Subject: FT: E. Timor set for bonanza as gas project gets go ahead

Received from Joyo Indonesian News

Financial Times (London)

March 14, 2002

East Timor set for bonanza as gas project gets go-ahead

By Virginia Marsh

Sydney,

East Timor is set to reap ADollars 6bn (USDollars 3.1bn, Euros 3.6bn, Pounds 2.2bn) in tax royalties following a decision to proceed with the first large-scale oil and gas development in the Timor Sea.

Phillips Petroleum, the US oil company, said yesterday it had decided to go ahead with a USDollars 3bn project to develop the Bayu-Undan field and pipe its gas ashore to Darwin where it will build one of the world's biggest liquefied natural gas processing plants.

The move follows the signing of an agreement with Tokyo Electric Power and Tokyo Gas to buy nearly all of the field's proven reserves under a 17-year contract due to begin in 2006. Phillips has also agreed to sell the two Japanese companies a 10 per cent stake in the field, reducing its own holding to 48 per cent.

Bayu-Undan, located in the Timor Gap, an area shared by Australia and East Timor, the newly independent former Indonesian province, has estimated reserves of 3,400m cubic feet of natural gas and 400m barrels of condensate and liquefied petroleum gas. It will supply 3m tonnes of LNG a year to the Japanese power companies.

Phillips had hoped to commence the development last year but was held up by a tax dispute with East Timor that caused it to lose contracts with Methanex, the Canadian chemicals group, and El Paso, the US energy group.

The final hurdle is the approval of the Australian government which, like East Timor, will receive royalties from the project. Australia's share is put at about ADollars 2bn over the lifetime of the Japanese contract, while East Timor's is estimated at ADollars 6bn.

The royalties will be the impoverished new state's largest source of income.

The deal is also a victory for Australia's energy-strapped Northern Territory where successive governments have pushed for decades for the commercialisation of the Timor Sea gas fields

Despite the breakthrough on Bayu-Undan, however, negotiations on the other large project in the Timor Sea, Greater Sunrise, remain deadlocked.

Phillips said yesterday it was still not convinced that the floating LNG facility proposed by Royal Dutch/Shell and Woodside, its partners, was the best way to proceed.

Under the original plans, one option was for Sunrise to share Bayu-Undan's pipeline and for gas from the two fields to be marketed jointly, with El Paso signing a letter of intent, now expired, to be a cornerstone customer.


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