East Timor Says Oil Law Due Mid-2004, Calls for Talks (Update1)

Sept. 10 (Bloomberg) -- East Timor will implement a law governing exploration, licensing, bidding and financial terms for oil and gas development by the middle of next year, Alfredo Pires, head of natural resources in the President's Office said.

``It will be quite a flexible piece of legislation,'' said Pires, who is attending an oil and gas conference in Singapore. He added that the government was waiting for Australia to begin talks on their shared maritime boundary.

East Timor broke away from Indonesia, Asia's biggest gas producer and the biggest oil producer in southeast Asia, in May 2002 after a 24-year armed struggle. The world's newest nation is now trying to settle legal uncertainties over its oil and gas industry to spur investment and profit from its resources.

``If there is a defined regime in East Timor that's a positive for investment,'' said Damien Criddle, an oil and gas lawyer for Baker & McKenzie in Hong Kong. ``Without certainty, you won't get a cent. It's like buying a house: You don't put the money down unless you've got the title.''

The country of more than 800,000 people is about 500 kilometers (310 miles) north of Australia. East Timor wants the maritime boundary shifted to run along a line equidistant from the two countries rather than taking into consideration Australia's claimed economic zone.

``We would like to initiate talks, the feeling is the sooner the better,'' said Pires. ``We're waiting for Australia to give a date.''

The Australian government agreed to start talks with East Timor this year, the Australian newspaper reported last month.

Benefits

Prime Minister John Howard wrote to East Timorese Prime Minister Mari Alkatiri on Aug. 1 agreeing to start talks, about five months after Alkatiri asked Australia to give a timetable for discussions, the paper said. Howard didn't give a schedule for completing talks, it said, citing an adviser to Alkatiri.

Any changes to the maritime boundaries could give East Timor full administrative control over projects such as ConocoPhillips's Bayu-Undan gas field, Woodside Petroleum Ltd.'s proposed Sunrise project and possibly Woodside's producing Laminaria field. All of Bayu-Undan and part of Sunrise lie in an area jointly administered by Australia and East Timor.

The government has already agreed to give East Timor 90 percent of royalties from oil and gas fields in the zone. Getting full sovereignty over the fields may mean East Timor would get more of the so-called downstream benefits, such as oil-processing plants and storage infrastructure.

Experience

Legislation alone may not be enough to draw investors. East Timor will still need to find the administrators and regulators to implement the new regime -- and lacks Australia's track record in the field.

``You can get the best legislation in the world, but just as important is having the people to administer it,'' Baker & McKenzie's Criddle said. ``Australia has an established reputation for offshore oil and gas investment, low sovereign risk and people know what they're dealing with.''

East Timor is seeking an adviser to help set up a fund to help invest and manage future revenue from its oil and gas resources, Pires said.

We want to ``set up an oil fund which will be transparent and ensure savings for future generations,'' he said.

He also dismissed the suggestion that oil and gas facilities in Timorese waters were vulnerable to terrorist attacks as a myth.

``It's quite safe to be in East Timor,'' he said, adding the government was ``taking a lot of stops to establish relationships with Indonesia.''

Vulnerable?

Oil and gas output platforms as well as transport and storage vessels in the Timor Sea are at risk of terrorist attack because of their isolated location, the West Australian newspaper said in July, citing a Royal Australian Navy report.

Philippines-based terror groups Abu Sayyaf and the Moro Islamic Liberation Front represent a threat to ships and platforms in the joint petroleum development area administered jointly by Australia and East Timor, the newspaper said on its Web site, citing an unpublished report by the Sea Power Center Australia, a unit of the Navy.

The groups are believed to be linked to the terror organizations Jemaah Islamiyah and al-Qaeda, it said.

Last Updated: September 10, 2003 05:19 EDT

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