Timor Gap oil treaty transition smooth: Downer

Timor Gap oil treaty transition smooth: Downer

CANBERRA (Dow Jones): The sovereign transfer to East Timor of a treaty covering royalties from oil and gas production in the Timor Sea is proceeding smoothly, Alexander Downer, Australia's foreign minister said Monday.

The treaty, signed in 1989 between Australia and Indonesia, is being transferred to East Timor following the former Indonesian province's Aug. 30 vote for independence.

East Timor now is being governed by the United Nations as it moves toward becoming a nation.

Downer said the treaty has worked well in creating a valid legal framework to exploit and share the benefits of oil and gas production in the Timor Gap.

On Nov. 17 the Indonesian government confirmed to Australia's Jakarta ambassador "that the treaty is no longer between Indonesia and Australia," he said.

Downer said he discussed the treaty with UN officials last week.

"The UN is willing to act for East Timor as Australia's treaty partner during the transitional phase," Downer told parliament in answer to a question.

"Thereafter, the treaty will be a matter for an independent East Timor," he said.

The foreign minister said East Timorese leaders have accepted these transitional arrangements, reiterating in talks Dec. 4 they intend to respect the terms of the treaty.

"They may wish to revisit some aspects of the treaty later, but they do recognize the very great importance of maintaining a stable basis for investment," which also is in Australia's interest, Downer said.

Work on transition of the treaty is moving ahead "fairly smoothly," Downer said.

"We look forward to being able to continue with the exploitation of oil and gas in the Timor Gap area," for the benefit of Australia and East Timor, he added.

According to the government agency that manages the treaty on Australia's behalf, until mid-1999, only about A$2.5 million in royalties had been distributed to each nation as a result of oil production in the area.

But this could change in coming years.

On Oct. 26, Phillips Petroleum Co. (P) announced it will proceed with a US$1.4 billion development to extract liquefied petroleum gas and condensate from the Bayu-Undan field, an area covered by the treaty.

It wants offshore production facilities to be operating by late 2003 or early 2004.

A liquefied natural gas plant and a domestic natural gas supply system, both in Australia, also have been proposed, based on resources from the Bayu-Undan field.