Total production for Australia’s largest gas project was 26.89 billion cubic feet of gas, compared with 25.22Bcf in the September quarter.

However, BHPB’s overall petroleum production result of 27.52 million barrels of oil equivalent was level with the December 2005 quarter.

“Improving base operational performance had a very positive impact and reduced the effect of natural field decline,” the company said in its quarterly report released today.

In line with an earlier warning, BHPB has upgraded the budget forecast of its Atlantis South oil and gas project in the Gulf of Mexico 50% to $US1.5 billion ($A1.8 billion).

“While the majority BHP Billiton’s projects remain broadly on schedule, tight labour markets and shortages of equipment and supplies continue to be evident across the resources industry globally and will continue to impact project costs and schedules,” the company said.

In February last year, the company approved a revised budget of $1 billion for Atlantis, which is operated by BP. But by October it was flagging cost increases of at least 30%.

The project is expected to have daily production rates of 200,000 barrels of oil and 180 million cubic feet of gas.

Six development wells have been drilled so far, five of which were completed at the end of last month.

BHPB also hinted of cost blow-outs at its Neptune (Gulf of Mexico) and Stybarrow (Carnarvon Basin) projects, which despite being on schedule, are both experiencing “some cost pressure”.