Subject: SMH: Yes For Bayu-Undan LNG Project

Sydney Morning Herald June 16, 2003 Monday

Yes For Bayu-Undan LNG Project

Barry Fitzgerald

The investment boom in the Northern Territory is gathering momentum with the ConocoPhillips-led Bayu-Undan partnership yesterday committing to a $2.24 billion liquefied natural gas export project.

The commitment is in addition to the $2.7 billion already invested by the partners on the liquids (condensate and liquefied petroleum gas) stripping project which starts production early next year.

Project partners Santos is the only local partner put the value of the LNG exports, starting in 2006, and the sale of liquids at more than $30 billion over the next 20 years, of which $6 billion would go to East Timor.

The NT Government has also recently been celebrating plans by Woodside and its partners to spend $1 billion developing the Blacktip gasfield in the Bonaparte Gulf and plans by Alcan to spend $1.5 billion expanding production at the Gove alumina refinery.

The LNG project, which will be managed out of Darwin, will be Australia's second after the Woodside-managed North-West Shelf and is based on Bayu-Undan gas reserves (3.4 trillion cubic feet) in the Timor Sea joint development area between East Timor (90 per cent) and Australia (10 per cent).

The managing director of Santos, John Ellice-Flint, said yesterday Bayu-Undan was "putting the NT back in to Santos" a reference to the group's name being the acronym of South Australian and Northern Territory Oil Search.

"Santos is the only Australian company involved in this world- class project and the final approvals clear the way for the company to make its first entry in the global LNG market," Mr Ellice-Flint said.

He said the combined liquids stripping and LNG projects would add more than six million barrels of annual oil equivalent to the group's output when it reached its peak.

That would equal 10 per cent of the group's 2002 production effort. The go-ahead for the LNG project would also add 46 million barrels of oil equivalent to the group's proven reserves.

Analysts have previously estimated that Santos' interest in Bayu-Undan is worth about 30c a share.

The deal for a 90:10 per cent split of oil and gas royalties in East Timor's favour replaced an early 50:50 per cent split when Indonesia was in charge in Dili.

Despite the more favourable outcome for the tiny new nation, controversy about whether East Timor should have done better still continues.

That is particularly so when the potential royalty stream from other development opportunities in the Timor Sea are taken in to account. The Greater Sunrise gasfield, 450 kilometres north-west of Darwin, and the Laminara/Corallina oilfields further west are examples. Both are closer to East Timor than to Australia and both are claimed by East Timor as offshore territory.

But Australia made it part of the Timor Sea Treaty that in the seas outside the joint development area where both governments claim sovereignty including 80 per cent of Greater Sunrise and all of Laminara Corallina 100 per cent of royalties would flow to Australia.

Bayu-Undan is in 80 metres of water about 250 km south of Suai in East Timor and 500 km north-west of Darwin. Apart from its gas reserves, the 1995 discovery also ranks as one of the biggest liquids discoveries in the region at 400 million barrels of condensate (light oil) and LPG.

Current ownership is ConocoPhillips of the US (operator, with 64.14 per cent), AGIP of Italy (12.32 per cent), Santos (11.83 per cent) and Japan's INPEX (11.71 per cent).

The LNG project is underpinned by a sales agreement with Tokyo Electric Power and Toyko Gas for the annual delivery of three million tonnes of LNG for 17 years, starting early in 2006.

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