Sonali Paul, Melbourne – Australian, East Timorese and United Nations officials have told oil companies renegotiation of the Timor Gap Treaty would not hurt their oil and gas plans, a Phillips Petroleum Co executive said on Thursday.

Talks to revise the 1989 treaty, governing the existing Elang, Kakatua and Kakatua North oil fields and future output from the large Bayu-Undan project, began on Thursday in Canberra with East Timor seeking a larger share of production royalties.

Companies led by operator Phillips have invested hundreds of millions of dollars in the Timor Gap and are counting on the terms of the treaty to stay the same or at least not hurt the economics of their development projects.

Phillips Darwin area manager Jim Godlove said companies had made clear to Australian, East Timorese and United Nations officials it was essential to keep a legal and administrative regime in place and make sure the tax, cost recovery and production sharing terms for the companies were not worsened.

"A fiscal regime equivalent to the one that we're operating under right now – no more onerous – must remain in place," Godlove told Reuters. "We have been assured by all parties that those fundamental factors are a part of this renegotiation effort," he said.

Timorese seek bigger share

Australia's Foreign Affairs and Attorney-General's offices declined to say what terms were under review in the treaty, signed in 1989 by Australia and Indonesia to split petroleum royalties 50-50 from the Zone of Cooperation in the Timor Sea.

The UN Transitional Administration in East Timor, preparing the Timorese for independence in the next two years, took over Indonesia's obligations under the treaty last February.

East Timorese political leader Jose Ramos-Horta said last month the treaty should be revised to give an independent East Timor 90 percent of the petroleum royalty revenue, but sources said Australia is baulking at that prospect.

"All parties are fully aware of the importance of maintaining stability in the Timor Gap treaty arrangements in order to maintain confidence and to continue to provide a framework for the joint development of the substantial petroleum resources in the area," said a spokeswoman for Australian Attorney-General Daryl Williams.

The oil companies in the area, which include Petroz NL. Santos Ltd, Inpex Sahul Ltd, Kerr McGee Corp and British-Borneo Oil & Gas Plc, are not concerned about the royalty revenue split, as long as the tax rate is not raised.

"As long as it's done properly it should remain business as usual for the contractors," Godlove said. "I think so far the UN, the Timorese and Australia have all been very responsible about how they've gone forward with this," he said.

It was not clear how long the treaty renegotiation would take, but the aim is expected to complete it before East Timor becomes independent by mid-2002.

Oil production from the US$1.4 billion first stage of the Bayu-Undan development is expected to begin in late 2003, with the first fabrication contracts for the project due to be awarded soon.