John Phaceas – Development of a $1.5 billion gas pipeline to Phillips Petroleum's Bayu-Undan gasfield in the Timor Sea will go ahead after the US energy giant finally reached agreement with East Timorese authorities over project taxes.
Phillips shelved plans for the 550km pipeline to Darwin in July, after East Timor's interim authorities indicated a further $1 billion in taxes would be clawed back over the project's 20 year life. The project was already set to become East Timor's biggest money spinner, generating $7 billion in royalties over two decades.
The deferral effectively killed plans to co-develop Bayu-Undan with Woodside Petroleum's bigger Sunrise fields and build a $6.8 billion liquefied natural gas plant onshore at Darwin. It also threatened to sink a memorandum of understanding to supply US energy group El Paso with $US20 billion worth of LNG over 20 years.
But after months of exhaustive talks, Phillips yesterday said East Timor's Council of Ministers had endorsed a tax and fiscal package that would allow Bayu-Undan to proceed.
"This marks an historic day in the establishment of the Timor Sea as an important emerging gas development area," Phillips president Stephen Brand said. "We now await ratification of the agreement by Australia."
The agreement met all the investment criteria sought by the Bayu-Undan partners "at the same time maximising revenues to East Timor" .
Once the agreement has been formalised, the project partners have committed to develop onshore infrastructure needed by the project and the people of East Timor.
In particular, the partners have promised to start work immediately to upgrade the existing airport at Baucau, to make it a suitable as a staging point for work on the Bayu-Undan project, The partners have also committed to building commercial port facilities. Similarly, training programs for "general needs and community healthy" will be offered to the local population.
Bayu-Undan has estimated reserves of 400 million barrels of condensate and 3.4 trillion cubic feet of gas.
The $2.8 billion phase one gas recycling project remains on track to produce 105,000 barrels of condensate per day from early 2004, while the El Paso agreement calls for 4.8 million tonnes of LNG to be supplied from 2005.
Phillips owns 58.6 per cent of the project, while Santos holds 11.8 per cent, Japan's Inpex owns 11.7 per cent, Kerr McGee Corp has 11.2 per cent, and Agip the remaining 6.7 per cent.