Nigel Wilson – The Timor Sea Treaty will formally come into effect next Tuesday with an exchange of notes between Australia and East Timor in Dili.

The exchange will be the final step in the process of replacing Indonesia as the country that Australia partners in developing Timor Sea oil and gas reserves.

The treaty provides for the two parties to share revenue from petroleum production in an agreed area of the Timor Sea, the Joint Petroleum Development Area, jointly administered by both countries.

Officials in both countries are frantically revising documents that frame production-sharing arrangements for existing and future Timor Sea projects.

Officials said last night it was unlikely new production-sharing contracts covering ConocoPhillips' Bayu Undan fields would be completed by next Tuesday.

But the delay is understood to be caused by process rather than by any disagreement over the terms of the deal between ConocoPhillips and the East Timorese Government signed in December 2001.

Resources minister Ian Macfarlane told the Australian Petroleum Production and Exploration Association conference in Melbourne yesterday he had been informed commercial closure for the $3 billion liquefied natural gas plant in Darwin, which is the second stage of the Bayu Undan project, was on target to be achieved by the end of next month.

Ratification of the Timor Sea Treaty by the Australian Parliament by March 10 was a condition precedent of a 25-year LNG contract signed between the Bayu partners and two Japanese energy utilities. Officials said that production-sharing contracts covering the development of the Greater Sunrise reservoirs were expected to be in place on Tuesday.

The immediate effect of the exchange of notes – to follow the formal signature of the governor-general – is that East Timor is set to receive a payment of up to $4 million in royalties held in trust from Elang-Kakatua oil production.

East Timor has nominally received 90 per cent of government revenues from the small oil fields since the Timor Sea Treaty was signed in Dili last May.

But under the terms of the treaty the fledgling country was not able to use the money until the exchange of notes takes place, which signifies formal replacement of the treaty Australia signed in 1989 with Indonesia covering the Timor Gap.

The Elang oil field, 500km northwest of Darwin, was discovered in 1994, together with the Kakatua satellite field.