Timothy Mapes and Patrick Barta, Jakarta – Australia and East Timor have worked out the broad outlines of a possible compromise that could help end a bruising two-year dispute over control of giant oil and natural-gas fields in the Timor Sea, officials familiar with the talks said.

While final terms still need to be negotiated, the proposed deal would give East Timor, one of the world's poorest nations, access to billions of dollars in additional revenue from the disputed fields. In return, East Timor would drop plans to press Australia for a new sea boundary based on a median line between the countries.

A deal on the Timor Sea energy fields would be of critical importance for East Timor, a territory of just 800,000 people with few other resources and almost no industry. East Timor officials hope to use revenue from the Timor Sea fields to build schools and hospitals and develop the country's economic infrastructure, which was mostly destroyed during a bloody rampage by Indonesian forces after the territory voted for independence from Jakarta in 1999.

But a dispute about sovereignty over some of the sea has hindered investment and prompted some East Timor officials to claim that Australia was intentionally dragging its feet on the issue.

During talks in Canberra this week, officials discussed a plan that would expand a joint development zone that already exists between the two nations to include additional fields. The expansion would be designed to cover a field called Greater Sunrise, which is believed to contain natural-gas reserves valued at as much as $30 billion and has been the subject of most of the wrangling.

"We've come up with a framework in which [East Timor] gets additional revenue while [Australia] gets to keep the continental-shelf principle," said an official familiar with discussions in Canberra. The idea would be to give East Timor roughly the same revenue it would receive if the border were placed along the midpoint between the two countries, without actually fixing the boundary in that way.

In prior talks, Australia has resisted East Timor's efforts to draw a new sea boundary between the countries using a median line rather than the continental shelf, which defines Australia's boundaries with other countries. Australia worries that the use of a median line in the Timor case could expose the country to new border disputes with Indonesia or other neighbors. East Timor favors the idea because most of the Timor Sea's energy deposits are on its side of such a line.

If a deal is finished by the end of this year, it could allow a consortium led by Woodside Petroleum Ltd. of Australia to move ahead with plans to develop Greater Sunrise. Woodside's chief executive, Don Voelte, warned officials from both nations last month that the project – which would involve building a liquefied-natural-gas facility to export the fuel by tanker – might be shelved if the matter isn't solved by year end.

"This dispute is hurting our ability to market the gas," a Woodside spokesman said Thursday. Several competing liquefied-natural-gas projects are expected to be finished around 2010 and are already working to line up long-term sales agreements with consumers. Europe's Royal Dutch/Shell Group, ConocoPhillips of the US, and Japan's Osaka Gas Co. also hold shares in the Greater Sunrise project.

Under a 2002 treaty, East Timor gets 90% of the revenue produced by fields in the development zone, while Australia gets 10%. East Timor hopes to maintain that ratio if the zone is expanded, although the final figure will be subject to further negotiation, officials said. In February, Houston-based ConocoPhillips began tapping natural gas and liquid condensates from a $1.8 billion venture in the zone.

After talks on Wednesday in Canberra, Australian Foreign Minister Alexander Downer said the two sides had made "extremely good progress' and said he hoped the two countries could wrap up a deal by the end of the year.

East Timor Foreign Minister JosC(c) Ramos Horta added, "We have the basic ideas....Now we just need to work out the details." However, both offiicials declined to discuss the new framework in any detail.

Some people in the oil industry hailed the news of an apparent deal. Geoffrey McKee, an oil-industry consultant in Sydney, called the proposed compromise "the only possible deal in the real world," noting that East Timor was never likely to get everything it wanted in the Timor Sea. A deal became more likely after Woodside threatened to pull out of Greater Sunrise if a resolution wasn't reached before the end of this year, Mr. McKee added.

A compromise on the Timor Sea gas dispute could factor into Australia's coming election. Prime Minister John Howard faces a stiff challenge from opposition Labor Party leader Mark Latham, and the Australian leader's government has come under fire from activists for failing to solve the East Timor issue.

"What this has done is it has taken this issue off the election agenda," Mr. McKee said. "If the Howard government gets returned, you could say this helped."