SOUTH AFRICA SEEKS BIDS ON OFFSHORE ACREAGE

South Africa has opened a competitive licensing round in an effort to spur oil and gas development as part of a long term plan to fuel economic growth,

The tender, which opened officially Oct. 5, seeks bids for exploration licenses on 15 offshore tracts covering a combined area of more than 231,000 sq km.

Bid deadline is Apr. 12, 1995, for exploration subleases assigned through Soekor (Pty.) Ltd., Parow, South Africa, a mostly state financed private company formed in 1965 by the Geological Survey of South Africa. Soekor holds the exclusive right to explore for oil and gas off South Africa through June 22, 2007, on the main prospecting lease OP26 issued under provisions of the country's Minerals Act of 1991.

Acreage offered in South Africa's first postapartheid competitive round includes:

Seven blocks in the Outeniqua basin, a 65,000 sq km area off the southern coast between Cape Town and Port Elizabeth, where drilling of 147 wildcats has yielded 17 gas and eight oil discoveries.
Six blocks in the Orange basin, a 130,000 sq km area in the Atlantic Ocean off South Africa's western coast tested by 30 wildcats, including two that floated promising volumes of gas and condensate, one with small amounts of light, waxy oil, and four with strong gas shows.
Two blocks covering 36,000 sq km off the eastern coast in the Durban and Zululand basins, in which only three wells have been drilled.

Soekor said 157,000 km of seismic data has been collected in the areas on offer, including 113,000 km in the Outeniqua basin, 36,000 km in the Orange basin, and 8,000 km off the eastern coast.

Two offshore tracts-Blocks 15 and 16-are being withheld from the tender pending the reintegration of Ciskei and Transkei administrative districts.

OFFSHORE OVERVIEW

Foreign oil companies kicked off South Africa's offshore oil and gas activity in 1969 with Superior Oil Co.'s Ga-Al wildcat, a Pletmos subbasin gas discovery.

As politically induced economic sanctions squeezed out operators, Soekor in 1970 began expanding activity into the offshore arena. Since the mid-1970s, Soekor has been the only company exploring for oil and gas off South Africa.

Applications for offshore acreage in the current licensing round are to include a $10,000 fee for each tract sought.

South African officials by June 1995 are to finish evaluating bids turned in by the mid-April deadline and begin negotiating with companies submitting the best offers. Licensing talks are to end by Oct. 1, 1995, and Soekor is to begin awarding exploration licenses Nov. 15, 1995.

In evaluating applications, Soekor plans to focus on:

Proposed work programs and exploration spending.
Applicants' commitments to training South African employees.
Adequacy of proposed exploratory work and spending to evaluate tracts' hydrocarbon potential.
Volume of seismic data and number of wildcats to be drilled.
Strength of proposed environmental programs.

SUBLEASE FISCAL TERMS

Under South African law, sublease contractors receive a 100% interest in offshore exploration tracts and are required to pay all exploration costs, although allowable costs may be expensed immediately when calculating income tax. In the event of a commercial discovery, Soekor may retain a 20% interest or a negotiated share of the mining lease without reimbursing the contractor.

Term of the sublease is negotiable, but the agreement's proposed initial exploration term is 3 years, after which the contractor will be required to relinquish one half of the tract if the agreement is not terminated.

Soekor may grant two extensions of at least 2 years each to the initial exploration period for a total exploration phase of 5-8 years. One fourth of the original contract area is to be relinquished at the end of each exploration extension.

The work obligation for the first year is to include spending of at least $1 million for collection and interpretation of geophysical data, along with an outlay of at least $8 million to drill at least one wildcat in each year of exploration under the sublease, The contractor must pay a rental fee of $250,000/year on each tract held by sublease.

Other fiscal terms include a license fee, a negotiable royalty in lieu of Soekor retaining an equity interest, and a 35% basic income tax. South Africa also levies an additional profits tax of 20-40%, based on the ratio of cumulative net revenue/cumulative capital costs.

OUTENIQUA DESCRIBED

The Outeniqua basin is South Africa's most densely drilled offshore area, with an average of 2.26 wells/100 sq km.

The offshore province consists of a series of en echelon rift subbasins - Bredasdorp, Infanta Pletmos Gamtoos, and Algoa. Each makes up a rift halfgraben overlain by drift sediments of various thicknesses. Extensions of the subbasins merge into the southern Outeniqua basin in water more than 200 m deep.

Outeniqua discoveries so far have included wet gas in the subbasin's synrift succession and oil-wet gas in the drift succession. Reservoirs usually show secondary porosity. Synrift traps mainly are structural and drift traps stratigraphic, often with a structural component.

Ninety of Outeniqua's 147 wildcats have been drilled in the Bredasdorp subbasin, an 18,000 sq km area where Soekor has focused its exploration. In addition, 46 appraisal wells and eight development wells have been drilled in the Bredasdorp subbasin, which alone, with the Pletmos basin accounts for almost all of South Africa's oil and gas reserves.

Bredasdorp subbasin production began in 1992 from the country's first commercial gas field, 85 km south of Mossel BaN- in 105 m of water. Wells in the Pletmos, Gamtoos, and Algoa subbasins also have reported oil and gas shows.

ORANGE BASIN HIGHLIGHTS

The Orange basin, South Africa's largest basin from the standpoints of area and volume, consists of north-south trending synrift grabens overlain by as much as 6,000 m of passive margin siliciclastics.

The province stretches the length of South Africa's western coast and continues northwest across the Namibian boundary. Kudu gas field with estimated reserves of as much as 50 tcf lies on the northern flank of the Kudu arch in Namibia's portion of the basin.

As in Namibia, South Africa's Orange basin synrift sediments make up an inner zone of small isolated or linked grabens and a large central graben outer zone where a synrift wedge pinches out to the east as a geologic feature that can be mapped by seismic surveys.

Most of the basin's sparse drilling has focused on oil prospects, but South African officials say the region's oil potential likely is best in deeper water beyond the country's continental shelf, where exploration is just beginning.

The Orange basin's greatest shallow water potential could be for deep plays like Kudu field, where good reservoir characteristics have been noted as deep as 4,300 m.

To date, exploration has yielded three gas discoveries and one oil discovery in the Orange basin.

EASTERN OFFSHORE BASINS

Acreage off South Africa's east coast included in the current offshore round is limited to Blocks 17 and 18, which encompass most of the offshore portions of the Durban and Zululand basins.

Sediment starved compared with South Africa's southern and western offshore regions, the scant oil and gas activity so far off the eastern coast has recorded no commercial oil or gas discoveries.

Soekor drilled one well off the eastern coast between 1971-77 and two in 1983, none of which found commercial hydrocarbons. However, one well-Jc-B1 - found gas shows.

Similarly, available seismic data of the offshore area is sparse and typically spaced on a 25 km grid. Only about 8,000 km of data has been collected off the east coast, including only slightly more than 2 300 km on Block 17 and 1,200 on Block 18.

The Durban basin covers about 4,000 sq km between the Port Shepstone arch on the south and southern Zululand basin on the north, where the continental shelf and slope contain successive, thick Tertiary interval and early Cretaceous strata of lesser thicknesses resting on Paleozoic basement. North-south trending grabens in the basin are thought to include synrift sections of significance, and large structural traps have been defined in 400-600 m of water.

The offshore portion of South Africa's Zululand basin covers about 13,500 sq km between the Durban basin and Mozambique border, mostly in water less than 200 m deep. While the offshore is little known, 10 wells were drilled in the onshore Zululand basin, one of which found late Cretaceous source rocks.

Zululand's available offshore seismic data show evidence of asymmetrical grabens thought to hold oil prone Cretaceous sandstones. In addition, evidence from wells drilled across the border in Mozambique indicates late Cretaceous Domo shale source rocks could be widely developed off South Africa, as well as gas prone Zululand intervals.

DEVELOPMENT INCENTIVE

South African officials say the bidding round includes proven offshore hydrocarbon systems with multiple pays and provides opportunities to try new exploratory ideas and test deepwater prospects.

For South Africa, finding and developing offshore oil or gas could provide an important source of low cost energy.

The republic consumes about 320,000 b/d of crude oil and petroleum products but produces only about 10,000 b/d of condensate and generates as much as another 45,000 b/d of liquid fuel with a modified synthol process using gas and condensate feed.

In addition, coal fires more than 89% of the 35 million kw of installed capacity of South Africa's national electrical power utility. Electricity demand in Africa's most developed country in the past 5 years increased at a rare of 3.9%/year and is expected to continue increasing rapidly well into the 21st century.

With most domestic petroleum demand served by imports and the possibility that environmental pressures could dictate that at least part of growing electrical power demand will be met with gas fired generating capacity, ready markets should exist for offshore discoveries of either oil or gas.

South African Energy Minister Pik Botha said at a presentation in London the republic's acreage offering is unprecedented in scope and intensity.

"The South African government sees this licensing round as a major step forward in exploring our offshore potential," he said.