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Timor Sea gas project could be lost

The stand-off between East Timor and Australia on revenue...

The stand-off between East Timor and Australia on revenue rights to Timor Sea oil and gas fields has "quite extreme" consequences for the region's flagship project, the $10 billion Phillips Petroleum-managed Bayu-Undan development.

The Oklahoma-based Phillips yesterday warned that the opportunity to develop Bayu-Undan's huge gas reserves could be lost if a stable legal and fiscal framework for the project was not in place well before mid-year.

Serious doubts were cast over the project's gas development schedule on Monday when Ambassador Peter Galbraith, East Timor's cabinet member for political affairs, dropped the bombshell that all aspects of the "illegal" Timor Gap treaty were up for renegotiation.

The treaty was put in place after Indonesia's invasion of East Timor in 1975, and set out the legal and fiscal regime covering what is forecast to be a $20 billion investment boom in Timor Sea oil and gas riches over the next 20 years, generating annual government revenue of more than $500 million.

Australia has offered to move from a 50:50 revenue split to an 85:15 per cent split in favor of East Timor in an effort to secure a new deal. But negotiations on the new deal have stalled, even though Ambassador Galbraith has set a July 15 deadline for their conclusion so as to coincide with East Timor's transition by the end of the year to nation status.

But that deadline is not good enough for Phillips. Its executive in charge of Bayu-Undan, Jim Godlove, said yesterday that "July 15 is a very important date for the East Timorese and we respect that".

"But we need some decisions in advance of that date," Mr Godlove said after attending the Australian Petroleum Production and Exploration conference yesterday. He said Phillips and its customer base for gas were disappointed by the East Timor attitude.

After sitting in on Ambassador Galbraith's presentation to the APPEA conference on Monday, Mr Godlove was seen hurrying from the auditorium. Yesterday the urgency was related to his need to report back on the ambassador's comments to Phillips in the US.

"I would reserve comment on their reaction," Mr Godlove said, indicating a growing frustration within the oil major with both the East Timorese and Australian governments.