Canberra takes $8bn bath on East Timor maritime border treaty

Australia is expected surrender $8bn in oil and gas revenue from the Timor Sea in a historic treaty with East Timor today.

Julie Bishop will argue the compromise with Dili is in Canberra’s strategic and economic interest. Picture: Kym Smith

Australia is expected surrender around $8 billion in oil and gas revenue from the Timor Sea over the next 35 years in a historic treaty to be signed with East Timor today in New York.

The move will help to guarantee East Timor’s economic future and ends a long-running dispute between the two countries over entitlements to the lucrative Greater Sunrise Oil and Gas field.

It represents a concession by Australia which for years argued its case for substantial rights to oil and gas reserves closer to East Timor than Australia — a position Dili believed was unfair and a threat to its economic viability.

Foreign Minister Julie Bishop will sign the treaty at UN headquarters at 9am (AEDT) which will draw a permanent maritime boundary between the two countries for the first time.

The treaty will draw the boundary close to the median line between the two countries rather than based on the edge of East Timor’s continental shelf. It is expected to scrap the agreement to share oil and gas resources 50-50, to one that gives East Timor at least a 70 per cent share.

At current prices this would mean East Timor’s share of the roughly $40bn in expected oil and gas revenue from the Timor Sea over the next 35 years, would rise from $20bn to $28bn while Australia’s share would fall to about $12bn. Negotiations are still under way on whether those resources should be developed at existing facilities in Darwin or a greenfields site in East Timor.

The Timorese prefer to develop their own site but studies have shown this may not be economically viable. If the Timor Sea resources are developed in Darwin, the share of resources is likely to be tilted further in East Timor’s favour — an 80-20 per cent split — to compensate.

East Timor depends on oil and gas for about 85 per cent of its revenue but with existing fields quickly running dry, the resources in Greater Sunrise are critical to the country’s economic future.

The dispute had led the owners of Greater Sunrise — Woodside Petroleum, Royal Dutch Shell, ConocoPhillips and Osaka Gas — to shelve the project.

Ms Bishop will argue Australia’s decision to accept a compromise will help to secure East Timor’s future which is also in Canberra’s strategic and economic interest. The shift in Australia’s position was partly forced by East Timor, which in 2016 took the dispute to the Permanent Court of Arbitration in The Hague that ordered talks between the parties.

When East Timor gained independence in 2002 the Timor Sea Treaty was signed but no permanent maritime border was negotiated. In 2006 a treaty was signed, without setting a permanent border, with revenue from the Greater Sunrise oil and gas field split evenly between the countries.

Since then charges in international law have given greater weight to maritime borders being determined by median lines between countries rather than by continental shelves.

The treaty will force Indonesia to develop its own maritime boundaries with East Timor. But Jakarta is believed to have been keeping abreast of the developments and is unlikely to protest the new maritime border.

Cameron Stewart is also US contributor for Sky News Australia