The new South Africa is a work in progress. While the country accounts for 40% of all industrial output on the African continent-a quarter of the gross domestic product, more than half of the electrical power generation, and almost half of the mineral production-most of its 44 million people are gravely poor. A sophisticated first-world economy exists alongside desperate poverty. More than one-third of South Africa's workforce is unemployed, and many of the employed earn barely enough to keep body and soul together. This is a country where more than half the people have no running water or toilets in their homes, and 20% have no education. Progress is unmistakable, however. Since 1994, when Nelson Mandela was inaugurated as the first president of a fully democratic South Africa, the country has successfully shed its pariah status and rejoined the world community. The present government, headed by President Thabo Mbeki, is trying to use the nation's strong and established infrastructure to draw South Africa into a brave new world. Post-apartheid officials have many economic goals-they want a faster growing economy, lower inflation, more jobs and more equitably distributed wealth. Clearly, abundant and clean sources of energy will be vital components in South Africa's ambitious reconstruction and development program. And, North American firms Forest Oil Corp. and Pioneer Natural Resources are spearheading foreign efforts to help develop those energy sources. Unfortunately, South Africa lacks any onshore oil deposits, although the onshore portion of the Algoa Basin in the Port Elizabeth area does boast a single well that flowed about 3 barrels of oil per day. Prospects for onshore natural gas also appear limited. In the northeast corner of the country near the Botswana border, the Waterberg area offers promise for coalbed methane, but that resource remains undeveloped. Exploration and development of the offshore offers South Africa its best shot at economic oil and gas production in the near term. Initial drilling results were disappointing, however, revealing that the offshore basins apparently contained only a scattering of relatively small oil and gas fields. That picture is now brightening, as newer technologies and production methods are pulling the South African accumulations into the commercial range. Indeed, a fledgling infrastructure has begun to emerge off the Southern Cape coast. In 1967, the government granted Prospecting Lease OP 26 to Soekor Ltd., based in Parow, near Cape Town. The parastatal entity is part of the Central Energy Fund group of state-owned companies. The lease, which extends until 2007, covers all of South Africa's offshore area except for a five-mile-wide strip along the southern coastline. The company made the country's first natural gas find in 1969 in the Bredasdorp Basin, offshore the harbor town of Mossel Bay. In South Africa's original round of exploration, more than 20 small-sized fields were discovered, mainly in and around that same area. Both syn-rift and post-rift plays were identified in the Jurassic and Cretaceous offshore basins, with reservoir rocks ranging from fluvial and shallow-marine sandstones in the syn-rift sequences to deepwater turbidites in the post-rift sediments. The deeper syn-rift play is generally characterized by structural gas fields, while the shallower post-rift traps combine both structural and stratigraphic aspects. The largest offshore gas field, dubbed F-A, was discovered by Soekor in 1980; E-M Field, some 49 kilometers to the west, was discovered in 1984. The two syn-rift deposits are in Block 9, in coastal waters about 100 meters deep and 80 kilometers offshore Mossel Bay. In 1987, the government decided to develop F-A Field, which it believed contained reserves of 200 million barrels of oil equivalent, via a project called Mossgas. The apartheid regime, facing a plethora of international sanctions, wanted to manufacture transportation fuels to reduce South Africa's dependence on imported oil. Mossgas (Pty) Ltd. was established in 1989. Like Soekor, it is a Central Energy Fund company. Mossgas owns and operates F-A Field and its onshore gas-to-liquids refinery. Recently, the government has said that it plans to merge Mossgas and Soekor. At press time, the proposed combination had yet to occur and the companies were operating as independent entities. F-A Field, developed with nine wells and a fixed production platform, began producing in 1992. The reservoirs occur between 2,600 and 2,900 meters below sea level. Subsea pipelines for gas and condensate were laid to Mossel Bay, where the Mossgas gas-to-liquids refinery was constructed. Regrettably, F-A's recoverable reserves were considerably smaller than first predicted. Mossgas soon needed additional feedstock to continue producing its products, and the government developed the satellite gas fields FAR and FAH. Four wells were drilled in these accumulations, which were linked to the F-A platform by a subsea pipeline. These came on stream in 1997. Nevertheless, F-A Field and its satellites are expected to reach depletion this year. E-M Field and its satellite EBF Field, located west of the F-A production platform, were the next Mossgas development. "In September 2000, we started production from E-M Field, which has 650 billion cubic feet of gas in place," says Cliff Barnes, operations manager. The project was developed through an alliance between Mossgas and Dresser Kellogg Energy Services , and was brought on stream at a far lower cost than F-A, thanks to advances in horizontal well technology and subsea completions. Seven new producers are linked to the F-A platform by a 52-kilometer subsea pipeline. "The field employs a special 50-meter-high control buoy that is anchored in water 95 meters deep," notes Barnes. "Mossgas is currently producing 200 million cubic feet of gas equivalent per day. Now we have sufficient reserves to maintain that production rate and to supply the plant through 2008." As an added benefit, at least four additional satellite fields can be tied into the subsea line that spans the distance between E-M and F-A fields. Too, a potential development to the east of F-A looks promising. "We've just completed the F-O-4 exploration well in F-O Field, and it gave good information," he says. South Africa's first oil production also lies in Block 9, southwest of the Mossgas fields. Soekor brought Oribi Field on stream in May 1997, using subsea completions and a floating production system. Oribi, discovered in 1990, is a post-rift accumulation estimated to contain ultimate reserves of 22 million barrels of oil. The Albian-age reservoir occurs at a depth of approximately 2,300 meters; the field is currently making 16,000 barrels of oil per day. Soekor operates and owns 80% of Oribi, and Cape Town-based Energy Africa Ltd. owns the remaining 20%. A smaller neighboring field, Oryx, began production in May 2000 using the Oribi facilities. That field, owned 100% by Soekor, is currently producing 10,500 barrels of oil per day and contains recoverable reserves of about 6 million barrels of oil. Another area that interests both Soekor and Mossgas is Block 11a. The 1,270-square-kilometer tract, located between Mossel Bay and Port Elizabeth, includes a structural feature called the Superior High. Superior Oil drilled the crest of the structure in 1969, and its Ga-A discovery well flowed at a rate of 24 million cubic feet of gas per day. Still, Superior pulled out of the country after drilling five wells and the acreage reverted to the state. Soekor found a second field, Ga-Q, in 1983 on the southern flank of the feature. With the proposed combination of the two parastatal companies, this block is being considered as a potential source field for the Mossgas plant. After apartheid ended, Soekor determined to seek some foreign capital to help it explore and develop the tantalizing leads and prospects it saw in Block 9. The 23,000-square-kilometer concession had only been tested by 130 wells, excluding those drilled on the Mossgas mining leases on F-A and E-M, and in F-O fields. Twenty of those tests were discoveries-both small oil accumulations and several large gas finds in the post-rift sequence. The Soekor acreage intrigued Dallas-based Pioneer Natural Resources, and the companies soon struck a deal. "When Pioneer was formed in late 1997, we put together an international exploration group," says Scott Sheffield, chairman and chief executive officer. "We were looking for areas that were off the radar screen, and we were interested in both South Africa and Gabon." In 1998, Pioneer farmed into 2 million acres of Soekor's Block 9 properties. Soekor operates for the joint venture on 500,000 acres where it had existing discoveries, and Pioneer operates the remaining 1.5 million acres. The company's interests in Block 9 are up to 40% in the Soekor-operated area, and 49% in the Pioneer-operated area. Pioneer has a two-step approach to the concession. The first is to expand and develop Soekor's previous oil discoveries, mainly by applying the latest 3-D seismic technology. The independent reviewed the Soekor finds in light of its Gulf of Mexico expertise, and found that some were larger than previously thought. Sable Field, located about 10 kilometers west of Oribi, is the first fruit of this effort. "Along with Soekor, we have just sanctioned Sable Field," says Dennis Fagerstone, executive vice president of international operations. The 25-million-barrel accumulation, operated by Soekor, will be developed with six subsea completions and a floating production facility. This reservoir is found at about 2,600 meters below sea level.. "We are out for bids on the facilities, and we expect to award contracts shortly." Production will be in the range of 35,000 barrels per day, and when oil begins flowing in early 2003, Pioneer will be the first foreign company to have production in South Africa. At press time, Pioneer was also drilling its 2,350-meter Boomslang Prospect in Block 9, an oil test on the southern rim of the basin. The prospect is updip of a Soekor well that encountered an oil leg in a shallow-marine, syn-rift sandstone but was never offset, notes Fagerstone. Numerous other Block 9 oil discoveries have yet to be developed as well. "Where several of these fields cluster, we can possibly bring in floating production systems," he says. "At current oil prices, several of these accumulations are attractive developments." The second thrust for the firm is the reevaluation of Block 9's gas prospects. Pioneer sees a very large area with tremendous unrealized potential. In the central part of the Bredasdorp Basin in which most of Block 9 lies, 25 wells had been drilled prior to Pioneer's involvement. "Every well that penetrated a particular interval had hydrocarbons," says Fagerstone. "We can map 14 accumulations just in the central part of Block 9, and we can attribute in excess of a trillion cubic feet of recoverable gas to those accumulations." Pioneer plans to drill a well this year to start proving up those gas reserves. Naturally, the first hurdle for commercial gas development is to establish whether adequate resources exist to support infrastructure, says Fagerstone. "If we have enough gas, then we have to determine if there is a market. We believe that there is potential to commercialize the Block 9 gas, and that the most viable market is likely to be power generation." Pioneer has also taken on a much larger exploration concession as a sublease from South Africa's Petroleum Agency. The immense exploration project covers 11 million acres on blocks 7 and 10-14b. Pioneer has 100% interest in the area, which spans several different basins and is equivalent in size to one-quarter of the Gulf of Mexico. "We've been conducting seismic, geological and geophysical studies on this acreage for the last two years," notes Sheffield. This year, the company is drilling a series of four wells that it expects to complete by the end of 2002. "We have a number of different play types-from submarine canyons with debris flows and turbidite mounds to a broad variety or erosional features associated with rifting," says Fagerstone. "We've presently identified three prospects on the sublease, and the mean size of these targets is 100 million barrels of oil equivalent." Pioneer has only good things to say about its South African ventures. Comments Sheffield, "The terms offered by the government are excellent-royalties are 5% or less, and federal income tax is 34%." On its offshore leases, the government has a 10% carried interest to commerciality, then it backs in for a 10% working interest. Also, a 10% working interest is to be made available to a black empowerment partner. "We think South Africa's economic terms are among the best in the world, and we're highly encouraged by our experiences there so far." Meanwhile, Denver-based Forest Oil Corp. has been making news on South Africa's west coast. The company owns two concessions totaling 13 million acres close to the country's border with Namibia. "We have both Block 1 and Block 2," says John McIntyre, senior vice president of international new ventures. "In Block 2, we've already shot our seismic and we're drilling wells. In Block 1, we're still in the seismic and prospecting phase." The privately held, Denver-based Anschutz Corp. made the initial foray into South Africa, signing the agreement for Block 2 in mid-1998. At about the same time, the firm made an equity swap with Forest, trading producing properties for stock. Forest took on Block 1 in 1999. The companies eventually equalized their various South African interests, and Forest holds 70% in both blocks and Anschutz holds 30%. At press time, Forest was in the middle of a $30-million, four-well drilling program on Block 2. The program is focused on the appraisal of the Ibhubezi accumulation, located in about 240 meters of water some 100 kilometers offshore the mouth of the Orange River. Soekor drilled the discovery in 1988 and encountered 207 feet of pay. Although the discovery tested at a combined rate of 52.8 million cubic feet of gas and 342 barrels of condensate per day from three separate zones, it was not developed. In November 2000, Forest completed its 3,430-meter AK-2 well, which tested at a rate of more than 30 million cubic feet of gas per day. At press time, Forest's second well was nearing total depth. Ibhubezi is a series of Lower Cretaceous fluvial reservoirs that comprise discrete accumulations, some of which are stacked vertically. "In any given well, we have one to three productive sands. Laterally, we have separation from one well to the next," says McIntyre. 3-D seismic has been a key to unlocking the Ibhubezi potential. "Our locations target amplitude events on the seismic data that look like channels," he says. "We can see these channels in the wells, and we're cookie-cutting out each new amplitude as we step away from the wells." Risk is still present, he cautions, because other combinations of rocks and fluids could create similar seismic responses that are not gas productive. "The original Soekor well was drilled on 2-D seismic, on what it identified as a structural feature. Forest reshot the Ibhubezi area with 3-D seismic, and discovered this enormous channel system," says Dan Morris, president of Houston-based geophysical company e-Seis . His firm worked on the geophysical interpretation of the Forest project. "The 3-D seismic made this play possible." The Lithseis technique that e-Seis applied for Forest combines seismic attributes with well log data and petrophysical analyses. The lithology analysis method was initially developed at Union Texas Petroleum. "The seismic is the media that we analyze to gain an understanding of what is happening away from the well control. It's a very useful technique, particularly in clastic sequences," says Morris. "In the Orange River Basin, it painted a very compelling picture." The Forest project lies about 300 kilometers south of the Shell-operated Kudu Field, the Namibia accumulation that has been estimated to contain between 2 trillion and 20 trillion cubic feet of recoverable reserves. Both accumulations are in the Orange River Basin, but Kudu Field is in about 200 meters of water, about 185 kilometers offshore. Like Ibhubesi, Kudu is a stratigraphic trap, but Kudu produces from the lower part of the Lower Cretaceous. "We believe that we have the potential on Block 2 for a similar volume of reserves," says McIntyre. Forest has completed a development feasibility study on Ibhubezi, and expects to use subsea completions and tiebacks to produce the field. "We haven't decided whether to use an umbilical cord system or a surface control buoy," he notes. "The jury is still out on that question." Chairman and chief executive officer Robert Boswell views South Africa as a world-class opportunity for his firm. "We have a project with tremendous potential, and we're actively exploring various marketing options," he says. Forest is talking to Shell about the possibility of jointly building a pipeline to bring gas from Kudu and Ibhubezi to Cape Town; Boswell believes that there is room to develop both fields. Forest has also signed a memorandum of understanding with Mossgas to evaluate the construction of a pipeline to deliver 200 million cubic feet of gas per day for a 30-year-period to the Mossgas plant at Mossel Bay. For its economic models, Forest has projected production from Ibhubezi of 500- to 700 million cubic feet per day. "We assumed that 200 million per day would go to Mossgas, 150 million per day would fuel a gas-to-power project in Cape Town, and another 150 million per day would go to a power project near the shore or at Saldanha Bay," says Boswell. "We're also doing a study on the possibility of building a gas-to-liquids plant near the field." Costs for full-scale development of Ibhubezi, including the pipeline, could be $1.5 billion. "We're talking to the World Bank about financing," says Boswell. "We know we have a capital intensive project, and we're examining ways to optimally develop it." Sasol Ltd. is another player in South Africa's E&P scene, and it is also active on the west coast. The firm, which is a major synthetic fuel producer, handles its upstream business through its Sasol Petroleum International unit. "We have what we like to call focused E&P," says Mike Tisdall, Johannesburg-based general manager. "We're looking for gas offshore South Africa or close to South Africa, particularly in Mozambique. We're also investigating gas opportunities that fit in with our gas conversion technology, as well as oil exploration along the West African coast." Sasol is in the initial phase of technical study on blocks 3a and 4a on the west coast, immediately south of Forest's holdings. "We're currently evaluating that area," says Tisdall. The blocks, comprising 26,500 square kilometers, are covered by 8,100 kilometers of seismic data, which Sasol is reprocessing. "If we like what we see, we have the option to proceed to a full prospecting agreement, under which we would acquire new seismic and drill exploration wells." Sasol is also involved in South Africa's east coast. It is a 20% partner in the Phillips Petroleum -operated blocks 17 and 18 offshore Durban. Last year, Phillips drilled the first test operated by a private firm in South African waters since 1976. Unfortunately, the test well did not encounter significant indications of oil or gas. Phillips holds a 40% interest in the acreage, and Sasol, Energy Africa and PanCanadian Petroleum each have 20%. Presently, the companies are reevaluating their position, but at this time no new wells are planned. Two foreign firms hold other blocks as well, although these are more speculative tracts that have not yet advanced to the drilling stage. Global Energy Holdings , a small Denver-based firm, has deepwater blocks 3b and 4b, located off Sasol's west coast position. Canadian Natural Resources took over Ranger Oil's properties in 11b and 12b when it acquired that firm last year. Its blocks are in the deep water off Pioneer's south coast acreage. Unquestionably, the glimmerings of the birth of a vibrant offshore industry have sparked new interest in South Africa's prospects. Once abandoned by the major international companies for lack of sizeable reserves, the country now hosts foreign independents and home-grown South African firms that are finding fertile pickings in its offshore. Today's prospecting techniques reveal that fields are larger than first thought, and production advances are making these accumulations far more economically attractive. Further, the rapidly evolving gas-to-power and gas-to-liquids technologies are turning the previously shunned natural gas deposits into primary exploration targets.