10-04-01 Australian oil and gas major Santos said it would make an A$ 80 mm investment to secure up to a 40 % stake in the Evans Shoal gas field in the Timor Sea. To gain the stake, Santos will merge with Natural Gas Australia (NGA) through a scheme of arrangement with Santos offering 6.39 Santos shares for every 100 NGA shares.
Prior to the scheme proceeding, Santos will take up a convertible note issue to enable NGA to exercise its pre-emptive right to acquire an additional 25 % in Evans Shoal from Shell Group and Osaka Gas, and pay A$ 1.8 mm for 7.2 mm NGA shares in a placement to raise working capital for NGA.
NGA already holds 15 % of Evans Shoal and Santos said the field, about 300 km north of Darwin in Australian waters, contained estimated recoverable dry gas of about 6.6 tcf and was one of four major Timor Sea fields. "Total consideration for a 40 % interest is approximately A$ 80 mm, comprising approximately A$ 30 mm equivalent in Santos shares and $ 25 mm in cash," Santos said.

The field is operated by Shell Development (Australia), which had a 75 % stake, with Osaka Gas holding the remainder. "The Timor Sea has the potential for a world-class 20 tcf gas project which would have great benefits for Australia and the new nation of East Timor," said Santos managing director John Ellice-Flint, adding the most efficient way to develop the region's gas was for all companies involved to work together. The timing of the field's development would depend on gas demand from existing gas users, fuel switching, and commissioning of greenfields projects, Santos said.
Meanwhile, East Timor is pressing to settle by July 15 a new treaty to split oil and gas revenues from the Timor Sea with Australia based on a midway sea boundary, a key Timorese official said.
Peter Galbraith, a cabinet member of East Timor's transitional government, said that under international law there was little question the boundary should be midway between Australia and East Timor, which would entitle East Timor to much more than half the royalties from the Timor Gap.

Galbraith added that East Timor had a fair claim to royalty revenue from the Laminaria and Buffalo oil fields, which now fall wholly under Australian authority. A midway sea boundary would put most of the Timor Gap within East Timor's waters.
"Recent cases have affirmed even more strongly the midpoint principle," Galbraith told at an Australian Petroleum Production and Exploration Association conference in Hobart. Under the terms of the original treaty negotiated between Australia and East Timor's former occupier, Indonesia, Australia and East Timor would split the royalties evenly.
Second round talks between Australia and East Timor representatives ended on Friday with the two sides expected to meet again, possibly next month, to try to resolve terms for a new treaty before East Timor gains formal independence later this year. Galbraith argued that East Timor deserved a bigger slice of the royalty revenue from Timor Gap oil and gas production than Australia because Australia already stood to benefit to the tune of more than A$ 1 bn from the development of a new methanol plant in the Northern Territory fed by Timor Sea gas. That compares with A$ 100 mm a year East Timor expected to receive by the middle of this decade from the Bayu-Undan liquids project in the Timor Sea and an additional A$ 50 mm a year which could come from a gas pipeline.

East Timor was also eyeing royalties from Laminaria and Buffalo, which are already producing oil. "Laminaria and Buffalo operating under Australian license, but in an area to which East Timor has a compelling claim to the continental shelf, could generate up to A$ 1 mm a day -- A$ 365 mm a year -- for East Timor as current oil revenues," Galbraith said. Reassuring oil companies developing projects in the disputed area, Galbraith vowed that for companies, any change in the treaty would "be no more onerous than that in place at the time Indonesia pulled out of East Timor."
Reports have suggested East Timor is seeking 90 % of the royalties while Australia is prepared to offer 60 %, but a spokesman for Australia's Foreign Minister Alexander Downer said last week Australia's position was more generous. Production from the Timor Gap is due to rise sharply from 2004 when the $ 1.495 bn Bayu-Undan liquids project, operated by Phillips Petroleum begins output of more than 100,000 bpd.