Subject: SMH: Timor Gap, by Louise Williams
Date: Sat, 06 Mar 1999 08:30:51 -0500
From: Geoff McKee <>

Saturday, February 27, 1999


New state will want a slice of Gap


BHP's petroleum representative for Indonesia walked through the gates of Jakarta's maximum security Cipinang prison in August for a confidential meeting with the jail's best-known inmate, the leader of the East Timorese independence movement, Xanana Gusmao.

When the details of the clandestine talks were leaked to the Australian press, BHP promptly denied sanctioning the visit or that details of the Timor Gap treaty, which shares out the oil and gas wealth in the Timor Sea, were discussed. However, soon afterwards the executive, Mr Peter Cockcroft, was transferred to India.

Officially, BHP's position on the Timor Gap is simple: the company will abide by whatever international treaty arrangements are in place.

But, clearly, the rapid diplomatic progress on the future status of East Timor means that the oil and gas deposits that lie in the contested sea zone between Australia and Indonesia may soon be shared between Australia and a tiny, independent East Timorese nation, cutting out Jakarta's right to royalties.

What this means for oil and gas companies operating in the Timor Gap, or seeking a share of the as-yet-untapped gas deposits, depends on the attitude an independent East Timorese Government might take on royalties and operating regulations.

But, perhaps more importantly, the income derived from the Timor Gap could mean the difference between poverty and development for the 800,000 East Timorese who now rely mainly on Indonesian Government funding for their basic infrastructure and services such as education and health.

East Timor has little in the way of industry and only modest exports to offer, such as coffee. The level of income from oil and gas could mean the difference between economic collapse and a balanced budget.

Critics of the independence movement have always claimed East Timor's 800,000 mainly poor people cannot stand on their own economically, but there is considerable hope among the population that oil and gas will rescue them.

In Bali this week at the Australia Indonesia Ministerial Meeting, the Indonesian Mines and Resources Minister, Mr Kuntoro Mangkusubroto, said there would be "no quarrel" from Jakarta over relinquishing rights in the Timor Gap, if East Timor chose independence to resolve the 23-year-old conflict.

"It is very hypothetical, of course, but should that occur then the area will belong to the new country and we will respect that. There is no problem."

The Timor Gap refers to an area of sea between Australia and Indonesia which was contested for years, preventing oil and gas exploration. In 1989, after 11 years of negotiations, a treaty was signed dividing the so-called gap into three zones: To the north is Zone C, which is controlled by Indonesia, but with a provision for a 10 per cent royalty cut to Australia on any oil or gas; Zone B is in the south with the same arrangement in reverse, Australia in control but with Indonesians entitled to 10 per cent; and Zone A lies in between them with a 50-50 split.

The main oil and gas deposits are in Zone A and last July a BHP-lead consortium started pumping crude oil from the Elang Kakatua field, which holds about 25 million barrels, with a further 5 million barrels in Kakatua north.

However, the great future "gold mine", the estimated three trillion cubic feet of gas and 400 million barrels of oil in the Bayu-Undan field, is not yet being extracted, and complications over taxation arrangements, the high cost of start-up investments and the unfavourable world market conditions all mean that its income cannot be taken for granted.

Last year, Australia and Indonesia made only $US1.1 million ($1.74 million) from oil royalties from the Timor Gap. This year, Mr Kuntoro said, that would increase to $US2.2 million - for an area trumpeted as being worth up to $US11 billion.

In the dusty, rural villages of East Timor, just the value of the Timor Gap is a crucial question.

Xanana has already gone on the record as saying an independent government would respect existing commercial contracts. However, a change of sovereignty would give East Timor the right to renegotiate with both Australia and the commercial operators, and there might be pressure from within the independence movement to seek a bigger share.

Privately, East Timor's independence movement is circulating a three-volume discussion paper outlining its future budget. The key point is that oil and gas income from royalties is estimated at $US2.2 billion over 25 years, or $US88 million a year.

The annual budget for East Timor under Indonesia is about $US108 million - most of it from Jakarta, plus income from crops ($US4 million), and total local trade and transport of $US6.5 million.

Poster's comment:-

Details on how the US$2.2 billion figure was derived can be found in the reg.easttimor post

Subject: Autonomy and oil revenue Date: Tue, 12 Jan 1999 22:02:44 +1100

Note that about half this estimated ET share of US$2.2 billion over 25 years results from the proposed LNG phase of the Undan-Bayu project. LNG (gas sales) from Undan-Bayu is by no means certain on account of a slow-down in growth of the Asian market, and competing LNG export projects on the drawing board elsewhere.

Calcs. as follows:-

Elang-Kakatua 30 million barrels at US$15 = US$0.45 billion

Bayu-Undan LPG 175 million barrels at US$12 = US$2.1 billion

Bayu-Undan condensate 230 million barrels at US$15.00 = US$3.45 billion

Bayu-Undan gas 3.4 trillion cubic feet at US$1.50 per thousand cubic feet (at inlet to 3rd party Darwin LNG plant) = US$5.1 billion

Adding up the total gross sales revenue we get US$11.1 billion which is consistent with the 13 Jan 99 ALP media release.

The annual figure of US$88 million was based on the rough but informed estimate that the total "government take" based on the Zone A fiscal arrangements would be close to 40% of the total revenue of US$11.1 billion ie., US$4.4 billion. Therefore, East Timor's claimed share is 50% of this figure or US$2.2 billion over the 25 year production period.


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