Nexus will pay a toll to have the raw gas from the Longtom field located in Bass Strait processed through Santos’ 100%-owned Patricia Baleen facilities near Orborst, Victoria.

The Longtom field is about 14km from the pipeline between the Patricia Baleen field and the processing plant, which has spare capacity to deal with the Nexus gas.

The agreement is conditional on the Longtom-3 appraisal well proving sufficient reserves at the field.

Nexus said it was confident that this would be achieved and drilling of Longtom-3 was scheduled to start in May 2006.

If the appraisal is successful, first gas is scheduled to be supplied from the project from June 1, 2008.

Nexus acquired the Longtom discovery in 2003 and completed an appraisal well in January this year.

“The company anticipates that Longtom will prove to be a substantial resource capable of delivering significant long-term cash flow and value for Nexus,” managing director Ian Tchacos said.

“This is a huge step for Nexus and one that takes us from being an innovative and successful explorer to our next phase as a large-scale gas producer.”

Processing the gas at Patricia Baleen would considerably reduce Nexus’ field development costs, according to Tchacos.

“It has the additional benefit of utilising existing infrastructure thereby reducing project technical risk and environmental impact,” he said.

“Subject to successful appraisal and financing, this deal provides both commercial certainty for the project and the most practical development option. It has been formulated over some time and we will continue to work closely with Santos to ensure the success of the project, and to forge a long-term commercial relationship between both companies.”

Santos was also happy with the deal. The contract captured additional value for the Patricia Baleen processing plant and could extend the life of the facility well into the next decade, according to managing director John Ellice-Flint.

“It creates a positive outcome for both companies,” he said.

“Nexus improves its project certainty in the event of successful appraisal and Santos leverages its existing infrastructure without exposure to appraisal or development risk.”