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On 12 January 2006, Australia and Timor Leste signed the Treaty on Certain Maritime Arrangements for the Timor Sea (CMATS) bringing to an end one of the world's most contentious international disputes over offshore gas and oil. This treaty is the last of a set of three interlinked bilateral agreements between the two countries, negotiated over a period of five years, which collectively provide a framework for the development of some of the largest of the Timor Sea's natural gas fields.
The CMATS treaty embodies an elaborate trade-off, in which Timor Leste gets a larger share of the revenues from the massive Greater Sunrise gas fields in return for agreeing to a moratorium on claims to maritime jurisdiction and boundaries for the next fifty years. Australia wanted to avoid opening-up the question of permanent boundary delimitation in order to maintain the framework of jurisdictional lines covering the Timor Sea, that were drawn up with Indonesia during the 1970s and 80s.
Under this arrangement, the 2003 Sunrise Unitisation Agreement remains valid, which means that the hydrocarbons will be unitised on the basis that 20.1 per cent is attributed to the bilateral Joint Petroleum Development Area and 79.9 per cent is attributed to Australia. A 'technical' unitisation of Greater Sunrise on the basis of the fields' geographic distribution across the eastern side of the JPDA is something that, for commercial reasons, the joint venture partners, particularly Woodside and Phillips, had always insisted upon. Australia will transfer a portion of its revenues to Timor Leste to ensure that the overall split is 50/50.
Australia's cut in Sunrise revenues will be painful for some in Canberra, given that 90 per cent of the JPDA had already been conceded to Timor Leste, under the terms of the 2002 Timor Sea Treaty. Yet, over the course of 2004 the government had received a high level of international and domestic criticism for its approach to the issue and must have gauged that the losses associated with accommodating Timor Leste's demands were less than the political consequences of continuing the dispute. If Australia has made a strategic mistake, it has been in allowing itself to be manoeuvred into a position in which it had to face that choice.
Yet, notwithstanding the confrontational and, at times, inflamed nature of the negotiations, the deal that has been reached represents a win-win for all the key political and commercial stakeholders. Both countries stand to derive substantial economic benefits from the practical arrangements that have been agreed. The Northern Territory economy is booming as a result of downstream investment in the Darwin LNG project and Timor Leste has achieved precisely the objective it set when negotiations began in October 2000: namely, a result that was felt to be no less than what the new nation was legally entitled to.
WATCHPOINT: The critical issues of revenue allocation and regulatory control have been resolved, but it remains to be seen how successfully resources will be managed under the implementation of these negotiated arrangements. The high level of intergovernmental cooperation that is required means that the potential for disagreement will remain a feature of bilateral relations for some time.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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