Name and Location
Ibhubesi gas project (IGP), off the Northern Cape coast, 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
The IGP is located 380 km north of Cape Town, in Block 2A, which is a production right that covers 5 000 km². The undeveloped gasfield – the largest in South Africa – has 1P reserves of 210-billion cubic feet (bcf) and 2P reserves of 540 bcf.

Value
The project could cost between R10-billion and R20-billion to implement.

Duration
A final investment decision is expected in 2015, with first gas planned for 2018.

Latest Developments
Eskom has confirmed that it will enter into commercial negotiations with Sunbird Energy and PetroSA for the supply of indigenous natural gas from the Ibhubesi gasfield.

The utility has confirmed to Engineering News that it has concluded a gas supply agreement (GSA) term sheet with the IGP joint venture (JV), while Sunbird has communicated with shareholders that it is aiming to conclude a 15-year commercial supply agreement before the end of 2015.

A binding GSA, should it be concluded, would create the platform for the IGP JV, together with funding and infrastructure partners, to finance what could be a R10-billion to R20-billion project, comprising production wells, an offshore gas platform, a 400 km pipeline and an onshore gas-processing facility.

Eskom has no intention of investing in the project.

Various environmental and regulatory approvals are being pursued in parallel with the GSA negotiations, which, if concluded before the end of the year, should enable the project to reach financial close either late this year or in 2016. The project will be funded through a combination of equity and debt, but the ratios have not yet been decided.

Eskom says first gas is expected to flow during 2018, by which time the utility will have converted the Ankerlig open-cycle gas turbine (OCGT) plant to a dual-fuel operation, enabling it to use diesel and gas as feedstock.

“Conversion to dual-fuel . . . is planned for implementation during the major plant outages scheduled for between 2016 and 2018,” Eskom has told Engineering News, adding that the conversion will not deliver any additional capacity benefits in addition to the plant’s current 1 300 MW nameplate.

Sunbird Energy executive chairperson Kerwin Rana says the initial aim is to supply six of Ankerlig’s nine turbines with 30 bcf/y of gas for a period of 15 years.

He stresses, though, that the initial GSA is premised on only the 210 bcf of reserves already proved through exploration and appraisal campaigns that have entailed an investment of about R1.2-billion since 2000. These campaigns have focused on only 5% of the 5 000 km2 Ibhubesi production licence area, where proven and probable reserves are currently estimated to total 540 bcf, making it South Africa’s largest proven gasfield.

Sunbird, which acquired the project from Forest Oil in 2014, believes there is a material exploration upside, with its current “best estimate prospective resource” published as 7.8-trilliobn cubic feet. However, various other energy groups have contiguous exploration rights, which could increase the West Coast resource base further, potentially making the IGP a ‘catalyst’ for a larger indigenous offshore gas industry as envisaged by the ocean-economy component of government’s Operation Phakisa.

Rana has even drawn comparisons between the West Coast and Western Australia’s North West Shelf fields, which, since their discovery, have stimulated billions of dollars of investment in gas production, transportation and liquefied natural gas (LNG) export capacity.

The other potential tailwind includes the mandate to Eskom from Cabinet and the war room to convert its expensive diesel-fuelled OCGT operations at Ankerlig and Gourikwa to gas-fuelled operations, with Eskom having controversially spent more than R10-billion in 2013/14 on diesel – a figure that is expected to be repeated during the 2014/15 financial year.

The immediate focus is to conclude the GSA, which will determine the price of the gas, the volumes and the delivery schedule.
Sunbird and Eskom have confirmed that the cost of the gas feedstock will be lower than that of diesel. However, Eskom adds that the extent of the savings and the resulting cost of electricity from the plant will be subject to the outcome of the negotiation process.

A key value proposition is the potential for the gas tariff to be largely rand-denominated, although Sunbird stresses that the level of rand-denominated project debt will determine the extent to which it will be based on the currency. In addition, there are portions of the project, such as the production platform, where the costs are likely to be dollar-denominated.

Eskom says the details of the currency denomination will be finalised during GSA negotiations.

Rana believes that the price will be competitive with LNG imports, which are also being considered for the West Coast to potentially supply Ankerlig, as well as those independent power producers (IPPs) that bid as part of an upcoming procurement programme to be run by government’s IPP Office.

The cost of gas could also fall materially during any subsequent supply phases, as, by then, the pipeline’s costs should have been amortised. However, this will depend principally on whether additional gas reserves can be proven.

The GSA will also need to secure internal Eskom governance and external shareholder and regulatory approvals, including from the National Energy Regulator of South Africa, which could influence timing.

The project, however, is unlikely to be affected by the current uncertainties surrounding the regulatory regime for oil and gas in South Africa, as the Petroleum Agency South Africa had been awarded a 25-year production right on the property in 2009 and recently extended its gas market development period to 2017.

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, fax +61 8 9462 6630 or email info@sunbirdenergy.com.au.
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.