Crude Sunrise

East Timor's Natural Resources

East Timor announces a new bid round for onshore oil and gas fields and an extension of offshore exploration until 2019 as its first comprehensive oil and gas legislation nears completion.

The island nation of East Timor, which gained independence from Indonesia in 2002, remains today one of the world’s most impoverished nations.

In spite of vast natural resources in the form of oil and gas reservoirs both inland and in its territorial waters, the country struggles.

President Francisco Guterres Lu-Olo and many other officials have again and again warned against an over-dependency on oil for economic sustainability, but the small Oceanian nation is, at least for now, pushing hard to boost that same industry.

The new bid round will focus mostly on onshore fields to the south of the country. This will be East Timor’s second ever bid round, after two contracts were awarded in 2017 for the exploration of 2,000sqm of land to TIMOR GAP Onshore Block, a subsidiary of the national oil company Timor GAP, and to Timor Resources Pty Ltd, part of the Australian Nepean Group.

This summer, Timor Resources announced it awarded a 2D seismic survey contract to BGP Indonesia as part of a USD42 million commitment to the project.

Expanding oil revenue is a paramount goal for the East Timorese government. Currently, the Bayu-Undan field is sustaining most of the national budget, and its reserves are dwindling. It is estimated that the field’s oil output will decline considerably within a decade.

There was, however, an important victory in this area for East Timor earlier in the year. After years of renegotiation, the treaty that established maritime rights over the resources present in the Timor Gap between Australia and East Timor was reviewed and signed in March 2018, to the benefit of East Timor.

This is particularly significant for the Greater Sunrise oil and gas complex, estimated to hold up to EUR32 billion in reserves.

The Sunrise field complex is still not producing, namely due to delays in establishing the division of its resources. Until now, reserves from the Sunrise field were to be divided 50:50 with Australia, but the new treaty will see between 70% and 80% given over to East Timor.

The decision about the exact percentage is dependent on a natural gas pipeline being built to either Darwin in Australia (DLNG) or to East Timor (TLNG).

If the pipeline is built to Darwin, East Timor will receive 80% of the output, and if it goes to East Timor it will receive 70%.

The latter outcome could give rise to new industry focused on gas-processing, power generation, and petrochemicals, hence the trade-off.

Earlier in October, the East Timorese government concluded an agreement to purchase the 30% stake ConocoPhillips held in the Sunrise and Troubadour gas and condensate fields, which represent the Greater Sunrise complex, for USD350 million, further increasing potential financial benefits from the exploration of the field’s gas resources.

The treaty with Australia is relevant both economically and politically, and is closely related to the country’s bloody recent history.

A former colony of Portugal, the half-island that comprises the nation of East Timor gained independence after the fall of the Portuguese dictatorship in 1974 and the collapse of its overseas domain.

Fearing that the small country’s independence would inspire other separatist regions to claim autonomy, Indonesia quickly invaded the country, finding nearly no resistance.

Over the following 25 years, the population of East Timor suffered greatly under an oppressive Indonesian regime.

Over the years, the international community decried the Indonesian invasion to little avail, with the exception of Australia. Aiming for an agreement with the Indonesian leadership that would divide the oil-rich Timor Gap Sea to Australia’s benefit, it was the first, and one of the only, nations to recognize East Timor as a part of Indonesia.

Through an unexpected Indonesia-approved referendum in 1999, East Timor declared itself independent, only to be again overrun by Indonesian military forces.

Three years of international negotiations granted the small region its sovereignty over its future and its oil reserves. However, these oil reserves had already been divided with Australia by the Indonesian leadership under less than ideal conditions for the fledgling state. While East Timor accepted a revision of the previous agreement in 2002, the country’s leadership had always seen it as a damaging deal and in 2016 formally contested the treaty with the permanent court of arbitration in the Hague, which has culminated in the revision of the agreement in much more favorable terms for East Timor.

What the government will do with these resources remains to be seen.