25th Jul 2006 07:00
BHP Billiton PLC25 July 2006 25 July 2006Number 24/06 BHP BILLITON QUARTERLY REPORT ON EXPLORATION AND DEVELOPMENT ACTIVITIES April 2006 - June 2006 This report covers exploration and development activities for the quarter ended30 June 2006. Unless otherwise stated, BHP Billiton's interest in the projectsreferred to in this report is 100 per cent, and references to project schedulesare based on calendar years. During the quarter, the Board approved the development of the Shenzi oil and gasfield in the Gulf of Mexico (USA) and the Koala Underground Project at the EKATIdiamond operation (Canada). This brings to seven the total number of majorprojects approved during the 2006 financial year for an estimated cost of US$5.1billion (BHP Billiton share). The Worsley Development Capital Projects (Australia) and the Rapid GrowthProject 2 (Australia) were commissioned and the Escondida Sulphide Leach Project(Chile) achieved first production during the quarter. Cost and capacity pressures continued during the final quarter of the 2006financial year. Tight labour markets and shortages of equipment and supplieshave driven up costs and in some instances impacted project schedules. Currencystrength against the US dollar has added further pressure. Market conditions inAustralia and the Gulf of Mexico are particularly tight and are impacting bothexisting projects and our plans to execute new growth projects in these regions.Specifically, the Ravensthorpe Nickel Project in Western Australia and theAtlantis South Development in the Gulf of Mexico are experiencing cost pressuresmore than 30 per cent in excess of approved budgets. As a result, a detailedreview of the Ravensthorpe schedule and budget commenced during the quarter. TheAtlantis South Development schedule remains under review following last year'shurricanes in the Gulf of Mexico. Assuming Atlantis first oil in quarter one of2007, total production for the Petroleum Customer Sector Group for the 2007financial year is expected to be in line with the 2006 financial year. Mostother projects remain broadly on schedule with some minor delays beingexperienced in Australia. PETROLEUM DEVELOPMENT Atlantis South Development, Gulf of Mexico, USA (BHP Billiton 44%, non-operated) In February 2005, BHP Billiton approved a revised budget of US$1.1 billion forthe development of the Atlantis South oil and gas reserves. The projectcontinues to experience cost and schedule pressure as a result of heated marketconditions and additional quality assurance and regulatory certificationprocesses in response to last year's Gulf of Mexico hurricane season. Costpressures are likely to result in a capital cost increase of more than 30 percent in excess of the currently approved budget. This development will have agross nameplate daily capacity of 200,000 barrels of oil and 180 million cubicfeet of natural gas. During the quarter, final integration work continued and USCoast Guard inspections of the facility were conducted in preparation for sailout. Drilling and completion of the development wells also continued. Overallproject progress is approximately 80 per cent. The project schedule remainsunder review. A detailed review of cost estimates continues as the projectschedule firms. North West Shelf Expansion, Australia (BHP Billiton 16.67%, non-operated) In June 2005, BHP Billiton approved an expansion to the liquefied natural gas(LNG) processing facilities at the North West Shelf Project in Australia. Theproject includes the construction of a fifth liquefaction processing train witha gross annual capacity of 4.2 million tonnes, additional processing facilitiesand associated infrastructure. The project is progressing as per schedule withall major construction contracts now awarded. BHP Billiton's share ofdevelopment costs, based on the operator's estimate, is approximately US$250million with first production expected by late 2008. The project cost andschedule are under review. Neptune Development, Gulf of Mexico, USA (BHP Billiton 35%, operated) In June 2005, BHP Billiton approved the Neptune oil and gas development locatedin the Gulf of Mexico. The project includes the construction, installation andoperation of a stand-alone platform and the associated seven well subsea system.The facility will have a gross nameplate daily capacity of 50,000 barrels of oiland 50 million cubic feet of gas. During the quarter, drilling of developmentwells began and fabrication of the platform piles and tendons also commenced ata construction yard in Texas, USA. Development costs are estimated at US$850million (BHP Billiton share US$300 million) with first production expected bythe end of 2007. Stybarrow Development, Australia (BHP Billiton 50%, operated) In November 2005, BHP Billiton approved the Stybarrow oil field developmentlocated off the north-west coast of Australia. The project involves a subseadevelopment and a Floating Production Storage and Offtake (FPSO) facility with agross daily capacity of approximately 80,000 barrels of liquids, which will beprovided under a 10 year service agreement. Vessel hull block and accommodationfabrication activities are continuing and the cutting, blasting and painting oftopsides has commenced. Project costs are estimated at US$600 million (BHPBilliton share approximately US$300 million). First production is expectedduring the first quarter of 2008. North West Shelf Angel Development, Australia (BHP Billiton 16.67%,non-operated) In December 2005, BHP Billiton approved the development of the North West ShelfVenture's Angel gas and condensate field off the north-west coast of Australia.The project involves the installation of the Venture's third major offshoreproduction platform and associated infrastructure, including a new subsea 50kilometre pipeline which will be tied into the North Rankin platform.Hydrocarbons will be produced through one processing unit with a gross dailycapacity of up to 800 million standard cubic feet of gas and associatedcondensate. All major contracts have now been awarded. Engineering andprocurement activities continued during the quarter. BHP Billiton's share ofdevelopment costs, based on the operator's estimate, is approximately US$200million. The development is expected to be fully operational by the end of 2008. Shenzi Development, Gulf of Mexico, USA (BHP Billiton 44%, operated) In June 2006, BHP Billiton approved the development of the Shenzi oil and gasfield located in the Gulf of Mexico. The project includes the construction,installation and operation of a stand-alone platform and the associated subseasystem. Initial field development will consist of seven producing wells and thefull field development is expected to have up to 15 wells. The facility willhave a gross nameplate daily capacity of 100,000 barrels of oil and 50 millioncubic feet of gas. Gross costs for the full field development through 2015 areestimated at US$4.4 billion (BHP Billiton share US$1.94 billion) with firstproduction expected by mid 2009. MINERALS DEVELOPMENT Aluminium Worsley Development Capital Projects (DCP), Australia (BHP Billiton 86%) The Worsley Alumina DCP was approved in May 2004 with a budget of US$192 million(US$165 million BHP Billiton share) and will increase alumina capacity by250,000 tonnes per annum to 3.5 million tonnes per annum (100% basis). Theproject is now mechanically complete with commissioning in progress andadditional production ramping up. As a result it will no longer be included inthis report. The cost to completion is currently being finalised, however isexpected to be close to budget. Alumar Refinery expansion, Brazil (BHP Billiton 36%) The Alumar Refinery expansion was approved in December 2005 with a budget ofUS$518 million (BHP Billiton share). The project includes upgrades to theexisting production unit and duplication of the upgraded line and will increasealumina capacity by 2 million tonnes per annum to 3.5 million tonnes per annum(100% basis). Detailed engineering, procurement and construction continuedduring the quarter. Commissioning is expected to be completed in mid 2008. Base Metals Escondida Sulphide Leach, Chile (BHP Billiton 57.5%) The Escondida Sulphide Leach Project was approved in April 2004. The projectwill produce 180,000 tonnes (103,500 tonnes BHP Billiton share) of coppercathode per annum, utilising a bacterially assisted leaching process onlow-grade run-of-mine ore from both the Escondida and Escondida Norte pits. Theresulting solutions will then be treated in conventional solvent extraction andelectrowinning plants. During the quarter, leach pad irrigation continued withapproximately 21 million tonnes of ore under irrigation. Performance testing ofthe desalination plant was completed and the solvent extraction andelectrowinning plants are undergoing mechanical commissioning. First cathode wasproduced on 28 June 2006 and as a result this project will no longer be includedin this report. Project costs are currently being finalised, however areexpected to be close to the budget of US$870 million (US$500 million BHPBilliton share) excluding foreign exchange impacts of the stronger Chilean peso. Spence, Chile The Spence Project, approved in October 2004, will be a new open cut mine withassociated plant facilities capable of producing 200,000 tonnes per annum ofcopper cathode through a combination of chemical and bacterial leaching. Duringthe quarter mine pre-strip operations proceeded to schedule and the first lowgrade oxide mineralisation was placed on the dump leach pad. Liner placement forthe heaps and ponds was effectively completed with hydrostatic testingcontinuing. Major mechanical and structural erection works were completed andelectrical and plant piping installation continued. Initial pre-commissioningtesting commenced with electrical rooms and sub stations being energised. Sitewide communication was achieved between control rooms and electrical switchrooms. The project remains within the budget of US$990 million excluding foreignexchange impacts of the stronger Chilean peso. Production is on schedule tobegin during the last quarter of 2006. Carbon Steel Materials Rapid Growth Project 2, Australia (BHP Billiton 85%) The Rapid Growth Project 2 (RGP2) was approved in October 2004. The projectcomprises increases in mine, rail and port capacity through the development ofOre Body 18 (OB 18), purchase of additional rolling stock and a new car dumperat Finucane Island. Site activities are essentially complete. First ore wasrailed from OB 18 on 7 May 2006. Wet commissioning of the new car dumper alsostarted during the quarter as planned. The project will increase installedcapacity at Western Australian Iron Ore by 8 million tonnes per annum by thesecond half of 2006 (this will be offset by an 8 million tonnes per annumreduction in capacity due to the suspension of the Goldsworthy ship loadingoperations at Finucane Island in the third quarter of 2006, related to the RapidGrowth Project 3). As this project has successfully been completed it will nolonger be included in this report. The cost of completion is currently beingfinalised however is expected to be in line with the budget of US$575 million(BHP Billiton share US$489 million). Rapid Growth Project 3, Australia (BHP Billiton 85%) The Rapid Growth Project 3 (RGP3) was approved in October 2005. The project willcomprise expansions to mine, rail and port facilities. Installed capacity atWestern Australian Iron Ore's Area C mine will increase by 20 million tonnes perannum by the fourth quarter of 2007, and the project will also deliver somelatent capacity at the port to be utilised in future expansions. Engineering andprocurement activities are nearing completion, with initial constructionactivities proceeding to plan. Development costs are estimated at US$1.5 billion(US$1.3 billion BHP Billiton share). Samarco Third Pellet Plant Project, Brazil (BHP Billiton 50%) The Samarco Third Pellet Plant Project was approved in October 2005. The projectwill increase annual iron ore pellet production capacity by 7.6 million tonnes to 21.6 million tonnesper annum (100% basis). The new facilities will include additional miningcapacity and a new concentrator at the Germano site, a 400 kilometre slurrypipeline from Germano to Ponta Ubu and a third pellet plant, additionalstockyard and enhanced shiploading capacity at the Ponta Ubu site. Detailedengineering and procurement are proceeding and construction activities havecommenced at Germano, Ubu and on the pipeline. The project budget is US$1.18billion (US$590 million BHP Billiton share). Production is scheduled to commenceduring the first half of 2008. Diamonds and Specialty Products Koala Underground Project, Canada (BHP Billiton 80%, operated) In June 2006, BHP Billiton approved the development of the third undergroundmine at the EKATI diamond mine in Canada. In addition to the mine development,the investment provides for mine ventilation systems, an underground conveyorconnecting to the existing Panda underground conveyor and minor surfaceinfrastructure and mobile equipment. The project will deliver a total of 10.6million dry tonnes of ore to the process plant and recover 9.8 million carats ofhigh quality Koala diamonds over an 11 year period. Total development costs areestimated at US$250 million (BHP Billiton share US$200 million). Firstproduction is expected in the last quarter of 2007. Stainless Steel Materials Ravensthorpe Nickel Project, Australia The Ravensthorpe Nickel Project was approved in March 2004 and following areview of project costs completed in August 2005, a revised budget of US$1,340million was authorised. The project continues to experience cost and schedulepressure as a result of the heated market in Western Australia. Cost pressuresare likely to result in a capital cost increase of more than 30 per cent inexcess of the currently approved budget. A detailed review of both the costestimate and delivery schedule commenced during the quarter. The projectincludes the development of a mine, treatment plant and associatedinfrastructure near Ravensthorpe in Western Australia. The Ravensthorpeprocessing plant will produce a mixed nickel-cobalt hydroxide intermediateproduct (MHP). Engineering and procurement activities are now over 98 per centcomplete and construction continues to ramp up with more than 1,700 people nowworking at site. Erection of structural steel is well advanced and mechanicaland piping works are in progress. The first autoclave has been installed and thesecond is awaiting transport to site. Yabulu Extension Project, Australia The Yabulu Extension Project was approved in March 2004. The metal refiningsection of the Yabulu refinery near Townsville in Queensland is being expandedto process up to 220,000 tonnes of MHP. This additional processing capacity willincrease refinery production to 76,000 tonnes of nickel and 3,500 tonnes ofcobalt. Overall project progress is 64 per cent. Following a review of projectcosts completed in August 2005, a revised budget of US$460 million was approved.Project delivery is on schedule and commissioning will start ahead of deliveryof feed from Ravensthorpe. PETROLEUM EXPLORATION Exploration and appraisal wells drilled during the quarter or in the process ofdrilling as at 30 June 2006. WELL LOCATION BHP BILLITON EQUITY STATUS Blackbeard West-1 Gulf of Mexico, 5% BHP Billiton; Drilling ahead. South Timbalier Exxon operator Block 168 Puma-2 & 3 Gulf of Mexico, 33.3% BHP Billiton; Puma 2 recommenced Green Canyon BP operator operations early Block 821 / 866 April, currently drilling ahead. Puma 3 is temporarily suspended. Ouachita-1 Gulf of Mexico, 16.875% BHP Billiton; Drilling ahead. Green Canyon Amerada Hess operator Block 376 Kingbird-1 Trinidad & Tobago, 30% BHP Billiton Spudded mid June, Block 3(a) and operator currently drilling ahead. Dixon-2 Dampier Sub-Basin 16.66% BHP Billiton, Successful Western Australia Woodside operator appraisal. WA-9-R Plugged & suspended. Brecknock-3 Browse Basin 8.33% BHP Billiton, Spudded early Western Australia Woodside operator June, currently WA-32-R drilling ahead. Pemberton-1 Dampier Sub-Basin 16.66% BHP Billiton, Spudded mid June. Western Australia Woodside operator Wireline logging WA-28-P completed. Results being evaluated. MINERALS EXPLORATION BHP Billiton continued to pursue global exploration opportunities for keycommodities of interest utilising both in-house capabilities and the JuniorAlliance Programme. Grassroots exploration continued on diamond targets in Angola, Canada and theDemocratic Republic of Congo (DRC); on copper targets in Chile, Mongolia, DRCand North America; and on nickel targets in Australia, Canada and Africa.Exploration for iron ore, coal and bauxite was undertaken in a number of regionsincluding Australia, South America and Africa. During the quarter BHP Billiton also announced an alliance with MMC NorilskNickel, Russia's largest mining and metals company, to explore and developmineral resources in the Russian Federation. This represents an important stepfor BHP Billiton and significant diversification of our geographical base. EXPLORATION EXPENDITURE During the year ended 30 June 2006, BHP Billiton spent US$295 million onminerals exploration of which US$214 million was expensed. Capitalisedexploration included US$76 million for the Caroona (Australia) explorationlicence. Petroleum exploration expenditure was US$447 million. The amount expensed wasUS$318 million including US$41 million of exploration expenditure previouslycapitalised. 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