Origin: Sales Commence from BassGas

Origin Energy Resources Limited

Origin Energy Resources Limited, operator of the BassGas Project offshore Australia, said that sales of gas and liquids have commenced from the BassGas development and that the majority of the commissioning of the facilities has been completed.

Raw gas from the Yolla A platform in Bass Strait was introduced to the onshore processing plant at Lang Lang, south east of Dandenong in Victoria in early May. Gas from the plant was first exported to the Victorian gas grid in small quantities in mid-May; the sale of liquids commenced in June. The Safe Astoria offshore accommodation vessel, which was moored alongside the Yolla A platform to allow critical elements of the offshore remediation work to be finalized, was released in late June following the successful completion of that work.

The plant is now being prepared to ramp-up production and sales as the final commissioning of the project through to performance testing continues.

Once fully commissioned the BassGas Project is expected to have a capacity of around 23 PJ of sales gas per annum, together with around 1 million barrels of condensate and 70,000 tonnes of LPG per annum. All gas produced is being purchased by Origin Energy Retail Limited to supply markets in southeastern Australia. All condensate is being exported to the Shell refinery in Geelong, while LPG will be sold to a number of parties.

Project capital cost
The BassGas Project was originally budgeted to cost $450 million.

At the time of entering into the development project in April 2003, there was uncertainty regarding the level of some impurities in the gas from the Yolla field. The initial design of the plant allowed for modification should later testing of gas from the Yolla field reveal that further treatment was required. Modifications have been required to the plant, and this added approximately $25 million to the joint venture’s cost of the project.

The original schedule was to reach the Ready for Start Up (RFSU) milestone by June 8, 2004. Clough Engineering, the company responsible for the design, construction, and installation of the facilities, claimed to have reached this milestone on November 10, 2004. The joint venture disputed this, and Origin Energy took over management of the project from Clough Engineering in December 2004. Since that time a rigorous design and defect rectification program has been pursued to bring the BassGas Project to first gas production.

As a result of issues associated with this extensive rectification program, and the consequent construction effort required, the cost of the project has increased by a further $275 million to approximately $750 million. The actual cost of the project to the joint venture will only be determined once arbitration with Clough Engineering is completed.

Arbitration process with Clough Engineering
On Nov. 15, 2004, the arbitration commenced pursuant to the construction contract between the BassGas Joint Venturers and Clough Engineering. The arbitration is proceeding and the quantum of the claim that has been made by the BassGas Joint Venturers in this arbitration is currently in the order of $100 million. This is based on delays to start-up and on the defects identified prior to April 2005. The BassGas Joint Venture has retained $47 million on account of these claims.

The BassGas Project Joint Venture is also pursuing its entitlement in relation to the balance of the cost overrun for the extensive defects discovered after April 2005.

In addition to the return of the monies retained by the BassGas Joint Venture, Clough Engineering has made claims against the BassGas Project Joint Venture including contract-based claims of $28.3 million and an alternative claim based on the Trade Practices Act of $101 million.

The BassGas Joint Venturers remain confident of successfully prosecuting their claims in the arbitration and resisting the claims made by Clough Engineering. The outcome of arbitration is unlikely to be known until late in 2007.

Origin Energy and the BassGas Joint Venturers welcome the commencement of hydrocarbon production from the BassGas Project. They remain committed to pursuing a successful outcome to the arbitration with Clough Engineering.

Project participants