In a statement today, Nexus declared the commerciality of the offshore Gippsland Basin project, based on contracted reserves of 350 petajoules of gas and 4 million barrels of condensate.

Under the sales agreement, Nexus will deliver raw gas from the Longtom field via subsea wells linked by pipeline to the Santos-owned and operated Patricia/Baleen gas processing plant near Orbost.

Santos, which has an option to acquire a 35% stake in the project, has agreed to process up to 450PJ of raw gas from Longtom and purchase the first 350PJ of the sales gas at defined prices.

Santos managing director John Ellice-Flint said the gas will marketed via the Eastern Gas Pipeline to meet increasing demand in eastern Australia.

“This innovative commercial arrangement captures additional value for Santos’ Gippsland gas hub and secures additional value for our portfolio between the key markets of Victoria and New South Wales,” he said.

“It also extends the life of the processing facility well into the next decade. We are looking forward to working with Nexus on this exciting development.”

Nexus managing director Ian Tchacos said Longtom production was due to start in the third quarter of 2008.

“Excellent technical and commercial progress has been made at Longtom,” Tchacos said.

“The project represents a very significant step forward for the company.”

Nexus expects to lodge a submission for its Longtom field development plan with the relevant authority next month. It expects to receive all necessary government project approvals by the middle of the year.

In order to meet the first gas production target, Nexus plans to drill an additional development well and install pipelines in the first half of 2008.

The company is also currently converting letters of intent for all major project equipment items and services to final contracts.