Subject: Woodside Pulls Out of US$5.2 Billion Timor Sea Gas Project

Financial Times (UK) November 17, 2004

Woodside Pulls Out of US$5.2 Billion Timor Sea Gas Project

By Lachlan Colquhoun in Sydney and Shawn Donnan in Jakarta

Woodside Petroleum, Australia's biggest oil and gas producer, said on Wednesday it would halt its investment in the A$6.6bn (US$5.2bn) Sunrise project in the Timor Sea following the breakdown of talks between Australia and East Timor over how to split the revenues.

David Maxwell, Woodside's director of gas, told investors in Sydney that the liquefied natural gas project "was likely to stall". Income from the project is seen as vital to ensuring the economic viability of the fledgling East Timorese state, which won independence from Indonesia in 1999 through a United Nations-backed referendum.

"That looks like the most likely scenario," Mr Maxwell said. "What does stall mean? It means we won't spend any more money."

Woodside, which holds a 34.4 per cent stake in the development and is slated to be its operator, had said earlier this year that if an agreement was not in place between Australia and East Timor by the end of 2004 it might be forced to mothball the project.

But Wednesday's tough remarks put additional pressure on the two countries to resume talks, which broke down last month with both sides blaming each other for the deadlock.

The Sunrise project, which would tap estimated gas reserves worth as much as A$25bn, involves the most significant resource in the Timor Sea, which lies between Australia and East Timor.

Revenues from the project are expected to eventually provide the biggest income stream for East Timor, which now ranks among the poorest countries in Asia.

Jose Teixeira, East Timor's resources and energy minister, said on Wednesday that no further talks with Australia were planned.

"It was the Australian delegation that cut the talks short and said no more talks," he said. "We think quite clearly the ball is now in the Australian government's court."

Royal Dutch/Shell, which has a 34 per cent stake in Woodside, also has a 26 per cent stake in the Sunrise project, while Conoco Phillips has a 30 per cent share. The remainder is held by Osaka Gas.

The Sunrise partners have already spent A$250m on the project, and had planned to spend another A$80m next year. But that future investment is now unlikely to go ahead bar a surprise deal between Australia and East Timor.

The disagreement between the two countries hinges on a disputed maritime boundary. Canberra contends the boundary should be the continental shelf which comes within 70km of the East Timorese coast. East Timor argues the border should be drawn at the midway point between the two countries.

Talks between the two countries broke down last month after East Timor rejected an offer of up to A$3bn in extra revenues if it agreed to defer boundary talks for 100 years.

Woodside said that until the sea boundary negotiations were resolved it would concentrate on other projects, including the Browse project, which sits in Australian waters in the Timor Sea.

Shares in Woodside rose 2.5 per cent to A$19.04 in Sydney on Wednesday.

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