Tax disputes cause Phillips to cancel offshore gas pipeline project

Petroleum News Alaska

The multi-billion dollar commercialization of Timor Sea natural gas north of Australia was dealt a serious blow on July 31 when Phillips Petroleum Co. and its partners said they had deferred “indefinitely” an investment in a $500 million subsea natural gas pipeline to transport natural gas from the Bayu-Undan field to Darwin, Australia. Phillips is a 50.3 percent stakeholder in the project.

The decision, Phillips said in a statement, “may prevent commercialization of certain Timor Sea gas resources.”

Phillips said legal, fiscal and taxation issues arose under a recent agreement between Australia and East Timor that dealt with petroleum production in the disputed Timor Gap area of the Timor Sea.

The issues, Phillips said, have to be resolved “before further investment can proceed in either the pipeline or in any gas or liquefied natural gas development.” The company promised to work with Australia and East Timor to resolve the issue. Recent press reports support that commitment.

The pipeline was key to delivering natural gas to Australia and liquefied natural gas to California and Mexico. (Phillips said March 8 that it had signed a letter of intent with El Paso Corp. for a major liquefied natural gas project to deliver some 4.8 million tons a year of LNG to the West Coast starting in 2005.)