Xyris Gas Deliveries Commence

ARC Energy Limited reports that sales gas deliveries from the Xyris field commenced on November 11, 2004 at initial rates of up to 10 TJ per day in accordance with design parameters. Sales gas is being delivered into the Parmelia pipeline to customers of ARC and Origin in the southwest of Western Australia.

The Xyris gas accumulation was discovered by the Xyris 1 exploration well drilled by the L1/L2 joint venture in April 2004. The joint venture subsequently approved the development of the field in August 2004.

The Xyris development is the first green-field gas development in the Perth Basin since Beharra Springs, approximately 14 years ago, and provides the opportunity for gas from other recent discoveries including Xyris South 1, Apium 1, Hovea 2, and associated gas from the Hovea Oil Field to utilize these facilities.

The production from the Xyris Field will give the joint venturers greater flexibility in meeting their contractual supply obligations from the Perth Basin.

As the gas in the Xyris field is of good quality, the Xyris development has been a relatively straightforward process with the facilities primarily designed to ensure that the gas contains no liquids prior to entering the pipeline. The facility has a design capacity of 10 TJ per day of sales gas but it is likely to be able to operate at higher rates on an as needs basis. It can also be cost effectively upgraded to a capacity of approximately 20 TJ per day by the addition of a second separator.

The next activity at the site will be the connection of the Xyris South 1 well. A recent cleanup flow from this well flowed gas at rates of up to 8 million cubic feet per day on a 28/64 inch choke and a well head flowing pressure in excess of 1500 psi.

Participants in L1 and L2 (excluding the Dongara, Mondarra and Yardarino fields), Xyris South and the Xyris development are ARC Energy as operator with 50% and Origin Energy with the remaining 50%.

"The ARC team has made a terrific effort in bringing the Xyris Field on stream in record time. It is particularly pleasing that the team was able to complete our first gas development with no significant safety or environmental incidents and this again demonstrates the ability of the ARC team to execute projects and add value to the business.

Xyris is particularly welcome as an additional gas supplier to the southwest and together with our other planned gas developments will make a significant contribution to ensuring both our direct customers and other gas consumers will be assured of gas supplies over the coming summer months.

The seriousness of the southwest gas supply situation was reinforced by recent press reports relating to the failure of a compressor on the Dampier-to-Bunbury pipeline which prompted power utility Western Power to use oil and coal-fired generators to avoid blackouts and also forced ARC to reduce supply of gas to some of its customers. Production from Xyris and the other new fields will ensure that there are unlikely to be further supply restrictions from the Perth Basin.

On the financial side, the increased gas production will mean that ARC will no longer be purchasing backup gas from the Dampier-to-Bunbury pipeline and this will add significantly to the bottom line for the year."