Hands Off My Petroleum!

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Or aid. While the country's annual budget of $80 million ($100 per person) relies heavily on donors, that's slowly changing. In February, operator ConocoPhillips reported a regular flow of "wet gas" from the JPDA's Bayu-Undan field. For the next 20 years, the offshore project is expected to provide East Timor with $100 million a year. "That sounds great," says a former petroleum executive. "But during the second phase, 'dry gas' will be piped to Darwin. Downstream is where the major economic benefits exist, and Australia has secured that." While Dili has engaged technical experts to see whether a pipeline could be laid to catch some of that onshore activity, "the clock is ticking," says the oilman. Of more immediate concern to East Timor, however, is that Australia is issuing new exploration licenses in the disputed area and receiving revenue from the Laminaria/Corallina fields owned by Woodside Petroleum, BHP Billiton and Shell. "Australia is continuing to take oil from the area in dispute at a rate of $1 million a day," says Galbraith. "Because Australia is depleting the resource, the negotiations are a matter of great urgency." Alkatiri says he has written to the companies, warning them that "they are illegally exploiting resources that belong to East Timor." Australia won't stop, says Downer. "We have our legal rights." Besides, he adds, if anyone needs "speeding up," it's East Timor. He's referring to the ratification of another agreement linked to the Timor Sea Treaty that will determine the tax and regulatory arrangements for Woodside's Greater Sunrise development. The so-called International Unitization Agreement was approved by Australia's Parliament in March; Alkatiri has not yet presented it to his legislature. That could be a tactical move or a tacit admission that the IUA has no hope of being passed in Dili. A company spokesman says Woodside expects the parties to sort out their differences: "We require legislative certainty to commence production by 2009." If the agreement is not ratified by the end of the year, Woodside says it would reconsider its options on the project, which could be worth $25 billion.

Participants expected a stalemate after Round 1, but perhaps not so much bad blood. "There was no progress," says Galbraith. "Australia is refusing to negotiate on the main issue - the location of the lateral boundaries." An Australian delegate counters that the Timorese have dressed up an ambit claim as a legal argument. "We will keep negotiating with them," says Downer (the next talks are scheduled for Canberra in September). "There's a significant gap at the moment, and closing that gap will take a long time." A Dili source close to the talks says the public rancor will soon end. Antunes says a negotiated settlement could be achieved, "but only if both parties are willing to adjust their positions and accommodate the key objectives of the other side." Says an Australian diplomat: "It's very early days. You stop negotiating when both sides are equally satisfied and equally dissatisfied with what's on the table." Alkatiri says his country is open to a "creative solution" on the disputed areas but would call on "mutual friends" if the talks did not yield a result. Downer dismissed the need for outside help. "We don't subcontract out our national interest." Australia, he says, would welcome fresh approaches: "We have heard a lot of abuse and criticism, but in terms of constructive solutions, let's see them."