Indonesia may keep share of Timor Gap sales

By Johannes Simbolon

NUSA DUA, Bali (JP): Indonesia could retain a share of oil and gas revenue from the area between Timor Island and Australia, known as the Timor Gap, after East Timor's independence, an official said on Tuesday.

"The East Timorese can't instantly take over control of the Timor Gap if it becomes independent. The case is not that simple since the Timor Gap covers an area which Indonesia can also claim," said Sutomo Sudomo, technical director of the Australian Indonesian Joint Authority for the Timor Gap Zone of Cooperation.

"If East Timor becomes an independent country, there will be three countries which can claim control over the area: East Timor, Indonesia and Australia."

He said Timor Gap was located about 350 kilometers off the coast of the Kupang in the western half of the island of Timor, and was about the same distance from the coast of East Timor.

The Australian town of Darwin is about 500 kilometers from the hydrocarbon-rich area, Sutomo added.

"If East Timor becomes independent, the three countries -- Indonesia, East Timor and Australia -- have first to define their respective boundaries before meeting to determine their respective rights over the area," Sutomo said on the sidelines of the Indonesian International Oil and Gas Exhibition and Conference (II)GE).

A majority of East Timorese opted for independence in the ballot organized by the United Nations on Aug. 30.

Under the New York agreement between Indonesia and Portugal and the United Nations, the result of the ballot needs approval from the People's Consultative Assembly before East Timor officially becomes an independent country.

Analysts said East Timor, with mostly barren land in the territory, will be dependent on foreign loans and oil and gas revenues from the Timor Gap for its economic survival in the next five years to 10 years.

The Timor Gap has been touted by some as one of the richest- oil and gas areas in the region, but oil output today reaches about 30,000 barrels per day.

Indonesia and Australia signed the Timor Gap treaty in 1991 to jointly share oil and gas revenue in the area.

Under the agreement, the Timor Gap is divided into three production zones: Zone A, located closer to Timor, Zone B, located closer to Australia, and Zone C, located in the center of the Timor Gap.

Oil and gas companies operate in Timor Gap under the production sharing contract system which obliges them to hand over about 85 percent of their oil revenue to Australia and Indonesia.

Under the Timor Gap treaty, Australia and Indonesia will equally split their shares in the revenue from the Zone C area.

Indonesia is entitled to 90 percent of the shares in the revenue from Zone A with the remaining shares held by Australia, but Australia is entitled to 90 percent of the shares in the revenue from Zone B.

Several East Timor leaders earlier said that an independent East Timor would honor the Timor Gap treaty, with East Timor taking over Indonesia's revenue from the oil and gas resources.

Sutomo said the Timor Gap treaty should be amended to accommodate the interests of three countries.

"The treaty should be amended to accommodate the rights of the three countries -- East Timor, Indonesia and Australia -- over Timor Gap."

Sutomo did not specify the amount of hydrocarbon reserves in the Timor Gap but said exploration activities in the area thus far demonstrated an excellent success ratio of one to three, meaning one of three wells drilled contain oil.

"In comparison, the world's average success ratio is one to 10," he said.

Timor Gap is currently producing about 33,000 bpd from the Elang and Kakatua fields with Phillips Petroleum as the operator. BHP and Philips have discovered a significant amount of natural gas and condensate reserves in the Bayu Undan fields.

BHP and Philips plan to develop a liquified natural gas plant to process the natural gas.

Sutomo said oil production at the Elang and Kakatua fields would survive for another 16 years with output decreasing to between 16,000 bpd and 17,000 bpd.

Revoke

In a related development, Minister of Mines and Energy Kuntoro Mangkusubroto said in Jakarta on Tuesday that the government was ready to nullify the Timor Gap treaty.

"The government will revoke the treaty with Australia on the Timor Gap," Kuntoro said following a meeting with Presdient B.J. Habibie.

"The agreement we have with Australia was between the government of Indonesia and Australia when East Timor was part of Indonesia.

"Now, since the people of East Timor have chosen to have their own independence, the agreement with Australia is no longer valid.

"Now the matter is up to the next government of East Timor."

Phillips Petroleum Co., which operates in the area, said in Sydney on Tuesday it wanted an independent East Timorese government to maintain the terms of a current treaty.

"We would expect Indonesia to continue to honor the terms of the treaty and if East Timor were to become independent, we would expect East Timor to succeed to the treaty. Consequently, in either case, we would expect the treaty to remain in place," Jim Godlove, the Darwin area manager for Phillips Oil Co. Australia, a unit of Bartlesville, Oklahoma-based Phillips Petroleum, was quoted by Dow Jones Newswires as saying.

Phillips currently pumps 33,000 barrels of oil a day from its Elang, Kakatua and Kakatua North oil fields and has rights to exploit other fields in the Australian zone and the zone of cooperation, including the Bayu-Undan gas field, which is due to be in production by 2003.

The Bayu-Undan project is owned 50.3 percent by Phillips Petroleum, while Australia's Santos Ltd. holds 11.8 percent, Inpex Sahul Ltd. 11.7 percent, Kerr-McGee Corp. (KMG) 11.2 percent, Petroz NL holds 8.3 percent, and British-Borneo Oil & Gas PLC (U.BOI) 6.7 percent.