JOHANNESBURG - The Strategic Fuel Fund (SFF) gifted international oil firms Taleveras, Vitol and Venus $350 million (R5.06 billion) in combined profits through the controversial sale of South Africa’s strategic oil reserves in 2015 at $28 a barrel.
A report by international law firm Allen and Overy in September showed that Taleveras bought 4 million barrels of crude while Vitol and Venus each bought 3 million barrels.
Taleveras, according to the current average spot price of $63 a barrel is set to score a profit of at least $140m, while Vitol and Venus each get a profit of no less than $105m.
Inside sources have revealed that frantic efforts are being made by traders to have the crude oil removed from the Saldanha Bay Storage Terminus (SBST) by next month.
It is worth noting that should this deal not have been made the SFF would be worth more than $600m based on the value of the crude it would have in its strategic reserves.
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The Vitol deal
On January 18, 2016, Vesquin/Vitol entered into a crude oil sale and purchase agreement with the SFF where the SFF agreed to sell 3 million barrels of blended sour crude stored in Tank 2 at the SBST.
The report states that the Vesquin/Vitol agreement with the SFF “appears to be a once-off sale and purchase”. The only restriction is that the crude oil supplied under this agreement may not be resold or supplied, directly or indirectly, to any country, territory or company where such resale of supply would constitute a violation of the laws and rules of South Africa.
Vitol granted SFF the right of first refusal for any unsold barrels stored in Tank 2. This option can only be exercised if the Energy Minister has declared an event of supply emergency and after the depletion of other quantities of strategic oil held by the SFF.
The Taleveras deal
On December 28, 2015, Taleveras entered into a crude oil sale and purchase agreement with the SFF where the SFF agreed to buy 4 million barrels of crude oil equivalent blend acceptable for storage in Tank 1 at the Saldanha Bay Storage Terminus.
No further detail relating to the crude oil specification is provided.
On the same day, the companies entered into another agreement where the SFF agreed to sell 2 million barrels of Barsa equivalent, then stored in Tank 2 at SBST. SFF and Taleveras also entered into a third agreement on that day where SFF agreed to sell 2 million barrels of Bonny Light crude oil stored in Tank 6 at the SBST. Both appeared to be a once-off supply agreement.
For both agreements, SFF has first right of refusal to the product bought by Taleveras if the commodity is still stored in the tank. However, there is no purchase price set for this purported buyback, which Allen and Overy said could potentially affect is validity. Notably, the exercise of the right is not only dependent on SFF determining that there is a shortage of crude oil in South Africa but also that Taleveras must also be willing to sell. The report states that a proper option would be one that entitles SFF to require Taleveras to sell to it upon SFF determining that there is a shortage of crude oil in South Africa.
Allen and Overy said the Taleveras contracts initially appeared to be structured as a rotation of fuel stock, “however, a novation agreement rescinds a purchase by SFF of 4 million barrels of crude oil from Taleveras, leading us to the conclusion that the arrangement with Taleveras also amounted to a disposal”.
The Venus deal
On December 15, 2015, Venus entered into a crude oil sale and purchase agreement with the SFF where the SFF agreed to sell 3 million barrels of Bonny Light crude then stored in Tank 6 at SBST.
The agreement contained “conditions precedent” and it is not clear when these “conditions precedent” were fulfilled. Delivery of the crude oil was contemplated to take place on January 1, 2016, and according to the report, this appears to be a one-off agreement.
Venus acknowledged that the crude oil it was buying was strategic reserves for the government for strategic needs.
“As such should there be, at any time before the lifting of the product from the tank, a shortage or emergency situation threatening security of supply and the stock is required for strategic reasons, SFF shall have the option to buy back the crude oil from Venus at a price to be agreed between the parties.”
However, no purchase price is found in the agreement for the buy-back option, yet the agreement provides for the purchase price to be agreed to by the parties.