Nigel Wilson – Australia could face a compensation claim from East Timor for up to $US6 billion ($8.4 billion) because Australia did not halt production in the disputed oil fields of the Timor Sea.

Foreign Minister Alexander Downer was warned of East Timor's potential claim more than four years ago. But Mr Downer refused to order a halt to production in the Laminaria/Corallina fields in the Timor Sea, 500km north west of Darwin.

Mr Downer confirmed at the weekend he had a meeting in his Adelaide electorate office around March 2000 with Mari Alkatiri, now East Timor's Prime Minister, and Peter Galbraith, then minister for the Timor Sea in the United Nations Temporary Administration in East Timor. Mr Galbraith, a former US diplomat and now a member of a Washington-based international relations think tank, leads the East Timor team negotiating a maritime boundary with Australia.

East Timor politicians, including Dr Alkatiri, and the new nation's President, Xanana Gusmao, have attacked Australia for being greedy by refusing to accept a maritime boundary based on the mid-point between the two countries, about 350km north of Darwin.

They argue such a change would give East Timor access to upwards of $US30 billion in potential revenue from oil and gas reserves, making it independent of Australian and international aid. Australia, instead, insists the boundary should be the edge of the continental shelf which is as close as 50km from the East Timor coast.

At the time of the Adelaide meeting with Mr Downer, Laminaria/Corallina, owned by Woodside Petroleum, BHP Billiton Petroleum and Shell Development, was the nation's biggest producing oil field, pumping at a rate of around 170,000 barrels a day.

Speaking from Washington, Mr Galbraith said that apart from the continental shelf argument, Australia was refusing to countenance a reworking of the shape of the existing joint petroleum development area, set up in the 2002 Timor Sea treaty, so the east and west boundaries could be set further apart. This would give control of Laminaria/Corallina to East Timor.

"Australia is unique in the world in allowing development to continue where there is a dispute over boundaries and there are overlapping claims," he said. "We told Mr Downer at the Mayo meeting [Mayo is Mr Downer's electorate] that Australia should not allow production from Laminaria/Corallina to continue and that, if it did, East Timor would seek compensation after the boundary talks were settled. We estimate the Australian government has been receiving revenue at around $US1 million a day from the oil field and the commercial returns will be about twice this," he said.

Mr Galbraith estimated the total East Timor claim over the oil field could be as much as $US6 billion since the Adelaide meeting. "That's a potential claim Australian taxpayers should be aware of," he said.