Australia, RI see deal on Timor Gap deal by 1998

Australia, RI see deal on Timor Gap deal by 1998

MELBOURNE (Reuters): Australia and Indonesia set yesterday a target of March 1998 to resolve problems arising from the production of natural gas in the Timor Gap between the two countries.

Australian Minister for Resources and Energy Warwick Parer and Indonesian Minister of Mines and Energy I.B. Sudjana agreed their countries should benefit equally from the development of the oil and gas-rich Timor Gap, according to a statement issued after they met in the northern Australian city of Cairns.

One of the key issues to be tackled is how to calculate royalties from the giant Bayu-Undan gas field, discovered by The Broken Hill Proprietary Co Ltd and Phillips Petroleum, and other gas fields.

"Ministers agreed that the matter needed to be resolved by the end of March 1998 and any resolution should have regard to the views of Production Sharing Contractors and the Joint Authority," the ministers said in the statement.

"Governments would work toward the objective of equal sharing between Contracting States of the benefits of the exploitation of petroleum resources," the statement said.

They added that a final agreement would aim to achieve "optimum commercial utilization of the exploitation of the petroleum resources, including the location and technology of any processing facilities".

Treaty

The Timor Gap treaty between Indonesia and Australia provides for equal royalty rights for both countries within the Zone of Cooperation, where the Bayu-Undan field is located.

But it does not say whether royalties should be based on the value of gas before or after it is processed.

The problem becomes more complicated by the fact that the unfinished gas might be transported across boundaries within the treaty area. Under the treaty, royalty shares are set at different levels depending on the location within the Timor Gap.

Hanging in the balance is a decision yet to be made by BHP and Phillips on where to site a plant to process Bayu-Undan gas.

Phillips favors processing the gas onshore in Darwin, Australia. BHP wants to build a liquefied natural gas (LNG) plant on a reef near the field, about 500 kilometers offshore. Another option is to build an LNG plant on Indonesia's Timor Island.