Oil pump jacks work in unison
A drop in oil and natural gas production has been the main factor behind a reduction of oil revenues to East Timor, which account for almost all of the state’s budget revenues, the La’o Hamutuk NGO said.
The organization, whose concerns were shared by some members of the East Timor parliament when discussing the 2015 State Budget, recently said that the drop in production had a greater influence than the fall in international oil prices.
This is due in part to the approaching end of exploration of the Kitan oil field, which was recently shown when Japan’s Inpex Corporation reduced the value of the field by about 7.5 billion yen (USD62.6 million), one of the first steps in what will be the predictable end of the oil well in the next few years.
Situated in the area of the Timor Sea that is jointly administered by Timor-Leste and Australia, the Kitan field is located about 170 kilometers from Timor.
Total production at oil fields in operation fell 24 percent in 2014 and the oil companies expect it will continue to fall until 2020, when it will no longer be profitable to explore these fields.
This scenario would only change if production begins at the Sunrise field, but this project is still affected by the lack of a resolution of the issue of maritime boundaries and differences of opinion on the operating model – with a floating platform at sea or on land, and in this case, in Darwin or in Timor-Leste.
The importance of oil revenues is evident in the state budget, and between 2003 and 2014, the government of Timor-Leste converted to cash US$20.1 billion of its oil and natural gas wealth, spent around US$6 billion and put the rest on the Oil Fund, which is used to make investments around the world.
These investments have generated revenues of US$2.5 billion over the last 12 years, which re-deposited into the Oil Fund, whose value at the end of 2014 was US$16.5 billion (US$95 million less than six months before) .
For the Oil Fund to continue to be a “financial cushion” Timor-Leste should have withdrawn just US$502 million to fund the 2014 state budget but ended up using over US$932 million, and this year this figure will rise to around US$1.33 billion, or more than double than what the Oil Fund earned through its investments in 2014. MDT/Macauhub
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