QR Petroleum Fund of Timor-Leste

The Petroleum Wealth of Timor-Leste for 2010 is calculated at US$16.7 billion, which is consist of the balance of the Petroleum Fund of US$ 5.3 billion and the Estimated Future Petroleum Revenue of US$ 11.4 billion. The ESI is 3% of the total Petroleum Wealth, equal to US$ 502 million for 2010.

The Petroleum Fund continues to increase from US$ 5,377 million by end of 2009 to US$ US$6,903 million by year end 2010. This is an increase of US$1,527 million. Petroleum Revenue Receipts (petroleum taxes, royalties and profit oil) were US$2,117 million and the Investment Return was US$221 million in 2010. The Government transferred a total amount of US$811 million to Treasury’s Account, which is US$309 million above the ESI.

The oil price slightly increased in 2010, from around $81 per barrel in January to US$91 per barrel in December 2010. The average WTI (West Texas Intermediate) oil price was US$79.5 per barrel in 2010. In 2010, the development plan for the Kitan field has been approved and the production will commence in 2011. The revenue stream from Kitan is expected to be around US$145 million over the lifetime of the project which is expected to cease in 2017.

The yield on US Government bonds, in particular with 2 to 5 years maturity, increased in Q1 and Q4 of 2010. Due to inverse relationship between bond yield and price, the market price of the bonds in the portfolio declined and resulted in a weak performance for the Petroleum Fund in both quarter. However, the average annual return was 3.8%, higher if compared to +0.6% in 2009. The return since the inception of the Petroleum Fund is 4.3% per annum, lower than 4.4% in 2009. This shows that in the long term, the current investment strategy will not achieve the 3% investment objective. Hence, PF Law amendment becomes more important to allow for more diversification of the Fund investment policy into other financial instruments, regions and currencies. The Government intends to submit amendments to the Petroleum Fund Law to Parliament in 2011.

In April 2010 the first global equity manager, Schroder Investment Management Limited, was appointed to start investing in global equity market. The mandate was implemented in October 2010 where Schroders managed around 4% of the total PF portfolio, equivalent to around US$260 million. Schroders performance in the first 3 months was around 6.6%. By the end of December 2010, Schroders managed approximately US$283 million of the Fund portfolio. According the amended Management Agreement signed between MoF and the BPA on 08 October 2010, the BPA, BIS and Schroders managed 76%, 20% and 4%, respectively, of the Fund portfolio.