"Oil Search is very encouraged that agreement has been reached to sell gas to WMC for use at Olympic Dam in South Australia. This agreement highlights that PNG gas is a highly competitive fuel source for the eastern and southern Australian gas markets," said Peter Botten, Oil Search's managing director.

Gas is to be supplied to Olympic Dam in South Australia for liquid fuel replacement and gas fired power generation from Esso Highlands and the PNG Gas Project participants.

The agreement covers the sale of gas over a period of 20 years from Project start-up. Total quantities will be between 12-20 petajoules per year, with the sale subject to successful feasibility studies by WMC on their pipeline and power station options.

The Highlands Gas Project now has conditional agreements with WMC and Energex (Comalco) and continues to negotiate with other parties who had previously signed with the PNG Gas Project. All of these parties continue to indicate support for the project but to date have not committed to conditional agreements.

These or similar agreements with others will be necessary to underpin the viability of the project and are required for considering advancing the project.

"Intensive discussions are continuing with a number of other potential customers. The successful completion of these negotiations is required in order to move the Project to the next stage of development activities, Front End Engineering and Design (FEED)."