EVOLUTION OF TIMOR SEA TREATY AND IMPACTS ON CONTRACTORS

Abstract

Since the de-annexation of East Timor from Indonesia, the status of the production sharing contracts issued under the Timor Gap Treaty between Australia and Indonesia has been uncertain. The Zone of Co-operation has been administered pursuant to interim arrangements agreed between Australia and UNTAET, the United Nations authority responsible for the administration of East Timor. With the exception of the development activities being carried on in connection with the Bayu-Undan Field, work by the contractors under their PSC’s has basically halted. The contractors have in effect been in a state of force majeure.

On 20 May 2002, Australia and East Timor signed a Treaty for the further development of the region, now known as the joint petroleum development Area. A number of significant changes have been made. At the time of preparing this abstract the Treaty has not been ratified and the exact form of the production sharing contracts to be offered to the existing contractors is not known. The arrangements under the Timor Sea Treaty are interim only and can be changed upon permanent delimitation of the seabed boundaries. Australia and East Timor have indicated that they intend to proceed to negotiate those boundaries.

This paper will analyse the history of the negotiations and their outcome, the international unitisation agreement, the positions of the existing holders of production sharing contracts and how their rights are to be transitioned through to the new regime. The paper will report on the new issues and risks that arise for contractors who have existing titles and those who are seeking to invest in the JPDA and on any changes to commercial terms.