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Australian Year Book of International Law |
Dean Bialek[∗]
The development of solutions for the sharing of natural resources in the Timor Sea reflects a complex history of colonial presence, political disturbances, the struggle in East Timor for self-determination and finally in 2002, sovereign independence. Since the discovery of significant offshore resources in the early 1970s, agreement on the division of resources and jurisdiction in the Timor Sea has proved a difficult challenge. Unique geomorphological characteristics of the seabed and developments in international law of the sea have conspired to create difficult questions of maritime sovereignty as between Australia and Indonesia, and now, between Australia and East Timor.
On 20 May 2002, the newly independent East Timor and Australia signed the Timor Sea Treaty,[1] providing a legal and administrative framework for the joint development of petroleum resources in an area referred to as the Joint Petroleum Development Area (JPDA). The new agreement came into effect on 2 April 2003, superseding an Exchange of Notes,[2] also of 20 May 2002, which continued for the interim the terms of the 1989 Timor Gap Treaty, with Australia and East Timor as the implementing parties.[3] The Timor Sea Treaty splits petroleum revenues from within the JPDA under a 90:10 ratio in favour of East Timor, and is stated to be ‘without prejudice’ to the Parties’ respective maritime claims. In this sense, the Treaty represents a ‘provisional arrangement of a practical nature’ pending a final delimitation as required by article 83(3) of the United Nations Convention on the Law of the Sea (UNCLOS), or in other words, an ‘agreement to disagree’ on the Parties’ respective and overlapping shelf claims.
Article 9 of the Timor Sea Treaty provides that any reservoir of petroleum that straddles a boundary of the JPDA is to be treated as a single entity for management and development purposes. It contemplates that Australia and East Timor will reach a separate agreement on the sharing of such a deposit and the manner in which the deposit will be exploited. The richest known petroleum deposits in the Timor Sea – the Greater Sunrise gas reservoirs – straddle the eastern lateral boundary of the JPDA, necessitating the conclusion of a unitisation agreement to underpin its commercialisation.
As the presence and location of Greater Sunrise was known to the Parties during negotiation of the Timor Sea Treaty, Annex E established that the reservoirs would be unitised on the basis that 20.1 per cent lies within the JPDA and that the balance of the deposit, being 79.9 per cent, lies to the east of the JPDA.[4] Production attributed to the JPDA is of course to be shared on the usual 90:10 basis, leaving East Timor with approximately 18 per cent of Greater Sunrise production.
Despite the apparent willingness of the Parties to regulate jointly petroleum activities in the Timor Sea, the signing of the Timor Sea Treaty in May 2002 left significant legal and policy issues to be resolved. In particular, members of the East Timorese leadership continue to assert that East Timor is entitled under international law to more of the Greater Sunrise fields than the area indicated by Annex E to the Timor Sea Treaty.[5] Central to these claims is their argument that East Timor should not be constrained in its maritime claims by coordinates agreed between Australia and Indonesia in the Timor Sea many years prior to East Timor’s emergence as an independent state. The possibility of testing these claims independently in an international court or tribunal was effectively removed by Australia’s decision in March 2002 to exclude from the ambit of her consent to the compulsory jurisdictions of the International Court of Justice (ICJ) and the International Tribunal for the Law of the Sea all disputes relating to maritime delimitation and the exploitation of any disputed maritime area.[6] Consistent with Australia’s stated preference for negotiation over litigation,[7] the East Timorese leadership continues to demand formal negotiations with Australia towards the establishment of permanent maritime boundaries.[8]
Under a Memorandum of Understanding (MOU) signed by Australia and East Timor simultaneously with the Timor Sea Treaty, it was agreed that the two governments would ‘work expeditiously and in good faith’ to conclude an International Unitisation Agreement (IUA) for Greater Sunrise by 31 December 2002.[9] Throughout 2002, protracted and difficult negotiations on the unitisation of Greater Sunrise continued in parallel with preparations for the entry into force of the Timor Sea Treaty, raising concerns that a diplomatic impasse might jeopardise development plans for the Timor Sea. Under clause 2 of the MOU, the conclusion of an IUA was to be ‘without prejudice’ to the early entry into force of the Treaty, however, media reports suggested that Australia had delayed parliamentary debate of the Timor Sea Treaty to provide time for the resolution of differences over Greater Sunrise.[10] Companies preparing to exploit the Bayu-Undan gas fields (within the JPDA) claimed that further delays in the ratification process would jeopardise the project.[11] Industry fears were allayed, and diplomatic tensions eased, when representatives of Australia and East Timor signed the Greater Sunrise IUA on 6 March 2003.[12] The Timor Sea Treaty entered into force with an exchange of notes between East Timor and Australia one month later, and will continue to regulate hydrocarbon activities in the Timor Sea for the next 30 years, or alternatively, until there is a permanent delimitation of the Timor Sea continental shelf, whichever is sooner.[13]
The joint development regime established under the Timor Sea Treaty is a progressive development of the terms agreed 12 years earlier by Australia and Indonesia in the 1989 Timor Gap Treaty. The new Treaty applies only in the area of the Timor Sea that was described by the coordinates for Area A of the Zone of Cooperation (ZOCA) under the previous Timor Gap Treaty. Areas B and C are no longer subject to joint development.
The most striking feature of the new Timor Sea Treaty is the 90:10 split of petroleum produced in the JPDA in favour of East Timor. This division of production applies, and is taken to have applied, on and from the Treaty’s date of signature, 20 May 2002.[15] Despite the ratio’s apparent lopsidedness, the Parties’ juridical positions as to their respective maritime claims are preserved by the inclusion of a ‘without prejudice’ clause to the effect that:
Nothing contained in this Treaty and no acts taking place while this Treaty is in force shall be interpreted as prejudicing or affecting Australia’s or East Timor’s position on or rights relating to a seabed delimitation or their respective seabed entitlements.[16]
Were it not for this saving provision, an implication to be drawn from the Timor Sea Treaty could be that Australia’s claim to the full extent of the continental shelf up to the Timor Trough was prejudiced.
A similar implication might also be drawn from the Treaty’s three-tiered administrative structure. The Timor Sea Treaty creates a Designated Authority to carry out the day-to-day regulation and management of petroleum activities,[17] a Joint Commission to establish policies and regulations and to oversee the work of the Designated Authority[18] and a Ministerial Council to consider any matter referred to it by Australia or East Timor.[19] The Ministerial Council consists of equal numbers of Ministers from Australia and East Timor,[20] while the Joint Commission comprises one more commissioner to be appointed by East Timor.[21] The Designated Authority, nominated by the Joint Commission for at least the first three years of the life of the Timor Sea Treaty, is thereafter to be the East Timor Government Ministry responsible for petroleum activities.[22] As petroleum activities are to be regulated through a contract between the Designated Authority and a private entity, the East Timor-appointed members of the Joint Commission will have an influential role in those activities.
There are, however, two safeguards of Australian interests. First, as noted above, it is open to either Party to refer a matter to the Ministerial Council, including any decision of the Joint Commission. In the event that the Ministerial Council is unable to resolve the matter, either Australia or East Timor may invoke the dispute settlement mechanism set out in Annex B to the Treaty. Second, the ‘without prejudice’ clause is likely to be afforded its full legal effect in international law. On this ground, Australia correctly maintains that its juridical position has been protected.[23] Finally, for a state to agree to exploit resources jointly and generously distribute the proceeds is in itself a sovereign act that does not imply a diminution of its long-term territorial or seabed rights, either specifically or more generally.
The apparent concessions granted by Australia, however, must also be viewed in the context of the ‘package deal’ agreed under the Timor Sea Treaty. The ‘package’ includes: first, acceptance by East Timor of a JPDA that fits within the confines of Australia’s pre-existing boundary agreements, that is, within Points A16 and A17 that represent the eastern and western extremities of the ‘Timor Gap’ left in the 1972 Seabed Delimitation between Australia and Indonesia;[24] and second, the resultant location of approximately 80 per cent of Greater Sunrise on the continental shelf to the east of the JPDA and south of the 1972 Seabed Delimitation that Australia regards as subject to its exclusive seabed jurisdiction. These outcomes are central to Australia’s concern that negotiations in the Timor Sea do not unravel seabed boundaries agreed previously between Australia and Indonesia either side of the Timor Gap,[25] and her overriding economic interest in the Greater Sunrise gas reservoirs that exceed greatly the revenues to be gained from exploitation of the JPDA’s other reservoirs, Bayu Undan[26] and Elang-Kakatua.[27]
The Greater Sunrise reservoir takes in the Sunrise, Sunset, Troubadour and Loxton Shoals wells in the eastern Timor Sea. As a non-renewable resource that straddles four previously existing petroleum permit areas[28] and two distinct jurisdictional regimes – the JPDA and the continental shelf claimed by Australia – the commercialisation of Greater Sunrise could only proceed once an appropriate and complete regulatory framework was in place for the reservoir as a whole. While the Timor Sea Treaty contemplated the unitisation of Greater Sunrise, it did not address the ongoing fiscal and regulatory regime to be applied to the development and operations throughout the life of the Sunrise Project. As noted by Unit Operator Woodside Petroleum, ‘these issues are more appropriately addressed in a [dedicated] International Unitisation Agreement (IUA)’.[29]
International law does not permit the unilateral capture of seabed resources that straddle an international boundary, since this would breach the inviolability of a neighbouring coastal state’s sovereign rights, including the exclusive right to exploit the natural resources of the continental shelf.[30] States interested in such a deposit are therefore under an obligation to pursue an alternative, cooperative route to development. This includes entering into negotiations with a view to establishing the underlying legal basis for apportionment of such a deposit, including the method of exploitation.[31] This view was recently confirmed by the Arbitral Tribunal in the Eritrea-Yemen (Phase II-Maritime Delimitation) Case:
having regard to the maritime boundary established by this Award, the Parties are bound to inform one another and to consult one another on any oil and gas and other mineral resources that may be discovered that straddle the single maritime boundary between them or that lie in its immediate vicinity.[32]
As an expression of the obligation to consult and inform one another on the existence of a common resource, state practice now supports a trend whereby apportionment of a deposit that can be exploited from either side of a delimited continental shelf is voluntarily made on the basis of an agreement between all interested states. A number of useful reference points lie in the IUAs concluded to facilitate exploitation of petroleum deposits found to straddle established maritime boundaries in the North Sea, namely, the 1976 United Kingdom-Norway Frigg Reservoir Agreement[33] and the 1992 United Kingdom-Netherlands Markham Field Agreement.[34]
While the boundaries of the Timor Sea JPDA do not constitute established maritime boundaries, the problem and the need to find a mutually acceptable solution is essentially the same. Most commonly, this is achieved through the conclusion of a pact to ‘unitise’ the reservoir in question, that is, a contractual arrangement establishing terms for the development of a reservoir as a single ‘unit’, including the apportionment of the proceeds of production. The unitisation process eliminates ‘competitive drilling’ and recognises that economic efficiencies can be achieved through the dedication of a single investment pool for the development of exploitation infrastructure. Royalties associated with production will then be split according to the proportion of the deposit estimated to be located either side of the boundary.[35] In short, the principal objectives of the unitisation agreement are to:
1. agree on mechanisms for apportioning the reserves of the reservoir between the respective continental shelves;
2. coordinate the exploitation activities of the states’ respective licensees; and
3. ensure that mechanisms are in place for the resolution of disputes that may arise in the course of exploitation.[36]
The Sunrise and Troubadour gas fields, known collectively as ‘Greater Sunrise’, are the richest known prize to be gained from the Timor Sea. The reserves, estimated at between eight and nine trillion cubic feet of gas, are currently valued at approximately A$30 billion ($US21 billion), but the project is not expected to be in production phase until at least 2009.[37] Options for the exploitation of Greater Sunrise include the construction of a pipeline to Darwin, perhaps via Bayu-Undan or its planned pipeline to Darwin, or alternatively, the employment of a previously untested floating liquefied natural gas (FLNG) plant for direct transfer to carriers bound for export markets. The initial joint venture partners, Woodside Petroleum and Shell, are still weighing up these options, with the latest estimates putting the cost of a Sunrise FLNG at $6.2 billion.[38]
Prior to independence, members of the East Timorese leadership at various times suggested that East Timor could lay claim under international law to most or all of the Greater Sunrise gas fields.[39] Questioning the validity of those arguments requires complex international legal and geographical analysis, and has been considered in detail elsewhere.[40] Despite the various protestations, the provisions relating to Greater Sunrise as proposed in a 5 July 2001 MOU between Australia and the East Timor Transitional Administration (ETTA)[41] were repeated, virtually unaltered, in the Timor Sea Treaty. As noted above, Annex E of the Treaty established that the Sunrise and Troubadour deposits would be unitised on the basis that 20.1 per cent lies within the JPDA and that the balance of the deposit, being 79.9 per cent, lies to the east of the eastern lateral of the JPDA.[42] The majority of Greater Sunrise is therefore regarded by Australia as a petroleum resource lying in areas subject to its exclusive seabed jurisdiction. It was agreed in Annex E, however, that either state can request a review of the production sharing formula in relation to Greater Sunrise and that unitisation of the deposit ‘shall be without prejudice to a permanent delimitation of the seabed between Australia and East Timor’.[43]
Under the Timor Sea Treaty, the Parties are obliged to reconsider the unitisation formula in the event of a permanent delimitation.[44] So, while the Timor Sea Treaty leaves open the possibility of further negotiations on sharing the product from Greater Sunrise, there is no obligation on either party to agree to such an alteration of the terms of unitisation. These and other issues were considered during negotiations between East Timor and Australia towards the conclusion of an IUA for the Greater Sunrise field. The first round of negotiations took place in July 2002,[45] with a view towards concluding an agreement by the end of 2002.[46] In reality, agreement on Greater Sunrise was not achieved until March 2003.
Consistent with the string of arrangements that has governed hydrocarbon activities in the Timor Gap since 1989, the Greater Sunrise IUA is expressed to be ‘without prejudice’ to the positions of East Timor and Australia ‘with regard to their respective maritime boundaries or rights or claims thereto’.[48] To reinforce the sovereign neutrality of the arrangement, article 2 spells out that no laws in force or acts taking place in the Unit Area while the agreement is in force ‘shall be interpreted as prejudicing or affecting the position of either Australia or Timor-Leste’ and may not be ‘relied upon as a basis for asserting, supporting, denying or limiting the position’ of either Party ‘with regard to their respective maritime boundaries or rights or claims thereto’.
As with the Timor Sea Treaty, the Greater Sunrise IUA facilitates a cooperative approach to the development of resources subject to overlapping maritime claims, despite the location of 80 per cent of the resources in question on the continental shelf that Australia regards as subject to its own exclusive seabed jurisdiction pursuant to the Seas and Submerged Lands Act 1973 (Cth). Australia’s view, however, is no longer unchallenged. Consistent with the provisions of the 1982 UNCLOS, the National Parliament of East Timor passed the East Timor Maritime Zones Act on 23 July 2002.[49] The legislation proclaims a 200 nautical mile exclusive economic zone (EEZ) that overlaps considerably with areas over which Australia claims and exercises seabed jurisdiction, including through the grant and authorisation of petroleum concessions and activities under the Australian Petroleum (Submerged Lands) Act 1967 (Cth). East Timor’s maritime legislation does not prescribe a method for the resolution of overlapping maritime entitlements, requiring only that such questions be ‘settled by peaceful means of dispute settlement, in accordance with Article 33 of the Charter of the United Nations, taking into account the relevant principles and rules of international law on maritime delimitation’.[50]
The prevailing theme of sovereign neutrality in the Greater Sunrise IUA is reinforced by the avoidance of any express division of jurisdiction based upon the geographical demarcation posed by the JPDA’s eastern lateral boundary. The practical effect of its terms, however, would appear to do just that. Despite early indications that Australia was seeking the express application of the Petroleum (Submerged Lands) Act 1967 over petroleum activities in that part of the Unit Area viewed by Australia as subject to its exclusive seabed jurisdiction (that is, to the east of the JPDA’s eastern lateral boundary), the Greater Sunrise IUA shuns any reference to ‘Australian jurisdiction’. While the IUA deems that the Timor Sea Treaty and its legal framework will apply to all petroleum activities within the JPDA, Australian legislation is deemed to apply only to ‘petroleum activities attributed to Australia pursuant to the Apportionment Ratio’[51]
Despite the absence of any geographical reference to ‘Australian jurisdiction’ over parts of the Unit Area that lie to the east of the JPDA, the Australian government has asserted in its National Interest Analysis of the Greater Sunrise IUA that ‘Australian legislation applies to activities within the part of the Unit Area outside the JPDA’.[52] This view is supported in article 1 of the IUA, where petroleum activities ‘in that part of the Unit Area outside the [JPDA]’ are to be regulated by the ‘competent Australian authority’.[53] The practical effect of these terms, when taken together, is that the Timor Sea Treaty will apply to activities within the JPDA (including regulation by the Designated Authority), while activities undertaken outside the JPDA but within the Sunrise Unit Area are regulated under Australian legislation. In this context, the presence of a ‘without prejudice’ clause is of comfort to East Timor in that the application of Australian laws to the east of the JPDA will not be perceived as a de facto acceptance by East Timor of exclusive Australian sovereignty in those areas.
Sovereign neutrality is not a characteristic common to unitisation arrangements. The distinctive approach adopted under the Greater Sunrise IUA is necessitated by a situation in which the straddled line is not a settled maritime boundary acceptable to both states, nor a line that accurately reflects East Timor’s view as to the easterly extent of its extant maritime claims. Rather than merely providing a ‘working link’ between two separate exploitation regimes, the IUA treats Greater Sunrise as an integrated whole for extractive purposes, and in certain respects, for jurisdictional purposes as well, thereby avoiding the perception that Australia’s claim to the seabed east of the JPDA is unchallenged.
The Greater Sunrise IUA repeats the petroleum apportionment ratio established in Annex E to the Timor Sea Treaty – 20.1 per cent is apportioned to the JPDA and 79.9 per cent is apportioned to Australia.[54] Alterations to the ratio may occur in one of two ways: first, a technical redetermination conducted by the Unit Operator at the request of either party, having regard to the ‘desirability of minimising the number of reviews’;[55] or second, where either Party requests a review of the ratio, and following such a review, both Parties agree to alter the ratio.[56]
A technical redetermination is most likely to be in response to a changed understanding of how much of the Unit Petroleum lies either side of the JPDA’s eastern lateral boundary. It cannot take place within five years of any prior redetermination, although a redetermination may take place within 12 months of the commencement of production at Greater Sunrise.[57] The Unit Operator must use ‘commercially available software’ in conducting such a technical review, and any recommendation to change the ratio must be approved by the Regulatory Authorities, unless referred to an expert for a final decision.[58] Any change to the ratio must be applied retrospectively through adjustment of past receipts and expenditures.[59] A general or ‘non-technical review’ under article 8(2) is not subject to time interval requirements, nor a requirement of retrospective application and adjustment.
It is noteworthy that in the event of a permanent delimitation of the seabed in the Unit Area, Australia and East Timor are bound to ‘reconsider the terms’ of the IUA, including the possibility of reviewing the unitisation formula.[60] The prospect of renegotiating the Greater Sunrise Apportionment Ratio has raised concern amongst the project’s joint venture partners. Investors are keen to ensure that the fiscal and regulatory conditions in existence at the time the Sunrise project is sanctioned for investment will continue to be applied for the life of the project.[61] Under the terms currently agreed, 80 per cent of the project will be subject to Australian Petroleum Resource Rent Tax (40 per cent of net revenues after capital cost recovery), and 90 per cent of the remaining 20 per cent will be subject to East Timorese petroleum and company taxation up to an effective rate of 65 per cent.[62] Importantly, the IUA offers some comfort for investors in the event that Australia and East Timor agreed to terminate or amend the Greater Sunrise IUA by requiring ‘any new agreement’ to provide terms equivalent to those currently in place. Nevertheless, an agreement between sovereign states to maintain equivalence does not amount to direct protection for private companies as joint venturers – ‘the terms of the IUA are entirely dependent for their implementation and enforcement upon the goodwill of the Parties or upon whether one Party exercises its discretion to require the other to recognize the existing rights of the joint venturers’.[63]
The operational provisions of the Greater Sunrise IUA borrow heavily from the 1992 United Kingdom-Netherlands Markham Field Agreement in that the onus for the planning and operation of the Unit Area is transferred to the Unit contractors and licensees. The Sunrise Joint Venturers[64] are required to conclude a Joint Venturers’ Agreement ‘to regulate the exploitation of the Unit Reservoirs’ in accordance with the Greater Sunrise IUA.[65] The Joint Venturers must appoint one of them as the ‘Unit Operator’,[66] which is then responsible for the submission of an agreed Development Plan for the approval of the Regulatory Authorities.[67] Approval must be granted where the planned project is commercially viable, consistent with good oilfield practice, reasonably attainable in the specified period and where the Unit Operator ‘has entered into contracts for the sale of gas from the project which are consistent with arm’s length transactions’.[68] Rejection of a Development Plan must be accompanied by reasons, including reference to any criteria that remain unsatisfied by the Development Plan.[69]
In requiring that a Development Plan is separately approved by both the JPDA Designated Authority and the relevant Australian regulatory authorities prior to the commencement of production, the Greater Sunrise IUA distinguishes itself from the ‘joint control’ established under the Timor Sea Treaty, despite the continuing treatment of the Unit Petroleum as joint property. In view of the likelihood that all installations and the preponderance of activities associated with the exploitation of Greater Sunrise resources will be situated to the east of the JPDA, Australian legislation will be the controlling factor.
While the Timor Sea Treaty and Australian legislation will regulate petroleum activities either side of the JPDA’s eastern lateral boundary, implementation of the Greater Sunrise IUA is facilitated by a ‘Sunrise Commission’ consisting of three members: two nominated by Australia and one by East Timor.[70] The overriding objective of the Commission is to ‘promote the development of the petroleum reservoir as a single entity’. Among other responsibilities, the Commission has the task of considering matters referred to it by the Regulatory Authorities, the inspection of petroleum measuring systems and monitoring the application of laws in Annex II, dealing with health, safety and environmental protection.[71] The Regulatory Authorities may refer disputes to the Commission for resolution by consultation and negotiation, but unresolved disputes are referred to an Arbitral Tribunal, as set out in Annex IV.[72]
During the Greater Sunrise IUA negotiations, the issue as to whether Australia, the JPDA’s Designated Authority, or some other entity would have jurisdiction to authorise petroleum installations was raised. As discussed above, the Greater Sunrise IUA provides that all petroleum activities are to be regulated by ‘those Regulatory Authorities established through application of laws as provided for in Article 4’, that is, the Timor Sea Treaty’s Designated Authority inside the JPDA, and the ‘competent Australian authority’ to the east of the JPDA. However, as plans for the exploitation of the Sunrise fields progressed, industry representatives began to express concern as to the potential application of the 1997 Indonesia-Australia Maritime Delimitation Treaty[73] to that part of Greater Sunrise lying to the east of the JPDA. According to project operator Woodside Petroleum, all installations and production facilities for Greater Sunrise will be located to the east of the JPDA.[74]
With the likely entry into force of the 1997 Maritime Delimitation Treaty at some time early in the life of the Timor Sea Treaty, the areas to the east and west of the JPDA will continue to be subject to overlapping Australian seabed jurisdiction and Indonesian EEZ (water column) jurisdiction. It is therefore necessary to determine which of the Parties to the 1997 Maritime Delimitation Treaty has the right to exercise jurisdiction with respect to installations constructed for the purpose of petroleum activities.
Stuart Kaye has argued that ‘the right of a coastal State to engage in offshore construction should be determined by the use to which the facility will be put’.[75] Under this logic, Australia retains exclusive rights related to the construction of installations, such as oil platforms, that are essential to the viable exploration and exploitation of the offshore seabed resources. Such construction would be tempered by Australia’s obligation under UNCLOS article 78 not to interfere unjustifiably with the EEZ rights of Indonesia, and the requirements of the 1997 Treaty that the Parties cooperate in the exercise of their respective rights[76] and that neither Party shall ‘unduly inhibit’ the exercise of those rights by the other.[77] While Indonesia would not carry a power of veto over Australian petroleum authorisations, the 1997 Treaty specifically obliges Australia to provide three months ‘due notice’ for ‘proposed’ grants of exploration or exploitation rights.[78] Furthermore, Australia would retain exclusive jurisdiction over the structures whose construction it had authorised.[79]
The Greater Sunrise IUA establishes a system of compulsory dispute settlement by an Arbitral Tribunal where consultation and negotiation have failed and no other procedure is agreed between the Parties.[80] Annex IV details the dispute settlement procedure, requiring at the outset that East Timor and Australia both appoint one arbitrator, who in turn must agree between them on a third arbitrator within 60 days.[81] Where agreement on a third arbitrator cannot be achieved, the Parties may request the President of the ICJ to make the appointment.[82] The Tribunal’s determination must be reached within six months, taking into account the IUA and relevant international law.[83] Such determination is final and binding on the Parties.[84]
The entry into force of the Timor Sea Treaty and the finalisation of terms for the unitisation of Greater Sunrise offer further evidence of the value of ‘without prejudice’ provisional arrangements in facilitating the development of offshore resources which are otherwise the subject of irreconcilable views as to maritime sovereignty.
By stressing the ‘non-prejudice’ of their agreement, and thereby attenuating any possible implication of sovereignty bias, the Parties to the Timor Sea Treaty were able to design a joint development regime that goes beyond the simple joint ‘share and control’ of the previous Timor Gap Treaty. The security of a ‘without prejudice’ clause allowed Australia to concede a 90:10 split of production without any diminution of its claim to the natural prolongation of its continental shelf, and smoothed progress towards East Timor’s acceptance of the boundaries of the JPDA without jeopardising its right to seek a more favourable permanent delimitation in the future. In these ways, the terms of the Timor Sea Treaty reflect the legal, political and economic realities that shaped the new set of negotiations.
Despite the considerable complexity of issues to be covered in the Greater Sunrise IUA, its conclusion was crucial to validate the existing production-sharing contracts in the four straddled permit areas, as well as to underpin the development of the Greater Sunrise fields as a single entity by the most effective and efficient means possible.[85] The Sunrise Joint Venture Partners can now proceed with plans for commercialisation of the Sunrise resources, including the marketing of the final product, in the knowledge that an appropriate and complete fiscal and regulatory framework has now been agreed between the Parties.
An interesting postscript to the signing of the IUA is that it will not enter into force until both Parties have notified each other that their respective ratification processes are complete.[86] While Australia is committed to the prompt ratification of the IUA, East Timorese Prime Minister Mari Alkatiri has reportedly threatened that East Timor would delay ratification of the Greater Sunrise IUA ‘until Australia accepted negotiations over maritime borders’.[87] While preliminary talks on maritime boundaries in the Timor Sea commenced in November 2003,[88] the complexity of issues to be traversed in negotiations means that the Timor Sea Treaty and the Greater Sunrise IUA are likely to regulate petroleum activities in the Timor Sea for the foreseeable future.
[∗] BCom LLB (Hons)(Monash); LLM (Dist)(London), PhD candidate (Melbourne). The author is an employee of the Australian Department of Foreign Affairs and Trade. The views expressed in this article are those of the author and do not necessarily reflect the views of DFAT or the Australian government.
[1] Timor Sea Treaty between the Government of Australia and the Government of East Timor, Dili, 20 May 2002, [2003] ATS No 13 (entered into force 2 April 2003) (Timor Sea Treaty).
[2] Exchange of Notes Constituting an Agreement between the Government of Australia and the Government of the Democratic Republic of East Timor Concerning Arrangements for Exploration and Exploitation of Petroleum in an Area of the Timor Sea Between East Timor and Australia, 20 May 2002.
[3] Treaty between Australia and the Republic of Indonesia on the Zone of Cooperation in an Area between the Indonesian Province of East Timor and Northern Australia, opened for signature 11 December 1989, [1991] ATS No 9 (entered into force 9 February 1991).
[4] The 20.1:79.9 apportionment was changed from the 20:80 ratio in the 5 July 2001 proposed Timor Sea Arrangement at the request of East Timor to reflect more accurately the position of the Sunrise commercial venturers on the location of gas.
[5] M Baker, ‘Australia accused over oil and gas’ The Age (19 November 2003); N Wilson, ‘E Timor demands $2.8bn in oil claim’ The Australian (18 November 2003); R Gottliebsen, ‘Walking an oily tightrope over a melting pot’ The Australian (3 June 2002) 36; M Alkatiri, Prime Minister of East Timor, Interview on Insight, SBS (23 May 2002); D Greenlees, ‘East Timorese leaders hint at legal push for bigger share of seabed riches’ The Age (20 May 2002).
[6] Declaration under the Statute of the International Court of Justice Concerning Australia’s Acceptance of the Jurisdiction of the ICJ, 21 March 2002, [2002] ATS No 5; and Declaration Under the United Nations Convention on the Law of the Sea concerning the application to Australia of the dispute settlement provisions of that Convention, 21 March 2002, [2002] ATS No 6. For an analysis of these declarations, see generally G Triggs and D Bialek, ‘Australia’s Withdrawal of Maritime Disputes from the Jurisdiction of the International Court of Justice and the International Tribunal for the Law of the Sea’ (2002) 17 International Journal of Marine and Coastal Law 423.
[7] D Williams (Attorney-General) and A Downer (Minister for Foreign Affairs), Commonwealth of Australia, ‘Changes to International Dispute Resolution’ (Joint Media Release, 25 March 2002) <http://www.foreignminister.gov.au/releases/2002/fa039j_02.html> .
[8] M Alkatiri, ‘War-weary East Timor knows no boundaries’ Australian Financial Review (16 April 2003); N Wilson, ‘E Timor sea boundaries may change’ The Australian (11 August 2003).
[9] Memorandum of Understanding between the Government of Australia and the Government of the Democratic Republic of East Timor concerning an International Unitisation Agreement for the Greater Sunrise field, Dili, 20 May 2002, cl 1.
[10] V Brooks, ‘Australia Govt To Move on Timor Sea Treaty Bill Soon’ Dow Jones Newswires (5 February 2003).
[11] J Irwin, ‘Timor Sea Treaty needed soon for big gas projects to proceed’ Oil Daily (18 December 2002).
[12] A Downer (Minister for Foreign Affairs), I Macfarlane (Minister for Industry and Resources), P Costello (Treasurer) and D Williams (Attorney-General), Commonwealth of Australia, ‘$50 billion Timor Sea Projects To Go Ahead’, Joint Media Release (5 March 2003), <http://www.foreignminister.gov.au/releases/2003/fa019a_03.html> .
[14] This section is drawn largely from G Triggs and D Bialek, ‘The New Timor Sea Treaty and Interim Arrangements for Joint Development of Petroleum Resources of the Timor Gap’ (2002) 3 Melbourne Journal of International Law 332-334.
[16] Ibid art 2(b).
[17] Ibid art 6(b)(iv).
[18] Ibid art 6(c)(i).
[19] Ibid art 6(d)(i).
[20] Ibid art 6(d)(i).
[21] Ibid art 6(c)(i).
[22] Ibid art 6(b)(i)-(ii).
[23] Views expressed by officials of the Commonwealth Attorney-General’s Department, Office of International Law, Australian and New Zealand Society of International Law Tenth Annual Meeting, Canberra, 14–16 June 2002.
[24] Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Indonesia Establishing Certain Seabed Boundaries in the Area of the Timor and Arafura Seas Supplementary to the Agreement of 18 May 1971, 9 October 1972, (1972) 11 ILM 1272 (entered into force 8 November 1973).
[25] A Downer, (Minister for Foreign Affairs), Interview, Insight, SBS, 23 May 2002.
[26] The Bayu-Undan field contains approximately 3.4 trillion cubic feet of gas and is expected to bring total revenues to East Timor of US$3 billion over the estimated 17 year life of the project. The Timor Sea Joint Commission approved a Production Sharing Contract and Development Plan for Bayu-Undan on 16 May 2003: República Democrática de Timor-Leste Media Release, ‘Bayu-Undan Gas agreement finalised’, 16 May 2003. First liquids production is expected in 2004 and natural gas is expected to come on-stream in 2006.
[27] Oil production at Elang-Kaktua began in 1998, and the fields have been producing around 17,000 barrels per day.
[28] The Sunrise Gas Fields are located within permit areas NT/RL2 (78.9%), NT/P55 (1%) (both outside the JPDA in Australian waters) and PSC 03-19 (20%) PSC 03-20 (0.1%) (both within the JPDA). On a unit basis, interests in the Greater Sunrise gas and condensate fields are divided as follows: Woodside Energy Limited (33.44%); Phillips Petroleum (30%); Shell Development (26.56%); and Osaka Gas (10%). Woodside is currently designated as the Unit Operator.
[29] Woodside Energy Ltd, Submission to the Joint Standing Committee on Treaties (July 2002) 3.
[30] The exclusive right to explore and exploit the natural resources of the continental shelf is codified in UNCLOS, art 77.
[31] W T Onorato, ‘Apportionment of an International Common Petroleum Deposit’ (1977) 26 International and Comparative Law Quarterly 324, 327.
[32] Eritrea v Yemen Phase II, Award of the ad hoc Arbitral Tribunal in the Second Stage – (Maritime Delimitation), 17 December 1999, available at <http://pca-cpa.org/RPC/#Eritrea> , [86] (emphasis added).
[33] Agreement Relating to the Exploitation of the Frigg Field Reservoir and the Transmission of Gas Therefrom to the United Kingdom, 10 May 1976, 1098 UNTS 3.
[34] Agreement relating to the Exploitation of the Markham Field Reservoirs and the Offtake of Petroleum Therefrom, The Hague, 26 May 1992, (1993) UK Treaty Series No 38 (in force 3 March 1993) (Markham Field Agreement).
[35] D Ong, ‘The New Timor Sea Arrangement: Is Joint Development of Common Offshore Oil and Gas Deposits Mandated under International Law?’ (2002) 17 International Journal of Marine and Coastal Law 79, 91.
[36] C Robson, ‘Transboundary Petroleum Reservoirs: Legal Issues and Solutions’, in G Blake, W Hilldesley, M Pratt et al (eds), The Peaceful Management of Transboundary Resources (1995) 11.
[37] A Trounson, ‘East Timor lays claim to Australian oil field’ Dow Jones Newswires, 17 July 2002.
[38] I Howarth, ‘Shared infrastructure to help LNG plans’ Australian Financial Review, 17 June 2003.
[39] M Alkatiri, (Prime Minister of East Timor), Interview, Insight, SBS, 23 May 2002.
[40] Triggs and Bialek, above n 14, 340-349.
[41] Memorandum of Understanding of Timor Sea Arrangement, Dili, 5 July 2001, <http://www.austlii.edu.au/au/other/dfat/special/MOUTSA.html> , Attachment A (Proposed Timor Sea Arrangement).
[44] Ibid Annex E, art 9(d).
[45] República Democrática de Timor-Leste Media Release, ‘Talks with Australia on Sunrise Unitisation begin’, 19 July 2002.
[46] Under the Memorandum of Understanding between the Government of Australia and the Government of the Democratic Republic of East Timor concerning an International Unitisation Agreement for the Greater Sunrise field, also signed on 20 May 2002, the parties undertook to ‘work expeditiously and in good faith’ to conclude an IUA for Greater Sunrise by 31 December 2002.
[47] Agreement between the Government of Australia and the Government of the Democratic Republic of Timor-Leste Relating to the Unitisation of the Sunrise and Troubadour Fields, Dili, 6 March 2003, [2003] ATNIF No 6 (Greater Sunrise IUA).
[48] Ibid art 2.
[49] J Morrow, personal communication, 30 July 2002.
[50] East Timor Maritime Zones Act 2002, art 10.
[52] National Interest Analysis of the Agreement between the Government of Australia and the Government of the Democratic Republic of Timor-Leste relating to the Unitisation of the Sunrise and Troubadour Fields, <http://www.aph.gov.au/house/committee/jsct/mayjune2003/treaties/timorlestenia.pdf> 4.
[53] Above n 47, art 1(k) (emphasis added).
[54] Ibid art 7.
[55] Ibid art 8(1).
[56] Ibid art 8(2).
[57] Ibid art 8(1)(c).
[58] Ibid art 8(1).
[59] Ibid art 8(1)(f).
[60] Ibid art 27(3).
[61] Woodside Energy Ltd, above n 29, 4.
[62] Sinclair Knight Merz, Sunrise Gas Project: Draft Environmental Impact Assessment for Woodside Energy Ltd (December 2001) section 2.1.3.
[63] G Triggs, ‘Unitisation of the Greater Sunrise Oil and Gas Deposits in the Timor Sea: a compromise for Australia and East Timor’ (2003) International Energy Law and Taxation Review 205.
[64] ‘Sunrise Joint Venturers’ is defined as ‘those individuals or bodies corporate’ holding a licence or contract for exploration or exploitation in respect of an area within the Unit Area at the time that the Greater Sunrise IUA enters into force: Above n 47, art 1(m).
[65] Ibid art 6.
[66] Ibid.
[67] Ibid art 12.
[68] Ibid art 12(3).
[69] Ibid art 12(4).
[70] Ibid art 9.
[71] Ibid art 9.
[72] Ibid art 9(7).
[73] Treaty between the Government of Australia and the Government of the Republic of Indonesia Establishing an Exclusive Economic Zone Boundary and Certain Seabed Boundaries, 14 March 1997, Perth, 36 ILM 1055 (not yet in force) (1997 Maritime Delimitation Treaty).
[74] Sinclair Knight Merz, above n 62, s 1.8.
[75] S Kaye, ‘The Use of Multiple Boundaries in Maritime Boundary Delimitation: Law and Practice’ [1998] AUYrBkIntLaw 3; (1998) 19 Aust YBIL 49, 53.
[77] Ibid art 7(m).
[78] Ibid art 7(d).
[79] Ibid art 7(h).
[81] Ibid Annex IV, (a).
[82] Ibid Annex IV, (c).
[83] Ibid Annex IV, (g).
[84] Ibid Annex IV, (i)-(j).
[85] Shell Development (Australia), Submission to the Joint Standing Committee on Treaties (August 2002) 3.
[87] ‘East Timor: Tax bill “just beginning” of Dili “control” over oil, gas – Alkatiri’, Lusa (26 May 2003).
[88] A Downer (Minister for Foreign Affairs), Commonwealth of Australia, ‘Preliminary Talks Begin on Timor Sea Boundary’ (Media Release, 12 November 2003) <http://www.foreignminister.gov.au/releases/2002/fa138_03.html> .
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