East Timor and Australia Make Overlapping Claims in Timor Sea

Newly independent East Timor is claiming a maritime boundary with Australia extending 200 nautical miles from its coast, which would eventually give it a greater percentage of the gas reserves in the Timor Sea. In a provisional vote this week, the new nation's parliament overwhelmingly approved the maritime boundary legislation, which is expected to be officially approved at a vote next week. The legislation means that East Timor and Australia are now both claiming an overlapping maritime boundary, setting the scene for tough negotiations and haggling that will likely take years.

If upheld, East Timor's boundary claim would take in all of the major Sunrise gas field in the Timor Sea, of which about 80% is in Australian waters. That means Australia stands to lose billions of dollars in potential revenue from royalties from the proposed Sunrise development. However, a development at Sunrise isn't expected to be completed until 2007 at the earliest, so both sides have time to come to an agreement.

The other major oil and gas development in the Timor Sea is the Bayu-Undan project, in which, under a to-be-ratified treaty, East Timor is entitled to 90% of the royalties. East Timor 's boundary claim would give it 100%. "We are not asking for less or more than the international law allow us to claim," East Timor President Xanana Gusmao told Australian Broadcasting Corp. radio while on a trade visit to Australia 's Northern Territory.

While both sides believe they can come to a negotiated settlement, East Timor's negotiating hand is weaker than it may have been. In March, Australia withdrew itself from the maritime jurisdiction of the International Court of Justice. That means East Timor won't be able to appeal to the court if it can't make a deal with Australia. The dispute over the maritime boundary isn't expected to destabilize the fiscal regimes for the oil and gas companies operating in the Timor Sea. Those terms are set by the Timor Sea Treaty between Australia and East Timor that is due to be ratified in either September or October.