Apache Corporation has signed a contract to supply natural gas from the Reindeer Field to CITIC Pacific's Sino Iron project in Western Australia.

Apache and its Reindeer joint venture partner Santos Ltd have agreed to supply 154 billion cubic feet of gas over seven years beginning in the second half of 2011. Apache owns a 55-percent interest in the field and Santos owns the remaining interest.

The gas will be supplied through a new, 65-mile offshore pipeline and a new onshore sales gas processing facility at Devil Creek, about 28 miles southwest of Dampier, with capacity to process 210 million cubic feet of gas per day. Apache plans to sell additional production from the Reindeer field to other domestic customers in Western Australia.

The contract price for the first three years is a fixed price adjusted periodically for changes in the Australian consumer price index. Beginning in the fourth year, the price is indexed to international oil prices. At an oil price of $50 per barrel, Apache's net share of the revenue over the seven years of the contract would be approximately $700 million.

The gas sales agreement will not take effect unless Apache and Santos sign contracts for engineering and procurement of the gas plant and pipeline by mid-March 2009 (or a later date if agreed by all parties).

"Development of the Reindeer field and Devil Creek plant will increase gas supplies in Western Australia, introduce a third major avenue for offshore gas to be delivered into the domestic gas market, and fuel production growth for Apache's shareholders," said G. Steven Farris, Apache's president and chief executive officer. "We are pleased we were able to sign this contract with Citic Pacific."

"The advent of significantly higher natural gas prices in Western Australia has enabled the large capital commitments required to develop new fields such as Reindeer," Farris said. "Apache has an active program to explore for and develop new oil and gas resources in order to expand Western Australia's energy supplies."

CITIC Pacific Mining's Sino Iron project is under construction at Cape Preston, in Western Australia's Pilbara region. With about 75 percent of capital expenditure committed, the project is the most advanced magnetite development in Western Australia. Earthworks for the power station and processing plant have been completed and the mine is under development. The first of the gas turbines and other major equipment have been manufactured and are ready for shipping to the site; other long lead-time components are currently being manufactured. CITIC Pacific Mining currently employs about 500 people in Perth, Cape Preston and China.

The project has funding arrangements in place with the China Development Bank. CITIC Pacific Mining has considerable support behind it through parent company CITIC Pacific, based in Hong Kong, and its majority shareholder, the CITIC Group.

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