Phillips warns of Timor Gap uncertainty

Uncertainty over new Timor Gap treaty threatens East Timor's future

In this story: Urgent political talks Investors ignored RELATED SITES

By CNN's Ian McMinn

SYDNEY, Australia (CNN) -- The US operator for the Bayu/Undan gas field, Phillips Petroleum, warns that a planned 500-kilometer (312 mile) gas pipeline to Darwin is threatened by the uncertainty surrounding the new Timor Gap treaty.

"For nine months we have told the Australian Government, the United Nations and the East Timorese that we must have legal and fiscal certainty by July 31," says Jim Godlove, Phillips Petroleum's Darwin area manager.

"However, we still do not know whether we can proceed."

Godlove says that last September Phillips Petroleum and the prime contractor Multiplex signed a "lump-sum, fixed cost" contract, which expires on July 31.

"Working back from that date," Godlove told CNN," means we have to have everything in place by late May or early June."

He says Phillips, as the gas field operator, needs approvals from both governments and the Timor Gap joint authority, while at the same time securing future sales and marketing contracts.

"Right now we know the cost of extracting the gas and the cost of transporting it, based on the Multiplex contract, which allows us to guarantee price and delivery to customers, but we can not proceed if it is legally and financially uncertain," says Godlove.

Urgent political talks

Last week that uncertainty led to the Northern Territory's Chief Minister, Denis Burke, and the NT's Resources Minister, Darryl Manzie, seeking urgent talks with the Australian Foreign Minister, Alexander Downer, in Canberra.

After those talks Downer's office indicated Australia was now offering East Timor up to 85 percent of petroleum and gas revenues from the Timor Sea.

This is not far short of the 90-10 breakdown East Timor is demanding and a long way from earlier offers of a 60-40 breakdown.

"We wish to make a generous offer that is good for East Timor, accommodates our own interests, and considerations arising out of future investments," an aide to Australia's Foreign Minister, Alexander Downer, told CNN.

Under the 1989 Timor Gap treaty Australia shared revenue with Indonesia on a 50-50 basis.

Investors ignored

"It is not our business to know of those arrangements" Godlove says, "but we believe insufficient attention is being given to the people who are putting their money at risk by investing in the project."

In the short term production revenues from the Timor Sea are tipped to reach $70 million by 2004.

However an expanded Timor Gap treaty could include the Laminaria oil field and the greater Sunrise gas fields, which lie outside the former Zone of Co-operation boundaries.

Apart from the $2 billion Bayu-Undan gas pipeline, analysts say further delays could also retard capital investment planned for the Timor Sea region by companies including Shell, Woodside, Santos and Phillips Petroleum.

"We do not point the finger at any one government - Australia, the UN or the East Timorese negotiators - we point the finger at all three to reach a resolution that allows us to honor the July 31 arrangement," Godlove told CNN.

Godlove says he is unable to say how much the pipeline will cost if the Multiplex deadline is not met.

"How long is a piece of string," says Godlove.

But the NT Resources Minister, Darryl Manzie, is more direct, raising the possibility that Phillips Petroleum might walk away from the project.

"The Australian government offer is very generous and while we look forward to working with the East Timorese they should understand they are running out of friends," Manzie told CNN.

Downer's office says another round of negotiations with the East Timorese is scheduled for May 2.

Northern Territory Oil and Gas
Department of Foreign Affairs and Trade

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