In October 2019, the Democratic Republic of Timor-Leste launched its second international Licensing Round for oil and gas exploration, 13 years after the First Licensing Round. Seven of these blocks are located onshore and 11 are offshore in the recently awarded exclusive economic zone of Timor-Leste.
The licensing round follows the settling of a long-running maritime border dispute with Australia. Now,the two countries may are finally able to develop the Greater Sunrise gas field, comprised of the Sunrise and Troubadour gas and condensate fields, which hold around 5.13 tcf of natural gas and 225.9 million bbl of condensate respectively. This is very likely to lead to renewed interest in the Buffalo offshore oil field.
Under the agreement as it pertains to Greater Sunrise, Timor-Leste will be entitled to 80% of the revenue if gas is piped to Australia, or it will be split 70:30 if it is piped to Timor Leste. The two countries have agreed to develop this field together. The Buffalo field is to be transferred from the Australian exclusive economic zone (EEZ) to Timor-Leste’s EEZ.
Furthermore, speaking at the inaugural Timor-Leste Oil Gas & Energy Summit in Dili which launched the bid round, Prime Minister Matan Ruak pledged to energy investors that their investments will continue "without obstacles" with very few changes expected while active resources are transferred to Timor-Leste's EEZ.
He added, in remarks clearly aimed at his international audience, “You are the professionals… and you know the role that petroleum will continue to make in developing the quality of life in our new country. Timor-Leste has been blessed with significant reserves of petroleum, and the important part is they’re yet to be explored. The government commits completely to ensure that this opportunity here is a blessing, and will not turn into a curse.”
Vast resources on offer
Timor-Leste is clearly on a mission to attract E&P players to exploit its reserves and makes no attempts to hide its ambitions to enter the oil and gas big time. Quite rightly so. In addition to being the fastest growing energy producer in SouthEast Asia, there are a multitude of bilateral or multinational partnerships available. With the maritime border settled, Timor-Leste has purchased ConocoPhillips’ 30% interest and Shell Australia’s 26.56% interest in the Greater Sunrise fields and the NOC, TIMOR-GAP is now the majority shareholder. Thanks to its international nature, the project will be developed jointly with Australia.
By agreeing to develop the field with Australia, under the terms of the Joint Development Area, the country has the ability to learn from a neighbour which has been involved in upstream exploration for decades, with all the established international norms and regulations that that brings. Investors should find comfort in this commitment by the Timorese. Notably, and in stark contrast to other countries benefiting from newfound oil wealth, the abovementioned Petroleum Fund will not be automatically granted to the government, since withdrawals require parliamentary approval.
Entering a burgeoning industry in any country is generally considered to be a shrewd investment. Entering a country’s burgeoning oil and gas sector at the right time could be considered the investment of a lifetime. So it is likely to prove in Timor-Leste. It may not be the beginning, as the country has seen production from the Bayu-Undan fields since the 1990s, but the industry is still very young and all layers of legislation and production sharing contracts are being laid out. The National Authority on Petroleum and Minerals (ANPM) has a dedicated team which is putting all systems in place to make the country’s energy sector as friendly and easy for investors as possible. Joao Afonso Fialho, partner at Portuguese law firm Vieira de Almeida, and energy law expert told IN-VR earlier in 2020 that “Timor-Leste is a rare, almost unique example of a young country with good governance, doing things by the book. Even when they make mistakes – an unavoidable reality for all countries - it is because they are very compliance-oriented in their approach.”
Timor-Leste’s public sector is prepared to understand investors’ needs and tries as much as possible to assist them to overcome any obstacles, within reason. This would also tend to help newcomers and independents into the upstream sector; those who can adapt and modify their companies around the opportunitiess of Timor Leste.
What developing countries need from international companies are bespoke solutions to their issues. Foreign companies may have models and best practices that they can replicate across their businesses, but those who can adapt and make the most out ofTimor-Leste’s opportunities will be the biggest winners. Those entrepreneurs who make hay in Timor-Leste will build a reputation in the region, Australia and across Asia.
Timor-Leste’s infrastructure opportunities
Infrastructure opportunities in Timor-Leste similarly abound. The biggest of these for the energy sector is the South Coast Petroleum Infrastructure Project, also known as Tasi Mane. The USD 18 billion project could be a significant boost for the local economy and create many hundreds or even thousands of jobs, and increase opportunities for the education and training of locals, leading to a well-trained and dedicated workforce. The government describes it as “a multi-year development of three industrial clusters on the south coast which will form the backbone of the Timor-Leste petroleum industry.”
Generally, there are great opportunities for infrastructure on Timor-Leste, as the country would greatly benefit from increased connectivity between Dili and other towns and cities. The government is acutely aware of this and is taking measures to invest in this opportunity.
Its National Strategic Development Plan 2011-2030, unanimously approved by parliament in 2011, notes that ‘Timor-Leste currently lacks the core infrastructure necessary to support a modern and productive country in which its people are connected with each other and with the world. A central pillar of the Strategic Development Plan is the building and maintenance of core and productive infrastructure.’
Opportunities equally abound in electricity, water and sanitation and the likelihood of sending natural gas from Greater Sunrise to Australia for processing creates an urgent need for seaports capable of handling the vessels required.
The government offers incentives including tax credits and import duty exemptions to both domestic and international investors. The minimum investment requirements are USD 50,000 for Timorese investors and USD 500,000 for foreigners. In joint investments where national residents controls at least 75% of shares of USD 250,000, there is a five-year exemption from income, sales, and service taxes and customs duties for goods and equipment used in the construction or management of the investment.
This is extended to eight years if the investment is outside Dili or the city of Baucau and ten years if in Timor-Leste’s exclave of Oecusse and island of Atauro. Another piece of fiscal regimen sure to appeal to investors considering Timor-Leste: even when taxes do kick in, with one of the lowest corporate tax rates in the world and no VAT, Timor-Leste has one of the most competitive tax regimes anywhere. At present, the government is bringing economic reforms, under the Timor-Leste ASEAN Mobilisation Plan, to move it in line with best practices and join the Association of Southeast Asian Nations (ASEAN).
The country has applied for membership and has previously served as President of the Community of Portuguese Speaking Countries. Once a member, it would be expected that it will have access to the biggest free trade agreement ever signed, the Regional Comprehensive Economic Partnership, agreed in November 2020 between ASEAN members plus Australia, China, Japan, New Zealand and South Korea.
The time is now
Timor-Leste is on the cusp of becoming a key player in the southern Pacific. Located on a key shipping route, there are numerous compelling reasons for Timor-Leste to be high up in the mind of any investor. It has identified areas needed for development, it has achieved the rare feat of peaceful transitions of power several times since independence and it should be credited for the creation and management of its Petroleum Fund allowing it to insulate itself from most external shocks.
All the ingredients are there for Timor-Leste. It is time to get ahead now before others realise the potential.