Giant Timor Sea gas project clears major hurdle

Giant Timor Sea gas project clears major hurdle

SYDNEY (Reuter): The U.S.-Australian development of the giant Bayu-Undan gas field in the Timor Sea cleared its biggest hurdle on Wednesday when BHP Petroleum and Phillips Petroleum agreed that BHP should be the sole operator.

Joint venture participants said the agreement meant they could now consider exactly how to develop the A$4 billion field and whether to build a liquefied natural gas (LNG) processing plant onshore near Darwin in the Northern Territory or build such a floating plant.

"This agreement is the most fundamental development in terms of defining the project," said Petroz NL Finance Manager Rob Crook.

The field, which was last estimated to have proven and probable reserves of 3.1 trillion cubic feet (tcf), is straddled by two joint venture groups.

"It's a very, very large world-scale discovery," said Petroz' Crook.

Getting the two groups to agree on who would operate the facilities needed to jointly exploit the field and how the proceeds would be divided up was a crucial step, Crook said.

The "Bayu" side of the field is covered by the Zone of Cooperation Agreement (ZOCA) 91-13 is owned by a Phillips-led joint venture that includes Oryx Energy Co of the U.S. with 25 percent and Britain's Hardy Oil & Gas Plc with 15 percent. Phillips has 60 percent.

The "Undan" side of the field covered by ZOCA 91-12 is owned by a BHP-led joint venture which includes Petroz with 13.371 percent, Santos Ltd [STO.AX] with 21.426 percent and Indonesia's Inpex Sahul with 21.21 percent. BHP has 42.417 percent.

The ZOCAs were made possible by a treaty between Australia and Indonesia and are a key factor in the relatively warm diplomatic ties between the two neighbors.

BHP said meetings of joint venture participants in Melbourne late last week had selected BHP Petroleum as the unit operator of the field. BHP Petroleum is a unit of the Broken Hill Pty Co Ltd, Australia's largest company and the half-owner of the Bass Strait oil fields off the Victorian coast.

"The single field extends across both contract areas and any development will be carried out under the framework of a unitization agreement and utilize shared facilities," BHP said.

Petroz said in a separate statement the joint venturers had decided on the upstream liquids and condensate phase of the project, but had yet to decide on where the downstream LNG plant would be located.

"The upstream phase of the project consists of a liquids stripping/gas recycling operation whereby condensate and LPG (Liquid Petroleum Gas) are separated from the gas stream offshore and transported by tankers to market," Petroz said.

"It is expected that the offshore liquids recovery project will be integrated with an LNG production facility," it said.

"Both offshore and onshore locations for the LNG facilities are under consideration," it said.

The development of the field was expected to start in 1998, leading to the first production of condensate and LPG in 2001. Petroz's Crook said the upstream condensate and LPG facility already decided on had been estimated to cost around A$1.5 billion to build. He said it was envisaged the field would produce about 3-4 tcf, 230 million barrels of gas condensate and 130 million barrels of LPG.

The field is split about 60-40 percent in favor of the BHP-led joint venture, he said.