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.