Timor Treaty Could Cause Delays at Bayu-Undan

The US$1.4 billion development of a pipeline and gas plant for the Bayu-Undan oil and gas field in the Timor Sea could be delayed if the Timor Gap Treaty is not ratified by September. The treaty was signed by Australia and newly independent East Timor on May 20, however a spokesman for Australian Foreign Minister Alexander Downer said it was likely to be a year before the treaty would be ratified by both nations. "If it is not ratified by September or we don't have some indications of when it might be ratified then we would look at the option of delaying the project," Phillips Darwin area manager Blair Murphy said. "We're confident it will be ratified and the government has indicated to us that it will be, but there is obviously risk out there that it won't be."

Phillips and its partners began development drilling at Bayu-Undan on May 17 but are awaiting the ratification of the treaty before committing to build a pipeline and onshore liquefied natural gas plant at Darwin. "We want to start construction in November, but we want to have internal approvals a few months before that," Murphy said.

The treaty is unlikely to be ratified until the unitization of the Greater Sunrise field, which currently lies 20 percent in the Timor Gap and 80 percent in Australian territory, is agreed. "At the earliest we would be looking at the last quarter of this year but I think we really have to look at it as a process designed to take about a year," Downer's spokesman said, when asked how soon the treaty could be ratified.

Bayu-Undan is scheduled to begin commercial production of around 100,000 barrels a day of condensate, propane and butane from a floating storage and offloading facility in early 2004. Tokyo Gas Ltd and Tokyo Electric Power Co Inc have already signed 17-year contracts to buy gas from the Timor Sea development. Shipments are due to begin in 2006. Phillips owns 48.5 percent of Bayu-Undan. Other shareholders include Santos Ltd with 11.8 percent, Kerr McGee Corp with 11.2 percent, INPEX Corp with 11.7 percent, Agip with 6.7 percent, while Tokyo Electric Power Co Inc and Tokyo Gas Ltd together own 10.1 percent.