Subject: DJ: East Timor Seeks "Creative" Deal On Timor Gas

UPDATE: East Timor Seeks "Creative" Deal On Timor Gas

June 7, 2004 3:10am

By Stephen Bell

Of Dow Jones Newswires

DARWIN Dow Jones)--East Timor Prime Minister Mari Alkatiri said the impoverished country will look at a "creative solution" to help speed development of the Woodside Petroleum Ltd. (WPL.AU)-operated Sunrise gas field in the Timor Sea.

But Alkatiri said East Timor isn't prepared to back down on its border dispute with Australia over ownership of petroleum reserves that could be worth US$12 billion to the island nation.

"The joint venturers are looking to develop Sunrise," Alkatiri told reporters at the SEAAOC oil and gas conference in Darwin on Monday.

"How to do it without a boundaries (negotiation) result is the creative solution that we need," he said, adding that East Timor will not agree to a deal that "prejudices" its stance on maritime boundaries.

Alkatiri's comments followed a call from Northern Territory Chief Minister Clare Martin for Australia's federal government to negotiate a one-off revenue deal with East Timor over Sunrise.

Australia and East Timor need to find a "a more generous revenue split for Timor-Leste that would only apply for Sunrise - a one off", she said.

Woodside declined to be drawn into the political debate. "That is an issue between the two governments," said David Maxwell, the head of Woodside's gas business.

While Australia and East Timor have agreed to a treaty to carve up an area of the Timor Sea, the deal is only an interim arrangement pending a fixed boundary.

The Joint Petroleum Development Area deal allows East Timor to take 90% of government revenue from the Conoco Phillips (COP)-operated Bayu Undan field which is due to begin exports of liquefied natural gas in early 2006.

However, East Timor has so far refused to ratify a second revenue-sharing deal known as the International Unitization Agreement. Under this deal, 80% of Sunrise - the largest prize in the Timor Sea - falls within Australian waters and the remaining 20% in the JPDA.

"We as the operator on behalf of the (Sunrise) joint venture have asked both governments to finalize the International Unitization Agreements or an equivalent mechanism as early as possible," Maxwell said.

The partners need to decide on a design option by the end of this year to meet a 2010 marketing "window" for first LNG shipments, he said.

Alkatiri has accused Australia of bullying one of the world's poorest nations by refusing to accept a maritime boundary in the middle of the 600 kilometers of sea separating the two countries.

That boundary would leave Sunrise and Bayu Undan wholly in East Timor.

Australia, instead, argues the boundary should be the edge of the continental shelf, which in some places is just 80 kilometers from East Timor's coastline.

Wants Sunrise Deal Within A Year

To break the deadlock, Australia's government should "de-link" the maritime boundary issue from the revenue split on Sunrise, Martin said.

If no revenue sharing deal is reached, the boundary dispute could put Sunrise on hold for "many years", she added.

Alkatiri said that East Timor will try to negotiate a deal on Sunrise inside a year.

"We are prepared to do it in nine to 12 months if we need to do it."

However, East Timor is "not going to forget maritime boundaries" in forging a deal on Sunrise, he added.

Alkatiri said that East Timor will not ratify the Unitization Agreement unless Australia agrees to set a timetable for border negotiations; stop issuing petroleum exploration licenses in areas of overlapping claims; and take the dispute to an independent arbitrator if bilateral negotiations fail.

East Timor will have access to petroleum revenues in the order of US$12 billion, under its proposed maritime boundary, Alkatiri said.

That figure compares with likely revenues in the order of US$4 billion under the existing temporary arrangement, Alkatiri added.

"Sadly, the outlook after the April round of negotiations is quite hopeless in our view," Alkatiri said.

He added that East Timor wants to meet every month on the border dispute, while Australia is not willing to meet more frequently than every six months.

Alkatiri also said that East Timor will release land for initial petroleum exploration in non-contentious areas.

Recent technical studies suggest that there is "potential for the existence of highly prospective hydrocarbon deposits" in the country.

"We have therefore decided to grant rights to conduct seismic data acquisition surveys in both onshore and in offshore areas," he said.

Formerly annexed by Indonesia, East Timor gained independence in 2002 after a period under United Nations authority. It is still heavily reliant on foreign aid.

As the debate over maritime boundaries festers, one of the Sunrise partners said the dispute is harming the project.

The Australian unit of Royal Dutch/Shell (RD) said last week that the border uncertainty is hindering marketing efforts for the field.

The oil giant would be "very reticent" about significantly increasing investment on Sunrise until an agreement is ratified, said Shell Australia Chairman Tim Warren.

Earlier this year Woodside agreed to look at the possibility of piping gas to an onshore East Timor LNG facility, as an alternative to either a Floating facility or a Darwin plant.

Shell and Woodside have previously backed the floating plan, while ConocoPhillips has argued in favor of a pipeline to Darwin.

ConocoPhillips is separately building a US$1.5 billion LNG plant at Darwin as part of its Bayu Undan project.

Shell has a 26.6% stake in the Sunrise project. Other partners in the 7.7 trillion cubic feet field are ConocoPhillips with 30%, Woodside with 33.4% and Japan's Osaka Gas Co. (9532.TO) with a 10% stake.

ConocoPhillips leads the Bayu-Undan joint venture as the operator, partnering Italian firm Eni S.P.A. (ENI.MI), Australian producer Santos Ltd. (STOSY) and Japan's Inpex, Tokyo Electric Power (9501.TO) and Tokyo Gas (9531.TO).

-By Stephen Bell, Dow Jones Newswires;


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