Subject: AU: Sun sets on $5bn gas deal

The Australian

Sun sets on $5bn gas deal By Nigel Wilson January 14, 2005

THE $5 billion Greater Sunrise gas project in the Timor Sea is dead.

The gas reserves are unlikely to be developed for at least a decade.

Project operator Woodside said yesterday that no more money was being committed to the development and that employees working on Sunrise had been reassigned.

The company has carried out its threat to halt work on Sunrise after the East Timorese Government refused to present to its parliament for ratification an agreement it signed with Australia in 2003 covering legal and fiscal terms for the Greater Sunrise development.

The agreement would have split revenues from Greater Sunrise 80:20 between Australia and East Timor.

But since signing the agreement, East Timor has been demanding a more equitable share of returns from the 7.8trillion cuft of gas estimated to be contained in the Greater Sunrise reservoirs, located about 450km northwest of Darwin but only about 80km from the East Timor coast.

Resolution of the dispute became more difficult after revenue sharing at Greater Sunrise was linked to determining a maritime boundary between the two countries.

The argument over revenue sharing culminated in demands by East Timor last October that facilities to develop the gas should be located within its borders rather than in Australian-controlled territory as proposed by the Greater Sunrise partners - Woodside, ConocoPhillips, Shell and Osaka Gas.

Woodside confirmed the suspension of the project as East Timorese officials arrived in Australia to discuss the country's new petroleum exploration code with Australian officials.

More than $200 million has been invested in exploration and marketing, both overseas and within Australia, and on development planning on Greater Sunrise. But without an agreement with the East Timorese - as Woodside described it, legal and fiscal certainty - the partners could not organise long-term supply contracts that would underpin development costs.

Australian government sources said it was up to the East Timorese to return to the negotiating table with new proposals on maritime boundaries. East Timorese officials are set to explain to Australia that the new petroleum laws are designed to encourage international investment in oil and gas exploration, outside the Joint Petroleum Development Area in the Timor Sea, in which the Bayu Undan gas project lies and which covers the smaller part of the Greater Sunrise reservoirs.

The law states that all oil and gas profits earned by the state are to be deposited into a petroleum fund to be overseen by parliament and a council of advisers.

East Timor believes the legislation is a vital step in laying the groundwork for foreign energy companies and other investors to begin exploring East Timor's onshore and offshore oil and gas reserves.

East Timor is planning a global roadshow to attract energy companies to commit to exploration in the areas in which it has exclusive jurisdiction. These will exclude areas in the Timor Sea jointly claimed by Australia and East Timor.

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