Thursday June 28, 6:04 PM

Australia, East Timor Close To Treaty On Energy Royalties

CANBERRA (Dow Jones)--Australian and East Timorese representatives have resolved many of their outstanding differences about a planned new treaty covering royalties from energy production in the Timor Sea, Australia's Foreign Minister Alexander Downer said Thursday.

He was commenting after meeting with East Timor negotiators Jose Ramos Horta, Mari Alkatiri and Peter Galbraith, and Australia's Attorney-General Daryl Williams and Industry Science and Resources Minister Nick Minchin.

"It's been a pretty productive day and we have been able to resolve a lot of outstanding issues," Downer told reporters.

He said he expects to have more say on the issue early next week.

"The chances of us reaching an agreement are high," he said in answer to a question about whether a framework agreement can be finalized next week.

A spokesman for Downer earlier said the two sides now are "pretty close" with only one relatively minor issue still outstanding, which he said related to one particular but unnamed oilfield.

The 75,000 square-kilometer area known as the Timor Gap was covered by the 1989 Timor Gap Treaty between Australia and Indonesia.

This lapsed when Indonesia withdrew after East Timor's August 1999 vote for independence from Indonesia.

Australia and East Timor began formal negotiations on a new treaty last year.

If and when an agreement is reached, it could clear the way for billions of dollars of investment in energy projects in the area.

Media reports suggest royalties from production of the vast gas resources in the Timor Sea could yield up to US$1 billion a year in revenue for East Timor, way more than a proposed government budget for the next fiscal year of US$65 million.

The major development under way now in the Timor Sea is a US$1.6 billion Bayu-Undan liquids stripping and gas recycling project operated by Phillips Petroleum Co. (P).

A second stage of this project could involve a cooperative development with Royal Dutch/Shell Group (RD), Woodside Petroleum Ltd. (A.WPL), Japan's Osaka Gas Ltd. (J.OSG) and Phillips to jointly run an undersea gas pipe to Darwin from the Greater Sunrise gas resource in the Timor Sea.

A number of projects have been proposed to process this gas at Darwin or pipe it into major Australian markets to the south.

-By Ray Brindal, Dow Jones Newswires; 612-6208-0902; ray.brindal@dowjones.com

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