Australia and East Timor Sign Treaty

East Timor and Australia have inked a landmark treaty that will allow both countries to tap lucrative offshore petroleum reserves that could be worth billions of dollars. Australian Prime Minister John Howard, in East Timor for the tiny territory's formal independence declaration overnight, signed the treaty with East Timor's new national leadership. "The significance of this treaty and memorandum of understanding is the first symbolic and practical demonstration of the relationship between Australia and East Timor," Howard said after the signing ceremony.

The two sides have agreed to divide royalties 90:10 in East Timor's favor from gas and oil reserves in the Timor Sea, although the treaty will need to be ratified.

Officials had previously said some issues needed to be worked out before this could happen. These included possible changes to the two countries' boundaries. "We have reached this agreement after numerous rounds of negotiations and a few differences from time to time. We have been getting to know each other very well and so I'm confident any differences in the future can be resolved," East Timor's newly sworn-in Prime Minister Mari Alkatiri said.

The treaty area, known as the Timor Gap, covers 62,000 sq km (23,900 sq miles) of a resource-rich sea-bed between the two countries. It nullifies a previous agreement that had split the revenues equally between Australia and Indonesia. The two sides began negotiating a new treaty in 1999 after East Timor voted to break off from Indonesia, and pressure had mounted on both sides to agree the new document by independence on May 20. The Timor Gap includes the Bayu-Undan and Greater Sunrise developments. The full development of Bayu-Undan is expected to provide approximately $3.3 billion in tax revenue for East Timor while Greater Sunrise would provide substantially less. Bayu-Undan is operated by Phillips Petroleum with partners Santos Ltd, Kerr McGee Corp and Agip. Development of Sunrise is handled by Woodside Petroleum with partners Shell, Phillips and also Osaka Gas Co.