Now that the Timor Sea Treaty has finally
been ratified, both Australia and
Timor Leste (formerly known as East Timor)
are obliged to abide by its terms and
conditions; this includes the "international
unitisation agreement" governing
the development of the Sunrise field.
The treaty will be binding on both parties
for a period of 30 years, unless they
agree on the location of new lateral maritime
boundaries. This is most unlikely, given
Timor Leste's loss of leverage to alter
Australia's firm stance on this issue.
Timor Leste has lost a large swathe of
important benefits under the Treaty's
provisions and current development plans:
notably its size and share of production
in the "joint development area".
It will receive only 40 per cent of its
Exclusive Economic Zone entitlements over
petroleum reserves, and possibly none
of the potential downstream infrastructure
benefits resulting from their development.
Put another way, Australia will receive
60 per cent of Timor Leste's claimed petroleum
resources, and hopes to receive 100 per
cent of the associated downstream infrastructure
How did this come about?
There has been a lot of talk about Timor
Leste being "bullied"
by Australia into this apparently unequal
agreement. However, this conclusion appears
only partly true.
The favourable outcome to Australia of
the negotiations is more a result of Timor
Leste's lack of oil & gas industry
knowledge, experience and policy development
measures, than to Australian "bullying".
This was particularly applicable to downstream
benefits. During the critical negotiating
period in 2000 and early 2001 - leading
up to the agreement of 5 July 2001 - this
weakness led to lost opportunities. Technical
knowledge is power, and a lack of knowledge
is weakness and failure.
In late 2000, the UN Transitional Administration
for East Timor gave away Timor Leste's
strongest "negotiating card"
because the value of this card was not
fully understood and appreciated.
As a lever to shift the Australian side
to a 90/10 per cent split from their offer
of a 75/25 per cent split of production
in the modest "joint development
area" (Zone A), the UNTAET negotiators
offered too generous a "carrot".
UNTAET kept reminding the Australian side
that they would receive all the "downstream
benefits" from the imminent development
of the Bayu-Undan field if they moved
to a 90/10 split. This was a serious tactical
error in judgement, which achieved the
desired result but cost Timor Leste much
more than it gained.
At that time the Bayu-Undan
operator was planning a pipeline to
Darwin and the UNTAET negotiators did
not fully appreciate the feasibility of
alternative development options, such
as BHP Petroleum's earlier offshore compact
Liquid Natural Gas (LNG) technology or
a deepwater pipeline across the Timor
Trough to Timor Leste.
The Bayu-Undan operator's provision of
grossly misleading advice in relation
to the latter option, to serve its own
interest in a quick development, did not
help the situation. It was also not helped
by the UNTAET negotiator's focus on a
grab for maximum revenue. Revenue is easy
to comprehend, but it is more difficult
and challenging to understand how petroleum
infrastructure can be created on the shores
of Timor Leste in order to create real
wealth in the form of energy independence
and jobs. Did UNTAET possess the appropriate
expertise and was it equipped to negotiate
such an important nation-building treaty
on behalf of Timor Leste?
Outspoken independence activist and researcher
Mr. Robert Wesley-Smith, spokesman for
Australians for a Free East Timor recently
summed up the situation:
Geoffrey McKee is a chemical engineer with over 30 years experience in the Australian oil & gas industry. For ten years he was employed as a senior engineering advisor by an oil company with interests in the Timor Sea joint development area, and has visited East Timor on consulting assignments.