Woodside and the Greater Sunrise gas field

16 June 2010

The Dean, Professor Gillian Triggs comments on Woodside's proposal to build a $20 billion floating LNG platform to develop the Greater Sunrise gas field in the Timor Sea in Oil & Gas Australia.

Friction between the Government of Timor Leste and Woodside has intensified after the oil and gas company ruled out building a liquefaction plant onshore, citing high costs and technical risks of building a pipeline across a deep ocean trench.

"It was quite clear during the original 2002 Timor Sea Treaty between Australia and Timor Leste that one of the biggest issues for the future was going to be whether a pipeline was going to go to one State or the other," said Professor Triggs.

Professor Triggs said article eight (e) of the treaty stressed neither State may impede the use of floating facilities in the JPDA where such proposal "shall" produce higher revenues to both Australia "and" Timor Leste.

Professor Triggs said the wording implied a level of certainty was required on this issue but Woodside was in a strong position legally.

"You'd have to have a lot of financial modelling to prove your case but I would think that Woodside would have a fairly sophisticated case to demonstrate that there'll be a better outcome for both Australia and East Timor," she said.

According to the article in Oil & Gas Australia, Timor Leste had threatened to invite Petronas to undertake the development if Woodside continued with its plan for a floating offshore LNG facility.

However, industry sources said such a scenario, which could open a rift between Shell and the State-owned Malaysian energy company, was highly unlikely.

A resolution of the differences appeared necessary and analysts agreed both sides would rely on the same clause of the Timor Sea Treaty to support their argument.

"I think the legal analysis is going to be around the very matter that they had of course anticipated in article eight of the treaty itself," Professor Triggs said.

"What possibly becomes vital is going to be how the dispute process manages itself."

While Woodside could adopt an interpretation of article eight (e) that seemed quite rational, what would really matter was what Australia and East Timor said in response.

Timor Leste dominated the Joint Commission which would normally consider interpretations of such matters through the Designated Authority.

The powers granted to the Designated Authority under the 2002 Timor Sea Treaty had passed to Timor Leste's National Petroleum Authority (NPA) in 2008.

As a private investor Woodside was not a party to the treaty, which was between Australia and Timor Leste.

Professor Triggs said Woodside occupied "another layer down" from the decision making process and its rights were dependent on the contracts it had with the NPA.

Making full use of this advantage, the Government of Timor Leste could hold the process up for some time.

"The whole next line of questions is what are Woodside's obligations under its contracts with the Designated Authority and what capacity does it have to bring legal action against the Designated Authority," she said

The NPA has already accused Woodside of failing to comply with its legal obligations before announcing plans to build a floating liquefied natural gas platform above the Greater Sunrise field in the Timor Sea.

It said Woodside had failed to give regulators detailed reports and its findings on all three possible development plans for the Greater Sunrise field before announcing its preference for a floating platform.

Any one of the commissioners could refer a matter to the Ministerial Council, which comprised the relevant ministerial representatives from Australia, Timor Leste and another nation with which both countries had diplomatic relations, for resolution.

However, Professor Triggs said the Ministerial Council was political in nature, rather than the work-a-day kind of appointments the Joint Commission and the NPA had.

"It would only be if one of the States agreed with Woodside that the matter could go forward." Professor Triggs said.

Australia's Resources and Energy Minister, Martin Ferguson, seemed to back Woodside recently when he said the Australian government had consistently maintained that the location of LNG processing was a commercial decision for the Sunrise joint venture.

"The Australian Government is committed to the Timor Sea Treaty, the International Unitisation Agreement, and the Treaty on Certain Maritime Arrangements in the Timor Sea," Mr Ferguson said.

But Timor Leste said it was confident its position was not in breach of any agreements.

Even should the Australian Government back Woodside, the dispute could be forced into a dispute resolution process which, while based initially on negotiation and/or consultation, could be definitively determined if no agreement was reached.

"What is really interesting about this treaty, given that it's had a long history, is that this is the first time it's ever been possible to resolve a dispute by arbitration," Professor Triggs said.

Extracts reproduced with kind permission.

Contact: Greg Sherington

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