All Columns Fri, 23 Jun 2000, 12:53pm EDT

Phillips' Godlove Steers Timor Project Through Unrest (Update1) By Stephen Wisenthal

Darwin, Australia, June 23 (Bloomberg) -- Days after release from a seven-year detention, East Timor's resistance leader Jose `Xanana' Gusmao met U.S. oilman Jim Godlove and began a partnership that could bankroll Gusmao's shattered country.

Godlove, Darwin-area manager for Phillips Petroleum Co., spent months in talks with Gusmao and others to keep on track the sixth-biggest U.S. oil company's $1.4 billion Bayu-Undan project. The oilfield could provide most of the foreign earnings for the world's newest nation, which broke away from Indonesia last year.

The 50-year-old American came to Darwin in 1996, expecting to spend two years laying the groundwork for a project to liquefy Bayu-Undan's natural gas. Instead, he found himself helping create a country to sustain Phillips' investment in the offshore field, between Australia and East Timor.

``My skill-set did not involve the role of nation-building,'' Godlove said. ``When I first came here, we were looking at two to three years, with LNG being the principal focus.''

The development of Bayu-Undan, which contains oil and gas worth about $30 billion at current prices, could bring a rush of exploration in the Timor Gap, a 250-kilometer-wide, coffin-shaped zone of ocean jointly administered by East Timor and Australia.

The Phillips project alone is expected to pay East Timor at least $50 million in annual taxes and royalties from 2004, and last for more than 20 years. That compares with the $59 million Gusmao's National Council of Timorese Resistance (CNRT) and the United Nations have approved for administering East Timor in the year ending June 2001.

The $50 million assumes an average oil price of $18 a barrel. Oil in New York rose as high as $33.40 a barrel this month and has averaged $25.51 a barrel over the last year.

`Big Money'

``For a small country like East Timor, $50 million a year or $100 million a year is big money,'' said Mari Alkatiri, who is in charge of petroleum resources for the CNRT. ``I am sure the royalties from the Timor Gap will be much more than this.''

The next biggest economic hope for the country's 900,000 people, the coffee crop, will reap less than $20 million in total sales this year and about $30 million in 2001, after processing equipment destroyed last year is replaced.

Alkatiri hopes to double the oil revenue by wresting away Australia's rights to half the royalties and taxes from the oilfields. Income could double again if Phillips and others find buyers for the 3.4 trillion cubic feet of natural gas the fields hold, equivalent to about 600 million barrels of oil.

The current plan is to produce the 400 million barrels of light crude oil and liquids such as propane in the field.

Phillips owns 50.3 percent of Bayu-Undan and operates the field. Its partners are Santos Ltd., with 11.8 percent, Indonesian Petroleum Ltd., or Inpex, a Japanese company, with 11.7 percent, Kerr-McGee Corp. 11.7 percent, Petroz NL 8.25 percent and British- Borneo Oil & Gas Plc 6.7 percent.

Gas Pipeline

The companies are marketing the gas to potential customers in the Northern Territory, in order to justify building a 500 kilometer pipeline to shore.

Even before Indonesia allowed a UN-backed peacekeeping force into East Timor at the end of September, Godlove and other Phillips officials were talking to members of CNRT, which is expected to form the basis of the new country's first elected government some time next year.

``I know him very well,'' said Alkatiri who has had regular meetings with Godlove since the two first met in October.

Godlove and his boss Stephen Brand, head of Phillips' Australian unit, have been the two Phillips executives mainly responsible for the oil company's close relationship with the CNRT, Alkatiri said.

Principal Role

``It has been one of the most satisfying parts of the project for me,'' said Godlove, who for most of the past four years has been the only occupant of Phillips' fifth-floor Darwin office that looks out over the Timor Sea. Building relations between Phillips and East Timor ``has been one of my principal roles.''

Godlove grew up and studied in Oklahoma, before joining Phillips, one of his home state's largest companies. In 1984, Phillips, recognizing his talent for diplomacy, sent him to Washington as one of a team of three lobbyists.

He moved to Darwin to work on a project to liquefy Phillips' Bayu-Undan gas reserves and ship them to Asia, but the region's economic collapse in 1997 stalled the project and Godlove found the unfolding drama in East Timor began to take up more of his time.

``I was probably spending 90 percent of my time dealing with Timor Gap transition issues'' between June and December last year, he said.

Godlove was on the phone almost every day to officials in Canberra, the Australian capital, reminding the politicians that Phillips needed decisions on the Timor Gap before it could proceed with Bayu-Undan.

Go-Ahead

In February, the UN, acting on behalf of the East Timorese, took over Indonesia's role as Australia's partner in the Timor Gap treaty. Later that month, the bureaucrats approved the project and Phillips and its partners were able to go ahead.

The company committed to development of the field even as it spent $7 billion acquiring Atlantic Richfield Co.'s Alaskan oil assets in April, doubling its reserves.

Phillips' Chief Executive, Jim Mulva, will give a keynote speech at next week's South East Asia Australia Offshore Conference in Darwin to reinforce Bayu-Undan's importance in the company's global strategy.

Still, East Timor faces several obstacles. After four in five East Timorese voted on Aug. 30 for independence from Indonesia, pro-Indonesian militias went on a rampage that destroyed 95 percent of the buildings in East Timor's main centers and displaced about half of the country's population.

``All of the key public services, from roads and power to health and education are in danger of collapse,'' said Sarah Cliffe, head of the World Bank's mission in the capital, Dili.

Suai, a town on the south coast of the new country, best- located for air support of operations at the oilfields 250 kilometers to the southeast, was all but destroyed last year.

Investors Needed

While the CNRT is keen to ensure the Phillips project goes ahead, it also wants to attract other oil and gas investors.

``Phillips is, up to now, the most important company,'' Alkatiri said, but ``we are really open for new investment.''

At the same time, East Timor wants to tear up the Timor Gap treaty, agreed by Indonesia and Australia in 1989 after a decade of negotiation, to claim most, if not all the royalties and taxes from the oil and gas discoveries.

The Gap treaty gives Australia a half share in under-sea discoveries up to the edge of the Australian continental shelf, even though they're on the East Timor side of a line halfway between the two countries.

Under current international law, those fields should belong to East Timor, Alkatiri said.

Analysts say other big discoveries are likely.

``Wherever you go in the zone there is some oil and gas,'' said Robert Mollah, Australian executive director of the Timor Gap Joint Authority, which is in charge of the oil and gas projects, including Bayu-Undan.

``There will be a lot of activity in terms of drilling in the Timor Sea within the zone within the next year or two,'' he said.

For Godlove, though, it will soon be time to hand over development of Bayu-Undan to the engineers and operating managers and move on.

``My talents are on the front end, building relationships with governments and communities,'' he said.

June Menu
World Leaders Contact List
Human Rights Violations in East Timor
Main Postings Menu