Southern Africa gas explorer and developer Sunbird Energy Ltd (ASX:SNY) is pleased to announce results from independent studies that evaluated options to develop the Ibhubesi Gas Project (SNY 76%), offshore South Africa. The studies confirmed that Sunbird’s planned development of Ibhubesi’s 1P Reserves of 210 Bcf is viable.
Independent Studies of the Ibhubesi Gas Field
Sunbird has received the final reports from consultants engaged to complete the independent studies ofthe Ibhubesi Gas Project, which consisted ofthe following deliverables:
• Subsurface geological studies to evaluate and certify reserves completed by MHA Petroleum Consultants(“MHA), based in Denver, Colorado
• Resource review and subsurface development options study to determine production profiles completed by RPS Energy (“RPS”), based in London
• Surface facilitiesstudy to determine engineering designs and project costs completed by Wood Group Kenny (“WG Kenny”), based in Houston, Texas
• Environmental pre-scoping assessment to collect and analyse existing biophysical and socio-economic information completed by CCA Environmental (“CCA”), based in Cape Town
• Review of gas marketing opportunities, energy pricing structures and project economics completed by Standard Bank, based in Johannesburg
Independent Reserves Assessment
On 4 June 2013, Sunbird announced the completion of MHA’s Independent Reserves Assessment of the Ibhubesi Gas Project resulting in proven 1P Reserves of 210 Bcf and 2P Reserves of 540 Bcf. In conducting its assessment, MHA reviewed all available technical and commercial data for the field including interpretation of the large seismic database, discovery well logs and analysis, production tests, the field development plan and integrated project costs.
The 1P Reserves are considered to be of high certainty of recovery (P90) and underpin Phase 1 of the Ibhubesi Gas Project development plan. The 2P reserves represent the most likely (P50) recoverable volume from existing discoveries and indicate significant potential for the Phase 2 project expansion.
In estimating the reserves, MHA has considered only the geological structures that relate to the wells that have discovered gas. Seven of a total 11 wells drilled in the Ibhubesi Gas Project area have encountered gas, suggesting that the Phase 1 production drilling programme will increase understanding of reservoir performance and should enable the upgrading of 2P/3P reserves to 1P, leading to an extension and/or expansion for the Phase 2 project.
Subsurface Development and Production Profile
The subsurface development options study completed by RPS determined the flow profiles that can be generated based on the production test results and a review of the reservoir characteristics. Based on the high quality reservoirs, with porosities ranging from 16-25% and permeability averaging 100mD and up to 400mD, the RPS study estimated that an average well could produce in excess of 50 MMscf/d, with tubing size being the limiting factor on production rates.
Importantly, the 210 Bcf 1P reserves are contained within 4 sand bodies that can be accessed by 4 to 9 wells to produce the P90 drainage area. Based on these reserves and production rates, the Phase 1 development is capable of delivering the following production plateaus:
• 40 MMscf/d (14.15 Bcf/year) for 12 years
• 80 MMscf/d (28.3 Bcf/year) for 6 years
The 2P reserves of 540 Bcf represent the most likely recoverable volume for the project and provide significant Phase 2 extension and/or expansion opportunitiesfor the project.
Reference Case Development Concept
Based on the discovered reserves and the requirements of potential offtakers, WG Kenny undertook an independent study to determine potential development conceptstogether with related cost estimates.
Phase 1 of the Reference Case development concept includes the drilling of production wells to be tied back to a central Tension Leg Platform (“TLP”) with a 400km export pipeline to Atlantis 50km north of Cape Town. This development concept would enable access to both the Ankerlig Power Plant and independent power plant (“IPP”)markets.
The WG Kenny report estimated total capital expenditure for the Phase 1 Reference Case of between $1.2 – 1.4 billion at a +/- 40% accuracy. Phase 2 development utilising 2P reserves (540 Bcf) is able to leverage this upstream and pipeline infrastructure to extend and expand production from the field.
Environmental Assessment and Approvals
A range of Environmental Impact Assessment (“EIA”) approvals were obtained as part of the licensing process for the award of the Block 2A Production Licence in October 2009, which cover the upstream component of the planned Phase 1 Reference Case. Additional EIA approvals and/or modifications to the existing approvals will be required for the 400km pipeline and onshore gas processing facility.
Independent Economic Modelling
Based on economic modelling completed by Standard Bank, utilising WG Kenny’s Reference Case development concept and related costs, plateau production of 6-8 years and a gas price of US$14-18/Gj, the Phase 1 Reference Case would be economically attractive and meet investment criteria necessary to attract project financing.
Based on advice from Standard Bank and Sunbird’s Australian corporate finance advisors, with a bankable gas sales agreement, it is expected that a Phase 1 development of the Ibhubesi Gas Project will be viewed as an attractive opportunity by banks and equity and strategic investors.
In addition, leveraging the Phase 1 infrastructure to extend and/or expand the Ibhubesi Gas Project utilising existing 2P/3P reserves providessignificant economic upside for the Phase 2 expansion.
Gas Marketing Opportunities
The market assessment that was completed as part of the studies highlighted two specific market opportunities:
• Eskom is currently seeking to secure gas supply commencing from 2016 for the 1,300 MW Ankerlig Power Plant at Atlantis, 50km north of Cape Town.
• South Africa’s Department of Energy is currently running a process for procuring gasfired IPP’s as part of its initiatives to increase supply, with 474 MW of IPP gas-topower expected to be gazetted by Q4 2013.
Ibhubesi gas marketing discussions relating to these opportunities are progressing.
The studies also highlighted that the development of the Ibhubesi Gas Project would provide South Africa with critical gas fired power generation capacity at an economically competitive tariff and offset current high cost diesel imports.
Development of a known domestic energy resource would create a new industry in South Africa and provide local energy supply to South Africa’s west coast, increasing mid-merit and peaking power capacity and alleviating power shortages. Additionally, development would provide significant government revenues throughout the life of the project through royalties, corporate taxes and state participation.
With the completion of these independent studies of the Ibhubesi Gas Project, Sunbird will now advance to the next stage of the geological, engineering and environmental studies required to prepare an Integrated Full Field Development Plan (“FDP”).
The FDP will define the final well designs, locations and scheduling,the engineering designs of the necessary gas processing facilities and the optimal export pipeline size and route, which will form the basis of the Front End Engineering and Design (“FEED”) studies. Based on the current schedule, this would enable a Final Investment Decision (“FID”) to be taken in the first half of 2015.
Having made significant progress on the project since executing the transaction in December 2012, Sunbird Managing Director Will Barker said:
“The positive results from these independent studies of the Ibhubesi gas field demonstrate the commercial merits of a Phase 1 development and its ability to attract significant project financing and equity investment. This puts us in a strong position to advance gas sales negotiations and commit reserves for development.
“By continuing to meet major project milestones, Sunbird’s is unlocking the huge value of its existing reserves base.”