Melbourne, Australia-based BHP Billiton said last week that it is investing $100 million in two limited liability companies that will transport natural gas and oil from the group’s recently sanctioned Mad Dog development and its Atlantis discovery, both in the ultra-deepwater Gulf of Mexico (GOM). The company said the pipelines are part of a new system being built in the southern Green Canyon area that also will transport oil and gas from the BP-operated Holstein development and potentially other fields.

Under the transaction, BHP Billiton will acquire a 25% interest in the new Caesar oil pipeline and a 22% interest in the Cleopatra gas pipeline. The 28-inch diameter Caesar pipeline is expected to have a design capacity of at least 450,000 b/d, and the 20-inch diameter Cleopatra pipeline will have a capacity of 500 MMcf/d. The participants in the Caesar and Cleopatra pipeline system are BHP Billiton, BP (operator), Shell, Equilon Pipeline Co. and Unocal. BP will be the construction manager and operator of these systems through its wholly-owned subsidiary Mardi Gras Transportation System Inc.

Approximately 120 miles long including laterals, the pipelines are the first of their size to be laid in water depths greater than 5,000 feet in the GOM. BHP Billiton said both lines will be installed on a parallel timeframe with the Mad Dog and Holstein field developments and commissioning is expected in 2004.

“This investment provides BHP Billiton with equity participation in a strategically and commercially important infrastructure project that will serve the southern Green Canyon area where significant discoveries have been made by BHP Billiton, BP, Shell and Unocal, as well as other third parties,” said Philip Aiken, CEO of BHP Billiton Petroleum.

Earlier this month, the company announced approval for the development of its Mad Dog discovery. The field contains estimated reserves of 200-450 MMboe gross, with BHP Billiton’s share accounting for about 42-94 MMboe after deduction of royalty at a rate of 12.5%. The company’s board sanctioned a capital expenditure for field development of up to $335 million.

The gross design capacity of the facility will be 80,000 b/d of oil and 40 MMcf/d of gas. First production is expected by the end of calendar year 2004, with production at full design capacity expected to occur within 12 months. The field has an estimated life of 20 years.

“The Gulf of Mexico is a key component in BHP Billiton Petroleum’s growth program, and the Mad Dog field will be an important addition to production already captured at Genesis (acquired in 2000) and Typhoon (on-stream in 2001),” Aiken said. “Mad Dog will be a major oil and gas development, which will add significant value to BHP Billiton’s portfolio of petroleum assets. Later this year we also expect to announce the sanctioning of the Atlantis development, which will become our second ultra-deepwater producing asset in the Gulf.”

By buying into the pipelines, BHP Billiton can secure transportation arrangements for Mad Dog, Atlantis and future proximal discoveries. The company will utilize the infrastructure to transport its 23.9% equity share of the oil and gas from the Mad Dog development and its 44% equity share of the hydrocarbons from the Atlantis discovery (gross reserves 400-800 MMboe), which is scheduled for approval later this year. The company’s partners on Mad Dog include BP as the designated operator with a 60.5% interest and Unocal with a 15.6% stake.

The pipe system will link to Ship Shoal Block 332, which connects to the existing Manta Ray gas gathering system and the Cameron Highway oil pipeline system – a new offshore pipeline recently announced by El Paso Energy Partners. From that connection point, oil and gas will be transported to markets in Texas and Louisiana.

BHP Billiton, formed on June 29, 2001 from the merger of BHP Limited and Billiton Plc (Billiton), has an enterprise value of approximately $38 billion. The combined company said it will occupy industry-leader, or near-leader, positions in aluminum, metallurgical coal, seaborne steaming coal, copper, ferro-alloys, iron ore and titanium minerals. The company also has substantial world-wide interests in oil, natural gas, LNG, nickel, diamonds and silver. BHP Billiton has ownership interests in more than 220 leases in the Central Gulf of Mexico.

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