Phillips Moves Ahead with Bayu-Undan Field

Phillips Petroleum Company has signed an agreement that enables it and its co-venturers to move ahead with the gas development of the Bayu-Undan project in the Timor Sea.

Darwin LNG Pty Ltd signed a Heads of Agreement with The Tokyo Electric Power Company, Incorporated and Tokyo Gas Co., Ltd. detailing terms for the sale of three million tons per year of liquefied natural gas. The agreement covers a 17-year period, with the first cargo scheduled for January 2006. The LNG will be sold on a free-on-board basis.

Under the agreement, the gas source will be the Bayu-Undan field, located in the Joint Petroleum Development Area in the Timor Sea. Gas deliveries from the field are expected to begin in late 2005. This agreement commits nearly 100 percent of the proven reserves of this field.

The HOA paves the way for Phillips' plan to develop an LNG facility at Wickham Point near Darwin, Australia, utilizing the company’s proven Optimized Cascade LNG Process. It also justifies the initial pipeline infrastructure required to move Timor Sea gas into Australia. "This agreement is a major milestone in realizing the full value of the Bayu-Undan field to the mutual benefit of East Timor, Australia and the field participants," Stephen Brand, president of Darwin LNG Pty Ltd said. "Development activities can begin immediately for both the LNG plant and pipeline projects. 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."

Final board approvals from co-venturer companies are expected in the near future. It is anticipated that formal project commitments will be completed in the third quarter of 2002. The fully integrated development of Bayu-Undan, including the pipeline and LNG plant, is estimated to cost approximately $3 billion.

The Bayu-Undan field contains estimated reserves of 400 million barrels of condensate and liquefied petroleum gas and 3.4 trillion cubic feet of natural gas. The field is located in 80 meters of water about 500 kilometers northwest of Darwin, Australia, and 250 kilometers south of Suai, East Timor. The Bayu-Undan Gas Recycle Project, which was approved by the Timor Gap Joint Authority in early 2000, is expected to begin full commercial production in early 2004.

In a separate agreement also signed today, Phillips will sell Phillips Petroleum Timor Sea Inc. (PPTSI) to TEPCO and TG, giving the Japanese companies a 10.08 percent interest in the unitized Bayu-Undan field.

Bill Parker, Phillips' executive vice president of worldwide production and operations, added, "We welcome Tokyo Electric Power and Tokyo Gas into this exciting project. Their participation builds on our long-term cooperative relationship, which dates back to 1969 when the companies pioneered the first LNG imports into Japan and began the Pacific LNG trade."

Phillips Petroleum (91-12) Pty Ltd is operator of the Bayu-Undan project, with a controlling interest of 58.6 percent (pre-close of the sale announced in this release). Co-venturers and their initial participating interests are: Santos, 11.8 percent; Inpex, 11.7 percent; Kerr-McGee Corp., 11.2 percent; and Agip, 6.7 percent.