Bayu-Undan project development forges ahead with signing of long-term LNG sales agreement

By the OGJ Online Staff
HOUSTON, Mar. 12 -- Darwin LNG Pty. Ltd., a unit of Phillips Petroleum Co., signed a 17-year heads of agreement with Tokyo Electric Power Co. Inc. (TEPCO) and Tokyo Gas Co. Ltd. for the sale of 3 million tonnes/year of LNG. The LNG, exported from a proposed liquefaction plant and export terminal at Darwin, Australia, would be fed by natural gas to be produced from Bayu-Undan field in the Joint Petroleum Development Area in the Timor Sea between Australia and East Timor. Separately, Phillips said it would sell Phillips Petroleum Timor Sea Inc. to TEPCO and Tokyo Gas, which would give the Japanese firms a 10.08% interest in Bayu-Undan field.

Gas deliveries from Bayu-Undan are expected to begin in late 2005, with fob shipments of the first LNG cargoes to begin in January 2006. The agreement commits nearly 100% of the field's 3.4 tcf of natural gas, Phillips said.

The Bayu-Undan gas project—which has been long delayed over a tax dispute with the East Timor government as well as earlier partner differences over project approaches—received approval from Phillips late last year for the construction of the $1.5 billion pipeline that would carry gas from the field to Darwin in northern Australia (OGJ, Jan. 7, 2002, Newsletter, p. 8). The total development, including the pipeline and construction of an LNG plant, is expected to cost $3 billion.

"Development activities can begin immediately for both the LNG plant and pipeline projects," said Stephen Brand, president of Darwin LNG. "However, the project cannot proceed until we receive the endorsement of the Australian government for the fiscal regime that was agreed last year with East Timor.".

Board approvals from the other project partner companies are expected soon. It is anticipated that formal project commitments will be completed in the third quarter of 2002.
Phillips and El Paso Corp. (EPC) last year signed a letter of intent for EPC to purchase LNG from the Darwin plant under a long-term contract beginning in 2005. The Timor Sea LNG would be regasified and marketed via an LNG terminal to be sited somewhere in southern California or Mexico's Baja California peninsula. That agreement focused on gas reserves being developed in the Greater Sunrise fields, also in the Timor Sea (OGJ, Apr. 9, 2001, p. 62).

In addition to its gas reserves, Bayu-Undan field has estimated reserves of 400 million bbl of condensate and NGL. A related project to develop and export Bayu-Undan liquids was approved in late 1999 (OGJ, Nov. 8, 1999, p. 34). The liquids development project would involve producing and processing the gas, separating condensate and NGLs, and reinjecting the lean gas. That project was approved by the Timor Gap Joint Authority early in 2000 and, at last report, was scheduled to begin production in 2004 (OGJ, Aug. 6, 2001, Newsletter, p. 8).

Phillips unit Phillips Petroleum (91-12) Pty. Ltd. serves as operator of the Bayu-Undan project and holds 58.6% interest. Partners and their initial participating interests are Santos Ltd. 11.8%, Inpex Ltd. 11.7%, Kerr-McGee Corp. 11.2%, and Agip SPA 6.7%.