Regional LNG: Timor Sea gas discovery may boost Bayu Undan expansion

Australian oil and gas producer Santos Ltd. said Thursday that a new discovery in the Timor Sea may be used to expand ConocoPhillips Corp.'s Bayu-Undan LNG project, Dow Jones reported.

The first drill hole at the Caldita field, 265 kilometers northwest of Darwin, found significant hydrocarbons, and a flow test gave "an encouraging result," Santos Managing Director John Ellice-Flint said in a statement. Further tests are needed before Santos will say anything about the quality of the gas.

U.S. oil giant ConocoPhillips' Bayu-Undan project "is the most obvious place for this gas to go, but that's not to say it is where it ultimately end up," a Santos spokeswoman said. "We have an agreement with ConocoPhillips that if we find significant gas here then we can try to put it through that processing plant."

The U.S. oil giant bought a 60% stake in Caldita from Santos last year. It is due to produce gas piped from the Timor Sea Bayu-Undan field to its Darwin LNG plant in the first half of 2006 and has permits to add a second processing unit, or train.

Any expansion of Bayu-Undan will depend on the size of the Caldita field, the quality of its gas and whether enough customers to buy the gas can be found.

Tokyo Electric Power Co. and Tokyo Gas Co. have contracted to buy nearly all the production from Bayu-Undan over 17 years.

A drill stem test at Caldita flowed gas at a rate of about 33 million cubic feet a day through a one-inch choke, though flow was constrained by limitations of surface equipment, Santos said Thursday.

The Darwin LNG plant has permits to increase production to 10 million tons of natural gas a year from its current capacity of 3.2 million tons.

The Bayu-Undan plant is operated and 56.7% owned by ConocoPhillips, with Italian firm Eni S.P.A. owning 12.1%, Santos 10.6% and Tokyo Electric Power and Tokyo Gas owning a combined 10.1%.(*)