Subject: The Australian: Woodside Hoping Timor Will Soften Stance

The Australian Wednesday, June 23, 2010

Woodside hoping Timor will soften stance

Matt Chambers

WHEN East Timor President Jose Ramos Horta fronts the National Press Club in Canberra today, the Greater Sunrise gas partners -- led by Woodside Petroleum -- are hoping for a softening in rhetoric from the small country, which has railed against development plans for the huge resource.

Since plans to develop the Timor Sea gasfields through a floating LNG plant were announced in April, East Timor Prime Minister Xanana Gusmao has vehemently opposed them, saying he will only accept development through an LNG plant on East Timor.

He has called Woodside a liar trying to steal the fledgling nation's oil and gas. Political experts and commentators have also said East Timor's recent decision to accept training from China's navy on two gunboats was a pointed diplomatic rebuff to Australia that was related to the Woodside stoush.

But Mr Ramos Horta has been more measured than Mr Gusmao.

His more conciliatory tone at meetings with Woodside chief Don Voelte, who will be in Canberra today, and other senior executives have given the partners hope that Mr Gusmao's comments include some political posturing to score points off East Timor's opposition Fretilin Party.

After abandoning studies of an East Timor plant more than a year ago, citing difficulties crossing a 3km-deep ocean trench, Woodside and its partners last month also scrapped the option of developing the fields through a Darwin LNG plant.

Sources from among the Sunrise partners say the decision was partly made because there was no way East Timor would have accepted a Darwin plant.

They also say the strength of Mr Gusmao's subsequent negative response to a floating LNG plant was surprising.

East Timor has shown no signs it is prepared to entertain an $US11 billion ($12.5bn)-plus floating LNG plant.

Instead, it has continued to accuse Woodside and its partners of not fully investigating an East Timor option.

Mr Gusmao said Australia would get a greater share of the benefits of a floating LNG plant, for which Darwin would be a likely service hub.

``Diplomatic tensions remain an ongoing issue for the Sunrise project,'' Deutsche Bank analyst John Hirjee said.

He said Sunrise had only a 30 per cent chance of going ahead.

The good news for Woodside shareholders was that the market was not even pricing that into Woodside's share price.

No value has been ascribed to Sunrise, according to Deutsche Bank analysis.

Under treaty arrangements between Australia and East Timor, which share gas from the fields 50-50, Sunrise needs to be developed to the best commercial advantage in accordance with best oilfield practice.

On June 3, Mr Voelte said that the East Timor plant option would have had capital costs $US5bn higher than the

Continued on Page 40

Continued from Page 39

proposed floating LNG plant, itself estimated to cost more than $US11bn.

He said also that $US13bn of revenue would be delivered to East Timor.

East Timor shot back the next day.

``Voelte omitted the operating costs over the life of the project along with fiscal and taxation regimes which demonstrate Timor LNG offers lower wages, maintenance costs and with a 10 per cent flat applicable tax rate,'' Secretary of State Agio Pereira said.

``The pipeline to East Timor becomes the most economically attractive option and offers the most commercial rate of return.''

Mr Pereira said in an email that piping LNG to East Timor would cost ``significantly less'' than $US11bn.

``This would be consistent with the fact the field is 150km from the shores of East Timor . . . extensive studies have confirmed a pipeline is a much more economically viable and technically feasible option than floating LNG,'' he said.

Relations between the partners (including Shell and ConocoPhillips) and East Timor have soured since late April, when Woodside confirmed floating LNG as the preferred option.

East Timor's National Petroleum Authority, which oversees the Joint Petroleum Development Area shared by Australia and East Timor, has not welcomed the proposal.

At the end of a meeting last month with two Woodside executives, said to be have been cordial until East Timorese press arrived, petroleum authority president Gualdino da Silva refused to accept documents on the plan from Woodside.

A guard threw the documents in the back of the Woodside executives' vehicle as they left.

Mr Pereira has said that if Sunrise was not approved by 2013 or LNG production not started by 2017, existing treaties could be cancelled and project developments stalled while new treaties between Australia and East Timor were worked out.

Woodside is hoping Mr Ramos-Horta, a candidate to succeed Kofi Annan as UN secretary-general, will place more emphasis on international treaty obligations, requiring the Sunrise partners to develop the oilfields to best commercial practice.

But if a speech to the Northern Territory Parliament in late 2008 is a guide, Mr Ramos-Horta's rhetoric is not far removed from that of Mr Gusmao. Mr Ramos-Horta, who at the time was prime minister, said the decision on where to develop the field needed to be made on a technical and commercial basis.

But he said it needed to be worked out by an independent study.

``We will not bow to unilateral decisions made by these infamous CEOs who mismanaged world multinationals,'' Mr Ramos-Horta said in the speech, which was during the depths of the global financial crisis.

``I, for one, prefer to forgo Greater Sunrise than surrender to the dictates of a bunch of oil executive millionaires.''



* Australia and Indonesia sign a seabed boundary treaty, establishing a boundary much closer to Indonesia than to Australia. Since Portugal (the colonial ruler of East Timor at that time) refused to participate in the discussions, the boundary is incomplete, resulting in the "Timor Gap".


* Australia and Indonesia agree on the Timor Gap Treaty, which divides revenue from the seabed resources in the Gap. The Treaty defines a Zone of Co-operation.


* Australia and the United Nations Transitional Administration in East Timor (UNTAET) sign a memorandum of understanding over future revenues from Timor Sea oil and gas fields, renaming the ZOC as a Joint Petroleum Development Area (JPDA); continues 50-50 revenue split from earlier treaties with Indonesia.


* UNTAET and Timorese prime minister Mari Alkatiri sign the Timor Sea Arrangement with Australia, which increases East Timor's share of upstream oil and gas revenues from the JPDA to 90 per cent.


* May: East Timor gains complete independence. Australia and East Timor sign the Timor Sea Treaty to replace the 2001 Timor Sea Arrangement, with similar terms.


* Production at Bayu Undan gas field begins; project is expected to earn $100m a year.


* Jan: Australia and East Timor sign the Treaty on Certain Maritime Arrangements in the Timor Sea, raising Timor's share of revenues from Greater Sunrise from 18% to 50%, but pushing determination of a permanent maritime boundary from 30 to 50 years into the future.


* Jul: Woodside, studying three development options for the Greater Sunrise gas fields, rejects the option of an East Timor LNG plant, saying it was not commercially attractive. Instead, a Darwin LNG plant or floating LNG plant would be considered.

Nov: East Timorese President Jose Ramos Horta says the country would not bow to the pressures of Woodside "CEO millionaires" and would be prepared to block development of the project.


* Jan: East Timor says the LNG project should be based on the option that best contributes to the development of the nation.

* Apr: Woodside and its partners say they plan to develop Sunrise through a floating LNG plant.

East Timor says it is prepared to reject the plan.

May: Australian Resources Minister Martin Ferguson says East Timor needs to meet its international obligations over Timor Sea treaties that say development is a commercial matter for the proponents.

Woodside CEO Don Voelte says East Timor cannot legally block the development.

* Jun: Voelte says building the floating LNG plant in East Timor would provide additional revenues of at least $US13bn for the country. The East Timorese government says an onshore plant would provide $US65bn of revenue, and continues calls for Woodside to provide costings for all development options, including a possible onshore processing plant.

Back to June Menu
World Leaders Contact List
Main Postings Menu