Subject: ConocoPhillips Pumps First Bayu-Undan Gas

Friday September 30, 1:57 PM

INTERVIEW: ConocoPhillips Pumps First Bayu-Undan Gas


DARWIN (Dow Jones)--U.S. oil giant ConocoPhillips Inc. (COP) has pumped the first gas from its Timor Sea Bayu-Undan-to-Darwin pipeline and production from its US$3.3 billion liquefied natural gas project is on track for early next year.

The onshore LNG plant at Wickham Point in Darwin is 90% complete, and the 512 kilometer pipeline from the Bayu-Undan field is finished and filled with gas, ConocoPhillips Darwin area manager Blair Murphy told Dow Jones Newswires in an interview.

"We're utilizing a little bit of the gas for commissioning the plant, but there's no revenue from that, it's for commissioning, running some of the power generation and the like," Murphy said.

The Bayu-Undan LNG project will export 3 million metric tons of LNG a year to Japan, where the country's biggest electric power and gas firms, Tokyo Electric Power Co. (9501.TO) and Tokyo Gas Co. (9531.TO), have contracted to buy all the planned gas production from the project over 17 years.

The project, which ConocoPhillips operates and owns 56.7%, is being built in two stages, with the first, involving liquid production at the Bayu-Undan field between Timor and Australia's Northern Territory, well underway.

Liquid petroleum gas in the form of propane and butane has been produced from the Bayu-Undan field since early 2004. It is processed offshore and exported.

Gas from condensate produced along with the LPG is then injected back into the field to be piped to Darwin.

Murphy said first production from the Darwin LNG plant will be in the first half of next year but is reluctant to be more specific. People familiar with the project say it is likely to be in production in the first quarter.

"We're finishing off the last 10%, which involves finishing putting it together and testing the various vessels and equipment, pressuring them up to make sure they're all working correctly," Murphy said.

The Darwin LNG plant, which has a single processing train, has the potential to grow threefold if ConocoPhillips and its partners can find more gas and customers to buy LNG.

"We have places for two trains, and we are waiting for gas and for markets to develop," Murphy said. "Our current process train is for 3.24 million tons per annum and we have permits for 10 million tons per year up there."

The entire proven gas reserve at Bayu-Undan is contracted to the Japanese companies so the extra permitted capacity and place for a second processing unit means there is an opportunity for other gas fields in the Timor Sea to provide gas to the Bayu-Undan project.

This was highlighted Thursday when Australian oil and gas producer Santos Ltd. (STOSY) said it found a new gas field at its Caldita exploration well near Bayu-Undan.

Santos shares surged 6% to a record on the find, which it described as "encouraging" and "significant" but gave no indication of the quality of the gas.

ConocoPhillips took a 60% interest in Caldita last year with a view to tying in any gas discoveries to the Bayu-Undan project. Pre-drilling estimates of Caldita has the field containing 1.5 trillion cubic feet of gas, a Santos spokeswoman said.

"If Caldita contains 1.5 trillion cubic feet of clean gas, it could in theory provide the initial support for the building of a second 3.2 million tons-a-year LNG train at the Bayu-Undan LNG plant," UBS analyst Gordon Ramsay said.

But while Santos and ConocoPhillips have reported a new gas find with an encouraging flow rate of 33 million cubic feet a day, they have given little indication of the quality of the gas. Santos says further analysis is required before this will be known.

Caldita is next to the Santos-operated Evans Shoal field, which hasn't been developed, despite containing an estimated 6.6 trillion cubic feet of gas.

"Our best guess is that Caldita contains carbon dioxide, but how much is open to debate," Ramsay said. "If Caldita contains around 30% carbon dioxide it will in all probability sit undeveloped for some time, like Evans Shoal."

Houston-based ConocoPhillips is the third-largest energy company in the U.S. and the fifth largest oil refining company in the world.

Its partners in the Bayu-Undan LNG project are Italian firm Eni S.P.A. (ENI.MI), with 12.1%, Santos with 10.6% and Tokyo Electric Power and Tokyo Gas owning a combined 10.1%. Inpex Corp. (1604.TO) owns 10.5%.

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