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Australia and East Timor have (on 12 November 2003) commenced negotiations on the delimitation of their maritime boundary in the Timor Sea. The diplomatic talks follow the completion of extensive negotiations between the two parties on a regime to replace the 1989 Australian-Indonesian Timor Gap Treaty. Under the current set of production arrangements, Australia and East Timor share revenues from a joint petroleum development area (JPDA) according to the ratio 90:10 in East Timorís favour. A number of oil and gas fields have been discovered in the JPDA and the largest of these, Bayu-Undan, is expected to begin production next year. East Timorís share of revenues from this field alone is expected to be between US$2 and $3 billion over the lifetime of the resource.
Yet, it is sovereignty over the resources lying outside of the JPDA that has now become a major source of dispute. In March, earlier this year, the two governments also concluded an international unitisation agreement (IUA) for the largest group of gas fields in the region, known as Greater Sunrise. These fields are almost three times larger than Bayu-Undan but as they straddle the western boundary of the JPDA, unitisation is required so that the reserves can be exploited under a single jurisdictional framework. Even though East Timor claims sovereignty over the whole of the resource, the IUA gives the country access only to revenues from the twenty per cent that lies within the JPDA. The remaining eighty per cent goes entirely to Australia.
Transcripts of the negotiations that were leaked to the press earlier in the year suggest that the Australian government was able to extract this concession by linking the IUA to the early ratification of the Timor Sea Treaty: thus effectively threatening to hold up the Bayu-Undan project unless East Timor agreed to the unequal revenue sharing terms for Greater Sunrise. It would seem now, however, that the Australian government is caught in a strategic dilemma. The Timor Sea Treaty has entered into force but the IUA has not yet been ratified by East Timorís parliament. Therefore, if Australia impedes progress on boundary delimitation, the Timorese parliament may be reluctant to ratify the IUA.
East Timor is also contesting sovereignty over the Laminaria and Corralina oil fields that lie just outside the eastern boundary of the JPDA. Since commercial production of these fields began in 1999, they have provided the Australian government with more than US$1 billion worth of revenues. The hope in Dili is for a permanent boundary to be settled before these resources are completely depleted. An international coalition of non-governmental organizations have recently written to Australiaís Prime Minister John Howard pressing him to agree to a firm timetable for the negotiations with East Timor and to set a three year deadline for a boundary agreement to be reached. The Australian government has responded to the proposal dismissively, advising that the delimitation process could take thirty years. The two sides are scheduled to resume discussions in April 2004.
WATCHPOINT: A number of other stakeholders are keen to see a swift resolution of the dispute. These include Woodside Energy, which is the unit operator of Greater Sunrise and Laminaria/Corralina, as well as the Northern Territory Government. How will these actors try to influence the negotiations between Australia and East Timor?
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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