Australia and East Timor thrash out revenue-sharing pact

Apr 29, 2005 02:00 AM

Australia and East Timor have thrashed out a revenue-sharing pact that will allow the neighbouring nations to exploit oil and gas reserves in the Timor Sea, including Woodside Petroleum's $ 5 bn Sunrise LNG project.
Doug Chester, Australia's chief negotiator in what have been protracted and sometimes acrimonious maritime boundary talks, said a deal will be presented to both governments soon, once a draft text is fine-tuned.

Foreign Minister Alexander Downer also told "substantial agreement" on all major issues has been reached.
"We're talking about them (East Timor) getting several billion dollars of additional revenue over and above what they would have otherwise got," Downer said.

A spokesman for Australian oil and gas producer Woodside said the company, which operates the multibillion dollar North West Shelf gas project, welcomes news of significant progress in the talks and indicated Sunrise might be back on the drawing board at some stage.
"As we have said before we require legal and fiscal certainty", before the Sunrise partners will commit to develop the project, he said.

Sunrise is regarded as the richest prize in the Timor Sea. Under the agreement, East Timor, one the world's newest and poorest countries, will get extra revenues of between A$ 2 bn and A$ 5 bn from the petroleum resources and assistance in developing its fledgling oil industry in exchange for postponing negotiations on a permanent maritime boundary for 50 or 60 years.
The monetary gain for Dili will ultimately depend on production levels, as well as future oil and gas prices, Chester said.
"The talks have gone really well. They've been very positive and I think it's fair to say we've reached agreement on all the major issues," Chester told.

"There are still a couple of minor issues we've got to do a little bit of work on. The text of the agreement has to be cleaned up a bit," Chester said, adding that will be done by the time the parties hold another meeting in Australia tentatively scheduled for May 11.
"The ministers in both countries have to consider it but negotiators have come up with an agreement that covers off on all the major issues," he said. "As far as the negotiators are concerned there are no big sticking points."

East Timor's economic well-being rests on its ability to tap major revenues from oil and gas deposits that lie beneath the sea that divides the two countries. Negotiations between the two sides collapsed in October last year, prompting Woodside to shelve its Sunrise project.
Woodside was unable to meet a self-imposed end-2004 deadline for legal and commercial certainty that would allow it to capture a 2010 marketing "window" for LNG exports. Woodside has said it won't spend any more money to advance Sunrise, having reassigned staff to other projects such its Browse gas project offshore Western Australia.

The company is accelerating work on Browse as it targets a 2011 project exporting LNG to China and potentially the US West Coast. However, Canberra and Dili will be hoping Woodside can be persuaded to kick-start Sunrise. Woodside owns 33.4 % of Sunrise. Its partners are ConocoPhillips with 30 %, Shell with 26.6 % and Japan's Osaka Gas with 10 %.
The Woodside spokesman said the success of Sunrise "ultimately depends on our ability to secure gas customers".

Australia and East Timor have already sealed an interim revenue-sharing deal covering a part of the Timor Sea that takes in the ConocoPhillips-operated Bayu Undan field. This Joint Petroleum Development Area splits the government revenues 90:10 in East Timor's favour.
East Timor now appears set to ratify a second revenue-sharing deal known as the International Unitisation Agreement. Under this deal, 80 % of the Sunrise gas field falls within Australian waters and the remaining 20 % in the JPDA.

Australia and East Timor have been poles apart on what a permanent boundary should look like. Dili has sought a border in the middle of the 600 km of ocean separating the two nations.
However, Canberra has maintained the boundary should be the edge of the continental shelf, which in some places is just 80 km from East Timor's coastline. That border would put the bulk of natural resources in the Timor Sea under Australia's control.

Source: Dow Jones
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