Australia and East Timor poles apart on oil treaty

Australia and East Timor poles apart on oil treaty

CANBERRA (Dow Jones): Australia and its fledgling northern
neighbor East Timor remain poles apart on the vexing and as yet
unsettled issues of boundaries and royalty shares from energy
production in the Timor Sea.

Australia maintains the seabed boundary with East Timor should
remain where it was set in the previous treaty covering the area
between Australia and Indonesia, which is on the edge of
Australia's continental shelf near to East Timor's south coast.

East Timor wants a boundary at a point midway between the two
nations, which an Australian newspaper report this week suggested
could also have ramifications for Australia's boundary with
Indonesia.

Both Australia and East Timor claim international law supports
their position.

At stake are hundreds of millions of dollars in revenue from
royalties from current and future oil and gas production in the
area.

If the boundary is set at the midway point, nearly all the
royalties will flow to East Timor, reflecting the location of the
resources.

A spokesman for Australia's Foreign Minister, Alexander
Downer, told Dow Jones Newswires Thursday "we're comfortable with
the boundaries as they are. We're not countenancing redrawing
seabed boundaries."

Australia is focused very much on the royalty split between
the two nations rather than the boundary location, he said.

The spokesman was commenting after Downer and Attorney-General
Daryl Williams met late Wednesday to brief Dennis Burke, chief
minister of the Northern Territory, and his Mines Minister Daryl
Manzie on the negotiations with East Timor.

These talks follow two rounds of formal negotiations with East
Timor representatives, many informal talks, and come ahead of
another round of formal talks scheduled May 2-4.

The Northern Territory ministers said this week they were
concerned a stalemate in the talks could stall billions of
dollars of investment in energy production and downstream
processing by potential investors.

Burke and Manzie are keen to see proposed investments in a
methanol plant and liquefied natural gas plant and a domestic gas
reticulation system become reality in Darwin city based on huge
resources of natural gas in the Timor Sea and tied together with
undersea pipelines.

Downer's spokesman said Burke and Manzie were conscious of a
message sent to investors early April by Peter Galbraith, the
cabinet member for political affairs and the Timor Sea in East
Timor's transitional government.

In a hard-hitting speech, Galbraith told an annual meeting of
the Australian Petroleum Production and Exploration Association
that without a treaty based on international law, East Timorese
are prepared to wait patiently for their rights and risk losing
important markets.

"I would like to stand before you and declare the Timor Sea is
open for business," he told the conference.
"Unfortunately, at the moment, I am unable to do this. I can't
say when it will be open for business."

Downer's spokesman said Australia is "prepared to be very
generous in terms of the royalty flow" from energy production in
the Timor Sea.

Media reports earlier this year suggested Australia offered a
60/40 split in East Timor's favor, but more recent reports say
the offer now is 80/20. Australia won't disclose the exact split
it has offered.

East Timor last year called for a 90/10 split in its favor,
but suggested at talks in early April the split should be 100/0,
a source said.

However, another source familiar with East Timor's leadership
said they are "contemptuous" of Australia describing its offer as
generous.

The East Timorese want the issue settled on the basis of
international law, rather than Australia's generosity, the source
said.

Sharing the benefits of energy production in the 75,000-
square-kilometer area was covered by the 1989 Timor Gap Treaty
between Australia and Indonesia.

But this lapsed when Indonesia formally withdrew after East
Timor's August 1999 vote for independence from Indonesia.

Its terms were continued under a temporary memorandum of
understanding between Australia and the U.N. Transitional
Administration in East Timor and East Timorese representatives
which oversee East Timor's transition to full independence, which
will occur possibly later this year or early next year. This
temporary MOU will lapse on independence.

Meanwhile, John Akehurst, managing director of Woodside
Petroleum Ltd. (A.WPL), which has substantial oil and gas
interests in the Timor Sea, said he doesn't expect development of
these to be held up by calls for a new deal between East Timor
and Australia over royalty shares.

"There is a huge amount of enthusiasm, both from the East
Timorese and from the Australian side, for these things (gas
projects) to go ahead," Akehurst told reporters.

"So our assumption is that, with the enormous prize that there
is, we'll see a resolution of those (treaty) matters," he said.

Akehurst said the petroleum industry is "very keen" to ensure
that revenues from proposed Timor Sea gas projects flow to East
Timor in "the appropriate way, which is decided between
governments."