BOUNTY Oil & Gas NL will start its first African gas production in Tanzania as part of a recently signed gas sales agreement with the Tanzania Petroleum Development Corporation for its Kiliwani North gas field.

Based in Australia, Bounty said the Kiliwani North gas sales agreement (GSA) is a “take or pay” type agreement and allows for the expected depletion of production from the well over time.

Bounty chief executive Philip Kelso said it had been a long road to achieving the agreement, but said the final version was comprehensive and will allow production to commence with clarity and security.

“In 2016 Bounty anticipates it will receive gross annual revenue of around A$3 million from this project and Bounty is now well placed for further growth,” he said.

In each contract year the Tanzania Petroleum Development Corporation (TPDC) will be required to purchase, take delivery of or pay for a pre-determined volume of gas.

If TPDC elects not to take delivery of the pre-determined volume, it will pay for the equivalent of 85 per cent of the minimum daily quantity of gas to be supplied.

Initially the minimum is set at 20 million square cubic feet per day (mmscf/day) and adjusted each year in accordance with the terms of the GSA.

Gas from the Kiliwani North will be supplied to the recently completed Songo Songo gas processing plant, according to Bounty.

Testing and commissioning of the plant and pipeline commenced in January.

During the testing and commissioning phase, the TPDC will be invoiced for gas produced at the end of each month and required to pay on invoice, Bounty said.

Commercial operations start date will be mutually agreed by the TPDC and the operator once testing and commissioning has been completed.

Gas will be sold at about US$3.07 per million cubic feet, with the price adjusted annually by applying an agreed United States Consumer Price Index.

Bounty said gas revenues will be invoiced and payable in US dollars and the gas delivery point will be the inlet flange at the Kiliwani North wellhead.

By selling gas at wellhead, the joint venture partners will not be responsible for the pipeline transportation and processing fees, according to Bounty.