Subject: DJ: Tough Going For E. Timor On Sea Boundary, Oil and Gas

Received from Joyo Indonesia News

Tough Going For E. Timor On Sea Boundary, Oil and Gas: Analyst

CANBERRA, July 4 (Dow Jones) - East Timor, the world's newest nation, will have trouble settling its disputed maritime boundaries with Australia, Stephen Sherlock, an analyst at the Australian Parliament library, said Thursday. see

At stake are potentially huge royalties from energy production in the area.

East Timor wants to settle the issue in such a way as to increase potential revenue from the development of oil and gas resources in the Timor Sea, between the two nations, but it isn't in a very good bargaining position.

"Actually they don't really have any leverage to make Australia come to the negotiating table," he said in an interview on Australian Broadcasting Corp. radio.

If Australia says it doesn't want to negotiate new boundaries, then the only way for East Timor to bring Australia to the table is by applying enough domestic or international pressure to do so, he said.

East Timor could theoretically line up with Indonesia on the issue and seek joint talks on the issue, but "there's no sign that Dili and Jakarta are getting together or even that there's any serious discussion in either capital about it."

"It's something that may happen in the future but there's no sign of it actually happening" now, he said.

"Since the issue potentially involves major economic assets, the success of future trilateral relations between East Timor, Indonesia and Australia may depend on a final resolution," he said in a research paper issued by the library.

Timor Sea Treaty Didn't Resolve Boundaries

East Timor came into existence May 20, and immediately signed the Timor Sea Treaty with Australia.

The treaty is the fundamental document setting out how the economic benefits of energy developments in a Joint Petroleum Development Area in the Timor Sea are shared between the two.

The treaty, which hasn't yet been ratified, was established without prejudice to the setting of maritime boundaries between the two nations.

East Timor didn't establish maritime boundaries with Australia or any other nation and it didn't inherit any boundaries that existed prior to May 20.

Sherlock said East Timor agreed to put aside the seabed boundary issue because it didn't want to jeopardize a possible flow of revenue that likely will come from energy production in the Joint petroleum Development Area in the next several years, namely the Bayu-Undan project, operated by Phillips Petroleum Co. (P).

First stage of Bayu-Undan, to strip condensate and liquefied petroleum gas from wet natural gas and reinject the dry gas into the offshore reservoir, is scheduled to begin production early in 2004.

Australia refused to agree to a new seabed boundary and new talks on the matter might have stalled investment in energy exploration and production in the area, he said.

In June, Prime Minister Mari Alkatiri said East Timor will make its claim for the maritime boundary with Australia "under international law."

East Timor previously has said it wants the boundary set at the midpoint between the two nations.

But Australia wants to retain the boundary that operated up to May 20, which is at the edge of Australia's continental shelf, well north of the midpoint and just off East Timor's south coast.

Australia Likes Continental Shelf Boundary

Sherlock said Australia could be at a disadvantage in boundary talks given changes in law of the sea and general international practice in the past 30 years.

When Indonesia and Australia signed agreement on maritime boundaries covering the Timor Sea in 1972, the principle was that a nation's maritime boundary ran along the edge of the continental shelf, he said.

"Things have changed since then and generally its recognized that there should be a median, a midway line drawn between two countries that share a particular sea," he said.

If the midpoint boundary is accepted, Australia could lose billions of dollars in potential revenue from royalties from the proposed Greater Sunrise project on the eastern edge of the Joint Petroleum Development area.

The Greater Sunrise gas field falls 20.1% within the Joint Petroleum Development Area while 79.9% falls exclusively in Australian territory.

Greater Sunrise joint venturers, Woodside Petroleum Ltd. Phillips, Royal Dutch/Shell Group (RD) and Osaka Gas Co. Ltd. (J.OSG) still are considering development options for the project.

Woodside and Shell want a floating liquefied natural gas facility constructed at Greater Sunrise with first production in around 2007.

Alkatiri has said he welcomed a preparedness by Australia to discuss the boundary issue and that he wants the "problem of maritime boundaries (to) be resolved within a reasonable period of time."

Sherlock said East Timor is in a weak position to pursue its case because recourse to the International Court of Justice has been cut off by Australia's withdrawal announced March 25, 2002, of acceptance of the court's jurisdiction on maritime boundary issues.

East Timor leaders later described this move as an "unfriendly act."

Last month Australia and East Timor representatives both said they want to conclude a unionization agreement that will allow development of Greater Sunrise by the end of the year.

The unitization agreement is necessary because Greater Sunrise straddles Australian territory and the Joint Petroleum Development Area.

An international unitization agreement, a relatively common feature in the oil industry, allows for unified development of a field where two countries agree on development of a shared resource.

Developers of the Great Sunrise project have said they won't go ahead until the agreement is reached.

-By Ray Brindal, Dow Jones Newswires, 612 6208 0902

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