Subject: DJ: Australia/Indonesia Oil Deal Seen Intact On Timor Vote
Date: Sat, 26 Jun 1999 08:50:06 +0000
From: "John M. Miller" <>

Received from Joyo Indonesian News:

Dow Jones June 21, 1999

Australia/Indonesia Oil Deal Seen Intact On Timor Vote

DARWIN, Australia -- The outcome of East Timor's autonomy vote in August likely will have little impact on the Timor Gap Treaty between Australia and Indonesia, an Australian official said Monday.

The treaty covers the sharing of royalties between the two nations in an area between them in the energy-rich, but mostly undeveloped Timor Sea covered by the Zone of Cooperation Agreement.

Robert Mollah, Australian executive director of the Australia-Indonesia joint authority for the zone, said there is considerable speculation about the involvement of East Timor in future activities relating to the zone.

This will depend on the results of the scheduled vote on the autonomy of the Indonesian province, he said.

"Autonomy will probably mean relatively little change in the operation of the treaty with any redirection of income solely a matter for the Indonesian side," he said.

Mollah was speaking at the South East Asia Australia Offshore Conference organized by IIR Conferences.

Independence Seen Increasing Uncertainty

However, he said any successful push for independence by East Timor will make the situation more unpredictable.

"Hopefully, all sides will recognize the success of the treaty to date and would wish to see the cooperation continued," he said.

The zone is divided into three areas and creates rules allowing for the exploration and development of petroleum resources.

Area B is at the southern end of the zone and is administered by Australia, with Indonesia entitled to part of the tax collected from oil production. Area C, at the northern end of the zone, is administered by Indonesia and Australia is entitled to a share of taxes collected from oil production in that zone.

Area A is jointly administered with a sharing of taxes collected.

An agreement over taxes from natural gas production from the zone hasn't yet been finalized.

Mollah told the conference a feature of the past year has been widespread recognition that the zone and the Timor Sea is a major gas/condensate province.

The major company operating in the zone is Phillips Petroleum Co. (P) of the U.S., through its as yet undeveloped Bayu-Undan gas/condensate project and other activities. Other stakeholders in the zone include Royal Dutch/Shell Group (RD) and Australia's Woodside Petroleum Ltd. (A.WPL).

These and other companies, 27 in all, have spent A$485 million on exploration and A$196 million on development in the zone, Mollah said.

Oil production from area A began in 1998 from the Elang/Kakatua field. Ten million barrels of volatile light crude were extracted, resulting in about A$2.5 million being distributed to each of the contracting states, he said. This field will be exhausted within a few years.

Significant Tax Collections Seen Likely

Further developments are proposed, with most attention focused on Bayu-Undan, he said.

Mollah believes significant funds should accrue to Indonesia and Australia following recoupment of contractor's investments in any future development.

"The amounts and timing will be dependent on further development investments, the production rates and the oil and gas pricing," he said.

Meanwhile, Barry Jones, executive director of the Australian Petroleum Production and Exploration Association, a national lobby group, said the Australian industry will work constructively with whatever eventuates from the East Timor autonomy vote or push for independence from Indonesia.

Jones called for protection of existing rights in the zone and transparent investment rules for awarding new rights.

The taxation system must be efficient and effective he said, and a clear and transparent dispute resolution procedures must be in place, he told the conference Monday.

If the East Timorese ultimately choose independence, Australia must provide substantial help to set these up, he said.

In April 1999, the Australian Attorney-General's Department, told a parliamentary committee that if East Timor becomes independent it might want to pursue amendments to the Timor Gap Treaty beyond the changes needed to ensure it kept operating effectively.

East Timor and Australia would be the main negotiators in such an event, it said, but continuing Indonesian agreement would be "useful to obtain" over the location of the zone's east and west boundaries, it said.

-By Ray Brindal; 612-6208-0902;

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