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Timor, Australia eye gap revenue

Source
Dow Jones Newswires - January 21, 2000

Ray Brindal, Canberra – Australia and East Timor stand to reap hundreds of millions of dollars in royalties if oil and natural gas projects in the zone of cooperation in the Timor Sea proceed, an East Timorese spokesman said Thursday.

He was commenting in a radio report after attending, with other East Timorese, Australian United Nations and company officials, a workshop Saturday through Tuesday in the East Timorese capital of Dili that focused on the Timor Gap Treaty.

Indeed, according to one of those attending, a figure of A$800 million in royalties over 20 years was mentioned at the workshop, but great uncertainty exists about royalty projections.

Mari Alkateri is East Timor's spokesman on the Timor Gap treaty. "My major concern now is how to disengage Indonesia from the treaty itself," he said in a radio interview.

Asked about how much money East Timor could gather in royalties, Alkateri replied "we are told already that there are some hundreds of millions of dollars, but of course it is better not to talk about the amount of money."

Such revenue, he said, could provide substantial economic and social benefits to East Timor, which was ransacked by militia and the Indonesian army after an August 30 vote for independence.

Under the 1989 Timor Gap treaty, Australia and Indonesia agreed to share royalties from oil and gas developments in the zone of cooperation in the Timor Sea.

Phillips Committed To Bayu-Undan

Following Indonesia's acceptance of East Timor's independence vote and the establishment of a United Nations Transitional Administration for East Timor, or Untaet, October 25, the treaty is being re-negotiated between East Timor and Australia. Until East Timor achieves full independence, Untaet is the nominal partner to the treaty.

One smallish oil field, Elang-Kakatua, has been producing in the zone of cooperation since August 1998 but is depleting quickly. But a number of major oil and gas resources have been discovered in the area and could be developed in the future. According to the government agency that manages the treaty on Australia's behalf, until mid-1999, only about A$2.5 million in royalties had been distributed to each nation as a result of oil production in the area. But that could change.

Phillips Petroleum Co. (P), the operator of the Bayu-Undan project in the Timor Sea, announced October 26, 1999, that it plans to proceed with a US$1.4 billion offshore development to extract liquefied petroleum gas and condensate from the field, with production from 2004.

It also wants to develop a liquefied natural gas export plant and gas distribution system in north Australia using resources from Bayu-Undan but hasn't formally committed to this yet.

The Northern Australian Gas Venture, a joint venture between the Royal Dutch/Shell Group (RD) and Australia's Woodside Petroleum Ltd. (A.WPL), also wants to develop an LNG export plant based on huge natural gas resources it has discovered in the Timor Sea, but hasn't committed to this project either. NAGV also is investigating a domestic northern Australian gas supply system.

Major benefits to East Timor seen

Jim Godlove, the area manager for Phillips who is based in the northern Australian city of Darwin, told of substantial resources in the Timor Sea and "substantial revenue to be shared between the contracting states."

Philips has discussed the revenue-sharing potential of the Bayu-Undan project with Australia, East Timor and Untaet, he said.

"So they are aware of the general magnitude of the revenue they might expect," he said in a radio interview.

"We think the gap will provide a significant revenue stream to the new nation of East Timor," he said.

"This will have a very material and a very beneficial effect to East Timor when it becomes independent," he said.

Asked if a figure of A$800 million in royalties over 20 years was cited at the Dili workshop, Godlove said he didn't recall that number mentioned. "I just don't comment on revenue potential. The people who need to know, know," he said.

Jonathan Prentice, a spokesman for Untaet who attended the Dili workshop, said royalties from the Timor Sea oil and gas projects have the potential to be East Timor's most significant resource in the near future and into the mid-term. "So we are taking it very seriously and are looking forward to a speedy and neat transfer of the treaty institutions over to Untaet and East Timor so that the dividends in the zone of cooperation can be reaped as from now," he said in a radio report.

"Various figures have been floated that are extremely significant, though we have been told by the experts these depend up on a whole kaleidoscope of factors, any one of which can change," he said. "Yes, the figure is extremely sizable, in the many, many millions," Prentice added.

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