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The Rules of Engagement: Developing Cross-Border Petroleum Deposits in the North Sea and the Caribbean

Published online by Cambridge University Press:  17 January 2008

Peter D Cameron
Peter D Cameron
Affiliation:
Dr Peter D Cameron, Professor of International Energy Law and Policy, Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee, United Kingdom. E-mail: [email protected].
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Abstract

The current international law applicable to the cooperative development of petroleum resources imposes few procedural requirements on States. In the event of a failure to agree, they may choose to make further efforts at developing cooperative arrangements, or go ahead independently anddevelop the resource. Recent bilateral agreements in the North Sea and the Caribbean seek to move beyond the cooperation established under bilateral delimitation treaties. They indicate a willingness to design innovative legal frameworks in which different, sometimes diverging interests may be managed. Nonetheless, early experience suggests that, in the event of a breakdown, unilateral action may follow.

Type
Articles
Information
International & Comparative Law Quarterly , Volume 55 , Issue 3 , July 2006 , pp. 559 - 586
Copyright
Copyright © British Institute of International and Comparative Law 2006

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References

1 In the East China Sea, the dispute between China and Japan over petroleum deposits in disputed waters has become increasingly acrimonious. The boundary dispute is about whether the maritime border should be decided by a median line between the two countries or be based on a natural prolongation of the continental shelf principles which would allow China to claim maritime space up to the Okinawa Trough. Both States have encouraged oil and gas exploration in the meantime. In the Middle East, the Iran–Qatar dispute over the South Pars/North Field gas deposits has gone on for many years; the parties have acted unilaterally on their respective sides of the border to ‘capture’ as large a share of the recoverable reserves as possible: see the discussion by Pike, David in ‘Cross-Border Hydrocarbon Reserves’ in Schofield, R (ed) Territorial Foundations of the Gulf States(UCL Press London 1994) 187.Google Scholar

2 Barrows (2005) Joint Development Zones of the World Supplement 9, p 3. This is a dramatic growth since the subject was first comprehensively studied by the British Institute of International and Comparative Law: Fox, H (ed) Joint Development of Offshore Oil and Gas: A Model Agreement for States for Joint Development with Explanatory Commentary (BIICL London 1989–90).Google Scholar

3 <http://www.UN.org/depts/los>, United Nations Convention on the Law of the Sea, opened for signature 10 Dec 1982, 1833 UNTS 397, entered into force 16 Nov 1994.About three quarters of the world's sovereign states have ratified, although there remain some important exceptions among petroleum producing nations.

4 For a comprehensive discussion of this, see DM Ong ‘Joint Development of Common Offshore Oil and Gas Deposits: “Mere” State Practice or Customary International Law?’ (1999) 93 AJIL 771–804.

5 Onorato, William T ‘Apportionment of an International Common Petroleum Deposit’ (1977) 26 ICLQ 324–37, 328.CrossRefGoogle ScholarHowever, a more cautious appraisal is given by Lagoni, Rainer ‘Oil and Gas Deposits across National Frontiers’ (1979) 73 AJIL 215.CrossRefGoogle Scholar

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7 Art 56(1) (a).

8 R Lagoni (n 5)

9 North Sea Continental Shelf Cases 1969 ICJ Rep, 22, para 19, in which the ICJ held that the sovereign rights of a coastal State exist ipso facto and ab initio by virtue of its sovereignty over the adjacent land territory. The case was decided on the basis of customary international law.

10 Rather indirectly this receives some further support from the Case concerning the land and maritime boundary between Cameroon and Nigeria before the ICJ (decided on 10 Oct 2002). Although primarily concerned with a dispute over delimitation of maritime and land areas, the ICJ restated the principle accepted in the North Sea Continental Shelf Cases ‘that equity does not imply equality’ and in a delimitation exercise ‘there can never be any question of completely refashioning nature’. The ICJ also held that oil industry practice was not a factor to be taken into account in the maritime delimitation in the case concerned.

11 UNGA Res 3129 (XXVIII): ‘It is necessary to ensure effective cooperation between countries through the establishment of adequate international standards for the conservation and harmonious exploitation of natural resources common to two or more states in the context of normal relations between them’; and UNGA Res 3281 (XXIX): ‘In the exploitation of natural resources shared by two or more countries, each state must cooperate on the basis of a system of information and prior consultation in order to achieve optimum use of such resources without causing damage to the legitimate interest of others.’

12 A general principle of cooperation is imposed on states with potentially conflicting interests at the regional level in Art 123. It provides that ‘States bordering an enclosed or semi-enclosed sea should cooperate with each other in the exercise of their rights and in the performance of their duties’. However, this wording is exhortatory rather than obligatory.

13 Ong (n 6); Lagoni (n 5).

14 Association of International Petroleum Negotiators International Unitization of Oil and Gas Fields: The Legal Framework of International Law, National Laws and Private Contracts(Texas 2005).

15 British Institute of International and Comparative Law (n 2) 35.

16 Art 83(1).

17 Art 83(3).

18 See the discussion in section IV below.

19 For a discussion of this, see Lagoni, R ‘Interim Measures Pending Maritime Delimitation Agreements’ 78 AJIL [1984] 345–68, 354–62.CrossRefGoogle Scholar

20 Ong (n 4); Lagoni (n 5).

21 Ong (n 5) 771, but he refers to Anderson, DH, ‘Strategies for Dispute Resolution: Negotiating Joint Agreements’ in Blake, et al. (eds) Boundaries and Energy: Problems and Prospects (Kluwer London 1993) 473, 476. However, one may also note the earlier views on the distinction between an obligation to enter into negotiation and an obligation to reach agreement: Permanent Court of Justice, Series A/B, No 42 (1931) 116; Arbitration between the Government of Kuwait and the American Independent Oil Company (Aminoil) 24 Mar 1982, 21 ILM 976 (1982) 1004, para 24.Google Scholar

22 In Ong's view, ‘a rule of customary international law requiring cooperation specifically with a view toward joint development or transboundary unitisation of a common hydrocarbons deposit has not yet crystallized’ (n 4) 792.

23 For examples see (n 6).

24 Prescott, V and Schofield, CThe Maritime Political Boundaries of the World (2nd ednMartinus Nijhoff Dordrecht 2004) 1Google Scholar(basing themselves on Charney, Jonathan I and Alexander, Lewis M (eds) International Maritime Boundaries (Martinus Nijhoff Dordrecht 1993 and 1998).Google Scholar

25 For an extended discussion of such agreements, with particular emphasis on the Nigeria-Sao Tome e Principe Agreement, see Lerer, David ‘Joint Development Agreements’ Oil & Gas Journal, 8, 15, and 22 Sept 2003 (in three parts).Google Scholar

26 There are at least two notable differences between the two situations that have implications for regime design: first, where boundaries are agreed upon, the unitized area is described with respect to the limits of the deposits underneath rather than the surface geographical coordinates of the area as is done when the boundaries are not agreed; secondly, where boundaries are established, each State’s share of production is determined by the extent of the deposit underlying its own side of the boundary (called tract participation), but where the boundaries have yet to be established, the sharing formula is a matter for agreement between the parties: Robson, C ‘Transboundary Petroleum Reservoirs: Legal Issues and Solutions’ in Blake, G et al. (eds) The Peaceful Management of Transboundary Resources (Graeme and Trotman London 1995) 7, 10, and 12.Google Scholar

27 Ong (n 4).

28 Greece v Turkey Interim Protection 1976 ICJ Rep 3 (Order of 11 Sept).

29 Ong (n 4) 796.

30 See eg the statement in the authoritative work of the British Institute of International and Comparative Law (n 2) 35.

31 Agreement between the United Kingdom and Norway, 10 Mar 1965 (n 51); Agreement between the United Kingdom and the Netherlands, 6 Oct 1965: see (n 53). Note the revised agreement between the UK and Norway, 2005: see (n 49).

32 Treaty between the Republic of Trinidad and Tobago and the Republic of Venezuela on the Delimitation of Marine and Submarine Areas, 18 Apr 1989.

33 Agreement Concerning Delimitation of the Continental Shelf between Iran and Bahrain dated 17 June, 1971, effective 14 May 1972.

34 Of course, such other parties include fishery interests. The risk of challenge from parties indirectly affected by petroleum developments is underlined by the recent actions by Barbados and Trinidad and Tobago, and Guyana and Suriname with respect to maritime boundaries.

35 Art 142(1).

36 Art 142(2).

37 ibid.

38 Ong (n 4) 785.

39 Ong (n 4) 784; Art 33(1) of the UN Charter (parties to a dispute are required to seek a solution, inter alia, by negotiation).

40 1969 ICJ Rep, 47, para 85.

41 These equitable principles include, among other things, the general configuration of the relevant coastline, the physical and geological structure, and the availability of natural resources in the disputed area, as well as a reasonable degree of proportionality between the extent of the continental shelf area appertaining to the coastal state and the length of its coast measured in the general direction of the coastline: North Sea Cases 1969 ICJ Rep, 54–5, para 101(d).

42 Ong (n 4) 784.

43 The procedures for negotiations on a boundary dispute are of course different. If a solution to a boundary dispute cannot be found by negotiations, a number of dispute settlement mechanisms are available. These include taking a claim to the International Tribunal on the Law of the Sea (ITLOS), the International Court of Justice (ICJ) or an arbitral tribunal constituted in accordance with Annex VII of the Convention. Details on the procedures and cases decided are available on their respective websites <http://www.icj-cij.org>, <http://www.pca-cpa.org>. For a discussion of some of the issues, see the paper by Alan Perry ‘Attempting to Extract Deposits that Straddle a Disputed Boundary—A Look at Some of the Implications’, presented at the IQPC Unitization conference (23 May 2005).

44 See DH Anderson ‘Strategies for Dispute Resolution: Negotiating Joint Agreements’ in G Blake et al (eds) (n 21).

45 Art 83(2).

46 Treaty between The Federal Republic of Nigeria and the Democratic Republic of Sao Tome e Principe on the Joint Development of Petroleum and other Resources, in respect of Areas of the Exclusive Economic Zone of the two States, signed on 27 Feb 2001 <http://www.un.org/ Depts/los/legislationandtreaties>.

47 Agreement Relating to the Exploitation of the Statfjord Field Reservoirs and the Offtake of Petroleum Therefrom(16 Oct 1979) Gt Brit TS No 44 (1981) (Cmnd 8282).

48 Lagoni is firm: ‘neither the rule of capture nor the prior appropriation rule can be regarded as a general principle of law recognized by civilized nations’ (n 5) 220.

49 Framework Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Norway Concerning CrossBoundary Petroleum Cooperation, signed on 4 April 2005 <http://www.og.dti.gov.uk/ upstream/infrastructure/nfa_2005.doc>. The Agreement covers a variety of potential cross-border projects, including the development of new fields that straddle the maritime boundary, the use of installations on one side of the delimitation line to exploit resources on the other side (host facility development) and the construction, laying and operation of a range of pipelines including landing pipelines. Its origins lie in a joint industry-government report, ‘Unlocking Value through Closer Relationships’, authored by Pilot-Kon-Kraft in 2002 (available at <http://www.pilottaskforce.co.uk>).

50 Agreement Relating to the Exploitation of the Frigg Field Reservoir and the Transmission of Gas therefrom to the United Kingdom(10 May 1976) UK–Nor, Gt Brit TS No 113 (1976) (Cmnd 7043) 1098 UNTS 3. For a detailed account of the Frigg Agreement, see Woodliffe, JC ‘International Unitisation of an Offshore Gas Field’ (1977) 26 ICLQ 338–53. The field ceased production in Oct 2004.CrossRefGoogle Scholar

51 Agreement between the Government of the United Kingdom and Northern Ireland and the Government of the Kingdom of Norway relating to the Delimitation of the Continental Shelf between the Two Countries(10 March 1965) Gt Brit TS No 71 (1965) Cmnd 2757; 551 UNTS 214.

52 Taverne, BAn Introduction to the Regulation of the Petroleum Industry: Law, Contracts and Conventions(Kluwer London 1994) 155.Google Scholar

53 Frigg (n 38); Agreement Relating to the Exploitation of the Statfjord Field Reservoirs and the Offtake of Petroleum therefrom(16 Oct 1979) Gt Brit TS No 44 (1981) (Cmnd 8282); Agreement Relating to the Exploitation of the Murchison Field Reservoir and the Offtake of Petroleum therefrom(16 Oct 1979) Gt Brit TS No 39 (1981) (Cmnd 8270); Agreement Relating to the Exploitation of the Markham Field Reservoirs and the Offtake of Petroleum therefrom(26 May 1992) UK–Neth Gr Brit TS No 38 (1993) (Cmnd 2254). In each case the Agreements have been amended by Exchanges of Notes and in the case of the Frigg Agreement, by a further Agreement of 25 Aug 1998 (see Framework Agreement, Annex E). Other Agreements have been concluded with Norway on pipelines(Agreement of 21 Nov 1985, amended by the Agreement of 1 November 2004, between the two Governments relating to the transmission by pipeline of liquids from the Heimdal reservoir and other reservoirs to the United Kingdom, and the Framework Agreement of 25 August 1998 relating to the laying, operation and jurisdiction of inter-connecting submarine pipelines) and the Ekofisk Field (Agreement of 22 May 1973, as amended by an Exchange of Notes dated 27 July 1994, relating to the transmission of petroleum from the Ekofisk field and neighbouring areas to the United Kingdom).

54 Agreement relating to the Delimitation of the Continental Shelf between the Two Countries, March 10, 1965, UK–Nor, 1965 Gr Brit TS No 71 (Cmnd 2757) 551 UNTS 214; Agreement relating to the Exploitation of Single Geological Structures Extending across the Dividing Line on the Continental Shelf under the North Seas, 6 Oct 1965, UK–Neth, Art 1, 1967, Gt Brit TSNo 24 (Cmnd 3254).

55 However, the idea of a redetermination is echoed in Art 3 of the Frigg Agreement and Art 3 of the Statfjord Agreement. For a discussion of this practice in the international petroleum industry, see Nwete, B ‘Mitigating Redetermination Problems in Unitised Hydrocarbon Fields’ [2005] IETLR 228–33.Google Scholar

56 Building UK–Norwegian Co-operation in the North Sea: A Statement by UK and Norwegian Energy Ministers, 2 October 2003, 2: <http://www.ag.dti.gov.uk/upstream/ infrastructure/overarching.doc>.

57 A unitization agreement will normally be made by the owners of a single field which extends into more than one licence area to develop that field as a single unit: see English, Warwick, Unitization Agreements, in David, MR (ed) Upstream Oil and Gas Agreements (Sweet & Maxwell London 1996) 97–115.Google Scholar

58 Frigg (n 50) Art 29(1) and (2). The same wording is found mutatis mutandis in Art 22 of both the Statfjord and Murchison Agreements, Art 24 of the Markham Agreement, and Art 1.3 of the Framework Agreement.

59 Pilot Kon-Kraft report, 8.a

60 Art 3.1(1) and (2).

61 A separate procedure is provided for disputes concerning pipeline access: Art 2.7 and 5(2).

62 Art 1.15.

63 Frigg Arts 27–8; Statfjord and Murchison Arts 20–1; for a similar approach in the Markham Agreement, see Arts 22–3 (the Markham Commission).

64 DTI News Release (8 Oct 2004) ‘UK and Norway Open Way for Two New North Sea Projects’ No P/2004/374.

65 DTI News Release ‘First Strike for UK Norway Deal’ No P/2005/220.

66 In Europe there was the treaty between Austria and Czechoslovakia (1960) 495 UNTS No 7242, 125; the agreement between the Federal Republic of Germany and the Netherlands, supplemental to the Ems–Dollard Treaty (1969) 509 UNTS No 7404, 104. In the Middle East there were several such agreements, but their relevance to a study of cooperative arrangements is mixed. For example, the Agreement between the Kingdom of Saudi Arabia and the Government of Bahrain, signed on 22 Feb 1958 <http://www.un.org/Depts/los/legislationandtreaties> is a revenue-sharing agreement, in which the parties do not envisage any cooperation with respect to the exploration or exploitation of the deposit or field. By contrast, the 1969 agreement on maritime boundaries and sovereign rights between Qatar and Abu Dhabi envisages the joint exercise of sovereign rights over the al-Bunduq oilfield.

67 Commented on by Kwiatowska, Barbara ‘Economic and Environmental Considerations in Maritime Boundary Delimitations’ in Charney, Jonathan I and Alexander, Lewis M (eds) International Maritime Boundaries(Martinus Nijhoff Dordrecht 1993) 75, n 49.Google Scholar

68 Letter of Intent: Enhanced Bilateral Cooperation between the Republic of Trinidad and Tobago and the Bolivarian Republic of Venezuela in the Energy Sector, 12 Aug 2003: <http://www.energy.gov.tt/siteadmin/uploads/48/letter%20of%20intent.pdf>; Memorandum of Understanding concerning the procedure for unitization of hydrocarbon reservoirs that extend across the delimitation line between the Republic of Trinidad and Tobago and the Bolivarian Republic of Venezuela, 12 Aug 2003: <http://www.energy.gov.tt/siteadmin/uploads/48/ mem4.pdf>. A full agreement has not yet been concluded (end 2005), and seems likely to take some time.

69 Treaty concluded between the Republic of Trinidad and Tobago and the Republic of Venezuela on the delimitation of marine and submarine areas on 18 April 1989.

70 ibid. It would also have to take into account the provisions of the relevant licences or contracts already awarded, such as Art 27 of the Trinidad and Tobago Production Sharing Contract (model), 2000.

71 eg the Timor Treaty, the Memorandum of Understanding between Malaysia and Vietnam 1992 or the Malaysia–Indonesia Agreement of 27 Oct 1969.

72 Memorandum of Understanding between Malaysia and the Government of the Kingdom of Thailand on the Constitution and Other Matters relating to the Establishment of the Malaysia–Thailand Joint Authority, signed May 1990 <http://www.un.org/Depts/los/legislationandtreaties>.

73 See Annex I.

74 Art 31.

75 See the discussion by a petroleum industry lawyer involved in the negotiations: Millar, Peter P ‘International Unitisation: The Statfjord and Murchison Oilfield Units’ Proceedings of the Energy Law Seminar(International Bar Association29 Sept–4 Oct 1979).Google Scholar

76 Frigg Art 2(5).

77 Subsequent agreements modified this provision by requiring that where a provisional basis for apportionment submitted by the licensee companies was not available, the basis used would be a matter for the two Governments to agree upon, instead of the Frigg criterion of ‘equal shares’: Statfjord and Murchison Agreements, Art 2(3) in each case.

78 Refer to Statfjord field agreement; compare Murchison Art 2(3) and Markham Art 5(4).

79 1979 (Norway 84 per cent/ UK 16 per cent); 1991 (Norway 85.2 per cent/ UK 14.8 per cent) and 1994 (Norway 85.46869 per cent/ UK 14.53131 per cent).