East Timor Rejects PetroTimor Claim Over Timor Sea Oil Concessions

Australian Parliament Still Considering Timor Sea Treaty Ratification Royalty Flow From Energy Production A Lifesaver For East Timor

By Ray Brindal

CANBERRA, Sept. 27 (Dow Jones) - East Timor doesn't recognize a claim by PetroTimor Comphanhia de Petroleos SARL over energy-rich concessions in the Timor Sea, according to a senior East Timor government official. The official, Jonathan Morrow, who heads the Timor Sea Office in the office of the East Timor Prime Minister, East Timor Government, also said late Thursday that Petro Timor's claim is impeding East Timor's development as the world's newest nation, and one of its poorest.

PetroTimor is a Portuguese-registered concern owned by Oceanic Exploration Co. of Denver, Colorado, in the U.S.

Portugal, as the colonial power, granted Timor Sea oil concessions to PetroTimor before Indonesia's 1975 invasion of East Timor, and the company now is trying to recover these through Australian courts.

But Morrow said PetroTimor's claims to a concession aren't recognized by the East Timor government.

PetroTimor's litigation in Australian courts is potentially frustrating the speedy development of Timor Sea oil and gas resources, with East Timor required to brief lawyers to follow the litigation, he said.

"This is, needless to say, extremely unhelpful," he told Dow Jones Newswires.

The issue flared again this week with a visit to Australia by John Imle, a consultant to PetroTimor, to address a Melbourne conference on the history of the company, its claim, and to promote the feasibility of hauling gas by undersea pipeline to East Timor rather than as planned to the northern Australian city of Darwin.

Imle, a former president and former vice president of U.S.-based energy company Unocal Corp., told Dow Jones Newswires this week that East Timor has been poorly dealt with by Australia and companies developing Timor Sea gas resources.

"I'm appalled at what Australia has done to East Timor on two counts," he said, citing an unresolved dispute over the seabed boundary between the nations and the pipeline running to Australia, which he described as a "huge injustice to East Timor." That is because Australia stands to gain the economic benefits by way of investment spending in onshore gas processing, he said.

Pipeline To East Timor Isn't Ruled Out

But Morrow said the East Timor government believes companies will build a pipeline to East Timor "when it is a commercially attractive proposition." Energy developments in much of the Timor Sea are covered by the Timor Sea Treaty, signed in Dili by Australia and East Timor when it formally became an independent nation May 20. The treaty is the fundamental document setting out how the economic benefits of energy developments in what is known as the Joint Petroleum Development Area in the Timor Sea are shared between the two nations.

The treaty, which hasn't yet been ratified by Australia or East Timor, was established without the setting of maritime boundaries between the two nations.

East Timor's Morrow said in the comments attributed to Imle, "he pretends to be a friend of East Timor and an authority on its needs and wishes." "He is neither. PetroTimor have time and again made it clear that they wish to frustrate and destabilize the Treaty regime endorsed by East Timor Prime Minister Mari Alkatiri in the (unrealistic) hope that they will be able to benefit from instability. They won't be successful in the enterprise."

Meanwhile, an Australian parliamentary committee is scheduled to conduct further, likely final hearings on the treaty over the next two weeks, ahead of ratification, which will also require legislation.

"The aim is to do it by the end of this year, but it's not a hard and fast guarantee by any means," an Australian official familiar with the process said Friday.

Earlier this month, Alkatiri said he signed the treaty "because it represents the best deal for my people," as it will deliver important revenues in the near term without inhibiting boundary claims.

When the two nations start negotiating permanent maritime boundaries, which he expects to begin in the coming months, East Timor will start with a clean slate, he said.

The East Timorese people desperately need the royalties from energy production in the Timor Sea, he said, with 41% of the population living on less than A$1 a day, widespread illiteracy, low life expectancy and unacceptably high infant mortality rates.

Projected annual revenues to East Timor from just one of the gas fields in the treaty area, the Bayu-Undan project, start at US$70 million in 2004,peaking at US$300 million in 2013 and continuing until 2020, he said.

East Timor's entire annual budget in 2002 is US$77 million, of which US$30million represents aid from donors, he said.

"In short, well-managed petroleum revenues will be East Timor's lucky break," he said.

Alkatiri acknowledged the Timor Sea Treaty has its critics.

"Like all negotiated texts, the treaty represents a number of compromises," he said. "Neither side is entirely happy, but both sides are satisfied." Moreover, investors are satisfied, he said.