolidated annual ultimate responsibility for the correctness and relevance financial statements (pages 66 to 141) provide all of the contents of the report. However, the Executive information relevant to our Stakeholders and is required Management provides assurance that it has implemented, to comply with the reporting standards we subscribe to. monitored and managed all relevant controls, compliance, governance and reporting requirements. This ensures the MATERIALITY reliability and integrity of the information presented in this report. External assurance of our financials is provided by To ensure that this report is accurate, relevant and the Auditor-General of South Africa (AGSA), and their consistent, the reporting process is informed by the key audit opinion can be found on pages 68 to 72 of this material issues impacting on, or impacted by, our business. integrated report. The responsibility for determining such materiality is ultimately held by the PetroSA Board. The process is REPORTING STRUCTURE AND FRAMEWORKS informed by: Every effort has been made to align with the integrated • comprehensive collaboration and input involving reporting requirements of the King IV Report on Corporate relevant internal and external Stakeholders; Governance. The report also conforms to the standards • business and operational priorities; and requirements of the South African Companies Act 71 • key strategic focus areas; and of 2008. • detailed and ongoing assessment of risks and opportunities.

PetroSA Integrated Annual Report 2019 | 3 Our Business

4 | PetroSA Integrated Annual Report 2019 OUR BUSINESS

PetroSA Integrated Annual Report 2019 | 5 ABOUT US OUR MANDATE

The Petroleum Oil and Gas Corporation of South Africa PetroSA is mandated to operate as an SOC Limited (PetroSA) was formed in 2002 through the integrated commercial entity and create merger of Soekor E and P (PTY) Limited, Mossgas (PTY) value for its Shareholder and all its Limited and parts of the Strategic Fuel Fund (SFF), a subsidiary of CEF SOC Limited (CEF), PetroSA’s shareholder. stakeholders. Delivering on the mandate PetroSA is registered as a commercial entity under South goes beyond contributing to the national African law. CEF is wholly owned by the Government of economy through tax and dividend South Africa and reports to the Department of Mineral payments. Our mandate includes making Resources and Energy (DMRE). a significant contribution to advancing the broader national objectives of the South African Government, such as economic growth, job creation and industry transformation, for the ultimate benefit WHAT WE DO of all the country’s citizens.

>> Exploration and production of oil and natural gas

Our Business resources locally and internationally. Locally, we operate the FA-EM, South Coast and F-O gas fields. In addition, we have exploration acreage on the West Coast of South Africa. Internationally, we have producing and development assets in Ghana. OUR VISION

>> Participation in, and acquisition of, local as well as To be the leading African energy company. international upstream petroleum ventures.

>> Production of synthetic fuels from offshore gas. The GTL Refinery produces ultra-clean, low-sulphur, low-aromatic synthetic fuels and high-value products OUR MISSION converted from natural methane-rich gas and condensate using the unique GTL Fischer–Tropsch technology. We PetroSA will be the leading provider produce key commodities, including unleaded petrol, diesel, kerosene, fuel oil, propane, liquid petroleum gas of hydrocarbons and related quality (LPG), export distillates and alcohols. products by leveraging its proven technologies and harnessing its human >> Development of domestic refining capacity, liquid fuels capital for the benefit of its stakeholders. logistical infrastructure and technology.

>> Marketing and trading of oil and petroleum products locally and internationally. We sell most of our fuel and fuel-related products to major oil companies operating OUR VALUES in South Africa. These also include high-value speciality chemicals sold in the local and international markets. > Stewardship > Honesty > Integrity > Respect > Transparency

The spirit of Batho Pele, which means ‘People First’, underpins the PetroSA values.

6 | PetroSA Integrated Annual Report 2019 PetroSA Integrated Annual Report 2019 | 7 ORGANISATIONAL STRUCTURE

CORPORATE GCEO SECRETARIAT HEAD: Group Chief Executive Officer INTERNAL AUDIT Company Secretary

GCFO GCOO HUMAN CAPITAL Group Chief Group Chief VP: Human Capital Financial Officer Operating Officer

TRADING, NEW VENTURES NEW VENTURES SUPPLY AND OPERATIONS

Our Business MIDSTREAM UPSTREAM LOGISTICS Executive: Executive: New Executive: Exploration Executive: Trading Manufacturing Ventures Midstream and Production and Marketing

8 | PetroSA Integrated Annual Report 2019 OUR GLOBAL FOOTPRINT

PetroSA has formed multiple partnerships with international players across the value chain

Office in Rotterdam The Netherlands

PetroSA Ghana

Tzaneen depot Johannesburg office RSA West Coast development Bloemfontein depot GTL Refinery Cape Town Head Office South Coast development

GTL Mossel Bay E&P Offices Depots Refinery and depot

PetroSA Integrated Annual Report 2019 | 9 OUR STRATEGY

The PetroSA strategy seeks to stabilise the organisation and position it to contribute more effectively to the national energy security of supply. The strategy focuses on reducing operating costs, enhancing revenue generation, leveraging mutually beneficial strategic partnerships, and addressing the long-term commercial sustainability of the organisation.

The strategy further seeks to address the critical, depleting gas feedstock, which has led to a number of challenges, including a precarious financial position, a persistent going-concern threat, and an insufficiently funded decommissioning liability.

KEY STRATEGIC AREAS

PetroSA’s Corporate Plan outlines the Company’s strategic

Our Business intent and key objectives, as well as performance targets and indicators. It also highlights PetroSA’s focus on exploring opportunities across the value chain.

In the short to medium term, the following levers underpin the PetroSA Corporate Plan:

• The sustainable operation of the GTL Refinery in Mossel Bay, which includes the optimum production of indigenous gas feedstock. • Finding a long-term feedstock solution for the GTL Refinery, including increasing the refining capacity. • Diversification of income streams, improving margins through participation in the downstream commercial market and continuously containing costs. • Driving transformation through leveraging the inherent advantage of being a state-owned company (SOC), through strategic partnerships with wholesalers and suppliers to facilitate access of black businesses to the oil and gas sector. This strategy is cognisant of the imperative to increase the representation of women in the economic activities of our country, particularly, in the petroleum industry. It therefore recognises women empowerment as the key lever for transformation. • Conducting the business according to the highest health, safety, environmental and quality standards.

Owing to the depleting offshore gas reserves, a paradigm shift is required to turn around the Company’s financial situation. In this regard, PetroSA has adopted an Emergency Plan designed primarily to generate cash and increase revenues.

10 | PetroSA Integrated Annual Report 2019 PERFORMANCE AGAINST OBJECTIVES

ORGANISATIONAL CAPACITY (15%) Performance Objective Key Performance Indicators Annual Target Actual Results 1. Organisational Transformation 1.1 Improve transformational 50% of initiatives to obtain Completed 50% of initiatives Achieved Organisational initiatives Level 4 rating to obtain Level 4 rating capacity 1.2 Develop Employee Value 31 March 2019 Organisational Culture Report Achieved Proposition (EVP) framework completed by 28 February 2019 FINANCE (45%) 2. Financial stability

To optimise 2.1 Profitability GM%: 3 to 4% 2.8% Not achieved profitability 2.2 Earnings before interest, R700 million to R800 million R311 million Not achieved through revenue tax, depreciation and enhancement amortisation (EBITDA) and/or cost as per Budget reduction 2.3 Liquidity Access to trade finance of Access to trade finance of Not achieved R1.5 billion by 31 March 2019 R1.5 billion not achieved CUSTOMER, PARTNERSHIPS & STAKEHOLDER (5%)

To improve 3. Manage partnership and stakeholder relationships partnership and 3.1 Stakeholder Engagement 75% to 85% of plan achieved <60% stakeholder engagement Not achieved stakeholder and partnership adoption and partner adoption to plan engagement to plan achieved INTERNAL BUSINESS PROCESSES (35%)

4. Improve health, safety, environmental and quality (HSEQ) performance HSEQ Index 3 3.25 Achieved 4.1 HSEQ management 4.1.1 Environmental Four to six environmental Seven environmental incidents Not achieved management incidents reported 4.1.2 Lost-time injury frequency LTIFR = 0.35–0.39 0.93 Not achieved rate (LTIFR) Operational excellence Quality management 4.1.3 Quality: ISO9001:2015 Obtain ISO 9001:2015 quality ISO9001:2015 QMS certification Achieved Transitioning Project management system (QMS) achieved and 80% of minor certification findings closed 4.2 Develop a business Business plan developed Business plan not developed Not achieved plan to reduce the and approved by Board by decommissioning liability 31 March 2019 4.3 Improve product 9% to 11% organic growth <7% increase of product Not achieved placement in the market placement in the market 5. Initiatives for long-term sustainability 5.1 GTL Refinery Liquid Identify two new alternative Two new condensates were Achieved feedstock options condensates by 31 March 2019 added to the basket 5.2 Downstream market entry Downstream market entry: Business case not approved, and Not achieved Business case for acquisition one of three supply contracts and contracts for supply of obtained product to customers 5.3 Liquid processing Growth Initiatives 5.3.1 31 000 bbls/d Detail engineering and The project is currently on hold Not achieved design in progress 5.3.2 Enhanced condensate Ministerial approval to initiate The project is awaiting ministerial Not achieved processing (ECP) front-end engineering and approval before it can proceed design (FEED) is required. to FEED Contracting will be commence thereafter 5.4 Gas-to-chemicals/wax Pre-feasibility study The technical pre-feasibility Not achieved completed by the end of study scope of work completed September 2018 in November 2018

PetroSA Integrated Annual Report 2019 | 11 NOTES TO THE 2018/2019 PERFORMANCE Liquidity AGAINST OBJECTIVES Financing solutions for operations ORGANISATIONAL CAPACITY PetroSA will need to increase its available trade finance facilities to R1.5 billion by 31 March 2019 in order to Transformation: Improve the broad-based black facilitate the purchase of feedstock for the GTL Refinery economic empowerment (B-BBEE) rating and for trading, supply and logistics (TS&L) activities.

Improve the current B-BBEE rating from Level 6 to Level 4, Actual: Access to trade finance of R1.5 billion was not achieved. to be achieved in two phases. Phase 1 targets 50% of PetroSA secured R900 million in a trade finance facility. initiatives by 31 March 2019 and Phase 2 targets the remaining 50% of initiatives in order to obtain a Level 4 CUSTOMERS, PARTNERSHIPS AND rating by 31 August 2019. STAKEHOLDERS

Actual: 50% of initiatives to obtain a Level 4 rating were To improve partnership and stakeholder engagement achieved. The purpose of this key performance indicator (KPI) is to report on the outcomes of key stakeholder engagement Develop Employee Value Proposition (EVP) framework activities, as well as activities designed to engage with key upstream and downstream stakeholders and other Develop a new social contract with employees in order stakeholders relevant for the business. A target of 75% to manage the changes related to the development of to 85% of the plan was to be achieved by 31 March 2019. a high-performing organisation that focuses on health, safety, the environment and quality (HSEQ) as well as Actual: For the period under review, less than 60% of the on strategic partnerships. stakeholder engagements and partner adoption to the plan were achieved. The outcome of the Employee Engagement Survey and the focus groups will be used as input into the development of INTERNAL BUSINESS PROCESSES an EVP for PetroSA employees. Operational excellence

Our Business Phase 1 of the EVP framework will be based on two initiatives: Improve HSEQ performance • Conduct Employee Engagement Survey; and The HSEQ Index is expressed as a weighted average of • Conduct focus groups. the ratings (R) obtained for the individual HSEQ KPIs that make up the HSEQ Index. For the 2018/2019 financial year, Actual: The Organisational Culture Survey was sent to all the target for PetroSA is an HSEQ Index of 3. employees in December 2018 and focus groups were conducted to explore the survey results. The Organisational Culture Report Actual: Achieved 3.25 on the HSEQ Index. was completed by 28 February 2019. The results of the survey will serve to provide input into the development of the EVP HSEQ management (calculated as 0.5 (LTIFR) framework. + 0.5 (Environmental))

FINANCE Environmental management This refers to the Company’s environmental performance. To optimise profitability through revenue enhancement The targets are informed by the trends from the previous and/or cost reduction. year’s performance.

Financial stability On the Corporate Scorecard, an environmental incident is defined as an event which resulted in environmental damage Profitability beyond the fence boundary, and/or a substantiated To achieve a gross margin percentage of 4% for the PetroSA community complaint, and/or the exceeding of permits. Group, aligned with the Budget and the Corporate Plan. In addition to this, incidents that fall under Section 30 of the National Environmental Management Act (NEMA) Actual: The Group achieved a gross margin percentage of will form part of this KPI. 2.8% as opposed to a budgeted percentage of 3% to 4%. Actual: Seven environmental incidents were reported during the Earnings before interest, tax, depreciation and year under review, as against a target of four to six incidents. amortisation (EBITDA) as per Budget Lost-time injury frequency rate (LTIFR) Cash generated from operations (Group) This refers to the Company’s safety performance. A Obtain an EBITDA of R700 million to R800 million. lost-time injury is defined as a work-related injury that occurs in the course of duty and which gives rise to any Actual: An EBITDA of R311 million was achieved during the related temporary or permanent disablement or death, as period under review. determined by a medical practitioner. Note that, at PetroSA, this definition excludes noise-induced hearing losses.

12 | PetroSA Integrated Annual Report 2019 Actual: Twenty-seven lost-time injuries were recorded across Actual: The business plan was not developed. PetroSA is to the organisation, which resulted in an LTIFR of 0.93 as opposed engage the Department of Environmental Affairs (DEA) to to a target of 0.35 to 0.39. achieve another five-year deferral of the compliance date, to beyond 2024. Quality Engagements with the Petroleum Agency of South Africa (PASA) ISO9001:2015 Transitioning Project took place to discuss the Wells Closure Certificate processes. This In September 2015, ISO 9001:2015 (a new version of the will further reduce the current liability cost. ISO standard) was launched. This replaced the previous version, ISO 9001:2008. Improve product placement in the market Market and product expansion PetroSA was required to undertake the activities outlined PetroSA plans to review its market and product mix in in the ISO9001:2015 Transitioning Project Plan in order to order to drive improved revenue and profitability through achieve ISO 9001:2015 certification by September 2018. acquisitions, reseller acquisitions, strategic partnerships After a Stage 1 audit was conducted in November 2017, and business development. The Company’s target was it was recommended that PetroSA proceed to Stage 2. to improve product placement in the market from the baseline to 9–11%. Actual: ISO9001:2015 QMS certification was achieved and 80% of the minor findings were closed. Actual: <7% increase of product placement in the market.

Develop a business plan to reduce the Growth initiatives decommissioning liability An integrated decommissioning business plan is to be Initiatives for long-term sustainability developed, outlining a process for managing PetroSA’s Table 1 presents the milestones for the 2018/2019 strategic decommissioning obligations. The plan will cover technical, initiatives which aim to ensure the sustainability of the strategic, stakeholder, finance, legal and HSEQ aspects Mossel Bay Refinery. so as to ensure that costs and risks are minimised. The business case will be submitted to the PetroSA Board for approval by 31 March 2019.

TABLE 1 Milestones for the 2018/2019 strategic initiatives

PROJECT TARGET 2018/2019 ACTUAL GTL Refinery Liquid Identify two new, alternative condensates by 31 March 2019 Achieved. Two new condensates added to feedstock options the basket Downstream Downstream market entry: Develop business case for Not achieved. Business case for acquisition not market entry acquisition and obtain contracts to supply product to customer approved. One of three supply contracts obtained Liquid processing 31 000 bbls/d Proceed to detailed engineering and design Not achieved. Project placed on hold Enhanced condensate Ministerial approval to initiate FEED required before Not achieved. Project awaiting ministerial processing (ECP) contracting can commence approval before it can proceed to FEED Gas-to-chemicals/wax Pre-feasibility study complete by end of September 2018 Not achieved. Technical pre-feasibility study scope of work completed in November 2018

PetroSA Integrated Annual Report 2019 | 13 STAKEHOLDER MANAGEMENT

PetroSA continues to operate in an ever-changing business GOVERNMENT and social environment both locally and internationally. PetroSA remains committed to building and maintaining As a state-owned company (SOC), PetroSA has a value-adding relationships that are mutually beneficial to commercial and developmental mandate. In executing all its stakeholders, including government, the private sector, its mandate, the Company is required to strike a balance academia, the media, local communities and its employees between achieving its commercial objectives and assisting and labour unions. government to deliver on its socio-economic objectives. For this reason, PetroSA consistently seeks to ensure that the As an organisation, PetroSA has adopted a strategy Company’s objectives and expectations are aligned with designed to deepen its engagements with its stakeholders, those of the government. thereby seeking a better understanding of important issues affecting them, in order to implement improved solutions During the year under review, PetroSA continued to for addressing these issues. As a learning organisation, collaborate with the Department of Energy (DoE) as its PetroSA strives to proactively address identified, related Shareholder Ministry, which collaboration saw it contributing risks and take advantage of opportunities where potential to key national energy policy initiatives such as the National and/or existing disputes can be resolved effectively and Integrated Energy Plan, Cleaner Fuels Plan, Gas Utilisation expeditiously. This approach enables the organisation to Master Plan and the Fuel Pricing Mechanism, including the

Our Business forge and maintain win-win relationships that positively the National Planning Commission. In addition, PetroSA influence its current business and organisational reputation. participated in stakeholder engagements facilitated by the Department of Mineral Resources (DMR) concerning PetroSA’s stakeholders are those individuals, groups and petroleum resources and the development of related organisations that can affect, or may be affected by, the legislation. Company’s business operations and activities. PetroSA recognises that companies do not operate in isolation from On the continent, particularly in the sub-Saharan region, society and that its stakeholders have a legitimate interest PetroSA continues to support the government’s initiatives in the way the organisation conducts its business. PetroSA’s relating to the development of the master plan for the stakeholders are diverse and include the following: Southern African Development Community (SADC) region.

14 | PetroSA Integrated Annual Report 2019 It also supports bilateral engagements, such as the Gas clinics contribute to the upliftment of the communities Commission, which is a collaboration between South Africa closest to PetroSA’s operations in Mossel Bay. and Mozambique regarding gas resources. LOCAL PROFESSIONAL INSTITUTIONS On the international front, the Company hosted a delegation from the Organization of the Petroleum Exporting Countries In May 2018, PetroSA hosted SGS Auditors, a certification (OPEC) as well as representatives of the Brazil, Russia, body for ISO9001, to audit all PetroSA sites. The aim of the India, China and South Africa (BRICS) association in audit was to evaluate PetroSA’s quality management system order to develop skills in the areas of synthetic fuels and (QMS) and the Company’s readiness for ISO 9001:2015 technology. PetroSA continues to support the government certification. Interviews were held with the Chairperson of in its quest to develop and build a crude oil refinery in the Social and Ethics Committee, the Acting Group Chief Richards Bay. Executive Officer (AGCEO), the HSEQ Department as custodians of the QMS and senior management teams from PUBLIC ENTITIES various divisions within the Company. The engagements and consultations with employees and management by PetroSA continues to build relationships with a core SGS Auditors were successful and led to the ISO 9001: 2015 network of industry role players, including the Petroleum certification for PetroSA. Agency of South Africa (PASA), the National Energy Regulator of South Africa (NERSA), the Petroleum Controller PetroSA COMMUNITY at the DoE, and the Competition Commission of South Africa. PetroSA regards employees as its most valuable asset. PetroSA also collaborates with other SOCs such as Eskom, In view of this, the Company committed to developing a South African Airways, SA Express, Transnet and the new social contract with employees focusing on health, Department of Defence on areas of mutual commercial safety, the environment and strategic partnerships. In the interest and benefit. reporting period the Company conducted employee engagement surveys, which will form the basis of the BUSINESS Employee Value Proposition (EVP) framework under development. In all its engagements with customers, PetroSA has demonstrated a commitment to fulfil its contractual With regard to employee relations, PetroSA seeks to create obligations and continuously seeks to improve its service and maintain healthy, sustainable and mutually beneficial levels and quality of products to customers. relations with the labour unions on an ongoing basis.

The Company endeavours to create and maintain THE ENVIRONMENT sustainable relationships with all suppliers to ensure that its procurement policy is fair, equitable, consistent, PetroSA has a responsibility to pursue environment- transparent, in line with broad-based black economic friendly business practices and to engage effectively empowerment (B-BBEE) and other transformation in business networks that provide current and factual imperatives. environmental impact assessments. Where possible, the Company acts to minimise the negative impact on the Engagements with the South African Petroleum Industry environment within which it operates. Association (SAPIA) are ongoing. The focus of the discussions covers six key areas that include: Supported by the Shareholder, CEF, PetroSA was instrumental in engaging with four key national government • Transformation; departments – the Departments of Energy, Mineral • Health, safety, the environment and quality (HSEQ); Resources, Environmental Affairs and National Treasury – to • Climate change; seek an intervention regarding the National Environmental • Refining sustainability; Management Act (NEMA) Financial Provision Regulations. • Security of supply; and The Regulations required companies to develop rehabilitation • Economic regulation. plans and fully fund their abandonment liability by February 2019. If effected, the Regulations would have had a negative COMMUNITIES financial impact on the Company, potentially threatening its going-concern status. The Minister of Environmental As a responsible and caring corporate citizen, PetroSA Affairs deferred the NEMA Financial Provision Regulations engages with communities impacted by its operations in for the oil and gas industry by five years, that is, from an open and transparent manner. February 2019 to February 2024.

PetroSA assists the government in achieving its strategic This demonstrates that the ongoing stakeholder relations objective of a better life for all. To this end, through its management activities of the organisation are meeting its Community Affairs Department, the Company engages, objectives of monitoring and building relationships with key on an ongoing basis, with the Mossel Bay community, stakeholders on behalf of the organisation and in line with which is the centre for the bulk of its operations. all strategic objectives.

On behalf of PetroSA, the Minister of Energy, Jeff Radebe, handed over three clinics to the Western Cape Department of Health. This was a highlight for the Company as the

PetroSA Integrated Annual Report 2019 | 15 PetroSA Board 16

| PetroSA Integrated Annual Report 2019 PetroSA BOARD

PetroSA Integrated Annual Report 2019 | 17 PetroSA Board INTERIM CHAIRPERSON STATEMENT BY of dividendsto thevalue ofR289 million. during theyear PetroSA to support through thedeclaration of R691 million. Further, ourGhanaasset was leveraged impairment (R1.28 billion) reduced thisto anetimpairment reversal a However, oftheprevious year’s Ghanainvestment levelled against ouroffshore andonshore production assets. negative impactofaR1.97 billionimpairmentcharge A majorcontributor to the poorperformance was the financial year. with thenetloss ofR392 millionrecorded intheprevious loss ofR2.08 billion,apoorperformance compared Consequently, we endedthefinancialyear withanet a highfixed-cost structure anddecliningcashreserves. condensates andlightcrudeoilusedasalternative feedstock, Refinery. This was coupled withthehighcosts ofimported the depletingindigenous gas feedstock to itsMossel Bay challenges during the2018/2019 financialyear, including The Company continued to face amultitudeofinternal OPERATIONAL PERFORMANCE extremely volatile localcurrency. this alongsideaslowing domestic economy andan economic growth andweak globalcrudeoildemand–and crude oilprice environment, offthebackofanaemicglobal for PetroSA. The Company continued to operate inalow The 2018/2019 financialyear was anotherchallengingyear 18

| Gumede Nhlanhla PetroSA Integrated Annual Report 2019

non-indigenous products. below budget dueto thelackofbothindigenous and production for theyear was anunprecedented 39% as aresult ofnumerous operational challenges. Overall FA Platform, performed dismallyduringthefinancialyear However, ourdomesticassets, theGTL Refinery andthe 31 March 2019. expectation beingthatthewells willbecompleted by respectively, where they commenced drillingwiththe locations on23December 2018 and31January2019, Maersk Venture andStena Forth, moved to new drilling in TEN).Itisalsomostpleasingto report thatbothrigs,the wells have already beencompleted (one inJubileeandone one inTEN)have beensuccessfully drilledandtwo ofthese drilling programme. Three new wells (two inJubileeand significant progress hasbeenmadewithrespect to the wells to bebrought forward. Itismy pleasure to report that out simultaneousdrilling,allowing thetie-inofnew The drillingprogramme iscurrently usingtwo rigsto carry began inMarch 2018 andisanticipated to endin2023. programme intheGreater JubileeandTENfieldswhich given thesuccessful execution oftheongoing drilling expected to doeven better inthefuture, especially Our Ghanaasset continues to perform well anditis 2.90 recorded for theprevious financialyear. HSEQ Index for compared theyear being3.25 withthe improvement inourHSEQ performance thisyear, withthe property andtheenvironment. We have seenaremarkable risks relating to product quality, withzero harmto people, that we comply withlegislationandthatwe mitigate all and quality (HSEQ) seriously. Itis committed to ensuring Our Interim Board takes health,safety, theenvironment AND QUALITY HEALTH, SAFETY, THEENVIRONMENT applications duringthecurrent financialyear. need to fast-track ministerial approval ofSection54 remains akey focus area. Inthisregard, there isanurgent gas reserves andthedevelopment oftheWest Coast fields of ourpartnership strategy to explore potential offshore recent gas discoveries intheBrulpaddafields,execution While efforts are beingmadeto secure access to the and upstream business. turn around oursalesandmarketing, trading, operations liquidity andsolvency. Concerted effortsare beingmadeto the going-concern statusoftheCompany by improving strategic direction ofourCompany. Ourfocus isto address As theInterim Board, we remain confident aboutthe STRATEGIC INTENT

We remain confident about the strategic direction of our Company, having made significant progress in seeking to address inefficiencies.

CORPORATE GOVERNANCE activities. In this regard, we will prioritise the establishment of a proper trading platform, the strategic sourcing of Our Interim Board undertook a comprehensive review of imported feedstock, and the need to fast-track the Section the Company’s strategy and values during the financial year 54 applications. Our Interim Board will also be responsible with a view to instilling a values-driven strategic direction for ensuring that the financial repositioning of the Company for the Company. In this regard, the Interim Board took a is executed successfully and that inefficiencies across the decision to include Batho Pele in our value set. Company are addressed effectively during the current financial year. The Interim Board remains committed to ensuring that our Company always complies with key legislation and EXPRESSION OF GRATITUDE regulations that govern our industry. In this regard, the Interim Board is pleased that all efforts have led to the On behalf of the Interim Board, I wish to thank the Minister successful application for the abandonment regulation of Mineral Resources and Energy, the Honourable Gwede to be deferred from 2019 to 2024. Mantashe, the Portfolio Committee on Mineral Resources and Energy, the Department of Mineral Resources and LOOKING AHEAD Energy and the CEF for their continued support and guidance. We also wish to thank PetroSA’s executive Our Interim Board is planning to focus its attention on the management for ensuring the sustainable operation of our development and implementation of a strategic recruitment business, despite all the challenges we face. Our heartfelt plan with the objective of filling all critical positions, appreciation also goes to our employees for their loyalty including executive positions such as those of Group Chief and dedication. Finally, we express our gratitude to our Executive Officer (GCEO) and Group Chief Financial Officer stakeholders, in particular our vendors and contractors, (GCFO). Alongside strategic recruitment, the Interim Board for supporting our business during such a challenging year. will also ensure that a competency acquisition plan is in place for all positions across the Company, as part of the Nhlanhla Gumede overall Employee Value Proposition (EVP). Interim Chairperson

In line with the CEF’s conditional approval of our Corporate Plan 2019–2023, the Interim Board plans to pursue our strategic partnerships strategy for trading and upstream

PetroSA Integrated Annual Report 2019 | 19 PetroSA Board DIRECTORS BOARD OF Board on5July2017. to thePetroSA Interim Deloitte, hewas appointed former associate director at the Minister ofEnergy. A Former technical adviserto for theperiod2002–2007. Board memberatPetroSA ofEnergy.the Department general (hydrocarbons) at director anddeputy director Agency. Former chief Farmers Development CEO oftheSouthAfrican BSc (Eng.),MDP, MBA Chairperson Nhlanhla Gumede(53) 20

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5 July2017. PetroSA Interim Board on He was appointed to the South African Breweries. former seniorexecutive at Interstate BusLinesand executive chairperson of Worley Parsons, former non-executive director at of iGREENS(Pty) Ltd, Chairperson andCEO Studies, MDP BCom, Dip. Management Quentin Eister (52)

on 5July2017. PetroSA Interim Board He was appointed to the on anumberofprojects. various strategic positions Absa, andMGM at and business support responsibility for finance Union Holdings,aswell as consultant for Africa services andprocurement Greenvest Ndalo, former Chief executive at CIMA Cert. BA BCom (Fin. Man.),CEA, Sepheu Masemola(39) Raffaele (Ralf) Degni(63) Raffaele (Ralf) to thePetroSA Interim Board on 15January2018. (UK) andPlatminLimited (Canada/UK). He was appointed Advertising Agencies (Grey Global) (SA), Acsis Group plc including theGrey and publiclylisted entities, Group of Previously served inseniorpositionsfor a number of private Currently theCEO ofAdvantage Management Systems. CTABACCCA (SA), (Wits), (Wits)

Human CapitalCommittee Nominations Committee Social andEthicsCommittee Strategy andRiskCommittee BoardCommittee Audit Mhlakaza Nomvuyo Memory Board on15January2018. to thePetroSA Interim NGOs. Shewas appointed elderly, through various community, especiallythe and alsoworks withthe in theareas ofHRandaudit, various boards, particularly field. Shehasserved on in thehumanresources eight years’ experience Nomvuyo Mhlakaza has BTech HumanResources

(41) Nolwandle B Mashiane Nsindiso Mkhize (36) Mthozami Xiphu (62) Marlene Khumalo (45) (50) | Company Secretary

ND: Analytical Chemistry CA (SA), Registered Auditor BA, BIuris, MA BProc., PGD (Taxation), (RA), BCom (Acc.) (Hons) Admitted Attorney Nolwande Mashiane owns Executive chairperson a number of enterprises Executive director at of the South African Oil Marlene Khumalo served in in different sectors, Wasembo Chartered and Gas Alliance, former the potable and waste-water including hospitality, Accountants. A former CEO of the Petroleum sectors for more than 15 years. chemical, construction, TV financial consultant at Agency of South Africa, She has experience in, among and film. She previously Absa Bank, he completed 2005–2012, and former others, the company secretariat, worked in the mining his articles at PwC and director of legal services legal, compliance, and risk industry for companies gained valuable experience for the then Department management fields. She such as ERGO (East Rand in auditing, insurance and of Minerals and Energy, commenced employment at Gold and Uranium asset management, both 2001–2004. PetroSA in September 2018 Company), Anglo American locally and in New York in the position of Group and the Municipality of (USA). He was appointed He has served on various Company Secretary. Mangaung. She serves to the PetroSA Interim government working on the boards of the Board on 15 January 2018. groups and commissions, Universitas Academic including the 2010 probe Hospital and Metsi-chem into hydraulic fracturing Free State and holds for South Africa. He positions in a number of was appointed to the non-profit organisations PetroSA Interim Board serving the community on 5 July 2017. of Mangaung and the Free State. She was appointed to the PetroSA Interim Board on 15 January 2018. Manqoba Ngubo (28)

Management consultant for the Passenger Rail Agency of South Africa, and managing director and chief financial officer for various investment companies. Former lecturer at the University of South Africa and the University of Zululand. He was appointed to the PetroSA Interim Board on 5 July 2017. He resigned from the Interim Board on 8 January 2019.

PetroSA Integrated Annual Report 2019 | 21 PetroSA Board STATEMENT CORPORATE GOVERNANCE monitored andmaintainedonanongoing basisand to, developments inthefieldofcorporate governance are stakeholders. Inensuringthattheseprinciplesare adhered the Board’s proper accountability to shareholders andother operations ofPetroSA andtheGroup. The aimisto ensure and practices thattheBoard usesto direct andmanage the maintenance ofgovernance structures, processes designed to enhance good governance. These include Companies Act, otherlegislative andnon-bindingrules the Public Finance Management Act (PFMA), the corporate governance asoutlinedintheKingreports, governance by subscribingto theprinciplesofgood strives to promote thehigheststandards ofcorporate operations. The PetroSA Board ofDirectors (theBoard) management compliance andmanages risks inits corporate governance, systems ofinternal control and to reflect how PetroSA appliestheprinciplesofgood The corporate governance statement ispresented GOVERNANCE PHILOSOPHY 22 Standing: MrDegni,Masemola, MrMkhize, MrEister Seated: MrXiphu,Gumede (Chairperson), MsMashiane From to right: left

| PetroSA Integrated Annual Report 2019

greatest asset. as anorganisation thatconsiders itsemployees to beits of ubuntuto theforefront ofeverything thatPetroSA does ‘People First’. This additionalvalue bringstheprinciples the additionalvalue ofBathoPele, whichtranslated, means our values duringtheperiodunderreview, PetroSA adopted Consistent withthemessage ofstrengthening andupholding by, andputting into practice, thevalues ithasadopted. Underscoring thesuccess ofPetroSA istheethosofabiding espoused intheKingIVReport onCorporate Governance. and fostering corporate values, inrecognition oftheprinciples Board remains committed to providing ethicalleadership focal areas ofgrowing and sustainingtheCompany, the term sustainability. Initsquestto achieve theseandother and performance ofPetroSA inorder to ensure itslong- The Board isprincipallyaccountable for thesafeguarding deemed appropriate. improvements are made,to theextent thatthey are COMPLIANCE WITH LAWS, CODES, RULES providing strategic direction and oversight of the Company AND STANDARDS and its subsidiaries. The Memorandum of Incorporation (MoI) and the Board Charter regulate the roles and As a good corporate citizen, PetroSA seeks to comply responsibilities of the Board. with the applicable legal and regulatory frameworks and to adhere to all non-binding rules, codes and standards. Board composition In keeping with the spirit of ensuring compliance, PetroSA PetroSA is mindful of the King IV principles relating to the performed a gap analysis, which was accepted and composition of boards. To that end, the Board is properly management was directed to progressively implement constituted and balanced. It possesses, individually and the recommendations with a view to ultimately complying collectively, the competencies required to deal with the fully with King IV. issues and challenges at PetroSA. The need for increased representation of women on the Board has, however, PetroSA’s continued commitment to good corporate been identified and will be addressed at the next Annual governance practices is demonstrated in the Group’s General Meeting. policies, practices and internal controls, which are regularly reviewed for updating, changes in standards and codes, In keeping with King IV, the Directors have a wide range and to take account of new legislative requirements. of skills that include, but are not limited to, government relations, engineering, finance, risk management, GOVERNANCE STRUCTURES accounting, energy and the law.

The Board The roles of the Chairperson and Group Chief Executive The Board is the focal point and custodian of the Company Officer (GCEO) are separate. The Company Secretary and is collectively responsible to the Shareholder for supports the Board and its committees.

The attendance of Board and Board committee meetings:

Joint Board Social Board Audit and Human Strategy Nomina- and Name Category Board Audit Strategy and Risk Capital and Risk tions Ethics TOTAL

19 13 1 12 6 2 4 57 Mr N Gumede Non-executive 19 1 10 6 2 38

Mr QMN Eister Non-executive 19 13 1 11 6 2 52

Mr BM Ngubo Non-executive 15 9 1 8 2 3 38

Mr SS Masemola Non-executive 17 1 5 2 4 29

Mr M Xiphu Non-executive 16 12 6 2 36

Mr RG Degni Non-executive 19 13 1 5 4 42

Ms N Mashiane Non-executive 18 1 4 4 27

Ms NM Mhlakaza Non-executive 14 6 1 11 32

Mr N Mkhize Non-executive 16 12 1 2 31

The composition of Board committees for the 2018/2019 financial year is set out below:

Board Audit and Social and Ethics Committee Nominations Committee Strategy and Risk Committee Compliance Committee Mr S Masemola (Chairperson) Mr N Mkhize (Chairperson) Mr Q Eister (Chairperson) Mr R Degni (Chairperson) Ms N Mashiane Mr N Gumede Mr N Gumede Mr Q Eister Mr R Degni Mr S Masemola Mr M Xiphu Mr N Mkhize Mr M Ngubo Mr Q Eister Mr S Masemola Ms N Mhlakaza Mr B Sayidini Mr M Xiphu Mr R Degni Ms N Mhlakaza

Invitees: GCEO Invitees: GCEO Invitees: Invitees: GCEO COO CAE (CEF) Manager: Communications GCFO GCFO Manager: Corporate Affairs CRCO Auditor-General Manager: HSEQ CFO (CEF) Manager: Stakeholder CRCO Manager: BEE CAE Manager: Procurement Manager: CRCO

CAE: Chief Audit Executive; CFO: Chief Financial Officer; COO: Chief Human Capital Committee Operating Officer; CRCO: Chief Risk and Compliance Officer; GCEO: Group Chief Executive Officer; GCFO: Group Chief Financial Officer; HSEQ: Health, Ms N Mhlakaza (Chairperson) Invitees: Safety, Environment and Quality; VP: Vice-President Mr M Xiphu GCEO Mr N Gumede VP: Human Capital (HC) Mr Q Eister Executive HC (CEF)

PetroSA Integrated Annual Report 2019 | 23 PetroSA Board CORPORATE GOVERNANCE STATEMENT/CONTINUED General Meeting (AGM), whoare suitablyskilledand Directors, elected by theShareholder ateachAnnual The BAC consists offour independentNon-executive • • • and to: the Companies of2008 andthePFMA Act 71 1of1999, Board infulfillingitsoversight responsibilities interms of The primaryobjective oftheCommittee isto assist the Board Audit Committee (BAC) Board committees meetings andto make presentations. team were invited, whenappropriate, to attend Board required urgent attention. Members ofthemanagement times ayear, butmetmore dueto matters often which Group’s business. Itwas scheduledto meetatleastsix The Board isresponsible for theoverall conducting ofthe Board operations AGCEO andAGCFO. comprised incumbentsappointed to act,includingthe operations to theAGCEO. The executive structure The Board delegates responsibility for theday-to-day Executive structure Mr MNguboresigned on8 January2019. and AGCFO were appointed by theBoard. OneDirector, Directors, theAGCEO andtheAGCFO. The AGCEO under review, theBoard comprised nineNon-executive The Board was appointed for aninterim period.Intheperiod more thanfour may beExecutive Directors. at leasteightmustbeNon-executive Directors andno fewer thaneightandnotmore than16Directors, ofwhich The MoIprovides thattheBoard shouldconsist ofnot prescripts. MoI, theCompanies Act, thePFMA andotherapplicable Directors are undertaken inaccordance withtheCompany’s The appointment,rotation, resignation andremoval of Appointment, re-election androtation ofDirectors 24

the financialstatements. the assumptions madeby Management inpreparing Review theappropriateness ofaccounting policiesand annual financialstatements; and reporting issues, thatmay impacttheintegrity ofthe Have regard to allsignificantrisks, accounting and reporting offinancial misconduct); reporting (e.g. intheform ofannualreports andthe assurance, theappointmentofexternal auditors and regard to matters relating to auditing,finance, combined Assist theBoard indischarging itsresponsibilities with | PetroSA Integrated Annual Report 2019

operating models. way thatalignstheorganisation withchangingbusiness ensure thatitrecruits, develops andretains employees ina responsive humancapitalstrategy andrelevant policiesto The role oftheHCC isto ensure thatthebusiness hasa invitation extended to theCEFShared Services Unit. attend Committee meetingsby invitation, withastanding Board. The AGCEO andtheVice-President: HumanCapital comprises four Non-executive Directors appointed by the The Committee ischaired by aNon-executive Director and Board HumanCapital Committee (HCC) required. providers are invited to theCommittee meetingswhen represented by theGCFO andtheCAE. Otherassurance invitees to theCommittee meetings.The Shareholder is The AGCEO, AGCFO, CAE andCRCO andare permanent Committee isassessed annually. Nominations Committee. The effectiveness of the of theChairperson oftheCommittee through its fulfil theirduties.The Board recommends theappointment collectively have sufficientqualificationsandexperience to Committee meetingsby invitation. The AGCEO andrelevant EXCO members attend and ischaired by anindependentNon-executive Director. The Committee comprises four Non-executive Directors Social andEthicsCommittee • • • • Board in: The primaryobjective oftheCommittee isto assist the by invitation. Committee (EXCO) members attend Committee meetings the Board. The AGCEO, AGCFO andrelevant Executive and comprises five Non-executive Directors appointed by The Committee ischaired by aNon-executive Director Strategy andRiskCommittee PFMA andtheShareholder Compact. reports to theShareholder, incompliance withthe recommending to theBoard thesubmission ofthese Receiving andreviewing reports quarterly and requirements andduediligence findings;and account theCapitalAllocationModel,funding Reviewing projects and programmes, takinginto capital investment andjointventure formations; direction: strategy management, business management, aligned withtheGroup’s overall mandate andstrategic Ensuring thatthefollowing Company processes are with theGroup’s mandate andoverarching strategy; Overseeing theformulation oftheCorporate Planinline The Board strives to promote the highest standards of corporate governance, including the maintenance of governance structures, processes and practices

The purpose of the Committee is to monitor the The Committee ensures that there are induction processes Company’s activities, having regard to any legislation, in place for new Directors, and appropriate development other legal requirements or prevailing codes of best programmes for Directors. The activities carried out by practice concerning employment equity, broad-based the Committee during the year are reflected in the report. black economic empowerment (B-BBEE), health, safety, the environment and quality (HSEQ), good corporate Board training and induction citizenship, stakeholder relationships, labour and Following appointment to the Board, all Directors receive employment, procurement and communications. induction and training, and all Directors receive training tailored to their individual needs, when required. Nominations Committee The Committee, chaired by a Non-executive Director, Evaluating the Board comprises five Non-executive Directors appointed by The Board and its committees were evaluated in the year the Board. The AGCEO attends Committee meetings under review by the Department of Energy. by invitation. Code of business conduct and ethics The purpose of the Committee is to confirm that the In accordance with the Companies Act, the Board has organisation has established sound governance and adopted a code of ethics policy and procedures to manage internal processes to ensure that the Company is led conflicts of interest. In addition, individual Directors submit ethically as a good corporate citizen. The key deliverables declarations of interest annually and at each meeting. include: Company Secretary • Establishing the process for the composition and The Company Secretary does not fulfil executive constitution of Board committees by assessing and management functions outside of the duties of the evaluating the skills, competencies and experience of Company Secretary, and is not a Director. Directors in order that such committees may function better and be more effective in discharging their role The Company Secretary is responsible for the duties set out as enshrined in the terms of reference; and in Section 88 of the Companies Act 71 of 2008 (as amended). • Ensuring that there are processes in place to evaluate the effectiveness of individual Board members and Ms M Khumalo was appointed Company Secretary on committees by way of Board evaluation. 1 September 2018.

PetroSA Integrated Annual Report 2019 | 25 PetroSA Board PHILOSOPHY REMUNERATION • • • • • • for achieving targets: represents ofremuneration thatportion thatisnotpayable remuneration consists ofthefollowing components and contribution to thesuccess oftheCompany. Guaranteed externally, relative to theirworth inthemarket andtheir individuals are paidequitably, bothinternally and Guaranteed remuneration isdesigned to ensure that Guaranteed remuneration measures. via organisational value drivers andbalanced scorecard Remuneration islinked to business goals andobjectives environment for withopportunities learningandgrowth. guaranteed andvariable pay, aswell asapositive work strategy thataimsto achieve therightmixbetween Remuneration atPetroSA isbasedonatotal reward REMUNERATION COMPONENTS • • • • • • • • • achieve thefollowing objectives: The Company’s Remuneration Policy hasbeendesignedto 26

Disability/income protection insurance. Group life andspousal assurance; and Car allowances; Medical aid; Retirement funding; Basic salary; fair, transparent andequitable. Reflect theCompany’s approach to itspeopleasbeing market value, competence andperformance level; and Remunerate individualsdifferentially basedontheir organisational objectives; and competencies required to meetcurrent andfuture Encourage thedevelopment andapplication ofskills needs andlifestyle requirements; and benefitsare structured inorder to meetindividual Offer peoplechoice interms ofhow theirremuneration individual contribution; Pay peoplerelative to theirspecificmarket and performance; Encourage andremunerate team andindividual of shareholder value; Drive theCompany’s performance andthecreation potential remuneration/reward for highperformance; performers andlow performers by offering high, Aggressively drive adistinctionbetween high mix ofskills,competencies, values andbehaviours; Attract andretain talented peoplewiththeoptimum | PetroSA Integrated Annual Report 2019

• • • the designwould always have thefollowing objectives inmind: align withbusiness strategy andindustrynorms.However, the structure ofwhichmay beamendedfrom timeto timeto structure would consist ofashort-term Incentive Scheme, In PetroSA’s case,thevariable component ofitsremuneration Variable remuneration most relevant andappropriate remuneration surveys. used to calculate themarket values andto produce the remuneration. Reputable remuneration consultants are Market comparisons are basedontotal guaranteed • • • 2018/2019 financialyear Pertinent facts relating to remuneration duringthe Company-related expenses andengagements. meetings. Non-executive Directors are alsoreimbursed for payment andfixed fees for attending Board andcommittee executive Directors, whichconsists retainer ofaquarterly The Shareholder determines theremuneration ofNon- Non-executive remuneration To attract andretain criticalorscarce skills. foster aperformance culture; and exceeding targeted performance levels annually, i.e. to To encourage andreward for participants achieving and individual performance; To drive organisational, and team, departmental to R81.5million. The total cost of thesegratuity bonuspayments amounted three months’service asat31August 2018 were prorated. The gratuities ofemployees andtrainees with less than capacity asat31August 2018 received a13thcheque. a training capacity. Employees employed in atraining as at31August 2018, excluding employees employed in R63 000to allemployees intheservice oftheCompany across-the-board gratuity, orgoodwill payment, of past three financialyears, theCompany awarded an not received any bonus payments orincentives for the However, to boostthemorale ofemployees whohad financial year. Unit staffandwas inlinewiththe7%budgeted for the This increase was thesameasthatawarded to Bargaining managers, andemployees onTASK Grades 15andhigher. 7% to allmembers ofthe acting executive team, senior preserve cash,thebusiness awarded anincrease of oftheproactiveIn support measures to contain and Chemical Industry(NBCCI) inMay 2018. reached by theNationalBargaining Council for the was awarded inaccordance withamulti-year agreement Grades 14andlower (theBargaining Unit).This increase increase of7%was awarded to employees onTASK During thepastfinancialyear, anacross-the-board PetroSA Integrated Annual Report 2019 | 27 PetroSA Board EXECUTIVES’ REMUNERATION DIRECTORS’ AND Year ended31March 2019 28 2 – Acting Vice-Presidents appointed duringtheyear 1 – Resigned Total S Soobader(2) A Futter (2) T Manne(2) Total NM Mhlakaza N Mkhize N Mashiane RG Degni BM Ngubo M Xiphu SS Masemola Q Eister M Sebothoma(2) A Zokufa (2) H Motau(1) M Ngwane (2) O Chibambo(2) B Sayadini (2) Management Executive N Gumede Directors Non–executive M Nene(2) K Zono O Mohapanele(2) W Fanadzo (1)

| PetroSA Integrated Annual Report 2019

Salary/fee Salary/fee 16 814 1 008 1 008 2 048 2 092 7 821 1 495 1 1 500 3 816 2 185 1 108 1 691 R’000 R’000 654 770 855 657 757 360 439 328 627 617 551 69 payments payments performance Bonuses and performance Bonuses and R’000 R’000 – – – – – – – – – – – – – – – – – – – – – – – – contributions contributions 2 047 Pension Pension R’000 R’000 646 284 375 106 146 163 77 77 71 51 51 – – – – – – – – – – – – contributions contributions 1 038 R’000 R’000 Other Other 265 198 138 44 20 30 96 70 29 93 55 – – – – – – – – – – – – allowance Expenses 1 866 2 317 Acting R’000 R’000 428 348 228 259 255 353 373 201 154 126 126 361 217 411 112 68 73 75 15 – – – Compensation Compensation Compensation of office of office for loss for loss R’000 R’000 261 261 – – – – – – – – – – – – – – – – – – – – – – R’000 R’000 Other Other – – – – – – – – – – – – – – – – – – – – – – – – 22 477 2 609 2 304 9 687 3 387 1 500 1 906 1 083 1 584 5 021 2 812 1 356 1 134 R’000 R’000 840 644 449 685 729 827 431 Total 912 971 Total 911 69 Year ended 31 March 2018

Bonuses and Compensation performance Pension Other for loss Non–executive Salary/fee payments contributions contributions Expenses of office Other Total Directors R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

N Gumede 1 183 – – – 441 – – 1 624 Q Eister 744 – – – 216 – – 960 P Kwele 268 – – – 43 – – 311 BW Ngubane 233 – – – 26 – – 259 W Steenkamp 266 – – – 69 – – 335 O Tobias 265 – – – 17 – – 282 J Ntwane 165 – – – 77 – – 242 BDC Makhubela 128 – – – 29 – – 157 TB Hlongwa 153 – – – 30 – – 183 L Williams 65 – – – 17 – – 82 SS Masemola 623 – – – 133 – – 756 M Xiphu 638 – – – 77 – – 715 BM Ngubo 609 – – – 127 – – 736 L Mtunzi 215 – – – 7 – – 222 RG Degni 237 – – – 38 – – 275 N Mashiane 115 – – – 49 – – 164 N Mkhize 135 – – – 14 – – 149 NM Mhlakaza – – – – 8 – – 8 Total 6 042 – – – 1 418 – – 7 460

Bonuses and Compensation performance Pension Other Acting for loss Executive Salary/fee payments contributions contributions allowance of office Other Total Management R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

K Zono 2 310 – 399 163 361 – 4 616 7 849 W Fanadzo (1) 2 079 13 237 75 222 400 1 982 5 008 O Mohapanele (2) 1 395 13 205 123 273 – – 2 009 N Robertson (2) 1 689 13 112 84 248 – – 2 146 M Nene (2) 2 055 13 346 128 394 41 – 2 977 O Chibambo (2) 1 928 – 137 244 302 – – 2 611 M Ngwane (2) 1 757 13 306 146 303 – – 2 525 H Motau (2) 203 – – – – – – 203 Total 13 416 65 1 742 963 2 103 441 6 598 25 328

1 – Resigned 2 – Acting Vice-Presidents appointed during the year

PetroSA Integrated Annual Report 2019 | 29 PetroSA Board PROCESSES GOVERNANCE resolution attheappropriate level. reporting ofunethicalbehaviour inorder to enableeffective The ambitofthehotlinehasbeenextended to includethe enable anonymous andconfidential reporting ingood faith. hotline isavailable to allemployees andstakeholders to management ofitsoutsourced Whistleblower Hotline.The within PetroSA’s Fraud-Prevention Planistheeffective management offraud andcorruption risk.Akey control the Board hasadopted acomprehensive approach to the Company. Inadditionto themanagement ofethicalrisks, fraudulent, corrupt ornegative behaviour withinthe PetroSA’s zero-tolerance policyisaimedateliminating Integrity management ethical culture. debate andserve asaqualitative assessment ofPetroSA’s primary focus oftheseworkshops was to drive ethical various workshops heldatitsprincipallocations.The prioritised through PetroSA’s annualroadshow andat Ethics awareness, communication andtraining was Awareness, communication andtraining and for declaringrelated interests. gifts procedures andconditions for receiving andgivinggifts and reporting mechanisms,PetroSA enforces reporting the PetroSA Code ofEthics.Through various monitoring ethical culture behaviour andsupporting are enshrinedin and ethicalconduct initsbusiness practices. Itsdesired PetroSA iscommitted to thehigheststandards oflegal Related-Party Interests Code Register ofEthics,Gift andDeclaration of culture through thefollowing initiatives: PetroSA continues to institutionaliseitsdesired ethical to drive sustainableperformance. embeddingacultureaimed atfurther ofethicalleadership PetroSA hasdeveloped anEthicsManagement Strategy embed thesevalues inalltheirdealingswithstakeholders. employees know andembrace itsvalues andseekto A key outcome from thisassessment was thatPetroSA Company canharness to drive itscontinued sustainability. undermining itsethicalculture, thatthe andopportunities Risk andOpportunityAssessment to identifykey risks Consequently, theBoard commissioned anEthics, ethical culture and,ultimately, PetroSA’s success. of itsemployees isintegral to drivingahigh-performance, PetroSA’s Board embraces the notionthatthealignment EFFECTIVE ANDETHICAL LEADERSHIP 30 tailored to meettheneeds ofitsdifferent business units, PetroSA’s Anti-briberyandAnti-corruption Policy is Anti-bribery andanti-corruption management

| PetroSA Integrated Annual Report 2019

areas oftheorganisation: consistently implemented to drive compliance withinall process. The following key mechanismsandtools are of anefficientandeffective compliance riskmanagement facilitating thedevelopment, establishmentandmaintenance Managementsupports indischarging itsresponsibility by accepted compliance practice. The compliance function PetroSA’s risk-based methodologyisguidedby agenerally appropriate responses to changes indevelopments. continually monitors theregulatory environment and a holisticview of laws andnon-bindingprovisions and of rightsandprotection. Compliance Management takes is understood notonlyasanobligation, but alsoasasource of compliance and,inparticular, oversees thatcompliance The Board Audit Committee exercises ongoing oversight or measures implemented by Company Management. effectiveness ofcompliance riskmanagement processes wide compliance withregulatory requirements andonthe function to monitor andreport onthestate ofCompany- The Group Compliance Policy mandates thecompliance non-compliance. of riskare founded onazero-tolerance approach to approved statement ofappetite andtolerance inrespect any adopted standards applicableto PetroSA. The Company’s compliance withlaws, regulations, policies,procedures and The Board ofDirectors isaccountable for ensuring COMPLIANCE RISKMANAGEMENT considerations. trends, ofcriticalethicalincidentsandotherstrategic regarding theimplementationofethicsmanagement, of Committee receive ahigh-level synopsis ofprogress Every quarter, Executives andtheBoard SocialandEthics Monitoring andreporting which undermineitszero-tolerance policy. closely withtheauthoritiesininvestigating any matters regulatory bestpractices. PetroSA continues to work while atthesametimeensuringalignmentwithglobal implemented. be reported andappropriate corrective measures any deficienciesintheprocess ofinternal controls must respects, asoundcontrol environment. Once identified, compliance environment fairly represents, inallmaterial attestation isto assist inassessing whethertheriskand divisional andcorporate level. The purposeofthis completes attestation atadepartmental, thequarterly PetroSA hasdeveloped anattestation letter. Management Attestation letters

The PetroSA Board has renewed its focus on leading ethically and Business continuity management Every mission-critical process within PetroSA has a Business effectively. The Ethics Continuity Plan which is maintained, readily accessible and Management Strategy available for use in the event of a disaster or major disruption to business activities. These plans are informed by the aims to embed a culture PetroSA Business Continuity Strategy and Policy, which requires that all business continuity plans are kept ready to of ethical leadership be executed and to be updated every three years, or as and when material changes to business processes occur. During to drive sustainable the year under review, all the plans were followed to ensure the transition from an annual review. performance.

Combined assurance King IV allocates responsibility for oversight of the implementation of a Group Governance Framework to within its associated time frames. In the interim, PetroSA the holding company Board of PetroSA, CEF. Since the has formulated a Combined Assurance Framework that all Directors owe their fiduciary duties to the Company where PetroSA assurance providers can use to ensure broader they serve as Directors, PetroSA’s Board needs to ensure coverage of the strategic risks facing PetroSA. In the year that it acts in the Company’s best interest when applying under review, the respective Board committees approved Group policy. To ensure a balance between the various the assurance plans and monitored performance against rights and obligations, PetroSA supports the attainment these plans. The efficacy of the model requires refinement of its holding company’s combined assurance objectives and enhancement to attain its objectives.

PetroSA Integrated Annual Report 2019 | 31 PetroSA Board MANAGEMENT ENTERPRISE RISK Board to ensure atleastquarterly thenecessary oversight. managed onan ongoing basis.These are reported to the PetroSA’s strategic objectives are identified,assessed and The key risks associated withrealising andopportunities the international standard onriskmanagement. has adopted itsERMapproach basedonISO 31000: 2009, (PFMA) andtherecommendationsPetroSA ofKingIV. the requirements ofthePublic Finance Management Act Accordingly, PetroSA hasaligneditsmethodologywith • • • At PetroSA, ERMisbasedonthree principles: and asset operation to asset decommissioning. through project concept evaluation, designandconstruction boardroom to thebackroom, andfrom ideageneration Company’s day-to-day operations andextends from the ofthewaypart PetroSA doesbusiness. Itisbuiltinto the Enterprise riskmanagement (ERM)isafundamental 32 agenda transformation on PetroSA’s Failure to deliver the righttalent capacitate andretain Inability to train, revenue streams diversify PetroSA’s Inability to grow and commercially viable Failure to be STRATEGIC RISK TABLE 1PetroSA’s principalrisks andopportunities

| decision-making. Risk management of isa fundamentalpart Group’s processes; and Risk management isanintegral ofallthe part Risk management creates andprotects value; PetroSA Integrated Annual Report 2019 • • • • • • • • • • • • • • • STRATEGIC FOCUS Improve supplycapacity Improve transformation ofindustry Improve performance culture of employees Initiate training anddevelopment Improve employment equity Access to funding Improve supplycapacity Increase access to diverse markets Develop growth initiatives Mitigate decommissing provision Increase productivity Increase access to diverse markets Improve performance culture Increase access to funding Improve supplycapacity – – – – – – – – – – – – – – – RESPONSE MEASURES Execute corporate socialinvestment (CSI) initiatives Progress approved transformation initiatives Increase access to diverse markets Improve BEEstatus on-the-job training andcoaching Use alternative development initiatives, e.g. jobrotation or Allocate financialresources for training anddevelopment Progress Employee Value Proposition (EVP) Execute partnershipstrategy Progress withlong-term initiatives Develop fundingplanfor thedecommissioning liability Develop planto address production gap Optimal feedstock procurement Reliability andoptimisationphilosophy inplace Continuous cost andcashmanagement Optimised well-management INTERNAL AUDIT

The internal audit function is overseen by the Internal Audit Charter, which is reviewed and approved annually by the Board. To provide for the independence of the internal audit function, the PetroSA Head: Internal Audit reports functionally to the Chairperson of the Board Audit Committee (BAC) and administratively to the Group Chief Executive Officer (GCEO). The PetroSA Head: Internal Audit has unrestricted access to the GCEO and the Chairperson of the BAC, and has a standing invitation to attend meetings of the Executive Committee and other committees made up of a majority of Executives, but is not a member of these committees. During the year under review, the internal audit function conducted a quality assurance review (QAR), as required The internal audit function is responsible for providing by the International Standards for the Professional Practices Executive Management and the Board with independent, of Internal Auditing (ISPPIA). An independent external objective assurance regarding the adequacy and effectiveness reviewer, recommended and nominated by the Institute of of the Group’s governance, risk management and internal Internal Auditors South Africa (IIA (SA)), performed and control processes. The internal audit function includes the finalised the review in October 2018. PetroSA’s internal provision of consulting services, which are designed to add audit function was awarded a Generally in Conformance value and improve the Company’s business systems. (GC) rating, in line with the ISPPIA guidelines.

The work of the internal audit function focuses primarily The QAR Report included findings that were incorporated on areas that present the greatest risk to the Group. This is into regular progress reviews through the Quality and achieved by following a risk-based approach in formulating Assurance Improvement Programme (QAIP) and the its annual and strategic internal audit plans, which are assessment for quarterly reporting to EXCO and the BAC, approved by the BAC. The annual plan is reviewed every in order to continually improve internal audit performance. quarter for material changes in the Group’s risk profile, Furthermore, the function continues to undertake internal, with revisions, where necessary, to the annual plan being ad hoc quality assessments at an assignment level to approved by the BAC. ensure that quality is maintained.

PetroSA Integrated Annual Report 2019 | 33 PetroSA Leadership 34

| PetroSA Integrated Annual Report 2019 PetroSA LEADERSHIP

36 | Acting Group Chief Executive Officer’s review 38 | Acting Group Chief Financial Officer’s report 42 | Executive Management team

PetroSA Integrated Annual Report 2019 | 35 PetroSA Leadership EXECUTIVE OFFICER’S REVIEW ACTING GROUP CHIEF historical policyofself-sufficiency. a legacy liability arisinglargely becauseofthecountry’s to more effectively dealwiththedecommissioning liability, government to consider how bestPetroSA could besupported energy supply for thecountry. We willalsoapproach the that itmay contribute more to security meaningfully of would go alongway inturningaround PetroSA inorder petroleum sector. Suchasupportive legislative framework interestand carrierofthestate participation intheupstream government to designate PetroSA asanationaloilcompany core ofsuchareview willbearequest to theSouthAfrican the PetroSA business modelneedsto bereviewed. At the This state ofaffairs cannotcontinue unabated; hence contend withapersistent solvency andgoing-concern threat. declining cashreserves. Asaresult, theCompany hasto challenges have ledto theprecarious financialpositionand statutory shutdown compounded theproblem. These Operational challenges anda20-day delay inthe2018 estimated atR9.8 billionthatisunderfundedby R7.4 billion. Furthermore, theCompany hasadecommissioning liability high fixed-cost structure relative to product throughput. high costs condensates, ofsupplementaryimported anda The challenges includedepletingindigenous gas feedstock, months beforereview. thecloseoffinancialyear under leadership ofaCompany facing numerous challenges –four (AGCEO) ofPetroSA inDecember 2018, takingover the I was appointed Acting Group ChiefExecutive Officer 36

| Sayidini Bongani PetroSA Integrated Annual Report 2019 providing for along-term sustainablebusiness. to secure long-term alternative feedstock, ultimately business reality ofdeclininggas reserves andthepressure business modelinorder to assist usinnavigating thenew Our priority remains oneofoptimisingourresources and in overall costs of8%compared withtheprevious year. The drive to manage operating costs resulted inadecline R10.4 billiontheprevious year to R12.1 billionthisyear. major currencies, increased gross revenue by 17%from oil price worldwide, aswell astherand weakening against Higher product prices, driven by theincrease inthecrude overvalued onshore andoffshore production assets. back ofaR1.97 billionimpairmentthatwas booked against R2.08 billionfor the2018/2019 financialyear onthe Nonetheless, thePetroSA Group posted anetloss of throughor support state guarantees. own balance sheetandhashadnogovernment bailouts debt-laden. To date, ithasfundeditsactivitiesfrom its In spite ofitscurrent financialchallenges, PetroSA isnot FINANCIAL PERFORMANCE culture across theorganisation through safety awareness strides were madeto inculcate andimprove thesafety Good progress was madeconcerning HSEQ. Significant QUALITY (HSEQ) HEALTH, SAFETY, THEENVIRONMENT AND the Financial Provision Regulations before theduedate. holders to ensure compliance withtherequirements of 2024. PetroSA isaccordingly working withallkey stake- meet itsfinancialcommitments onorbefore 19February Management Act (NEMA), theCompany isrequired to of R7.4 billion.Interms oftheNationalEnvironmental Company hassetasideR2.4 billionleaving ashortfall and onshore facilities, estimated atR9.8 billion.The rehabilitation anddecommissioning ofitsoffshore At year-end, PetroSA isobligated to provide for the DECOMMISSIONING LIABILITY business ofPetroSA asawhole. ofsustainingtheGas-to-Liquid Refineryheart andthe about addressing thefeedstock challenge, whichisatthe internal andexogenous challenges, we remainoptimistic other unexpected operational disruptions.Despite these and a prolonged shutdown, condensatecosts highimported due to anumberoffactors, includingdecliningfeedstock, Production for theyear underreview was 39%below budget PRODUCTION ANDREFINERY PERFORMANCE

The company faces numerous persistent challenges that cannot continue unabated. The business model review seeks to position PetroSA for long-term commercial sustainability and growth.

campaigns and initiatives. In the current year, we have affordable feedstock that will generate profit margins. observed an improved HSEQ Index of 3.25 (2017/2018: Revenue-generating initiatives, including the optimum 2.90), reflecting a positive 12% year-on-year improvement. importation of finished products, are to be aggressively In the coming 2019/2020 financial year, PetroSA will be pursued so as to improve PetroSA’s profitability and cash focusing on leadership visibility, rewards and recognition, flow position. and leadership commitment to the Health and Safety Management System. PetroSA believes that stakeholder In addition, the Business Model Review seeks to position engagements with various external and internal stake- PetroSA for long-term commercial sustainability and holders is pivotal to improve our HSEQ performance. growth, and to more effectively contribute to energy security of supply for the country. The focus includes Having a fatality-free year is one of the positive spin-offs finding a sustainable feedstock solution for the GTL of the safety awareness initiatives mentioned above, Refinery in Mossel Bay. The designation of PetroSA as a such as the weekly Safety Stand Down meetings attended national oil company and carrier of the state participation by all employees and the Looking After Your Neighbour/ interest is paramount to delivering on the PetroSA Bhek’Umakhelwane Campaign. We will be working more mandate. Upstream is to be pursued through strategic aggressively to address the injuries on duty (IoDs) and the partnerships, and embarking on offshore activities will lost-time injuries (LTIs), which remain high. defer the need to abandon the offshore infrastructure. Shale gas, together with regional gas, will also be pursued. TRANSFORMATION AND STAKEHOLDER Options to increase refining capacity will be further ENGAGEMENT explored together, with plans for downstream market entry.

During the period under review, PetroSA continued to play CONCLUSION a role in transformative projects aimed at ensuring that the industry is unlocked for the previously disadvantaged, As we seek to give effect to the mandate of PetroSA as and to improve the lives of the communities we operate in. a national oil company, I acknowledge the commitment PetroSA continued with the Enterprise Supplier Development of, and invaluable contribution by, PetroSA employees Programme and, through the Social Labour Plans, met the in helping keep the organisation afloat in the face of its expectations of communities. Engagements with the industry, numerous strategic challenges. through the South African Petroleum Industry Association (SAPIA), were prioritised and PetroSA ensured I thank the employees for the personal sacrifices they representation on all SAPIA committees. continue to make, sometimes working long hours and weekends to ensure that PetroSA continues to operate CORPORATE PLAN and contribute to the socio-economic development of our country. The Shareholder, CEF, approved the PetroSA Corporate Plan for 2019/2023, subject to the successful implementation of Special thanks go to the PetroSA Board and the Executive an Emergency Plan, which is ongoing. Committee for their guidance and contributions, without which my acting as Group CEO of PetroSA at such a The Emergency Plan seeks to implement measures to ensure critical juncture would have been a source of stress that PetroSA remains solvent and a going concern. It focuses and despair. on reductions in operational and capital expenditure, the disposal of non-core assets and portfolio rationalisation. Bongani Sayidini Concerted efforts are being made to improve efficiencies Acting Group Chief Executive Officer (AGCEO) and the reliability of the GTL Refinery, while processing

PetroSA Integrated Annual Report 2019 | 37 PetroSA Leadership FINANCIAL OFFICER’S REVIEW ACTING GROUP CHIEF TABLE 4The salientperformance indicators for theGroup for theyear are: revenue thanintheprevious year. the Euro, by 23%and12%,respectively, ensured higher rand against majorcurrencies, thatis,theUSdollarand The highercrudeprices (10%)andtheweakening ofthe financial year. Ghana salesvolumes were 11%higherthanthe2017/18 and purchased product 45%less thanbudget. PetroSA GTL salesvolumes were 36%less thantheprevious year was notenoughto make upfor thesalesvolume shortfall. year. A10%year-on-year increase inthecrudeoilprice sales volumes being6%less thantheprevious financial The Group experienced achallengingfinancialyear, with INTRODUCTION 38 ZAR/USD Year-end exchange rates Total debt Turnover SUMMARY OFFINANCIALINFORMATION Annual Brent average Crude oilprices Cash (restricted) Cash (unrestricted) Net asset value Capital expenditure Gross margin ZAR/EURO Abandonment provision Total assets Operating loss EBITDA Loss for theyear Net loss before impairment,interest and tax Cash generated by operating activities

| PetroSA Integrated Annual Report 2019 Futter Alison (2 082) R’million 10 147 (1 276) 12 139 18 511 2 657 70.01 16.36 14.57 (580) 1 061 2019 1 917 498 350 269 355 311 % CHANGE -204% -431% -60% -65% -28% -22% -23% -76% -21% -12% 20% 53% 10% -8% 16% 17% 31% 15 465 10 418 R’million 8 293 2 073 2 295 63.78 14.58 (800) 1 582 1 014 11.83 (392) (535) 2018 206 434 750 349 The Group recorded a loss of R2.08 billion on the back to fund any expansionary projects is stunted by insufficient of a net R691 million impairment which was as a result cash available for investment purposes. of the overvalued onshore and offshore production assets (R1.97 billion) offset by a reversal of the previous year’s Total interest-bearing debt of R1.92 billion at 31 March 2019 impairment of PetroSA Ghana assets on consolidation reflects an increase from R1.58 billion in 2017/2018, entirely (R1.28 billion). The reversal arose because of the rand the result of the weakening of the rand. weakening by 23%, resulting in higher rand values. Property, plant and equipment increased by R1 billion, which FINANCIAL PERFORMANCE is mainly PetroSA Ghana-related. At 31 March 2019, the carrying value of the onshore and offshore production The Group posted a net loss of R2.08 billion (2018: assets was evaluated against the recoverable amount, R392 million loss) for the 2018/2019 financial year. taking into consideration economic conditions, operating budgets and available hydrocarbon reserves. The Group EBITDA (earnings before interest, tax, depreciation and amortisation) was R311 million compared with The Group’s balance sheet has a current gearing of 79% R434 million the previous year (a decrease of 28%), the at 31 March 2019, presented as a ratio of gross interest- Group operating loss was R1.28 billion (2018: R800 million) bearing debt to equity (2018: 43%). Gearing has increased due to impairment charges. mainly due to the larger debt in rand terms after the rand lost 23% of its value against the dollar. The Group is ungeared The net loss before impairment, interest and tax was when presented as a ratio of net debt (comprising gross debt R580 million (2018: R535 million). An impairment charge net of cash and cash equivalents) to equity. The optimal of R1.97 billion in the year to onshore and offshore funding structure for the Group has been considered, with a production assets occurred largely due to an increase in targeted long-term gearing ratio of 30% to 40%, in line with the rand value of the dollar-based cost of provision for the Group’s long-term strategy and growth initiatives. abandonment emanating from the weakness of the rand against the dollar (23% weaker). GOING CONCERN

This charge was partially offset by an impairment reversal PetroSA is facing a number of key strategic challenges of R1.28 billion relating to Ghana assets on consolidation. that have resulted in a liquidity perplexity. PetroSA over Gross revenue increased by 17% from R10.4 billion the the last year has experienced an increase in negative previous year to R12.1 billion this year and was the result of cash flows and suffered operating losses of R1.28 billion higher product prices driven by the increase in the price of (2018: R800 million), yet the Group needs to invest in the crude oil worldwide, as well as the weakening of the rand long-term sustainability of the GTL Refinery and other against the major currencies. growth projects. Indigenous gas reserves are close to depletion and are expected to run out by December 2020, Investment income for the 2018/2019 year was R376 million and PetroSA has not yet secured alternative, affordable and on par with the previous year’s R381 million. Cash feedstock. Furthermore, PetroSA remains vulnerable to reserves of the Group remained the same as the previous exogenous factors such as fluctuations in the crude oil year at R3 billion (including cash restricted for the issuing price and volatility in foreign exchange rates. of letters of credit), with only PetroSA ending the year with a slightly lower cash balance (R2.2 billion at 31/3/2019 In February 2019, an Emergency Plan known as Project vs R2.5 billion at 31/3/2018). Phoenix was initiated. Project Phoenix’s objective is to stabilise the underperforming business environment and Lower finance costs of R493 million were recorded for the return the business to normality in terms of acceptable year compared with R546 million in 2017/2018. levels of operational delivery at the GTL Refinery, financial health, sourcing of feedstock, leadership stability and COST MANAGEMENT administration.

Operating costs (cash) continued to be a focal area during The only positive outcome of Project Phoenix was a the year and saw a decline of 8% compared with the previous dividend of R289 million received from PetroSA Ghana year. Notwithstanding the volumetric challenges cited above, on 27 March 2019. the cost-savings culture has now been entrenched in the Company and will require continuous scrutiny and discipline PetroSA continues to maintain stringent cost-containment in order to ensure sustained benefits going forward. measures for the Group. PetroSA is in the process of disinvestment from non-core assets such as ORCA (which FINANCIAL POSITION ceased operations in March 2013) and the disposal of subsea equipment and materials left over from the Project Ikhwezi The Group’s financial position is an area of concern – even drilling project. While these factors are not within the control though total Group assets increased to R18.5 billion (2018: of the Directors, any further negative deterioration in these R15.4 billion) – as the Group’s net asset value decreased factors will impact negatively on the Group’s profitability to R498 million (2018: R2.08 billion), the result of losses and place additional strain on the Group’s resources. at PetroSA. An Emergency Plan, built into the Company Corporate Plan, seeks to address this issue and is fully DIVIDENDS supported by the PetroSA Board and the management of CEF. Whilst various options are under consideration, No dividends were declared in this financial year. including a review of our partnership strategy, our ability

PetroSA Integrated Annual Report 2019 | 39 PetroSA Leadership Other key stakeholders involved includetheDepartments as required undertheNEMA Financial Provision Regulations. Africa (PASA), to ensure thatitdischarges itsresponsibilities closely withtheRegulator, thePetroleum Agency ofSouth to closethefundinggap. Inaddition,PetroSA isworking PetroSA, through various andoversight support mechanisms, extent, theholdingcompany hascommitted to assist Provision Regulations before 19February 2024. To this compliance withtherequirements oftheFinancial PetroSA isworking withallkey stakeholders to ensure reviewed by anindependentspecialist. decommissioning contractor, whichwas thereafter technical work conducted by aninternational The provision calculationisbasedoncomprehensive time thefinancialprovision fundswillneedto beavailable. with theseregulations before 19February 2024, by which its financialprovision andassociated plansinaccordance (NEMA), PetroSA isrequired to review, assess andadjust under theNationalEnvironmental Management Act Financial Provision Regulations, whichwere promulgated a shortfall ofapproximately R7.39 billion.Interms ofthe has setasideR2.41 billionfor thisandthere iscurrently onshore facilities was valued atR9.80 billion.PetroSA rehabilitation anddecommissioning ofitsoffshore and At year-end, theCompany obligation to provide for the FUNDING OFDECOMMISSIONING PROVISION impact ontheGroup. financial year commencing 1April2018 hadamaterial accounting pronouncements thatare effective for the commencing 1April2018. Noneofthenew oramended Standards Board (IASB) thatare effective for financialyears pronouncements issued by theInternational Accounting The Group hasadopted allnew andamendedaccounting ACCOUNTING STANDARDS PetroSA Ghana. 2018 Shutdown (R584million),withthe balance from equipment, whichwas mainlymadeupofspendonthe The Group invested R1billioninproperty, plantand CAPITAL EXPENDITURE the current year andown reserves. Investing activitieswere financed from cashgenerated in and increases ininventory andaccounts receivable. was mainlydueto negative foreign exchange movements R1 billionin2017/2018 to R355millionfor 2018/2019. This Cash generated by operations decreased significantlyfrom CASH FLOW AGCFO REVIEW: CONTINUED 40

| PetroSA Integrated Annual Report 2019 from therelevant fields. once 50%oftheestimated reserves have beenproduced of thesignedpetroleum agreements, thiswillcommence international provisions, valued atR347 million.Interms No fundshave beensetasidefor thefundingof investments: general purposesoftheGroup andcomprise thefollowing decommissioning. These fundsare notavailable for the The Company hassetasidefundstowards thecost of Environmental Affairs. of Mineral Resources andEnergy, NationalTreasury and it raises funding inoffshore financialmarkets, raw imports The Group isexposed to foreign currency fluctuations,as FOREIGN-CURRENCY RISKMANAGEMENT guarantees, earningarate ofinterest of7.76%. with theCEFascollateral for rehabilitation liability R174 millionfor theyear. R477 Afurther millionisinvested rehabilitation liability atfixed rates of10.08% and earning PetroSA invested R1.7 billionincash,ring-fenced for the down from R214milliontheprevious year. generated by theTreasury intheperiodunderreview, financial year, contributing R137 millionininterest income rates, aswell asthereduced cashholdingduringthe achieved oninvestments isinlinewithcurrent market invested infixed-rate instruments.The rate ofreturn (2018: 7.61%). At 31March 2019, R350millionwas equivalents for PetroSA were invested atarate of7.57% As at31March 2019, South African rand cashand at 31March 2019, mainly dueto operational activities. R3.05 billionintheprevious year to R3.01 billionas Cash undermanagement for theGroup decreased from based ontheirassessed ratings andare actively monitored. on surpluscash.Investment counterparties are approved term liquidity needsare met,whilemaximisingthereturn split into acore andliquidportfolio to ensure thatshort- in linewithBoard-approved policies.The cashportfolio is The PetroSA Treasury manages itscashandequivalents LIQUIDITY RISKMANAGEMENT Cash depositswiththeCEF Cash inPetroSA Rehabilitation NPC Financial guarantee R’million 2 408 2019 1 751 1 477 180 R’million 2 368 2018 1 711 477 180 material and spares and exports finished product. All local sales of finished products are concluded on a foreign currency-derived basis.

The Group hedges foreign exchange transactions to the extent possible where there is a future currency exposure. The Group also exercises both natural and synthetic hedges (via foreign currency accounts) in order to manage foreign currency exposure.

FUNDING

A limited-recourse, reserve-based lending (RBL) facility, which is ring-fenced at the PetroSA Ghana asset level for an amount of up to USD150 million, was concluded during the 2015 financial year. The facility was voluntarily reduced to USD125 million as at 1 January 2017. At 31 March 2019, the available facility was USD100 million, of which USD72 million had been used. No further drawdowns have been effected since year-end.

In addition, the Group has negotiated facilities of up to R900 million to support the increasing trading business of the Trading, Supply and Logistics Division and to ease pressure on working capital.

The Group’s funding strategy that supports the pipeline of projects and investments has been to raise bridging finance in the short term, thereafter converting to longer-term debt at the asset level. A number of options are being explored (AOE) for the Deepwater TANO (DWT) and West Cape in conjunction with the funding community to optimise the Three Points (WCTP) Portions of Jubilee Field for the balance sheet so as to raise funding for sustainability 2006–2016 years of assessment. projects under consideration. The provisional assessment indicates an amount of The PetroSA Ghana acquisition and its further development, USD5.8 million due to the GRA. PetroSA Ghana Limited and investment in Project Ikhwezi in prior years, have (PGL) objected to this assessment based on the fact that largely used cash reserves available to fund future projects the GRA is not mandated to collect AOE. PetroSA Ghana in the short to medium term. Consequently, in order for has verified and submitted AOE data to the Ghana National the Group to achieve its sustainability and growth strategy Petroleum Corporation (GNPC) up to Q4 2018. In terms of initiatives, support from the Shareholder in the form of a the tax submissions made, there is no AOE due for the recapitalisation or Shareholder guarantees will be required period 2006–2016. The Department of Finance in Ghana for significant projects, in addition to the current areas of undertook to mediate between the GRA, the GNPC and focus and commitments contained in the Corporate Plan. the JV partners to resolve the impasse. The GRA audit assessment has, however, not been formally rescinded. In PREFERENTIAL PROCUREMENT mitigation of this risk and based on legal advice received, and should the GRA pursue this matter further, the dispute For the period under review, payments made to suppliers will be submitted to the International Chamber of Commerce of goods and services totalled R11.8 billion. for international arbitration in the manner provided for by Article 24 of the Petroleum Agreements. Total procurement (non-discretionary) expenditure in respect of organs of state, sole-source suppliers and PetroSA’s total tax contribution (comprising indirect foreign entities totalled R6.1 billion. The Group’s total taxes, employees tax, royalties and municipal rates) for discretionary procurement for the period under review 2018/2019 is R5.2 billion (2018: R5.3 billion). in terms of the Codes (i.e. Level 1 to 8) was R5.7 billion. Total B-BBEE (broad-based black economic empowerment) WORD OF APPRECIATION procurement expenditure of R5.1 billion equates to 89.75% of discretionary spend for the period under review. My thanks go to our finance team for their diligence and unwavering support during a very challenging year beset TAX-COMPLIANCE STATUS by a volatile operating environment. The Group was subjected to extreme financial pressure. Under these trying PetroSA and the PetroSA Group of companies have filed circumstances, the finance team rose to the challenge and, as applicable, paid all taxes as they fall due in South of delivering appropriate financial management and Africa and in foreign jurisdictions in which PetroSA governance systems across the Group. operates. PetroSA Ghana is, however, involved in a dispute with the Ghana Revenue Authority (GRA). The GRA raised Alison Futter a provisional tax assessment of Additional Oil Entitlement Group Chief Financial Officer (Acting)

PetroSA Integrated Annual Report 2019 | 41 PetroSA Leadership Acting Group ChiefFinancial Officer inSeptember 2018. Mutual (from 1998).Shewas appointed to therole of at Ernst&Young (from 2000)andTax Accountant atOld Prior to joiningPetroSA, shewas Principal Tax Consultant from 2012 to 2014, and, from 2015, Group Tax Manager. Tax Advisor from 2006to 2012, Acting Group Tax Manager the Finance Division. Shefulfilledtherole ofInternational Mrs Futter joinedPetroSA inOctober 2006,working within BCom, MCom (Taxation) Acting Group ChiefFinancial Officer (AGCFO) Alison Futter TEAM MANAGEMENT EXECUTIVE 1 December 2018. & Production. Hewas appointed AGCEO ofPetroSA on Exploration &Production, andVice-President: Exploration Business Intelligence, Regional Manager: EastAfrica, Reservoir Engineer, Principal Reservoir Engineer, Strategist: and strategic roles withinPetroSA, ranging from Senior Reservoir Engineer. Hehasheldvarious seniortechnical his career asaProduction Engineerintraining andlater petroleum industry, allgained atPetroSA, where hestarted Mr Sayidini has19years’ working experience inthe and Policy (with distinction),MBA BTech ChemEng,MScPetroleum Eng,DIC,LLMPetroleum Law Acting Group ChiefExecutive Officer ( Bongani Sayidini 42

| PetroSA Integrated Annual Report 2019 AGCEO ) appointed to thepositionofGCOO inJanuary2018. (CEO) (acombined role) untilNovember 2018. Hewas Acting ChiefOperating Officer andChiefExecutive Officer until October 2017. InNovember 2017, hewas appointed Energy. Hewas Vice-President: Operations from June2014 PetroSA invarious engagements of withtheDepartment roles, includingmaster plandevelopment, andrepresenting Scientist in1998,servingvarious internal andkey strategic Mandela University) before joiningPetroSA asaResearch Nelson MandelaMetropolitan University (now Nelson Mr Zono worked asaLecturer andResearch Associate at BSc (Hons) Chemistry, MBA,BTheol Group ChiefOperating Officer (GCOO) Kholly Zono January 2019. He was appointed Acting Vice-President: Midstream in joint venture technology company, andPetroSA Ghana. Division. MrManneisaBoard memberofGTL.F1, PetroSA’s responsibilities for projects intheNew Ventures Midstream Elizabeth, andlater took onbusiness development 2009, withthe team developing acrudeoilrefinery inPort Mr Manne’s career atSasol.HejoinedPetroSA started in B ChemEng,BScChemistry, MBL Acting Vice-President: New Ventures Midstream Thabiso Manne Andile Zokufa Saleem Soobader Acting Vice-President: Human Capital Acting Vice-President: New Ventures Upstream

BCom, Development Programme in Labour Relations, PDM ND Chem Eng, BBA, MBA (HR), PGD (Labour Law) Mr Soobader has more than 25 years’ experience in the Mr Zokufa has more than 15 years’ experience in human industry. He started as a Trainee Process Controller capital-related fields. He has occupied several executive at the PetroSA’s FA Platform in 1992. Other roles include HR and employee relations positions, culminating in his Operations at the ORCA Floating Platform and Asset appointment as HR Director at Colgate Palmolive for the Manager in the Commercial Department. Mr Soobader. Southern Africa region. He ran an HR consultancy and Has also managed the Egypt and Sudan exploration several business ventures before joining PetroSA in 2005 operations and was later involved in new business as the Human Capital Client Manager. Mr Zokufa was development and asset management. In 2015, he was appointed Acting Vice-President: Human Capital in appointed Exploration and Production Acting Regional January 2019. Manager: South Africa. He is the Acting Vice-President: New Ventures Upstream since December 2018.

Michael Nene Odoi Paul Qabaniso Chibambo Acting Vice-President: Operations Acting Vice-President: Trade Supply And Logistics

Executive MDP Certificate in Strategic Management, Dip (Marketing), MBA

Mr Nene has more than 40 years’ experience in the Mr Chibambo has over 39 years’ experience. Before joining petroleum and chemical industry, starting his career at PetroSA as Business Development Manager for sub-Saharan Sapref in the production section. He joined Mossgas, Africa, he was Trading Manager at BP South Africa. He served at the GTL Refinery in Mossel Bay, in 1990 as a Senior as Regional Head of Logistics and has successfully developed Operator in the Synthol Unit. Mr Nene has occupied BP’s African trading business. He also implemented a new various management positions at PetroSA, including the business model to transition the trading business from position of Production Manager: GTL Refinery, and from Europe to Asia. He was appointed Acting Vice-President: January 2018, the Acting Vice-President: Operations. Trading, Supply & Logistics in December 2018.

PetroSA Integrated Annual Report 2019 | 43 PetroSA Leadership 56 | 50 | 46 | 44

| PetroSA Integrated Annual Report 2019 Transforming Company, sector andsociety Strategic focus area 3: Health, safety, environment andquality Strategic focus area 2: Business sustainability Strategic focus area 1: REVIEW OF THE 2018/2019 FINANCIAL YEAR

PetroSA Integrated Annual Report 2019 | 45 Review of the 2018/2019 financial year Feedstock supplyto theGTL Refinery profitable to process condensate. . suppressed margins to theextent thatitwould notbe In JanuaryandFebruary 2019, highcondensate prices constraining throughput rates. condensates. Lighter condensates have theeffect of not available, whichresulted intheRefinery runninglighter processing. The budgeted high-distillate condensate was Market factors alsoaffected imported-condensate unplanned downtime caused by afire incidentintheDHT. change inthediesel hydrotreater (DHT)catalyst; aswell as regenerate aplatformer unitcatalyst andsubsequentto a delayed start-up following otherplanneddowntime to factors: theextension inthestatutory shutdown; the condensate. This was causedby various contributing There was alsoashortfall intheproduction ofimported dampened production performance. delay instart-up. This contributed further to theoverall during thestatutory shutdown, whichresulted ina20-day FA/EM wells. Repairs to latent defects were carriedout by adeclineingas andcondensate from thecarbon-rich equipment failure andby lower landedgas quality caused Indigenous production was negatively affected by below thebudget of7.298 MMbbls. and non-indigenous production for theyear was 39% At 4.475 MMbbls(millionbarrels), thetotal indigenous GTL REFINERY PERFORMANCE sustainability Business FOCUS AREA STRATEGIC 46 which varied between 25MMscf/d and35MMscf/d. and 55MMscf/d. This was followed by theE-MField, between 22 MMscf/d (millionstandard cubicfeet perday) made thelargest contribution to theRefinery, varying Refinery are theFA, E-M,SCG andF-Ofields.The F-OField The current offshore SouthCoast fieldssupplyingtheGTL TABLE 1Total production Indigenous MMbbls Total production Total production Non-indigenous

| PetroSA Integrated Annual Report 2019 Budget 7.298 2.427 4.871 2018/2019 Financial year Actual 4.475 2.552 1.923 % Dev -48% -39% -21% 1 sizes The to beimported. project iscurrently inFEED. Voorbaai to 40000m alcohol tanks willincrease thetotal dieselstorage at economies ofscaleassociated withincreased shipping. case ofotherinitiatives to address demurrage riskand placed onholdpendingtheincorporation into thebusiness however, bemarginal. The project hastherefore been The profitability improvements inbothphaseswould, an increase intotal condensate processing to 31kbbls/d. day). Phase2willimprove distillate processing, resulting in total condensate processing to 26 kbbls/d (kilobarrels per columns andinstallingnew equipment,willincrease the Phase 1,whichcomprises changingtheservices ofexisting in phasesto realise value. The earlyimplementationof It isanticipated thattheproject willbeimplemented increase total condensate processing. to remove thebottleneckatGTL Refinery inorder to solution isimplemented. The objective ofthisproject is for fostering growth andprofitability untilthelong-term in condensate to 31000BPDasalow-investment option The 2018–2022 PetroSA budget identifiedtheincrease 31 000Barrels perDay Project ministerial approval before itcanproceed into FEED. subject to Shareholder approval. The project now awaits into the front-end engineeringanddesign(FEED) phase, reviews, theBoard gave approval for theproject to proceed completed inJune2017. Following successful internal peer A feasibility studyinrespect oftheECP Project was when gas feedstock isnolonger available. operations. The ECP Project presents aviablesolution PetroSA continues to explore alternatives to sustain With thedepletionofgas feedstock to theGTL Refinery, Enhanced Condensate Processing (ECP) Project SUSTAINABILITY ANDGROWTH PROJECTS pipework modifications whichwilloptimisetheuse of The required refinery changes are mostlylimited to financial year to reduce theoverall reformate requirement. Two key initiatives have beenunderway inthe2018/2019 condensate, willresult inhigherreformate consumption. throughput, especiallyoflighter grades of imported octane specificationinrespect ofpetrol, an increase inthe Given reformate thatimported isrequired to achieve the Reformate-reduction initiatives 20 000m increase thedieselstorage capacity by anadditional PetroSA’s dictated theneedto monthlydieselimports Conversion ofVoorbaai alcohol tanks to receive diesel 3 ofworking volume. The conversion ofthe 3 . This willallow economic parcel existing equipment. Changes required currently will be on Greater Jubilee Field the de-isopentaniser (DIP) and the platformer unit. These As at 30 September 2018, reserves for the Jubilee fields changes will also enable an economic increase in the amounted to 529.7 MMbbls, of which 28.5 MMbbls throughput of the petrol-producing units of about 15%. represented the total production for the year under review. Production net to PetroSA Ghana was 0.78MMbbls. Light well interventions in respect of producing fields Contingent resources associated with the Greater Jubilee As part of the efforts to safeguard the feedstock supply (Mahogany and Teak) Area are estimated at 19.4 MMbbls to the GTL Refinery a number of light well intervention hydrocarbons, as defined by the Independent Oil and Gas projects have been executed and more are planned for the Reserve Auditor. following financial year. It is critical for the success of the longer-term projects to ensure that the current life of field Deepwater TANO (DWT) TEN fields (LOF) forecast is realised. This will enable the GTL Refinery As at 30 September 2018, estimated 2P reserves for to continue operating until such time as these projects are the Tweneboa, Enyenra and Ntomme (TEN) fields were ready for implementation. 236.5 MMbbls of oil and 344 Bscf (billions of standard cubic feet) of gas. E-BK Project The E-BK Field is a condensate-rich gas accumulation Total oil production for the year under review was located approximately 135 kilometres offshore from 23.6 MMbbls, of which the net oil entitlement to PetroSA Mossel Bay within the central part of the Bredasdorp Ghana was 0.9 MMbbls before royalty and redetermination Basin. The objective of the project is to extend the life adjustments. During the same period, the total associated of the GTL Refinery. gas production was 344 Bscf, of which net gas to PetroSA was 13.1 Bscf. The E-BK Project has completed the technical component of the feasibility phase. However, the project needs to At the end of the 2018/2019 financial year, 12 wells were secure a partner to fund and execute the development on stream in the TEN fields. The associated gas produced is before entering the next phase (FEED). A number of data used to generate power on the floating production storage rooms were held to enable interested parties to obtain and offloading unit (FPSO). The remainder of the gas is clarification and to review data in more detail. To date, either reinjected or flared, or substituted for Jubilee gas if PetroSA has yet to secure a partner to fund and execute Jubilee is unable to provide the gas. the E-BK Project. The Ghanaian government approved a one-year extension On 23 January 2019, the Petroleum Agency of South Africa until April 2018 for the Wawa Appraisal Partnership to (PASA) granted PetroSA a Production Right covering the conduct further subsurface and field development studies, E-BK gas discovery. after which a report would be submitted.

PetroSA Ghana Limited: Ghana West Cape Three Points (WCTP) PetroSA Ghana participates in three areas offshore from The Akasa Field requires further appraisal. An application Ghana: the Greater Jubilee Unitised Area (Jubilee, Mahogany to the Ghanaian government for a two-year extension of and Teak fields), the West Cape Three Points (WCTP) Block, the Akasa Approach is awaiting approval. and the Deepwater TANO (DWT) Block.

PetroSA Integrated Annual Report 2019 | 47 Review of the 2018/2019 financial year beginning to yielddividends. Eskom. Efforts to grow thePetroSA footprint are slowly 31%. Commercial saleswere upby 41%, excluding salesto structure, contribution margins were better thanbudget by downstream market environment dueto limited infra- industry andthecommercial market. Despite thechallenging by ahigher-than-plan performance ondieselsalesto theoil lower-than-plan production performance. This was driven Sales performance for theyear was onplandespite a Total salesvolumes andrevenue TRADING, SUPPLY ANDLOGISTICS work programme. interest to Rosgeo inexchange for acarry-on theforward- as pertheMPRDA, ofPetroSA’s to assign aportion equity the transaction, whichisfollowed by aSection11approval, approval underSection54(2)(d) ofthePFMA to conclude respective approval processes. PetroSA requires ministerial JOA. willthenbeable to commence Bothparties their issues inorder to arrive atthefinaldrafts oftheFOA and PetroSA andRosgeo to reach agreement ontheremaining conclude thedeal.The planfor thenext periodisfor is currently seekinggovernment to finaliseand support (JOA) to give effect to afarmout transaction. PetroSA a farmout agreement (FOA) andajointoperating agreement and 11a.PetroSA andRosgeo are intheprocess offinalising conclusion ofafarmout dealfor ER61, covering Blocks 9 during theBRICSSummitinChinapaved theway for the between PetroSA, theCEFandRosgeologia (Rosgeo) A framework agreement executed on4September 2017 South Coast the Public Finance Management Act (PFMA). deals ontheWest Coast interms ofSection54(2)(d) of ministerial approval to conclude thepending2016 farmout ofMineralDepartment Resources andEnergy to expedite Discussions are continuing withtheCEFand the Company. multiple exploration programmes atminimalornocost to will provide PetroSA in withtheopportunity to participate programme associated withhigh-reward potential. This sought to fundandexecute thehigh-riskexploration work partners withdeep-water exploration experience willbe billionbarrelspotential ofupto 1.2 ofoil.Reputable exploration This opportunities. represents anestimated approvals, inorder to gain access to thehigh-reward on a100%equity basis,subjectto receiving allrequisite opted to continue intheseoffshore West Coast blocks Petroleum Resources Development Act (MPRDA). PetroSA amendments to, andthefinalisationof, theMineral and Coast asaresult ofongoing uncertainty surrounding Several jointventure partnersexited blocks ontheWest West Coast commitments. interest ofcurrent andfuture work programme equityof part intheassets inexchange for thecarried by forming jointventure partnershipsthrough thedivestment together withreputable, experienced oilandgas companies, assets ontheSouthandWest Coast ofSouthAfrica, PetroSA ispursuing theopportunity to explore itsoffshore Farmouts (West Coast andSouthCoast) 48

| PetroSA Integrated Annual Report 2019 through hospitality arrangements inorder to access the as theCompany continues to rely oncompetitor assets The margins perbarrel achieved remain underpressure, input costs to theRefinery. remains akey enablerfor cost reductions, thereby improving challenge insourcing condensates for theRefinery. This The limited logisticsattheMossel Bay Refinery remain a customer base. Such efforts willalsoincludeextending thehigh-margin grow thefootprint inthesupplyarea around theRefinery. optimisation willform acore elementoftheefforts to next financial year. The review oftheMossel Bay storage to operate more efficientlywillremain thefocus inthe companies, resulting inlow margins overall. The strategy PetroSA’s salesfor theperiodrelied heavily onsalesto oil Total annualsales products Purchased products Manufactured TABLE 2 financial year. the focusinnext operations willremain More efficient Sales andrevenue performance Unit m3 m3 m3 1 418 877 1 154933 Budget 263 944 1 428062 Actual 750 531 677 531 Variance 184% -41% 1% market. To manage the limited access to infrastructure, Commercial gas sales opportunities to partner and develop additional PetroSA has been actively seeking alternative opportunities infrastructure will be pursued. to monetise the ‘tail’ gas in the form of compressed natural gas (CNG) and LNG using the existing natural gas assets Economic indicators in the period were better than budget, at the Mossel Bay GTL Refinery, and, as a result, provide with the Dated Brent price of oil being 17% higher than an additional revenue stream for the PetroSA business. plan at USD70.01 per bbl for the 2018/2019 financial year, against a budgeted price of USD59.69 per bbl. The rand Market engagement is underway to consider options for exchange rate was 3% stronger than plan at R13.769 to direct gas sales to local industries. This will require an the dollar, against a budget average of R14.21 to the dollar. energy switch from the existing energy source for large The combined impact of the two resulted in a positive industrial and commercial applications. Since there is environmental impact of R243 million on revenue. no existing natural gas consumption in the Western and Eastern Cape, the market development is a timely project. Purchased-product sales performance There are ongoing discussions with the industry to determine the scope of modifications required, potential TABLE 3 Q4 and year-to-date (YTD) purchased-product off-takers and project bankability. To initiate the commercial gross margin (GM) gas sales programme, the organisation will focus on PURCHASED PRODUCT Actual Budget establishing the logistics infrastructure to supply LNG GM (R’m) 2018/2019 2018/2019 to the market in the 2019/2020 financial year. R’m R’m Mossel Bay Gas-to-Wax Project Revenue 5 735 1 919 Since 2002, PetroSA’s technology joint venture company, Cost of sales 4 645 1 861 GTL.F1, has been involved in research and development Net profit 91 58 (R&D) and commercialisation efforts focused on the Net margin % 2% 3% low-temperature Fischer–Tropsch (LTFT) technology. The LTFT technology was developed for both local and At R91 million, the net margin for the year was positive, international markets and is designed for diesel, wax and compared with a budget of R59 million. lubricant base oil production from natural gas, coal or biomass. PetroSA’s proposed indigenous and imported gas Feedstock imports feedstock scenarios align well with the long-term efforts The limited infrastructure in Mossel Bay is a constraint on that the Technology Development Department has been the type of condensates that PetroSA can process. Coupled undertaking within GTL.F1. with the challenging financial position, this has negatively impacted the premiums which PetroSA could achieve to PetroSA is currently exploring the possibility of combining reduce the cost of feedstock. Despite these challenges, its own GTL.F1 technology with another competing LTFT efforts to increase the condensate basket were implemented, technology. The idea is to develop a composite which with two new condensates having been tested and tried at encompasses the best aspects of both technologies in an the Refinery. endeavour to become the third large-scale provider of the LTFT technology in the world. Technical assessment For the first time, the Refinery has been able to process of the GTL.F1 and the other technology has shown its condensates from the US. The supplier exerted more potential compatibility for use in the Gas-to-Wax Project pressure on PetroSA to provide guarantees for transactions in Mossel Bay. entered into. However, the Company managed to secure open credit and extended terms. In the next financial The Gas-to-Wax Project is part of the key focus area, year, the organisation will focus on improving logistical Sustainability, in PetroSA’s Corporate Plan. The project has capability at the Mossel Bay port and on using Group the capacity to provide a long-term future for the Mossel resources to optimise the feedstock supply chain. PetroSA Bay GTL Refinery by improving gas feedstock affordability. will continue to work with crude suppliers to identify more A high gas affordability unlocks exploration and also the optimal ways of sourcing feedstock so as to manage the development of PetroSA’s indigenous gas opportunities. risks associated with the activity. This would otherwise not have been explored due to the low gas affordability of the current Mossel Bay GTL MIDSTREAM GROWTH AND SUSTAINABILITY Refinery operation. Any gas conversion process which INITIATIVES produces high-value products such as wax expands the range of feasible gas feedstocks that can be processed. Gas supply to the Refinery This will include commercially traded gas sources such PetroSA continues to pursue efforts to identify alternative as LNG and CNG. gas supply sources. Studies have shown that the current Mossel Bay GTL Refinery operations cannot afford to Economic analysis of the project shows a substantial import gas on its own. Any proposed indigenous and improvement in break-even gas price affordability. This liquefied natural gas (LNG) feedstock scenarios should means that, in future, PetroSA will be positioned to afford be coupled with the production of high-value products. gas from the recent Total offshore discoveries in Block Together with iGas and the Independent Power Producer 11B/12B south of Mossel Bay, as well as potential gas (IPP) Office, PetroSA is in discussion with potential supply from Blocks 9 and 11a. suppliers to establish the viability of a long-term supply of gas feedstock to the Mossel Bay GTL Refinery.

PetroSA Integrated Annual Report 2019 | 49 Review of the 2018/2019 financial year FIGURE 1HSEQ dashboard for theyear 2018/2019 ** * the HSEQ dashboard. years andthe2018/2019 year underreview. Figure 1presents Table 1shows comparative HSEQ indices for thepreceding property. systems inorder to causeZero Harmto itspeopleand safety record by strengthening internal processes and PetroSA hastaken seriouslythechallenge to improve its 12% year-on-year improvement. This demonstrates that compared with2.90 inthelastyear, whichrepresents a The HSEQ Index for theyear under review is3.25, (HSEQ) PERFORMANCE HEALTH, SAFETY, ENVIRONMENT ANDQUALITY Environment andQuality Health, Safety, FOCUS AREA STRATEGIC 50 TABLE 1 Adjusted Calculated Calculated score reduced by 10%dueto afatality inJanuary2017. Calculated score (2.4) defaulted to 1dueto afatality inSeptember 2015. environmental incidents 9001:2015 certification

frequency rate (LTIFR) | management –ISO PetroSA Integrated Annual Report 2019 Lost-time injury Reportable Fatalities Comparative corporate HSEQ indices Quality 2015/2016 2.4 FY 1* 2016/2017 Target =Achieved ISO certification non-major findingsclosed Actual =Achieved, with80% Target =4–6 Actual =7 Target =0.35–0.39 Actual =0.93 Target =0 Actual =0 1.44** 1.60 FY 2017/2018 2.90 2.90 FY 2018/2019 2 3.25 3.25 FY proactively identifyandmanage any emerging healthrisks. PetroSA’s healthprofile, which,inturn,enablesPetroSA to The information acquired isalsousedto determine to intervene andmanage any identifiedhealthconcerns. these medicalassessments empower PetroSA’s employees among PetroSA’s employees. The invaluable outcomes of a yardstick for theearlydetection ofpossible healthconcerns X-rays. The annualmedicalcheck-ups continue to serve as examinations, biologicalmonitoring, spirometry tests and Medical Surveillance Programme, whichincludesphysical occupational healthpractitioners conduct PetroSA’s Programme. Qualifiedoccupational medicalofficers and hazards, thereby informing theannualMedicalSurveillance on anannualbasis.These surveys identifypossible health occupational-hygiene surveys andhealthriskassessments In compliance withregulations, PetroSA conducts its employees. primary healthcare amongPetroSA’s mostvaluable asset, occupational medicalsurveillance, andonthepromotion of maintenance andmanagement ofoccupational hygiene, on improving existing programmes, aswell asfocusing onthe As anorganisation, PetroSA iscommitted to continually operating withoutfatalities for two consecutive years. statement findsexpression intheachievement of PetroSA iscommitted to Zero Harmto people.This Our people,ourmostvaluable asset HEALTH levels ofstaff. a positive culture andraises HSEQ awareness across all of PetroSA’s leadership to allemployees. Italsoreinforces This demonstrates thevisibleandexemplary commitment levels to individualsattheinterface oftheHSEQ risks. be driven from thetop, cascadingthrough management PetroSA subscribesto theview thatHSEQ performance LEADERSHIP FIGURE 2 work environment Interaction between employee health,work andthe Work surveillance surveillance programme programme Medical Medical Employee Environment Work

PetroSA achieved its target of 95 to 100% of employees HSEQ performance during the 2018 shutdown undergoing medical surveillance during the 2018/2019 PetroSA executed a statutory shutdown in the year under financial year. review, during which the current staff complement more than doubled as a result of the addition of contractor staff. In addition to medical surveillance, through the weekly No fatalities occurred during the shutdown and incidents Safety Stand Downs, PetroSA continuously raises awareness of injury on duty decreased by 66% compared with the about health and safety issues in general, using face-to- previous shutdown executed in 2013/2014. This is face discussions on health and safety-related matters illustrated in Figure 3. across all facilities. FIGURE 3 Comparison: Shutdown injuries on duty, 2013 vs 2018 The PetroSA Wellness Programme recognises the 140 importance of a healthy workforce. The Company accordingly strives to continuously improve the following 120 existing programmes for monitoring: 100

80 • The concentration and intensity of stressors at the workplace; 60 • The duration and frequency of exposure; and 40

• An individual’s susceptibility to illness. 20

0 The integrated employee wellness and health programmes 2013 Shutdown 2018 Shutdown are aimed at achieving the following outcomes: HSEQ performance during the shutdown is attributed to a • Promoting and maintaining a high degree of physical, collaboration between the service provider and PetroSA’s mental and social well-being among employees in all HSEQ Department, underpinned by the Boots on for Safety occupations; Campaign. • Preventing the premature departure (boarding) of employees due to ill-health caused by working HSEQ performance conditions; and No fatal injuries were recorded during the year under • Mitigating employees’ exposure to risks. review. A total of 27 LTIs were recorded, translating to a LTIFR of 0.93. This is above the target LTIFR of 0.35 to 0.39, SAFETY as shown in Table 2.

PetroSA is addressing the unacceptably high number of TABLE 2 LTIFR trends, 2014/2015 to 2018/2019 injuries on duty (IODs) and, ultimately, lost-time injuries (LTIs) that occur within the organisation. The Safety FY FY FY FY FY 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 Turnaround Plan has inspired a progressive shift towards greater safety consciousness. This may help to improve Number of 0 1 2 0 0 fatalities safety. The oil and gas industry in general is experiencing Number 14 13 17 17 27 the same challenges. Through forums like the South African of LTIs Petroleum Industry Association (SAPIA), PetroSA is part of deliberations seeking to provide solutions to these matters. LTIFR 0.33 0.42 0.68 0.79 0.93 LTIFR 0.40 <0.40 0.35– 0.35– 0.35– Safety Turnaround Plan target 0.39 0.39 0.39 The HSEQ Department formulated the Safety Turnaround Plan in consultation with key stakeholders during the PetroSA has successfully arrested the LTIFR rate since 2016/2017 financial year. The plan continues to be the start of the Boots on for Safety Campaign, as implemented as the Boots on for Safety Campaign. demonstrated in Figure 4. As the Safety Turnaround Plan The campaign emphasises the introduction of a is further implemented, this arrest will, in turn, accelerate behavioural-based safety programme under the banner, towards a noticeable safety turnaround in LTIs. This trend Bhek’Umakhelwane/Look After Your Neighbour, in is underscored by the HSEQ performance during 2018. order to inculcate a stronger personal-safety culture. FIGURE 4 LTIFR and LTIFR growth The campaign was successful in improving the general culture of safety awareness and in eliminating fatalities LTIFR

LTIFR growth 0.83 for two consecutive years. This was also observed in 0.79 PetroSA’s HSEQ performance during the 2018 shutdown. 0.68 It is worth noting that a safety culture turnaround campaign takes at least five years of close monitoring and continuous optimisation to achieve industry best 0.42 practice. The PetroSA HSEQ team is confident that the 0.33

full implementation of the Boots on for Safety Campaign 0.26 will reduce the risk of injury to a level that could be 0.19 0.11

deemed reasonably practical for the type of business 0.09 in which PetroSA operates. 0.04 FY2014/2015 FY2015/2016 FY2016/2017 FY2017/2018 FY2018/2019

PetroSA Integrated Annual Report 2019 | 51 Review of the 2018/2019 financial year FIGURE 6 personal-safety culture. do. Moreover, individualsare encouraged to have astrong required to maintainsafety awareness ineverything they outside theplantarea are notcovered. Eachperson is plant areas. This isillustrated inFigure 6.Personal activities corridors, stairs, parkingareas, androads outsideprocess actively engaged injob-related tasks, suchasthecafeteria, high-risk areas, thatis,withinareas where peopleare not prevalentA further trend isthatmostLTIs occur outside FIGURE 5 aligned withthePetroSA HSEQ Policy. to industry bestpractice andto achieve Zero Harm,as managers inorder to alignHSEQ management practices amonthlyHSEQ meetingfor allservice provider safety most LTIs inthelastyear. Inresponse, PetroSA instituted As shown inFigure 5,service providers contributed the 52 STRATEGIC FOCUS 2:CONTINUED

| PetroSA Integrated Annual Report 2019 DistributionofLTIs LTIs 2018/2019: PetroSA vs service providers 56% Low-risk areas PetroSA Service provider Service High-risk areasHigh-risk 44% FIGURE 7 critical safe behaviours. most common causeistheinadequate identificationof An analysis oftheroot causesofallLTIs revealed thatthe FIGURE 8 Turnaround Plan. low-risk areas, thisreaffirms therationale for theSafety Coupled withthefact thatmostLTIs happenwithin by backinjuriescausedby incorrect techniques. lifting of theinjuriesare related to slips,tripsandfalls, followed The LTI injurycategory analysis indicates thatthemajority Not following works procedure of criticalsafe behaviour Inadequate identification Root causesofLTIs, 2018/2019 LTI injurycategorisation, 2018/2019 11% 15% 11% 11% Back injury Slip, trip, fall Eye injury 19% 7% 7% 4% Nitrogen inhalation Hand injury Falling objects Inadequate standards Inadequate maintenance Inadequate work planning 22% 30% 63% The incident’s environmental impact was substantially minimised through PetroSA’S robust emergency response plan, enabled by ENVIRONMENT excellent relations with Sustaining our environment key stakeholders and PetroSA is committed to Zero Harm to the environment, as prescribed by the Company’s HSEQ Policy Statement. the municipality. Compared with the previous year, the Environmental Incidents Indicator has shown an improvement, that is, a 22% decline in environmental incidents at nine incidents. Three of the seven environmental incidents were attributed Six of the environmental incidents were attributed to to a substantiated community complaint regarding odours PetroSA and one was the result of a truck accident from the Voorbaai Tank Farm and GTL Refinery areas. Four involving a service provider who was transporting fuel of the seven environmental incidents were due to spillages. on PetroSA’s behalf. Refer to Figure 10. Refer to Figure 9. FIGURE 10 Environmental incidents attributed to PetroSA FIGURE 9 Environmental incidents by category, 2018/2019 compared with service providers, 2018/2019

Spillages PetroSA 14% Complaints Service provider

43% 57%

86%

PetroSA Integrated Annual Report 2019 | 53 Review of the 2018/2019 financial year 54 STRATEGIC FOCUS 2:CONTINUED

| 1 the remediation required. understanding oftheimpactincidentand assess thebeachsoasto have acomprehensive independent environmental consultant to further citizen. Inthisinstance, theCompany procured an PetroSA continues to bearesponsible corporate environmental impactoftheCompany’s activities. emergency preparedness inminimisingthe management system andthecriticality ofPetroSA’s This affirmedPetroSA’s incidentfurther robust HSE impact oftheincidentwas substantiallyminimised. stakeholders andthemunicipality, theenvironmental Plan, enabledby excellent relations withkey Owing to PetroSA’s robust Emergency Response condensate onto theVoorbaai BeachinJanuary2019. incident PetroSA recorded aNEMA Section30emergency PetroSA Integrated Annual Report 2019 whether immediate ordelayed. potentially seriouspollutionof, ordetrimentto, theenvironment, fire orexplosion, leadingto seriousdangerto thepublicor unexpected suddenoccurrence, includingamajoremission, of 2008definesaSection30emergency incidentasan The NationalEnvironmental ManagementAmendmentAct 62 1 asaresult ofanunintentional discharge of drive towards sustainability. at theParow HeadOffice, thusdemonstrating PetroSA’s were implemented withintheCompany’s office buildings Energy management andwater conservation measures addressing globalwarming andalsohealthsafety. procurement practices isanotherway to dothis,thereby with legislative requirements. Implementinggreen The Pollution Prevention Planaddresses thisinaccordance by lookingatways to reduce itsgreenhouse gas emissions. on 1June2019, PetroSA ismoving towards sustainability In thelightofcommencement ofthe CarbonTax Act oftheallocated carbonbudget.emitted only46.3% allocated carbonbudget of 1 819345tCO2e. PetroSA thus to 31December 2018 were 842379 tCO2e, asagainst the Paper. The carbonemissions for thecalendaryear 1January outlined intheNationalClimate Change Response White of SouthAfrica’s global warming mitigation strategy as The establishmentofthecarbon budget system forms part The DEAallocated acarbonbudget of1819342tCO2e. by ofEnvironmental theDepartment Affairs (DEA). house gas emissions against thecarbonbudget allocated air quality andgroundwater, aswell asmonitoring green- areas inwhichPetroSA operates. This includesmonitoring and improving thelives ofthosewithinandoutsidethe beyond compliance andisrelated to business imperatives PetroSA recognises thatenvironmental management goes activities onthereceiving environment. understand andmanage theimpactofCompany’s environmental monitoring atallitssites inorder to As aresponsible corporate citizen, PetroSA conducts for theaudit. to therobustness oftheQMSandto thorough preparations process. The lackofcriticalfindingswas largely attributed Five minorfindings were raised during thecertification obtain certification by SGS, athird-party certificationbody. the PetroSA QMSto thenew ISO9001:2015 editionand The Company initiated aproject to transition andupgrade replacing theprevious version (ISO9001:2008). standard, ISO9001:2015, was launchedinSeptember 2015, improves customer satisfaction. Anew version ofthe efficiently,opportunities produces quality products, and ensures thattheCompany manages quality risks and The implementationandmaintenance ofPetroSA’s QMS requirements for aquality management system (QMS). ISO9001 isaninternational standard thatsetsoutthe management system Certification ofPetroSA products andquality QUALITY Since certification, PetroSA has closed 100% of the minor A GLANCE AT PETROSA’S HSEQ COMMITMENTS findings raised by the certification body, SGS. A surveillance audit took place in April/May 2019. In the coming 2019/2020 financial year, PetroSA will focus on leadership visibility, rewards and recognition, as well This was also confirmed by the positive feedback as on HSE-MS leadership commitment. With respect to from SGS: environmental management, the non-compliances reported PetroSA has established and maintained its in previous years have been vigorously addressed during management system in line with the requirements of the year under review by way of remedial actions. The the standard and demonstrated the ability of the system relationship with authorities, especially in Limpopo and to systematically achieve agreed requirements… . Bloemfontein, has improved tremendously and the Company (SGS Audit Report – 2018) is beginning to see the benefits of this sound association. PetroSA strives to continuously improve its quality. SGS also made the following positive observations: The goal for the 2019/2020 financial year will be aligned with PetroSA’s HSEQ and quality policies in order to • Commendable housekeeping at the FA Platform. produce products that are fit-for-purpose and that meet, • Evidence of maturity of the QMS at PetroSA. or exceed, mutually agreed expectations. PetroSA commits • Auditee preparedness was well demonstrated. to do this in a responsible manner, aspiring towards Zero • Commitment, good gesture and openness during the Harm to people and the environment. audit were observed. The HSEQ team will provide the necessary support and In May 2018, SGS accepted a Corrective Action Plan (CAP) guidance to ensure that the Company meets its strategic to address the minor findings. PetroSA attained ISO objectives, while operating in a responsible and lawful 9001:2015 certification with effect from June 2018, three manner. months ahead of the expected project completion date. The certification was achieved through a joint effort by all In 2019/2020, HSEQ Management will be geared towards stakeholders, including the quality champions, the Board, the following: the Group Chief Executive Officer (GCEO) and Executives, the process owners and employees. • Reducing work-related injuries and occupational illness giving rise to any related temporary or permanent PetroSA’s external auditors and the Auditor-General disablement, or death. There will be a focus on the audited the project as part of the HSEQ Index and no process for determining LTIs. This process will be findings were raised. benchmarked against industry standards. This will include a concerted effort to streamline the medical Stakeholder engagements surveillance regime. PetroSA’s HSEQ recognises that its HSEQ performance can • A focus on preventative HSEQ, which will be hinged only be achieved with commitment by, and valuable input on improving PetroSA’s incident management, with a from, all internal and external stakeholders. specific focus on near misses. • Monitoring PetroSA’s environmental impact, which Internal stakeholders remains critical for the Company’s sustainability. The Safety Stand Down sessions provide weekly engage- Particular emphasis will be placed on efforts to reduce ments with PetroSA’s internal stakeholders. This platform environmental incidents and greenhouse gases, as well facilitates engagement with the Board, the GCEO, Executives, as ensure that PetroSA moves towards sustainability. and employees at all levels. The topics discussed extend • The robustness of PetroSA’s processes, which is beyond safety, since they relate more broadly to the general indicated by the extent to which the Company conforms well-being of employees and celebrate HSEQ achievements. to the requirements of ISO9001:2015, as assessed by an As an example, when PetroSA obtained ISO9001:2015 external certification body. The key focus will be to certification, the Company’s quality champions were ensure that the internal quality systems are adequately recognised during the Stand Down and were awarded maintained, that non-conformances are addressed, and certificates by the GCEO as a demonstration of their that an internal and external customer focus is promoted. leadership and commitment. • Improving safety culture, which remains a key input to effective HSEQ management, and demonstrating the External stakeholders Company’s duty of care. The goal is to have exponential PetroSA’s HSEQ interacts with a number of external improvement in this area. This will be achieved by stakeholders in recognition of the critical role that they building on lessons learnt, on receiving feedback from play in improving the Company’s HSEQ performance. the Safety Culture Survey, on receiving input from These stakeholders include: business, and on managing incidents. Initiatives to improve the safety culture within PetroSA will focus • The South African Petroleum Industry Association on key HSEQ leadership aspects, including: (SAPIA); • The Offshore Petroleum Association of South Africa; • Leadership visibility; • Operation Phakisa; • Leadership responsiveness to HSEQ issues; • Regulatory bodies at the national, provincial and local • Rewards and recognition; level; and • Employee empowerment and participation; and • PetroSA customers and suppliers. • Learning from past incidents.

PetroSA Integrated Annual Report 2019 | 55 Review of the 2018/2019 financial year the PSFIChasincreased to four postdoctoral fellows, three The numberofresearchers andstudentsbeingtrained at Human capitaldevelopment for the oilandgas industry: students andalsoimproved equipmentresources. It willallow for anincrease inthenumber ofPSFIC-funded feedstocks. The award isfor R9.68 million over three years. R&D project to develop COD technology for alternative the PSFICsuccessfully appliedto DTI-THRIP for an Additional fundingfor thePSFIC:OnbehalfofPetroSA, as conversion ofolefinsto distillate (COD) process feedstock. catalysts inolefin oligomerisation andtwo relating to naphtha patents, onerelating to theuseofbimetallicdopedzeolite the PetroSA PSFIC,PetroSA hasfiledthree international Innovation: Basedonresearch anddevelopment (R&D) at as highlighted below: UWC, signedin2010, continues to bring mutualbenefits, The agreement ofcooperation between PetroSA andthe (UWC) Centre (PSFIC)attheUniversity oftheWestern Cape Highlights ofthePetroSA Synthetic Fuels Innovation GROWTH ANDJOBCREATION INITIATIVES AIMEDAT SUPPORTING ECONOMIC business challenges. performance outputcontinues to belinked to theoverall from Level 7in2016/2017, to Level 6in2017/2018. The PetroSA’s B-BBEE status level islow, itimproved slightly, The 2018 B-BBEEverification auditindicated that,while development. equity; Skillsdevelopment; andSocio-economic elements. These are: Management control; Employment Specialised Scorecard, whichfocuses onfour scorecard performance isalsomeasured against thetargets ofthe annually. Asastate-owned enterprise (SOE), PetroSA’s the PetroSA Corporate Scorecard, whichisdetermined empowerment (B-BBEE)Codes ofGoodPractice and is guidedby therevised broad-based blackeconomic PetroSA’s Transformation ImplementationProgramme MANDATE IN PURSUITOFOURTRANSFORMATION sector andsociety Transforming company, FOCUS AREA STRATEGIC 56

| PetroSA Integrated Annual Report 2019 3 impending schoolleavers. local schoolsto provide job-shadowing for opportunities is alsoproviding facilities andstaffincooperating with Africa duringthedelegation’s visitto theUWC. The PSFIC host the2018 BRICSpre-conference delegation to South Community engagement: The PSFICwas selected to catalyst ZSM. focused ontheconversion oflocalkaolins to thezeolite alkanes andnaphthato olefin-richCOD feedstock andone papers. Two papers considered theuseconversion oflight Publications: Researchers from thePSFICpublishedthree and eightnationaldiploma(ND) students. doctoral (PhD) students,three master’s (MSc)students, B-BBEE and preferential procurement of goods TABLE 1 and services Item Value/comment PetroSA continues to support the notion that preferential procurement is the most effective instrument to advance Total tenders awarded 66 both the economic transformation of the South African Total tenders set aside 33 economy and the participation of black people in the Total tenders awarded in respect 14 oil and gas industry. PetroSA has implemented various of Eden District (Mossel Bay) interventions to help local B-BBEE enterprises grow, create jobs and ultimately alleviate poverty. Total value to B-BBEE R335 million Total to non-B-BBEE R110 million

Promoting quality bids: B-BBEE improvement plans Total to Mossel Bay EMEs R25 million PetroSA continues to promote quality bidding, targeting suppliers that are identified as strategic to the Company. In the year under review, in consultation with the Table 1 provides an indication of PetroSA’s performance Procurement and B-BBEE Departments, PetroSA suppliers between 1 April 2018 and 31 March 2019 against the target produced ten B-BBEE improvement plans. Every quarter, to subcontract a minimum of 30% of the value of the the B-BBEE Department helps monitor progress regarding contract for contracts valued at more than R30 million. implementation of the improvement plans in order While this has been a challenge, the Company is satisfied to ensure that these suppliers are able to participate with its successful efforts to support B-BBEE measures. sustainably in the business and economic landscape of These are firmly rooted in Section 217 of the South African South Africa. Constitution, which states that all public-sector procurement must be fair, equitable, transparent, competitive and PetroSA’s biggest challenge lies in attracting and retaining cost-effective. 51% black-owned and 30% women-owned exempted micro-enterprises (EME) and qualifying small enterprises ENTERPRISE AND SUPPLIER DEVELOPMENT (QSE). Achieving these targets would significantly improve SUPPORT the Company’s B-BBEE status-level performance. As an SOE, PetroSA cannot declare an ownership scorecard PetroSA’s Enterprise and Supplier Development (ESD) element. It is also further bound by preferential- Programme continues to be an integral part of the procurement guidelines. This places the Company at a Company’s business. The programme is aimed at making disadvantage when compared with private entities. a meaningful contribution to building the capacity of PetroSA suppliers and transforming the oil and gas sector. It continues to target mainly small- and medium-sized enterprises (SMEs), particularly those that are 51% black-owned and 30% women-owned. It is geared towards facilitating inclusive economic growth while helping local companies to create jobs.

The ESD Programme has three components: business development; financial support and skills upgrade. Through these activities, participating companies receive assistance in order to achieve the following objectives:

• Enable the business to deliver on short-term contract requirements; • Build productive capacity in the form of assets; • Build and/or enhance core skills that are required; and • Provide working capital required to diversify the customer base.

The ESD Programme has delivered tangible results, as shown in the following examples:

ESD funding PetroSA continues to provide funding support of between R50 000 and R500 000, of which the main portion used is for equipment, infrastructure, physical assets or technology. With an initial investment of R3 million, the Company currently supports nine local suppliers. Participating entities remain part of the programme for two years before graduating. In some cases, funded entities are contracted to PetroSA in order to ensure that they receive sufficient support to enable them to generate positive results.

The ESD Fund was used as grant and loan funding. Despite the current national economic challenges, the suppliers

PetroSA Integrated Annual Report 2019 | 57 Review of the 2018/2019 financial year • • • • • • management. The following are someofthebeneficiaries: management, access to themarket, andcontract mentorship intheareas ofbusiness leadership and The continues B-BBEEDepartment to provide business Business development support renegotiated. although, insomecases,repayment terms were remain committed to honouringtheirrepayments, 58 STRATEGIC FOCUS 3:CONTINUED

Mossel Bay Refinery. and currently deploys 79staffmembers atPetroSA’s Refinery. The company has75% blackwomen ownership providing security services to PetroSA’s Mossel Bay SMADA Security: A100%black-owned ESDbeneficiary under review. PetroSA for theperiod small contract. Itwas thesolesupplierofscaffolding to Siyakhona Scaffolding, was initiallyawarded arelatively One ofPetroSA’s pilotcompanies ontheESDprogramme, beneficiary supplyingscaffolding to PetroSA’s Refinery. Siyakhona Scaffolding: A100%black-owned ESD head office anditsMossel Bay Refinery. currently operates stationeryshopsatbothPetroSA’s contracts withPetroSA andotherlarge corporates. It in thestationerysupplyindustry. The company has Sibanye Office Solutions:AnESDbeneficiaryoperating year contract. small contract, whichwas later expanded to athree- relationship withPetroSA commenced witharelatively Mossel Bay andKnysna areas. MDCArendse’s plants, thecompany operates primarilyintheGeorge, experience inbuildingconstruction atpetrochemical civils, buildingandconstruction industries.With vast MDC Arendse: AnESDbeneficiaryoperating inthe products to PetroSA andthemarket ingeneral. distributes safety andprotective clothingandrelated Uhambo Procurement &Distribution:Procures and Without theintervention, theSMEfaced closure. Procurement to allow Department therate increase. successfullyB-BBEE Department negotiated withPetroSA’s quarter, inresponse to increased suppliercosts. The Quantum’s supplierincreased itsprice twice inthesame the supplier’s rates canbereviewed quarterly. Massive PetroSA to supplysulphuricacid.Itscontract states that Massive Quantum:AnESDbeneficiarycontracted to | PetroSA Integrated Annual Report 2019 6 to 8September 2018 Small Business Expo, Johannesburg, that have previously graduated from theESDProgramme. chain. This alsoincludesconsulting ESDbeneficiaries and identifyingavailable withinthevalue opportunities the Company, providing open-trading business accounts, interactions mainlyincludehelpingvendors register with that are already doingbusiness, withPetroSA. These varioussupport companies thatwant to dobusiness, or Through ongoing consultations, PetroSA continues to current suppliers One-on-one consultation withpotential and AND SUPPLIERDEVELOPMENT PREFERENTIAL PROCUREMENT, ANDENTERPRISE ADVANCING TRANSFORMATION THROUGH BLACK ECONOMIC EMPOWERMENT INITIATIVES: to attend. Participants represented thefieldsoftrading, 150 suppliers from allprovinces inSouthAfrica registered scheduled to coincide withWomen’s Month.More than hosted aWomen’s Empowerment Seminarduring August, preferential-procurement theCompany opportunities, To encourage more women inPetroSA’s to participate Women’s economic empowerment oftheESDProgramme.annually aspart were enthusiasticandrequested thatthisbehosted how to source funding,to how to network. Participants how to pitch anidea,where to findtherighttarget market, enterprises. The masterclass covered a range of topics from skillsandexpertise to suppliersaimed atimparting and SEDA, PetroSA hosted thePitch &Perfect Masterclass Through itscooperation agreement withtheprovincial 14 September 2018 the SmallEnterprise Development Agency (SEDA), ESD Pitch &Perfect Seminarinconjunction with many potential business leads. initiated many networking andgenerated opportunities pipes, polymerproducts andlubricants. The participants engineering andmanufacturing goods andservices suchas Port Elizabeth. These entitieswere involved inproviding various citiesinSouthAfrica, includingBloemfontein and Thoseopportunities. includedentitiesfrom supported relevant business ventures andto source business to attend theevent, helpingthemto network withother sponsored eightsmallandmedium black-owned suppliers The event attracts around 7000visitors. PetroSA as ameansto enablethemto access market opportunities. and enterprises atthisevent andinvites themto participate partnership withEskom. The Company sponsors suppliers Business Expo, whichwas organised by Reed Exhibitionsin In September 2018, PetroSA intheSmall participated construction and engineering, among others. PetroSA Economic empowerment of local communities remains committed to increasing women’s representation PetroSA continues to support the Mossel Bay community. and participation. To this end, the Company hosted an annual Economic Development Seminar focusing on ESD and procurement Women’s Business Study Tour opportunities. Information shared highlighted the following: PetroSA organised a business study tour, hosted by DAMEN Shipyard in Cape Town (DSCT). Sixty • Access for suppliers to archived tenders in order to businesswomen, who were mainly from Gauteng, the review requirements and prepare tenders proactively; Eastern Cape and the Western Cape, were taken on a tour • A portal procurement registration process for new to learn and observe how the local shipyards are managed entrants; and operated. The group obtained first-hand knowledge of, • The type of goods and services regularly procured or and exposure to, the daily operations of DAMEN Shipyards, required by the Refinery in order to enable suppliers to which designs, crafts and builds vessels that are later sold proactively supply PetroSA; to African countries, mainly Nigeria and Angola. • The necessary skills and expertise required to service PetroSA; and As part of the tour, delegates were taken to the • How locals can best mobilise and partner with bigger shipbuilding workshop facilities, to the training facilities companies in order to take advantage of options or and onto completed vessels. The delegation included opportunities to outsource or partner with Mossel Bay women involved in businesses that were supplying the so as to facilitate joint ventures between big businesses South African Navy with consumables, supplying the and black-owned small, medium and micro-enterprises Transnet National Ports Authority and other vessel (SMMEs) in Mossel Bay. operators with diesel, installing air conditioning and other cooling facilities, managing and renting out harbour TABLE 2 PetroSA’s efforts to support local economic facilities, and providing water-purification services. empowerment in the Eden District, including Mossel Bay

Youth Empowerment Pilot Initiative Total tenders awarded in respect of the Eden District 19 The Company hosted a round-table discussion with youth (Mossel Bay and George) representatives participating in the oil and gas sector in Total value to B-BBEE (Mossel Bay and George) 61 660 322 order to launch the PetroSA Youth Empowerment Pilot Initiative. Once it is fully established, the initiative will Total value to B-BBEE (Mossel Bay and George) 59 645 826 specifically focus on liquefied natural gas (LNG) skills Total to non-B-BBEE (Mossel Bay and George) 2 014 496 development. Developed in line with Operation Phakisa, Total to Mossel Bay and George EME 41 619 955 the programme forms part of the expansion of the Centre of Excellence (CoE) Training and Development Programme Total to Mossel Bay and George QSE 18 824 881 and supports PetroSA’s ESD and skills development Total to Mossel Bay and George GEN 1 215 486 initiatives. In partnership with an international organisation, the programme will be further augmented by the Junior Traders Initiative. FOSTERING STRATEGIC COLLABORATIONS

EMPOWERING BLACK-ORGANISED BUSINESSES Department of Mineral Resources and Energy (DMRE) PetroSA continues to participate in the ongoing drafting of PetroSA and the South African Black Bulk Transporters the Petroleum Liquid Fuels Charter Code (PLFCC) together Association (SABBTA) with both the DMRE and the Charter Council. During the PetroSA is working with the SABBTA. The two entities have quarter, the focus has primarily been on the consolidation an interest in developing activities related to the oil and of the input for finalisation. The DMRE is expected to gas sector, including the development and accreditation provide a way forward with regard to finalisation. of South African suppliers and service providers to the transport and logistics sectors. Under the terms of the South African Petroleum Industry Association (SAPIA) signed Memorandum of Cooperation (MoC), the parties PetroSA continues to make a valuable contribution to the will work together to help facilitate ESD initiatives aimed SAPIA Transformation Committee. The focus has been on at promoting the growth and development of the South finalising the value-add plan and also on finalising the PLFCC. African transport, logistics, and oil and gas sectors. This initiative supports national imperatives to foster economic EMPLOYMENT EQUITY growth and employment, and to do this in a way that is aligned with the B-BBEE framework. Transformation remains a cornerstone of the PetroSA business strategy. The Company continues to pursue its PetroSA and the South African Farmers Development transformation objectives, despite the current business Association (SAFDA) challenges. As reflected in its Employment Equity (EE) Plan PetroSA is also working with the Black Farmers for the 2018/2019 period, the organisation’s EE objectives Association, represented as the South African Farmers were as follows: Development Association (SAFDA). As with PetroSA’s arrangement with SABBTA described above, this • Continue the drive to improve the representation of engagement is aimed at encouraging and attracting more women; and than 51% black-owned and 30% black women-owned and • Continue the drive to improve the representation of managed companies in the trading, sales and logistics people living with disability. business value chain.

PetroSA Integrated Annual Report 2019 | 59 Review of the 2018/2019 financial year dashboard isshown inTable 3. focus onstabilisingoperations attheGTL Refinery. The EE recruitment given opportunities, theCompany’s main by theendofreporting period.This was dueto limited with disability, PetroSA’s EEprofile remained unchanged In terms oftherepresentation ofwomen andpeopleliving of anew EEPlanasrequired by theEmployment Equity Act. A key highlightfor theyear underreview was theapproval 60 STRATEGIC FOCUS 3:CONTINUED TOTAL FIXED-TERM CONTRACT EMPLOYESS 4. 3. 4. 3. 2. Occupational levels Occupational levels GRAND TOTAL Temporary employees (short-term contractors) 6. 5. Semi-skilledanddiscretionary 5. 2. 1. 1. TOTAL PERMANENT 6. GRAND TOTAL Fixed-term andshort-term contract employees TABLE 5PetroSA employment equity profile for fixed-term andshort-term contract employees asat31March 2019 TABLE 4PetroSA employment equity profile asat31March 2019

| foremen andsuperintendents workers, juniormanagement, supervisors, Skilled technical andacademicallyqualified specialists andmid-management Professionally qualifiedandexperienced foremen andsuperintendents workers, juniormanagement, supervisors, Skilled technical andacademicallyqualified specialists andmid-management Professionally qualifiedandexperienced Senior management Unskilled anddefineddecision-making decision-making decision-making Semi-skilled anddiscretionary Senior management Top management Top management Unskilled anddefineddecision-making PetroSA Integrated Annual Report 2019 368 160 419 113 89 29 22 10 51 51 A A 0 6 5 5 1 1 382 323 214 42 34 59 25 59 67 14 C C 8 2 1 Male Male 19 17 9 6 2 2 2 1 1 1 I I workforce Women asa%ofthe as a%oftheworkforce People livingwithdisability EE category TABLE 3 108 189 174 W W 52 15 15 0 4 9 6 9 5 5 206 237 54 58 93 14 31 17 31 A A 8 2 3 1 1 Employment equity dashboard for 2018/2019 108 98 10 10 18 19 61 C C 4 6 3 1 Female Female 0 0 0 0 4 8 8 3 1 I I 54 52 W W 37 12 Planned 0 2 2 2 3 1 1 3.0% 33% Achieved Male Male 0 8 6 6 6 6 2 2 Foreign Foreign Actual 28.9% Pending 1.7% Female Female 0 0 0 0 0 0 Not achieved Status 1 424 1 248 Total Total 682 270 282 176 176 83 28 93 19 13 31 0 0 4 1 1 TABLE 6 PetroSA age profile for employees as at 31 March 2019

Male Female Occupational levels Total <27 27–35 36–45 46–55 55+ <27 27–35 36–45 46–55 55+ 1. Top management 1 1 2. Senior management 5 7 1 13 3. Professionally qualified and experienced 20 55 66 53 20 39 21 8 282 specialists and mid-management 4. Skilled technical and academically qualified workers, junior management, supervisors, 53 129 194 112 1 36 93 53 11 682 foremen and superintendents 5. Semi-skilled and discretionary 9 45 59 58 18 5 24 34 14 4 270 decision-making 6. Unskilled and defined decision-making 0 TOTAL PERMANENT EMPLOYESS 9 118 243 324 190 6 80 167 88 23 1 248 Non-permanent employees (FTC & STC) 4 28 30 39 32 6 19 12 3 3 176 People living with disabilities 0 0 2 4 7 0 3 2 2 2 22 GRAND TOTAL 13 146 273 363 222 12 99 179 91 26 1 424

EMPLOYEE MOVEMENTS The following activities were implemented during the year under review as part of the Company’s skills development During the reporting period, the permanent workforce objective: increased from 1 191 in March 2018 to 1 248 in March 2019. Key positions were identified and filled either through the • Training programmes related to the shutdown and other recruitment process or by optimising the talent of internal statutory matters; employees. This was part of the Company’s strategy to • Recruitment of Centre of Excellence (CoE) learners for improve production. the apprenticeship programmes; • CoE learners’ course completions; PetroSA had a scheduled shutdown at the GTL Refinery • Graduates-in-training and in-service student during 2018/2019. This created employment opportunities placements, through the Company’s bursary for either fixed-term or short-term contractors. programme; and • Access to discretionary and mandatory grants to the SKILLS DEVELOPMENT value of R5.31 million.

The Company remains committed to developing the YOUTH DEVELOPMENT skills of South Africans by providing training and skills development opportunities. PetroSA continued to create opportunities for youth development via the following programmes: Skills development expenditure for the year under review was R10.2 million. This total includes the cost of training • Apprenticeships; and development programmes, travel and accommodation, • Graduate-in-training programmes; study assistance and bursaries. The dashboard shown in • In-service training programmes; and Figure 1 indicates the breakdown of these costs for the year. • Bursaries.

The organisation also continued to invest in skills The dashboard in Figure 2 (see over) shows the Company’s development by participating in employee development progress in this area. and youth development programmes.

FIGURE 1 PetroSA skills development expenditure for 2018/2019

8% Employee training (24%) 24% Travel and accommodation (12%) 21% Study assistance (12%)

Bursaries (11%) 12% 4% Graduate-in-training (8%) Apprenticeship (21%) 8% 12% Internship (4%) Professional 11% association fees (8%)

PetroSA Integrated Annual Report 2019 | 61 Review of the 2018/2019 financial year 100 200 300 400 500 600 700 10 20 30 40 50 60 70 FIGURE 3 training required for operating theGTL Refinery inMossel Bay. challenges, placed restrictions primarilyonstatutory-related which was implemented inresponse to current financial for the2018/2019 period.The moratorium ontraining, spent R5.14 million onemployee development programmes ofimprovingAs part itsworkforce competencies, PetroSA EMPLOYEE DEVELOPMENT • • • on youth development: following ofits strategy plansaspart to improve itsimpact During theyear underreview, theCompany approved the FIGURE 2 62 STRATEGIC FOCUS 3:CONTINUED 0 0

(CHIETA) fundingpartnership. the ChemicalIndustriesEducation &Training Authority in-service andgraduate-in-training under opportunities Create more for opportunities studentsseeking mathematics (STEM); and careers related to science, technology, engineeringand to sponsorstudentsseekingto obtainqualificationsin Increase thenumberofbursars from 10to 15inorder apprenticeship studentsattheCoE from 40to 80; Increase thenumberofPetroSA-sponsored | Conference Apprenticeship PetroSA Integrated Annual Report 2019 3 59 9 for 2018/2019 Number ofemployees trained pertraining category Youth development programmes statusfor 2018/2019 Formal 1 1 in-training Graduate- Functional 23 2 58 Female Leadership 5 In-service 16 2 Regulatory 141 Male 592 Bursars 11 SHEQ 10 43 Systems 11 Techno-Girls 12 0 Technical 0 3 100 150 200 250 300 350 GRANTS MANAGEMENT FIGURE 4 CORPORATE SOCIAL INVESTMENT (CSI) FIGURE 5 grants (see Figure 5). millionwas receivedR5.3 asmandatory anddiscretionary programmes. Duringthereporting period,atotal of played acriticalrole intheimplementationoftraining financial constraints, thegrants accessed viaCHIETA optimising theorganisation’s talent.Owingto current Skills development continues to beacornerstone of Projects to becompleted in2019/2020 50 Renovations atsixschools communities Establishment offood gardens inrural classroomsInstallation of‘smart’ facilitiesSports atImekhaya School Maths andScience Academy Project name 0 51% 133 African during 2018/2019 Number ofemployees trained perrace and gender CHIETA grants received during2018/2019 305 46 Coloured Female 291 49% Male 2 Indian 8 Mandatory Discretionary R3 million R300 000 R600 000 R500 000 R1.6 million Spend 14 White 130 Building sustainable relationships with all our stakeholders COMMUNITY DEVELOPMENT and creating shared value are key to the PetroSA community affairs philosophy. The Company creates value for Health: Completion of a community clinic in communities through multiple initiatives aimed at Kwa Nonqaba, Mossel Bay creating better lives, mainly for previously disadvantaged In March 2019, PetroSA completed and handed over a communities. This is aligned with the government’s community clinic in Asla Park, Mossel Bay. The clinic is the objectives as set out in the National Development Plan result of a partnership between PetroSA, which provided (NDP). Since its inception, PetroSA has contributed more R14.5 million for construction, the Mossel Bay municipality, than R456 million to realising these objectives. which provided the land; and the provincial Department of Health, which provided the post-construction operational The Company focuses on several key areas: community budget. The project created over 40 jobs during construction, development, education, the environment and health, and as well as opportunities for eight subcontractors. The clinic sustainable development. During the year under review, will begin operations as from 1 July 2019. With this project, PetroSA spent R16 million in support of these development PetroSA has enabled the community to access comprehensive initiatives. primary health care covering, most notably: paediatric, women’s and maternal health care, treatment for minor illnesses, HIV/AIDS, tuberculosis, chronic diseases and disability, as well as occupational health and physiotherapy support.

PetroSA Integrated Annual Report 2019 | 63 Financial Performance 64

| PetroSA Integrated Annual Report 2019 FINANCIAL PERFORMANCE

The Petroleum Oil and Gas Corporation of South Africa SOC Limited

These financial statements were internally prepared and supervised by:

Mr JP Rhode CA(SA) (Group Financial Manager) and Ms AJ Futter Professional Accountant (SA) (Acting Chief Financial Officer) respectively.

Published 31 July 2019

PetroSA Integrated Annual Report 2019 | 65 Financial Performance

7500 Parow 7499 Parow

Level of assurance Company registration number Secretary Auditors Ultimate holdingcompany Holding company Postal address Registered office Directors Nature ofbusiness andprincipalactivities Country ofincorporation anddomicile General information Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 66

| PetroSA Integrated Annual Report 2019

1970/008130/30

South Africa converting gas andgas condensate to liquidfuelsandpetrochemicals, Exploration for, andproduction of, oilandgas, refining operations, Ms MKhumalo 151 Frans Conradie Drive South African Government Private BagX5 Auditor-General ofSouthAfrica Registered Auditors and themarketing thereof Incorporated inSouthAfrica CEF SOC Limited Act 71 of2008. Act 71 audited incompliance withtheapplicablerequirements oftheCompanies These consolidated andseparate annualfinancialstatements have been Mr NGumede Ms NMMhlakaza Mr NMkhize Ms NMashiane Mr RG Degni Mr MXiphu Mr SS Masemola Mr QMNEister

Index

PAGE Report of the Auditor-General to Parliament on the Petroleum Oil and Gas Corporation of South Africa SOC Limited 68 Directors’ responsibilities and approval 73 Directors’ report 74 Report of the Board Audit Committee 78 Statement of the Company Secretary 79 Statements of financial position 80 Statements of profit or loss and other comprehensive income 81 Statements of changes in equity 82 Statements of cash flows 83 Accounting policies 84 Notes to the consolidated and separate annual financial statements 100

The following supplementary information does not form part of the consolidated and separate annual financial statements and is unaudited: Fields in production and under development 142 Definition of financial terms 143

PetroSA Integrated Annual Report 2019 | 67 Financial Performance Oil and GasCorporation ofSouthAfrica SOC Limited Report oftheAuditor-General to Parliament onthePetroleum 5. 10. Subsequent events 9. Material impairments 8. Emphasis ofmatters 7. 6. Material uncertainty relating to going concern 4. 3. Basis for opinion 2. 1. Opinion Report ontheauditofconsolidated andseparate financialstatements Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 68 11. Other matter

| I believe thattheauditevidence Ihave obtainedissufficientandappropriate to provide abasisfor my opinion. Africa. Ihave fulfilledmy otherethical responsibilities inaccordance withtheserequirements andtheIESBAcodes. Independence Standards) (IESBAcodes), aswell astheethicalrequirements thatare relevant to my auditinSouth Standards Board for Accountants’ international code ofethicsfor professional accountants (includingInternational Board for Accountants’ Code ofethicsfor professional accountants 1and3oftheInternational Ethics andparts plant andequipment. Company hadanimpairmentloss ofR691 million(2017–18: R240 million)andR2billion,respectively, onproperty, As disclosedinnote 3andnote 20to theconsolidated andseparate financialstatements, theGroup andthe I draw attention to thematters below. Myopinionisnotmodifiedinrespect ofthesematters. doubt ontheCompany’s ability to continue asagoing concern. along withother matters setforth in note 36,indicate that a material uncertainty exists thatmay cast significant Company’s total liabilities exceeded itstotal assets by R1.1 billion.Asstated innote 36,theseevents orconditions, billion(2017/18:R2.2 R589 million),respectively, during theyear ended31March 2019 and,asofthatdate, the indicates thattheGroup andtheCompany incurred acomprehensive loss ofR1.6 billion(2017–18: R676 million)and I draw attention to thestatement ofprofit orloss andothercomprehensive income inthefinancialstatements, which I draw attention to thematter below. Myopinionisnotmodifiedinrespect ofthismatter. I amindependentoftheGroup inaccordance withsections290and291oftheInternational EthicsStandards separate financialstatements sectionofthisauditor’s report. those standards are describedintheAuditor-General’s further responsibilities for theauditofconsolidated and I conducted my auditinaccordance withtheInternational Standards onAuditing (ISAs). My responsibilities under 1999) (PFMA) andtheCompanies Act ofSouthAfrica, 2008(Act No.of2008)(Companies 71 Act). Standards (IFRS) andtherequirements ofthePublic Finance Management Act ofSouthAfrica, 1999(Act No. 1of financial performance andcashflows for theyear thenendedinaccordance withtheInternational Financial Reporting consolidated andseparate financialpositionofPetroSA, theGroup andtheCompany asat31March 2019, andtheir In my opinion,theconsolidated andseparate financialstatements present fairly, inallmaterial respects, the including asummaryofsignificantaccounting policies. of cashflows for theyear thenended, aswell asthenotes to theconsolidated andseparate financial statements, separate statement of profit orloss andothercomprehensive income, statement ofchanges inequity and statement comprise theconsolidated andseparate statement offinancialpositionasat31March 2019, consolidated and Africa SOC Limited (PetroSA) (theCompany) anditssubsidiaries(theGroup) setoutonpages 80to 141, which I have audited the consolidated andseparate financialstatements ofthePetroleum OilandGasCorporation ofSouth determined andacontingent liability hasbeendisclosed inthenotes to thefinancialstatements. bonus ofR123millioninterms oftheShort-Term Incentive Policy. The ultimate outcome ofthematter could notbe With reference to note 29to thefinancialstatements, theentity was ordered to pay qualifyingemployees anincentive I draw attention to thematter below. Myopinionisnotmodifiedinrespect ofthismatter. PetroSA Integrated Annual Report 2019

Funding of decommissioning provision 12. With reference to paragraph 11 of the Directors’ report, the Company has an obligation to rehabilitate and abandon its offshore and onshore operations valued at R9.8 billion with cash set aside of R2.4 billion, and therefore the provision is currently underfunded by approximately R7.4 billion. In terms of the financial provision regulations which were promulgated under the National Environmental Management Act, 1998 (Act No. 107 of 1998) (NEMA), PetroSA is required to have the rehabilitation liability fully funded by 19 February 2024.

Responsibilities of the Board of Directors, which constitutes the accounting authority for the financial statements 13. The Board of Directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with IFRS and the requirements of the PFMA and the Companies Act, and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. 14. In preparing the consolidated and separate financial statements, the accounting authority is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going-concern basis of accounting unless the appropriate governance structure either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor-General’s responsibilities for the audit of the consolidated and separate financial statements 15. My objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. 16. A further description of my responsibilities for the audit of the consolidated and separate financial statements is included in the annexure to this auditor’s report.

Report on the audit of the annual performance report Introduction and scope 17. In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA) and the general notice issued in terms thereof, I have a responsibility to report material findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report. I performed procedures to identify findings but not to gather evidence to express assurance. 18. My procedures address the reported performance information, which must be based on the approved performance planning documents of the Group. I have not evaluated the completeness and appropriateness of the performance indicators included in the planning documents. My procedures also did not extend to any disclosures or assertions relating to planned performance strategies and information in respect of future periods that may be included as part of the reported performance information. Accordingly, my findings do not extend to these matters. 19. I evaluated the usefulness and reliability of the reported performance information in accordance with the criteria developed from the performance management and reporting framework, as defined in the general notice, for the following selected objectives presented in the annual performance report of the Group for the year ended 31 March 2019:

Objectives Pages ln the annual performance report Objective 2 – To optimise profitability through revenue enhancement and/or cost reduction 11 Objective 4 – Operational excellence 11

20. I performed procedures to determine whether the reported performance information was properly presented and whether performance was consistent with the approved performance planning documents. I performed further procedures to determine whether the indicators and related targets were measurable and relevant, and assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. 21. The material findings in respect of the usefulness and reliability of the selected objectives are as follows:

Objective 4 – Operational excellence 22. I was unable to obtain sufficient, appropriate audit evidence to support the reported achievement of key performance indicator 4.3, improve product placement in the market, target 9–11% organic growth. This was due to a lack of documented systems descriptions that predetermined how the achievement would be measured, monitored and reported. I was unable to confirm the reported achievement of the indicator by alternative means. Consequently, I was unable to determine whether any adjustments were required to the achievement of <7% increase of product placement in the market as reported in the annual performance report.

23. The planned indicator and target were: Improve product placement in the market and ‘9–11% organic growth’, but the reported achievement referred to was <7% increase of product placement in the market.

PetroSA Integrated Annual Report 2019 | 69 Financial Performance 34. 33. 32. Other information 31. Strategic planningandperformance management 30. 29. Introduction andscope Report onthe auditofcompliance withlegislation 28. Adjustment ofmaterial misstatements 27. Unaudited supplementaryschedule 26. Achievement ofplannedtargets 25. Other matters 24. Objective 2–To optimiseprofitability through revenue enhancement and/or cost reduction Oil andGasCorporation ofSouthAfrica SOC Limited (continued) Report oftheAuditor-General to Parliament onthePetroleum Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 70

auditor’s report. those selected objectives presented inthe annualperformance report thathave beenspecificallyreported inthis other information doesnot includetheconsolidated andseparate financial statements, theauditor’s report and the Audit Committee’s report andtheCompany Secretary’s certificate asrequired by theCompanies Act. The to bematerially misstated. objectives presented intheannualperformance report, ormy knowledge obtainedintheaudit,orotherwise appears other information ismaterially inconsistent withtheconsolidated andseparate financialstatements andtheselected In connection withmy audit,my responsibility isto read theotherinformation and,indoingso, consider whetherthe conclusion thereon. with legislationdonotcover theotherinformation andIdonotexpress anauditopinion orany form ofassurance My opiniononthefinancialstatements andfindingsonthereported performance information andcompliance this objective. the reported performance information inparagraph 22 and23ofthisreport. year. This information shouldbe considered inthecontext ofthematerial findingsontheusefulness andreliability of other information comprises theinformation includedintheannualreport, whichincludestheDirectors’ report, The Board ofDirectors, whichconstitutes theaccounting authority, isresponsible for theotherinformation. The and control ofCEFwas notconcluded withtheMinister, asrequired by Treasury regulation 29.2.1. CEF Shareholder’s Compact. The CEFShareholder’s Compact incorporating thesubsidiariesunderownership shareholders’ compact for thePetroSA Group andsubmitted itto theCEF, itsholdingcompany, for inclusioninthe required by treasury regulation 29.2.1. The Board ofDirectors, constituting theaccounting authority, prepared a An annualShareholder’s Compact was notconcluded inconsultation withtheexecutive authority (theminister), as The material findingsoncompliance withspecificmatters inkey legislationsare asfollows: matters inkey legislation.Iperformed procedures to identifyfindingsbutnotto gather evidence to express assurance. terms thereof, Ihave aresponsibility to report material findingsonthecompliance oftheCompany withspecific In accordance withthePublic Audit Act ofSouthAfrica, 2004(Act No. 25of2004)andthegeneral notice issued in Those thatwere notcorrected are reported above. misstatements, Iraised material findingsontheusefulness andreliability ofthereported performance information. through revenue enhancement and/or cost reduction. AsManagement subsequentlycorrected onlysomeofthe misstatements were onthereported performance information inrespect ofObjective 2–to optimiseprofitability I identified material misstatements in the annual performance report submitted for auditing. These material indicators and,accordingly, Idonotexpress anopiniononthem. report ontheperformance against objectives andispresented asadditionalinformation. Ihave notaudited these the HSEQ index key performance indicator target andachievement, assetoutonpage 11,doesnotformofthe part The supplementarykey pertormance indicators (indicators 4.1.1 –4.1.3) theweighted supporting average rating of Refer to theannualperformance report onpage 11for information ontheachievement ofplannedtargets for the I draw attention to thematters below. I did not raise any material findingsonthe usefulness and reliability of thereported performance information for PetroSA Integrated Annual Report 2019

35. The other information I obtained prior to the date of this auditor’s report are the Directors’ report, the Audit Committee’s report and the Company Secretary’s certificate, and the other reports or statements forming part of the annual report such as the statement of the Chairperson, King application, corporate governance statement, report from the Group Chief Executive Officer and report from the Group Chief Financial Officer are expected to be made available to us after 31 July 2019. 36. If, based on the work I have performed on other information that I obtained prior to the date of this auditor’s report, I conclude that there is a material misstatement in this other information, I am required to report that fact. I have nothing to report in this regard. 37. When I do receive and read the other reports or statements forming part of the annual report such as the statement of the Chairperson, King application, corporate governance statement, report from the Group Chief Executive Officer and report from the Group Chief Financial Officer, if I conclude that there is a material misstatement therein, I am required to communicate the matter to those charged with governance and request that the other information be corrected. If the other information is not corrected, I may have to retract this auditor’s report and reissue an amended report as appropriate. However, if it is corrected, this will not be necessary.

Internal control deficiencies 38. I considered internal control relevant to my audit of the consolidated and separate financial statements, reported performance information and compliance with applicable legislation; however, my objective was not to express any form of assurance on it. The matters reported below are limited to the significant internal control deficiencies that resulted in findings on compliance with legislation included in this report. 39. The Minister raised concerns with the Corporate Plan, stating that it requires further scrutiny and lacks sufficient detail. As a result, the shareholders’ compact was not concluded in consultation with the Minister as required by Treasury regulation 29.2.1. 40. The Strategy Department and key performance indicator owners did not review the performance information calculation to ensure that the reported performance is accurate. 41. Leadership did not establish sufficient standard operating procedures relating to the collation, monitoring and reporting of annual achievements against planned achievements in the annual performance report.

Other reports 42. I draw attention to the following engagements conducted by various parties that had, or could have, an impact on the matters reported in the Company’s financial statements, reported performance information, compliance with applicable legislation and other related matters. These reports did not form part of my opinion on the financial statements or my findings on the reported performance information or compliance with legislation. 43. As requested by the Company, agreed-upon procedures engagements were conducted during the period under review concerning the accuracy of the illuminating paraffin (IP) tracer levy quarterly payments to the CEF. The reports covered the period 1 April 2018 to 31 March 2019. 44. Four investigations by the South African Police Service’s Directorate for Priority Crime Investigation (HAWKS) into allegations relating to financial misconduct, fraud and improper conduct in the Supply Chain Management (SCM), which were ongoing during the current year, were not finalised at year-end. The investigations relate to the following:

• Alleged failure by the Company to follow competitive bidding processes in appointing a legal firm for the Sabre deal. The award to the legal firm was concluded on 12 January 2012. The investigation is still in progress. • Alleged failure by the Company to follow competitive bidding processes in the appointment of the Company’s Transaction Advisor in respect of Project Irene. The Transaction Advisor was appointed on 8 November 2011. The investigation is still in progress. • Alleged unauthorised change in the financial recommended terms and conditions of the acquisition of upstream assets in March 2012. It is alleged that additional fees were added onto the purchase agreement without the approval thereof by the Board of Directors. The investigation is still in progress. • Alleged unauthorised change in the financial recommended terms and conditions of the PetroSA-Sabre acquisition agreements. It is alleged that in December 2011 the purchase price for Sabre was increased without Board approval and was unfavourable to PetroSA. The investigation is still in progress.

Cape Town 31 July 2019

PetroSA Integrated Annual Report 2019 | 71 Financial Performance 4. 3. Communication withthosecharged withgovernance 2. Financial statements 1. Annexure: Auditor-General’s responsibility for theaudit Oil andGasCorporation ofSouthAfrica SOC Limited (continued) Report oftheAuditor-General to Parliament onthePetroleum Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 72

| bearing onmy independence and,where applicable,related safeguards. independence, andcommunicate allrelationships andothermatters thatmay reasonably bethoughtto have a I alsoconfirm to theaccounting authority thatIhave complied withrelevant ethicalrequirements regarding in internal control thatIidentifyduringmy audit. matters, theplannedscope andtimingoftheauditsignificantfindings,includingany significantdeficiencies l communicate with the Board of Directors, which constitutes the accounting authority regarding, among other • • • • • this auditor’s report, Ialso: In additionto my responsibility for theauditofconsolidated andseparate financialstatements asdescribedin selected subjectmatters. on reported performance information for selected objectives andontheCompany’s compliance withrespect to the scepticism throughout my audit of the consolidated and separate financial statements, and the procedures performed ofanauditinaccordanceAs part withtheISAs, Iexercise professional judgement andmaintainprofessional • PetroSA Integrated Annual Report 2019 Evaluate theoverall presentation, structure andcontent ofthefinancialstatements, includingthedisclosures, However, future events orconditions may causeanentity to cease continuing asagoing concern. statements. My conclusions are based on the information available to me at the date of this auditor’s report. about thematerial uncertainty, or, ifsuchdisclosures are inadequate, to modifytheopiniononfinancial exists, Iamrequired to draw attention inmy auditor’s report to therelated disclosures inthefinancialstatements significant doubtontheGroup’s ability to continue asagoing concern. IfIconclude thatamaterial uncertainty audit evidence obtained,whetheramaterial uncertainty exists related to events orconditions thatmay cast the going-concern basis of accounting in the preparation of the financial statements. I also conclude, based on the Conclude ontheappropriateness oftheBoard ofDirectors, whichconstitutes theaccounting authority’s useof related disclosures madeby theBoard ofDirectors, whichconstitutes theaccounting authority. Evaluate theappropriateness ofaccounting policies used andthereasonableness ofaccounting estimates and Company’s internal control. appropriate inthecircumstances, but not for the purposeofexpressing anopinionon the effectiveness ofthe Obtain anunderstanding ofinternal control relevant to theauditinorder to designauditprocedures thatare forgery, intentional omissions, misrepresentations, ortheoverride ofinternal control. misstatement resulting from fraud ishigherthanfor oneresulting from error, asfraud may involve collusion, evidence thatissufficientandappropriate to provide abasisfor my opinion.The riskofnotdetecting amaterial whether dueto fraud, error ordesign,andperform auditprocedures responsive to thoserisks, andobtainaudit Identify andassess therisks ofmaterial misstatement oftheconsolidated andseparate financialstatements, the direction, supervisionandperformance oftheGroup audit.Iremain solelyresponsible for my auditopinion. activities withintheGroup to express anopinionontheconsolidated financialstatements. Iamresponsible for Obtain sufficient,appropriate auditevidence regarding thefinancialinformation oftheentitiesorbusiness fair presentation. and whether thefinancial statements represent the underlying transactions and events in a manner that achieves

Directors’ responsibilities and approval

The Directors are required in terms of the Companies Act 71 of 2008 to maintain adequate accounting records and are responsible for the content and integrity of the consolidated and separate annual financial statements and related financial information included in this report. It is their responsibility to ensure that the consolidated and separate annual financial statements fairly present the state of affairs of the Group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the consolidated and separate annual financial statements.

The consolidated and separate annual financial statements are prepared in accordance with International Financial Reporting Standards and are based on appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The Directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the Directors to meet these responsibilities, the Board of Directors sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures, and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring that the Group’s business is conducted in a manner that, in all reasonable circumstances, is above reproach. The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The Directors are of the opinion, based on the information and explanations given by Management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the consolidated and separate annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The Directors have reviewed the Group’s cash flow forecast for the year to 31 March 2020 and, in the light of this review and the current financial position, they are satisfied that the Group has, or had, access to adequate resources to continue in operational existence for the foreseeable future.

The external auditors are responsible for independently auditing and reporting on the Group’s consolidated and separate annual financial statements. The consolidated and separate annual financial statements have been examined by the Group’s external auditors and their report is presented on pages 68 to 72.

The consolidated and separate annual financial statements set out on pages 80 to 141, which have been prepared on the going-concern basis, were approved by the Board of Directors on 31 July 2019 and were signed on their behalf by:

Approval of financial statements

Mr N Gumede Mr QMN Eister

Cape Town 31 July 2019

PetroSA Integrated Annual Report 2019 | 73 Financial Performance Directors’ report 7500 Parow Business address: 7449 Parow Postal address: The Company Secretary isMsMKhumalo. Herbusiness andpostaladdresses are asfollows: 3. Secretary There have beennomaterial changes to thenature oftheGroup’s business from theprioryear. • • • • • The core business activitiesoftheGroup are: 2. The Directors oftheCompany from theapproval oftheprevious report to thedate ofthisreport are asfollows: 1. Directorate 31 March 2019. The Directors present theirreport thatformsoftheannualfinancialstatements for part theGroup for theyear ended Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 74

| The marketing andtrading ofoilandpetrochemicals. The development ofdomesticrefining andliquidfuelslogisticalinfrastructure; and Mossel Bay, SouthAfrica; The production of synthetic fuels from offshore gas at one of the world’s largest gas-to-liquid (GTL) refineries in The in,andacquisition of, participation localaswell asinternational upstream petroleum ventures; The exploration for, andproduction of, oilandnatural gas; Ms NMMhlakaza Mr NMkhize Ms NMashiane Mr RG Degni Mr BMNgubo Mr MXiphu Mr SS Masemola Mr QMNEister Mr NGumede Directors PetroSA Integrated Annual Report 2019 Nature ofbusiness 151 Frans Conradie Drive Private BagX5 Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive (Chairperson) Changes Resigned 8January2019

4. Holding company

The holding company is CEF SOC Ltd (CEF) and the ultimate Shareholder is the South African Government. All shares held by the government in CEF are not transferable in terms of the Central Energy Fund Act 37 of 1977.

5. Review of financial results and activities

The Group reported a net loss after tax of R2.1 billion (2018: R392 million) for the current financial year, an increase of R1.69 billion. Major contributors to this increase are deferred tax of R544 million, write-off of R259 million in intangible assets, and an increase in the net impairment losses of R432 million compared with the previous financial year.

Revenue inceased by 17% from R10.4 billion the previous year to R12.1 billion this year and was the result of higher product prices driven by the increase in the price of crude oil worldwide, as well as the the weakening of the rand against the major currencies.

Other expenses, other income and investment income were mostly on par with the previous financial year, while finance cost showed a slight decrease of R53 million.

Full details of the financial position, results of operations, and cash flows of the Group are set out in these consolidated and separate annual financial statements.

Impairments and reversal of impairments – property, plant and equipment

Due to the depleting gas reserves feeding the Mossel Bay GTL Refinery, as well as fluctuating oil prices, an impairment assessment was conducted as required by IAS 36, resulting in both an impairment and impairment reversal (refer to note 3 of the financial statements). In the light of the current commodity prices, the West Cape Three Points Block and the Deepwater Tano Block held by PetroSA Ghana Limited were assessed for impairment, resulting in an impairment reversal. The decommissioning provision (refer to note 17) increased significantly owing to the weakened rand against the USD. This resulted in a change in estimate and had a negative impact on the performance. These significant items can be summarised as follows:

2019 2018 R’ million R’ million Mossel Bay GTL Refinery 572 399 Ghana blocks (1 282) 1 521 Increase/(reduction) in decommissioning provision 1 401 (1 680) Impairment 691 240

6. Share capital

There have been no changes to the authorised or issued share capital during the year under review. Details of the share capital of the Company are set out in note 13 to the consolidated and separate annual financial statements.

7. Events after the reporting period

For more information regarding the Short-Term Incentive Policy contingent liability which arose after the reporting period, refer to note 29.

The Directors are not aware of any further material event which occurred after the reporting date and up to the date of this report.

8. Dividends

No dividends were declared to the Shareholder during the year.

9. Materiality and significant framework

A materiality and significant framework has been developed for reporting losses through criminal conduct and irregular, fruitless and wasteful expenditure, as well as for significant transactions envisaged by section 54(2) of the Public Finance Management Act (PFMA) 1 of 1999 that require ministerial approval.

For details on irregular, fruitless and wasteful expenditure, refer to note 35 to the consolidated and separate annual financial statements.

PetroSA Integrated Annual Report 2019 | 75 Financial Performance • uncertainty exists regarding theliquidity andsolvency positionoftheGroup: Owing to numerous occurrences, PetroSA isfacing anumberofkey strategic challenges. Consequently, amaterial liabilities, contingent obligations andcommitments willoccur intheordinary course ofbusiness. presumes thatfundswillbeavailable to finance future operations andthattherealisation ofassets andsettlementof financial statements have beenprepared onthebasisofaccounting policiesapplicableto agoing concern. This basis whether theGroup cancontinue inoperational existence for 12monthsfrom approval ofthefinancialstatements. The In determining theappropriate basisofpreparation ofthefinancialstatements, theDirectors are required to consider 10. Directors’ report/continued Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 76 • • • following: The ability oftheentity to continue asagoing concern, isdependentonanumberofsignificantfactors, includingthe • • • • • • •

| PetroSA over thelastyear hasexperienced anincrease innegative cashflows andsuffered operating losses of Refinery, financial health,sourcing of feedstock, leadership stability andadministration. The success ofProject Phoenix business environment andreturn business to normality interms ofacceptable levels ofoperational delivery atthe GTL of theapproval oftheCorporatePlan by theCEF. Project Phoenix’s objective isto stabilisetheunderperforming 2019. The Emergency Plan was furthermore incorporated in the PetroSA Corporate Plan 2020–2023 and is a condition The Emergency Plan,Project Phoenix,was initiated at ajointBoard meetingofPetroSA andtheCEFheldon14February highlighted inthe2018/2019 Corporate Plan. strategies andpenetration ofnew markets. The identifiedEmergency Planinitiatives mirror thesustainability measures CEF Group shared services suchasacommon ITplatform, access to feedstock atreduced premiums, trade-up are notlimited to, afocus onreliable, stableoperations attheGTL Refinery, leveraging theeconomies ofscalethe viability oftherepositioning aspart process oftheorganisation. The identifiedEmergency Planinitiatives include,but the PetroSA operating environment, thusallowing theentity to effectively ready itselffor long-term commercial identified Emergency Plan initiatives thatare geared to bringingthedesired emergency management andstability to In response, Shareholder intervention hastaken theform ofProject Phoenix,whichwillfacilitate theexecution of Comfort from theCEF. to the parent in theevent of liquidation. On 19 March 2019, the PetroSA Board furthermore requested a Letter of finishedproduct,and imported andaShareholder Letter to provide ofUndertaking creditors ofassurance ofrecourse A Shareholder Letter intheformfor ofSupport ofaR1billioncashinjectionand support theprocurement offeedstock Officer andChiefRiskOfficer. in July2017 andactingincumbentsfillingkey vacancies includingthoseofChiefExecutive Officer, ChiefFinancial The Group stillfaces instability withregard to organisational leadership, with aninterim Board thatwas appointed increase intherand value ofitsdecommissioning liability to R9.8 billion(2018: R8.1 billion). R1.1 billion).The maincontributor to PetroSA’s technical insolvency isthedevaluation oftherand, whichcausedan At Company level, PetroSA’s total liabilitiesexceeded itstotal assets by R1.1 billion(2018: positive equity value of in foreign exchange rates. PetroSA furthermore remains vulnerable to exogenous factors suchasfluctuationsinthecrudeoilprice andvolatility have demandedparent guarantees to thevalue ofUSD75 millionfor thesourcing offeedstock andfinishedproducts. are nolonger prepared to rely ontheimplicitgovernment afforded support to itsState-Owned Enterprise. Suppliers As aresult oftheprecarious financialpositionimpactingnegatively ontheorganisation’s credit rating status,suppliers PetroSA’s current LC facility isR900millionbacked by R350millioncollateral posted withitstransactional banker. unsecured, favourable credit terms butinsistingonletters ofcredit (LCs), dieselpurchases. to support particularly The declining financial strength of the balance sheet hasled to several suppliers no longer being prepared to offer yet secured alternative, affordable feedstock. Indigenous gas reserves are closeto depletionandare expected to run outby December 2020, andPetroSA hasnot solvent withanequity value ofR498 million. The Group recorded anetloss ofR2.1 billion(2018: R392 millionloss) for theyear ended31March 2019, yet remains other growth projects. billion(2018: R799millionloss),R1.2 yet theGroup needsto invest inthelong-term sustainability oftheGTLR and PetroSA Integrated Annual Report 2019 Going concern

depends on rebuilding the leadership team at PetroSA, and this has been recognised by the Shareholder. The CEF has undertaken to subsidise and capacitate existing PetroSA leadership on Project Phoenix with CEF resources to ensure oversight. • PetroSA continues to maintain stringent cost-containment measures for the Group. PetroSA is in the process of disinvestment from non-core assets such as ORCA (which ceased operations in March 2013) and the disposal of subsea equipment and materials left over from the Project lkhwezi Drilling Campaign.

In considering the uncertainties described above, Management reasonably expects that the Group will have adequate resources to continue operations for the foreseeable future, and therefore continues to adopt the going-concern basis of accounting in order to prepare the financial statements.

11. Funding of decommissioning provision

At year-end, the Company obligation to provide for the rehabilitation and decommissioning of its offshore and onshore facilities was valued at R9 800 million. PetroSA has set aside R2 408 million for this and there is currently a shortfall of approximately R7 392 million. In terms of the financial provision regulations which were promulgated under the National Environmental Management Act 107 of 1998 (NEMA), PetroSA is required to review, assess and adjust its financial provision and associated plans in accordance with these regulations before 19 February 2024 – by which time the financial provision funds will need to be available. The provision calculation is based on comprehensive technical work conducted by an international decommissioning contractor and thereafter reviewed by an independent specialist.

PetroSA is working with all key stakeholders to ensure compliance with the requirements of the financial provision regulations before 19 February 2024. To this extent, the holding company has committed to assist PetroSA, through various support and oversight mechanisms, to close the funding gap. In addition, PetroSA is working closely with the regulator (the Petroleum Agency of South Africa) to ensure that it discharges its responsibilities as required under the NEMA financial provision regulations. Other key stakeholders involved include the Department of Energy, the National Treasury, the Department of Mineral Resources and the Department of Environmental Affairs.

The Company has set aside funds towards the cost of decommissioning. These funds are not available for the general purposes of the Group and comprise the following investments:

2019 2018 R’ million R’ million Cash deposits with CEF 477 477 Cash in PetroSA Rehabilitation NPC 1 751 1 711 Financial guarantee 180 180 2 408 2 368

No funds have been set aside for the funding of international provisions valued at R347 million. In terms of the signed petroleum agreements, this will commence once 50% of the estimated reserves have been produced from the relevant fields.

12. Auditors

In terms of the Constitution of the Republic of South Africa, 1996, and the Public Audit Act 25 of 2004, the Auditor-General of South Africa continued in office as auditors for the Company and its subsidiaries for 2019.

At the Annual General Meeting (AGM), the Company will be requested to reappoint the Auditor-General of South Africa as the independent external auditors of the Company and its subsidiaries.

Approval of consolidated and separate annual financial statements.

Mr N Gumede Mr QMN Eister

Cape Town 31 July 2019

PetroSA Integrated Annual Report 2019 | 77 Financial Performance Chairperson: Board Audit Committee Mr RG Degni Board ofDirectors atitsmeetingon31July2019. The Board Audit Committee recommended theadoptionofannualfinancialstatements andtheannualreport by the 2. business, itsfinancialresults, anditsfinancialpositionasattheendofyear. The Committee therefore attests thattheannualfinancialstatements fairly represent thestate ofaffairs oftheGroup, its • • • • • • • • • • In addition,theCommittee was engaged withthefollowing issues duringtheyear important underreview: • • • • • of2008: Act 71 The Committee performed thefollowing dutiesduringtheyear inaccordance withsection94(7) oftheCompanies 1. Responsibilities by theCompanies of2008. Act 71 basis. The Committee hassince discharged itsresponsibilities incompliance withitsterms ofreference andasrequired The Board Audit Committee hasformal terms ofreference thatare reviewed andapproved by theBoard onanannual Report oftheBoard Audit Committee Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 78

Reviewing theassessment ofinternal financialcontrols andtheassurance thereof. Reviewing andapproving theinternal auditreports; and Reviewing andapproving theInternal Audit Plan; Reviewing thegoing-concern assessment andtherelated assumptions; The review andassessment offruitless, wasteful and irregular expenditure; Reviewing thebudget theCorporate to support Plan; and regulations; Assessment oftheadequacyandeffectiveness ofmitigations implemented by Management to comply withlegislation Reviewing theassumptions usedby Management inthepreparation oftheannualfinancialstatements; Assessment ofthedecommissioning liability inlinewithNEMA; Assessment ofthefinancialrisks oftheGroup; Prepared areport to beincludedintheannualfinancialstatements for thefinancialyear. and Concurred withregard to thequantumoffees to bepaidto theauditors aswell astheauditor’s terms ofengagement; Determined thenature andextent ofany non-auditservices; Performed otheroversight functionsdetermined by theBoard; Reviewed matters includingtheaccounting policies,financialcontrols andreporting; | PetroSA Integrated Annual Report 2019 Legal andregulatory compliance

Statement of the Company Secretary

In terms of section 88(2)(e) of the Companies Act 71 of 2008, as amended, I certify that the Group has lodged with the Commissioner all such returns as are required of a public company in terms of the Act and that all such returns are true, correct and up to date.

Ms M Khumalo Company Secretary

31 July 2019

PetroSA Integrated Annual Report 2019 | 79 Financial Performance TOTAL EQUITY ANDLIABILITIES Total liabilities Provisions Current taxpayable Finance leaseliability Trade andotherpayables Current liabilities Provisions Deferred tax Finance leaseliability Financial liability Non-current liabilities Liabilities Retained income Reserves Share capital Equity EQUITY ANDLIABILITIES TOTAL ASSETS Cash andcashequivalents Current taxreceivable Financial assets Trade andotherreceivables Inventories Current assets Amounts heldby holdingcompany Financial assets Trade andotherreceivables Investments insubsidiaries Intangible assets Property, plantandequipment Non-current assets ASSETS as at31March 2019 Statements offinancialposition Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 80

| PetroSA Integrated Annual Report 2019 Note(s) 10 14 18 16 17 15 17 15 12 13 11 11 4 8 8 9 5 3

10 562025 10 245 249 13 598 426 (3 120898) 2 684069 18 013 243 6 604 953 6 604953 4 339364 7 949 472 2 657 234 18 511 497 18 511 497 1 406929 2 755 936 1 489 033 1 863072 4 414 817 2 257 911 350 000 200 486 486 585 498 254 895 873 968 271 863 216 R’000 53 254 18 830 2019 3 369 258 – GROUP 13 392 403 15 465475 15 465475 10 750 150 (1 051 008) 4 848230 8 399829 2 545856 2 073 072 2 642 253 2 642 8 825362 2 755 936 1 599 483 1 849 140 1 823 923 2 295 221 6 640 113 6 640 750 000 1 745 119 486 585 772 899 769 256 808 166 368 144 Restated R’000 39 684 27 844 28 869 2018 67 141 633 – 12 989 229 (1 089 544) 14 078 773 12 989 229 3 845480 2 989 950 2 205242 9 897 837 2 332560 6 222 907 9 897 837 2 755 936 4 180936 6 766 322 1 878 520 1 435239 4 162 106 350 000 946 560 486 585 364 573364 R’000 18 830 2019 COMPANY – – – – – – – – 10 400547 (1 680055) 2 204705 5 462977 2 755 936 1 889 795 8 166973 11 476 110 11 476 110 2 233574 8 166973 1 683782 1 758 432 1 075 563 1 820 919 1 182 458 1 526 310 6 013 133 750 000 486 585 377 829 Restated R’000 28 869 2018 (318) – – – – – – – Statements of profit or loss and other comprehensive income

GROUP COMPANY

2019 2018 2019 2018 R’000 R’000 R’000 R’000 Note(s) Restated Restated

Revenue 19 12 138 953 10 418 304 10 531 477 9 322 834 Cost of sales (11 870 421) (10 212 112) (10 933 168) (9 186 417) Gross profit/(loss) 268 532 206 192 (401 691) 136 417 Other operating income 397 965 323 338 171 825 275 740 Impairment (losses)/reversals 20 (696 014) (264 889) (877 757) 63 089 Other operating expenses (1 246 992) (1 064 094) (1 208 959) (807 464) Operating loss 21 (1 276 509) (799 453) (2 316 582) (395 218) Investment income 22 376 715 381 908 477 772 236 613 Finance costs 23 (493 623) (546 589) (339 150) (410 856) Loss before taxation (1 393 417) (964 134) (2 177 960) (569 461) Taxation 24 (689 009) 571 853 – – Loss for the year (2 082 426) (392 281) (2 177 960) (569 461)

Other comprehensive income: Items that will not be reclassified to profit or loss: Remeasurements on net defined benefit liability/asset 12 535 (19 710) 12 535 (19 710) Items that may be reclassified to profit or loss: Exchange differences on translating foreign operations 495 072 (263 571) 318 (9) Other comprehensive loss for the year net of taxation 507 607 (283 281) 12 853 (19 719)

Total comprehensive loss for the year (1 574 819) (675 562) (2 165 107) (589 180)

PetroSA Integrated Annual Report 2019 | 81 Financial Performance Note(s) Balance at31March 2019 Total comprehensive loss for theyear Other comprehensive profit Loss for theyear Restated Balance at01 April2018 Total comprehensive loss for theyear Other comprehensive loss Loss for theyear Balance at01 April2017 GROUP Statements ofchanges inequity Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 82 Note(s) Balance at31March 2019 for theyear Total comprehensive income/(loss) Other comprehensive income Loss for theyear Balance at01 April2018 Total comprehensive loss for theyear Other comprehensive loss Loss for theyear Balance at01 April2017 COMPANY

| PetroSA Integrated Annual Report 2019 capital R’000 Share 13 13 2 2 2 2 2 2 – – – – – – – – – – – – 2 755 934 2 755 934 2 755 934 2 755 934 2 755 934 2 755 934 premium R’000 Share 13 13 – – – – – – – – – – – – 2 755 936 2 755 936 2 755 936 2 755 936 2 755 936 2 755 936 Total share capital R’000 13 13 – – – – – – – – – – – – (263 571) (263 571) 495 072 495 495 072 495 368 144 863 216 translation 631 715 currency reserve (309) Foreign (318) R’000 318 318 (9) (9) – – – – – (3 845480) (2 082 426) (1 090884) (1 680055) (2 069 891) (3 120898) (2 177960) (2 165425) (1 051 007) (569 461) (639 017) (392 281) Accumulated (589 171) (411 991) (19 710) (19 710) 12 535 12 535 R’000 loss (2 082 426) (1 089 544) (2 177960) (2 165107) 2 073 072 2 073 073 2 748 634 (1 574 819) 1 664 7431 664 1 075 563 (589 180) (569 461) (283 281) (392 281) 507 607 498 254 (19 719) 12 853 equity R’000 Total Statements of cash flows

GROUP COMPANY

2019 2018 2019 2018 R’000 R’000 R’000 R’000 Note(s) Restated Restated

Cash flows from operating activities Cash generated from operations 25 355 380 1 014 365 (179 616) (9 598) Interest income 22 372 626 381 908 184 611 236 613 Dividend income 4 089 – 293 161 – Finance costs 23 (141 774) (129 586) (564) (3 492) Tax paid 26 (32 242) (98 213) – – Net cash from operating activities 558 079 1 168 474 297 592 223 523

Cash flows from investing activities Purchase of property, plant and equipment 3 (988 876) (203 668) (651 988) (236 148) Sale of property, plant and equipment 3 – 389 – 389 Purchase of other intangible assets 4 (31 813) (26 495) (23 938) (22 282) Sale of other intangible assets 4 151 4 400 – – Other financial assets – decrease/(increase) in restricted cash 400 000 (750 000) 400 000 (750 000) Other financial assets – increase/(decrease) in loans (39 986) (124 829) 90 234 431 395 Repayments of amounts held by holding company – 2 436 – 2 436 Net cash from investing activities (660 524) (1 097 767) (185 692) (574 210)

Cash flows from financing activities Movement in financial liability 199 015 (97 590) – – Movement in finance lease 136 544 (37 686) – – Net cash from financing activities 335 559 (135 276) – –

Total cash movement for the year 233 114 (64 569) 111 900 (350 687) Cash at the beginning of the year 2 295 221 2 415 862 1 758 432 2 134 258 Effect of exchange rate movement on cash balances 128 899 (56 072) 8 188 (25 139) Cash and cash equivalents at end of the year 12 2 657 234 2 295 221 1 878 520 1 758 432

PetroSA Integrated Annual Report 2019 | 83 Financial Performance Business combinations the intervening period. year-end of the Group. Audited adjustments are madeto thefinancialresults for significant transactions and events in The mostrecent audited annualfinancialstatements ofsubsidiariesare used,whichare allwithinthree monthsofthe eliminated onconsolidation. All significantinter-entity transactions, unrealised profit andlosses, andbalances between Group enterprises are policies usedinlinewiththeGroup accounting policies. Where necessary, adjustmentsare madeto theannualfinancialstatements ofsubsidiariesto bring theaccounting from thedate thatcontrol ceases. Subsidiaries are fullyconsolidated from thedate onwhichcontrol istransferred to theGroup. They are deconsolidated one ormore ofthe three elementsofcontrol. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to • • • Control isachieved if, andonlyif, theGroup: 31 March eachyear. The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at Basis ofconsolidation Consolidation1.2 of new accounting standards. consolidated financialstatements owing to theretrospective applicationofaccounting policiesasaresult oftheadoption of items inthefinancialstatements. Anadditionalstatement offinancialpositionasat1April2018 ispresented inthese period whenthere isaretrospective applicationofanaccounting policy, aretrospective restatement, orareclassification In addition,theGroup andPetroSA present anadditionalstatement offinancialpositionatthebeginningpreceding previous period. The consolidated andseparate financialstatements ofPetroSA provide comparative information inrespect ofthe to thenearest thousand (R’000),except where otherwise indicated. consolidated and separate financial statements of PetroSA are presented in South African rand and all values are rounded The consolidated andseparate financialstatements ofPetroSA have beenprepared onahistorical-cost basis.The Finance Management Act (PFMA) 1of1999, andtheCompanies of2008. Act 71 Financial Reporting Standards (IFRS) asissued by theInternational Accounting Standards Board (IASB), thePublic The consolidated andseparate financialstatements ofPetroSA have beenprepared inaccordance with:theInternational 1.1 1. Accounting policies Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 84 investments insubsidiariesatcost less accumulated impairment. under IFRS3‘Business combinations’ are recognised attheir fair values attheacquisition date. The Group carriesits are incurred. The acquiree’s identifiable assets, liabilitiesandcontingent liabilitiesthatmeettheconditions for recognition instruments issued by theGroup inexchange for control oftheacquiree. Acquisition-related costs are expensed as they aggregate ofthefair values (at the date ofacquisition) ofassets given, liabilities incurred orassumed, andequity Business combinations are accounted for usingtheacquisition method.The cost ofanacquisition ismeasured asthe

has theability to useitspower to affect itsreturns. is exposed, orhasrights,to variable returns from itsinvolvement intheinvestee; and has power over theinvestee; | Significant accounting policies PetroSA Integrated Annual Report 2019 Basis ofpreparation

Business combinations (continued) The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

1.3 Joint arrangements

Joint ventures The results and assets and liabilities of joint ventures are incorporated in the Group financial statements by using the equity method of accounting. The aggregate of the Group’s share of the profit or loss of a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture.

Under the equity method, investments are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment in the value of individual investments. Losses of a joint venture in excess of the Group’s interest in that entity (which includes any long- term interests that, in substance, form part of the Group’s net investment in the joint venture) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the entity.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, and then recognises the loss as ‘Share of profit of a joint venture’ in the statement of profit or loss.

If the ownership interest is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

Upon loss of joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

Interest in joint operations When the Group undertakes its activities under a joint operation, the Group as joint operator recognises in relation to its interest in the joint operation: its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output of the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly.

The Group accounts for assets, liabilities, revenues and expenses relating to its interest in joint operations in accordance with the applicable IFRS.

1.4 Property, plant and equipment

1.4.1 Carrying amounts All property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any.

1.4.2 Cost Cost includes all costs directly attributable to bringing the assets to the working condition for their intended use by Management. Improvements are capitalised. Maintenance, repairs and renewals which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against profit or loss.

Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Where an asset, or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the Group, the expenditure is capitalised. Where part of the asset replaced was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) and is immediately written off. Inspection costs associated with major maintenance programmes are capitalised and amortised over the period to the next inspection. All other day-to-day repairs and maintenance costs are expensed as incurred.

PetroSA Integrated Annual Report 2019 | 85 Financial Performance Changes intheestimates ofcommercial reserves orfuture fielddevelopment costs are dealtwithprospectively. gas andothermineral reserves estimated to berecoverable from existing facilities usingcurrent operating methods. reserves remaining. Units-of-production rates are based ontheproved andprobable developed reserves, which are oil, carrying value ofcapitalisedcosts plustheestimated future fielddevelopment costs required to recover thecommercial plus theproduction in theperiod,onafield-by-field basis.Costs usedintheunit-of-production calculationcomprise the of oilandgas production intheperiodto theestimated quantitiesofproved andprobable reserves attheendofperiod Production assets are depreciated from thedate production commences, onaunit-of-production basis,whichistheratio original specificationsisrecognised ascapitalexpenditure andaddedto theoriginalcost of theasset. Subsequent expenditure whichenhances or extends theperformance ofoilandgas production assets beyond their associated withtheproduction ofproved reserves. Oil andgas production assets are theaggregated exploration andevaluation tangibleassets anddevelopment expenditure 1.4.5 The methodsofdepreciation, usefullives andresidual values are reviewed annually. Assets underconstruction Restoration costs Shutdown costs Motor vehicles Furniture, fittingsandoffice equipment Production assets Buildings Land Item residual values: The following methodsandrates are usedduringtheyear to depreciate property, plantandequipmentto estimated estimated usefullives. Where ofanitem have significantparts different usefullives to theitem itself, are theseparts depreciated over their by theentity. the cost ofeachasset thatreflects thepattern inwhichtheasset’s future economic benefitsare expected to beconsumed useful lives to estimated residual values usingthestraight-line methodorotheracceptable method inorder to write off Depreciation ischarged soasto write offthedepreciable amountoftheassets, otherthanland,over theirestimated 1.4.4 Depreciation or loss. The gain orloss arising from derecognition ofanitem ofproperty, plantandequipmentisincludedinoperating profit Gains orlosses ondisposalofproperty, plantandequipmentare determined by reference to theircarryingamount. benefits are expected from itsuse. The carryingamountofanitem ofproperty, plantandequipmentisderecognised ondisposalorwhennofuture economic 1.4.3 Derecognition 1.4 1. Accounting policies(continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 86

| Significant accounting policies(continued) PetroSA Integrated Annual Report 2019 Property, plantandequipment(continued) Production assets(oil andgasfields) Straight-line Units-of-production Straight-line Straight-line Straight-line Units-of-production Straight-line Straight-line Depreciation method Not depreciated Units ofproduction 3–5 years 10–12 years 3–15 years Units ofproduction 40 years Not depreciated Average usefullife

1.4.5 Production assets (oil and gas fields) (continued) Where there has been a change in economic conditions that indicates a possible impairment in a discovery field, the recoverability of the carrying value relating to that field is assessed by comparison with the estimated discounted future cash flows based on Management’s expectations of future oil and gas prices and future costs. Where there is evidence of economic interdependency between fields, such as common infrastructure, the fields are grouped as a single cash- generating unit for impairment purposes.

Any impairment identified is charged to profit or loss. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to profit or loss, net of any depreciation that would have been charged since the impairment.

1.4.6 Restoration costs Cost of property, plant and equipment also includes the estimated costs of dismantling and removing the assets, as well as site rehabilitation costs.

Estimated decommissioning and restoration costs are based on current requirements, technology and price levels. Provision is made for all net estimated abandonment costs as soon as an obligation to rehabilitate the area exists, based on the present value of the future estimated costs. These costs are deferred and are depreciated over the useful life of the assets to which they relate using the unit-of-production method based on the same reserve quantities as are used for the calculation of depletion of oil and gas production assets.

The amount recognised is the estimated cost of restoration, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the restoration provision is included as a finance cost.

1.5 Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.

If an intangible asset is assessed as having a finite useful life, it is amortised over its useful life using a straight-line basis and tested for impairment if there is an indication that it may be impaired.

The following rates are used during the year to amortise intangible assets to estimated residual values:

Item Useful life Patents Validity period of the patent Exploration and evaluation assets Not depreciated Purchased software 3–5 years

Research and development costs (patents) Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:

• The technical feasibility of completing the intangible asset so that the asset will be available for use or sale; • Its intention to complete and its ability and intention to use or sell the asset; • How the asset will generate future economic benefits; • The availability of resources to complete the asset; and • The ability to measure reliably the expenditure during development.

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

Exploration, evaluation and development of oil and gas wells The ‘successful-efforts’ method is used to account for natural oil and gas exploration, evaluation, and development activities.

Under the successful-efforts method, only those costs that lead directly to the discovery, acquisition or development of specific discrete mineral reserves are capitalised and become part of the capitalised costs of the cost centre. Costs that are known to fail to meet these criteria (at the time of incurrence) are generally charged to the statement of profit or loss as an expense in the period they are incurred.

PetroSA Integrated Annual Report 2019 | 87 Financial Performance expected lives oftheassets discounted by thepre-tax weighted average cost ofcapital. the asset belongs.Value inuseisestimated by takinginto account future cashflows, forecast market conditions, andthe recoverable amountfor anindividualasset, the recoverable amountisdetermined for thecash-generating unit to which is estimated inorder to determine theextent oftheimpairmentloss, ifany. Where itisnot possible to estimate the there isany indicationthatthoseassets may beimpaired. Ifsuchindicationexists, therecoverable amount oftheasset At eachreporting date, theGroup reviews thecarryingamountsofitstangible andintangible assets to determine whether 1.6 Purchased software andthedirect costs associated withthecustomisation andinstallationthereof are capitalised. Software loss intheyear they are incurred. Geological andgeophysical costs, aswell asallothercosts relating to dryexploratory wells, are recognised inprofit and Dry wells depreciated according to theunit-of-production methodusingtheestimated proved andprobable reserves. oftheproductionstart phase. Alldevelopment wells are notdepreciated untilproduction andthenthey starts, are production facilities capitalisedincludesfinance costs incurred untiltheproduction facility iscompleted andready for the Costs ofdevelopment wells, platforms, well equipment,andattendant production facilities are capitalised.The cost of Development costs be less. will bemore thantheamountestimated asproven andprobable reserves anda50%statisticalprobability thatitwill commercially producible. There shouldbea50%statisticalprobability thattheactualquantity ofrecoverable reserves specified degree of certainty to be recoverable in future years from known reservoirs and which are considered crude oil,natural gas andnatural gas liquidswhichgeological, geophysical andengineeringdatademonstrate witha Commercial reserves are proven andprobable oilandgas reserves, whichare definedastheestimated quantitiesof Commercial reserves development costs. impairment isrecognised. develop Ifaplanorintention to further thesewells orfieldsexists, thecosts are transferred to plan ordevelopment exists orinformation isobtainedthatraises doubtabouttheeconomic oroperating viability, thenan develop orwhenafirmplanto develop hasbeenapproved. These are continuously assessed for impairment.Ifnosuch Exploratory wells where potentially commercial reserves are discovered are capitalisedpendingadecisionto further Assets pendingdetermination been establishedorthedetermination process hasnotbeencompleted andthere are noindicationsofimpairment. These costs are notdepreciated butare written offasexploration costs inprofit orloss, unless commercial reserves have to specificdevelopment activities. initially capitalised.Directly attributableadministration costs andinterest payable are capitalisedinsofar asthey relate All costs relating to theacquisition oflicences andto theexploration andevaluation ofawell, fieldorexploration area are Exploration andevaluation costs These costs are expensed intheyear they are incurred. seismic dataand subsequent geological andgeophysical analysis ofthisdata, but may notbe exclusive to such costs. These are costs incurred priorto theacquisition ofalegal rightto explore for oilandgas. They may includespeculative Pre-licensing costs 1.5 1. Accounting policies(continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 88

| Significant accounting policies(continued) PetroSA Integrated Annual Report 2019 Impairment ofnon-financial assets Intangible assets (continued)

1.6 Impairment of non-financial assets (continued) If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, its carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. Subsequent to the recognition of the impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life.

If an impairment loss is subsequently reversed, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but limited to the carrying amount that would have been determined had an impairment loss not been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss.

1.7 Leases A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit or loss. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. An operating lease is a lease other than a finance lease.

Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.

1.8 Translation of foreign currencies

1.8.1 Transactions Foreign currency transactions are recognised, initially in rand, by applying the foreign currency amount to the exchange rate between the rand and the foreign currency at the date of the transaction, and are restated at each reporting date by using the ruling exchange rate at that date.

1.8.2 Statement of financial position At each reporting date:

(a) Foreign currency monetary items are measured using the closing rate; (b) Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and (c) Non-monetary items which are carried at fair value denominated in a foreign currency are reported using the exchange rates that existed when the fair values were determined.

1.8.3 Exchange differences Exchange differences arising on the settlement of monetary items or on reporting a company’s monetary items at rates different from those at which they were initially recorded during the period, or were reported in previous financial statements, are recognised in profit or loss in the period in which they arise. Exchange differences that relate to borrowing and cash and cash equivalents are presented in the statement of profit or loss as finance costs and investment income.

1.8.4 Foreign entities In translating the financial statements of a foreign entity for incorporation in the Group financial statements, the following is applied:

(a) The assets and liabilities, both monetary and non-monetary, of the foreign entity are translated at the closing exchange rate at the financial year-end date; (b) Income and expense items of the foreign entity are translated at the weighted average rates of exchange for the year; (c) All resulting exchange differences are taken directly to other comprehensive income. On disposal the related amount in this reserve will be recognised in profit or loss; and (d) Exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. When a foreign operation is sold, the associated exchange differences are reclassified to profit or loss as part of the gain or loss on sale.

PetroSA Integrated Annual Report 2019 | 89 Financial Performance Accounting policies(continued) under thiscategory. are notsubjectto impairment assessment. The Group elected to classify irrevocably itsnon-listed equity investments Gains andlosses onthesefinancial assets are never recycled to profit or loss. Equity instruments designated atFVTOCI not heldfor trading. The classification isdetermined onaninstrument-by-instrument basis. designated atFVTOCI whenthey meetthedefinitionofequity underIAS32:Financial Instruments:Presentation andare Upon initialrecognition, theGroup can electto classify irrevocably its equity investments asequity instruments • • The Group accounts for financialassets atFVTOCI iftheassets meetthefollowing conditions: Financial assets atfair value through other comprehensive income (FVTOCI) trade andotherreceivables, financialassets, andamountsheldby theholdingcompany. profit orloss whentheasset isderecognised, modifiedorimpaired. The Group’s cost financialassets atamortised include impairment. Discounting is omitted where theeffect ofdiscounting isimmaterial. Gainsandlosses are recognised in After initial recognition, theseare measured cost at amortised using the effective-interest method and are subject to • • FVTPL): Financial assets are measured cost at amortised iftheassets meetthefollowing conditions (andare notdesignated as Financial cost assets atamortised 1.9.2 the financialasset andsubstantiallyalltherisks andrewards are transferred. Financial assets are derecognised whenthecontractual rightsto thecashflows from thefinancialasset expire, orwhen expenses. costs, finance income orotherfinancialitems, except for impairmentoftrade receivables, whichispresented withinother All income andexpenses relating to financialassets thatare recognised inprofit orloss are presented withinfinance • • The classification isdetermined by both: assets are initiallymeasured atfair value adjusted for transaction costs (where applicable). a significantfinancingcomponent andare measured atthetransaction price inaccordance withIFRS15,allfinancial income (FVTOCI), andfair value through profit orloss (FVTPL). Except for thosetrade receivables thatdonotcontain Financial assets are classified, at initial recognition, as measured cost, at amortised fair value through othercomprehensive 1.9.1 Financial assets 1.9 1. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 90

on theprincipalamountoutstanding. The contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest They are heldunderabusiness modelwhoseobjective is‘holdto collect’ theassociated cashflows andsell; on theprincipalamountoutstanding. The contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest flows; and They are heldwithinabusiness model whoseobjective isto holdthefinancialassets andcollect itscontractual cash The contractual cashflow characteristics ofthefinancialasset. The entity’s business model for managingthefinancialasset; and | Significant accounting policies(continued) PetroSA Integrated Annual Report 2019 Financial instruments Subsequent measurement Initial recognition andmeasurement

1.9.3 Derecognition A financial asset is primarily derecognised when:

• The rights to receive cash flows from the asset have expired; or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership.

1.9.4 Impairment of financial assets The impairment requirements of IFRS 9 use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

In applying this forward-looking approach, a distinction is made between:

• Financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’); and • Financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’).

‘Twelve-month expected credit losses’ are recognised for the first category, while ‘lifetime expected credit losses’ are recognised for the second category.

Measurement of ECLs is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk but instead recognises a loss allowance based on lifetime ECLs at each reporting date.

The Group considers a financial asset to be in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Financial liabilities

1.9.5 Initial recognition and measurement Financial liabilities are classified, at initial recognition, as measured at amortised cost and fair value through profit or loss (FVTPL). Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs, unless the Group designated a financial liability at fair value through profit or loss.

1.9.6 Subsequent measurement Financial liabilities at amortised cost After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

The Group’s financial liabilities at amortised cost include financial liabilities and trade and other payables.

1.9.7 Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

PetroSA Integrated Annual Report 2019 | 91 Financial Performance of property, plantandequipmentare reclassified accordingly. appropriate provision for obsolescence in arriving at the net realisable value. Any inventories which meet the definition These inventories are measured atthelower ofcost ona weighted average cost basisandnetrealisable value less Spares, catalysts andchemicals transport andhandlingcosts. Provision ismadefor obsolete, slow-moving anddefective inventories. production expenditure, depreciation, andaproportion ofshutdown expenses andreplacement ofcatalysts, aswell as capacity utilisation.They are regularly reviewed and, if necessary, revised inthelightofcurrent conditions. Cost includes standard costing method.Standard costs take into account normallevels ofmaterials andsupplies,labour, efficiencyand Finished inventories andwork-in-progress are measured atthelower ofcost andnetrealisable value according to the Finished inventories andwork-in-progress 1.10 Inventories less thanoneyear are assumed to approximate theirfair values dueto theshort-term trading cycle oftheseitems. cash flows at prevailing interest rates. The carrying amounts of financial assets and financial liabilities with a maturity of market prices. Where market prices are notavailable, fair values have beencalculated by discounting expected future The fair values atwhichfinancialinstrumentsare carriedatthereporting date have beendetermined usingavailable inputs andminimisingtheuseofunobservable inputs. circumstances andfor whichsufficientdataare available to measure fair value, maximisingtheuseofrelevant observable the asset orliability atthemeasurement date. The Group usesvaluation techniques thatare appropriate inthe characteristics of the asset or liability if market would participants take those characteristics into account when pricing another valuation technique. Inestimatingthefair value ofanasset oraliability, theGroup takes into account the market atthemeasurement participants date, regardless ofwhetherthatprice isdirectly observable orestimated using Fair value istheprice thatwould bereceived to sellanasset orpaidto transfer aliability inanorderly transaction between (c) (b) (a) fair-value measurement initsentirety. The various levels are describedasfollows: which theinputsto thefair-value measurements are observable, aswell asonthesignificance oftheinputsto their For financialreporting purposes,fair-value measurements are categorised into Level 1,2or3basedonthedegree to 1.9.9 on anetbasis,andto realise theassets andto settletheliabilitiessimultaneously. position ifthere isacurrently enforceable legal rightto offset therecognised amounts,andthere isanintention to settle Financial assets andfinancialliabilitiesare offset andthenetamountisreported intheconsolidated statement offinancial 1.9.8 1.9 1. Accounting policies(continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 92

either directly orindirectly; and Level 2inputsare inputs,otherthanquoted prices includedinLevel 1,thatare observable for theasset orliability, Level 3inputsare unobservable for theasset orliability. access atthemeasurement date; Level 1inputsare quoted prices (unadjusted) inactive markets for identicalassets orliabilitiesthattheGroup can PetroSA Integrated Annual Report 2019 Significant accounting policies(continued) Financial instruments(continued) Fair-value considerations Offsetting offinancialinstruments

1.11 Taxation

Current income tax The tax expense in the statement of profit or loss for the period comprises current and deferred tax. Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.

Tax is recognised in the statement of profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that have been enacted or substantially enacted at the reporting date.

Deferred tax assets and liabilities Deferred tax is provided for using the liability method of temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date and at the tax rates that have been enacted or substantially enacted at the reporting date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Deferred tax assets A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at reporting date.

Deferred tax liability Deferred tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; • In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

1.12 Provisions Provisions represent liabilities of uncertain timing or amounts.

Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation.

Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. The increase in the provision due to passage of time is recognised as interest expense.

The decommissioning provision, which includes the cost of environmental and other remedial work such as reclamation costs, and close-down and restoration costs, is made when such expenditure is probable and the cost can be estimated with a reasonable range of possible outcomes.

The amount recognised is the estimated cost of restoration, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of restoration or restoration cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. Any reduction in the decommissioning provision and, therefore, any deduction from the asset to which it relates, may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to profit or loss.

The unwinding of the discount on the decommissioning provision is included as a finance cost.

PetroSA Integrated Annual Report 2019 | 93 Financial Performance • • the following changes inthenetdefined-benefit obligation intheconsolidated statement ofprofit orloss: Net interest is calculated by applying the discount rate to the net defined-benefit liability or asset. The Group recognises date thattheGroup recognises related restructuring costs. Past service costs are recognised inprofit andthe orloss ontheearlierofdate oftheplanamendmentorcurtailment Remeasurements are notreclassified to profit orloss insubsequentperiods. debit orcredit to retained earningsthrough othercomprehensive income (OCI) intheperiodwhichthey occur. on thenetdefined-benefitliability), are recognised immediately inthestatement offinancialpositionwithacorresponding net interest onthenetdefined-benefitliability), andthereturn onplanassets (excluding amountsincludedinnetinterest Remeasurements, comprising actuarialgains andlosses, theeffect oftheasset ceiling (excluding amountsincludedin of thereporting periodless thefair value ofplanassets. liability recognised inthestatement offinancialpositionisthepresent value ofthedefined-benefitobligation attheend of providing benefitsunderadefinedbenefitplanisdetermined usingaprojected unitcredit valuation method.The benefits isbasedontheeligibleemployees remaining inservice upto retirement age. These benefitsare funded.The cost Post-employment healthcare benefitsare provided for certain retirees. The entitlementto post-retirement healthcare Defined-benefit costs that period. Contributions to adefined-contribution planinrespect ofserviceperiodare inaparticular recognised asanexpense in qualified actuaries. fund. The plan is funded by payments from the Group and takes into account the recommendations of independent, The Group operates adefined-contribution retirement plan,theassets ofwhichare heldinaseparate trustee-administered Defined-contribution costs in thestatement offinancialposition. expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations recognised inrespect ofemployees’ services upto theendofreporting periodandare measured attheamounts theendofperiodinwhichemployeesbe settledwhollywithin12monthsafter render therelated service, are Liabilities for wages andsalaries,includingnon-monetarybenefitsaccumulating annualleave thatare expected to Short-term obligations 1.13 or penaltiesarisingfrom failure to fulfilit. reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation under thecontract exceed theeconomic benefitsexpected to bereceived underit. The unavoidable costs underacontract the unavoidable costs (i.e. thecosts thattheGroup cannotavoid becauseithasthecontract) ofmeetingtheobligations impairment loss thathasoccurred onassets dedicated to thatcontract. Anonerous contract isacontract underwhich provision. However, before aseparate provision for anonerous contract isestablished,theGroup recognises any If theGroup hasacontract thatisonerous, thepresent obligation underthecontract isrecognised andmeasured asa 1.12 1. Accounting policies(continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 94

Net interest expense orincome. settlements; Service costs comprising current service costs, pastservice costs, gainsandnon-routine and losses oncurtailments, | Significant accounting policies(continued) PetroSA Integrated Annual Report 2019 Post-employment benefitcosts Provisions (continued) 1.14 Revenue from contracts with customers Revenue arises mainly from the sale of fuel, crude oil and gas products. Revenue from contracts with customers is recognised when control of the products is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled to, net of discounts, returns and VAT, in exchange for those products.

To determine whether to recognise revenue, the Group follows the five-step process of:

1. Identifying the contract with a customer; 2. Identifying the performance obligations; 3. Determining the transaction price; 4. Allocating the transaction price to the performance obligations; and 5. Recognising revenue when/as performance obligation(s) are satisfied.

Sale of products The sale of products includes, but is not limited to, diesel, petrol, crude oil and gas. Revenue from the sale of products is recognised when the Group transfers control of the product to the customer. Control is transferred at the point of delivery.

1.15 Interest income Interest income is accrued on a time basis with reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life to the gross carrying amount on initial recognition.

Dividend income from investments is recognised when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the entity, and the amount of the dividend can be measured reliably.

1.16 Borrowing and finance costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets until the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period to get ready for their intended use or sale.

Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. Other borrowing costs are recognised as an expense in the period in which they are incurred.

1.17 Government grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.

1.18 Over- and under-recoveries against controlled margins for petroleum products The selling prices of certain petroleum products are subject to price control by the authorities. The selling prices are adjusted monthly to provide for the recovery of changes in the various items of landed cost of these products. The price adjustments by the authorities are, for various reasons, not made simultaneously with changes in landed cost, and thus the situation arises that oil companies are, from time to time, in the position of an over- or under-recovery of changes in cost. The authorities, in conjunction with the oil companies, maintain a comprehensive record of the cumulative over- or under-recoveries of the landed cost of these products. Any cumulative under-recovery is reflected as an asset at year-end, with a corresponding credit to cost of sales in the statement of comprehensive income.

1.19 Events after the reporting date Recognised amounts in the consolidated and separate financial statements of PetroSA are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date.

Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note.

1.20 Irregular or fruitless and wasteful expenditure ‘Irregular expenditure’ means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA.

‘Fruitless and wasteful expenditure’ means expenditure that was made in vain and would have been avoided had reasonable care been exercised.

PetroSA Integrated Annual Report 2019 | 95 Financial Performance 5. 4. 3. 2. 1. Group hasnotasyet adopted them. The following standards, andamendmentsto existing standards, have beenpublishedbutare notyet effective, andthe 1.21 and Group. All irregular orfruitless andwasteful expenditure isdisclosedasanote to theannualfinancialstatements oftheCompany considered: When determining whetherexpenditure shouldbeclassified asfruitless andwasteful orirregular, thefollowing willbe 1.20 1. Accounting policies(continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 96

| • • • • • • • • • • amendments to otherIFRSs: statements’ andIAS8,‘Accounting policies,changes inaccounting estimates anderrors’, andconsequential Amendments to IAS1and 8(effective 1January2020). These amendmentsto IAS1‘Presentation offinancial following standards: Annual improvements 2015–2017 (effective 1January2019). These amendmentsincludesminorchanges to the change. IFRS 16alsocontains expanded disclosure requirements for lessees. The accounting for lessors willnotsignificantly right-of-use assets similarlyto othernon-financial assets, andleaseliabilitiessimilarlyto otherfinancialliabilities. underlying leasedasset andaleaseliability representing itsobligation to make leasepayments. Alessee measures underlying asset isoflow value. Alessee isrequired to recognise aright-of-use asset representing itsrightto usethe requires alessee to recognise assets andliabilitiesfor allleaseswithaterm ofmore than12months,unless the IFRS 16 ‘Leases’ cannot bespread over theremaining life oftheinstrument,whichmay beachange inpractice from IAS39. flows andthemodified cashflows discounted attheoriginaleffective interest rate. This meansthatthedifference immediately inprofit orloss. The gain orloss iscalculated asthedifference between theoriginalcontractual cash measured cost atamortised ismodifiedwithoutthis resulting inderecognition, again orloss shouldberecognised IFRS 9‘Financial instruments’ complex andresults intoo many transactions qualifyingasbusiness combinations. According to feedback received by theIASB,applicationofcurrent guidance iscommonly thoughtto betoo IFRS 3‘Business combinations’ (effective 1January2020). This amendmentrevises thedefinitionofabusiness. Significant accounting policies(continued) PetroSA Integrated Annual Report 2019 Adoption ofInternational Financial Reporting Standards (IFRS) Irregular orfruitless andwasteful expenditure (continued) incorporate someoftheguidance inIAS1aboutimmaterial information onthedefinition ofmaterial. clarify theexplanation ofthedefinitionmaterial; and use aconsistent definitionofmateriality throughout theIFRSsand Conceptual Framework for Financial Reporting; develop anasset whentheasset isready for itsintended use orsale. IAS 23 ‘Borrowing costs’ – a company treats of general as part borrowings any borrowing originally made to IAS 12 ‘Income taxes’ – a company accounts for all income tax consequences of dividend payments in the same way. it obtainsjointcontrol ofthebusiness. IFRS 11‘Joint arrangements’ –acompany doesnotremeasure itspreviously heldinterest inajointoperation when obtains control ofthebusiness. IFRS 3‘Business combinations’ –acompany remeasures itspreviously heldinterest inajoint operation whenit Is itmaterial (for disclosure purposes)? Were there policiesand/or procedures governing theincurred expenditure? Could reasonable steps have beentaken to avoid theexpenditure? (effective 1January2019). The new standard introduces asinglelessee accounting modeland (effective 1January2019). This amendmentconfirms that,whenafinancialliability 6. Amendments to IAS 19 ‘Employee benefits’ (effective 1 January 2019). These amendments require an entity to:

• Use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement; and • Recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling.

7. IAS 28 ‘Investments in associates and joint ventures’ (effective 1 January 2019). The annual Improvements 2015– 2017 Cycle clarifies that an entity should apply IFRS 9 to long-term interests in an associate or joint venture that forms part of the net investment in the associate or joint venture but to which the equity method is not applied.

8. IFRIC 23 ‘Uncertainty over income tax treatments’ (effective 1 January 2019). This IFRIC clarifies how the recognition and measurement requirements of IAS 12 ‘Income taxes’ are applied where there is uncertainty over income tax treatments.

The IFRS IC had clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment.

An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits, and tax rates.

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

1.22 Key accounting judgements and key sources of estimation uncertainty

Critical accounting estimates and judgement In preparing the annual financial statements in terms of IFRS, the Group’s Management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements, and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, the actual results often vary from the estimates due to the inherent uncertainty involved in this process. These estimates and judgements are based on historical experience, current and expected future economic conditions, and other factors, including expectations in respect of the future events that are believed to be reasonable under the circumstances. Environmental and decommissioning provision Provision is made for environmental and decommissioning costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are made in determining the present obligation regarding environmental and decommissioning provisions, which include the actual estimate, the discount rate used, and the expected date of closure of mining activities in determining the present value of environmental and decommissioning provisions. Estimates are based on costs that are reviewed annually, by internal and external experts, and adjusted as appropriate for new circumstances. Other provisions For other provisions, estimates are made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outflow of economic benefits, to assess whether the provision should be discounted. Recoverability of assets The Group assesses its cash-generating units (CGUs) at each reporting period to determine whether any indication of impairment exists. Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs of disposal (FVLCD) and value in use (VIU).

Management therefore has implemented certain impairment indicators, and these include movements in exchange rates, commodity prices, and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets, which include the estimation of cash flows and discount rates used. In estimating the cash flows, Management bases cash flow projections on reasonable and supportable assumptions that represent Management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. These estimates and assumptions are subject to risk and uncertainty.

PetroSA Integrated Annual Report 2019 | 97 Financial Performance 4. 3. 2. 1. position andresults, whichinclude: of afield,estimates ofrecoverable reserves may change. Suchchanges may impacttheCompany’s reported financial As theeconomic assumptions usedmay change, andasadditionalgeological information isobtainedduringtheoperation development andproduction assets at31December 2018 isshown innote 3. reserves, the cost of such wells and associated production facilities, and other capital costs. The carrying amount of oil Future development costs are estimated usingassumptions asto thenumberofwells required to produce thecommercial determined usingestimates ofoilandgas inplace, recovery factors, andfuture commodity prices. grade ofthehydrocarbon bodyandsuitableproduction techniques andrecovery rates. Commercial reserves are compiled by appropriately qualifiedpersons relating to thegeological andtechnical dataonthesize, depth,shapeand the Company’s oilproperties. The Company estimates itscommercial reserves andresources basedoninformation Hydrocarbon reserves are estimates oftheamount ofhydrocarbons thatcanbeeconomically andlegally extracted from Hydrocarbon reserves andresource estimates amount disclosedisbasedontheexpected possible outflow ofeconomic benefitsshouldthere beapresent obligation. compliance withtherequirements ofcompletion guarantees andotherguarantees provided. The estimationofthe Management considers the existence of possible obligations which may arise from legal action as well as possible non- Contingent liabilities have notbeenadjusted. market assessment ofthetimevalue ofmoney andtherisks specificto theassets for whichthefuture cashflow estimates of theassets, basedonpubliclyavailable information. The discount rates usedare post-tax rates thatreflect thecurrent represent Management’s bestestimate oftherange ofeconomic conditions thatwill exist over theremaining usefullife estimating thecashflows, Management basescashflow projections onreasonable assumptions that andsupportable determining therecoverable amountofassets, whichincludetheestimationofcashflows anddiscount rates used.In exchange rates, commodity prices, andtheeconomic environment itsbusinesses operate in.Estimates are madein of assets. Management hastherefore implemented certainimpairmentindicators, andtheseincludemovements in Impairment tests are performed whenthere isanindicationofimpairmentassets orareversal ofprevious impairments Impairments andimpairmentreversals the recoverable amountofCGUs. Therefore, there isapossibility thatchanges incircumstances willimpacttheseprojections, whichmay, inturn,impact Recoverability ofassets(continued) 1.22 1. Accounting policies(continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 98 asset’s historical performance aswell astheMedium-Term Business Plan are taken into consideration. On anannualbasis,Management evaluates theusefullife of allassets. Incarryingoutthisexercise, experience ofan Evaluation oftheusefullife ofassets

| the existence ofsuch assets andinestimates ofthe likely recovery ofsuchassets. The recognition andcarryingvalue ofdeferred taxassets may change dueto changes inthejudgements regarding when suchactivitieswilloccur andtheassociated cost oftheseactivities. Provisions for decommissioning may change where changes to thereserve estimates affect expectations about determined usingtheunits-of-production method. Depreciation charges andamortisation inthestatement ofprofit orloss may change where suchcharges are estimated future cashflows. The carryingvalue ofexploration andevaluation assets andproduction assets may beaffected dueto changes in Significant accounting policies(continued) PetroSA Integrated Annual Report 2019 Key accounting judgements andkey sources ofestimationuncertainty (continued) 1.22 Key accounting judgements and key sources of estimation uncertainty (continued)

Carrying value of intangible exploration and evaluation assets The amount of intangible exploration and evaluation assets represents active exploration assets. These amounts will be written off to the statement of profit or loss as exploration costs unless commercial reserves are established or the determination process is not completed and there are no indicators of impairment.

The key areas in which Management has applied judgement are as follows:

• the Group’s intention to proceed with a future work programme for a prospect or licence; • the likelihood of licence renewal or extension; and • the success of a well-result or geological or geophysical survey.

Units-of-production (UOP) depreciation of oil and gas assets Oil and gas properties are depreciated using the UOP method. The actual production for the period is divided by the total proved developed and undeveloped hydrocarbon reserves. This results in a depreciation/amortisation charge (UOP rate) proportional to the depletion of the anticipated remaining production from the field.

The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the field at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. The calculation of the UOP rate of depreciation/amortisation will be impacted to the extent that actual production in the future is different from current forecast production based on total proved reserves, whereas the life of each item and the total recoverable reserves are impacted by future capital expenditure (because the future estimated capex does not affect the UOP rate directly; it only affects the life and value of the assets to be depreciated).

Valuation assumptions The following valuation assumptions were used in assessing critical accounting estimates and judgements and are regarded as the best estimates by the Board:

2019 assumptions Unit 2019 2020 2021 2022 2023–2024 Brent crude USD/barrel 74.00 74.00 80.00 72.00 65.00 US CPI Year-on-year 2.60 2.50 2.10 2.00 2.00 RSA CPI Year-on-year 5.38 5.83 5.23 4.90 4.70 USD risk-free rate % 2.41 2.41 2.41 2.41 2.41 RSA risk-free rate % 9.00 9.00 9.00 9.00 9.00 ZAR/USD Rand/USD 14.57 14.39 14.43 14.44 14.63

2018 assumptions Unit 2018 2019 2020 2021 2022–2023 Brent crude USD/barrel 64.00 60.00 61.00 63.00 66.00 US CPI Year-on-year 2.00 2.10 2.20 2.30 2.20 RSA CPI Year-on-year 5.28 5.08 5.48 5.40 5.70 USD risk-free rate % 2.74 2.74 2.74 2.74 2.74 ZAR risk-free rate % 7.98 7.98 7.98 7.98 7.98 ZAR/USD Rand/USD 11.83 13.49 13.62 13.87 14.42

PetroSA Integrated Annual Report 2019 | 99 Financial Performance Accumulated loss Total assets less total liabilities Trade andotherreceivables Financial assets Reconciliation ofequity at31March 2018 –Group On thedate ofinitialapplication,namely1April2018, theimpactofnew standard ontheCompany was asfollows: • • The adoptionofIFRS9hasimpacted thefollowing areas: retained earnings. Differences from the adoptionof IFRS 9 in relation to classification, measurement andimpairmentare recognised in impairment offinancialassets. guidance ontheclassification andmeasurement offinancialassets andintroduces an‘expected credit loss’ modelfor the IFRS 9replaces IAS 39‘Financial instruments:Recognition andmeasurement’. Itmakes majorchanges to theprevious IFRS 9‘Financial instruments’ to contracts thatare incomplete asat1April2018. standard hasnotresulted inany adjustments.Inaccordance withthetransition guidance, IFRS15hasonlybeenapplied recognised asan adjustmentto theopeningbalance ofretained earningsat1April2018. The applicationofthenew new standard hasbeenappliedretrospectively withoutrestatement, withnocumulative effect ofinitialapplication customers’ (hereafter referred to as ‘IFRS 15’) replaces IAS 18 ‘Revenue’ and several revenue-related interpretations. The IFRS 15‘Revenue from contracts withcustomers’ andtherelated ‘Clarifications to IFRS15:Revenue from contracts with IFRS 15‘Revenue from contracts withcustomers’ 2. financial statements Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 100 Reconciliation ofequity at31March 2018 –Company Accumulated loss Total assets less total liabilities Trade andotherreceivables as theseitems donothave asignificantfinancingcomponent. IFRS 15andtrade receivables, theCompany appliesasimplifiedmodelofrecognising lifetime expected credit losses, other receivables andinvestments indebt-type assets measured cost. atamortised For contract assets arisingfrom The impairmentoffinancialassets applyingtheexpected credit loss model.This affects theCompany’s trade and flow characteristics test inIFRS9. continue to beaccounted forcost, atamortised asthey meettheheld-to-collect business modelandcontractual cash and collect theassociated cashflows. Financial assets previously classified asLoans andReceivables underIAS39 The classification andmeasurement oftheCompany’s financialassets. Management holdsfinancialassets to hold

| Implementation ofnew accounting standards PetroSA Integrated Annual Report 2019 Note Note Previously reported Previously reported (1 041 040) (1 672 659) 1 826 401 3 750 172 1 828 316 1 828316 1 923 771 R’000 R’000

Adjustment Adjustment (7 490) (9 968) (9 968) (2 478) (7 397) (7 397) (7 397) R’000 R’000 (1 680056) (1 051 008) 3 740 204 1 823 923 1 820 919 1 820919 1 916281 Restated Restated R’000 R’000 3. Property, plant and equipment

2019 2018 R’000 R’000

Accumulated Accumulated depreciation Carrying depreciation Carrying Group Cost and impairment value Cost and impairment value

Land 43 587 – 43 587 43 587 – 43 587 Buildings 225 367 (39 136) 186 231 224 046 (39 545) 184 501 Production assets 39 740 165 (33 624 647) 6 115 518 38 199 047 (33 804 116) 4 394 931 Furniture, fittings and office equipment 727 892 (627 081) 100 811 724 501 (614 882) 109 619 Motor vehicles 91 874 (58 194) 33 680 93 930 (54 074) 39 856 Restoration costs 3 024 865 (2 900 004) 124 861 (138 715) 214 186 75 471 Shutdown costs capitalised 565 064 (565 063) 1 71 132 (71 132) – Assets under development 65 796 (65 532) 264 123 050 (122 785) 265 Total 44 484 610 (37 879 657) 6 604 953 39 340 578 (34 492 348) 4 848 230

2019 2018 R’000 R’000

Accumulated Accumulated depreciation Carrying depreciation Carrying Company Cost and impairment value Cost and impairment value

Land 43 587 – 43 587 43 587 – 43 587 Buildings 225 367 (39 136) 186 231 224 046 (39 545) 184 501 Production assets 29 802 586 (29 802 587) (1) 29 835 119 (29 835 118) 1 Furniture, fittings and office equipment 727 739 (626 928) 100 811 724 365 (614 746) 109 619 Motor vehicles 91 874 (58 194) 33 680 93 930 (54 074) 39 856 Restoration costs 2 796 276 (2 796 276) – (284 935) 284 935 – Shutdown costs capitalised 565 064 (565 063) 1 71 132 (71 132) – Assets under development 65 796 (65 532) 264 123 050 (122 785) 265 Total 34 318 289 (33 953 716) 364 573 30 830 294 (30 452 465) 377 829

PetroSA Integrated Annual Report 2019 | 101 Financial Performance development Assets under capitalised Shutdown costs Restoration costs Motor vehicles equipment and office Furniture, fittings Production assets Buildings Land Reconciliation of property, plantandequipment–Group 2019 3. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 102 Reconciliation ofproperty, plantandequipment –Group 2018 Restoration costs Motor vehicles equipment and office Furniture, fittings Production assets development Assets under capitalised Shutdown costs Buildings Land

| Property, plantandequipment(continued) PetroSA Integrated Annual Report 2019

7 172 078 6 620 119 4 848230 184 881 146 124 4 394 931 43 587 72 974 72 42 416 61 977 Opening balance 184 501 109 619 39 856 43 587 R’000 75 471 75 Opening balance R’000 265 – – 1 053937 818 651 161 739 69 69769 Additions 3 796 R’000 584 250 988 876 262 533 48 463 78 664 Additions 54 13 211 1 755 – – – R’000 Disposals – – (389) (236) R’000 (153) – – – – – – (518 719) 509 341 10 083 Transfers (100 513) R’000 705 29 455 Transfers 71 133 71 R’000 – – – – – 75 – – – – – 879 443 movements 896 138 (423 650) (434 102) exchange 16 695 16 movements (10 452) Foreign exchange R’000 Foreign R’000 – – – – – – – – – – – – (1 723 290) (1 723 290) 1 371 313 1 371 313 Change in estimate Change in R’000 estimate R’000 – – – – – – – – – – – – – – (701 090) (809 071) Depreciation

(979 760) Depreciation (63 930) (924 021) (22 019) (25 450) (15 831) (16 671) (6 176) (6 356) (7 262) R’000 R’000 (25) – – – – – (1 725 623) (1 401 451) 1 679 760 1 269 618 (493 873) (691 238) (240 319) Impairment (122 785) (65 532) Impairment (63 871) (7 366) R’000 (434) R’000 loss loss – – – – – – 4 848230 6 604953 4 394 931 6 115518 184 501 109 619 124 861 186 231 100 811 33 680 39 856 43 587 43 587 75 471 75 balance balance Closing Closing R’000 R’000 264 265 – 1 3. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment – Company 2019

Opening Change in Impairment Closing balance Additions Transfers estimate Depreciation loss balance R’000 R’000 R’000 R’000 R’000 R’000 R’000

Land 43,587 – – – – – 43 587 Buildings 184,501 1 755 – – (25) – 186 231 Production assets 1 4 309 9 378 – (1 409) (12 280) (1) Furniture, fittings and office equipment 109,619 13 211 – – (22 019) – 100 811 Motor vehicles 39,856 – – – (6 176) – 33 680 Restoration costs - – – 1 401 451 – (1 401 451) – Shutdown costs capitalised - 48 463 509 341 – (63 930) (493 873) 1 Assets under development 265 584 250 (518 719) – – (65 532) 264 377,829 651 988 – 1 401 451 (93 559) (1 973 136) 364 573

Reconciliation of property, plant and equipment – Company 2018

Opening Change in Impairment Closing balance Additions Disposals Transfers estimate Depreciation loss balance R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Land 43 587 – – – – – – 43 587 Buildings 184 881 54 – – – – (434) 184 501 Production assets 242 265 862 – 29 380 – (68 027) (204 479) 1 Furniture, fittings and office equipment 72 974 69 697 (236) – – (25 450) (7 366) 109 619 Motor vehicles 42 416 3 796 – – – (6 356) – 39 856 Restoration costs 48 872 – – – (1 721 230) (7 402) 1 679 760 – Shutdown costs capitalised – – – 71 133 – (7 262) (63 871) – Assets under development 61 977 161 739 (153) (100 513) – – (122 785) 265 696 972 236 148 (389) – (1 721 230) (114 497) 1 280 825 377 829

Additions to production assets include the finance lease (note 15) entered into by PetroSA Ghana Limited, which was initially recognised at R850.3 million. The acquisition was treated as a non-cash addition to property, plant and equipment.

PetroSA Integrated Annual Report 2019 | 103 Financial Performance The valuation assumptions are listed underkey assumptions madeby Management of‘Accounting (note 1.22 policies’). on arecoverable amountofR5034 million(2018: R1521 millionimpairment). Ghana Limited were assessed for impairment.This assessment resulted inanimpairmentreversal ofR1282 millionbased In thelightofcurrent commodity prices, theWest CapeThree Points BlockandtheDeepwater Tano Blockheldby PetroSA 3.3 recorded ofoperating aspart expenses. product prices andexchange rates anddiscounted usingtheWACC of14%(2018: 14%).The impairmentloss was estimate, takinginto account pastexperience andfuture economic assumptions, suchasforward curves for crudeoil, this CGU, basedonafixed life offieldapproved by theBoard ofDirectors. These cashflows are Management’s best the CGU’s carryingvalue atyear-end against theexpected present value ofthefree cashflows (netpresent value) from the impairmentcharge by R1401 million(2018: R1680millionimpairmentreversal). This was determined by comparing owing to theweakened rand against theUSD. This resulted inachange inestimate andhadanegative impact,increasing R572 million(2018: R399millionimpairment).The decommissioning provision (refer to note 17)increased significantly use) oftheasset against whichto compare thecarryingvalue. The outcome ofthereview resulted inanimpairment of are identified, Management mustexercise judgement further inmakingan estimate of the recoverable amount(value in oil andgas price andadowngrade ofproved andprobable reserves triggered animpairmentreview. Whensuchindicators Oil andgas reserves are usedinassessing oilandgas producing properties for impairment.Asignificantreduction inthe 3.2 The PetroSA Group impairmentfor theyear was R691 million(2018: R240 millionimpairment). is notpracticable to estimate theeffect infuture years. year is an increase ofR0.3 million in profit. Inview ofthe number ofvariables involved in the depreciation calculation, it a change intheestimated remaining usefullives oftheseassets attheendofeachfinancialyear. The effect onthecurrent of thebusiness, thegas andoilreserves attheendofeachfinancialyear differ from theprevious year. This necessitates basis. The units-of-production method is also used in calculating depreciation on producing assets. Owing to the nature Restoration expenditure relates to thedecommissioning provision onaunits-of-production (note 17)andisamortised 3.1 3. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 104

| Property, plantandequipment(continued) Impairment assessment –West CapeThree Points andDeepwater Tano blocks inGhana Impairment assessment –oilandgas assets inSouthAfrica Restoration expenditure PetroSA Integrated Annual Report 2019

4. Intangible assets

2019 2018 R’000 R’000

Accumulated Accumulated amortisation amortisation and Carrying and Carrying Group Cost impairment value Cost impairment value Patents 6 934 (3 307) 3 627 6 934 (3 029) 3 905 Exploration and evaluation assets 1 387 624 (745) 1 386 879 1 580 817 – 1 580 817 Software 51 191 (51 191) – 53 660 (53 660) – Restoration costs 16 423 – 16 423 14 761 – 14 761 Total 1 462 172 (55 243) 1 406 929 1 656 172 (56 689) 1 599 483

2019 2018 R’000 R’000

Accumulated Accumulated amortisation amortisation and Carrying and Carrying Company Cost impairment value Cost impairment value Patents 6 934 (3 307) 3 627 6 934 (3 029) 3 905 Exploration and evaluation assets 943 678 (745) 942 933 1 178 553 – 1 178 553 Software 51 191 (51 191) – 53 660 (53 660) – Total 1 001 803 (55 243) 946 560 1 239 147 (56 689) 1 182 458

PetroSA Integrated Annual Report 2019 | 105 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual Patents Reconciliation ofintangibleassets –Company 2018 Patents Reconciliation ofintangibleassets –Company 2019 Patents Reconciliation ofintangibleassets –Group 2018 Patents Reconciliation ofintangibleassets –Group 2019 3. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 106 Exploration andevaluation assets Exploration andevaluation assets evaluation assets Exploration and Software evaluation assets Exploration and Restoration costs Software Restoration costs

| Intangible assets (continued) PetroSA Integrated Annual Report 2019 1 578 735 1 606193 1 599 483 1 580817 16 824 6 452 14 761 Opening 3 905 4 182 Opening balance balance R’000 R’000 30 883 26 49526 26 49526 Additions Additions 31 813 R’000 R’000 930 – – – – (258 964) (258 964) (4 400) (4 400) Disposals Disposals R’000 R’000 – – – – – 1 182458 1 178 553 Transfers Transfers (705) (705) 3 905 R’000 R’000 Opening balance (75) (75) R’000 – – – – – 1 166905 1 156271 movements (21 864) movements (19 938) 23 938 23 938 35 593 35 39 010 Additions 6 452 exchange exchange Opening 4 182 (1 926) balance 3 417 R’000 Foreign Foreign R’000 R’000 R’000 – – – – (258 813) (258 813) 22 282 22 282 (2 685) (2 685) Change in Change in Additions Disposals estimate estimate R’000 R’000 R’000 R’000 (137) (137) – – – – – – – –

Amortisation Amortisation Amortisation Amortisation (4 260) (4 260) (3 983) (3 983) (277) (278) (278) (278) (278) (277) R’000 R’000 R’000 R’000 – – – – – – Impairment Impairment Impairment Impairment (2 469) (2 469) (2 469) (2 469) (745) (745) R’000 (745) (745) R’000 R’000 R’000 loss loss loss loss – – – – – – – – 1 406929 1 599 483 1 386876 1 182458 1 580817 1 178 553 946 560 942 933 16 423 14 761 3 905 3 905 3 627 3 3 627 3 balance balance balance balance Closing Closing Closing Closing R’000 R’000 R’000 R’000 – – 5. Investments in subsidiaries

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000

PetroSA Synfuel International SOC Ltd (100%) Shares: Balance at the end of the year – – 501 501 Provision for impairment – – (501) (501) Balance at the end of the year – – – –

PetroSA Sudan SOC Ltd (100%) Loans: Balance at the end of the year – – (0.12) (0.12) Shares: Balance at the end of the year – – 0.12 0.12

Loans – – (0.12) (0.12) Shares – – 0.12 0.12 Carrying amount of investment – – – –

Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd (100%) Loans: Balance at the end of the year – – (0.12) (0.12) Shares: Balance at the end of the year – – 0.12 0.12

Loans – – (0.12) (0.12) Shares – – 0.12 0.12 Carrying amount of investment – – – –

PetroSA Egypt SOC Ltd (100%) Loans: Balance at the end of the year – – (0.10) (0.10) Shares: Balance at the end of the year – – 0.10 0.10

Loans – – (0.10) (0.10) Shares – – 0.10 0.10 Carrying amount of investment – – – –

PetroSA Europe BV (100%) Shares: Balance at the end of the year – – 166 166 Share premium: Balance at the end of the year – – 2 965 2 965

Shares – – 166 166 Share premium – – 2 965 2 965 Carrying amount of investment – – 3 131 3 131

PetroSA Brass SOC Ltd (100%) Loans: Balance at the end of the year – – (0.06) (0.06) Shares: Balance at the end of the year – – 0.06 0.06

Loans – – (0.06) (0.06) Shares – – 0.06 0.06 Carrying amount of investment – – – –

PetroSA Integrated Annual Report 2019 | 107 Financial Performance Carrying amount ofinvestment Provision for impairment Balance attheendofyear Shares: PetroSA GhanaLtd (100%) Carrying amountofinvestment Shares Loans Balance attheendofyear Shares: Balance attheendofyear Loans: PetroSA Equatorial GuineaSOC Ltd (100%) Carrying amountofinvestment Shares Loans Balance attheendofyear Shares: Balance attheendofyear Loans: PetroSA Themis SOC Ltd (100%) Carrying amountofinvestment Shares Loans Balance attheendofyear Shares: Balance attheendofyear Loans: PetroSA IrisSOC Ltd (100%) Carrying amountofinvestment Shares Loans Balance attheendofyear Shares: Balance attheendofyear Loans: PetroSA GryphonMarinPermit SOC Ltd (100%) 5. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 108

| Investments insubsidiaries(continued) PetroSA Integrated Annual Report 2019 R’000 2019 – – – – – – – – – – – – – – – – – – – – – – – GROUP R’000 2018

– – – – – – – – – – – – – – – – – – – – – – – 3 880651 2 986816 (893 832) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.12) (0.12) 0.06 0.06 0.06 0.06 0.06 0.06 R’000 0.12 0.12 2019 – – – – COMPANY (1 993 987) 1 886664 3 880651 (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.12) (0.12) 0.06 0.06 0.06 0.06 0.06 0.06 R’000 0.12 0.12 2018 – – – – 5. Investments in subsidiaries (continued)

The recoverable amount of R3 billion (2018: R1.9 billion) for the PetroSA Ghana Limited cash-generating unit was calculated on a fair value less cost to sell basis and takes into consideration a WACC of 11% (2018: 11%) and an inflation rate of 2.2% (2018: 2.2%).

PetroSA has provided its shares in PetroSA Ghana Limited as security to the lenders for the Reserve-Based Lending Facility. Refer to note 14.

GROUP COMPANY

2019 2018 2019 2018 R’000 R’000 R’000 R’000

Total Loans – – (1) (1) Shares – – 3 881 319 3 881 319 Share premium – – 2 965 2 965 Provision for impairment – – (894 333) (1 994 488) Carrying amount of investments – – 2 989 950 1 889 795

6. Joint arrangements

Joint ventures (JV) The following table lists all of the joint ventures in the Group:

Group % ownership % ownership Carrying Carrying Name of company Held by interest interest amount amount 2019 2018 2019 2018 R’000 R’000 GTL.F1 AG PetroSA 50.00% 50.00% – –

Company % ownership % ownership Carrying Carrying Name of company Held by interest interest amount amount 2019 2018 2019 2018 R’000 R’000 GTL.F1 AG PetroSA 50.00% 50.00% 29 625 29 625 Impairment of investments in JVs – – (29 625) (29 625) – –

GTL.F1 AG is the process licensor of the Low Temperature Fischer Tropsch (LTFT) technology and its principal place of business is in Germany.

Management assessed the investment in GTL.F1 AG for impairment and, in light of current conditions, including oil and gas prices, raised a provision for impairment of R29.6 million.

Summarised statement of profit or loss and other comprehensive income: GTL.F1 AG 2019 2018 R’000 R’000 Revenue 4 204 – Depreciation and amortisation (11 786) (12 132) Other income and expenses 7 832 (40 013) Interest expense (1 002) (2 860) Loss before tax (752) (55 005) Tax expense (5 178) 5 105 Loss from continuing operations (5 930) (49 900) Total comprehensive loss (5 930) (49 900)

PetroSA Integrated Annual Report 2019 | 109 Financial Performance Total netliabilities Total current liabilities Other current liabilities Current Total non-current liabilities Non-current financialliabilities(excluding trade payables andprovisions) Non-current Liabilities Total current assets Other current assets Cash andcashequivalents Current between theunderwriter-imposed risk retentions and PetroSA’s preferred riskretentions. available to it. GannetTrust is alsoavailable to accept risks thatare eitheruninsured, uninsurable, or that bridge thegap similar riskprofiles. GannetTrust enablesPetroSA to access the reinsurance markets thatwould nototherwisebe The GannetTrust group ofcompanies was created to underwrite insurance risks for PetroSA andothercompanies with Gannet Trust deserving communities. levels in these communities, thosewithin which PetroSA in particular operates, suchas the Mossel Bay region and other from historically disadvantaged andimpoverished communities, aswell astheenhancement ofthe educationandliteracy The PetroSA Development Trust was establishedto facilitate thedevelopment andtransformation ofthelives ofpeople PetroSA Development Trust 7. (2018: R170.1 million). million(2018: R24.9period amountto R3.3 million).The accumulated unrecognised losses to date amountto R173.5million R NilandtheGroup hasnoobligation for any losses ofthejointventure. The total unrecognised losses for thecurrent The Group hasdiscontinued recognising itsshare ofthelosses ofGTL.F1 AG, astheinvestment ataGroup level isheldat Unrecognised losses The reporting date ofthejointventure isnotthesameasthatofGroup. GTL.F1 AG’s year-end is31December 2018. Reporting period Non-current Assets Summarised statement offinancialposition: 6. Jointarrangements (continued) financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 110

| Interests inunconsolidated structured entities PetroSA Integrated Annual Report 2019

(376 079) 477 610 477 610 99 021 3 507 3 549 1 039 1 039 R’000 2019 42 GTL.F1 AG GTL.F1 (313 481) 411 809 411 809 95 306 4 662 4 662 7 684 6 522 6 1 162 R’000 2018

8. Financial assets

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Restricted cash – bank credit facilities 350 000 750 000 350 000 750 000 Restricted cash at bank is interest-bearing and its use is restricted as a condition for providing credit facilities. Loan to PetroSA Rehabilitation – – 1 435 239 1 435 239 The loan to PetroSA Rehabilitation NPC (Non- Profit Company) is PetroSA’s contribution towards the funding of its abandonment provision as detailed below. Restricted cash – PetroSA Rehabilitation NPC 1 751 042 1 710 661 – – PetroSA utilises PetroSA Rehabilitation NPC as a funding vehicle to ring-fence funds for PetroSA’s abandonment/environmental liability. Funds are invested in fixed-term and Jibar-linked deposits with various counterparties and earn a weighted interest rate of 10.08% per annum. Investments will mature between September 2020 and 2022. These funds are not available for the general purposes of the Group. 2 101 042 2 460 661 1 785 239 2 185 239 Loans and receivables Ghana National Petroleum Corporation (GNPC) 114 454 115 740 – – The loan in respect of TEN Development capital expenditure bears interest at LIBOR plus a margin percentage of 1.5% per annum, and the loan in respect of the TEN Development gas export pipeline expenditure bears interest at 15% per annum. There is currently no signed agreement in place between the GNPC and the JV partners regarding the repayment terms; however, repayment proposals are currently being considered and evaluated by the joint venture partners.

GTL.F1 AG 226 424 201 829 226 424 201 829 The subordinated loan accrues interest at EURIBOR + 0.75%. This loan is not repayable within the next 12 months. Should settlement not be possible at this time, a new instalment plan may be agreed on the same day.

Lurgi 195 858 173 832 195 858 173 832 The amount owing by Lurgi is in respect of a purchase of a 12.5% share in the GTL.F1 AG Joint Venture. The loan accrues interest at EURIBOR + 0.75%. The loan is repayable based on dividends receivable by Lurgi from the GTL.F1 AG technology company.

PetroSA Ghana Ltd – – – 91 071 The subordinated loan was unsecured. The loan accrued interest at USD LIBOR plus a percentage ranging between 3.25% and 4.50%. All interest payable accrued from day to day at the relevant rate of interest, and was calculated on the basis of the actual number of days elapsed and a 360-day year. The loan was repaid in October 2018.

536 736 491 401 422 282 466 732 Expected credit loss (424 706) (378 139) (422 282) (375 661) 112 030 113 262 – 91 071 Total other financial assets 2 213 072 2 573 923 1 785 239 2 276 310

Non-current assets At amortised cost 1 863 072 1 823 923 1 435 239 1 526 310

Current assets At amortised cost 350 000 750 000 350 000 750 000 2 213 072 2 573 923 1 785 239 2 276 310

PetroSA Integrated Annual Report 2019 | 111 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual Total trade andotherreceivables Prepayments Underlift Statutory receivables VAT Non-financial instruments: Other receivables Deposits Consumable stores, spares and catalysts Trade receivables cost atamortised Crude oil funds are notavailable for thegeneral purposesoftheGroup. This depositisheldby CEFSOC Ltd assecurity for guarantees issued by itselfto third onbehalfofPetroSA. parties These Loss allowance 9. to befullyimpaired basedontheprospect ofnorevenue beinggenerated intheforeseeable future. cash flow modelindicates thatrepayment oftheloanswillonlytake place subsequentto itsduedates. The loanscontinue The GTL.F1 AG andLurgi loanshave beenassessed for credit impairmentbasedonanindependentvaluation. The free of R2.4 million(2018: R2.5million)was recognised. a widearray ofaccounting ratios whichincludes,butisnotlimited to, profitability, liquidity andleverage. Animpairment robust default prediction modelthatprovides aview ofacounterparty’s credit condition andfinancialhealthby analysing Restricted cashwas assessed for credit impairmentbasedonacredit riskmodel.This credit riskmodelisanintuitive and counterparties fail to make payments asthey fall due. Financial assets inherently expose the Group to credit risk, being the risk that the Group will incur financial loss if Exposure to credit risk 8. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 112 Trade receivables Financial instruments: 11. Petroleum fuels The amountsattributableto thedifferent categories are asfollows: 10. CEF SOC Ltd

| Amounts heldby holdingcompany Financial assets (continued) Trade andotherreceivables Inventories PetroSA Integrated Annual Report 2019 2 552 870 1 852 300 2 601 253 2 884555 2 257 911 486 585 352 942 132 908 (48 383) 100 912 52 669 73 991 21 475 2 348 R’000 2019 51 GROUP 1 738653 1 688051 1 343373 340 409 1 745 119 486 585 (50 602) 1 916281 56 690 73 206 71 497 71 17 249 61 337 9 355 R’000 233

2018 2 088764 2 205242 1 852 300 2 136882 2 332560 486 585 352 942 100 912 48 709 20 356 (48 118) 73 819 R’000 2019 COMPANY – – – 1 620 910 1 683782 1 343373 340 409 1 671 419 1 820919 486 585 (50 509) 72 929 61 807 55 918 9 355 R’000 2018 – – – 11. Trade and other receivables (continued)

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Split between non-current and current portions Non-current assets 200 486 67 141 – – Current assets 2 684 069 1 849 140 2 332 560 1 820 919 2 884 555 1 916 281 2 332 560 1 820 919

Categorisation of trade and other receivables Trade and other receivables are categorised as follows in accordance with IFRS 9 ‘Financial instruments’:

At amortised cost 2 685 829 1 759 781 2 137 473 1 682 717 Non-financial instruments 198 726 156 500 195 087 138 202 2 884 555 1 916 281 2 332 560 1 820 919

Exposure to credit risk Trade receivables inherently expose the Group to credit risk, being the risk that the Group will incur financial loss if customers fail to make payments as they fall due. Trade receivables arise mainly from fuel production sales.

In order to mitigate the risk of financial loss from defaults, the Group deals only with reputable customers with consistent payment histories. Sufficient collateral or guarantees are also obtained when appropriate. Each customer is analysed individually for creditworthiness before terms and conditions are offered. Based on the credit information from external bureaus (where available) and previous payment history, credit may be granted. Customer credit limits are in place and are reviewed and approved by Credit Management. The exposure to credit risk, as well as the creditworthiness of customers, is continuously monitored.

There have been no significant changes in credit risk management policies and processes since the prior reporting period.

A loss allowance is recognised for all trade and other receivables, in accordance with IFRS 9 ‘Financial Instruments’, and is monitored at the end of each reporting period. In addition to the loss allowance, trade and other receivables are written off when there is no reasonable expectation of recovery, for example when a debtor has been placed under liquidation.

The Group measures the loss allowance for trade and other receivables by applying the simplified approach which is prescribed by IFRS 9. In accordance with this approach, the loss allowance is determined as the ‘12-month expected credit losses’. These losses are estimated using a provision matrix, which is presented below. The provision matrix has been developed by making use of past default experience in respect of debtors, but also incorporates forward-looking information and general economic conditions of the industry as at the reporting date.

The Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments. The provision for credit losses is therefore based on past-due status without disaggregating into further risk profiles. The loss allowance provision is determined as follows:

2019 2019 2018 2018 R’000 R’000 R’000 R’000

Estimated gross Loss allowance Estimated gross Loss allowance carrying amount (lifetime expected carrying amount (lifetime expected Group at default credit loss) at default credit loss) Expected credit loss rate: Not past due 2 419 348 (3 599) 1 614 835 (2 705) Less than 30 days past due 140 – 74 155 (83) 31–60 days past due 82 470 (834) – – 61–90 days past due – – – – 91–120 days past due 54 224 (714) – – More than 120 days past due 45 163 (43 163) 49 663 (47 809) Other receivables 129 096 (73) 71 497 (5) Total 2 730 441 (48 383) 1 810 150 (50 602)

PetroSA Integrated Annual Report 2019 | 113 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual Amounts recovered duringtheyear Expected credit losses recognised Opening balance Reconciliation ofloss allowances: Total Other receivables More than120days pastdue 91–120 days pastdue 61–90 days pastdue 31–60 days pastdue Less than30days pastdue Bank balances Not pastdue Expected credit loss rate: Company Exposure to credit risk(continued) 11. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 114 Cash andcashequivalents consist of: 12. disclose thenature ofsuchaccounts. within PetroSA Rehabilitation NPChave beenreclassified from current assets to non-current assets to more appropriately Certain balances were reallocated between trade receivables andother receivables whilealltrade andother receivables Statutory receivables are netofprovision for doubtful debtofR31.1 million(2018: R29.9 million). The fair value oftrade andotherreceivables approximates theircarryingamounts. Fair value oftrade andotherreceivables Cash onhand

| Trade andotherreceivables (continued) Cash andcashequivalents PetroSA Integrated Annual Report 2019 carrying amountcarrying Estimated gross 2 657 234 1 034 839 1 622 395 1 954 827 2 185533 50 602 48 709 82 470 82 48 383 54 224 (8 509) 45 163 at default 6 290 R’000 R’000 140 2019 2019 – GROUP (lifetime expected 1 6701 595 2 295 221 Loss allowance 624 626 (43 163) 50 602 (48 118) credit loss) (3 334) 43 111 8 144 (834) (653) R’000 (714) R’000

2018 (73) 2019 – – carrying amount carrying Estimated gross 1 622 430 1 878 520 1 547 601 1 733226 256 090 50 509 49 663 61 807 at default 74 155 (8 416) 48 118 6 025 R’000 R’000 2019 2018 COMPANY – – – (lifetime expected 1 670 630 1 758 432 Loss allowance (50 509) (47 809) 87 802 50 509 credit loss) (2 612) 43 111 8 051 (653) R’000 R’000 2018 (83) 2018 (5) – – – 12. Cash and cash equivalents (continued)

Credit quality of cash at bank and short-term deposits, excluding cash on hand The credit quality of cash at bank and short-term deposits, excluding cash on hand that is neither past due nor impaired, can be assessed with reference to external credit ratings (if available) or historical information about counterparty default rates:

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Credit rating AA+ 1 313 900 1 631 800 1 313 900 1 631 800 AA 316 312 30 000 316 312 30 000 A1 50 535 41 052 1 900 8 800 A2 730 113 504 528 – – Baa3 246 374 87 832 246 408 87 832 Caa1 – 9 – – 2 657 234 2 295 221 1 878 520 1 758 432

13. Share capital

Authorised 5 000 Ordinary par value shares of R1 each 5 5 5 5 Issued 1 914 Ordinary par value shares of R1 each 2 2 2 2 Share premium 2 755 934 2 755 934 2 755 934 2 755 934 2 755 936 2 755 936 2 755 936 2 755 936

14. Financial liability

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 At amortised cost Reserve-based lending facility 1 048 680 851 573 – – The loan accrues interest at LIBOR plus a margin percentage varying between 3.25% and 4.50% over the period of the loan. The loan is due to mature in February 2022. All interest payable accrues from day to day at the relevant rate of interest, and is calculated on the basis of the actual number of days elapsed and a 360-day year. Transaction costs incurred (80 409) (82 317) – – 968 271 769 256 – –

The facility is a revolving-credit facility secured against the producing asset of PetroSA Ghana Limited. The security package comprises a share pledge and subordination of future loans to PetroSA Ghana Limited. Additional security includes an offshore debenture comprising security over a contemplated hedging agreement, intercompany loans granted by PetroSA Ghana to its subsidiaries, and certain project accounts into which transaction funds are deposited. The available facility amount/borrowing base is redetermined six-monthly at the end of June and December and is a function of the present value of future cash flows generated by an producing/developing assets. The available facility amount is most sensitive to economic assumptions such as the Brent crude oil price and changes to independently audited oil reserves. The loan covenants applicable are the field life cover ratio of 1.3 and a loan life cover ratio of 1.1. All loan covenants relating to this facility have been satisfied.

PetroSA Integrated Annual Report 2019 | 115 Financial Performance PetroSA GhanaLtd, together withitsjointventure partners,entered into afinance leasewithMODEC for theleasingof Current liabilities Non-current liabilities Present value ofminimumleasepayments due Present value ofminimumleasepayments Total deferred taxliability Less: future finance charges Underlift Finance lease Provisions Tax losses available for set-off against future taxable income 15. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 116 Property, plantandequipment Deferred taxliability 16. The Group’s obligations underfinance leases are secured by thelessor’s charge over theleasedassets. Refer to note 3. rate is8.4%. The initialleaseperiodisten years, withanoptionfor anadditional10years untilend oflife offield.The imputed interest finance costs asfinance leases. R850.3 million.The present value oftheleaseliability unwinds over theexpected life oftheleaseandisreported under a floatingproduction storage andoffloading (FPSO) unitintheTENField. The finance leasewas initiallyrecognised at Minimum leasepayments due – later thanfive years – insecond year to fifth inclusive – withinoneyear – later thanfive years – insecond year to fifth inclusive – withinoneyear

| Deferred tax Finance leaseliability PetroSA Integrated Annual Report 2019 (1 489 033) (2 038 726) 1 600735 (651 608) 632 644 526 887 895 873 941 856 145 354 949 127 949 949 127 949 949 127 949 332 194 263 231 131 992 53 254 53 252 72 145 R’000 R’000 2019 2019 – GROUP GROUP (1 361 288) 1 406756 (808 166) 284 404 (594 173) 772 899 427 855 224 836 872 010 575 673 812 583 812 583 812 583 197 226 197 106 891 39 684 39 684 49 919 (6 037) R’000 R’000 2018 2018

R’000 R’000 2019 2019 – COMPANY COMPANY – – – – – – – – – – – – – – – – – – R’000 R’000 2018 2018 – – – – – – – – – – – – – – – – – – –

16. Deferred tax (continued)

The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, and the law allows net settlement. Therefore, they have been offset in the statement of financial position as follows:

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Deferred tax liability (2 038 726) (1 367 325) – – Deferred tax asset 549 693 559 159 – – Total net deferred tax liability (1 489 033) (808 166) – –

Reconciliation of deferred tax asset/(liability) At beginning of the year (808 166) (1 507 828) – – Reversing temporary difference on assets (685 723) 366 758 – – Decrease in tax losses available for set-off against future taxable income (79 483) (47 980) – – Originating temporary difference on finance lease 47 790 284 404 – – Originating temporary difference on underlift 6 037 6 037 – – Reversing temporary difference on fair value adjustment 30 512 90 443 – – Balance at end of year (1 489 033) (808 166) – –

Recognition of deferred tax asset PetroSA is an oil and gas company as defined in the Tenth Schedule to the Income Tax Act. As an oil and gas company, PetroSA qualifies for additional tax deductions in respect of its capital expenditure on exploration and production activities. This assessed loss position is directly attributable to PetroSA’s oil and gas activities.

As it is unlikely that the assessed loss will be utilised in the foreseeable future, no deferred tax asset has been recognised. The current unrecognised deferred tax asset is R8.9 billion (2018: R8.2 billion). The unused estimated/assessed tax loss at year-end is R21.8 billion (2018: R20.2 billion).

17. Provisions

Reconciliation of provisions – Group 2019

Opening Utilised during Interest Change in balance Additions the year expense estimate Total R’000 R’000 R’000 R’000 R’000 R’000 Decommissioning 8 292 863 79 594 53 362 353 009 1 368 628 10 147 456 Post-retirement medical aid benefits 106 966 2 207 (4 734) 8 054 (14 700) 97 793 Rehabilitation 12 318 – (4) – – 12 314 Social investment 16 551 – (10 035) – – 6 516 8 428 698 81 801 38 589 361 063 1 353 928 10 264 079

Reconciliation of provisions – Group 2018

Opening Utilised during Interest Change in balance Additions the year expense estimate Total R’000 R’000 R’000 R’000 R’000 R’000 Decommissioning 9 629 199 – (28 932) 416 024 (1 723 428) 8 292 863 Post-retirement medical aid benefits 74 454 2 159 (3 793) 6 771 27 375 106 966 Rehabilitation 12 339 – (21) – – 12 318 Social investment 21 063 3 900 (8 412) – – 16 551 Bonus 40 1 (41) – – – 9 737 095 6 060 (41 199) 422 795 (1 696 053) 8 428 698

PetroSA Integrated Annual Report 2019 | 117 Financial Performance licences. This provision isfor commitments to community investment projects asaprecondition for theissuing ofexploration Social investment PetroSA contributes to amedicalaidschemefor retired andmedically unfitemployees. Refer to note 28for more information. Post-retirement medicalaidbenefits This amountisfor therehabilitation ofthelandatVoorbaai terminal andBloemfontein depot. Rehabilitation Non-current liabilities Decommissioning Reconciliation ofprovisions –Company 2018 Decommissioning Reconciliation ofprovisions –Company 2019 17. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 118 Current liabilities Post-retirement medicalaidbenefits Post-retirement medicalaidbenefits Rehabilitation Rehabilitation Social investment Social investment Bonus

| Provisions (continued) PetroSA Integrated Annual Report 2019 8 060007 9 373 873 8 195 842 9 481769 106 966 74 454 21 063 12 339 12 318 16 551 Opening Opening balance balance R’000 R’000 40 Additions Additions 6 060 3 900 2 207 2 207 2 159 R’000 R’000 – – – – – 1 10 264079 10 245 249 Utilised during Utilised during (10 035) (14 773) (12 267) 18 830 (4 734) (3 793) (8 412) the year the year R’000 R’000 R’000 2019 (21) (41) (4) – – 8 428698 8 399829 346 640 407 364 338 586 414 135 28 869

8 054 expense expense 6 771 Interest Interest R’000 R’000 R’000 2018 – – – – – (1 693 855) 9 897 837 (1 721 230) 9 916667 1 401 451 1 386751 (14 700) 18 830 27 375 27 Change in Change in estimate estimate R’000 R’000 R’000 2019 – – – – – 9 800044 8 060007 8 195 842 8 195 842 8 166973 9 916667 106 966 28 869 97 793 12 314 12 318 16 551 6 516 R’000 R’000 R’000 2018 Total Total – 17. Provisions (continued)

Bonus In the prior year, the provision included retention bonuses for PetroSA employees who qualified in terms of their employment contracts.

Decommissioning The decommissioning provision represents the present value of decommissioning costs relating to oil and gas interests, the majority of which are expected to be incurred up to 2027. Assumptions, based on the current economic environment, have been made which Management believes are a reasonable basis on which to estimate the future liability. These estimates are reviewed annually to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend on future market prices for the necessary decommissioning works required, which will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend on future oil and gas prices, which are inherently uncertain.

PetroSA has commissioned an external expert to assess the quantum and scope of the abandonment provision. The current-year assessment includes additional research into the requirements to fully close or decommission all PetroSA wells. No provision has been made for the plugged and abandoned wells.

Major assumptions included in the calculation of local provisions is a discount rate of 4.2% (2018: 4.02%). A sensitivity analysis indicates that a R1 weakening of the rand against the USD translates into a R515 million (2018: R491 million) increase in the provision. The programme also assumes the decommissioning will be executed in one campaign in order to aid in managing logistical costs. It is assumed that each well will take an average of 15 days to abandon.

For international provisions, the discount rate used is 4.02% (2018: 4.02%) with an expected realisation date of 2036. Changes in cost estimates are driven by revisions to the operator’s cost assumptions and estimates.

Change in estimate breakdown The 2019 change in estimate resulting from the changes in assumptions can be broken down as follows:

R’million %

Weakening in ZAR against USD 1 410 101 Other (9) (1) 1 401 100

18. Trade and other payables

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Financial instruments: Trade payables 2 947 535 1 224 998 2 948 637 1 230 492 Accrued leave pay 56 147 53 399 56 033 52 926 Accrued expenses 285 964 483 472 107 718 137 300 Other payables 677 1 119 677 1 119 Non-financial instruments: Statutory payables 1 049 041 782 868 1 049 041 782 868 4 339 364 2 545 856 4 162 106 2 204 705

19. Revenue

Revenue from contracts with customers Fuel production sales 10 531 477 9 322 834 10 531 477 9 322 834 Crude oil sales 1 607 476 1 095 470 – – 12 138 953 10 418 304 10 531 477 9 322 834

PetroSA Integrated Annual Report 2019 | 119 Financial Performance Premises Operating leasecharges Leases Other financialassets Total employee costs Pension andmedicalcosts Inventory classified asproperty, plantandequipment Litigation settlements Salaries andwages Employee costs Joint arrangements Exploration andevaluation costs Administration andmanagement fees Income from subsidiaries(other thaninvestment income) Investments insubsidiaries Research and development costs Other Intangible assets Amortisation ofintangibleassets Amortisation Reversal ofproperty, plantandequipment Expenses 20. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 120 Depreciation ofproperty, plantandequipment Depreciation andamortisation operating leases. Refer to note 30(‘Commitments’) for additionaldetails of Audit fees Auditor’s remuneration –external Operating loss for theyear charging isstated after thefollowing, amongothers: 21. Property, plantandequipment

| Impairment (losses)/reversals Operating loss PetroSA Integrated Annual Report 2019

Note 4 8 9 3 (1 973 135) 1 148469 1 281898 (696 014) 964 456 964 809 071 184 013 58 277 10 258 4 500 (3 195) 9 981 1 165 (837) (745) R’000 R’000 277 277 2019 2019 93 – – – GROUP GROUP (1 920 079) 1 056590 1 679 760 (264 889) 888 843 979 759 148 601 (34 314) 167 747 66 543 (2 468) 11 494 4 500 11 287 12 212 4 260 1 271 1 R’000 R’000 207 391 2018 2018 – – (1 973 135) 1 146602 1 100155 (877 757) 962 589 184 013 93 559 93 58 277 4500 14 857 (3 195) 9 299 9 576 9 (837) (745) R’000 R’000 887 277 277 2019 2019 COMPANY COMPANY – – – 1 047 072 1 679 760 (1 163541) (398 932) 879 325 (29 625) 114 496 (34 314) 167 747 66 543 63 092 (2 468) 13 068 4 500 9 094 12 212 4 260 8 887 R’000 R’000 930 207 2018 2018 – 22. Investment income

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000

Dividend income Group entities: Subsidiaries – Foreign 4 089 – 293 161 – Interest income Investments in financial assets: Financial assets 372 626 381 908 184 611 236 613 Total investment income 376 715 381 908 477 772 236 613

23. Finance costs

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Finance leases 79 449 79 248 – – Bank overdraft 564 3 492 564 3 492 Reserve-Based Facility liability 61 761 46 846 – – Interest on abandonment provision 351 849 417 003 338 586 407 364 Total finance costs 493 623 546 589 339 150 410 856

24. Taxation

Major components of the tax expense (income) Current Local income tax – current period 143 742 55 945 – – Foreign income tax or withholding tax – current period 1 026 1 734 – – 144 768 57 679 – – Deferred Originating and reversing temporary differences 157 200 (658 607) – – Benefit of unrecognised tax loss 387 041 29 075 – – 544 241 (629 532) – – Total 689 009 (571 853) – –

Reconciliation of the tax expense Reconciliation between applicable tax rate and average effective tax rate.

Applicable tax rate 28.00% 28.00% 28.00% 28.00% Non-deductible expenses 0.02% (0.84)% 0.02% (2.03)% Unrecognised deferred tax asset (87.35)% 20.73% (28.02)% (25.97)% Effect of different tax rates operating in different jurisdictions 9.87% 12.04% –% –% (49.46)% 59.93% –% –%

PetroSA Integrated Annual Report 2019 | 121 Financial Performance Trade andotherpayables Trade andotherreceivables Inventories Changes inworking capital: Movement ininvestment injointarrangements Unrealised foreign exchange gain/(loss) Write offofintangibleassets Movements inprovisions Impairment losses andreversals Finance costs Interest income Dividend income Movement intaxation balance Depreciation andamortisation Adjustments for: Movement indeferred tax 25. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 122 26. Loss before taxation Charge to profit orloss

| Cash (usedin)/generated from operations Tax paid PetroSA Integrated Annual Report 2019 (1 393 417) (689 009) 1 793 514 (968 274) (568 974) (372 626) (515 987) 809 348 680 867 493 623 355 380 696 014 258 813 (24 100) 127 435 (32 242) (4 089) R’000 R’000 2019 2019 – GROUP GROUP (699 662) 1 014 365 (964 134) (964 (381 908) 264 889 546 589 248 467 247 796 984 019 (47 606) 137 934 571 853 (98 213) (21 681) 29 596 R’000 R’000 2018 2018

– – – (2 177960) 1 957 400 (524 655) (179 616) (293 161) 877 757 877 (184 611) (511 641) 339 150 258 813 93 836 (7 868) (6 676) R’000 R’000 2019 2019 COMPANY COMPANY – – – – – (569 461) (236 613) (126 352) 223 946 (63 089) 410 856 169 373 118 756 29 625 (9 598) 25 130 8 231 R’000 R’000 2018 2018 – – – – – – 27. Government grants

PetroSA receives a government grant for training on projects. In terms of the signed agreement, PetroSA will receive a refund based on the cost incurred in order to provide specialised training on the project.

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000

Grants received 4 329 3 760 4 329 3 760

28. Employee benefits

It is the policy of the Group to provide retirement benefits for all its eligible permanent employees. All eligible permanent employees are members of the PetroSA Retirement Fund, a defined-contribution fund subject to the Pension Funds Act of 1956.

Pensions and retirement funds

PetroSA Retirement Fund The Company operates a defined-contribution retirement plan, administered by Momentum, for the benefit of employees. All employees who commenced employment after 1 April 1996 qualify for membership of this fund. The amount recognised as an expense during the year under review was R115 million (2018: R103 million) for the retirement fund.

Post-employment medical benefits The Group has provided for an amount of R190.9 million of which R93.2 million was funded (2018: R213.9 million of which R106.9 million was funded). The commitment is actuarially valued annually, with the most recent valuation performed as at 31 March 2019.

The post-employment medical arrangement provides health benefits for retired employees and certain dependants. The benefit was applicable and on offer only to employees in the service of PetroSA before 1 May 2012.

During the 2013 financial year, PetroSA funded a portion of the post-retirement medical liability through the purchase of a company-funded annuity policy. As this annuity policy is CPI-linked, the Company is exposed to revaluation risks if medical inflation is higher than the CPI increases granted. The current value of the annuity policy is R93.2 million (2018: R106.9 million).

The net defined-benefit obligation in respect of promised post-retirement medical scheme costs as at 31 March 2019 is R97.8 million (2018: R106.9 million). The obligation is partially funded and was valued using the ‘projected unit credit method’.

A sensitivity analysis was performed on key assumptions.

A 1% or 1-year downward rating change in assumptions will increase or (decrease) the net obligation as follows:

• Discount rate – R24.7 million and (R20.2 million), respectively (2018: R29.1 million and (R23.6 million), respectively) • Mortality rate – (R5.3 million) and R5.3 million, respectively (2018: (R6.4 million) and R6.4 million, respectively) • Health care cost inflation – R25.1 million and (R20.8 million), respectively (2018: R29.3 million and (R24 million), respectively)

A 1% or 1-year downward rating change in assumptions will increase or (decrease) combined interest and service cost as follows:

• Discount rate – R0.6 million and (R0.6 million), respectively (2018: R0.6 million and (R0.6 million), respectively) • Mortality rate – (R0.6 million) and R0.6 million, respectively (2018: (R0.7 million) and R0.6 million, respectively) • Health care cost inflation – R2.75 million and (R2.27 million), respectively (2018: R3 million and (R2.5 million), respectively)

PetroSA Integrated Annual Report 2019 | 123 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual available andismostlikely to bepredominantly invested inCPI-linked bonds. The planasset isunquoted andisaninsurance policy. Therefore, thesplitofunderlyinginvestments isnotreadily Mortality rate Health care cost inflation Discount rate Assumptions used: Market value ofassets atendofyear Benefit payments Actuarial (loss)/gain Return onplanassets Market value ofassets atbeginningofyear The movement inplanassets was asfollows: Defined-benefit obligation atendofyear Actuarial (gain)/loss Benefit payments The movement inthedefined-benefit obligation Interest cost Liability inthestatement offinancialposition Current service cost Fair value ofplanassets Post-employment medicalbenefits(continued) 28. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 124 Defined-benefit obligation atbeginningofyear was asfollows: Present value offundedobligations Post-employment medicaldefinedbenefit

| Employee benefits(continued) PetroSA Integrated Annual Report 2019

PA(90)-2 (29 685) 190 953 106 972 190 953 213 938 (93 160) (10 576) (12 275) (13 991) 18 484 97 793 93 160 7.29% 9.81% 9 039 2 207 R’000 2019 GROUP PA(90)-2 (106 972) 106 966 106 972 213 938 213 938 (13 524) 172 134 36 927 8.88% 16 242 97 138 7.40% (9 189) 9 552 9 471 9 2 159 R’000

2018 PA(90)-2 (29 685) 190 953 106 972 190 953 213 938 (93 160) (10 576) (12 275) (13 991) 18 484 97 793 93 160 7.29% 9.81% 9 039 2 207 R’000 2019 COMPANY PA(90)-2 (106 972) 106 966 106 972 213 938 213 938 (13 524) 172 134 36 927 8.88% 16 242 97 138 7.40% (9 189) 9 552 9 471 9 2 159 R’000 2018 29. Contingencies

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000

Guarantees 1. The Group has issued guarantees for the rehabilitation of land disturbed by mining in the Sable Field. 180 000 180 000 180 000 180 000 2. The Group has issued a manufacture and excisable bond in favour of the South African Revenue Service. 5 000 5 000 5 000 5 000 3. The Group has issued an evergreen VAT guarantee in favour of the Dutch VAT authorities (¤0.5 million). 8 178 7 289 8 178 7 289 193 178 192 289 193 178 192 289 Claims PetroSA is considering settling claims made in terms of contracts. – 52 502 – –

Mbizana Integrated Energy Centre PetroSA may be liable for any soil contamination resulting from the dispensing of fuel at the Mbizana Integrated Energy Centre. The estimated financial impact is R1 million.

Claim against third party In September 2005, a vessel owned by a shipping company (the defendant) snagged and damaged a carrier and product pipeline owned by PetroSA. The matter is currently before the Western Cape High Court exercising its admiralty jurisdiction. Based on the feedback from external legal counsel, PetroSA is likely to succeed in its claim against the defendant. The expected amount cannot be determined at this time.

2018 incentive bonus PetroSA had a Short-Term Incentive Policy (STIP) with an expiry date of 31 March 2017. No replacement scheme was approved by the PetroSA Board and labour. For the financial year ending 31 March 2018, PetroSA’s corporate performance score was 2.98, which was a score high enough to trigger an incentive bonus, in terms of the expired STIP scheme. On 10 August 2018, the PetroSA Board resolved not to pay an incentive bonus, which led to a dispute with labour. The dispute was referred for arbitration by the National Bargaining Council for the Chemical Industry (NBCCI). On 25 June 2019, the NBCCI issued an award in terms of which PetroSA was ordered to pay qualifying employees an incentive bonus of R123 million. The PetroSA Board has resolved, based on the opinion of senior counsel, to take the arbitration award on review to the Labour Court in terms of section 145 of the Labour Relations Act (LRA).

30. Commitments

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000

Authorised capital expenditure Approved by the directors Contracted for 297 795 494 389 63 263 43 161

PetroSA Integrated Annual Report 2019 | 125 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual Office space isleasedatThe CEFHouseinSandton, Johannesburg, effective from 1October 2016. The leasepayment ends on30September 2020. The lease payment is fixed at R54 872 per month with an 8% escalation per annum. The lease period is three years and A hanger together withoffice space isleasedinthe general aviation area of George effective Airport from 1 October 2017. escalating at9%.The leaseterm often years commenced on1April2012. PetroSA leasespremises andotherproperties from Transnet NationalPorts Authority atamonthlyfee ofR260 964, and extended until1October 2019. lease instalmentisR24 289 permonth.The previous three-year leaseperiod,ending30November 2017, was renegotiated Office space rental at Willemswerf, 13th Floor, Boompjes 40, 3011 XB, was renewed from 2 December 2017. The current – insecond year to fifth inclusive – insecond year to fifth inclusive – insecond year to fifth inclusive – insecond year to fifth inclusive 30. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 126 – withinoneyear PetroSA space –George Airport 30 September 2021. is fixed atR50912permonthwithaCPI-linked escalationperannum. The leaseperiodisfive years andendson – withinoneyear PetroSA Operating leases–aslessee (expense) – withinoneyear PetroSA Europe BV –office space – withinoneyear PetroSA –TNPA

| Commitments (continued) PetroSA Integrated Annual Report 2019 18 766 13 041 5 725 1 126 1 124 1 831 R’000 R’000 R’000 R’000 384 705 740 534 356 178 2019 2019 2019 2019 GROUP GROUP GROUP GROUP 24 018 18 766 2 498 5 252 1 830 R’000 R’000 R’000 R’000 668 437 146 291

341 341 2018 2018 2018 2018 – 18 766 13 041 5 725 1 126 1 124 1 831 R’000 R’000 R’000 R’000 384 705 740 2019 2019 2019 2019 COMPANY COMPANY COMPANY COMPANY – – – 24 018 18 766 2 498 5 252 1 830 R’000 R’000 R’000 R’000 668 341 341 2018 2018 2018 2018 – – – –

31. Financial instruments and risk management

Categories of financial instruments Categories of financial assets

Amortised cost Total Group – 2019 Note(s) R’000 R’000 Financial assets 2 213 072 2 213 072 Amounts held by holding company 486 585 486 585 Trade and other receivables 11 2 685 829 2 685 829 Cash and cash equivalents 12 2 657 234 2 657 234 8 042 720 8 042 720

Amortised cost Total Group – 2018 Note(s) R’000 R’000 Financial assets 2 573 923 2 573 923 Amounts held by holding company 486 585 486 585 Trade and other receivables 11 1 759 781 1 759 781 Cash and cash equivalents 12 2 295 221 2 295 221 7 115 510 7 115 510

Amortised cost Total Company – 2019 Note(s) R’000 R’000 Financial assets 1 785 239 1 785 239 Amounts held by holding company 486 585 486 585 Trade and other receivables 11 2 137 473 2 137 473 Cash and cash equivalents 12 1 878 520 1 878 520 6 287 817 6 287 817

Amortised cost Total Company – 2018 Note(s) R’000 R’000 Financial assets 2 276 310 2 276 310 Loans receivable 486 585 486 585 Trade and other receivables 11 1 682 717 1 682 717 Cash and cash equivalents 12 1 758 432 1 758 432 6 204 044 6 204 044

PetroSA Integrated Annual Report 2019 | 127 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual Interest income Recognised inprofit orloss: Company –2019 Interest income Recognised inprofit orloss: Group –2018 Interest income Recognised inprofit orloss: Group –2019 Gains andlossesonfinancialassets Pre-tax gains andlosses onfinancialinstruments Trade andotherpayables Company –2018 Trade andotherpayables Company –2019 Financial liability Trade andotherpayables Group –2018 Financial liability Trade andotherpayables Group –2019 Categories offinancialliabilities 31. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 128 Interest income Recognised inprofit orloss: Company –2018

| Financial instruments andriskmanagement (continued) PetroSA Integrated Annual Report 2019 Note(s) Note(s) Note(s) Note(s) Note(s) Note(s) Note(s) Note(s) 22 22 22 22

14 14 18 18 18 18 4 258594 3 290323 Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost 2 532244 1 762 988 3 113065 1 421837 769 256 372 626 372 381 908 968 271 236 613 184 611 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 4 258594 3 290323 2 532244 1 762 988 3 113065 1 421837 769 256 372 626 372 381 908 968 271 236 613 184 611 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Total Total Total Total Total Total Total Total 31. Financial instruments and risk management (continued)

Gains and losses on financial liabilities

Amortised cost Total Group – 2019 Note(s) R’000 R’000 Recognised in profit or loss: Finance costs 23 62 352 62 352

Amortised cost Total Group – 2018 Note(s) R’000 R’000 Recognised in profit or loss: Finance costs 23 50 338 50 338

Amortised cost Total Company – 2019 Note(s) R’000 R’000 Recognised in profit or loss: Finance costs 23 564 564

Amortised cost Total Company – 2018 Note(s) R’000 R’000 Recognised in profit or loss: Finance costs 23 3 492 3 492

Capital risk management The Group’s objective when managing capital (which includes share capital, borrowings, working capital and, cash and cash equivalents) is to maintain a flexible capital structure that reduces the cost of capital to an acceptable level of risk and to safeguard the Group’s ability to continue as a going concern while taking advantage of strategic opportunities in order to maximise stakeholder returns sustainably.

The Group manages capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

Financial risk management

Overview The Group is exposed to the following risks as a result of its use of financial instruments:

• Credit risk; • Liquidity risk; and • Market risk (currency risk, interest rate risk and price risk).

The Group has a risk management and central treasury function that manages the financial risks relating to the Group’s operations. The Group’s liquidity, credit, foreign exchange, interest rate and crude oil price risks are monitored continually. Approved policies exist for managing these risks.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The Group’s objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in foreign exchange, interest rates and crude oil prices. Throughout the year under review it has been, and remains, the Group’s policy that no speculative trading in derivative instruments be undertaken.

PetroSA Integrated Annual Report 2019 | 129 Financial Performance Cash andcashequivalents Trade andotherreceivables Current assets Trade andotherpayables Current liabilities Trade andotherreceivables Financial liabilities Non-current liabilities Group –2019 the risk,are presented inthefollowing table.The cashflows are undiscounted contractual amounts. The maturity profile ofcontractual cashflows ofnon-derivative financialliabilities,andassets heldto mitigate Liquidity risk Financial assets Company The maximumexposure to credit riskispresented inthetablebelow: at fair value through profit orloss. Credit loss allowances for expected credit losses are recognised for alldebtinstruments,butexcluding thosemeasured these counterparties. well-established financialinstitutionsofahighcredit rating. Losses are notexpected asaresult ofnon-performance by manages counterparty exposures arisingfrom money market andderivative financialinstrumentsby onlydealingwith The exposure to credit riskwithrespect to trade receivables isnotconcentrated dueto alarge customer base.The Group Board annually. financial institutionswithhighcredit ratings. Credit limitswithfinancialinstitutionsare revised andapproved by the Credit riskexposure arisingfrom cashandequivalents ismanaged by theGroup through dealingwithwell-established trade andotherreceivables, andcashequivalents. Financial assets, whichpotentially subjecttheGroup to concentrations ofcredit principallyto financialassets, risk,pertain contractual obligations. Credit riskistheoffinancialloss to theGroup ifacustomer orcounterparty to afinancialinstrumentfails to meetits Credit risk 31. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 130

| Financial instruments andriskmanagement (continued) PetroSA Integrated Annual Report 2019 Note 11 2 207 521 2 185591 4 393 112 carrying amount R’000 Gross (470 400) (422 282) (48 118) Credit loss allowance 2019 Note(s) R’000 14 18 2 485343 3 290323 2 657 234 3 290323 1 852254 5 142577 1 785 239 2 137 473 3 922 712 cost/fair value Amortised Less than R’000 1 year R’000 – (767 785) 4 385197 200 486 200 486 1 733226 2 651 971 968 271 968 271 2 to 5years

carrying amount R’000 R’000 Gross – – 2 685829 4 258594 5 343063 1 084469 3 290323 2 657 234 (426 170) (375 661) (50 509) 968 271 Credit loss allowance 2018 R’000 R’000 Total 2 685829 4 258594 5 343063 1 084469 3 290323 2 657 234 3 959 027 959 3 2 276 310 1 682 717 cost/fair value 968 271 Amortised Carrying amount R’000 R’000 31. Financial instruments and risk management (continued)

Liquidity risk (continued)

Less than Carrying 1 year 2 to 5 years Total amount Group – 2018 Note(s) R’000 R’000 R’000 R’000 Non-current liabilities Financial liability 14 – 769 256 769 256 769 256 Current liabilities Trade and other payables 15 1 762 988 – 1 762 988 1 762 988 1 762 988 769 256 2 532 244 2 532 244

Current assets Trade and other receivables 1 692 640 67 141 1 759 781 1 759 781 Cash and cash equivalents 2 295 221 – 2 295 221 2 295 221 3 987 861 67 141 4 055 002 4 055 002 2 224 873 (702 115) 1 522 758 1 522 758

Less than Carrying 1 year Total amount Company – 2019 Note(s) R’000 R’000 R’000 Current liabilities Trade and other payables 15 3 113 065 3 113 065 3 113 065

Current assets Trade and other receivables 2 137 473 2 137 473 2 137 473 Cash and cash equivalents 1 878 520 1 878 520 1 878 520 4 015 993 4 015 993 4 015 993 902 928 902 928 902 928

Less than Carrying 1 year Total amount Company – 2018 Note(s) R’000 R’000 R’000 Current liabilities Trade and other payables 18 1 421 837 1 421 837 1 421 837

Current assets Trade and other receivables 1 682 717 1 682 717 1 682 717 Cash and cash equivalents 1 758 432 1 758 432 1 758 432 3 441 149 3 441 149 3 441 149 2 019 312 2 019 312 2 019 312

Foreign currency risk The Group is exposed to foreign currency fluctuations, as it raises funding on the offshore financial markets, imports raw material and spares, and, furthermore, exports finished product and crude oil. The Group takes cover on foreign exchange transactions where there is a future currency exposure. The Group also makes use of a natural hedge situation to manage foreign currency exposure. The Group is mainly exposed to fluctuations in the EUR and USD.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.

PetroSA Integrated Annual Report 2019 | 131 Financial Performance Net USdollarexposure Net exposure to foreign currency inrand Trade andotherpayables Current liabilities: Net Euro exposure Financial liability Non-current liabilities: Trade andotherpayables Current liabilities: Cash andcashequivalents Cash andcashequivalents Euro Trade andotherreceivables Current assets: Exposure inrand reporting period. There have beennosignificantchanges intheforeign currency riskmanagement policiesandprocesses since theprior Foreign currency risk(continued) 31. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 132 US dollar Rand perunitofforeign currency: The following closingexchange rates were appliedatreporting date: Exchange rates Trade andotherreceivables Current assets: Euro exposure Financial assets Non-current assets: US dollarexposure: Currency risk

| Financial instruments andriskmanagement (continued) PetroSA Integrated Annual Report 2019 Note(s) 18 18 12 12 11 11 (1 022 627) (786 464) (732 762) (968 271) 354 639 735 341 114 454 (43 961) 53 702 96 633 16.360 14.570 1 030 R’000 2019 GROUP (734 486) (642 359)(642 (769 256) (611 902) 115 740 512 127 85 023 14.580 18 805 14 878 92 127 (7 774) 11.830 R’000 2018

(829 808) (836 086) (845 012) (42 547) 47 998 16.360 14.570 6 278 6 3 663 5 263 827 R’000 2019 – – COMPANY (102 057) (265 730) (162 487) 60 430 (6 986) 14.580 14 645 52 771 11.830 91 071 7 590 4 582 R’000 2018 – 31. Financial instruments and risk management (continued)

Forward exchange contracts Certain forward exchange contracts have been entered into for the purpose of managing foreign currency risk. The net market value of all forward exchange contracts at reporting date is calculated by comparing the forward exchange contracted rates with the equivalent market foreign exchange rates at reporting date. The present value of these net market values is then calculated using the appropriate currency-specific discount curve.

For foreign exchange contract as at 31 March 2019, a 10% relative change in the USD to the ZAR would have impacted profit or loss for the year by R100.2 million (2018: R0 million).

Contract foreign Contract Estimated fair currency amount rand amount value profit/(loss) Company – 2019 Contract rate Market rate R’000 R’000 R’000 Imports – goods Forward exchange contracts 14.438 14.587 68 670 991 457 10 441

Company – 2018 Other liabilities Forward exchange contracts – – – – –

Foreign currency sensitivity analysis The Group measures its market risk exposure by running various sensitivity analyses, including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only outstanding foreign currency-denominated monetary items and adjust their translation at the period end for a 10% change in foreign currency rates.

The following information presents the sensitivity of the Group to an increase or decrease in the respective currencies it is exposed to. The sensitivity rate is the rate used when reporting foreign currency risk internally to key Management personnel and represents Management’s assessment of the reasonably possible change in foreign exchange rates. No changes were made to the methods and assumptions used in the preparation of the sensitivity analysis compared with the previous reporting period.

For financial assets as at 31 March 2019, a 10% strengthening in the ZAR against the relevant currencies would have resulted in a decrease in foreign currency-denominated assets of R42.7 million (2018: R51.9 million), and a 10% weakening in the ZAR against the relevant currencies would have resulted in an increase in foreign currency-denominated assets of R42.7 million (2018: R51.9 million).

For financial liabilities as at 31 March 2019, a 10% strengthening in the ZAR against the relevant currencies would have resulted in a decrease in foreign currency-denominated liabilities of R86.3 million (2018: R27.5 million), and a 10% weakening in the ZAR against the US dollar would have resulted in an increase in foreign currency-denominated liabilities of R86.3 million (2018: R27.5 million).

Interest rate risk Fluctuations in interest rates impact on the value of investments and financing activities, giving rise to interest rate risk. Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the Group is structured on a combination of floating and fixed interest rates.

PetroSA Integrated Annual Report 2019 | 133 Financial Performance financial statements (continued) Notes to theconsolidated andseparate annual Variable-rate financialassets asapercentage interest bearingfinancialassets Variable rate financialassets asapercentage oftotal Cash andcashequivalents Financial assets Assets Fixed-rate instruments: Cash andcashequivalents Amounts heldby holdingcompany Amounts heldby holdingcompany • • • As at31March 2019, a10%relative change inthe: used inthepreparation ofthesensitivity analysis compared withtheprevious reporting period. interest rate riskwhichwere recognised atthereporting date. Nochanges were madeto themethodsandassumptions interest rates. Allothervariables remain constant. The sensitivity analysis includesonlyfinancialinstrumentsexposed to internally to key Management personnel andrepresents Management’s assessment ofthereasonably possible change in The following sensitivity analysis hasbeenprepared usingasensitivity rate employed whenreporting interest rate risk Interest rate sensitivity analysis Financial assets Assets Variable-rate instruments: Company interest bearingfinancialassets Fixed rate financialassets asapercentage oftotal of total interest-bearing financialassets Financial assets Assets Variable-rate instruments: Group The interest rate profile ofinterest-bearing financialinstrumentsattheendofreporting periodwas asfollows: Interest rate profile 31. Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 134 USDLIBOR interest rate would have impacted profit orloss for theyear by R0million(2018: R0.55 million). EURIBOR interest rate would have impacted profit orloss for the year by R0.23million (2018: R0.2million);and ZAR interest rate would have impacted profit orloss for theyear by R20.6 million(2018: R23million);

| Financial instruments andriskmanagement (continued) PetroSA Integrated Annual Report 2019

Note 12 12 Average effective interest rate 10.77% 6.62% 7.80% 7.93% 7.76% 7.76% 7.51% 2019 10.83% 7.70% 7.55% 7.61% 7.61% 7.51% 7.17%

2018 2 657 234 4 097 781 1 878 520 2 715 105 2 715 350 000 1 259 110 486 585 486 585 953 962 76.50% 23.50% 100.0% R’000 Carrying amount 2019 3 086088 1 758 432 1 218406 2 295 221 4 137 323 1 355517 486 585 486 585 100.0% 841 071 22.75% 77.25% R’000 2018 31. Financial instruments and risk management (continued)

Price risk Price risk sensitivity analysis The following sensitivity analysis has been prepared using a sensitivity rate employed when reporting price risk internally to key Management personnel and represents Management’s assessment of the reasonably possible change in relevant prices. All other variables remain constant. The sensitivity analysis includes only investments held at the reporting date. No changes were made to the methods and assumptions used in the preparation of the sensitivity analysis compared with the previous reporting period.

A sensitivity analysis was performed for the net effect on revenue and expenses, and the weakening or strengthening of the rand/dollar exchange rate by R1, based on actual revenue and cost increasing or decreasing profit by R335 million (2018: R218.6 million), respectively.

A sensitivity analysis was performed for revenue and every USD1 increase or decrease in the Brent crude oil price increasing or decreasing profit by R78 million (2018: R67 million), respectively, based on the 2018/2019 financial results.

32. Fair-value information

Fair-value hierarchy The table below analyses assets and liabilities carried at fair value.

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000

Levels of fair value measurements Level 2 Financial assets and liabilities at fair value through profit or loss Foreign exchange contracts – asset 10 579 – 10 579 – Foreign exchange contracts – liability (138) – (138) – Total financial assets designated at fair value through profit/(loss) 10 441 – 10 441 – Total 10 441 – 10 441 –

PetroSA enters into derivative financial instruments with various counterparties, principally financial institutions with investment-grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques that employ the use of market-observable inputs. The most frequently applied valuation technique uses a forward pricing model. The model incorporates various inputs, including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves, and currency basis spreads between the respective currencies.

No changes have been made to the valuation technique. The carrying value of loans approximates their fair value.

PetroSA Integrated Annual Report 2019 | 135 Financial Performance B Sayadini (2) Management Executive N Gumede Directors Non–executive Year ended31March 2019 33. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 136 2 – Acting Vice-Presidents appointed duringthe year 1 – Resigned K Zono QMN Eister W Fanadzo (1) SS Masemola O Mohapanele(2) M Xiphu M Nene(2) BM Ngubo O Chibambo(2) RG Degni M Ngwane (2) N Mashiane H Motau(1) N Mkhize A Zokufa (2) NM Mhlakaza M Sebothoma(2) Total T Manne(2) A Futter (2) S Soobader(2) Total

| Directors’ emoluments PetroSA Integrated Annual Report 2019

R’000 Salary/fee 16 814 2 048 Salary/fee 2 092 1 500 3 816 2 185 1 108 1 008 1 008 1 691 1 495 1 7 821 R’000 360 439 328 627 551 654 770 855 657 757 69 617 R’000 payments R’000 performance Bonuses and performance Bonuses and payments – – – – – – – – – – – – – – – – – – – – – – – – contributions contributions 2 047 Pension Pension R’000 R’000 646 284 375 106 146 163 77 77 71 51 51 – – – – – – – – – – – – contributions contributions 1 038 R’000 R’000 265 Other Other 198 138 44 20 96 30 70 29 93 55 – – – – – – – – – – – – allowance Expenses 1 866 2 317 Acting R’000 R’000 428 348 228 259 255 353 373 201 154 126 126 361 217 411 112 68 73 75 15 – – –

tion for loss tion for loss Compensa– Compensa– of office of office R’000 R’000 261 261 – – – – – – – – – – – – – – – – – – – – – – R’000 Other R’000 Other – – – – – – – – – – – – – – – – – – – – – – – – 22 477 2 609 2 304 3 387 1 500 1 500 1 584 5 021 5 021 2 812 9 687 1 906 1 083 1 356 R’000 840 644 449 1 134 827 R’000 431 Total 685 729 912 69 971 Total 911 33. Directors’ emoluments (continued)

Year ended 31 March 2018

Bonuses and Compensa– performance Pension Other tion for loss Non–executive Salary/fee payments contributions contributions Expenses of office Other Total Directors R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

N Gumede 1 183 – – – 441 – – 1 624 QMN Eister 744 – – – 216 – – 960 P Kwele 268 – – – 43 – – 311 BW Ngubane 233 – – – 26 – – 259 W Steenkamp 266 – – – 69 – – 335 O Tobias 265 – – – 17 – – 282 J Ntwane 165 – – – 77 – – 242 BDC Makhubela 128 – – – 29 – – 157 TB Hlongwa 153 – – – 30 – – 183 L Williams 65 – – – 17 – – 82 SS Masemola 623 – – – 133 – – 756 M Xiphu 638 – – – 77 – – 715 BM Ngubo 609 – – – 127 – – 736 L Mtunzi 215 – – – 7 – – 222 RG Degni 237 – – – 38 – – 275 N Mashiane 115 – – – 49 – – 164 N Mkhize 135 – – – 14 – – 149 NM Mhlakaza – – – – 8 – – 8 Total 6 042 – – – 1 418 – – 7 460

Bonuses and Compensa– performance Pension Other Acting tion for loss Executive Salary/fee payments contributions contributions allowance of office Other Total Management R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 K Zono 2 310 – 399 163 361 – 4 616 7 849 W Fanadzo (1) 2 079 13 237 75 222 400 1 982 5 008 O Mohapanele (2) 1 395 13 205 123 273 – – 2 009 N Robertson (2) 1 689 13 112 84 248 – – 2 146 M Nene (2) 2 055 13 346 128 394 41 – 2 977 O Chibambo (2) 1 928 – 137 244 302 – – 2 611 M Ngwane (2) 1 757 13 306 146 303 – – 2 525 H Motau (2) 203 – – – – – – 203 Total 13 416 65 1 742 963 2 103 441 6 598 25 328

1 – Resigned 2 – Acting Vice-Presidents appointed during the year

PetroSA Integrated Annual Report 2019 | 137 Financial Performance Contributions to restricted cashheldby PetroSA Rehabilitation (NPC)for thepurposes ofabandonmentamounted to PetroSA GhanaLimited repaid itsloanwithPetroSA in fullduringtheyear. Trade payables Trade receivables Dividend received Commission paid Interest received Recoveries Management fees Loans owing Loans to Subsidiaries Rentals Recoveries Trade receivables SFF (subsidiary ofCEFSOC Ltd) Trade payables Rentals paid Royalties paid Services received PASA (subsidiary ofCEFSOC Ltd) Rentals Recoveries Management fees Interest received Services received Management fee accrual Accrued interest Trade payables Trade receivables Cash oncall CEF SOC Ltd Related party transactions Joint arrangements Subsidiaries Holding company Ultimate shareholder Relationships 34. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 138 R1 435million(2018: R1435million).

| Related parties PetroSA Integrated Annual Report 2019 Refer to notes 6,8 Refer to notes 5,8 CEF SOC Limited ofEnergy Department 486 585 36 167 3 653 1 890 4 149 1 264 1 3 159 3 125 R’000 304 487 766 592 168 2019 45 5 2 3 – – – – – – – – – GROUP 486 585 36 950 3 098 1 159 R’000 488 566 748 267 861 2018 141 83 47

5 7 – – – – – – – – – – – 1 486 585 289 072 14 763 36 167 11 202 3 388 3 653 1 890 4 149 1 264 1 3 961 3 159 1 776 3 125 1 512 R’000 304 487 766 592 168 2019 45 5 2 3 – 1 COMPANY 486 585 36 950 19 886 12 762 91 071 10 221 4 590 3 098 3 681 5 821 1 159 R’000 488 566 748 267 861 2018 141 83 47 5 7 – – – 1 1

34. Related parties (continued)

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Joint arrangements Accrued interest – – 2 348 1 134 Trade payable – – – 959 Interest received – – 1 027 1 220 Services rendered – – – 159 Services received – – 2 341 1 032 5 716 4 504

All transactions were carried out on commercial terms and conditions. Outstanding balances are payable in cash.

35. Public Finance Management Act (PFMA)

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Fruitless and wasteful expenditure Items individually < R50 000 47 60 47 60 Prescription of duty–at–source claims – 8 744 – 8 744 Penalties and interest on customs VAT 209 – 209 – 256 8 804 256 8 804

Refer to the Directors’ report, note 9, for further details. The appropriate corrective and/or disciplinary actions have been taken (where necessary).

The correct import documentation was not received and properly maintained in order to ensure that the correct customs VAT was calculated and paid timeously. As a result, SARS levied penalties and interest where late payment of customs VAT occurred.

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Fruitless and wasteful expenditure movement Incurred during the year 256 8 804 256 8 804 Recognised as expense during the year (256) (8 804) (256) (8 804) Closing balance – – – –

GROUP COMPANY 2019 2018 2019 2018 R’000 R’000 R’000 R’000 Irregular transactions Contravention of Company policy – 7 329 – 7 329 Contravention of legislation – 1 208 – 1 208 – 8 537 – 8 537

PetroSA Integrated Annual Report 2019 | 139 Financial Performance Removal (s62 ofTreasury Instruction1of2018/19) Recovered duringtheyear Incurred duringtheyear • exists regarding theliquidity andsolvency positionoftheGroup: uncertainty Owing to numerous occurrences, PetroSA isfacing anumberofkey strategic challenges. Consequently, amaterial liabilities, contingent obligations andcommitments willoccur intheordinary course ofbusiness. presumes thatfundswillbeavailable to finance future operations andthattherealisation ofassets andsettlementof financial statements have beenprepared onthebasisofaccounting policiesapplicableto agoing concern. This basis whether theGroup cancontinue inoperational existence for 12monthsfrom approval ofthefinancialstatements. The In determining theappropriate basisofpreparation ofthefinancialstatements, theDirectors are required to consider 36. Opening balance Irregular expenditure movement There were nocontraventions oflegislationduringthe2019 financialyear. Contravention oflegislation There were nocontraventions ofcompany policyduringthe2019 financialyear. Contravention ofcompany policy 35. financial statements (continued) Notes to theconsolidated andseparate annual Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 140 • • • • • • • PetroSA over thelastyear hasexperienced anincrease innegative cash flows andsuffered operating losses of Officer and ChiefRiskOfficer. in July2017 andactingincumbents thatfillkey vacancies, including thoseofChiefExecutive Officer, ChiefFinancial The Group still faces instability withregard to organisational leadership, with aninterim Board thatwas appointed increase intherand value ofitsdecommissioning liability to R9.8 billion(2018: R8.1 billion). R1.1 billion).The maincontributor to PetroSA’s technical insolvency isthedevaluation oftherand, whichcausedan At Company level, PetroSA’s total liabilitiesexceeded itstotal assets by R1.1 billion (2018: positive equity value of in foreign exchange rates. PetroSA furthermore remains vulnerable to exogenous factors suchasfluctuationsinthecrudeoilprice andvolatility have demandedparent guarantees to thevalue ofUSD75 millionfor the sourcing offeedstock andfinishedproducts. are nolonger prepared to rely ontheimplicitgovernment afforded support to its State-Owned Enterprise. Suppliers As aresult oftheprecarious financialposition impactingnegatively ontheorganisation’s credit rating status,suppliers PetroSA’s current LC facility isR900millionbacked by R350millioncollateral posted withitstransactional banker. unsecured, favourable credit terms, butinsisting on letters ofcredit (LCs), diesel purchases. to support particularly The declining financial strength of the balance sheet hasled to several suppliers no longer being prepared to offer yet secured alternative, affordable feedstock. Indigenous gas reserves are closeto depletionandare expected to runoutby December 2020, andPetroSA hasnot solvent withanequity value ofR498 million. The Group recorded anetloss ofR2.1 billion(2018: R392 millionloss) for theyear ended31March 2019, yet remains other growth projects. billion (2018: R799 million loss),R1.3 yet the Group needs to invest in the long-term sustainability of the GTLR and

| Going concern Public Finance Management Act (PFMA) (continued) PetroSA Integrated Annual Report 2019 2 463862 (2 190261) 273 601 R’000 2019 – – GROUP 2 463862 2 461 325 (6 000) 8 537 R’000 2018

– 2 463862 (2 190261) 273 601 R’000 2019 – – COMPANY 2 463862 2 461 325 (6 000) 8 537 R’000 2018 –

36. Going concern (continued)

The ability of the entity to continue as a going concern is dependent on a number of significant factors, including the following:

• Shareholder Letter of Support in the form of a R1 billion cash injection and support for the procurement of feedstock and imported finished product, as well as a Shareholder Letter of Undertaking to provide creditors with assurance of recourse to the parent in the event of liquidation. On 19 March 2019, the PetroSA Board furthermore requested a Letter of Comfort from the CEF. • In response, Shareholder intervention has taken the form of Project Phoenix, which will facilitate the execution of identified Emergency Plan initiatives that are geared to bringing the desired emergency management and stability to the PetroSA operating environment, thus allowing the entity to effectively ready itself for long-term commercial viability as part of the repositioning process of the organisation. The identified Emergency Plan initiatives include, but are not limited to, a focus on reliable, stable operations at the GTL Refinery, leveraging the economies of scale of the CEF Group shared services such as a common IT platform, access to feedstock at reduced premiums, trade-up strategies and penetration of new markets. The identified Emergency Plan initiatives mirror the sustainability measures highlighted in the 2018/2019 Corporate Plan. • The Emergency Plan, ‘Project Phoenix’, was initiated in a joint Board meeting of PetroSA and CEF held on 14 February 2019. The emergency plan was furthermore incorporated in the PetroSA corporate plan 2020–2023 and is a condition of the approval of the Corporate Plan by the CEF. Project Phoenix’s objective is to stabilise the underperforming business environment and return business to normality in terms of acceptable levels of operational delivery at the GTL Refinery, financial health, sourcing of feedstock, leadership stability and administration. The success of Project Phoenix depends on rebuilding the leadership team at PetroSA, and this has been recognised by the Shareholder. The CEF has undertaken to subsidise and capacitate existing PetroSA leadership on Project Phoenix with CEF resources to ensure oversight. • PetroSA continues to maintain stringent cost-containment measures for the Group. PetroSA is in the process of disinvestment from non-core assets such as ORCA (which ceased operations in March 2013) and the disposal of subsea equipment and materials left over from the Project Ikhwezi Drilling Campaign.

37. Subsequent events

For more information regarding the Short-Term Incentive Policy contingent liability which arose after the reporting period, refer to note 29.

The Directors are not aware of any further matters or circumstances arising since the end of the financial year not otherwise dealt with in the financial statements which significantly affect the financial position of the Group or the results of the operations.

38. Interest in joint operating agreements

The Group’s proportionate share in the assets and liabilities of unincorporated joint ventures, which are included in the financial statements, are as follows:

2019 Percentage Holding/Tracts 24% 100% 100% 20% 100%

Block 2A Block 2C Block 3A/4A Block 5/6/7 Block 1

Partners Sunbird 76% Anadarko 80%

Nature of project Exploration Exploration Exploration Exploration Exploration

2018 Percentage Holding/Tracts 24% 35% 50% 20% 40%

Block 2A Block 2C Block 3A/4A Block 5/6/7 Block 1 Partners Sunbird 76% Anadarko 65% Sasol 50% Anadarko 80% Cairn 60% Nature of project Exploration Exploration Exploration Exploration Exploration

PetroSA Integrated Annual Report 2019 | 141 Financial Performance The supplementary information presented doesnot formoftheconsolidated part andseparate annual financialstatements andisunaudited. At endoftheyear Additions Production Proved andprobable Revisions ofprevious estimates gas andoilreserves reflected above have beendetermined by independentreservoir engineers. reserves involves subjective judgement andarbitrary determinations andtherefore allestimationsare subjectto revision. The that incorporated PetroSA’s production philosophy. Oilandgas reserves cannotbemeasured exactly, since theestimationof Reserves andproduction are shown onaworking-interest basis (100%).Reserves were generated usingareservoir simulator condensate andLPG. Fields underappraisal comprise discoveries. The reserves shown are eitheralloilorgas, excluding gas liquids.Oilincludes Fields inproduction andunderdevelopment comprise the F-A andF-A Satellite, E-MandSatellite, andFO gas fields. Gas Fields inproduction andunderdevelopment comprise the Jubilee(2.73%), Oribi(100%)andOryx oilfields. Oil Proved 3. Fields inproduction 2. At beginningoftheyear 1. Fields inproduction andunderdevelopment Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 142

| Reserves by category Proved andprobable reserves by type offield Movement innetremaining proved andprobable reserves PetroSA Integrated Annual Report 2019 condensate Crude oil/ MMbbls 18.59 16.79 16.79 16.79 (2.10) 0.30 9.50 2019 – 40.30 (22.15) Gas Bscf 76.87 64.12 64.12 64.12 0.80 8.60 2019 condensate Crude oil/ MMbbls 18.59 18.59 18.59 16.65 11.00 (1.97) 3.91 2018 – (26.07) Gas Bscf 76.87 76.87 76.87 97.57 (0.73) 37.51 6.10 2018 Definition of financial terms

Below is a list of definitions of financial terms used in the annual report of PetroSA SOC Limited and the Group:

Accounting policies The specific principles, bases, conventions, rules and practices applied in preparing and presenting annual financial statements.

Accrual accounting The effects of transactions and other events are recognised when they occur rather than when the cash is received.

Acquiree The business or businesses that the acquirer obtains control of in a business combination.

Acquirer The entity that obtains control of the acquiree.

Acquisition date The date on which the acquirer obtains control of the acquiree.

Active market A market in which transactions relating to an asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Actuarial gains and losses The changes in the present value of the defined-benefit obligation resulting from experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial assumptions.

Amortisation (depreciation) The systematic allocation of the depreciable amount of an asset over its useful life.

Amortised cost The amount at which a financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective-interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectability.

Asset A resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow.

Assets under construction A non-current asset which includes expenditure capitalised for work-in-progress in respect of activities to develop, expand or enhance items of property, plant and equipment, intangible assets and exploration assets.

Borrowing costs Interest and other costs incurred in connection with the borrowing of funds.

Business An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members or participants.

The supplementary information presented does not form part of the consolidated and separate annual financial statements and is unaudited.

PetroSA Integrated Annual Report 2019 | 143 Financial Performance reliability. benefits willberequired to settletheobligation, ortheamountofobligation cannotbemeasured withsufficient arises from pastevents butisnotrecognised becauseitisnotprobable thatan outflow ofresources embodyingeconomic occurrence ofoneormore uncertainfuture events notwhollywithinthecontrol oftheentity, orapresent obligation that A possible obligation that arises from pastevents andwhoseexistence willbeconfirmed onlyby theoccurrence or non- Contingent liability occurrence ofoneormore uncertain future events notwhollywithinthecontrol oftheentity. A possible asset thatarisesfrom pastevents andwhoseexistence willbeconfirmed onlyby theoccurrence ornon- Contingent asset (b) (a) An obligation thatderives from anentity’s actionswhere: Constructive obligation parent anditssubsidiariesare presented asthoseofasingleeconomic entity. The annualfinancialstatements ofagroup inwhichtheassets, liabilities,equity, income, expenses andcashflows ofthe Consolidated annualfinancialstatements not corrections oferrors. and liabilities.Changes inaccounting estimates result from new information ornew developments and, accordingly, are results from theassessment ofthepresent statusof, andexpected future benefitsandobligations associated with,assets An adjustmentto thecarryingamountofanasset, liability ortheamountofperiodicconsumption ofanasset that Change inaccounting estimate from otherassets orgroups ofassets. The smallestidentifiablegroup ofassets thatgenerates cashinflows thatare largely independentofthecashinflows Cash-generating unit Inflows andoutflows ofcashand equivalents. Cash flows readily convertible to known amountsofcashandthatare subjectto aninsignificantriskofchanges invalue. Cash comprises cashonhandanddemanddeposits.Cashequivalents are short-term, highlyliquidinvestments thatare Cash andcashequivalents impairment losses. The amountatwhichanasset isrecognised deductingany after accumulated depreciation andaccumulated oramortisation Carrying amount referred mergers’ to as‘true or‘mergers ofequals’are alsobusiness combinations asthatterm isusedintheIFRS. A transaction orotherevent inwhichanacquirer obtainscontrol ofoneormore businesses. Transactions sometimes Business combination Definition offinancialterms (continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 144 The supplementary information presented doesnot formoftheconsolidated part andseparate annual financialstatements andisunaudited.

| responsibilities. As aresult, theentity hascreated avalid thatitwilldischarge ofthoseotherparties expectation those onthepart that itwillaccepthas indicated to otherparties certainresponsibilities; and By an established pattern of past practice, published policies or a sufficiently specific current statement, theentity PetroSA Integrated Annual Report 2019 Control An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Corporate assets Assets other than goodwill that contribute to the future cash flows of both the cash-generating unit under review and other cash-generating units.

Cost The amount of cash or cash equivalents paid, or the fair value of the other consideration given, to acquire an asset at the time of its acquisition or construction, or, when applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRS.

Costs to sell The incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.

Credit risk The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Currency risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

Date of transaction The date on which the transaction first qualifies for recognition in accordance with IFRS.

Deferred tax assets The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses, and the carry forward of unused tax credits.

Deferred tax liabilities The amounts of income taxes payable in future periods in respect of taxable temporary differences.

Defined-benefit plans Retirement benefit plans under which amounts to be paid as retirement benefits are determined by reference to a formula usually based on employees’ earnings and/or years of service.

Defined-contribution plan Post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in current and prior periods.

Depreciation (or amortisation) The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset, or other amount substituted for cost, less its residual value.

Derecognition The removal of a previously recognised asset or liability from the statement of financial position.

Derivative A financial instrument whose value changes in response to an underlying item, requires no initial, or little net, investment in relation to other types of contracts that would be expected to have a similar response to changes in market factors, and is settled at a future date.

Development The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before starting commercial production or use.

The supplementary information presented does not form part of the consolidated and separate annual financial statements and is unaudited.

PetroSA Integrated Annual Report 2019 | 145 Financial Performance knowledgeable, less thecosts willingparties, ofdisposal. The amountobtainablefrom thesaleof anasset orcash-generating unitinanarm’s transaction length between Fair value less costs to sell between knowledgeable, inanarm’s willingparties transaction. length The amountfor whichanasset could beexchanged, aliability settled,oranequity instrumentgranted could beexchanged Fair value in decreases inequity, otherthanthoserelating to distributionsto equity participants. The decreases ineconomic benefitsintheform ofoutflows ordepletionsofassets orincurrences ofliabilitiesthatresult Expenses exchange rates. The difference resulting from translating agiven numberofunitsonecurrency into anothercurrency atdifferent Exchange difference (b) (a) financial statements are authorisedfor issue. Two types ofevents canbeidentified: Those events, favourable andunfavourable, thatoccur between theendofreporting periodandthedate whenthe Events thereporting after period(subsequent events) comprehensive income oftheinvestee. in theshare ofnetassets oftheinvestee. Profit orloss includestheinvestor’s share oftheprofit orloss andother A methodinwhichtheinvestment isinitiallyrecognised atcost andadjusted thereafter for thepost-acquisition change Equity method A contract orcertificate thatevidences aresidual interest inthetotal deductingthetotal assets liabilities. after Equity instrument employees orfor thetermination ofemployment. All forms ofconsideration (excluding share optionsgranted to employees) given inexchange for services rendered by Employee benefits instrument, or, whenappropriate, period,to thenetcarryingamountoffinancialasset ashorter orfinancialliability. The rate thatexactly discounts estimated future cashpayments orreceipts through theexpected life ofthefinancial Effective interest rate financial liabilities) andofallocatingtheinterest income orinterest expense over therelevant period. costA methodofcalculatingtheamortised afinancialasset orafinancialliability (or group offinancialassets or Effective-interest rate method Definition offinancialterms (continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 146 The supplementary information presented doesnot formoftheconsolidated part andseparate annual financialstatements andisunaudited.

| period). Those that are indicative ofconditions that arose the reporting after period (non-adjusting events the reporting after reporting period);and Those thatprovide evidence ofconditions thatexisted attheendofreporting period(adjustingevents the after PetroSA Integrated Annual Report 2019 Financial asset Any asset that is:

(a) Cash; (b) An equity instrument of another entity; (c) A contractual right (i) to receive cash or another financial asset from another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or

(d) A contract that will or may be settled in the entity’s own equity instruments and is (i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or (ii) a derivative that will or may be settled, other than by the exchange of a fixed amount of cash or another financial asset, for a fixed number of the entity’s own equity instruments. For this purpose, the entity’s own equity instruments do not include puttable financial instruments classified as equity instruments in accordance with paragraphs 16A and 16B of IAS 32, instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation and are classified as equity instruments in accordance with paragraphs 16C and 16D of IAS 32, or instruments that are contracts for the future receipt or delivery of the entity’s own equity instruments.

Financial asset or liability at fair value through profit or loss A financial asset or financial liability that is classified as held for trading or is designated as such on initial recognition, other than investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured.

Financial instrument A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial liability Any liability that is:

(a) A contractual obligation (i) to deliver cash or another financial asset to another entity, or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or (b) A contract that will or may be settled in the entity’s own equity instruments and is (i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. Also, for these purposes, the entity’s own equity instruments do not include puttable financial instruments that are classified as equity instruments in accordance with paragraphs 16A and 16B of IAS 32, instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation and are classified as equity instruments in accordance with paragraphs 16C and 16D of IAS 32, or instruments that are contracts for the future receipt or delivery of the entity’s own equity instruments.

As an exception, an instrument that meets the definition of a financial liability is classified as an equity instrument if it has all the features and meets the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D of IAS 32.

Financial risk The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided, in the case of a non-financial variable, that the variable is not specific to a party to the contract.

Floating production storage and offloading (FPSO) unit A floating vessel used by the offshore oil and gas industry for the production and processing of hydrocarbons and for the storage of oil.

Foreign operation An entity that is a subsidiary, joint arrangement or branch of the reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.

Functional currency The currency of the primary economic environment in which the Group operates.

The supplementary information presented does not form part of the consolidated and separate annual financial statements and is unaudited.

PetroSA Integrated Annual Report 2019 | 147 Financial Performance interest rates. The riskthatthefair value orfuture cashflows ofafinancialinstrumentwill fluctuate becauseofchanges inmarket Interest rate risk interest inanotherentity solelybecauseofatypical customer–supplier relationship. entity hascontrol orjointcontrol of, orsignificantinfluence over, anotherentity. An entity doesnotnecessarily have an as theprovision offunding,liquidity credit support, enhancement andguarantees. Itincludesthemeansby whichan evidenced by, butisnotlimited to, theholdingofequity ordebtinstruments aswell asotherforms ofinvolvement such exposes anentity to variability ofreturns from theperformance ofthe other entity. Aninterest inanotherentity canbe For thepurposeofIFRS12,aninterest inanotherentity refers to contractual andnon-contractual involvement that Interest inotherentity increases inequity, otherthanthoserelating to contributions from equity participants. Increase in economic benefits in the form of inflows or enhancements of assets or decreases in liabilities that result in Income Applying arequirement isimpracticable whentheentity makingevery cannotapplyitafter reasonable effortto doso. Impracticable The amountby whichthecarryingamountofanasset oracash-generating unitexceeds itsrecoverable amount. Impairment loss statements. If individuallyorcollectively itwould notinfluence theeconomic decisionsoftheprimaryusers oftheannualfinancial Immaterial and liabilities(e.g. abusiness) withinwhichtheasset would beused. The useofanon-financial asset by market thatwould participants maximisethevalue oftheasset orthegroup ofassets Highest andbestuse (c) (b) (a) and ability to holditto maturity, otherthan: A non-derivative financialasset withfixed ordeterminable payments andfixed maturity where there isapositive intention Held-to-maturity investment from thenormaltrading transactions oftheentity. which cannotreasonably have avalue placed onthemandtransactions withgovernment which cannotbedistinguished certain conditions relating to theoperating activitiesoftheentity. They exclude thoseforms ofgovernment assistance Assistance by government intheform oftransfers ofresources to anentity inreturn for pastorfuture compliance with Government grants alternative butto doso. on agoing-concern basisunless Management eitherintends to liquidate theentity orto cease trading, orhasnorealistic The assumption thattheentity willcontinue inoperation for theforeseeable future. The financialstatements are prepared Going-concern basis Definition offinancialterms (continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 148 The supplementary information presented doesnot formoftheconsolidated part andseparate annual financialstatements andisunaudited.

| Those thatmeetthedefinitionofloansandreceivables. Those thattheentity designates asavailable-for-sale; and Those thattheentity uponinitialrecognition designates asatfair value through profit orloss; PetroSA Integrated Annual Report 2019 Joint arrangement An arrangement in terms of which two or more parties have joint control, which is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Joint operation A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

Joint venture A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Key management personnel Those persons having authority and responsibility for planning, directing and controlling the activities of the entity, that is, the members of the Board of Directors of PetroSA and, within the individual companies, the Board of Directors and Executive Management committees.

Lease An agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time.

Legal obligation An obligation that derives from a contract, legislation or other operation of law.

Liability A present obligation of the entity arising from a past event, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Liquidity risk The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

(a) Those that the entity intends to sell immediately or in the near term, which shall be classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) Those that the entity upon initial recognition designates as available-for-sale; or (c) Those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, which shall be classified as available for sale.

Market risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.

Minimum lease payments Payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, including, in the case of a lessee, any amounts guaranteed by the lessee or by a party related to the lessee or, in the case of a lessor, any residual value guaranteed to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.

Net assets Net operating assets plus cash and cash equivalents.

The supplementary information presented does not form part of the consolidated and separate annual financial statements and is unaudited.

PetroSA Integrated Annual Report 2019 | 149 Financial Performance • • Proved andprobable reserves or recognising theeffect ofthechange inanaccounting estimate inthecurrent andfuture periods. Applying anew accounting policyto transactions, otherevents, andconditions occurring thedate thepolicychanged after Prospective application of thoseannualfinancialstatements. authorised for issue and could reasonably be expected to have been obtainedandtaken into account in the preparation to use,oramisuseof, reliable information thatwas available whenannualfinancialstatements for thoseperiodswere An omission from, ormisstatement in,theannualfinancialstatements for oneormore priorperiodsarisingfrom afailure Prior-period error The currency inwhichtheannualfinancialstatements are presented. Presentation currency Employee benefits(other thantermination benefits) thatare payable thecompletion after ofemployment. Post-employment benefits reduction by theentity inthenumberofemployees covered by theplan). plan amendment(introduction orwithdrawal of, orchanges to, (asignificant adefined-benefitplan)orcurtailment The change inthepresent value of the defined-benefit obligation for employee service inpriorperiodsresulting from a Past service cost An entity thatcontrols oneormore entities. Parent or for administrative purposes. Property heldby theowner orby thelessee underafinance leasefor useintheproduction orsupply ofgoods orservices Owner-occupied property in revaluation reserves. and includestheeffect oftranslation offoreign operations, cashflow hedges, available-for-sale financialassets andchanges Comprises items ofincome andexpense (includingreclassification adjustments) thatare notrecognised inprofit orloss Other comprehensive income A leasewhere thelessor retains substantiallyalltherisks andrewards incidentalto ownership ofanasset. Operating lease value, whilethelatter isnot.Netrealisable value for inventories may notequalfair value less costs to sell. exchanged between knowledgeable andwillingbuyers andsellers inthemarketplace. The former isanentity-specific sale ofinventory intheordinary course ofbusiness. Fair value reflects theamountfor whichthesameinventory could be costs necessary to make thesale.Netrealisable value refers to thenetamountthatanentity expects to realise from the The estimated sellingprice intheordinary course ofbusiness less theestimated costs ofcompletion andtheestimated Net realisable value Definition offinancialterms (continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 150 The supplementary information presented doesnot formoftheconsolidated part andseparate annual financialstatements andisunaudited. Means proved reserves plustheamountofpetroleum whichgeophysical, geological andengineeringdataindicate remaining. accumulations from a given date forward under the following conditions: discovered, recoverable, commercial and Proved andprobable reserves are quantitiesofpetroleum anticipated to becommercially recoverable from known probable anda50%chance thatitwillbeless. this definition,there is a50%chance thattheactual quantity willbemore thantheamount estimated asproved and to becommercially recoverable but with agreater elementofriskthaninthecaseproved. For the purposesof

| PetroSA Integrated Annual Report 2019

Proved reserves • Quantities of petroleum anticipated to be commercially recoverable from known accumulations from a given date forward under the following conditions: discovered, recoverable, commercial and remaining. • Means the amount of petroleum which geophysical, geological and engineering data indicate to be commercially recoverable to a high degree of certainty. For the purposes of this definition, there is a 90% chance that the actual quantity will be more than the amount estimated as proved and a 10% chance that it will be less.

Recoverable amount The amount that reflects the greater of the fair value less costs to sell and the value in use that can be attributed to an asset or cash-generating unit as a result of its ongoing use by the entity. In determining the value in use, expected future cash flows to be derived from the asset or cash-generating unit are discounted to their present values using an appropriate discount rate.

Related party A person or entity that is related to the entity that is preparing its financial statements.

(a) A person or a close member of that person’s family is related to a reporting entity if that person: • Has control or joint control over the reporting entity; • Has significant influence over the reporting entity; or • Is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

(b) An entity is related to a reporting entity if any of the following conditions applies: • The entity and the reporting entity are members of the same group. • One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). • Both entities are joint ventures of the same third party. • One entity is a joint venture of a third entity and the other entity is an associate of the third entity. • The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. • The entity is controlled or jointly controlled by a person identified in (a). • A person identified in (a) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). • The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.

Research The original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.

Reserves under appraisal Comprise quantities of petroleum which are considered, on the basis of information currently available and current economic forecasts, to be commercially recoverable by present producing methods from fields that have been discovered but which require further appraisal prior to commerciality being established.

Residual value The estimated amount which an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Restructuring A programme that is planned and controlled by Management, and materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted.

Retrospective restatement Correcting the recognition, measurement and disclosure of amounts as if a prior-period error had never occurred.

Applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.

Tax base The tax base of an asset is the amount that is deductible for tax purposes if the economic benefits from the asset are taxable or is the carrying amount of the asset if the economic benefits are not taxable. The tax base of a liability is the carrying amount of the liability less the amount deductible in respect of that liability in future periods. The tax base of revenue received in advance is the carrying amount less any amount of the revenue that will not be taxed in future periods.

The supplementary information presented does not form part of the consolidated and separate annual financial statements and is unaudited.

PetroSA Integrated Annual Report 2019 | 151 Financial Performance disposal attheendofitsusefullife. The present value ofestimated future cashflows expected to arisefrom thecontinuing useofanasset and from its Value inuse to beobtainedfrom theasset. The periodover whichanasset isexpected to beavailable for useorthenumberofproduction orsimilarunitsexpected Useful life that is,thosewould nothave beenincurred iftheentity hadnotacquired, issued ordisposedofthefinancialinstrument. Incremental costs thatare directly attributableto theacquisition, issue ordisposalofafinancialasset orfinancialliability, Transaction costs The differences between thecarryingamountofanasset orliability anditstaxbase. Temporary differences Definition offinancialterms (continued) Consolidated andseparate annualfinancialstatements for theyear ended31March 2019 The Petroleum OilandGasCorporation ofSouthAfrica SOC Limited 152 The supplementary information presented doesnot formoftheconsolidated part andseparate annual financialstatements andisunaudited.

| PetroSA Integrated Annual Report 2019 www.petrosa.co.za