This document provides an overview of the legal framework governing Timor-Leste's petroleum sector, including challenges and opportunities. It discusses the Constitution and key laws related to natural resources. For the Timor-Leste Exclusive Area, it outlines the main applicable laws and instruments such as the Petroleum Activities Law. For the Joint Petroleum Development Area, it discusses the Timor Sea Treaty and other legal agreements. The document also summarizes production sharing arrangements and bidding processes. Finally, it identifies challenges such as logistics and qualified personnel, and opportunities in areas like infrastructure, human capital development, and business opportunities.

1. Timor-Leste Petroleum Sector:
Overview, challenges and opportunities Ricardo Silva
11 July 2014

2. Legal Framework

3. Regulation of petroleum operations
• Constitution, Laws, and Regulations
- Constitution of the Democratic Republic of Timor-Leste, of 22
March 2002
- Relationship between different statutes
• International Treaties
LEGAL FRAMEWORK

4. CDRTL
• Article 139 – Natural Resources
“1. The resources of the soil, the subsoil, the territorial waters, the
continental shelf and the exclusive economic zone, which are
essential to the economy, shall be owned by the State and shall be
used in a fair and equitable manner in accordance with the national
interest.”
- The State is the owner of all natural resources in the territory of TL
“2. The conditions for the exploitation of the natural resources
referred above should lead to the establishment of mandatory
financial reserves, in accordance with the law.”
- Petroleum Fund
“3. The exploitation of natural resources shall preserve the ecological
balance and prevent destruction of ecosystems.”
- Environmental concerns
LEGAL FRAMEWORK

5. International Treaties
• Timor Sea Treaty
- Resolution of the National Parliament 2/2003, of 1 April 2003
• Treaty on Certain Maritime Arrangements in the Timor
Sea Treaty (CMATS)
- Resolution of the National Parliament 4/2007, of 8 March 2007
• Unitization of the Sunrise and Troubadour Fields
- Resolution of the National Parliament 5/2007, of 8 March 2007
LEGAL FRAMEWORK

6. LEGAL FRAMEWORK

7. LEGAL FRAMEWORK
Petroleum in
Timor-Leste
Jurisdiction/
geographical scope
TLEA JPDA
- CRDTL, Article 4
- Law 7/2002, of
20 September
2002 (Maritime
Boundaries)
- Timor Sea Treaty,
Article 3 & Annex A

8. LEGAL FRAMEWORK
Petroleum in
Timor-Leste
Institutional aspects
TLEA JPDA
Ministry of
Petroleum
and Mineral
Resources
TIMOR
GAP –
Timor Gás
& Petróleo,
E.P
Autoridade
Nacional do
Petróleo
Designated
Authority
Joint
Commission
Ministerial
Council

9. LEGAL FRAMEWORK
TIMOR-LESTE
EXCLUSIVE AREA
(TLEA)

10. Main applicable laws
• Constitution of the Democratic Republic of Timor-Leste
• Petroleum Activities Law
• Public Tenders for Petroleum Contracts
• Autoridade Nacional do Petróleo (ANP)
• Timor Gap – Timor Gás & Petróleo, E.P.
• Tax and Duties “Act”
• Petroleum Fund Law
• Government Framework Law (MPMR)
LEGAL FRAMEWORK

11. Other main applicable instruments
• Model Production Sharing Contract
• TLEA Regulations (in discussion)
LEGAL FRAMEWORK

12. Petroleum Activities Law
• Main goal  governs the exploration, development and
production of hydrocarbon resources
• Geographical scope  TLEA (onshore & offshore)
• Material scope  petroleum operations
• Title to petroleum
• Main types of authorizations
- Prospecting
- Petroleum Contracts  Production Sharing Contracts
- Seepage Use
LEGAL FRAMEWORK

13. Petroleum Activities Law (cont.)
• Prior approval of the Ministry
- Joint operating agreement
- Lifting arrangement
- Any other agreement related to petroleum operations, as well as
any amendments thereto
LEGAL FRAMEWORK

14. Petroleum Contracts
• Model PSC
• Entered into between the ANP and companies/ entities
• In order to be eligible as a party to a Petroleum Contract
an entity must
- Have or have access to financial and technical capacity to
carry out Petroleum Operations
- Not have a record of non-compliance with principles of good
corporate citizenship
- Be a limited liability corporation or an entity with limited liability
LEGAL FRAMEWORK

15. Petroleum Contracts (cont.)
• Scope, term and rights
• Minimum work obligations, work programs and
guarantees
• Abandonment / decommissioning
• Declaration of commercial discovery
• Cost recovery and production sharing
• Environmental protection
• Obligation to supply the domestic market and
emergency situations
• Local content
LEGAL FRAMEWORK

16. Petroleum Contracts (cont.)
• Production sharing
- 5% Ministry
- 95% Cost recovery cap
- Remaining (Profit petroleum)
- 40% to the Ministry
- 60% to the Contractor
LEGAL FRAMEWORK
100 Total oil produced
- 5% Royalty – to the Ministry
95 Total
- 50 Recoverable costs of the Contractor
Profit Petroleum Sharing 40% of
45 = 18
60% of
45 = 27
(to the Ministry) (to the Contractor)
23 (5 + 18) 77 (50 + 27)

17. Bidding rounds & direct negotiations
• General Rule
− Public tender
• Exception
− Direct negotiation  admissible in the following situations:
• Access authorizations; or
• In cases of justified public interest
LEGAL FRAMEWORK

18. Taxation of petroleum operations
• Personal scope
− Contractor
− Subcontractor
− Any person that receives an amount as consideration for the
provision of goods and services to the Contractor or the
Subcontractor
• Types
− Petroleum Income Tax
− Supplemental Petroleum Tax
LEGAL FRAMEWORK

19. Petroleum Income Tax
• Rate - 30%
• Ring fencing in marginal fields
• Profits
- Profits deriving from the selling or disposal of its share of
petroleum
- Any other revenue
• All funds received by the Contractor, in addition to the income deriving
from the selling or disposal of its share of petroleum
• Expenses
- Exploration expenses
- Development expenses
- Production expenses
LEGAL FRAMEWORK

20. Supplemental Petroleum Tax
• Supplemental Petroleum Tax is due whenever the income
of a company exceeds a certain amount
LEGAL FRAMEWORK

21. LEGAL FRAMEWORK
Joint Petroleum
Development Area
(JPDA)

22. Legal Framework
• Timor Sea Treaty
• (Treaty between the Government of Timor-Leste and
the Government of Australia on Certain Maritime
Arrangements in the Timor Sea)
• Unitization Agreement for the Sunrise and Troubadour
Fields between the Government of Australia and the
Government of Timor-Leste
LEGAL FRAMEWORK

23. Legal Framework (cont.)
• Petroleum Mining Code
• Interim Administrative Guidelines for the JPDA
• Guidelines for Applications for PSCs and Criteria for
Assessment of Applications
LEGAL FRAMEWORK

24. Production sharing
• 5% Designated Authority (90% - 10%)
• 95% Cost recovery cap
• Remaining
- 40% to the Designated Authority
- 60% to the Contractor
Example:
LEGAL FRAMEWORK
100 Total of crude oil produced
- 5% Royalty – to the Designated Authority
95 Total
- 50 Recoverable cost of the Contractor
40% of
45 = 18
60% of
45 = 27
(to the Designated Authority) (to the Contractor)
23 (5 + 18) 77 (50 + 27)

25. Challenges and opportunities

26. Challenges:
• Logistics
• Qualified personnel / employment of nationals
• Sourcing of equipment
• Public perception / NGOs
• Civil law legal system
• Land issues in onshore operations
CHALLENGES AND OPPORTUNITIES

27. Opportunities:
• Suai Supply Base
• Young population /Human Capital Development Fund
• Strong regional oil & gas market
• Institutional framework
− Government support
− Professional and well reputed regulator
− Active and business-oriented NOC
− EITI
CHALLENGES AND OPPORTUNITIES

28. Opportunities:
• Business-friendly regulation
• Presence of qualified legal services providers
• Numerous Business opportunities
− Onshore
− Local partnerships
− Services sector
− Training
− Downstream
CHALLENGES AND OPPORTUNITIES

29. Thank you
ricardo.silva@mirandalawfirm.com