Veronica Brooks, Canberra – East Timor's government must return to the negotiating table with more realistic expectations if a protracted maritime boundary dispute between Australia and the impoverished nation is to be resolved, Industry and Resources Minister Ian Macfarlane said Thursday.

Macfarlane also told Dow Jones Newswires in an interview that he isn't confident the development of the Greater Sunrise gas field in the Timor Sea will go ahead, given it is unlikely a deal over how to share revenue from the US$5 billion natural gas project will be struck between Canberra and Dili by a December target date.

East Timor's Prime Minister, Mari Alkatiri, has also said the December deadline looks unachievable after a third round of negotiations last month ended without an accord on the project which straddles a disputed maritime border.

Woodside Petroleum Ltd. (WPL.AU) has a 33.4% stake in the Sunrise field, which is regarded as the biggest prize in the Timor Sea. Its partners in Sunrise are ConocoPhillips (COP) with 30%, Royal Dutch/Shell Group (RD) with 26.6%, and Japan's Osaka Gas Co. (9532.TO) with 10%.

The Sunrise group is investigating three development options that consist of hauling gas to a liquefied natural gas plant in Darwin, a floating LNG plant at the field, or piping gas to an LNG plant in East Timor.

Woodside wants to take one of those options into a detailed design phase by the end of 2004, aiming to begin producing LNG by 2010. But it has said the project will stall unless it has an assurance about royalty payments by the end of this year, while the partners still need to secure a foundation customer.

Gas from Sunrise has often been touted as a supply source for the California market, with Woodside also keen on sales to the US West Coast from the giant North West Shelf which it operates.

"I'm quite pessimistic about the development of Sunrise at the moment and my feel is that the clock is ticking away," Macfarlane said, adding he's unsure when talks might resume.

"We said from the start this needed to be finalized by Christmas. That wasn't for any other reason other than the fact that we need to get ... the [Sunrise] gas fired up and going in terms of satisfying market windows," he said.

Macfarlane said he had spoken with Woodside Chief Executive Don Voelte and the company's Chief Operating Officer Keith Spence in the past week and the tone wasn't upbeat.

"Their view is the same as ours, that is they can't proceed with the project under current arrangements and obviously in terms of the project proceeding, they'll need to see some agreement between Australia and East Timor," he said.

"At this stage, that doesn't seem likely in the timeframe they need, so we're all sitting and waiting to see if the Timorese will reconsider. But at this stage, there's no indication of that," said Macfarlane.

East Timor wants a maritime border midway between the two countries, which it argues would provide Dili with an extra US$12 billion in total revenue. Australia, however, wants the border it shared when Indonesia occupied East Timor, which followed the Australian continental shelf that at some points is only 150 kilometers from the East Timorese coast. That border puts the bulk of natural resources under Australia's control.

Last month's negotiations in Dili were aimed at achieving a solution to the dispute over resources, without setting a permanent maritime boundary.

"We were disappointed. We made what we thought was an extraordinarily generous offer and the Timorese have decided not to negotiate on that offer or even, it seems to us, give it serious consideration," said Macfarlane, with divulging any of the details.

"The ball is now very squarely in the Timorese government's court. If they want Sunrise to proceed, then it's really up to them to show that they have a reasonable expectation in this process. We really need to see an indication from them that they want to move forward," the minister said.

Macfarlane warned that East Timor must understand Woodside and its partners could well abandon the Sunrise development and turn their attention to other projects.

"As is always the case with resources developments, if you miss a window then companies just simply go somewhere else and put their billions [of dollars] into a new project and then you have to wait for the cycle to come back to you," he said.

"I think sometimes the Timorese don't fully appreciate just how many options companies like Shell and Woodside and all the other major resources companies have in terms of where they could take their development if they don't develop Sunrise," the minister added.