Timor oil agreement under spotlight

East Timor is the world's newest nation, but also one of its poorest

CANBERRA, Australia -- Australia and East Timor have agreed to negotiate a mutually beneficial solution to a disputed maritime boundary affecting access to potentially lucrative oil reserves, East Timorese President Xanana Gusmao said Monday.

"The two governments will do everything to go to a solution with mutual benefit and respecting each other's sovereignty," Gusmao said Monday following talks in Canberra with Australian Prime Minister John Howard.

The president of the world's newest nation was speaking on his first official visit to Australia since East Timor was formally declared independent on May 20.

Gusmao is hoping to gain pledges of continued Australian support for his country -- one of the world's poorest -- as it struggles to find its feet.

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The final location of the disputed boundary could affect East Timor's access to billions of dollars in oil and gas reserves, seen as the new nation's best hope to break out of its economic dependence on international aid.

Following the independence ceremony last month, Gusmao and Howard signed a treaty governing the division of revenues from Timor Sea reserves.

However, the East Timorese government remains unhappy with the location of the boundary and the fact that the majority of the revenue from a new oilfield, Greater Sunrise, will flow to Australia even though the field lies just 150 kilometers (93 miles) from East Timor and 400 kilometers from Australia.

East Timor itself is about 500 kilometers from the Australian mainland, but the maritime boundary follows Australia's continental shelf and comes to within 120 kilometers of East Timor.

Under the terms of the Timor Sea treaty East Timor will get 90 percent of revenue from oil taken from a 30,000 square kilometer "joint development zone" -- bringing in about $7.3 billion to the East Timorese economy over the next two decades.

However, only about 20 percent of the Greater Sunrise field is in the zone, with the rest falling in Australian territorial waters.