The La’o Hamutuk Bulletin Vol. 4, No. 3-4: August 2003
Barrel of Oil Equivalent (BOE): a unit to describe the quantity of energy contained in reserves of oil and natural gas. This unit makes it possible to add up reserves of different products in familiar crude oil terms. One trillion cubic feet (TCF) of natural gas is approximately 180 million BOE (mmBOE). One BOE is worth $5-$10 in government revenues, depending on global oil prices, production costs, tax rates, etc.
Condensate: light oil (sometimes called "natural gasoline") which forms the heaviest component of natural gas. It is found in many natural gas fields including Bayu-Undan and Sunrise. Condensate can be extracted and used as liquid fuel or for petrochemicals without the refining process required for heavier crude oil. Condensate can be processed at sea and loaded onto ships for transport to customers. Its market value is approximately the same as crude oil, higher than gas.
ConocoPhillips: the sixth largest oil company in the world, based in Texas, USA. The 2002 merger of Phillips Petroleum (long involved in the Timor Sea) and Conoco created ConocoPhillips, which is the operator and majority owner of Elang-Kakatua and Bayu-Undan in the JPDA, and also owns 30% of Greater Sunrise.
Continental Shelf Principle: a now-outdated way to draw maritime boundaries between two neighboring countries, based on the depth of the water between them. Water less than 200 meters deep (the "continental shelf") was claimed as the natural extension of the country's land territory. The 1972 Australia-Indonesia seabed boundary treaty, which followed the deepest water between them, was based on this principle. Many geologists see East Timor as part of the Australian continental shelf, with no continental shelf boundary between the two countries. Since the 1982 United Nations Convention on the Law of the Sea, this principle has been replaced by the median line principle, which is based on distance from the coastlines.
Exclusive Economic Zone (EEZ): an area of the sea and seabed adjoining a country's land territory where the country has rights to exploit and sell the resources in and under the water. Under UNCLOS, the EEZ usually extends 200 nautical miles (330 km) from the shore. When two countries are less than 400 miles apart, a process of negotiation and/or arbitration can decide the boundary between the EEZs, which is usually along the median line.
First Tranche Petroleum (FTP) revenues (also called share of production): A percentage of the money received for selling petroleum, paid to the government from whose territory the petroleum was extracted, beginning from the start of petroleum production. This is one of several sources of government revenue from petroleum development; comparable amounts can be earned from profit oil and taxes. East Timor's government has decided not to use FTP revenues to meet annual budget expenses, but to invest them for the future.
International Court of Justice (ICJ): A court in The Hague, Netherlands, where national governments can bring civil cases against one another. The ICJ has often served as a mediator or arbitrator in maritime boundary disputes. In March 2002, Australia gave notice that it would not accept ICJ processes for arbitrating maritime boundaries.
International Unitization Agreement (IUA): An agreement between two countries to develop a petroleum field or fields that crosses a boundary as a single entity, applying a single system of laws, taxes, environmental standards, safety codes, labor rules, etc. to that field. When a field is developed as one project, it would be impractical for different regulations to apply on different sides of an imaginary line in the middle of the sea. Link to Sunrise IUA.
Joint Petroleum Development Area (JPDA): An area of the Timor Sea between East Timor and Australia, but closer to East Timor. This was defined first in the 1989 Timor Gap Treaty as Zone of Cooperation Area A, and re-established by the Timor Sea Treaty. It is now jointly developed by East Timor and Australia, with East Timor receiving 90% of the government revenues.
Joint Venture: A coalition of corporations, in which several companies own shares of a single project or business. All Timor Sea petroleum projects are being developed by joint ventures, which have signed exploration and production sharing contracts with governments or bi-national agencies (such as the TSDA).
Liquification (liquefaction): the process of converting natural gas to LNG, done in a large factory. Although liquification of Bayu-Undan's natural gas will be done on-shore in Darwin, Shell is proposing to liquefy the gas from Greater Sunrise at sea, after constructing the world's first floating LNG plant.
Median line principle: the accepted legal rule for settling a maritime boundary when two countries' Exclusive Economic Zones overlap. As established by the UNCLOS and many ICJ decisions, the boundary should be drawn halfway between the coastlines of the two countries.
Natural gas: A petroleum resource found underground in a gaseous state, consisting primarily of methane and ethane, with smaller amounts of heavier hydrocarbons. It is often distributed as a gas by pipeline (usually after extraction of the heavier hydrocarbons), but can be liquified into LNG for storage or transport by ship, rail, or road. Most of East Timor's undersea petroleum is natural gas.
Operator: An oil company that is part of a joint venture (often the largest shareholder) and takes responsibility for exploration, drilling, construction and operation of processing facilities. However, all joint venture partners usually make major decisions together, each having a vote in proportion to their share. ConocoPhillips and Woodside Australian Energy are the operators of the offshore petroleum projects relevant to East Timor.
Production Sharing Contract (PSC): a contract between one or more oil companies (see joint venture) and a governmental body to explore for and develop petroleum resources in a defined area and to sell the petroleum found there. Under the PSC arrangement, the government owns the underground petroleum resources, not the oil companies. The companies act as "contractors" to the government, being paid for their services with a share of production. Australia, UNTAET, and now East Timor have promised the oil companies that PSCs signed during the Indonesian occupation will be honored even if territory or revenue is reassigned.
Profit oil (also called Second Tranche Petroleum): Once oil companies have sold enough petroleum to recover their investment in a particular project, a share of additional sales are paid to the government(s) from whose territory the petroleum was taken. This is called profit oil, and is in addition to FTP that is paid from the beginning of production. The companies also pay income or corporate tax on their net profits, after subtracting operating expenses.
Seabed boundary treaty: signed between Australia and Indonesia in 1972. This treaty draws a boundary between the two countries' seabed (ocean floor) resource entitlements, following the continental shelf principle of drawing the line through the Timor Trough, the deepest water between the two countries. Portugal, which was then administering East Timor, refused to participate in the negotiations, so there is a gap in the line off the coast of East Timor. In 1997, Australia and Indonesia signed another treaty drawing a boundary between their water column (fish, etc.) resources along the median line in accordance with more modern (UNCLOS) principles, but that treaty was never ratified due to East Timor's independence.
Timor Gap Treaty: Signed between Australia and Indonesia in 1989 to allow the two countries to explore for petroleum in illegally-occupied East Timorese seabed territory, with a 40-year term. This treaty closed the Timor Gap in the Australia-Indonesia seabed boundary by defining a Zone of Cooperation, later called the Joint Petroleum Development Area (JPDA). The Timor Gap Treaty became meaningless in October 1999, when Indonesia gave up its claim to East Timor.
Timor Sea Treaty: Signed between East Timor and Australia on 20 May 2002, came into force on 2 April 2003. This continues the JPDA defined in the Timor Gap Treaty, but replaces Indonesia with East Timor and allocates 90% of the JPDA government revenues to East Timor. The Timor Sea Treaty becomes void after 30 years, or after a permanent maritime boundary is agreed between the two countries, whichever comes first.
United Nations Convention on the Law of the Sea (UNCLOS) was signed at Montego Bay, Jamaica, in 1982, and adopted by most countries in the world. It entered into force in 1994. This treaty defines laws for many issues relating to the sea, including the establishment of Exclusive Economic Zones and procedures for establishing maritime boundaries according to median line principles. It also includes a tribunal (court) for dispute resolution, from which Australia withdrew in March 2002. Indonesia ratified UNCLOS in 1986, Australia in 1994. East Timor has not yet signed or ratified UNCLOS, although the Foreign Ministry has begun studies they expect will lead to its approval.
Upstream: the part of the petroleum resource development process that involves finding and getting the raw petroleum material out of the ground and into a pipeline or ship for further downstream processing.
Woodside Australian Energy: Australia's largest gas producer (although much smaller than international oil companies), operator of the Sunrise, Laminaria-Corallina, and Kuda Tasi/Jahal fields. Woodside is 34% owned by Shell, the second largest oil company in the world.
The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)