Presented by Fran Kelly

The failure to resolve the differences between Australia and East Timor over the gas reserves has delayed large-scale developments like the natural gas field known as Greater Sunrise.

With the resources boom continuing, one consultant to the petroleum industry says revenue from stalled projects like Greater Sunrise could now be four times higher than figures currently used.

Geoff McKee is a lecturer in petroleum engineering at New South Wales University and has consulted on the Timor Sea since 1990. He spoke with us on Radio National Breakfast.

Under a deal being touted, East Timor will receive additional revenues of up to five billion dollars, although a decision on the sea-bed boundary would be deferred.

After independence, East Timor's infrastructure was virtually destroyed and now, six years on, the rebuilding has been painfully slow.

Fran Kelly: Let's stay with East Timor because the failure to resolve its differences with Australia over the Timor Sea has delayed large scale developments like the natural gas field known as Greater Sunrise.

With the resources boom continuing, one consultant to the petroleum industry now says revenue from stalled projects like Greater Sunrise could be four times higher than figures currently used. Geoff McKee is a lecturer in petroleum engineering at New South Wales University and has also been a consultant on the Timor Sea since 1990. He says an increase in crude oil prices make old revenue estimates for Sunrise grossly inadequate. Geoff joins us now.

There's a lost of confusion on Timor Sea and oil and gas revenues. What's your take on this offer of revenue sharing which Alexander Downer says may be worth up to 5 billion dollars?

Geoff McKee: What I'd like to do is to try and encapsulate exactly what the problem is. Because there's a lot of confusion in Australia as to what the problem is between East Timor and Australia after the ratification of the Timor Sea Treaty.

Fran Kelly: I'm warning you Geoff, we've only got five or six minutes for this.

Geoff McKee: OK, I'll just be quick here. My synopsis is that THE problem is the Timor Sea Treaty itself – and specifically "Annex E".

That is the problem. Now we need to define what the problem IS and what it IS NOT. It is not a legal problem because the Timor Sea Treaty is in fact consistent with international law. The problem is a political problem in Dili where the government is finding it difficult to sell the Timor Sea Treaty – particularly "Annex E" – to the people of East Timor. Therefore it [the government of East Timor] needs a solution to this problem. This problem manifests itself in Canberra because it has led to reluctance by the East Timorese parliament to ratify, in effect, "Annex E" of the Timor Tea Treaty, which gives 80% of the Sunrises field to Australia.

So how can the problem be fixed? There are two methods. "Method 1" is to simply terminate the Treaty. And this was the preferred method of the East Timorese Prime Minister and most of the people in East Timor.

That method has proved not possible because of Australian intransigence to agree on permanent seabed boundaries. So hence we now have "Method 2" which is to retain the Treaty and simply pay East Timor to sign "Annex E" of the Treaty which in effect is the "International Unitisation Agreement" [for the Greater Sunrise field]. And the payment appears, as you say, to be in the region of 5 billion dollars.

Fran Kelly: As I understand it, it's a revenue sharing deal, but I guess the question is ... share of what? Because if we look – the Greater Sunrise field which the major field people are talking about developing now – it hasn't started, it has been delayed, they don't even have a buyer yet for their oil and gas. Potentially what's it worth? That's the question.

Geoff McKee: Well that's a very good question because it seems to me that the 5 billion is somehow linked to the valuation of [future] government revenue from the Sunrise field. In fact in the Sydney Morning Herald this last weekend there was an article by Cynthia Banham – it says here "the East Timorese estimate the total government revenue from the Greater Sunrise field to be worth 10 billion dollars and therefore that this deal could be in the vicinity of a 50-50 split [of Sunrise government revenue].

Fran Kelly: So they're putting the price of Greater Sunrise – its worth then – at 10 billion. Do you think its worth more than that? Is that right?

Geoff McKee: It is worth more that that. Quite frankly, I think that [the 10 billion figure] is simply government "spin" – [aimed at] trying to sell the idea of a 50-50 split of Sunrise. My calculations show that the government revenue is more like 40 billion [US dollars] – when you put in more realistic assumptions for the price of crude oil. That's 25 billion dollars in "government take" and another 14 billion dollars in income tax paid by the joint venture partners, totalling about 39 billion – or let's say 40 billion. So if they wanted to do a 50-50 split [of Sunrise revenue], Australia should be paying 20 billion.

Fran Kelly: I suppose there's no fixed limit on this. Alexander Downer is saying that the prediction is this will be worth about 5 billion. He's not saying that this will not be worth 20 billion if that's what the oil price gets worth.

Geoff McKee: Well, we'll have to see the details. But let me say I can share Helder da Costa's caution about this. There is a certain amount of caution and confusion about this particular solution to the political problem in Dili. And that's what we're doing. We're giving money to Dili to help them solve their political problem and in exchange they sign the "International Unitisation Agreement" – and everything is settled! I'd like to say... I've got seven reasons here why I don't think that his deal is going to work.

Fran Kelly: I haven't got time for seven reasons Geoff!

Geoff McKee: (laughing) OK then.

Fran Kelly: But Geoff we'll talk about this more. This story is going to develop obviously over time as you've mentioned. And I'm sure well be speaking about it again. Thanks very much for joining us.

Geoff McKee: OK, you're welcome.

Fran Kelly: That's Geoff McKee, lecturer in Petroleum Engineering at University of New South Wales and a consultant on the Timor Sea since 1990. [ends]

The seven reasons Geoff was going to elaborate on were given to me as follows:

1) pragmatic (won't fix political problem since NGO's in Dili will still be angry at a perceived sell-out of maritime entitlements)

2) unnecessary at this time (indecent haste)

3) "compensation" is inadequate in view of Sunrise evaluation

4) not good for development of democracy in Timor Leste

5) ignores the most important benefit to the people of Timor Leste (Downstream infrastructure fixed direct investment)

6) built on a "lie" (not a "creative solution", in fact quite the oppostite, the most non-creative solution possible)

7) Timor Leste has no reason to extend the time for withholding seabed boundary claims, which already is 30 years under the TST, to 50 or 100 years.