Gas exploration and development company Sunbird Energy, of Australia, expects to make a final investment decision in early 2015 on the development of the Ibhubesi gas project, off South Africa’s West Coast.
Located 380 km north of Cape Town and 105 km offshore, the initial phase of the project could involve an investment of between R12-billion and R14-billion to produce 28.3-billion cubic feet (Bcf) of gas yearly over an initial six to eight year horizon.
A total of $120-million has been spent since 2000 to explore what is described as South Africa’s largest undeveloped gas field – campaigns that have yielded proven and probable reserves of 540 Bcf, with Phase 1 designed to exploit proven reserves of 210 Bcf.
Sunbird Energy is currently in the process of acquiring a 76% interest in the production right for Block 2A, within which the Ibhubesi gas project is located, from Forest Oil and Anschutz Corporation.
The acquisition, which is subject to approvals by the Petroleum Agency of South Africa and the Department of Mineral Resources, will give the ASX-listed company the right to operate and develop Ibhubesi together with South Africa’s national oil company PetroSA, which will hold the remaining 24%.
Sunbird Energy MD Will Barker believes the project could also provide something of an answer to ongoing calls for the introduction of higher levels of gas into South Africa’s coal-heavy electricity generation mix.
He tells Engineering News Online that the company sees immediate potential to supply Eskom’s Ankerlig peaking power station, in Atlantis, which is currently fuelled by expensive imported diesel.
At an estimated delivered gas price of between $14/GJ and $18/GJ, Sunbird Energy believes the domestically produced feedstock will be materially more cost effective for Ankerlig than the $22/GJ to $25/GJ Eskom is currently estimated to be paying for diesel.
In addition, the company believes there is potential to supply independent power producers that could develop power plants in Saldanha Bay and bid for a slice of the 2 600 MW of gas-fired generation that the Department of Energy intends procuring in the coming year.
“The Phase 1 development concept includes the drilling of production wells to be tied back to a central processing facility with a 400 km export pipeline capable of delivering gas to sales points at Saldanha and Atlantis north of Cape Town,” Barker outlines, explaining that the investment will include all infrastructure from the wells to the pipeline and delivery to an onshore power plant.
Phase 1 would be based on the exploitation of the proven reserves of 210 Bcf over a six to eight-year production period, but Barker is confident that additional resources will be firmed up, which could extend the project’s life to beyond 15 years and into Phase 2.
“With the high success rate of drilling to date – seven commercial discoveries from 11 wells in Block 2A – and an extensive data set of high quality 3D and 2D seismic, additional exploration targets within the licence contain a prospective resource of over 8-trillion cubic feet of gas. This provides huge exploration potential within the large 5 000 km2 production right,” Barker enthuses.
Besides finalising the acquisition, Sunbird Energy also plans to prepare the project for front-end engineering design (FEED) before the end of the year.
The company is currently finalising the development concept, field development plan and a FEED contracting strategy and it plans to seek expressions of interest before the end of the year. “We anticipate that the FEED could be completed within a 9- to 12-month period allowing us to consider our final investment decision in early 2015.”
The company expects that the FEED phase will involve an investment of between R100- to R150-million, depending on the scope of work.
Sunbird, together with PetroSA, is currently funding all costs in advance of the project passing the investment threshold, but its funding plan for the actual project is still being finalised. Initial modelling indicates the project will be able to support a debt-to-equity ratio of up to 70:30, Barker says.
On Friday, US Charge d’Affaires in South Africa, Catherine Hill-Herndon, and Sunbird Energy chairperson, Kerwin Rana, signed an agreement for a US Trade and Development Agency (USTDA) grant to support the development of the Ibhubesi offshore gas field.
The grant, the USTDA says, will help fund a sub-surface development plan, which will help define the engineering requirements and complete an environmental-impact assessment and commercial analysis for the project. Sunbird Energy has selected MHA Associates, of Denver, Colorado, in the US, to carry out the study.
“This project not only supports President [Barack] Obama’s Climate Action Plan, but also South Africa’s Integrated Resource Plan 2010, which calls for the expansion of gas-fired power generation from 2% to 11% of the total supply by 2030,” Hill-Herndon enthuses.
For the project itself, Barker says Sunbird intends to fund its working interest of the Phase 1 capital expenditure through a combination of debt and equity, and potentially through the participation of a strategic investment partner, who may farm-in for a working interest in the project given the scale of the development.
The company’s internal studies have also shown that Ibhubesi can deliver domestic gas at rates that are competitive when compared with imported liquefied natural gas.
“Technically Ibhubesi ticks all the boxes already and independent studies support the viability and attractiveness of development and we are ready to bring South African gas into the South African energy market,” Barker concludes.