History
The Company was incorporated in Victoria in 1885. Its securities are listed on the Australian, New York, London, New Zealand, Switzerland, Frankfurt and Tokyo stock exchanges.
BHP was established to mine a lead-silver-zinc deposit at Broken Hill, New South Wales, and diversified in the early 1900s into steelmaking and, in the 1960s, into oil and gas exploration.
By 1969, the Company had begun large-scale minerals exporting. During the 1970s, it joined with Shell Australia Ltd to develop the North West Shelf gas fields off Western Australia with several other partners. It also began mining for coal in central Queensland and acquired John Lysaght (Australia), a coated steel products manufacturer, now part of BHP Steel.
In 1983, BHP discovered oil in northern Australian waters. New international fields were opened in 1984/85, when the Company acquired Utah International Inc., the Energy Reserves Group and Monsanto Oil.
Restructuring in 1987 led to the Company's major business being conducted through three globally-integrated business groups: BHP Steel, BHP Petroleum and BHP Minerals.
A five year modernisation of the Company's steelmaking operations was completed in 1989 for $1.9 billion.
In 1989, the Company acquired Pacific Resources Inc., which enabled expansion of BHP Petroleum's activities into downstream operations. Pacific was a manufacturer, marketer, trader and distributor of petroleum products to the Hawaiian islands, the United States western coast, Asia-Pacific and Australia.
The Company's policy of disposal of non-strategic assets continued throughout the 1980s, with the sale of Blue Circle Southern Cement in 1987, Rheem Australia Ltd in 1988, Brownbuilt Ltd in 1989, Woodside Petroleum in 1989 and BHP Gold Mines Ltd in 1991.
In 1990/91, BHP Minerals entered into an agreement with Delta Gold NL to evaluate Zimbabwe's Hartley platinum deposit. Subsidiaries, BHP Aerospace and Electronics Pty Ltd and BHP Information Technology Ltd, were merged in 1991.
In 1992, the BHP Steel group was reorganised, with its downstream activities emphasised through a new building and industrial products division, and its international focus highlighted by a new international business division. Also, BHP and CRA Ltd formed a joint venture, Australian Associated Technologies Pty Ltd, to invest in technology based projects considered to have potential relevant to BHP and CRA core businesses.
In 1993, BHP acquired a 36.6% interest in Foster's Brewing Group Ltd for $1.6 billion. It also decided not to pursue a number of non-core business activities, including the wastewater and waste treatment sectors. As a result, Environmental Studies International Limited (ESI) negotiated to acquire BHP's minority interest in the ESI subsidiary, ESA Technologies Pty Limited.
Also in 1993, BHP Petroleum (Dai Hung) Pty Ltd, a wholly owned subsidiary of BHP Petroleum International Pty Ltd, and its joint venture partners in the Dai Hung project, signed a production sharing contract with the Vietnamese government, allowing development of the project in the Con San Basin, off the southern coast of Vietnam. Partners in the joint venture included Petronas Carigali Overseas Sdn Bhd (a wholly owned subsidiary of the Malaysian state oil company, Petronas), Total and Petro Vietnam.
BHP granted Mount Isa Mines Limited an option to acquire the Eloise copper-gold deposit in north-western Queensland in 1993. At the same time, wholly owned subsidiary Hamilton Oil announced a cooperation agreement with Rosshelf Joint Stock Society and Russian Joint Stock Society Gazprom, covering evaluation of the Prirazlomnoye field.
BHP Petroleum agreed with US based Conoco Ltd to buy its subsidiary, Conoco Australia Ltd, in 1993, which increased BHP's interest in a number of Timor Sea gas discoveries. Also, BHP signed a heads of agreement with Bains Harding Limited to form a joint venture to pursue the commercial opportunities of a new polyurethane foam product.
In 1994, BHP Power Inc., British Gas and US based Tenneco Gas formed a joint venture to pursue participation in the development of the Bolivia-to-Brazil natural gas pipeline project. The project included the development of Bolivia's natural gas reserves, construction of gas distribution facilities in Brazil and the creation of new gas markets, as well as a 4,800 kilometre pipeline between Bolivia and south-eastern Brazil.
Also in 1994, BHP participated in a $3 billion rescue of the German metals company, Metallgesellschaft, which strengthened its position to acquire the remaining equity in the Ok Tedi copper-gold mine in Papua New Guinea. During the year, a claim for damages of up to $4 billion was lodged against BHP Minerals, as majority owner, and Ok Tedi Mining Ltd, as mine manager, in the Victorian Supreme Court. The claim alleged that waste from the mine discharged into the river system had damaged property and the environment. A further 1,000 writs were issued against the company in the PNG National Court. In 1995, landowners were angered by controversial legislation before the PNG government, which would fine anyone who pursued claims in the court and included a $110 million compensation package worked out by the PNG government and BHP. BHP was found guilty of contempt by the Victorian Supreme Court for entering the compensation agreement with the PNG government. In 1996, BHP settled the dispute with an agreement to pay $110 million in compensation to affected villagers, as well as constructing a tailings dam to prevent further pollution of the Ok Tedi and Fly River systems.
BHP Manganese purchased a 14% interest in Grupo Ferrominero in 1994. The company owned 82.7% of Minera Autlan, which mined manganese ore and operated a ferro alloy smelter in Mexico. The agreement included a five year sales contract, whereby BHP would supply all of Minera Autlan's imported manganese requirements, about 80,000 tonnes per annum.
Also, BHP Minerals and Benguela Concessions Ltd announced a joint venture with Diamond Fields Resources Inc (DFR) to explore and develop DFR's diamond exploration property off the coast of Namibia. BHP and Benguela could together earn 50% of the concession areas by funding exploration, with an initial target of proving up reserves sufficient to enable mining of at least 100,000 carats per annum.
During 1994, BHP announced plans to promote itself as a metals and energy company, replacing its traditional image as a steel, minerals and oil group.
The LADS (Laser Airborne Depth Sounder) partnership between BHP Engineering Pty Ltd and Vision Systems Limited signed a $5 million contract with the US Naval Research Laboratory at Stennis Space Centre in Mississippi, to deliver a LADS system for installation and evaluation in a US aircraft. A memorandum of understanding was also signed to establish commercial terms and conditions for the disaggregation of the domestic gas contract into five separate contracts. BHP Petroleum (North West Shelf) Pty Ltd formed a new Perth based joint venture organisation, North West Shelf Gas, to take responsibility for the marketing of North West Shelf gas into a deregulated West Australian gas market.
Wholly owned subsidiaries BHP Petroleum (Americas) Inc. and BHP Power Inc. signed two agreements in 1994 for the development of a major natural gas field and integrated power generation project in Ecuador with the country's government, King Ranch Oil and Gas Inc. of Houston, Texas. BHP Petroleum (Americas) held 66.7%, with King Ranch owning 33.3%.
BHP Petroleum (North West Shelf) sold its remaining 4.2% holding in Woodside Petroleum for $135 million in 1994. BHP and Shell sold their joint holding of 11.5% in Woodside for $366 million. BHP maintained an interest in the North West Shelf project through its 16.7% interest in the LNG export project and an 8.3% interest in the domestic gas phase. The Company also sold its fibre optic products subsidiary, AOFR Pty Ltd, and associated businesses, to ADC Telecommunications Inc., of Minneapolis. Later, BHP Minerals announced it would develop a major titanium minerals deposit at Beenup in south-western Western Australia for the production of ilmenite and zircon. BHP also negotiated a smelter joint venture with the Tinfos A/S group of Norway to process ilmenite at its smelter in Norway.
In 1995, the first phase of BHP's $310 million Pilbara energy project was opened in Western Australia. This involved a 215 kilometre gas pipeline from Karratha to Port Hedland and a gas turbine power station at Port Hedland. The second stage involved a station at Newman.
Also in 1995, BHP put forward a proposal to the Indian government to establish a large generating complex with coal mines, costing an estimated $5.2 billion for the power component alone. In addition, the Company and North Star Steel Company selected a 200 hectare site in Delta, Ohio, in the mid-west of the US, as the location for a US$400 million ($533.3 million) flat-rolled steel recycling mill.
BHP Steel approved three new projects during 1995: a $280 million cold rolling, metallic coating and painting facility in the US, a similar $265 million facility in Thailand and a $100 million upgrade of the Company's hot strip mill at Westernport, Victoria. BHP also approved $93 million expenditure for a program of works to extend the NSW Port Kembla Steelworks output by 400,000 tonnes to five million tonnes of slabs per year.
Also in 1995, BHP announced it would proceed with plans to build a hot briquetted iron plant near Port Hedland, in the Pilbara region of Western Australia. The plant, with an anticipated investment of $900 million, would have an expected annual capacity of two to 2.5 million tonnes of hot briquetted iron. BHP Steel also intended to maintain a fully-viable rod and bar products operation at Newcastle. Existing facilities would be operated through until 2002 and $180 million were committed to maintain the blast furnaces and other associated primary plant until electric arc furnace steel-making was introduced.
Towards the end of 1995, the Company announced two Australian investment projects totalling $155 million, comprising construction of an $85 million hot strip mill furnace at Westernport and a $70 million reline of the No. 4 blast furnace at Newcastle. It also announced plans to build a $150 million metallic coating line in Brisbane and a $23 million project to build three rollforming plants in India.
During January 1996, BHP Sub Inc., a wholly owned subsidiary of BHP, purchased 100% of Magma Copper Company of the US, which owned 100% of the mining operations known as San Manuel mining and smelting operations, Pinto Valley mining operations and Superior mining operations in Arizona, Robinson Mining Limited Partnership in Nevada and 99.02% of Magma Tintaya SA in Peru (now BHP Tintaya SA). Subsequently, BHP Sub Inc. was merged into Magma Copper Company and its name changed to BHP Copper Inc.
Also in 1996, the Company launched a successful takeover bid for Tubemakers of Australia Ltd, the largest steel pipe and tube manufacturer and metals merchandiser in Australia. Also, BHP sold its 20% interest in South Africa based Sun Prospecting and Mining Company Ltd for $60 million.
In September 1997, BHP Petroleum sold its Hawaiian gas company subsidiary, Gasco Inc., to Citizens Utilities.
Also in 1997, BHP sold its 86% investment in Foster's Brewing Group, and BHP Fasteners Pty Ltd, a wholly owned subsidiary which manufactured industrial fasteners, ceased trading.
In January 1998, BHP divested the EMD business at Newcastle, NSW.
Also in January 1998, BHP Copper White Pine Refinery Inc. purchased Copper Range Company's refinery, powerhouse and other associated assets located in White Pine, Michigan, US. The refinery was sold to Considar Holdings Ltd in June 2000.
BHP Petroleum sold its Hawaii refinery operation, Hawaii Gas Express retail gasoline stations and American Samoan operations, to Tesoro Petroleum Corporation in May 1998, effectively marking the Company's exit from refining operations.
In December 1998, BHP Power Generation sold its operating assets to Duke Energy International Inc. and ceased to operate as a BHP business unit;
As part of the Company's asset divestment program, wholly owned subsidiaries Groote Eylandt Mining Company Pty Ltd and Tasmanian Electro Metallurgical Company Pty Ltd were sold in 1998 to subsidiaries of Billiton Plc, a United Kingdom based company.
Also in 1998, the Hawks Nest processing plant and mining operations at Viney Creek and Fullerton, owned by BHP Titanium Minerals Pty Ltd, a wholly owned subsidiary of BHP, were sold to Nimbus Resources NL. In addition, BHP sold its 50% interest in a Singapore based company, BRC Weldmesh (SEA) Pte Ltd, which produced wire and wire mesh.
BHP Steel's flat products division completed the disposal of its refractories business in 1998 with the sale of its contract refractories installation division, BHP Refractory Installations, to Acutus Gladwin Refractory Services. As well, the product manufacturing and marketing operations were sold to Shinagawa Thermal Ceramics Pty Ltd.
Also in 1998, BHP Petroleum sold to a subsidiary of Gulf Resources Limited its interest in production licences AC/L 1, 2 and 3 (which included the Jabiru and Challis oil fields) and AC/L 4 (covering the Skua field, which ceased production in 1996/97); and the Company recorded a profit on the sale of the 50% investment in Koppers Australia Pty Ltd and a profit on the sale of the bulk carrier Iron Pacific.
BHP's 11.8% interest in the Goldfields Gas Transmission Pipeline joint venture and its 100% interest in Pilbara Energy were sold in January 1999.
Operations at the Beenup mine in Western Australia ceased in April 1999. Also, BHP Petroleum sold to Phillips Petroleum its interest in the Timor Sea in PSC ZOCA 91-12, together with its interests in ZOCA 9519 (33.33%), ZOCA 9620 (33.33%), NT/RL2 (8.33%) and M/P55 (33.33%).
In May 1999, BHP signed a conditional sale agreement for its interest in the Hartley platinum mine in Zimbabwe.
BHP Petroleum sold its interests in the Ravenspurn North and Johnston gas fields, located in the UK North Sea, to Eastern Group plc in July 1999.
BHP Minerals sold its interest in the Moura coal mine in central Queensland in August 1999. Also, BHP ceased operations at its US copper operations, including the San Escondida mine.
In September 1999, BHP closed the Newcastle primary steelmaking facilities of its long products business, having completed the upgrade of its rolling mills and wire operations to take billet feed from the steelmaking operations at Whyalla and Sydney. In October 1999, BHP announced its intention to divest these long products businesses together with its pipe and tube and Tubemakers distribution businesses. In February 2000, BHP advised that it intended to effect the divestment of all of these businesses by way of a spinout of a new entity, now known as OneSteel, to its shareholders in the second half of calendar 2000. BHP focused its core steel businesses around the Port Kembla steelworks and associated flat and coated products stream. In March 2000, Steel commenced operating as two business divisions, BHP Steel and OneSteel.
In November 1999, BHP Engineering (specialised engineering and project management services) was sold to the Australian subsidiary of the Canadian based global engineering firm, Hatch Associates.
Also in November 1999, BHP Petroleum sold all its petroleum interests in Papua New Guinea. The assets sold included BHP Petroleum's interests in the Kutubu (PDL-2), Gobe (PDL-4) and Moran (PDL -2) oil producing fields and other holdings in pipeline licences PL-2 and PL-3, retention leases APRL - 2 and APRL - 3 (under applications) and exploration licence PPL-161.
In December 1999, BHP sold its remaining 9.5% interest in Orbital Engine Corporation Limited, a developer of engine technologies using direct injection, lean burn combustion and control systems.
In the Timor Sea, BHP Petroleum divested its 50% interest in retention lease AC/RL2, to Santos Offshore Pty Ltd, effective March 2000 and reduced its interest in retention lease AC/RL3 from 80% to 50%, effective December 1999.
During May 2000, operations commenced at the HBI plant in Venezuela and BHP Minerals reached an agreement with Companhia Vale do Rico Doce (CVRD) that following that company's acquisition of Arbed's holding in Samitri, BHP would acquire a further one percent shareholding in Samarco, which would equalise its ownership with Samitri at 50:50.
Also in May 2000, BHP announced the sale of its US West Coast steel businesses to IMSA Acero, a wholly owned subsidiary of Grupo IMSA S.A.; BHP Information Technology was sold to Computer Sciences Corporation (CSC); and BHP Petroleum surrendered the WA-260-P licence, Timor Sea.
BHP sold its interests in the Bolivia to Brazil Gas Pipeline in June 2000. BHP's 9.67% interest in the Brazilian portion of the pipeline was sold to a subsidiary of TotalFinaElf S.A. BHP's 2% interest in the Bolivian portion was sold to Petrobras GAS S.A. BHP first established its interests in the pipeline in January 1998.
In November 2000, the Company changed its name to BHP Limited.
On the 29/6/2001 the company changed its name to BHP Billiton Limited.
Main
Activities
BHP is one of the world's largest diversified resources companies, with global interests in the mining, steel and energy industries. BHP's three principal areas of business are: minerals exploration, production and processing (principally coal, copper and iron ore); hydrocarbon exploration and production; and steel production.
Operations
For the 13 months ended 30 June 2000, revenue totalled $23,683 million, compared with $21,921 million for the year ended 31 May 1999. An operating profit after income tax amounted to $1,627 million, compared with a loss of $2,312 million previously.
MINERALS - IRON ORE:
Minerals produces or has interests in iron ore, HBI, coal, copper concentrate, copper cathode, copper rod (until October 1999), diamonds, gold, silver/lead concentrate and zinc concentrate. It manages operations in Australia, Canada, Chile, Indonesia, Papua New Guinea, Peru and the United States, has interests in iron ore in Brazil and HBI in Venezuela and conducts exploration activities in many countries. Production from Australian operations is largely exported or used by Steel in its operations.
Total capital expenditure throughout Minerals during 1999-2000 (13 months), including investments, was $567 million. During 1999-2000, a major cost reduction initiative continued across all Minerals' operations.
Mt Newman Mine:
The Mt Newman project, a joint venture in which BHP holds an 85% interest, is located in the Pilbara region of Western Australia. BHP manages the Mt Newman project. Other participants and their interests in this venture are Mitsui-Itochu Iron Pty Ltd (10%) and CI Minerals Australia Pty Ltd (5%).
Production commenced in 1969 and annual iron ore production is now 23.3 million tonnes, with one major orebody, Mt Whaleback, producing 15.5 million tonnes, and 7.8 million tonnes produced from three minor ore bodies, Orebody 29 (OB29), Orebody 30 (OB30) and Orebody 23/25 (OB23/25). BHP's 85% share of production in 1999-2000, from Mt Newman sources, was 20 million tonnes (13 months). Facilities at Mt Whaleback include primary and secondary crushing plants, a heavy media beneficiation plant and a train loading facility.
All production is transported for shipment 426 kilometres to the Nelson Point shipping facility at Port Hedland, Western Australia, on a railway owned by the joint venturers. Facilities at the port include car dumpers, crushing and screening plants, stockpile reclaimers and ship loading equipment. Vessels of 250,000 deadweight tonnes can be loaded in the sheltered harbour. Capacity of the Nelson Point facilities, located at Port Hedland, is now approximately 60 million tonnes per annum (tpa). An under-harbour tunnel between the Nelson Point and Finucane Island facilities was completed in March 1998 for the transporting of ore to the Port Hedland HBI and Finucane Island ship loading facilities.
During 1999-2000, Mt Newman shipments to Japan represented 47.6% of total despatches. Approximately 6.7% of shipments were made to BHP's Steel and HBI operations. Sales were also made to South Korea, China, Taiwan, Germany, France, the United Kingdom, Romania and Turkey. Estimated ore reserves proved and probable totalled approximately 1,230 million tonnes at 30 June 2000 of which BHP's 85% share was 1,045 million tonnes.
Mt Goldsworthy Mines:
The Mt Goldsworthy Mining Associates project, a joint venture in which BHP holds an 85% interest, is located 180 kilometres east of Port Hedland in the Pilbara region of Western Australia. BHP manages the Mt Goldsworthy Mining Associates project. The other joint venture participants, and their interests, are CI Minerals Australia Pty Ltd (8%) and Mitsui Iron Ore Corporation Pty Ltd (7%).
During 1999-2000, mining was carried out at the Yarrie mine site with mine production of 7.5 million tonnes for the 13 month period. BHP's 85% share of production in 1999-2000 was 6.4 million tonnes. All production is transported to Port Hedland, Western Australia, on a railway owned by the joint venturers. Shipments are made through the Finucane Island facility, which has a capacity of approximately 12 million tpa. During 1999-2000, Mt Goldsworthy shipments to Japan totalled 48.0% of sales.
The estimated ore reserves proved and probable at 30 June 2000 were 37 million tonnes (BHP's 85% share - 31 million tonnes). Mining at the Mt Goldsworthy leases is carried out by an independent mining company on behalf of the joint venture.
Yandi Mine:
The Yandi project, a joint venture in which BHP holds an 85% interest, is located 92 kilometres north of Mt Newman in the Pilbara region of Western Australia. BHP manages the Yandi project. The other joint venture participants, and their interests, are CI Minerals Australia Pty Ltd (8%) and Mitsui Iron Ore Corporation Pty Ltd (7%).
Development of the orebody commenced in 1991. This included construction of a rail spur to the existing Mt Newman/Hedland rail line, mine loadout tunnel and on-site administration infrastructure, and the contract mining of the orebody. The first shipment of iron ore was despatched in March 1992.
In October 1995, Minerals received approval to expand the capacity of the Yandi mine by 10 million tpa to 25 million tpa. The expansion involved the construction of a new mine at Central Mesa I, processing plant, train loading facilities and an additional 10 kilometre railway spur. The infrastructure now in place will allow the Yandi mine to produce 25 million tpa, in accordance with the terms of the Iron Ore (Marillana Creek) Agreement Act 1991. Railing of the first ore from the new mine commenced in September 1996.
During 1999-2000, pre-stripping activities commenced at Central Mesa 5. Once in production, ore from this deposit will be handled through the existing Eastern 2 processing plant and train loading facilities.
Production for the 13 months ended 30 June 2000 was 26.3 million tonnes. BHP's 85% share of production for the same period was 22.3 million tonnes.
During 1999-2000, Yandi shipments to Japan represented 52.7% of total despatches. At 30 June 2000, the estimated ore reserves proved and probable totalled 817 million tonnes of which BHP's 85% share was 694 million tonnes.
The Yandi deposits are mined by an independent contract mining company on behalf of the Yandi Joint Venture.
Jimblebar Mine:
BHP Iron Ore (Jimblebar) Pty Ltd has the mining rights to a number of iron ore deposits located approximately 40 kilometres east of Mt Newman in Western Australia. The Jimblebar mine is 100% BHP-owned.
All ore produced at Jimblebar is blended with ore produced from the Mt Newman joint venturers' Mt Whaleback and satellite orebodies. Total production for 1999-2000 (13 months) was 5.2 million tonnes. As at 30 June 2000, the estimated proved and probable ore reserves for the Jimblebar mine were 254 million tonnes.
Jimblebar is mined by an independent contract mining company on behalf of BHP.
Samarco:
BHP owns 50% of Samarco Mineracao S.A. (Samarco), a Brazilian company. The remaining interest is held by Sociedade Anomima Mineracao da Trindade-Samitri.
Samarco operates an open-pit iron ore mine (Alegria) and concentrator at Germane and pelletising operations and a port at Ponta Ubu in Brazil, utilising long-term mining concessions from the Brazilian government. Iron concentrates are transported to the port by a 396 kilometre slurry pipeline. Production at Germane commenced in 1977 and, for the 12 months ended 30 June 2000, the operation produced 21.78 million tonnes of ore. Except for minor trial cargoes and pellet screenings, all sales are under multi-year contracts.
The Alegria mine commenced production in 1992 and has replaced the depleted Germane mine. The estimated proved and probable reserves for the Alegria mining areas were 733.25 million tonnes grading 46.7% iron (100% terms) as at 30 June 2000. For the 12 months ended 30 June 2000, the Samarco project produced 13.45 million tonnes of pellets and pellet feed (100% terms).
At the Alegria mine, the concentration plant is capable of an annual production of 14.3 million tonnes of iron ore concentrate. The slurry pipeline, designed to move 12 million tpa, is now operating at 14.3 million tpa, due to advances in pumping and monitoring technology resulting in higher availability. This higher efficiency level has also reduced unit costs. At Ponta Ubu, the pelletising plant has an annual production capacity of 12.2 million tonnes of pellets and up to 1.1 million tonnes of concentrate.
Western Australian Iron Ore State Government Agreements:
In March 1994, the West Australian government agreed to delete all secondary processing obligations in respect of the Mt Goldsworthy, McCamey's Monster and Marillana Creek iron ore state government agreements and to remove all limits on production from three mining areas (Mining Area C, Yandi and Jimblebar) in exchange for a new secondary processing obligation. The new secondary processing obligation requires BHP Minerals Pty Ltd, alone or in association with others, to spend $400 million (in 1993 dollars) on the further processing of iron ore or on an alternative investment approved by the Minister for Resources Development. Further processing is defined to include the production of iron and steel, HBI, iron carbide sinter or pellets. The completion of an HBI plant at Port Hedland has satisfied these obligations with the Western Australian government when, on 18 February 1999, reduction process trials commenced on the dedicated research and development train, the first of four processing trains (i.e. when the first hot briquette of iron for that train was produced).
Whyalla Mines:
BHP Steel's Whyalla steelworks is supplied with iron ore from 100% BHP-owned mines in South Australia. These operations produced a total of 3.1 million tonnes of iron ore during 1999-2000 (13 months). The 226 relevant mining leases granted under various agreements with the South Australian government have generally been granted for initial periods of 50 years and are renewable for periods of 21 years with expiry dates ranging from 2008 to 2050. A further 141 leases (mineral, extractive mineral leases and miscellaneous purpose licences) have been granted by the South Australian government to BHP for various terms in support of associated mining activities. Estimated proved and probable ore reserves at 30 June 2000 were 40 million tonnes, with an iron content averaging 62.8%.
Waikato North Head Mine:
The Waikato North Head ironsand mine is operated by, and supplies all its production to, New Zealand Steel (NZS). NZS has an exclusive licence with the New Zealand Government to mine ironsands for a period of 100 years, commencing in 1966.
Mining is achieved by two bucket-wheel excavators supported by a track shiftable conveyor system. Processing of the ore is by magnetic and gravity separation, producing a titaniferous ironsand concentrate of 58.5% iron. The product is transported to the steel mill via an 18 kilometre high pressure slurry pipeline. Current annual titaniferous ironsand concentrate production levels of approximately 1.1 million tonnes require approximately 3.5 million tonnes of ore to be mined and processed. The deposit has estimated proved and probable ore reserves of 21 million tonnes of titaniferous ironsand concentrate at 30 June 2000.
Taharoa Mine:
The site of the Taharoa ironsand mine is leased by its Maori owners to NZS for a period of 70 years, commencing in 1972. The mine is operated by NZS.
Mining is achieved by a conventional cutter suction dredge. Processing of the ore is by magnetic and gravity separation in a floating concentrator unit, producing a titaniferous ironsand concentrate of 57% iron. The product is transported to waiting ships via twin three kilometre slurry pipelines and a single point mooring buoy. Current annual titaniferous ironsand concentrate production levels of approximately 1.0 million tonnes require approximately 2.0 million tonnes of ore to be mined and processed.
The deposit has estimated proved and probable ore reserves of 13 million tonnes of titaniferous ironsand concentrate at 30 June 2000. This mine's product was exported to the Japanese and Chinese steelmaking industries in 1999-2000.
MINERALS - COAL:
Queensland Coal:
BHP manages coal mines (eight open pit, one underground) and one port in the Bowen Basin, Queensland, Australia. The combined operations produced 43 million tonnes of coal in 1999-2000, of which BHP's share was 25 million tonnes. The majority of production is of high quality metallurgical coal used for steel production.
BHP continued its cost reduction initiatives across all coal operations in 1999-2000. Implementation of the royalty reform package approved by the state government in mid 1999 was completed on 1 July 2000. Savings to BHP under the package, which introduces a common 7% royalty regime for all coal producers, are expected to be significant.
Central Queensland Coal Associates (CQCA) and Gregory Joint Ventures:
Mines managed by BHP are the largest producers and exporters of metallurgical coal in Australia. BHP manages mines and export facilities and acts as sales agent on behalf of the CQCA and Gregory Joint Ventures. BHP has a 52.1% interest in the CQCA Joint Venture and a 64.14% interest in the Gregory Joint Venture. In addition to BHP, the other CQCA Joint Venture participants and their interests are QCT Investment Pty Ltd, QCT Mining Pty Ltd and QCT Management Limited (32.37%) and Mitsubishi Development Pty Ltd (15.53%). The ownership in the Gregory Joint Venture is the same as for CQCA with the exception that BHP holds a 64.14% interest and Mitsubishi holds a 3.49% interest.
CQCA operates five open pit mines (Blackwater, Goonyella, Peak Downs, Saraji and Norwich Park) and port facilities at Hay Point.
The Gregory Joint Venture operates two coal mines. One is an open pit mine, Gregory, and the other an underground mine, Crinum.
All of these mines are located in Queensland. Most of the coal from the CQCA northern area mines and some coal from the Gregory Joint Venture mine is shipped through the port of Hay Point. This coal export terminal is owned by CQCA and operated by BHP. Most of the coal from the Blackwater and Gregory Joint Venture mines is shipped through the R.G. Tanna Coal Terminal at Gladstone, which is owned by the Gladstone Port Authority. All of the coal from the CQCA mines and the Gregory Joint Venture mines is transported to ports by railroads owned and operated by the State of Queensland.
At 30 June 2000, CQCA held estimated marketable reserves of 1,586 million tonnes of which BHP's share was 826 million tonnes. The leases for the CQCA mines (except Blackwater mine) generally expire in 2010 (although some expire in 2004 and 2012). Some leases are renewable for further two periods each of 21 years and the remainder are renewable for such further periods as the Queensland Governor-in-Council allows in the circumstances of each particular case. Leases for the Blackwater mine expire in 2008, 2009, 2011 and 2021 and are renewable. One lease expired in 2000, and an application for renewal for a period of 21 years has been lodged. BHP's share of the Gregory Joint Venture marketable reserves as at 30 June 2000 was 50 million tonnes. Leases for the Gregory and Crinum mines expire in 2006, 2014 and 2018 and, except for one lease, are renewable for periods of 21 years. One lease expired in 1998 and application for renewal for a period of 21 years has been lodged.
The CQCA mines shipped a total of 31.2 million tonnes of coal during 1999-2000. The Gregory Joint Venture mines shipped 5.1 million tonnes of coal in 1999-2000. Metallurgical coal is sold primarily to Japanese, other Asian, European and South American steel producers under term contracts of varying lengths. In 1999-2000, approximately 27% of all shipments were to Japan, approximately 29% to Europe and the balance to other geographic areas. Prices are generally determined annually. Some sales are also made on the spot market. The CQCA and Gregory Joint Ventures also produce some thermal coal.
BHP Mitsui Coal:
BHP has an 80% interest in BHP Mitsui Coal Pty Ltd (BHPMC). The remaining interest is held by Mitsui & Co Ltd Group. BHP manages BHPMC's coal mines at Riverside and South Walker Creek (SWC), in central Queensland. BHP sold its interest in Moura Mine, in central Queensland, effective 20 August 1999. Riverside, commissioned in 1983, is an open pit mine producing metallurgical coal. SWC commenced production as an operational mine in 1998. It is an open pit mining operation, producing pulverised coal injection fuel (PCI), weak metallurgical coal and energy coal. Markets for SWC coal have been and continue to be developed in Europe, Japan, Korea and Brazil principally for use as a PCI fuel but also as a blend metallurgical coal. Energy markets are also being pursued.
Trial coal mining at SWC commenced on 15 May 1996 and continued through until June 1998. Full scale contract truck shovel and processing operations have since continued with an annual production rate forecast for the year ending 30 June 2001 of 3.3 million tonnes clean product coal. Shipments from the BHP Mitsui coal mines in 1999-2000 were 6.3 million tonnes of metallurgical coal and 0.5 million tonnes of energy coal. BHP's share of such shipments was 5.0 million tonnes and 0.4 million tonnes, respectively. In 1999-2000, 43% of shipments were to Japanese customers, 40% to Europe and the balance to other geographic areas.
At 30 June 2000, total BHPMC estimated marketable reserves were 80 million tonnes of metallurgical and energy coal product. BHPMC's mining leases expire in 2003, 2005 and 2020 and are renewable for such further periods as the Queensland Governor-in-Council allows in the circumstances of each particular case. Four leases expired in 1999 and applications for renewal for a period of 21 years have been lodged. Based on current plans for future open cut production, reserves presently dedicated to the Riverside mine will be exhausted in five years. A trial arrangement has been put in place to utilise some Riverside mine assets in conjunction with the adjacent CQCA Goonyella mine.
Illawarra, Coal:
BHP owns and operates five underground coal mines (Appin, Tower, Cordeaux, Elouera and West Cliff) in the Illawarra region of NSW, that produce coal primarily suitable for coking. The operations of the Cordeaux Colliery have been scaled back following the near-depletion of the coal seam currently being mined. Coal is generally produced under leases generally expiring in 2010 and 2011, which have renewal rights under the NSW Mining Act 1992. Current production capacity of these mines is 8.6 million tonnes of clean wet coal per year and actual production for 1999-2000 was 6.9 million tonnes of clean wet coal.
The majority of metallurgical coal produced at Illawarra Coal is consumed at BHP's steelworks at Port Kembla, NSW and Whyalla, South Australia, with the remainder exported. The middlings by-product is sold into the export energy market. Total estimated marketable reserves of Illawarra coal at 30 June 2000 were 206 million tonnes of metallurgical coal and 54 million tonnes of energy coal. In conjunction with a subcontractor, coal bed methane gas from three mines is converted into electricity and sold to a power utility.
BHP is a one-sixth shareholder in Port Kembla Coal Terminal Limited, which operates a coal terminal at Port Kembla in NSW. BHP is also responsible for management of the terminal.
Kalimantan Coal:
BHP holds 80% of the shares in PT Arutmin Indonesia, which operates two thermal coal mines in southern Kalimantan, Indonesia, and an 80% beneficial interest in PT BHP Kendilo Coal Indonesia that has a thermal coal project in eastern Kalimantan, Indonesia.
PT Arutmin Indonesia operates two thermal coal mines (Senakin and Satui) in southern Kalimantan. Adjacent to Satui are Lignite Reserves (Mulia) from which a number of trial parcels have been mined. BHP holds an 80% interest in Senakin and Satui and the remaining 20% is held by PT Bakrie and Brothers. BHP estimates that marketable reserves were 76 million tonnes (BHP's share is 53 million tonnes after the Indonesian government's share of production) at 30 June 2000.
Construction of the Senakin and Satui mines was completed in August 1989 and April 1991 respectively. An expansion of the Senakin mine was completed in April 1994, which increased its capacity to four million tonnes per annum. On 19 May 2000, PT Arutmin Indonesia signed an agreement with PT Thiess Contractors Indonesia to contract out the mining operations at Senakin and Satui mines. Contract mining commenced 32 June 2000. Under the terms of the contract, PT Thiess Contractors Indonesia are responsible for the complete operation of each mine, from mine planning through to product loadout, which is expected to total approximately 8.5 to 9.5 million tonnes per annum. Construction of a coal trans-shipment port was completed in March 1994.
The Coal Contract of Work with the Indonesian government requires that equity held by the foreign shareholder in PT Arutmin Indonesia be offered to Indonesians from 1994 onwards. Under this agreement, 51% of the shares in PT Arutmin Indonesia was required to be offered to Indonesians by the end of calendar 1999 in specific intervals. This amount is currently satisfied as to 20% by the shareholding of PT Bakrie and Brothers and by the fact that, on 26 May 2000, a 31% interest was offered to five Indonesian entities who have three months to accept as per the terms of the Coal Contract of Work. The Coal Contract of Work also sets out the basis for establishing the offer price.
BHP also holds an 80% interest in Kendilo Coal Inc., which in turn owns all shares but one in PT BHP Kendilo Coal Indonesia (formerly PT Utah Indonesia). The remaining 20% of Kendilo Coal Inc. is owned by Mitsui Mining Company Ltd of Japan, which also owns one share in PT BHP Kendilo Coal Indonesia. PT BHP Kendilo Coal Indonesia holds a thermal coal deposit in eastern Kalimantan, Indonesia, with estimated marketable reserves of 1.4 million tonnes (BHP's share 1.0 million tonnes after the Indonesian government's share of production) at 30 June 2000. An amount of 7.5 million tonnes of previously classified marketable reserves is no longer in the reserves due to adverse quality. Development of PT BHP Kendilo Coal Indonesia's Petangis deposit was completed in March 1994. The Petangis development is designed to provide a production capacity of one million tpa.
Under the Coal Contract of Work with the Indonesian government, Kendilo Coal Inc. is required to offer shareholdings in PT BHP Kendilo Coal Indonesia to Indonesian interests annually so that 51% of the company will have been offered by calendar 2004. The Coal Contract of Work required that an initial 15% offer be made to Indonesian participants of PT Kendilo Coal Indonesia during calendar 1999. This was not made as the price could not be agreed with the Indonesian government. The Coal Contract of Works requires that a 23% share offering be made in calendar 2000. BHP is currently in discussions with the Indonesian government clarifying details to meet this requirement.
Navajo Mine:
The Navajo surface coal mine, which is located in the Navajo Nation, New Mexico, US, has been in operation since 1963 under a long-term lease from the Navajo Nation. The lease continues for as long as coal is being produced in paying quantities. The Navajo mine has the capacity to produce eight to nine million tonnes annually and is the sole supplier of coal to the Four Corners Power Plant operated by the Arizona Public Service Company. Coal is transported 25 kilometres from the production areas via a BHP-owned railroad to the Four Corners Power Plant. The coal is sold under two contracts, each continuing until the end of calendar 2004, with a right at the customer's option to extend for up to an additional 15 years. The price is a stated amount plus escalation based on certain cost indices plus reimbursement of certain regulatory costs. Contracts are supplemented by an incremental pricing agreement in effect until 31 December 2001. Contractual deliveries have varied annually, principally because of generating plant shutdowns for maintenance and general market conditions.
The bulk of the power generated at the Four Corners Power Plant is sold in California and Arizona.
At 30 June 2000, the Navajo mine had total estimated marketable reserves of 880 million tonnes of energy coal, of which 34 million tonnes were committed under the initial term of the supply contracts.
San Juan/La Plata Mines:
The San Juan mine located in New Mexico, US, commenced operations in 1974 and, under the lease arrangements applicable to the mine, BHP is permitted to mine the properties as required to meet its coal sales obligations. BHP has entered into a coal sales contract for the supply of coal to the San Juan Generating Station (SJGS) operated by the Public Service Company of New Mexico. Under this fuel supply contract, BHP will supply coal to the SJGS until the end of calendar 2017, when the contract expires. The price payable under the contract is determined on a monthly basis by a formula that includes partial reimbursement of operating costs, escalation for inflation and a return on invested capital. For calendar year 2000, an interim invoicing agreement is in effect.
The La Plata mine, located approximately 35 kilometres north-east of the San Juan mine, provides an additional source of coal which is supplied under contract to the SJGS. The mine began production in August 1986. Under the La Plata mine lease arrangements, BHP is permitted to operate the mine as required to meet its contractual obligations. Coal is transported from the mine by 178 and 200 tonne capacity haul trucks via the BHP-owned haul road.
The bulk of the power generated at the San Juan Generating Station is sold in New Mexico, Arizona and California.
At 30 June 2000, the San Juan and La Plata mines had total estimated marketable reserves of 87 million tonnes of coal of which 53 million tonnes are committed under the contracts referred above.
COPPER:
During January 1996, BHP Sub Inc., a wholly owned subsidiary of BHP, purchased 100% of Magma Copper Company of the US, which owned 100% of the mining operations known as San Manuel mining and smelting operations, Pinto Valley mining operations and Superior mining operations in Arizona, Robinson Mining Limited Partnership in Nevada and 99.02% of Magma Tintaya S.A, in Peru (now BHP Tintaya S.A.). Subsequently BHP Sub Inc. was merged into Magma Copper Company and its name changed to BHP Copper Inc.
During 1998-99, 1997-98 and 1996-97, the carrying value of BHP's copper operations was reviewed based on current market and operating assumptions. The reviews necessitated a write-down of net assets at the San Manuel smelter (US), North American mining operations and Tintaya mining operations (Peru). On 25 June 1999, BHP announced that it would cease operations at its North American copper operations, incorporating the San Manuel smelter and the San Manuel, Pinto Valley and Robinson mining operations, in the August quarter of 1999.
North American copper assets:
The North American copper assets continued on care and maintenance for a transitional period while various closure options and other alternatives are simultaneously evaluated.
Escondida Mine:
BHP holds a 57.5% interest in Escondida, an open pit copper mine in northern Chile. The other owners are affiliates of Rio Tinto Plc (30%), Mitsubishi Corporation (6%), Mitsubishi Materials Corporation (2%), Nippon Mining and Metals Company Limited (2%) and the International Finance Corporation (2.5%). The Escondida ore body has proved and probable reserves estimated at 30 June 2000 of 2,183 million tonnes of ore (BHP share - 1,255 million tonnes). The recoverable contained copper is estimated to be 46.5 billion pounds (BHP share 26.7 billion pounds). About 50% of the currently installed production capacity to the year 2002 has been committed under contracts of 10 years duration to smelter companies in Japan, Germany, Finland and Chile. Contracts of shorter duration - from two to six years - have been concluded with smelters in Spain, South Korea, Canada, China, Japan, Brazil, Philippines, Chile and Sweden, with merchants accounting for the remaining output. Total production capacity is 849,000 tonnes of copper contained in concentrate and cathode at the current head grade conditions. Mine equipment and mill facilities support a nominal annual capacity of 710,000 tonnes of copper contained in concentrate. The oxide leach plant, commissioned 1 December 1998, has an annual capacity of 139,000 tonnes of copper contained in cathode. As ore grades decline and without further production expansions, annual copper production is expected to decrease after 2003 to approximately 700,000 tonnes.
Ok Tedi Mine:
BHP Minerals Holdings Pty Ltd holds 52% of the shares in Ok Tedi Mining Limited (OTML) which operates the Ok Tedi copper and gold mine in Papua New Guinea (PNG). BHP has provided some management services to OTML since October 1987. The other equity participants, and their interests, in this project are the Independent State of Papua New Guinea (20%) (the State), Inmet Mining Corporation (18%) of Canada and Mineral Resources Ok Tedi No. 2 Limited (10%), a company wholly owned by the State.
Copper ore production commenced in early 1987. Ore processing averages approximately 30 million dry tonnes per year. Estimated proved and probable reserves at 30 June 2000 were 304 million tonnes at an average grade of 0.87% copper and 0.93 grams per tonne gold. The contained product is estimated to be 4.8 billion pounds of copper and 6.1 million ounces of gold. Current annual capacity, which is dependent upon ore grades, is approximately 200,000 tonnes of copper contained in concentrate.
The principal mining lease was granted in 1981 for 21 years with right of renewal for an additional 21 year period.
Ok Tedi Mine - Statutory Compliance:
In accordance with its commitment to the State, OTML has submitted to the State a ten year mine closure and rehabilitation plan. It has also submitted a discussion paper on social and sustainable development issues associated with mine closure. OTML's accounts carry provision for implementation of reasonable closure and rehabilitation works.
Ok Tedi Mine - Community Compensation:
In 1995, the State introduced new compensation and other financial arrangements to benefit residents along the Ok Tedi and Fly Rivers. The new compensation arrangements required OTML to pay a designated authority an initial lump sum payment and annual payments thereafter during the life of the Ok Tedi mine. Estimated total payments over the life of the mine will approximate Kina 110 million (approximately $68 million at the exchange rate as at 30 June 2000). The designated authority is required to distribute these payments to residents along the Ok Tedi and Fly Rivers in a manner agreed with the PNG Government. In May 1997, OTML entered into an agreement with the Lower Ok Tedi communities whereby OTML will make annual payments aggregating Kina 40 million (approximately $27 million at the exchange rate as at 30 June 2000) over the life of the mine to landowners, land users and the Future Generations Fund of the Alice River Trust, in recognition of disturbance to land in the Lower Ok Tedi area. For the Lower Ok Tedi communities, these payments are additional to any benefits available to them under the 1995 compensation arrangements.
The current round of community consultations sponsored by the State is intended to achieve mine continuation agreements covering the remaining mine life. These agreements are likely to include commitments to additional programs directed at achieving sustainability by the end of mine life.
Ok Tedi Mine - Mitigation Options:
In 1996, OTML identified four alternatives for investigation in relation to the amount of tailings and overburden entering the Ok Tedi and Fly River system: to conduct a dredge trial in the lower Ok Tedi; to dredge and pipe tailings to a formed storage area; to do neither; and to close the mine early. As part of this evaluation, OTML entered into contracts for trial dredging of the lower Ok Tedi and dredging commenced in March 1998. This trial is continuing and at the end of June 2000 a total of 34.2 million tonnes of sand and gravel had been dredged from the Ok Tedi for on-land storage and rehabilitation.
OTML also commissioned environmental, engineering and social investigations by a team of scientific consultants to improve knowledge and reduce uncertainty surrounding the identified waste management options. The outcome of these investigations and a peer review process was publicly reported in August 1999. The results indicated that the environmental impacts of the mine were expected to be significantly greater than expected. The main reason for this is that new hydrological modelling shows the rise in the diverted, and consequent over-bank flooding, is extending beyond the areas currently affected and is likely to expand the area currently experiencing vegetation dieback into forested zones along the middle Fly River. OTML monitoring has indicated that areas affected by flooding will progressively re-establish with flood tolerant plant species. The risk assessment concluded that none of the options examined offers a clear solution to the environmental impacts of the mine and that social issues provided the main issues that discriminated the four options studied. Early closure of the mine would severely affect national and provincial economies and have significant impacts on the social stability and well being of the affected communities, but at the same time accelerate the recovery of the river system. Of the other options, the storage of piped tailings would create social problems in the river communities because of the amount of land involved and the potential for acid generation from tailings impoundments. While the early results of the dredging trial are encouraging, the hydrological model suggests that over the remaining mine life the dredge option will deliver only marginal overall environmental benefits. The mine continues to be important to the economic well-being of PNG and the local communities.
Following review by the OTML Board in August 1999, the final reports from these investigations were forwarded to the State which in tum invited the World Bank to review the material and offer advice. The World Bank reported to the PNG government in February 2000 and the PNG government made the report public in May 2000. Extensive consultations with the PNG government, the provincial government, communities surrounding the mine and along the Ok Tedi and Fly River as well as OTML's shareholders are ongoing. Options for the future will require weighing environmental outcomes with social and economic outcomes while working to secure a sustainable future for the Western Province and the people living near the mine and along the Ok Tedi and Fly River. As part of this process, the State has established a Central Agencies Coordinating Committee Task Force to examine the economic, social, and environmental implications of the options open to the State with respect to the future of the mine. Independently, the State has directed OTML to continue to operate the mine pending completion of the Task Force process.
Ok Tedi Mine - Legal Claims:
In April 2000, two legal actions were commenced in the Victorian Supreme Court against OTML and BHP. Rex Dagi is plaintiff in the first action that claims BHP and OTML are in breach of an agreement to implement any technically and economically feasible tailings retention scheme. Gabia Gagarimabu is plaintiff in the second action on his own behalf and on behalf of people who are parties to the 1996 settlement agreement. Both actions seek specific performance of the settlement agreement and/or an injunction so as to require the implementation by BHP and OTML of a tailings pipeline and storage system and damages. Both actions are proceeding and both OTML and BHP assert that there has been no breach of the settlement agreement.
Tintaya Mining Operations:
BHP holds a 99% interest in Tintaya, an open pit copper mine in southern Peru. The remaining interest is held by Peruvian shareholders. The Tintaya orebody has proved and probable sulfide reserves estimated at 30 June 2000 to be 53 million tonnes of sulfide ore at an average ore grade of 1.566% copper. The contained copper is estimated to be 693,708 metric tonnes. The Tintaya orebody has proved and probable leach reserves estimated at 30 June 2000 to be 22 million tonnes of leach ore at an average ore grade of 1.440% soluble copper. The recoverable contained leach copper is estimated to be 248,350 metric tonnes. Approximately 37% of copper production for fiscal year 2001 is committed under short-term contracts with merchants; these will be delivered to smelter companies in South America, Europe and Asia.
Total production capacity is 121,000 tonnes of copper contained in concentrate. Increasing ore grades will see annual sulfide concentrate copper production increase from 89,000 tonnes in fiscal year 2001 to 121,000 tonnes in fiscal year 2005. Annual production will thereafter decrease through to the end of the life of mine in fiscal year 2009. Current annual leach production estimates are 34,000 tonnes of cathode copper per year.
Estimated proved and probable ore reserves at 30 June 2000 were 75 million tonnes at an average grade of 1.50% copper and 0.22 grams per tonne gold. The contained product is estimated to be 1,432 million pounds of copper in concentrate and 0.22 million ounces of gold.
SILVER, LEAD, ZINC:
Cannington:
Cannington is a silver/lead/zinc deposit in North-West Queensland, located 200 kilometres south-east of Mt Isa. At 30 June 2000, the estimated proved and probable reserves were 5.5 million tonnes, grading 12.5% lead, 5.4% zinc and 570 grams per tonne of silver. Surface exploration has continued on a number of geophysical and geochemical anomalies on the mine lease area. A major airborne gravity survey was completed over the mine lease and BHP held areas to the south. Underground exploration activities have concentrated on the upgrading of the mine resource south of the main ore pass pillar.
Mine development has concentrated on the development to maintain the mine's nameplate capacity of 1.5 million tonnes per annum. The processing plant has continued to be fine tuned to maximise recovery to concentrate over the full range of ore blends. Recoveries of all metals to concentrate have been raised during the year. A total of 420,000 wet metric tonnes of concentrate was shipped during the 13 months ended 30 June 2000.
DIAMONDS:
Ekati Diamonds:
BHP has a 51% interest in the Ekati diamond mine in the Northwest Territories in Canada through its wholly owned subsidiary, BHP Diamonds Inc. The other participants in the core zone joint venture are Dia Met Minerals (NWT) Limited (29%), Charles E. Fipke (10%) and Stewart L. Blusson (10%). The other participants in the buffer zone joint venture are Archon Minerals Limited (31.2%), Charles E. Fipke (10%) and Dia Met Minerals (NWT) Limited (7.8%). The mine development was approved by the BHP Board on 20 September 1996.
A feasibility study was prepared and released to the participants in February 1997. The study covered a production plan spanning 17 years for the development of five kimberlite pipes, all of which are within the core zone joint venture. Feasibility studies are continuing on two additional core zone pipes (Beartooth and Pigeon) that were bulk sampled in 1998. Additionally, samples are currently being processed from four pipes (three of which are in the core zone, one in the buffer zone) that were bulk sampled in early calendar 2000. Project resources and reserves have been reconciled in compliance with the JORC code. A total of 60.3 million tonnes has been estimated as proved or probable ore reserves at 30 June 2000 with an average grade of 0.9 carats/tonne (1.5mm stone size cut-off). Mining rates for each pipe are determined by ore grade, diamond quality and specific ore processing characteristics.
The participants hold title to the project area through a combination of claims and leases. BHP is converting claims to leases as and when required. 124 claims totalling 298,501 acres have been converted to leases and an additional 65 claims totalling 167,294 acres are expected to be converted in calendar 2000.
On 14 October 1998, the mine was officially opened. Production reached nameplate capacity of 3.0 million tpa in May 1999.
In November 1997, BHP Diamonds Inc. opened a marketing and sales office in Antwerp, Belgium. Also in November 1997, BHP Diamonds Inc. signed a marketing consulting agreement with I.D.H. Diamonds NV of Antwerp, a prominent diamond dealer, to help establish the Antwerp office and facilitate the sale of diamonds. In May 1998, the participants agreed that BHP would act as sales representative for the project for five years from 1 November 1997. In July 1999, BHP Diamonds Inc., for itself and the other participants, signed an agreement with De Beers Centenary for the sale of 35% of the run-of-mine production from the EKATI diamond mine over a three year period. Regular sales to De Beers began in January 2000. In May 1998, an understanding was reached with the Government of the Northwest Territories (GNWT) whereby BHP Diamonds Inc. agreed to establish a diamond valuation facility in the community of Yellowknife which will be used for training, basic sorting and government valuation. The construction of this facility was completed in February 1999. The understanding also commits the GNWT not to impose other new demands, or to pursue additional tax burdens on the Ekati diamond mine, that do not apply to the industry in general.
PLATINUM:
Hartley Platinum:
Pursuant to a joint venture agreement with Delta Gold NL (Delta), BHP completed a feasibility study for the Hartley platinum mine in Zimbabwe in August 1993. On 24 August 1994, after the issuance of a Special Mining Lease from the government of Zimbabwe, the joint venture signed a Mining Agreement with the government and proceeded to develop the project. BHP has a 67% interest in the project that is held through a wholly owned subsidiary, BHP Minerals Zimbabwe Pty Ltd. In October 1998, Delta separated its gold and platinum assets through a demerger. As a consequence of this Zimbabwe Mines Limited (Zimplats), through Hartley Management Company (PVT.) Limited, became the 33% participant in the Hartley Platinum project.
Since the commencement of underground mining production in 1995, delays in the production build-up to full capacity have been experienced. This has been primarily as a result of unstable ground conditions in the mine causing safety problems, loss of reserves and unacceptable dilution of the ore compared to the original feasibility study. The requirement for additional hanging wall support in such conditions resulted in poor labour productivity. Trial mining of open cast oxide ore was conducted but was found to be uneconomic due to poor metallurgical recoveries from the oxide ore.
Early in calendar 1999, a complete project review was undertaken by independent mining experts. The experts concluded that although the BHP mineral resource estimate was valid, an ore reserve did not exist due to the existing uneconomic operation of the mine.
After an unsuccessful international search for a potential purchaser of the operation, BHP entered into a sale agreement dated 30 May 1999 with Zimplats for the conditional sale of BHP's share in the Hartley Platinum project for nominal consideration. As part of the conditions of sale, the Hartley operation was suspended and plant and equipment placed on care and maintenance by BHP. Most of the existing workforce has been retrenched. The completion of sale is conditional upon the release of BHP from various legal obligations. If the conditions precedent are not satisfied within 20 months after the Agreement, the parties will give notice to the government to terminate the Special Mining Lease at which time Zimplats is entitled to purchase all the remaining assets for US$3.0 million.
BHP Minerals Zimbabwe Pty Ltd's 61.3% interest in an adjoining exploration project, known as Mhondoro, will be included in this sale.
TITANIUM MINERALS:
Following the announcement made in February 1999 to close the Beenup mine in Western Australia, a detailed mine site rehabilitation plan was prepared for consideration by the Western Australian government. The plan, which includes provision for ongoing monitoring following completion of rehabilitation, was approved in November 1999, following public review. The dredge, floating concentrator and dry processing facility have been sold. A detailed decommissioning plan has been submitted to the Western Australian government for the dismantling and relocation of the dredge and floating concentrator at the mine site. Works on the dredge have been completed, with the concentrator nearing 50% completion.
HBI:
Port Hedland HBI:
The plant undertakes secondary processing of raw iron ore, purchased from BHP Iron Ore's Nelson Point operations, using Finmet technology to convert iron ore into iron briquettes for use in electric-arc and blast furnaces. Briquettes are exported to Indonesia, China, Korea and within Australia to BHP Steel Port Kembla.
Following the commencement of trials on Train 1, Trains 2-4 were brought on stream progressively from April 1999. The plant encountered process difficulties in its first full year of operation. Technical process problems during the processing of iron ore fines caused blockages and restricted production. Following the difficulties encountered in processing trials and a resulting lower long term production capacity, the forecast carrying value analysis recommended a further writedown of the plant. The full project cost of $2.5 billion was written off. Additional process development trials commenced in April 2000 following the approval of $46 million capital expenditure to rectify the technical difficulties.
Orinoco HBI:
In 1997, BHP entered into a joint venture agreement with International Briquettes Holding (a subsidiary of Siderurgica Venezolana SAGA) by which BHP became a 50% shareholder in the companies Operaciones RDI, Orinoco Iron and Brifer.
Operaciones RDI operates a Fior HBI plant located in Puerto Ordaz, Venezuela that is over 20 years old with an annual production capacity of 400,000 tpa HBI. Orinoco Iron has constructed a new production facility in Peurto Ordaz using the Finmet technology at a project cost of US$900 million, completed by November 2000. The first briquette was produced in May 2000. Long term production capacity is expected to be 2.2 million tpa HBI. Brifer is a Barbados based technology company which co-owns Finmet technology jointly with VAI (Voest Alpine Industrieanlagenbau GmbH).
MINERALS DEVELOPMENT:
Minerals' exploration and resource development expenditure was $110 million in 1999-2000. Copper, diamonds and coal were the primary targets. Exploration programs are in place for a range of other minerals including nickel, zinc, iron ore and gold. BHP conducts mineral exploration programs in Australia, North and South America, Africa, Asia and other parts of the world. In addition to conducting exploration on projects held in its own right, BHP also explores in joint ventures with both large and junior companies and with government entities.
BHP has successfully developed the world's first airborne gravity gradiometer system for mineral and hydrocarbon exploration. Two airborne gravity gradiometer systems were developed with Lockheed Martin and are currently deployed for mineral exploration. One system is flying in Canada undertaking exploration for diamonds and the other is in Australia targeting IOCG (iron oxide copper-gold), iron ore and other mineral deposits.
STEEL:
BHP commenced steelmaking activities in 1915 and has been the principal Australian steelmaker since that time. BHP currently supplies approximately 66% of Australia's and the majority of New Zealand's domestic steel demand. BHP exported 45% of its Australian steel despatches in 1999-2000, the principal markets being North and South East Asia, North and South America and Europe. New Zealand Steel (NZS) exported 61% of its steel despatches in 1999-2000, the principal markets being Australia, Japan, North America and South East Asia.
BHP is Australia's and New Zealand's only fully integrated steelmaker and is substantially self-sufficient in the principal raw materials required for steelmaking, namely iron ore and ironsands, as well as in coking coal, the principal energy source for blast furnace smelting. BHP also manufactures and distributes finished products from steel both in Australia and overseas.
Steel's Australian annual raw steel capacity decreased by 1.6 million tonnes to 7.3 million tonnes mainly due to the closure of the Newcastle steelworks in September 1999. NZS's current annual raw steel capacity is 0.6 million tonnes. In the US, Steel has a 50% interest in a flat products steel mini-mill at Delta, Ohio which has an annual capacity of 1.4 million tonnes of raw steel.
Capital and investment expenditure was $282 million in 1999-2000, which includes approximately $125 million spent on acquiring a 14% interest in Email Limited. This compares with expenditure of $392 million in 1998-99.
In September 1999, BHP closed the Newcastle primary steelmaking facilities of its long products business, having completed the upgrade of its rolling mills and wire operations to take billet feed from the steelmaking operations at Whyalla and Sydney. In October 1999, BHP announced its intention to divest these long products businesses together with its pipe and tube and Tubemakers distribution businesses. In February 2000, BHP advised that it intended to effect the divestment of all of these businesses by way of a spinout of a new entity, now known as OneSteel, to its shareholders in the second half of calendar 2000. BHP will now focus its core steel businesses around the Port Kembla steelworks and associated flat and coated products stream. Since March 2000, Steel has been operating as two business divisions, BHP Steel and OneSteel.
BHP Steel:
The BHP Steel business concentrates on flat products manufacture and distribution in Australia, New Zealand and Asia, based on the low cost supply of steel from Port Kembla steelworks, as well as its leading position in coated steel products.
Flat Products:
The major operational centre is located at Port Kembla, NSW. The Port Kembla steelworks has an annual capacity of 5.0 million tonnes of raw steel. Primary facilities consist of two blast furnaces, three 275 tonne basic oxygen steelmaking vessels and three slabcaster machines. Downstream facilities at Port Kembla produce hot-rolled coil, plate, tinplate and cold-rolled coil. Raw steel production from the above facilities was 5.3 million tonnes for 1999-2000 (13 months).
The Port Kembla steelworks supplies hot-rolled coil to the pipe and tube industry, and plate and hot-rolled coil to the structural and engineering construction industries, the building and manufacturing industries and the mining industry. It also supplies tinplate to can makers for use in the food, paint and beverage industries. In addition, the Port Kembla steelworks supplies slabs, hot-rolled coil, plate, tinplate, blackplate and strapping to international markets. In the US, BHP is a partner in a flat products steel mini-mill at Delta, Ohio. BHP has a 50% interest in this joint venture, the other partner being a wholly owned subsidiary of Cargill Inc. The mill has an electric-arc furnace using scrap, HBI, pig iron and direct reduced iron with an annual steelmaking capacity of 1.4 million tonnes.
In March 2000, BHP signed an agreement with NUCOR Corporation of the USA (NUCOR) and Ishikawajima-Harima Heavy Industries of Japan (IHI) to form a limited liability company (UC) to licence its "Project M" strip casting patents and technology developed with IHI. An Australian BHP subsidiary has transferred its interest in certain patents and technology to the UC at fair market value. NUCOR will become the first licensee of the LLC and will undertake the first commercialisation of this revolutionary steel strip casting technology.
Coated Products:
Coated Products produces a wide range of finished and semi-finished flat steel products in sheet and coil form. Its production and marketing facilities extend internationally and it has trading offices located throughout the world.
Coated Steel Australia (CSA) produces hot-rolled and cold-rolled, metallic coated, painted and electrical steel sheet and coil. It processes and coats steel strip for several markets in Australia and overseas. Hot-rolled and cold-rolled, and metallic coated steels, are supplied to the automotive components and vehicle manufacturing industries for a wide range of parts and panels. Metallic coated and pre-painted steels are supplied to the building and construction, whitegoods, office furniture and general manufacturing industries. CSA exports approximately 25% of its production with the main markets being in Asia, Latin America, the Middle East and Europe.
CSA has a number of well established brands for its coated products, including Galvabond zinc coated, Zincalume zinc aluminium alloy coated and Colorbond prepainted, steel sheet and coil products.
The two main production facilities are located at Springhill, NSW, and Western Port, Victoria. Seven service centres are located in NSW, Queensland, Victoria, South Australia and Western Australia.
The Springhill plant processes hot-rolled coil, sourced from the adjacent Port Kembla steelworks, into cold-rolled, metallic coated and painted coil and sheet products. Its nominal production capacities are: cold-rolling (960,000 tpa), coating (660,000 tpa) and painting (140,000 tpa).
The Western Port plant sources slabs from the Port Kembla and Whyalla steelworks to produce hot-rolled, cold-rolled, metallic coated and painted coil and sheet products. Its nominal production capacities are: hot-rolling (1,500,000 tpa), cold-rolling (950,000 tpa), coating (790,000 tpa) and painting (290,000 tpa).
The service centres provide custom slitting and shearing operations, as well as processing product from Springhill and Western Port for direct supply to customers. In addition, a paintline, with a nominal capacity of 70,000 tpa, is located at the Acacia Ridge service centre servicing the Queensland market. There is also a paintline, with a nominal capacity of 40,000 tpa, at the Port Kembla service centre servicing mainly the NSW market. This centre also has a decarburising line servicing the electrical steel market across Australia. Additional regional painting facilities are in construction or planning phase. The service centres also act as a centre for sales and marketing operations in their respective states. BHP announced the sale of its US West Coast steel businesses to IMSA Acero, a wholly owned subsidiary of Grupo IMSA S.A., in May 2000. The West Coast steel businesses comprise BHP Coated Steel Corporation, which produces coated steel products, and BHP Steel Building Products USA Inc., which manufactures and distributes rollformed steel products and accessories. The transaction forms part of BHP's portfolio management strategy to position BHP Steel as a globally competitive flat products producer focused on the Australasian and Asian markets.
Coated Products also operates the following facilities in Asia to supply the international building and construction market.
In Indonesia, BHP has a 74% interest in a metallic coating and paint line at Cilegon, which has nominal capacities of metallic coating line (100,000 tpa) and a paint line (25,000 tpa). Also, BHP has a 60% interest in a metallic coating and paint line at Selangor, which has nominal capacities of metallic coating line (150,000 tpa) and a paint line (60,000 tpa).
In Thailand, BHP has a 75% interest in a steel flat products facility incorporating a pickle line, cold-rolling mill and metallic coating and paint lines at Map Ta Phut. The facility was commissioned in January 1998 and was enhanced with the addition of galvanising capability in August 1998. The venture has nominal capacities of cold mill (300,000 tpa), metallic coating line (l50,000 tpa) and a paint line (50,000 tpa).
In Saudi Arabia, BHP has a 33.3% interest in a paint line at Jubail, which has a nominal capacity of 120,000 tpa.
The Singapore paint line was decommissioned in January 2000 and has been relocated to the NSW service centre.
NZS is New Zealand's only fully integrated flat products steelmaker. Its products include hot-rolled coil, plate, cold-rolled coil, welded hollow sections, metallic coated and painted flat products including established brands such as Colorsteel and Zincalume coated sheet steel products. Steel despatches for 1999-2000 were 602,000 tonnes. NZS uses a direct reduction process followed by electrical melting to produce a high-purity molten iron from local titaniferous ironsand concentrate and local coal. The steel plant is located 50 kilometres south of Auckland and 18 kilometres north of its dedicated titaniferous ironsand mining operation. The nominal capacities are steel making (600,000 tpa), hot-rolling (825,000 tpa), cold-rolling (400,000 tpa), metallic coating (200,000 tpa) and painting (60,000 tpa).
NZS supplied 238,000 tonnes to the New Zealand domestic market in 1999-2000 and exported 364,000 tonnes. The major domestic markets served are building and construction, heavy engineering and general manufacturing. Export markets served include the US, Australia, Japan, the Pacific Islands, Papua New Guinea, South East Asia and Canada.
NZS also operates an ironsand mine at Taharoa, some 200 kilometres south-west of Auckland.
BHP Steel has marketing and selling offices in Canada, Hong Kong, India, Japan, Philippines, Singapore, South Africa, South Korea, Taiwan, United Arab Emirates, UK and the US which are engaged in export sales and stocking of products from both Coated Products and Flat Products.
Building Products operates in Australia and internationally, producing and distributing steel rollformed products and accessories for roofing and walling applications, as well as structural decking and light building sections. The largest markets served are in commercial, industrial and dwelling construction. Its major supplier is Coated Products.
Rollforming manufacturing centres are located throughout Australia and in Malaysia, Singapore, Indonesia, Thailand, China, Taiwan, Brunei, Vietnam, Papua New Guinea, Fiji, New Caledonia, Vanuatu and Sri Lanka.
OneSteel:
OneSteel's Australian business groups, Manufacturing and Distribution, are vertically integrated. Overseas, OneSteel has a 50.01% interest in Steel & Tube Holdings Limited, a New Zealand steel distribution company, which itself has a 51% interest in A J Forsyth & Co Ltd, a Canadian steel distribution company.
Distribution:
The Distribution group comprises five businesses: OneSteel Reinforcing, Tubemakers Steel, Tubemakers Sheet and Coil, Tubemakers Piping Systems and Aluminium, and Tubemakers Metaland. The businesses source steel products from manufacturers, which include its Manufacturing business group and BHP Steel's Flat Products and Coated Products businesses.
OneSteel Reinforcing supplies reinforcing bar and mesh for the Australian concrete construction market. It operates its own rebar processing and mesh making operations from over 40 sites across Australia, offering products and solutions for the construction of reinforced concrete structures, and also for specialist markets such as mining, rural, industrial and fencing.
Tubemakers Steel distributes plate, structural, bar, pipe, RHS, tube and special steels mainly in capital city markets across Australia. It operates from 16 sites, providing processing services for customers who support, or are included in, the steel fabrication, construction or manufacturing sector.
Tubemakers Sheet and Coil distributes coated and uncoated steel sheet and coil products across Australia. It operates from seven sites, providing coil slitting and blanking services in each capital city for customers operating in building and manufacturing markets.
Tubemakers Piping Systems and Aluminium provides a focussed service to Australian industries using pipe, fittings and valves for liquid and gas conveyance, and distributes aluminium flat products and extrusions as well as providing processing services. It operates from 17 capital city locations. The piping systems group primarily offers a range of products to the mining, maintenance and construction markets, while the aluminium businesses concentrate on boat building, transport equipment and general manufacturing customers.
Tubemakers Metaland provides regional distribution coverage for the above products throughout all states and territories in Australia. It operates from around 50 company locations and more than 90 franchises. Some processing services are provided.
Manufacturing:
The Manufacturing group consists of two businesses: Whyalla Steelworks and Market Mills.
Whyalla Steelworks operates from one main site at Whyalla, South Australia. The integrated steelworks produces semi-finished products (slabs, billets and blooms) for the Market Mills business and Whyalla's structural mill, and for export Whyalla's finished products include structural products and rail products which are sold to end-user customers directly, to OneSteel Distribution and to external steel distribution channels.
The Market Mills business integrates four previously independently managed businesses: Sydney Steel Mill, Rod & Bar, Wire and Pipe & Tube.
Sydney Steel Mill, at Rooty Hill, NSW produces billets which feed Rod & Bar's mills and is now regarded as part of the Rod & Bar business. It has a raw steelmaking capacity of 0.5 million tpa. The steel mill uses scrap steel as its feedstock, sourced mainly from NSW.
Rod & Bar transforms billets in its Newcastle, NSW rod and bar mills, and in bar mills located at Brisbane, Queensland and Sydney, NSW to manufacture merchant bar and rod in commercial and engineering grades. The product range is marketed to a wide range of steel users in the construction, mining, transport and manufacturing markets in Australia and overseas, as well as to Wire Products and the Tubemakers distribution businesses. The mills also manufacture reinforcing bar and rod for mesh for OneSteel Reinforcing. Production in 1999-2000 of rod and bar was 1,685,000 tonnes.
Wire operates wire mills in Newcastle, NSW and Geelong, Victoria. It markets to a wide range of steel users in the rural, construction, mining, transport and manufacturing markets in Australia and overseas. Production in 1999-2000 was 329,000 tonnes. A joint venture, Bekaert-BHP Steel Cord Pty Ltd, in which OneSteel has a 50% interest, is also operated to service local and export tyre cord markets.
Pipe & Tube manufactures welded steel pipe and tubing as well as open steel profiles mainly for structural, automotive, furniture, fencing and oil and gas applications. The major plants, which are located at Newcastle and Kembla Grange, NSW, and Somerton and Sunshine, Victoria, serve mainly domestic markets. Production for 1999-2000 was approximately 351,000 tonnes.
Steel & Tube Holdings Limited:
Steel & Tube Holdings Limited (STH) is a New Zealand listed public company in which OneSteel has a 50.01% interest. It is a major distributor of steel and allied products in New Zealand with service centres located throughout the country. It also supplies a range of value-added products through its coil and plate processing facilities, and manufactures steel roofing and rain water products. The customers of STH are predominantly in the construction, manufacturing, general engineering and rural sectors. The company also supplies fabricated steel reinforcing bar and mesh for the building and construction industry.
STH has a 51% interest in a Canadian steel distribution company A J Forsyth & Company Limited. OneSteel holds the remaining 49% interest. A J Forsyth has steel distribution centres located throughout British Columbia and a centre in the Yukon Territory. The business supplies similar products and processing services as STH to similar markets in Canada.
Technology:
The bulk of Steel's research and development program remains focussed on maintaining its businesses' competitive advantage in coated products. Steel continues to market the technology for the aluminium/zinc alloy coating of steel through its wholly owned subsidiary, BIEC International Inc.
Steel continues to develop its patented, solid paint technology and has, under construction, a coil painting facility at its NSW service centre. Commissioning of this facility occurred in 2000.
At the Port Kembla steelworks in NSW, there was continued progress in reducing coke plant emissions and a new advanced technology was selected for piloting a system for reducing sinter plant stack emissions. The installation of pulverised coal injection for the two blast furnaces was authorised, for commissioning early in calendar year 2002.
The North Star BHP Steel joint venture hot-strip production facility, based on new 90mm thick slab casting, has now exceeded its design capacity and is delivering high quality coils with outstanding delivery performance.
The revolutionary strip casting technology, developed in conjunction with Ishikawajima-Harima Heavy Industries of Japan (IHI), will be moved to commercialisation by NUCOR Corporation at its plant in Crawfordsville, Indiana, US. A joint venture company to license the technology has been formed by BHP, IHI and NUCOR.
At the Geelong, Victoria wire mill, the galvanising line was upgraded and facilities for zinc-aluminium coatings were commissioned. The capacity for high-speed, in-line application of organic coatings was significantly expanded.
The new billet caster and associated ladle metallurgy furnace at Whyalla steelworks were commissioned successfully.
PETROLEUM:
Petroleum is principally engaged in the exploration for, and the development and production of, oil and natural gas. Petroleum has oil and natural gas exploration, production and development operations in Australia, the UK, the US, Algeria, Pakistan and Bolivia and exploration interests in Algeria, Gabon, Trinidad, Angola and the Zone of Cooperation Area A (ZOCA) between Australia and Indonesia.
BHP began its involvement in the petroleum industry in 1960, exploring for crude oil and natural gas in the Gippsland Basin in Bass Strait, off the coast of Victoria, Australia. Today, Petroleum's single largest producing asset is its 50% equity interest in the Bass Strait fields, which are operated by Esso Australia Resources Pty Ltd (Esso). Production from the Bass Strait fields is equivalent to approximately 45% and 46% of Petroleum's total oil and condensate and natural gas production, respectively.
In 1963, the Western Australian government and Northern Territory administration granted Woodside Petroleum Ltd (Woodside) offshore exploration permits covering 367,000 square kilometres on the North West Shelf. Significant gas discoveries were made in this area in 1971 and 1972, which form the basis for the North West Shelf project. The joint venturers in the project, including BHP, have developed the fields for natural gas supply to the Western Australian domestic market and liquefied natural gas (LNG) for export to Japan. In November 1999, production commenced from the Laminaria and Corallina oilfields in Northern Australia of which BHP has participating interests of 32.6125% and 25% respectively. In December 1999, Petroleum also commenced oil production from the Buffalo oilfield in northern Australia, in which Petroleum (operator) has a participating interest of 50%. The balance of Petroleum's production in Australia comes from the operated Griffin field offshore North West Australia. Petroleum encountered a significant oil column in the Griffin 8 well in June 2000 which is expected to raise Griffin's throughput to in excess of 50,000 bopd (gross).
In June 1998, Petroleum sold its interests in the Challis and Jabiru fields in the Timor Sea to a subsidiary of Gulf Canada Resources Limited. In April 1999, Petroleum sold to Phillips Petroleum Company its interest in Production Sharing Contract (PSC) ZOCA 91-12, together with its interests in ZOCA 9519 (33.33%), ZOCA 96-20 (33.33%), M/RL2 (8.33%) and NT/P55 (33.33%). This included Petroleum's interests in the Elang/Kakatua/Kakatua North oil field and Bayu/Undan gas/condensate field located in the Australia - Indonesia Zone of Cooperation.
In November 1999, Petroleum also sold its interest in the Kutubu, Gobe and Moran Projects in Papua New Guinea and its holdings in pipeline licenses, retention leases and an exploration license. The sale marked the total withdrawal of Petroleum from Papua New Guinea. Petroleum has exploration and production operations in the Americas. Petroleum has divested most of its onshore and shallow water offshore North American production and exploration assets, retaining interests in three offshore producing properties in the Gulf of Mexico. Petroleum has, since 1995, acquired a major exploration portfolio in the deepwater and ultra-deepwater Gulf of Mexico, where it is now one of the largest lease holders in water depths greater than 1,500 feet.
During 1999-2000, the partners in the Mad Dog discovery drilled a successful appraisal well, the results of which are being evaluated. In January 2000, BHP and Chevron approved the development of the Typhoon field. This represents Petroleum's first commercial deep water development in the Gulf of Mexico. Petroleum also has exploration and production interests in Bolivia and exploration interests in Trinidad. BHP sold its interests in the Bolivia to Brazil Gas Pipeline in June 2000.
Petroleum's UK activities are based in the North Sea and the Irish Sea, and include the Liverpool Bay Development in the Irish Sea, which is Petroleum's largest operated asset. Petroleum also has an interest in the Bruce oil and gas field, which is located in the UK North Sea. In January 2000, Petroleum and its partners received approval from the UK Department of Trade and Industry to develop the Keith oil field, which will be connected to the Bruce Western Area Development. First oil occurred in the fourth quarter of 2000. Petroleum completed the sale of its interests in the Ravenspurn North and Johnston gas fields, located in the UK North Sea, to Eastern Group plc on 5 July 1999.
In April 2000, Petroleum and its joint venture partners signed agreements with the government of Pakistan and Sui Southern Gas Corporation to supply gas from an extended well test on the Zamzama field in southern Pakistan. Production is anticipated to commence in April 2001.
In Algeria, an integrated plan to develop the ROD, SFNE, BSF, RDB and RERN oilfields in the Berkine Basin has been sanctioned by Sonatrach (the Algerian state oil company) and the joint venture partners and is now subject to formal gazettal by the Algerian government. Petroleum is entitled to approximately 17% of overall project reserves under a unitisation agreement. First production is expected in 2003. On 3 July 2000, BHP signed a Risk Service Contract (RSC) with Sonatrach for the development of four gas/condensate reservoirs in the Ohanet region of Algeria. The Ohanet development supports the establishment of a core business in Algeria. Petroleum's interest in the venture, which is now subject to government gazettal, is 60%. First production is scheduled for October 2003.
In the 13 months ended 30 June 2000, Petroleum's share of crude oil and condensate production averaged 217,000 barrels per day, liquified petroleum gas (LPG) production averaged 1,880 tonnes per day, LNG production averaged 3 590 tonnes per day, ethane production averaged 220 tonnes per day and sales of natural gas averaged 490 million cubic feet per day. In total, this production amounts to approximately 348,000 barrels per day on an oil equivalent basis. Petroleum's remaining proved reserves at 30 June 2000 were 557 million barrels of crude oil, LPG and condensate and 4,990 billion cubic feet of gas. Petroleum's gross exploration expenditure for the 13 months ended 30 June 2000 was $263 million and capital and investment expenditure was $489 million.
Exploration, Development And Production:
Petroleum has production derived from four countries, with operations and investment mainly focused in Australia, the UK and the US. Petroleum's exploration portfolio includes acreage in 11 countries including major activities in the deepwater and ultra-deepwater Gulf of Mexico, Algeria and in the Carnarvon Basin, offshore Western Australia. In the Gulf of Mexico, Petroleum has a working interest or an overriding interest in 254 leases.
Other exploration areas include Angola, Gabon, Bolivia, Trinidad, and Pakistan. These areas have been assessed by Petroleum as offering major hydrocarbon potential, acceptable fiscal terms and where Petroleum has, or is capable of developing, a competitive advantage.
Petroleum currently has a portfolio of developments under way or expected to commence shortly. These include Typhoon in the Gulf of Mexico, the Zamzama Extended Well Test in Pakistan, the ROD integrated field development and the Ohanet development in Algeria, as well as the Keith tie-in to the Bruce Western Area Development in the United Kingdom. Several new discoveries are currently undergoing appraisal, including Mad Dog and Atlantis in the Gulf of Mexico, and Angostura and Aripo in Trinidad.
Bass Strait - Production:
The Bass Strait oil and gas fields located in the Gippsland Basin, offshore southern Australia, are Petroleum's largest assets. In 1964, Petroleum entered into an exploration agreement with a subsidiary of ExxonMobil, now operating as Esso Australia Resources Pty Ltd, to explore the Gippsland Basin. The first fields were discovered in 1965 with first production in 1968. Interests in the fields are owned 50% each by BHP (Petroleum) Bass Strait Pty Ltd and Esso Australia Resources Pty Ltd, with Esso Australia Resources Pty Ltd as the operator. Production from most of the fields is subject to an overriding 2.5% royalty payable to Oil Basins Limited. Most of the natural gas produced is sold under a long-term contract to Gascor (a Victorian government-owned entity) for on-sale to retailers for distribution throughout Victoria to meet its residential and commercial gas requirements. In 1999-2000, total gas production averaged approximately 450.2 million cubic feet per day (gross) with ethane production of 480.6 tonnes per day.
Crude oil and condensate is despatched through the Long island Point terminal with the majority sold via a pipeline to refineries in Altona and Geelong, Victoria. The balance is loaded into tankers and sold to refiners in NSW or transported and sold to overseas customers on a spot basis. Liquified petroleum gases extracted from the natural gas and crude oil are sold in Australia and overseas. Total liquid production during 1999-2000 averaged 234,000 barrels per day (gross).
The Blackback field, estimated to contain gross proved reserves of seven million barrels of oil equivalent, commenced production in June 1999. The field has been developed via subsea wells linked to an existing platform.
On 25 September 1998, an explosion and fire occurred at Gas Plant 1 at Longford. As a result of the incident, Gas Plants 1, 2 and 3 and all production in Bass Strait was shut down. Due to the curtailment of processing at Longford, the Victorian government placed a ban on all non-emergency use of natural gas in Victoria. BHP declared force majeure on crude oil, LPG and gas contracts. Force majeure has now been lifted on all sales. Gas production resumed in October 1998 and limited crude production in December 1998. During January 1999, crude production returned to pre-incident levels when it exceeded 200,000 barrels per day, a result of the recommissioning work to the Longford crude oil stabilisation plant. The Victorian government initiated a Royal Commission inquiry to investigate the incident, which completed hearing oral evidence and submissions in April 1999.
In December 1998, Petroleum and its joint venture partner, West Coast Energy, sold their respective 50% interests in the Eastern Gas Pipeline from Victoria to NSW to Duke Energy International. Also in December 1998, Petroleum and Esso Australia Resources Pty Ltd entered into a long term gas transportation agreement with Duke Energy International, for the transportation of Bass Strait natural gas to NSW. Construction of the pipeline has been completed and first gas was delivered on 17 August 2000. Petroleum has agreed to supply natural gas to EnergyAustralia via the Eastern Gas Pipeline.
Petroleum's share of remaining proved reserves at 30 June 2000 was 275 million barrels of oil, condensate and LPG and 1,855 billion cubic feet of natural gas.
North West Shelf - Production:
The North West Shelf project is an unincorporated joint venture which has six participants and is operated by Woodside Petroleum Ltd. The project consists of two major phases: the domestic gas phase and the LNG phase, which are owned under different structures. The domestic gas participants are Woodside Petroleum (50% through its subsidiary Woodside Energy Ltd), BP Developments Australia Pty Ltd (16.67%), Chevron Australia Pty Ltd (16.67%), BHP Petroleum (North West Shelf) Pty Ltd (8.33%) and Shell Development (Australia) Pty Ltd (8.33%). When domestic gas sales are in excess of 550 terajoules per day, ownership of the incremental gas is equal with all parties, including Japan Australia LNG (MIMI) Pty Ltd jointly owned by Mitsubishi Corporation and Mitsui & Co), holding a 16.67% share. Participants in the LNG Phase include the domestic gas participants and Japan Australia LNG (MIMI), each with a 16.67% interest.
The North West Shelf project, located 1,200 kilometres north of Perth, Western Australia, is based on the North Rankin, Goodwyn, Perseus and Angel gas and condensate fields. Production from the North Rankin, Perseus and Goodwyn fields meets current contractual requirements for the domestic gas and LNG phases of the project. It is planned that the Angel field will be developed for future market requirements. The North Rankin field was the first to be developed, commencing production in 1984. The North Rankin field produced at an average of 779 million cubic feet per day (gross) of gas and 14,938 barrels per day (gross) of condensate during 1999-2000 through the North Rankin A platform, which has the capacity to produce 1,800 million cubic feet per day of gas and 40,000 barrels per day of condensate.
The Perseus field, previously known as North Rankin West, is currently produced through the North Rankin platform. The Perseus field produced at an average of 186 million cubic feet per day (gross) of gas and 6,404 barrels per day (gross) of condensate during 1999-2000.
The Goodwyn field commenced production in February 1995. In 1999-2000, the Goodwyn field produced 569 million cubic feet per day (gross) of gas and 82,128 barrels per day (gross) of condensate through the Goodwyn A platform, which has the capacity to produce 900 million cubic feet per day and 130,000 barrels per day of condensate.
The domestic gas plant, located on the Burrup Peninsula, Western Australia, has a capacity of one billion cubic feet per day. The gas is delivered via pipeline to customers in Western Australia under long-term agreements. The first gas under these agreements was delivered in 1984. Production in 1999-2000 averaged 416 million cubic feet per day (gross).
The LNG plant commenced production in July 1989. The plant has the capacity to produce 21,750 tonnes per day of LNG that is sold under long-term contracts with Japanese based buyers for up to 7.5 million tpa until 2009. Production during 1999-2000 averaged 21,558 tonnes per day (gross). In 1999-2000, there were 138 LNG cargoes delivered to Japanese buyers with an additional seven spot cargoes delivered to customers in the US. The joint venture is progressing with plans to expand the LNG production facilities. A firm commitment to proceed with the development is expected once long-term sales contracts have been secured.
Supporting the expansion plans, Petroleum participates in a marketing organisation, Australia LNG (ALNG), to market LNG produced from Australian gas resources, mainly to overseas buyers outside of Japan. Each NWS joint venture partner participates equally in the organisation.
The LPG extraction facilities (Petroleum's interest 16.67%) have a production capacity of 800,000 tpa. LPG production began in November 1995 and production during 13 months 1999-2000 was 812,085 tonnes (gross).
Condensate (light oil) is produced from the North Rankin, Goodwyn and Perseus fields. Production during 1999-2000 averaged 105,137 barrels per day (gross).
In 1989, the Wanaea and Cossack oil fields (Petroleum's interest 16.67%), located to the east of the North Rankin field, were discovered and in October 1993 development of the fields was approved. The production facilities, consisting of a floating production storage and off loading (FPSO) unit, were commissioned in November 1995. In 1996, the Hermes oil field was discovered with first production, via subsea tie-in to the FPSO, commencing in October 1997. From January 1999, the Cossack Pioneer was shutdown for a major refit at the drydock facilities in Dubai. Production resumed in July 1999 increasing to an average daily production rate of more than 120,000 barrels per day by January 2000. In October 1999, first production commenced from the Lambert field, also via subsea tie-in to the FPSO. Total production during 1999-2000 averaged 86,343 barrels of oil per day and 57 million cubic feet of gas per day (gross).
Petroleum's share of estimated remaining proved reserves in the North West Shelf at 30 June 2000 were 2,271 billion cubic feet of gas and crude oil, condensate and LPG reserves of 148 million barrels of oil equivalent.
Petroleum has a 16.67% interest in exploration permit WA-28-P in which a number of oil and gas discoveries have been made, and a 20% interest in WA-244-P and WA-245-P. These permits are adjacent to the North West Shelf offshore production acreage.
Laminaria - Production:
Petroleum is a participant in the Laminaria oil project, which was discovered in 1994 and which includes Woodside Energy Ltd as operator and Shell Development (Australia) Pty Ltd. In November 1999, the Northern Endeavour FPSO was commissioned and production commenced from the Laminaria and Corallina fields. The FPSO has a capacity of 180,000 barrels of oil per day. The Laminaria oil field is located in exploration permit AC/P8 and Laminaria East which extends into the WA-260-P permit.
BHP Petroleum (NWS) Pty Ltd has a 25% interest in AC/L5 production licence (formerly part of AC/P8) and a 100% interest in the Laminaria East extension into WA-18-L (formerly part of WA-260-P).
Under a July 1998, unitisation agreement reached between the ACY5 participants Petroleum has a 32.6125% interest in the Laminaria oil field (Woodside 44.925% and Shell 22.4625%). Production from Laminaria during 1999-2000 totalled 21.5 million barrels of oil (gross). Petroleum's estimated remaining proved reserves in Laminaria at 30 June 2000 was 26.7 million barrels of crude oil reserves.
Participating interests in the AC/L5 Corallina oil field is shared 50% Woodside Energy Ltd, 25% Shell Development (Australia) Pty Ltd and 25% Petroleum (North West Shelf) Pty Ltd.
Production from Corallina during 1999-2000 totalled 10.3 million barrels of oil. Petroleum's share of estimated remaining proved reserves in Corallina at 30 June 2000 was 6.5 million barrels of crude oil reserves.
Carnarvon Basin - Production:
Petroleum is operator of the Griffin oil and gas project which includes the Griffin, Chinook and Scindian fields in the Carnarvon Basin, offshore Western Australia. The production licence (WA-10-L) was issued in February 1993 and the participants in the licence are BHP Petroleum (Australia) Pty Ltd (45%), Mobil Exploration & Producing Australia Pry Ltd (35%) and Inpex Alpha Ltd (20%). First oil was produced through a FPSO facility in January 1994 and total production for 1999-2000 averaged 15,914 barrels per day (Petroleum's share). Up until late July 2000, gas processed on board has been piped 68 kilometres to shore for further processing at a treatment plant, commissioned in 1994, located 30 kilometres south of Onslow and owned by the Griffin joint venture partners. From there the natural gas and LPG are sold into the Western Australian market under long-term contracts. First gas sales commenced in late 1994. From early August 2000 onwards, the treatment plant will be closed and unprocessed gas will continue to be sold under long term contracts. The Griffin Joint Venture will not separately extract and sell LPG which will remain in the gas stream.
The Scindian 3 and Griffin 8 infill wells were completed in June and July 2000, with Petroleum encountering a significant oil column in the Griffin 8 well in June 2000. Both wells came on production in July 2000 with initial incremental production from these wells expected to exceed 20,000 bopd. This will raise Griffin's throughput to in excess of 50,000 bopd. It is likely results from the Griffin 8 well will demonstrate larger than previously estimated recoverable volumes. These results will be evaluated in combination with further data collection to reassess the potential of the Griffin Field. Gas and LPG sales for 1999-2000 averaged 4.04 million standard cubic feet per day and 134 barrels per day on an oil equivalent basis respectively (Petroleum's share).
At 30 June 2000, Petroleum's estimated remaining proved reserves in the Griffin, Chinook and Scindian fields totalled 12.84 million barrels of crude oil and LPG and 7.3 billion cubic feet of gas.
Timor Sea - Production:
Petroleum was awarded exploration permit WA-260-P in December 1995, for an initial six-year term following a commitment to drill 11 wells and to acquire 200 square kilometres of three-dimensional seismic and 1,000 square kilometres of two-dimensional seismic data. All 11 first phase commitment wells in WA-260-P have now been drilled. The production licences (WA-19-L and WA-21-L) were issued in September and December 1999 respectively. BHP Petroleum (North West Shelf) Pty Ltd and Canadian Petroleum Australia Ltd each hold 50%. In October 1996, the Buffalo-1 well, located approximately seven kilometres south-east of the Laminaria discovery in Western Australia, encountered hydrocarbons. The Buffalo-2 appraisal well, drilled in May 1997, confirmed the existence of a hydrocarbon column in this field. In November 1997, Petroleum entered into a farmout agreement with Canadian Petroleum Australia Ltd to farm out 50% of its holding in the WA-260-P exploration permit and the Buffalo oil field. The farm-out arrangement does not include the Laminaria East extension of the Laminaria oil field discovery. Petroleum surrendered the WA-260-P licence in May 2000. The Buffalo oil field and the Laminaria East extension of the Laminaria oil field discovery have been retained as production licences.
Development of the Buffalo oil field commenced late in calendar year 1998 and first production occurred in late December 1999. The field has been developed using a fixed steel unmanned wellhead platform linked to a leased FPSO. Total production during 1999-2000 averaged 15,416 barrels of oil per day (Petroleum's share).
In June 1998, BHP Petroleum (Cartier) Pty Ltd sold to a subsidiary of Gulf Resources Limited, Petroleum's interest in production licences AC/L 1, 2 and 3 (which includes the Jabiru and Challis oil fields) and AC/L 4 (covering the Skua field, which ceased production in 1996-97).
Other - Production:
In October 1994, BHP Petroleum commenced production from a methanol research plant in Victoria. Petroleum (operator) held an 80% interest, with the balance being held by Mitsubishi Corporation, until 9 June 2000, when Petroleum sold its interest in the project to Coogee Chemicals Pty Ltd and Mogul Marine Pty Ltd.
Timor Sea - Exploration And Development:
In the Timor Sea, Petroleum is the operator and a participant in one retention lease AC/RL3 (50%), exploration permit AC/P30 (66.66%) and production licence WA-1SL (100%) located in the Bonaparte Basin off the north-west coast of Australia. Petroleum is also a participant in exploration permit AC/P8 (25%) and production licence AC/L5 (25%).
Petroleum farmed out a one third interest in AC/P30 to AEC International (Australia) Pty Ltd (Alberta Energy), effective February 2000.
Zone of Cooperation - Exploration And Development:
In June 2000, Petroleum obtained approval from the Timor Gap Joint Authority for the Zone of Cooperation to withdraw from permits ZOCA 9515 (previously 100% and operator) and ZOCA 9517 (previously 100% and operator). Petroleum retains an interest in one other permit in ZOCA, being ZOCA 91-01 (40% and operator).
Other Areas and Activities:
In 1992, Petroleum discovered the Macedon-Pyrenees gas fields in the Carnarvon Basin (permit WA-12-R, in which Petroleum holds a 71.43% interest), offshore Western Australia. Development options are under review. No commercial gas markets have been established at this point. Petroleum is an interest-holder and operator in exploration permits WA-155-P Part 1 (39.999%), WA-255-P (50%), WA-289-P (40%), WA-290-P (40%), and retention lease WA-12-R (71.43%), offshore Western Australia. Petroleum is also a non-operator interest-holder in retention lease WA-1-R (50%), and exploration permits WA-33-P (8.33%), WA-239-P (42%), WA-296-P (16.67%) and WA-275-P (20%), offshore Western Australia. During 1999-2000, Petroleum farmed out its interest in WA-239-P from 60% to 42% and relinquished operatorship to Canadian Petroleum.
In February 2000, oil was discovered at Petroleum's Coniston-1 exploration well, located in block WA-255-P, which is located 25 kilometres to the north of the BHP operated Macedon gas and Pyrenees oil discoveries. The significance of the Coniston-1 discovery will be assessed following an evaluation of well results.
In 1993, Petroleum discovered the Minerva gas field (VIC/RL8) in the Otway Basin off Port Campbell in southern Victoria. In June 1998, Petroleum agreed with Incitec Ltd to investigate jointly the development of a world scale ammonia urea fertiliser plant utilising gas from the Minerva field. Studies into the feasibility of a fertiliser plant have now ceased and the joint venture has been terminated. Alternative development scenarios for the Minerva field are being reviewed.
Gulf of Mexico - Production And Development:
Petroleum's producing assets in the Gulf of Mexico are the West Cameron 76 field that it operates with a 33.8 - 78.8% working interest, Green Canyon 18/Ewing Bank 988 that is operated by ExxonMobil and in which Petroleum has a 25% working interest, and Green Canyon 60 that is also operated by ExxonMobil and in which Petroleum has a 45% working interest Additional development wells have been drilled in the West Cameron 76 field, increasing both reserves and production. Petroleum's share of production from these fields was approximately 4,655 barrels per day of liquids and 39.52 million cubic feet per day of gas in 1999-2000. At 30 June 2000, Petroleum's estimated remaining net proved reserves in the Gulf of Mexico totalled 13.0 million barrels of oil and condensate and 74.0 billion cubic feet of gas.
In July 1998, the Typhoon-1 well encountered oil on Green Canyon Block 236. Three appraisal wells were drilled in Green Canyon Block 237 and a fourth was drilled in Block 236. Petroleum has a 50% working interest in the two blocks, and Chevron, who also owns a 50% working interest, is the operator. In January 2000, BHP and Chevron approved the development of the 767b field in Green Canyon Blocks 236 and 237. The field is located in 600 metres of water approximately 100 kilometres off the coast of Louisiana. The field will be developed by means of subsea completion and tieback of four existing appraisal wells and the construction and installation of a local host facility using a mini tension leg platform. Peak production of 40,000 bpd and 60 mmscfd is expected after scheduled first production in the third quarter of calendar year 2001.
Bolivia - Exploration:
With effect from 1 July 1994, Petroleum acquired a 50% working interest in the Mamore exploration block in Bolivia, including the Surubi oil field, from Maxus Bolivia Inc., whose ultimate parent is now Repsol of Spain. Production from the Surubi oil field began in 1993 and in 1999-2000 Petroleum's share of production from the field was approximately 1,588 barrels per day. Petroleum's share of production from the Paloma field, which was discovered in 1995, was approximately 3,168 barrels per day in 1999-2000. Petroleum's share of production from the Bloque Bajo field, which was discovered in 1996-97, was approximately 278 barrels per day of oil in 1999-2000. Gas sales from the block commenced in the second half of calendar 1999. Petroleum's share of production from these fields was approximately 7,195 million cubic feet per day of gas in 1999-2000.
At 30 June 2000, Petroleum's estimated remaining net proved reserves in Bolivia totalled 15.5 million barrels of oil and condensate and 68.4 billion cubic feet of gas.
Gulf of Mexico - Exploration:
Petroleum has been active in acquiring exploration leases offshore Louisiana in each of the past six Central Gulf Federal Outer Continental Shelf (OCS) lease sales and through farmin arrangements. Petroleum acquired 79 leases in the May 1995 sale, 65 leases in the April 1996 sale, 38 leases in the March 1997 sale, 16 leases in the March 1998 sale, nine leases in the March 1999 sale and three leases in the March 2000 sale.
Shelf/Flex Trend, Gulf of Mexico - Exploration:
At 30 June 2000, Petroleum owned a working interest in 20 exploratory leases and an overriding royalty interest in one lease in water depths less than 1,500 feet. One exploratory well was drilled in the Shelf/Flex Trend in the first quarter of calendar 2000 (Viper) which proved to be unsuccessful. However, Petroleum and its partners expect through a farmout management to further test the potential on the lease.
Gulf of Mexico, Deepwater and Ultra-deepwater - Exploration:
At 30 June 2000, Petroleum's portfolio consisted of 221 leases and an overriding interest in an additional 5 leases making it one of the largest lease holders in water depths greater than 1,500 feet. As part of its strategy to allocate efficiently exploration expenditure and to grow expeditiously the prospect inventory, Petroleum has entered into several joint venture arrangements with companies active in the deepwater. In this regard, in March 2000, Petroleum entered into a joint venture agreement with Total Exploration Production USA, Inc., covering 21 leases owned by Petroleum in the Walker Ridge Area. Under the terms of this agreement, Total will earn a 30% interest in the Chinook and Klondike prospects. The agreement also provides Total with the option to earn a 30% interest in the Cascade prospect. Petroleum will retain a 70% interest in the leasehold acreage and will serve as operator.
In addition, Petroleum has entered into several significant joint venture agreements with British Petroleum Amoco (BP Amoco) covering multiple prospects in portions of Green Canyon, Atwater Valley and Mississippi Canyon over the last four years. Of the agreements still in effect, Petroleum owns a 42.5 - 44% working interest in 55 blocks in one joint venture area in which operatorship alternates pursuant to the joint venture agreement. Petroleum also has a 50% percent interest in 32 leases with BP Amoco in the eastern portion of the Atwater Foldbelt. Petroleum is designated as operator of 22 blocks under this agreement.
In early calendar 1998, Petroleum and Exxon entered into an agreement covering a number of blocks that each party held on a 100% basis in the eastern Atwater Foldbelt. Under the agreement, each party assigned 50% of their interest in 12 blocks to the other party, so that both companies hold 24 blocks on a 50% basis. Petroleum is currently maturing these prospects.
A further agreement was finalised in April 1998 with BP Amoco in the Atwater Foldbelt trend involving the Dylan Prospect (now referred to as Mad Dog). BHP (44%) and BP Amoco (56%) jointly contributed the southern half of Green Canyon Block 782 to form a two and one-half block federal unit in return for a 26% carried working interest in the initial well. Petroleum retains an 11.44% net working interest in the two and one half block unit and a 44% working interest in the five and one-half blocks outside the unit. In 1998, the Mad Dog-1 well encountered hydrocarbons and was suspended pending further evaluation. The well was drilled on Green Canyon 826 which is part of the two and one half block unit.
In calendar year 1999, the Mad Dog partners drilled a successful appraisal well within the two and one half block unit.
Mad Dog is Petroleum's third prospect along the Atwater Foldbelt trend to have encountered hydrocarbons. The Atwater Valley (AV) 5751 encountered hydrocarbons at the Neptune prospect in 1995 and was appraised by the AV 574-1 well in 1998. The Atlantis discovery was drilled with the Green Canyon 699-1 well in 1998 and is located between Neptune and Mad Dog in approximately 4,400 feet of water. The appraisal well, Atlantis No.2, was drilled at the end of the financial year in Green Canyon Block 743. This well is being drilled with the C.R. Luigs drillship, which is operated by BHP. Petroleum has 44% working interest in Atlantis and a 42.5% working interest in Neptune and a 23.9% working interest in Mad Dog. The results of this first appraisal well are being evaluated and, while encouraging, it is likely that further appraisal will be required to delineate this accumulation.
Bolivia:
Resource evaluation work continues on the Mamore and Secure blocks in which Petroleum has a 50% and 41.18% interest respectively. In 1999, Repsol acquired Maxus/YPF, and as a result, became the substitute operator and sole partner with BHP in both the Mamore and Secure blocks. On 31 January 2000, the Secure Joint Venture entered the third and final phase of the seven year exploration period. The duration of the third phase is two years in which two exploration wells are planned to be drilled. The first well, Eva Eva South, was due to spud in the second quarter of 2000-01.
Although there is no exploration planned for the Mamore Block in 2000-01, development and appraisal drilling continues in the Surubi and Paloma fields. In June 2000. Petroleum sold its interests in the Bolivia to Brazil Pipeline (BTB Pipeline). The Bolivia to Brazil pipeline is more than 3,000 kilometres in length and connects major gas reserves in Bolivia with the growing energy markets of coastal Brazil. BHP's 9.67% interest in the Brazilian portion of the pipeline was sold to a subsidiary of TotalFinaElf S.A. BHP's 2% interest in the Bolivian portion was sold to Petrobras GAS S.A. BHP first established its interests in the pipeline in January 1998.
Liverpool Bay, United Kingdom - Production:
Petroleum is the operator and has a 46.1% interest in the Liverpool Bay oil and gas development located off the Welsh coast in the Irish Sea. Other joint venture participants in the development are LASMO (ULX) Limited (45%) and Centrica Resources Ltd (8.9%). The development includes five fields, four of which have already been developed. First production from the Douglas and Lennox oil fields commenced in early 1996, and contracted gas sales to PowerGen from the Hamilton and Hamilton North gas fields commenced in July 1996.
Oil production during 1999-2000 averaged 44,800 barrels per day (gross) and gas production averaged 223 million cubic feet per day (gross).
Oil and gas production was suspended for six days after the supply boat Highland Pioneer collided with a Douglas accommodation platform leg on 27 January 2000. There were no injuries or environmental releases as a result of the incident. Since start-up of production, there have been three minor oil spills, none of which has resulted in significant or lasting environmental damage.
Petroleum's share of remaining proved reserves in the Liverpool Bay development at 30 June 2000 is estimated to be 42.3 million barrels of oil and 390.3 billion cubic feet of gas.
In October 1999, PowerGen and the field owners agreed to reduce the sale price of the contracted gas for a five year period having effect from 1 June 1999, in exchange for a one off cash payment from PowerGen. The resulting deferred income amount will be amortised on a "unit of production" basis over the five years of the agreement. This agreement follows a similar re-negotiation of the Gas Sales Contract in December 1998 when the Company received a one-off cash payment for a permanent base price reduction. Proceedings against Dalmine spa by Petroleum and its partners relating to the failure in June 1996 of a Lennox to Douglas pipeline are still continuing. A new cause of action in deceit has been raised by the claimants against Dalmine spa.
Bruce/Keith, UK - Production:
The Bruce field, which was discovered in 1974, is located approximately 380 kilometres north-east of Aberdeen in the northern North Sea. Petroleum has a 16% interest in the field which is operated by BP Amoco. The integrated oil, gas and condensate development concept for Bruce is being developed over three phases. Gas production is sold under long-term take-or-pay sales contracts to British Gas Trading Ltd and Corby Power Limited.
Phase I of the development was approved in 1990. The Phase I facilities include a drilling and wellhead platform with 32 slots that is bridgelinked to a "process, utilities and quarters" (PUQ) platform. Gas is exported from the PUQ platform via a five kilometre connecting pipeline to the Frigg gas export pipeline system. Liquids are exported from the PUQ platform via a 254 kilometre pipeline to the Forties Unity platform and into the BP Amoco operated Forties Pipeline System.
Phase II development of the western area of the Bruce field commenced in 1997 and was successfully completed late in calendar 1998. The development entails a single eight-slot manifold tied back to a Compression Riser platform bridge linked to the existing Bruce facilities. First production from the Western Area took place in October 1998. A new gas injection compressor, capable of handling some 500 million cubic feet per day of gas, has been installed to maintain pressure and improve liquids recovery.
Phase III of the project involves infill drilling from the existing drilling platform to develop additional oil, gas and condensate reserves in the north, central and eastern parts of the field. The first two of these infill wells were completed during 1999-2000 and work continues to identify new well targets both for platform drilling and also sidetrack prospects from existing wells.
Petroleum's share of production from Bruce for 1999-2000 averaged 8,448 barrels per day of oil and 76.3 million cubic feet per day of gas. Petroleum's share of remaining proved reserves in Bruce at 30 lune 2000 is estimated to be 15.4 million barrels of liquids and 319.9 billion cubic feet of gas.
Petroleum has a 31.83% interest in the Keith oil discovery, lying adjacent to the Bruce field in block 9/8a and further interests in licence blocks 9/8b, 9/9b, and 9/9c. Development of the Keith field was approved in January 2000. Initial development of the Keith field was in progress at the end of 1999-2000 with preparations for the tieback of the subsea well 9/8a-14 to the western (WAD) subsea manifold and to the Bruce platform facilities with first production targeted for the fourth quarter in calendar year 2000.
United Kingdom - Exploration:
Petroleum retains interests in 10 UK blocks outside the blocks in which its producing assets lie. An ongoing program of rationalisation of these assets is in place and several licenses are likely to be relinquished during 2000-01.
Algeria - Exploration and Development:
In Algeria, Petroleum holds a 45% interest in, and operates, Blocks 401a/402a. Petroleum is in the process of completing its exploration commitment program of the 401a/402a PSC by drilling two exploration wells - Fatima-1 and RAR-1. This will complete the exploration program for the Production Sharing Contract (PSC). The Fatima-1 well was suspended as a non commercial oil well and evaluation of well RAR-1 is continuing. BHP has applied for a one year extension to the exploration licence to complete any outstanding appraisal and/or commercialisation of hydrocarbons in the permit. An appraisal well has been drilled on each of the SME and RERN oil fields during the last year in order to support the application for the development of these resources.
An integrated plan to develop the ROD, SFNE, BSF, RDB and RERN oil fields has been sanctioned by Sonatrach (the Algerian state oil company) and is now subject to formal gazettal by the Algerian government. The largest of the fields, ROD, extends into the neighbouring Block 403 concession operated by AGIP and Sonatrach. A unitisation agreement has therefore been put in place to govern joint operatorship and commercial arrangements for the development, giving BHP approximately 17% of overall project reserves. After grossing for Algerian taxes, BHP's net share of proved reserves is 32 million barrels.
The fields will be developed via a new dedicated processing train which will be built at AGIP and Sonatrach's existing BRN production facility on Block 403. From there, oil will be exported via the established pipeline infrastructure to terminals located on the Algeria coast, while the associated gas will be re-injected underground. BHP's share of the US$500 million development costs will be around US$190 million.
First production from the fields is scheduled for the first half of 2003, with a gross peak production rate of 80,000 barrels of oil per day. The development and operations will be conducted by joint operating entities comprising BHP, AGIP and Sonatrach.
Petroleum holds a 100% interest in the Boukbechba exploration permit and continues to evaluate this acreage and to investigate the optimum forward program.
Petroleum is working with Sonatrach to evaluate the potential application of the company's proprietary compact LNG (cLNG) technology at its extensive gas liquefaction facilities in Anew. Petroleum signed a Risk Service Contract (RSC) with Sonatrach, for the development of four gas/condensate reservoirs in the Ohanet region of Algeria on 2 July 2000. The participants in the venture - which is subject to formal gazettal by the Algerian government - are BHP Petroleum (International Exploration) Pty Ltd (60%), Japan Ohanet Oil & Gas Co. Ltd. (30%) (JNOC (50%), Itochu (35%), Teikoku (15%)) and Petrofac Resources (Ohanet) LLC (10%).
The total cost of developing the Ohanet reservoirs (estimated at around US$1.0 billion, Petroleum share US$618 million) will be borne by the foreign participants. In return, the participants will be entitled to recover their investment together with an agreed fixed profit consideration - over a target eight-year period from the start of production.
All participants' monetary entitlement will be translated into volumes of condensate, butane and propane (at prevailing market prices) which will be lifted from export ports on the Algerian coast.
Ohanet is located in the Illizi province of Algeria, approximately 1,300 kilometres south-east of Algiers and 100 kilometres west of the country's border with Libya. The fields were originally discovered in the late 1950s and early 1960s and have since been appraised and delineated by more than 65 wells.
First production is scheduled for October 2003 and peak liquids production will be around 58,000 barrels per day, which will be shared by the foreign partners according to their equity interests. Petroleum is also pursuing other oil and gas opportunities in Algeria.
West Africa - Exploration:
The PSC for Block 21 in the deepwater Kwanza Basin, offshore Angola, came into effect in January 1999 with Petroleum as operator. The contractor group comprises BHP Petroleum (Angola 21) Inc. (30%), Amoco Angola Kwanza B.V. (20%), Esso Exploration and Production Angola (Block 21) Limited (20%), Sonangol Pesquisa e Producao S.A.R.L (20%) and Shell Development Angola B.V. (10%). In addition, Petroleum became a party to the PSC as a non-operator for a 15% interest in Block 22, also in the deepwater Kwanza Basin (Texaco Exploration Angola Sumbe Inc. is operator with a 40% interest). Drilling on Block 21 is expected to begin in 2001.
In Gabon, Petroleum assigned to Sasol Petroleum International (Pty) Ltd in May 1999 a 15% interest in the Otiti PSC, operated by ARCO Gabon Inc. and the Tolo PSC, operated by ARCO Gabon Exploration and Production Company Ltd, retaining a 27.5% equity interest in each.
On 1 November 1999, Petroleum took over operatorship of both the Otiti and Tolo PSCs after ARCO withdrew. ARCO's interest was proportionately reassigned to Petroleum (64.71%) and Sasol Petroleum International (Pty) Ltd (35.29%). The State of Gabon has a right to participate up to a 10% interest in both the Otiti and To1o PSCs upon first production from any development.
The first exploration well on the Otiti PSC was spudded in February 1998 and was plugged and abandoned in March 1998. The second well spudded on 30 May 1999 and was plugged and abandoned in June 1999. The first well to be drilled on the Tolo PSC is planned for the first half of 2001.
Pakistan - Exploration:
In Pakistan, Petroleum holds two exploration permits: Dadu (2667-1) and Risaldar A (2868-4) in the Indus Basin. Petroleum holds a 47.5% pre-discovery interest in Dadu and 95% in Risaldar A. The government of Pakistan has a 5% interest in these permits and the right to increase its interest to 25% in the case of a commercial discovery. A previous 47.5% pre-discovery interest in Risaldar B (2868-4) was farmed out to the remaining working interest owner, ODGCL, in early 2000.
In 1998, the Zamzama-1 well in the Dadu exploration permit discovered gas. During 1999, the Dadu joint venture undertook an appraisal program consisting of a mixed two-dimensional and three-dimensional seismic program and one appraisal well. This program identified potentially commercial reserves and with its joint venture partners is currently establishing a development concept, initially through an extended well test. In April 2000, the Dadu joint venture signed a gas sales and purchase agreement and a gas pricing agreement with the government of Pakistan and Sui Southern Gas Corporation for the extended well test (EWT) volumes. Production is anticipated to commence in April 2001 with the government of Pakistan entitled to 25% of this test production. On 31 May 2000, a declaration of commercial discovery, an application for a development and production lease and a development plan (preliminary) were submitted to the government of Pakistan.
Trinidad - Exploration:
In April 1996, Petroleum signed a PSC with the government of Trinidad and Tobago on offshore Trinidad Block 2(c) (Petroleum's interest 45%). It signed a second PSC in June 1996 on offshore Trinidad Block 2(ab) (Petroleum's interest 50%). These blocks are both operated by Petroleum and comprise approximately 1,297 square kilometres. A three-dimensional ocean-bottom-cable seismic program was completed in January 1998. The first exploration well, Angostura-1, drilled in 40 metres of water, was completed on Block 2(c) in May 1999 and has discovered natural gas. The Kitchener-1 exploration well in Block 2(ab) commenced drilling in May 1999 and was plugged and abandoned in June 1999. A second exploration well, Aripo-1, in block 2(c) drilled in 30 metres of water and located four kilometres north-east of Angostura-1 discovered natural gas in June 2000. Forward plans for Block 2(c) will be determined after information obtained from the well is evaluated. Petroleum and its partners committed to the second phase of Block 2(ab) and a second commitment exploration well is planned for 2000-01.
Cambodia/Thailand Overlapping Area - Exploration:
BHP Petroleum holds a 50% interest in two Conditional Petroleum Agreements within the disputed offshore area between Cambodia and Thailand.
SERVICES:
A number of changes have been effected in the previously named BHP Services group in the past 13 months. The Corporate Services name has been adopted to reflect an increased strategic focus on delivering lower cost, integrated business solutions to BHP businesses. During the period, previously internal service supply business units have been progressively outsourced to selected global alliance partners. Major examples are BHP Engineering, which was sold to Hatch Associates in November 1999 and BHP information Technology, which was sold to Computer Sciences Corporation (CSC) in May 2000. Corporate Services remains responsible for the effective delivery of these services, but this is now achieved through the external alliances rather than through internal ownership and operation.
Corporate Services now comprises three business areas: shared business services, global procurement and external sourcing.
Shared Business Services provides a range of services that can be shared across BHP assets, to leverage expertise and reduce costs by removing duplication and achieving economies of scale. This is a key element in implementing BHP's portfolio model, and includes major Shared Service centres in Adelaide, Australia and Houston, Texas, US that will provide transactional services in finance and accounting, human resources, supply/procurement and other areas to all BHP's assets worldwide.
The Global Procurement group takes a global perspective on strategic sourcing strategy for BHP. The group sets overall policy and strategy for global sourcing of business inputs and provides expert advice and assistance to the operating businesses throughout BHP.
The External Sourcing area includes three main components: Strategic Review, Alliance Development and Outsourcing, and Alliance Management.
Strategic Review conducts projects and studies aimed at defining BHP's long term requirements for service delivery and business processes with the aim of designing optimal organisation and service delivery mechanisms. Results of this work range from internal process re-engineering or reorganisation to a decision to move to an external sourcing model.
Alliance Development and Outsourcing provides the capability to implement external sourcing decisions, with a preference for adopting alliance-oriented contractual relationships.
Alliance Management provides post-transaction management of externally sourced service delivery. Where these relationships constitute a major independent focus, separate alliance offices are established (primary example being the BHP-CSC IT Services Alliance).
Transport and Logistics:
Transport and Logistics has its headquarters in Melbourne, and provides logistics solutions to BHP and other customers globally including transportation by sea, road and rail, stevedoring, marine consultancy and ship management. Approximately 70.8% of its revenue is from BHP companies and the balance from third parties. At 30 June 2000, Transport and Logistics operated seven vessels, jointly operated five vessels and managed four other vessels internationally and around the Australian coast. It also operated and managed seven tugs and one bunkering barge in Australian ports. Transport and Logistics is a significant global user of third party services and assets to meet its customers' needs.
Research and Development:
Research and development costs, as defined in the accounts before crediting related grants, during 1997-98, 1998-99 and 1999-2000 were $174 million, $221 million and $94 million, respectively. Rationalisation of these activities to better align them with business requirements has continued and the research and development (R&D) activities are now firmly embedded within the business units. The number of staff directly employed on these activities has been stabilised at about 150 in the last 13 months, and the number of research centres reduced from four to two by the closure of the Melbourne, Victoria and Reno, Nevada, US facilities.
The two remaining research centres have as their main activities: Newcastle - ferrous minerals and coal, processing and product performance, and non-ferrous minerals processing; and Port Kembla - ironmaking, steelmaking, steel processing and products.
Exploration technologies have been relocated close to the head office in Melbourne. Other research laboratory based activities including the maintenance and railways groups have been placed in universities with short term contracts. Two major R&D activities, hot strip casting (Project M) and gravity gradiometry (Project Falcon), are now proceeding to commercialisation.
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