Cross-border unitization and joint development agreements: an international law perspective.

I. BASIC CONCEPTS

A. Sources of International Law

B. Sovereignty, Territory, and Boundaries II. DELIMITATION OF INTERNATIONAL MARITIME

BOUNDARIES

A. Delimitation of the Continental Shelf

B. Delimitation of the Exclusive Economic Zone

C. The Concept of Cross-Border Unitization

D. The Concept of Joint Petroleum Development

Agreements

E. Rules Applicable to Develop Common Deposits III. IS THERE AN OBLIGATION TO COOPERATE UNDER

CUSTOMARY INTERNATIONAL LAW?

A. International Case Law

1. The North Sea Continental Shelf Cases

2. The Iceland/Norway Conciliation

Recommendations on the Continental Shelf

Area Between Iceland and Jan Mayen Island

3. The U.K./France Arbitration

4. The Greece/Turkey Aegean Sea Continental

Shelf Case

5. The Tunisia/Libya Continental Shelf Case

6. The Australia/Indonesia Seabed Case

7. The Eritrea v. Yemen Tribunal Phase II

Decision

B. International Treaties and Agreements

1. Cross-Border Unitization Agreements

2. Unitization Treaties

a. Agreements in the North Sea

i. Frigg Agreement, 1976

ii. Statfjord Agreement, 1979

iii. Unitization of the Sunrise and

Troubadour Fields, 2003

iv. Other Offshore Cross-Border

Unitizations

b. Interlicensee Unitization Agreements

3. Joint Development Agreements

a. Japan-South Korea Agreement, 1974

b. Sudan-Saudi Arabia, 1974

c. Thailand-Malaysia, 1979/1990

d. Tunisia-Libya, 1988

e. Timor Gap Treaty (Australia-Indonesia),

1989

f. Guinea-Bissau-Senegal, 1993/1995

g. Argentina-U.K. Joint Declaration, 1995

h. Timor Sea Treaty (Australia-East Timor),

2001

i. Nigeria-Sao Tome e Principe, 2001

C. General Structure of Agreements

1. Sharing of Resources

2. Management

3. Applicable Law

4. Operator/Position of Contractors

5. Financial Provisions

6. Dispute Resolution IV. SUMMARY AND CONCLUSIONS

An understanding of the framework of the governing laws, regulations, model contracts, and existing agreements within the survey states as set forth in the earlier sections of this Article, as well as the practical advice in Section 5 of this Article, provides the international oil and gas practitioner with the necessary tools to negotiate a unitization agreement. However, when a reservoir straddles the boundary between two sovereign states, the complexities of any proposed unitization increases.

Petroleum deposits often extend across national boundaries in such a manner that "either portion can be exploited, wholly or in part, from the other side of the line." (1) Transboundary oil and gas deposits "do not conform to property lines, licensing demarcations, or political boundaries. (2)

The exploitation of those deposits in a joint, coordinated operation by respecting the common nature of petroleum reservoirs regardless of the boundaries they cross would seem to be the ideal strategy to undertake their development from a technical, conservationist, and environmental perspective. From a legal perspective, however, the development of common deposits straddling international boundaries raises complex and far-reaching issues. Under application of the fundamental principle that the territorial sovereignty or exclusive sovereign rights of states do not extend beyond their border, each state exercises exclusive authority over its own territory, and any infringement across an international boundary constitutes a violation of another state's territorial sovereignty or "exclusive sovereign rights." (3) Since the development of deposits straddling international boundaries involves two or more sovereign states, it will be subject to different legal regimes and, consequently, different terms and conditions for exploration, exploitation, and transportation of oil and gas. (4)

The legal difficulties posed by the application of different statutes to a common reservoir can be overcome by the impacted states entering into a cooperative arrangement for its development. The principle of respect for the preservation of the "unity of the deposit" (5) as a means of resolving the problems of common petroleum deposits that straddle the boundary between states is reflected in the bilateral practice of entering into cooperative agreements.

The absence of agreements to cooperate in the development of deposits straddling international boundaries raises thorny legal issues as "there is no developed, crystalised [sic]," or express rule or custom under international law requiring unitization for apportioning such common petroleum deposits. (6)

It is important to draw a distinction between "cross-border unitization" and "joint petroleum development." Both cross-border unitization and joint petroleum development are cooperative practices designed to preserve the unity of the deposit while respecting the inherent, sovereign rights of the interested states. (7) However, cross-border unitization in the strict sense covers situations where a common reservoir is underlying the delimited boundary between two states, and it involves the treatment of an identified deposit--that is, a specific petroleum reservoir or field--as a single deposit. (8) By contrast, joint petroleum development agreements refer to arrangements between two states to develop and share in agreed proportions the petroleum found within a geographic area whose sovereignty is disputed. (9) By definition, this kind of geographic area is an overlapping area under dispute, with boundaries that have not yet been defined, or to which two states are entitled under international law. (10) While this geographic area is most commonly a designated zone of seabed and subsoil of the continental shelf or Exclusive Economic Zone (EEZ), (11) such zones do not have to be limited to offshore situations. In some cases, JDZs have been established as part of a boundary delimitation agreement. (12) The concepts of joint development and unitization are not mutually exclusive, because a JDZ could be subdivided into separate contract areas so that deposits may occur across its internal boundaries. In addition, deposits may be found that cross the boundary of the JDZ into an area where one of the states exercises exclusive sovereign rights.

Experts predict that demand for petroleum, a relatively cheap energy source and chemical feedstock will grow significantly in spite of the fact that prediction of future oil prices are often wrong. (13) This prediction appears to be confirmed by the current high price for oil. (14) Consequently, the pressure to locate and exploit petroleum deposits that cross international borders or lie in disputed areas will also increase. This may lead to conflicts among neighboring states unless consistent, obligatory practices and binding legal regimes are established. Therefore, the development of cross-border petroleum reserves needs an adequate legal regime in order to prevent future conflicts. (15) Promoting states' efficient and environmentally sound exploitation of these resources must also be a consideration of these legal regimes. (16) Hence, this area of law has increasingly attracted the attention of legal scholars and the international legal community. (17)

I. BASIC CONCEPTS

Before moving on to the fundamentals of delimitation of international maritime boundaries and the definitions of cross-border unitization agreements and joint petroleum development agreements, this brief section will review some basic concepts of public international law, as they are instrumental to the analysis in the next sections. The two main concepts are the international law sources, which are rather different than those of municipal legal systems, and the ideas of sovereignty, territory, and boundaries, which define essential attributes of states.

A. Sources of International Law

Unlike national legal systems, the international legal system lacks authority to "adopt universally binding legislation" or to make "compulsory [the] jurisdiction of international courts and tribunals without the consent of states." (18) It is essentially a decentralized, nonhierarchical system, in which the subjects create the law under which they are bound.(19) Hence, the identification of the law raises important challenges. (20) Article 38(1) of the Statute of the International Court of Justice (ICJ or the Court) (21) is often referred to for the sources of international law. These sources are:

* international conventions, whether general or particular, establishing rules expressly recognized by the contesting States;

* international custom, as evidence of a general practice accepted as law;

* the general principles of law recognized by civilized nations;

* [subject to the provisions of Article 59], judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law. (22)