Bayu-Undan beginning to roll, but ZOCA agreement needed soon

First production expected by 2003

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At long last, the massive Bayu-Undan development is beginning to make progress. Following several delays, the project may be granted official approval by the end of the year and begin producing by late 2003. Bayu-Undan Field is one of the largest developments in the Timor Sea.

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The proposed development plan for Phase I of the Bayu-Undan Liquids Project in ZOCA Area A in the Timor Sea.
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The field reserves of about 400 million bbl of condensate and LPG and 3.4 Tcf of gas. The field is located in Zone A of the prolific Timor Gap Zone of Cooperation Area (ZOCA), governed jointly by Indonesia and Australia, although the agreement may have been voided by the East Timor independence vote.

Within Zone A, the field straddles two production sharing contracts - 91-12 and 91-13. The field was discovered originally in 1995 by a group consisting of operator BHP, and partners Phillips, Santos, Inpex, Oryx/Kerr-McGee, Petroz NL, and British-Borneo. Since the discovery, the partners in the project have disagreed over the optimal phased development plan for the field. These disagreements, in turn, have resulted in massive delays that have pushed production back several years.

Development disputes

The disagreements were centered chiefly on a difference of opinion between BHP and Phillips. The main disagreement focused on the development of the field's natural gas reserves. BHP had proposed an offshore LNG concrete structure near the field to process the gas, while Phillips supported a pipeline and shore-based treatment facility. In addition, back in May, BHP also wanted to delay development due to low commodity price and uncertainty over the growing unrest in East Timor, while the other participants wanted to go ahead with development.

The disagreements, together, pushed development back an estimated two years. The initial draft of the development plan was submitted to the Joint Authority (JA) in December of last year and project approval was expected by March of this year. But, the parties did not expect approval until late this year or early next year.

Nevertheless, all disagreements between project participants became moot in April of this year, when BHP sold Phillips its interest in the 91-12 production sharing contract, making Phillips the new operator. Since that time, the project began making more progress.

After the sale in mid-July, all participants in the project signed the Bayu-Undan Unitization Agreement, which was in turn submitted to the JA. The Unitization Agreement covered the key elements that were changed under the new operatorship of Phillips. These included dispute resolution and voting procedures.

Phillips quickly followed in July with the final Liquids Development Plan, which was submitted to all the parties. Phillips said it expects to have both internal approval by the participants and project approval by the governing body by the end of the year. This would then put first production of the liquids by late 2003.

Phase I development

Development of the Bayu-Undan Field is divided into two phases:

  • The first phase is called the Bayu-Undan Liquids Project and will recover the liquids and recycle the gas into the reservoir.
  • The second phase will export the gas for sale to the market in Australia.

The approval currently being sought involves the first phase of the project. Development plans call for three steel platforms and a permanently moored floating, storage, and offloading vessel (FSO). The platforms will include a drilling, production, and processing platform (7,500-ton jacket and 12,000-ton deck), a wellhead platform (1,150-ton jacket and 1,200-ton deck), and a compression, utilities, and quarters platform (7,500-ton jacket and 10,000-ton deck).

The field will produce from approximately 26 wells over its estimated 25-year life to the platforms, tied into the FSO. The FSO will measure 248 meters in length by 54 meters wide, and have storage capacity of 820,000 bbl of condensate and 300,000 bbl of propane/butane.

Initial production rates are expected to be 113,000 b/d, consisting of 70,000 b/d of condensate and 43,000 b/d of liquid petroleum gases (LPG). Proven plus probable recoverable reserves from the Liquids Project are estimated at 325 million bbl of condensate and LPG and gas reserves of 3.4 tcf. Partner Petroz NL has also estimated that gas exports would enhance field recovery by over 40 million bbl.

Phase II development

Phase II is being studied by the project partners. Phillips proposed the building of a gas treatment plant in Darwin, Australia to handle the associated gas via a pipeline. The participants have begun actively marketing the gas for use in projects in the Northern Territory of Australia and estimate that by the time the second phase begins, domestic gas demand will be high enough to justify a pipeline to shore and a gas treatment facility.

The companies also estimate that gas production could begin in unison with the start of the Liquids Phase. Discussions are currently underway with pipeline companies regarding the construction of the gas line to the Darwin facility.

Trouble brewing?

But Bayu-Undan may not be out of the woods yet. The problems in East Timor may cause a major change to the way things are done in the ZOCA. If East Timor is allowed to secede by Indonesia, the Timor Gap Treaty between Indonesia and Australia will be void. To maintain operations, Australia and East Timor will have to negotiate a new treaty and that step potentially could delay all operations.

"The legal basis for Bayu-Undan's development flows from the Timor Gap Treaty that established the ZOCA and it was under it that we received the rights to production sharing contract areas. The treaty is the legal underpinning for our development, so continuation of that treaty is fundamental to our ability to develop this project.

"If East Timor is seceded by Indonesia and moves toward an independent status, then we will be looking to the East Timorese to succeed to the treaty and the various terms under the treaty, and for agreements to be put in place that will implement a transition from the current Australia-Indonesia relationships to a new Australia-East Timor relationship. But, main-taining the treaty is the most important point," said Jim Godlove, Darwin Area Manager for Phillips.

However, with a new treaty, the governance of the Timor Gap is the utmost importance. "Any sort of agreement with regard to the ZOCA has to address the continuation of the treaty, the commercial and fiscal regime that we expect to be in place as the result of the treaty, and the administrative authority - the Joint Authority. We will certainly need the JA to do business as usual, to process applications, to grant approvals, to provide the day-to-day oversight of our operations. Godlove added.

In its short life, the Bayu-Undan Field has crossed several major barriers that have delayed its development from within the operating group. Within the past year, the development has made great progress, but it seems external factors might be the cause of more delays.

Editor's Note: At the time of this writing, a final vote had not been made by the Indonesian Parliament as to the independence of East Timor. An update on the terms of the agreement will likely follow in the December Asia/Pacific column.

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