Name and Location
Ibhubesi gas project, offshore Northern Cape, South Africa.

Client
Sunbird Energy has acquired 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 enables the ASX-listed company to operate and develop Ibhubesi with South Africa’s national oil company, PetroSA, which will hold the remaining 24%.

Project Description
An independent reserves certification of the Ibhubesi gas project has yielded proven and probable reserves of 540 billion cubic feet (bcf), with Phase 1 designed to exploit proven reserves of 210 bcf to produce 28.3 bcf a year of gas over an initial six- to eight-year horizon.

The technical assessment confirms that the planned Phase 1 development can be achieved without the need for further exploration or appraisal drilling.

Should additional resources be strengthened, the project’s life could be extended to beyond 15 years and into Phase 2.

Value
The initial phase of the project could involve an investment of between R12-billion and R14-billion.

Duration
A final investment decision is expected in 2015, with first gas planned for 2017.

Latest Developments
Sunbird expects to conclude a sales memorandum of understanding (MoU) with power utility Eskom before the end of the year, which could open the way for a future supply agreement that facilitates the development of the Ibhubesi gas project and enables the Ankerlig power plant to convert its fuel source from diesel to gas by 2018.

Sunbird Energy MD Will Barker describes the MoU as a key milestone for advancing the initial phase of project, which will comprise five production wells tied to an offshore facility and a 400 km pipeline from Ibhubesi to the Ankerlig site, in Atlantis, with a possible spin-off line to Saldanha Bay.

The aim is to progress commercial negotiations with Eskom to the point of a firm sales agreement during the course of 2014, which will enable it and its project partner, PetroSA, to make a final investment decision by early 2015.

Should it proceed, the Ankerlig conversion will help Eskom lower its fuel costs and enable it to begin operating five of the plant’s nine turbines on a so-called midmerit basis, equivalent to 15 hours a day for five days a week. For this, it would require 35-billion cubic feet (bcf) of gas a year.

Barker says the gas will be supplied at a cost of between $12/GJ and $15/GJ, significantly lower than the $22/GJ to $25/GJ that Eskom currently pays to operate the plant on imported diesel.

Nevertheless, critics suggest that Ibhubesi gas remains materially more expensive than imported alternatives, which are being considered by potential independent power producers (IPP). For instance, ArcelorMittal South Africa is considering an offtake agreement with an IPP, aiming to produce electricity on its Saldanha Steel site using compressed natural gas imported from Angola.

However, Barker says this notion does not include full cost-to-country view of the benefits of exploiting domestic resources instead of importing gas. These benefits, he says, range from lower currency, commodity risks, and to domestic tax, to royalty payments and job creation.

Eskom is working on several schemes to convert the Ankerlig and Gourikwa power plants from using diesel to gas to lower primary energy costs and increase coastal capacity. Diesel has become an increasingly large portion of its primary energy bill since the plants were developed in response to South Africa’s rapidly deteriorating supply/demand balance in recent years.

Besides its negotiations with Sunbird Energy, Eskom has issued a request for information for the supply and delivery of conventional or unconventional gas to Ankerlig and is supporting PetroSA in its study of a liquefied natural gas (LNG) import terminal, in Mossel Bay. Should the LNG project proceed, the imported gas would be shared between PetroSA’s gas-to-liquids refinery and Eskom’s Gourikwa power plant.

In 2012/13, the cost of operating the open-cycle gas turbine (OCGT) plants at Ankerlig and Gourikwa increase by more than 200% to about R3.6-billion as the utility employed the plants for longer periods to meet peak demand and create space for higher levels of planned maintenance.

Barker estimates that Eskom currently consumes more than 609-million litres of diesel, which accounts for about 8% of its primary energy costs. By contrast, the OCGT plants provide less than one percent of South Africa’s electricity.

He argues that the Ibhubesi infrastructure could also potentially be made available to third parties, noting that several other energy groups are exploring in blocks in relatively close proximity to its 5 000 km2 licence area.

Barker is also optimistic that more gas will be discovered within its licence area, noting that exploration campaigns have yielded proven and probable reserves of 540 bcf, and proven reserves of 210 bcf.

Besides the sales agreement with Eskom, Sunbird Energy is also preparing the project for the front-end engineering design (Feed) phase, with an engineering consultant likely to be appointed early in 2014. The Feed phase is expected to continue for most of next year and, should offtake agreements be secured, a 30-month construction phase could begin in 2015. In terms of the current schedule, first gas could flow by late 2017.

Eskom has said it cannot comment on an ongoing commericial matter.

Key Contracts and Suppliers
MHA Petroleum Consultants (field development plan) and WGK (engineering and project management services).

On Budget and on Time?
Not stated.

Contact Details for Project Information
Sunbird Energy, tel +61 8 9463 3260 or fax +61 8 9462 6630.
PetroSA group communications manager Thabo Mabaso, tel +27 21 929 3365 or email thabo.mabaso@petrosa.co.za.
MHA Petroleum Consultants, tel + 303 277 0270 or fax +1 303 277 0267.
WGK director, corporate communications – eastern hemisphere, Carolyn Smith, tel +44 1224 851099 or email carolyn.smith@woodgroup.com.