Partner Adelaide-headquartered Santos today said first liquids production had been achieved on schedule from the gas recycle (liquids) phase of the project following successful commissioning and start-up.

Santos said operator ConocoPhillips anticipated that gas recycling (gas reinjection and increasing liquids production), would start as scheduled from April 2004, with full daily design rates - of 1.1 bcf of gas, 115,000 barrels of combined condensate, propane and butane plus 950 million cubic feet of dry gas (for re-injection) - being achieved by the third quarter of 2004.

The liquids project involves extracting and processing wet gas to remove condensate, propane and butane (liquids) before re-injecting dry gas back into the reservoir for later use. The liquids are then loaded onto a FPSO (floating storage and offloading facility).

Commentators say the Bayu-Undan project is not only a significant project in its own right but provides the first major infrastructure in that part of the Timor Sea.

However, earlier this month reports emerged that ConocoPhillips was threatening to quit the A$3.5 billion project unless Australia and East Timor finalised a treaty on sharing royalties from Bayu-Undan. ConocoPhillips is contracted to supply three million tonnes of LNG a year to fellow Bayu-Undan partners Tokyo Electric Power and Tokyo Gas from January 2006.

Santos, with a 10.6% interest, is the only Australian-owned company involved in the world-class Timor Sea project. The other partners are: ConocoPhillips (operator) 56.72%; ENI 12.04%; INPEX 10.52%; and Tokyo Electric Power Company/Tokyo Gas Company 10.08%.