Timor Gap Treaty seen 'intact on Timor vote'

Timor Gap Treaty seen 'intact on Timor vote'

DARWIN, Australia (Dow Jones): The outcome of East Timor's
autonomy vote in August likely will have little impact on the
Timor Gap Treaty between Australia and Indonesia, an Australian
official said Monday.

The treaty covers the sharing of royalties between the two
nations in an area between them in the energy-rich, but mostly
undeveloped Timor Sea covered by the Zone of Cooperation
Agreement.

Robert Mollah, Australian executive director of the Australia-
Indonesia joint authority for the zone, said there is
considerable speculation about the involvement of East Timor in
future activities relating to the zone.

This will depend on the results of the scheduled vote on the
autonomy of the Indonesian province, he said.

"Autonomy will probably mean relatively little change in the
operation of the treaty with any redirection of income solely a
matter for the Indonesian side," he said.

Mollah was speaking at the South East Asia Australia Offshore
Conference organized by IIR Conferences.

However, he said any successful push for independence by East
Timor will make the situation more unpredictable.

"Hopefully, all sides will recognize the success of the treaty
to date and would wish to see the cooperation continued," he
said.

The zone is divided into three areas and creates rules
allowing for the exploration and development of petroleum
resources.

Area B is at the southern end of the zone and is administered
by Australia, with Indonesia entitled to part of the tax
collected from oil production. Area C, at the northern end of the
zone, is administered by Indonesia and Australia is entitled to a
share of taxes collected from oil production in that zone.

Area A is jointly administered with a sharing of taxes
collected.

An agreement over taxes from natural gas production from the
zone hasn't yet been finalized.

Mollah told the conference a feature of the past year has been
widespread recognition that the zone and the Timor Sea is a major
gas/condensate province.

The major company operating in the zone is Phillips Petroleum
Co. of the U.S., through its as yet undeveloped Bayu-Undan
gas/condensate project and other activities. Other stakeholders
in the zone include Royal Dutch/Shell Group and Australia's
Woodside Petroleum Ltd.

These and other companies, 27 in all, have spent A$485 million
on exploration and A$196 million on development in the zone,
Mollah said.

Oil production from area A began in 1998 from the
Elang/Kakatua field. Ten million barrels of volatile light crude
were extracted, resulting in about A$2.5 million being
distributed to each of the contracting states, he said. This
field will be exhausted within a few years.

Further developments are proposed, with most attention focused
on Bayu-Undan, he said.

Mollah believes significant funds should accrue to Indonesia
and Australia following recoupment of contractor's investments in
any future development.

"The amounts and timing will be dependent on further
development investments, the production rates and the oil and gas
pricing," he said.

Meanwhile, Barry Jones, executive director of the Australian
Petroleum Production and Exploration Association, a national
lobby group, said the Australian industry will work
constructively with whatever eventuates from the East Timor
autonomy vote or push for independence from Indonesia.

Jones called for protection of existing rights in the zone and
transparent investment rules for awarding new rights.