Canberra, Jakarta try to solve Timor Gap rift

Canberra, Jakarta try to solve Timor Gap rift

PERTH (Reuters): Australia and Indonesia are set to seek a
resolution to differences stemming from upcoming gas production
in the Timor Gap seabed when resource ministers from the two
countries meet next week.

Australian Prime Minister John Howard said in Jakarta on
Wednesday he hoped any differences between the two countries
would be resolved equitably.

A key issue still to be resolved is how royalties from the
giant Bayu-Undan gas field, discovered by The Broken Hill
Proprietary Co Ltd and Phillips Petroleum Co in the Zone of
Cooperation (ZOCA) with Indonesia, will be administered.

The treaty provides for equal royalty rights for both
countries within ZOCA but is silent on Indonesian royalty rights
for raw gas transported from the zone and processed into higher-
value liquefied natural gas.

Sources said BHP managing director John Prescott briefed
Howard on the issue before his meeting with Indonesian President
Soeharto.

The meeting is scheduled to take place in the Australian city
of Cairns between Australian Resources and Energy Minister
Warwick Parer and his Indonesian counterpart Ida Bagus Sudjana to
review the treaty.

"They have an annual meeting. They review operations and
discuss any problems that might come up," a Parer spokesman said.

Less likely to be resolved at the meeting are differences
between BHP and Phillips over the location of a proposed LNG
plant to service the region.

"That's a commercial decision," the spokesman said.

Phillips favors running a pipeline from the field to Darwin
where the gas processing will be processed onshore. BHP wants to
build the plant on a nearby reef about 500 kilometers offshore
using its patented gravity-based anchoring technology.

Two other options are building an LNG plant on Indonesia's
Timor island or processing the gas into methanol in Darwin.

Bayu-Undan, which is estimated to contain proven and probable
gas reserves of 3.1 trillion cubic feet of gas and about 400
million barrels of hydrocarbon liquids, will require A$1 billion
on facilities expenditure for initial output in 1998.

The BHP/Phillips consortium plans a plant with capacity of up
to three million tons per year and a production start of around
2003.

Australia and Indonesia signed the ZOCA agreement in 1989 to
divide the seabed between northern Australia and Timor island
into two separate and one jointly-managed exploration zones.