Santos could lose control of its Bayu Undan gas project north of Darwin on Friday unless it agrees with the Timor-Leste government to give it a share of the project, according to a letter from the country’s minister of petroleum seen by this masthead.

Minister Francisco da Costa Monteiro told Santos it must drop outstanding issues “not relevant to the transaction … [that] will not be entertained” in negotiations for the Timor-Leste state oil and gas company TIMOR GAP to obtain a stake in the project, which has underpinned the nation’s revenue for 20 years.

Monteiro said the production-sharing contracts, which give Santos and its partners rights to the project and expire on August 30, were at stake.

“In line with our prior position, no extension will be granted if negotiations are not satisfactorily concluded prior to such date,” he wrote.

Timor-Leste is seeking a Bayu Undan stake of more than 10 per cent for no payment, according to a person familiar with the negotiations but not authorised to talk to the media.

The August 19 letter to Santos vice president Vince Santostefano was copied to Timor-Leste Prime Minister Xanana Gusmao and the chief executive of TIMOR GAP.

One of Timor-Leste’s objections is having to seek approval from Australia’s Foreign Investment Review Board for the transaction.

The Bayu Undan gas field and platform lie in Timor-Leste waters, but the 500-kilometre pipeline to the Darwin LNG plant is almost all within Australia’s jurisdiction. Exports stopped in late 2023 due to falling production, and now small volumes are sold in the domestic Northern Territory market.

If the production-sharing contracts expire, their terms require Santos and its partners to begin decommissioning Bayu Undan’s infrastructure at a cost of more than $US1 billion ($1.5 billion), according to the person familiar with the negotiations.