East Timor plans laws by 2004 for oil/gas exploration

11 September 2003

SINGAPORE: Potentially resource-rich East Timor said yesterday it plans to pass legislation by the middle of 2004 to pave the way for oil and gas exploration, seen as critical for future national revenues.

The world's newest country, which gained independence from Indonesia in May 2002, also plans to save future oil and gas earnings in a fund similar to one set up by major European producer Norway to put money aside for future generations.

"We hope the petroleum law will be implemented in mid 2004," Alfredo Pires, head of natural resources in the office of the president, told reporters.

Speaking on the sidelines of an oil and gas conference in Singapore, he said the legislation would include laws governing exploration and development licencing rounds and fiscal terms for oil firms.

"It will be quite a flexible piece of legislation," he said.

Explorers in the Timor Sea between East Timor and Australia have already made several discoveries, including the Greater Sunrise and Bayu-Undan gas fields and the Laminaria, Corallina, Elang/Kakatua/Kakatua North oil fields.

Oil companies operating in the area include Royal/Dutch Shell Group, Australia's Woodside Petroleum, ConocoPhillips, Italy's ENI and Japanese energy group INPEX Corp.

East Timor wants to begin negotiations soon with Australia on how to draw the maritime border between the two countries, which would determine the split for royalties and other national revenues from the offshore oil and gas fields.

In the meantime, a temporary revenue-sharing agreement is in place.

Industry sources believe there are small oil deposits onshore East Timor.

NORWAY MODEL

Pires said several small independent oil firms had expressed an interest to explore in East Timor. Industry sources said the firms included Timor Oil, Woodside Petroleum, Premier Oil Plc.

China's biggest oil firm, PetroChina, began a geological survey in East Timor in February under a government-to-government aid assistance agreement, marking the first onshore exploratory work since the 1970s.

Pires said the East Timor government was aware of the challenges sudden oil wealth could bring to a country which is among the poorest in the world, citing the potential for corruption.

"The prime minister has taken steps to put the oil revenues (from Timor Sea) into an oil fund based on the Norway system," he said. "The fund will be transparent."

He said oil and gas revenues would be used to meet any shortfall in the national budget of about $80 million a year, for reconstruction following the bloody parting with Indonesia and for development.

But the rest would be placed in an oil fund similar to one operated by Norway, the world's third biggest oil exporter with production of some three million barrels per day.

The Scandinavian country has amassed more than $100 billion since setting up the fund, which invests in overseas equity and bond markets, in 1996.

Pires said oil and gas development offshore would face challenges because of a deeply undulating sea bed and an active tectonic zone, which would make surveying and drilling more difficult.

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