Australia and East Timor have struck agreement on how to carve up lucrative Timor Sea energy reserves worth up to $41 billion.

The in-principle agreement brings to a close more than a year of negotiations between the two countries and will culminate in a signing ceremony next month.

Foreign Minister Alexander Downer trumpeted the deal as a boon for both nations but refused to elaborate on the detail until the official sign-off, expected in mid-January.

"Importantly, this is a deal which is a good one for both Australia and East Timor," Mr Downer said. "It safeguards Australia's sovereign interests and it will provide, with the certainty needed, for large scale resource projects to go ahead."

East Timor's Timor Sea Office was unwilling to speak about the agreement and Foreign Minister Jose Ramos-Horta was not immediately available for comment.

However, the Timor Sea Justice Campaign (TSCJ), a long-time critic of Australia's approach to resource sharing with East Timor, believes the young nation is being dudded.

The deal broadly is expected to revolve around a deferral for up to 50 years of a decision agreeing on a permanent maritime boundary between the two countries and a 50:50 split of royalties from the sizeable Greater Sunrise energy field.

TSCJ coordinator Tom Clarke described the agreement as a band-aid solution.

"East Timor, as a sovereign nation, is entitled to permanent boundaries, but sadly through a series of temporary resource sharing arrangements, the Australian government has continued to bully the poorest nation in Asia out of billions of dollars," he said.

"(We are) calling on Alexander Downer to finish the job, that is establish permanent maritime boundaries with East Timor in accordance with international law."

The successful conclusion to the deal came after the eighth round of talks, which finished in Darwin on Wednesday. "Officials have now initialled an agreement and exchanged letters on the basis of an agreed text," Mr Downer said.

Under the new arrangement, a 2002 Timor Sea treaty remains in place. East Timor is entitled to 90 per cent of royalties from oil and gas developments in the area under negotiation as part of the May 2002 interim deal.

Mr Downer says East Timor stands to reap billions of dollars in revenue as a result. "That means East Timor will continue to get its 90 per cent share of the revenues from the production of the joint development area," Mr Downer said.

"At current oil prices revenues from that area alone could deliver around $US14.5 billion to East Timor over the next 20 years."

The two countries were able to reach agreement after East Timor gave ground on an original claim for processing facilities to be located in Dili.

Instead of making it part of the political accord, the East Timorese government will press Greater Sunrise operator Woodside to seriously consider locating the plant in Dili.

Resources giant Woodside Petroleum, the lead partner in the Greater Sunrise venture, welcomed news of the energy deal between the federal government and East Timor.

"Woodside acknowledges the negotiating efforts of both governments, although recognises the agreement still needs to be formally signed by both parties and then ratified," the company said in a statement.

"Woodside is also yet to see the agreement. The future of the Sunrise Gas project remains dependent on several factors including the fiscal regime under which it would operate, the cost and location of any development and the successful marketing of the resource."