Also: Bayu-Undan Proj Good For East Timor - Phillips Pete CEO

AUSTRALIA: E. Timor seeks mid-way sea boundary with Australia

DARWIN, June 26 (Reuters) - East Timor wanted a maritime boundary with Australia at the midpoint between the two countries, putting key petroleum projects in East Timorese waters, spokesman on Timor Gap issues for the National Council of Timorese Resistance (CNRT) Mari Alkatiri said on Monday.

Alkatiri said the proposal was based on international law for maritime boundaries between nations.

"It is the application of international law.," he told Reuters. "The law first of all considers 200 miles for each country. There is no 400 miles so we have to go to the midpoint."

The boundary between the two countries is currently undefined, falling within an area known as the Timor Gap, covered since 1991 by a petroleum production revenue sharing treaty between Australia and Indonesia.

After East Timor voted for independence last year, Indonesia's position was taken over by the UN Transitional Administration in East Timor and provisional arrangements put in place.

NEGOTIATIONS TO START

Alkatiri said preliminary talks had been held with the Australian Government on a new regime to cover the treaty area and formal negotiation would begin in August/September.

"From our point of view the starting point is the maritime boundary," he told reporters after addressing the South East Asia Australia Offshore Conference.

On CNRT's calculation a mid-point boundary between the two nations would run across the southern end of area A within the Timor Gap Zone of Co-operation (ZOCA).

Production from the jointly managed area A has totalled around 16 million barrels since output began from the Elang, Kakatua and Kakatua North fields in 1998.

It is estimated less than A$10 million has been distributed to each of the contracting states to date from oil output.

But there is the potential for the revenues to the contracting states to reach hundreds of millions of dollars in the next five to 10 years as new projects come on stream.

The US$1.4 billion Bayu-Undan liquids project operated by Phillips Petroleum Co is due to produce 100,000 barrels a day of condensate and liquid petroleum gas from 2004.

GAS PIPELINES TO AUSTRALIA

It also plans to pipeline gas to the Australian domestic market and ultimately begin liquefied natural gas production.

Woodside Petroleum Ltd and Shell Australia Ltd, a unit of Royal Dutch/Shell Group also plan to transport gas to Australia from their Greater Sunrise fields.

Twenty percent of the estimated recoverable Greater Sunrise reserves of about 9.5 trillion cubic feet of gas lie within area A of the ZOCA.

Alkatiri said downstream projects requiring Timor Sea gas to be piped ashore could only be developed in Australia as a deep underwater trench prevented pipelines to East Timor .

He said the mid-point boundary would bring a substantial increase in revenues to East Timor from royalties, but would not be a major issue for Australia which would have the benefit of the downstream development.

"It doesn't affect too much the Australian economy and besides this, the pipelines would go to Australia," he said.

Timor Gap Joint Authority Australian executive chairman Robert Mollah said continued close co-operation would be needed for development of the projects.

"Despite where you may put the boundary, for everyone to benefit you really need to have everyone involved," he said.

Oil companies have stressed that they are not concerned about the royalties split as long as the tax rate is not changed.

Phillips Petroleum chairman and chief executive officer James Mulva said he was encouraged by assurances by Australia and East Timor that a new treaty would not impair the investments of companies operating in the ZOCA.

But he said companies wanted the treatment of gas under a new treaty be settled quickly or there could be project delays. Gas was never fully addressed under the Australia-Indonesia treaty.

Alkatiri said it was likely a new treaty could be ratified after mid 2001 when a new East Timorese government was in place.

((Wendy Pugh, Melbourne newsroom, 61 3 9286 1421, fax 61 3 9621 2994, melbourne.newsroom@reuters.com)).

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Bayu-Undan Proj Good For East Timor - Phillips Pete CEO 06/25/2000 DARWIN, Australia -(Dow Jones)- Development of the Bayu-Undan energy project in the Timor Sea will provide long-term benefits for East Timor and its economy, even though its land base will be in the northern Australian city of Darwin, Jim Mulva, chief executive of Phillips Petroleum Co. (P), said Monday.

Phillips is the operator and largest stakeholder in the natural gas and condensate Bayu-Undan project with a 50.3% interest. Other participants are Australian oil and gas producer Santos Ltd. (STOSY) with 11.8%, Australia's Petroz NL (A.PTZ) with 8.3%, Japan's Inpex with 11.7%, Kerr-McGee Corp. (KMG) of the U.S. with 11.2% and British Borneo Oil & Gas PLC (U.BOI) with 6.7%.

Phillips announced in October 1999 the go-ahead for a US$1.4 billion liquids stripping and gas recycle first stage of the offshore project. Commercial production is scheduled from early 2004 peaking at 100,000 barrels a day.

Bayu-Undan contains an estimated recoverable reserve of 400 million barrels of condensate and liquefied petroleum gas and 3.4 trillion cubic feet of natural gas.

The field, is about 500 kilometers northwest of Darwin, Australia, and 250 kilometers south of Suai, East Timor .

Phillips' Mulva told Monday of plans to develop a major domestic gas market in Australia, possibly including a liquified natural gas plant, in the project's second phase, by transporting natural gas from the field by subsea pipe to Darwin.

Bayu-Undan Land Base To Be In Darwin

Bayu-Undan is the Timor Sea's first major gas development and the biggest energy project to date in the area, which is viewed by the industry as major gas and condensate province.

"The deep Timor trench makes it impossible to transport gas to East Timor , but even so the newly independent nation will prosper greatly as the Timor Sea is developed," Mulva said.

"The revenue that will flow into the country will enable its citizens to build a strong, sustainable economy, develop new employment opportunities and improve their overall quality of life," he said.

The people of East Timor have experienced great hardship, he said, and now are working to establish a stable, independent government.

"Bayu-Undan will contribute significantly to the effort," he said.

Indonesia forcibly incorporated East Timor in 1975 and withdrew after an independence vote in August 1999.

"Our gas-recycle project will likely be the country's largest source of revenue for a number of years; our gas project will benefit them for decades," Mulva said.

He didn't provide any estimates of potential royalty payments.

Bayu-Undan is in an area formerly covered by the Timor Gap Treaty, struck between Australia and Indonesia, which agreed royalty sharing arrangements from crude oil production in the area. Output of natural gas wasn't covered by the treaty, and terms for this product remain to be sorted.

The treaty formally lapsed after East Timor won its independence.

But the terms of the pact continue under a memorandum of understanding between Australia, East Timor and the United Nations Transitional Administration for East Timor , which currently has administrative control of the territory.

East Timor Wants New Treaty

East Timorese leaders have said they want a new treaty with new terms, including a new boundary.

Officials from the various jurisdictions have been meeting in recent weeks over this issue.

Mulva believes the development of Bayu-Undan will spur other projects, eventually establishing the Timor Sea as one of the globe's major energy provinces, possibly to rival the North Sea.

"Working with our partners, we are making investments that will unlock the potential of the Timor Sea," he said.

"The infrastructure we will build, both offshore and onshore...will be the catalyst for other companies to increase their investments in the region and develop additional markets for Timor Sea gas," he said.

In March, plans were unveiled for a A$5 billion methanol and synthesis gas, or syngas, generation facility at Darwin using Timor Sea gas.

Shell Australia Ltd., which is a unit of Royal Dutch/Shell Group (RD), and Australia's Woodside Petroleum Ltd. (A.WPL) signed a letter of intent to supply the syngas project proposed by Vancouver-based Methanex Corp. (MEOH).

A final decision on this project is expected in 2002.

Shell and Woodside are partners in the Northern Australian Gas Venture, which is based on estimated 15.5 trillion cubic feet of recoverable gas resources in the Timor Sea.

He was speaking at the South East Asia Australia Offshore Conference organized by IIR Conferences.

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