Sunrise LNG treaty lapses in seven weeks

The treaty between Australia and Timor Leste governing development of the Sunrise field for LNG lapses in seven weeks, on 23 February 2013. Sunrise straddles the border of the Joint Petroleum Development Area (JPDA) and an area of sole Australian jurisdiction. In the Timor Sea Treaty (2003) between Australia and Timor Leste, the resources of the Sunrise field are attributed 20.1% to the JPDA and 79.9% to Australia. The Greater Sunrise International Unitisation Agreement (IUA), signed by Australia and Timor Leste on 6 March 2003, unifies the field under the two jurisdictions for production and apportionment purposes.

On 12 January 2006, Australia and Timor Leste signed the Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS Treaty). The CMATS Treaty includes setting aside of the Timor Sea maritime boundary claims for 50 years, entry into force of the Greater Sunrise IUA and lifting Timor Leste’s share of Greater Sunrise upstream tax revenues to 50%. The CMATS Treaty and IUA each passed into force on 23 February 2007. The Sunrise IUA provides that a development plan shall be approved where the project is commercially viable, subject to competence, good oilfield practice and similar conditions.

The CMATS Treaty provides that if a development plan has not been approved within six years after the treaty came into effect (23 February 2013), either party may terminate the treaty. However if petroleum production commences after termination, the terms of the treaty come back into force, including the 50/50 revenue split between Australia and Timor Leste.

Timor Leste has threatened to terminate the Treaty to try to achieve its aim of onshore processing. Martin Ferguson is reported to have said that Australia expects a development decision within the next year and expects Timor Leste to honour the Treaty.

Sunrise development is clearly a controversial issue in Timor Leste, with the political parties in the 2012 election reported to have been blaming each other for not achieving an onshore solution.

In an interview published in April (Brisbane Times 28 April 2012), outgoing President Ramos-Horta said it had been a mistake for the Gusmão government to make piping the gas from the Greater Sunrise field to Timor-Leste ”a matter of national pride”. ”The issue should not have been politicised … it should have been considered on the basis of technical and economic assessments,” he said. Ramos-Horta said he was ”frankly perplexed” that for 12 months the government refused to talk with Woodside. The government even organised demonstrations against Woodside executives in Dili. ”We must be the only country in the world that has organised demonstrations against international investors.”

Relations with investors were damaged further by claims through the Australian media in October 2012 that Timor Leste is seeking up to $3 billion from Bayu-Undan partners in disputed tax payments. ConocoPhillips says it has paid all tax assessments, including assessments that they believe exceed their legal obligations. The Sunrise issue is also tied up with the bigger issue of maritime boundaries between the two countries.

If Timor Leste terminates the Treaty, the risks for investors will increase further, making it even less likely that development will go ahead, particularly as the number of competing LNG projects grows.