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Also: East Timor Deal Threatened by Elections

The Australian

September 1, 2004 Wednesday All-round Country Edition

E Timor to revise oil taxes

Nigel Wilson, Energy writer

EAST Timor is planning a new regime to cover oil and gas developments in the Timor Sea.

Prime Minister Mari Alkatiri said at the weekend that East Timor was on track to declare the new tax plan by Christmas.

The timeframe ties in with the agreement between Australia and East Timor to negotiate a maritime boundary by the end of the year and comes after federal cabinet has cleared the way for a new deal on revenue sharing, despite the calling of the federal election.

Owners of existing petroleum permits, Bayu Undan and Greater Sunrise, are unlikely to be affected, at least in the short to medium term.

They will stick to existing arrangements with East Timor, which puts pressure on the Australian Government to match any revenue shortfall between these arrangements and the new ones.

Dr Alkatiri was speaking after a three-day public consultation meeting on laws and model contracts that will make up the new regime.

"The feedback we received was very positive and I believe we will be able to meet our deadline of having the regime in place by Christmas," he said. "The proposed regime is a competitive, transparent and stable model for the development of oil and gas reserves.

"Once the new regime is in place, East Timor hopes to begin exploration development as soon as possible."

The regime will cover the offshore area jointly managed by East Timor and Australia as well as a new regime for other East Timor areas, both onshore and offshore.

Under the Timor Sea interim arrangements East Timor is forecast to earn about $US4 billion ($5.7 billion) from known reserves.

But Dr Alkatiri said that under a permanent maritime boundary set according to international law, East Timor would be entitled to three times this amount.

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International Oil Daily

September 1, 2004

East Timor Deal Threatened by Elections

Plans for East Timor and Australia to hash out a final agreement on the long-running dispute over the maritime boundaries of the Timor Sea will likely be delayed, after Australia set national elections for Oct. 9.

In a statement on Sunday, East Timor's Prime Minister Mari Alkatiri noted that talks were tentatively scheduled to begin on Sep. 20. However, a spokesman for the East Timor government said that they had yet to receive confirmation from the Australian government.

With Australian Prime Minister John Howard opting to dissolve Parliament and call new elections over the weekend, it looks increasingly unlikely that the current government will approve those talks, since it is now effectively in caretaker mode. The Australian prime minister's office referred the matter to the office of Foreign Minister Alexander Downer, which did not return calls seeking comment.

At stake for Woodside Petroleum is the future development of its Greater Sunrise natural gas project in the Timor Sea. East Timor has linked its approval of a temporary agreement covering the Greater Sunrise gas field to the Australian government agreeing to talks and a final overall agreement on the maritime boundaries in the Timor Sea. ConocoPhillips, Royal Dutch/Shell and Japan's Osaka Gas are partners in the project.

The two sides appeared to come to an agreement to reach a deal by the end of the year during a mid-August meeting between Downer and East Timor Foreign Minister Jose Ramos Horta (IOD Aug.12,p9). At that time, it was reported that Australia had offered East Timor up to A$5 billion (US$3.6 billion) in revenue from Greater Sunrise, instead of the under A$2 billion implied by a unitization agreement -- if East Timor ratified a new unitization agreement immediately. That deal was expected to be finalized at the September meeting.

Despite Australia's upcoming elections, the East Timor spokesman said, "Our view is that Alexander Downer did say quite emphatically that the Sep. 20 meeting would happen." A spokesman for Woodside said the matter was between the two governments and there was nothing more to say at this stage.

Woodside earlier said that if the temporary agreement is not worked out by the end of the year, the project will have to be shelved for some time. The A$6.6 billion (US$4.7 billon) project is designed to exploit some 10 trillion cubic feet of gas reserves, mostly through export as liquefied natural gas. Greater Sunrise lies 400 kilometers northwest of Darwin and about 150 km south of East Timor.

The field lies about 20% within a joint petroleum economic development area and about 80% in what are currently Australian waters. Under the temporary agreement covering Greater Sunrise, East Timor would receive 90% of the income from any production from the joint development area.

East Timor would like to revamp this agreement to a boundary based on a median line equidistant between the two countries' shorelines. "Under current interim arrangements, [East Timor ] is forecast to earn approximately US$4 billion from known reserves. Under a permanent maritime boundary set according to international law, [East Timor ] would be entitled to three times this amount," said Prime Minister Alkatiri in the statement Sunday.

According to Martin Pratt, director of research at the International Boundaries Unit of the UK's University of Durham, East Timor's call for the median line does have a basis in international maritime law, but most boundaries rarely work out that neatly.

"If a boundary is taken to an international court then the procedure is to start with the median line and then exercise other factors," he said.

Part of the problem is that East Timor has inherited maritime boundaries that Indonesia and Australia worked out in the early 1970s. Under those deals, Australia was able to argue that the continental shelf should form the boundary line, a basis that Pratt says is largely discounted under current legal standards. "If the country was starting over from scratch, there is no guarantee that they would have to accept any joint development zone. They are perfectly within their rights to play hardball," he told International Oil Daily.

The Australians are unlikely to accept the median boundary, however, since it places the entire joint development zone within East Timor's waters, as well as calling into question boundary agreements with other nations. Australia is therefore sticking to its continental shelf claims.

Christian Schmollinger, Singapore