Subject: DJ: Timor Signals Still Favors "Creative" Boundary Deal

24 Feb 2005 04:24 GMT E Timor Signals Still Favors "Creative" Boundary Deal


CANBERRA -(Dow Jones)- Impoverished East Timor has signaled it will continue negotiations with Australia to find a "creative solution" that allows development of oil and gas projects in the Timor Sea.

A Canberra official said Thursday that a fresh round of talks between East Timor and Australia will be held on March 7-9. Top level diplomatic negotiations broke down in October, prompting oil and gas producer Woodside Petroleum Ltd. (WPL.AU) to shelve its US$5 billion Sunrise liquefied natural gas project.

The breakdown meant Woodside couldn't meet its end-2004 deadline for commercial certainty that would allow it to capture a 2010 marketing "window" for LNG exports.

Woodside recently restated it won't be spending any more money to advance Sunrise and has reassigned staff to other projects.

"What we've had over the last few weeks are some very strong indications (from Dili) they would like to further explore creative solutions along the lines of where we were in October," a senior official from the Department of Foreign Affairs said.

"We haven't seen the details of these ideas but the signals are very positive."

"I'm optimistic that we can come up with something that's acceptable to both sides," the official said, cautioning too there is no guarantee Sunrise will be revived if a deal is struck.

"What we're doing is trying to provide the conditions that would allow Woodside and its partners to make that decision. Obviously in reaching any creative deal, a prerequisite would be that Sunrise proceeds," the official said.

Woodside owns 33.4% of Sunrise, regarded as the richest prize in the Timor Sea. Its partners are ConocoPhillips (COP) with 30%, Royal Dutch/Shell Group (RD) with 26.6% and Japan's Osaka Gas Co. (9532.TO) with 10%.

Creative Solution Won't Include Timor Plant

A creative solution could include elements such as cooperation on security measures for oil and gas assets in the Timor Sea and the development of petroleum industry expertise for East Timor.

But the official said Australia won't revisit East Timor's previous bid to have the Sunrise processing plant on its soil, with gas brought onshore via a seabed pipeline.

"That can't be part of the creative solution," he told reporters.

Success on a so-called creative solution would mean negotiations between the two neighbors on a permanent boundary would be postponed for decades until the Sunrise resource was exhausted.

And if the parties resort back to thrashing out a permanent maritime border, this process will take many years.

East Timor's economic well-being rests on Dili's bid for a major redistribution of royalties from the vast oil and gas deposits that lie beneath the Timor Sea.

Both East Timorese Foreign Minister Jose Ramos-Horta and his Australian counterpart Alexander Downer recently expressed optimism that some sort of boundary deal is within reach.

In terms of a permanent boundary, East Timor is fighting for a border in the middle of the 600 kilometers of sea separating the two countries.

However, Australia argues the boundary should be the edge of the continental shelf, which in some places is just 80 kilometers from East Timor's coastline. That border would put the bulk of natural resources in the Timor Sea under Australia's control.

Next month's talks will mark the third round of boundary negotiations between Dili and Canberra in 11 months.

Australia and East Timor have agreed to an interim revenue-sharing deal covering a part of Timor Sea that takes in the ConocoPhillips-operated Bayu Undan field.

This Joint Petroleum Development Area splits the government revenues 90-10 in East Timor's favor, equating to approximately US$8 billion in royalties going to Dili over the life of Bayu Undan project.

But East Timor has so far refused to ratify a second revenue-sharing deal known as the International Unitization Agreement. Under this deal, 80% of Woodside's Sunrise gas field would fall within Australian waters and the remaining 20% in the JPDA.

-By Veronica Brooks, Dow Jones Newswires; 61-2-6208-0901; -Edited by Ian Pemberton

(END) Dow Jones Newswires

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