Timor-Leste And Australia: Oil Dispute

On 9 January 2017, the Permanent Court of Arbitration issued a trilateral joint statement1 confirming the termination of the 2006 Treaty on Certain Maritime Arrangements in the Timor Sea (or CMATS) between Timor-Leste and the Government of Australia. This statement was issued on behalf of the Conciliation Commission and the Ministries of Foreign Affairs of the Governments of Timor-Leste and Australia.

In the case of Timor-Leste, the Timorese Parliament adopted on 10 January 2017 the Parliament Resolution nº 01/2017, published on 16 January at the Official Gazette, in which it unilaterally terminated the CMATS between the two countries2.

Timor-Leste, a small "half-island" state in Southeast Asia, regained its independence in May 2002 and its economy remains almost completely dependent on revenues from the Timor Sea oil and gas concessions entirely located in the Timor Sea. These concessions are regulated by a set of complex treaties and agreements entered into between both Governments, in particular the Timor Sea Treaty of 20 May 20023, which established the Joint Petroleum Development Area (JPDA) and the above-mentioned CMATS.

The CMATS is designed to facilitate oil and gas operations outside the JPDA. For the Greater Sunrise field, of which 80% is located outside the JPDA, it establishes a share revenue of 50 per cent between the two countries. In contrast, the Timor Sea Treaty grants to Timor-Leste 90 per cent of the upstream revenues from petroleum fields within the JPDA.

These treaties are linked to the Australia- Timorese dispute on maritime boundaries. This dispute has been pending since 1972 when Portugal, the former colonial power, and Australia failed to reach an agreement on this matter. Instead the two countries established a moratorium (Article 4) on both countries on pursuing, in relation to the other party, their claims to sovereign rights and jurisdiction and maritime boundaries for the period of the Timor Sea Treaty, that is, 50 years.

However, the CMATS did establish a very significant amendment to the Timor Sea Treaty, by determining in its Article 12 that:

"2. If:

a development plan for the Unit Area has not been approved in accordance with paragraph 1 of Article 12 of the Sunrise IUA4 within six years after the date of entry into force of this Treaty; or production of petroleum from the Unit Area has not commenced within ten years after the date of entry into force of this Treaty; Either Party may notify the other...