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

The potential for significant seabed and subseabed resources is often unknown or poorly researched. (64) Any benefit, whether resource-based or opportunistic expansion of sovereign rights, must be weighed against the cost of surveys to determine the limits of the legal continental shelf. (65) The difficulty of exploration for potential resources, and enforcement of sovereign rights in remote and hostile maritime environments, will also factor into decisions made by coastal states with potential claims. (66) Although resource potential can be at the root of delimitation disputes, it has not been a factor applied in the delimitation process itself. (67)

The rights of states to their continental shelves may give rise to overlapping claims where there is a disputed marginal or fringe area. These claims would be legally valid if two opposite coastal states were less than 400 nautical miles apart or where islands under one state's sovereignty exist within coastal areas of another state. (68) Article 83 of UNCLOS deals specifically with the delimitation of the continental shelf between states with opposite or adjacent coasts. (69) In essence, it says that states engaged in the delimitation of adjacent or opposite boundaries of their continental shelves shall do so by agreement in accordance with Article 38 of the Statute of the ICJ "[i]n order to achieve an equitable solution." (70) In interpreting "equitable solution" with regards to petroleum resources, the courts have stressed that "only if [the oil concessions and oil wells] are based on express or tacit agreement between parties may they be taken into account." (71)

The adoption of a bargaining process, rather than a more mathematical approach to delimiting the continental shelf area, leads some experts to believe that Article 83 was intentionally left vague by the states during negotiations. (72) Under the current system it may be possible for states with stronger bargaining positions to end up with more than their fair share of the continental shelf and its resources at the expense of others. (73) However, in many instances, it is probable that an agreement will not be reached, and this will result in a dispute, gridlock, or submission to the ICJ for resolution. (74) For disputed areas with potential for petroleum endowment, negotiation remains a better option than arbitration or litigation. Where amicable delimitation is not possible in the short term, those states could consider forming a joint petroleum development area.

B. Delimitation of the Exclusive Economic Zone

Articles 55-58 of the 1982 UNCLOS establish and define the EEZ as not more than 200 nautical miles from the baseline of the territorial sea. (75) The EEZ gives the coastal state sovereign rights, but not sovereignty over certain activities such as exploring, exploiting, conserving, and managing the natural resources on the surface and subsurface of the seabed. (76) The EEZ also gives coastal states rights to conduct other activities with a view to explore and extract economic benefits from the zone. (77) All other states enjoy freedom of navigation, fly over rights, and other lawful acts associated with the operation of ships, aircraft, submarine cables, and pipelines that are compatible with UNCLOS. (78) Under UNCLOS, the method of delimitation of EEZs set forth in Article 74 is the same as the continental shelf under Article 83. (79) It lays down that "the delimitation of the [EEZ] between States with opposite or adjacent coasts shall be effected by agreement on the basis of international law, as referred to in Article 38 of the Statute of the [ICJ], in order to achieve an equitable solution." (80)

If no agreement can be reached within a reasonable period of time, the states concerned shall resort to the dispute settlement procedures (81) provided for in the convention. (82) "Where there is an agreement in force between the States concerned, questions relating to the delimitation of the [EEZ] shall be determined in accordance with the provisions of that agreement." (83) Thus, the provisions of UNCLOS provide little direction, except to advise states to negotiate.

C. The Concept of Cross-Border Unitization

As discussed earlier, the principle of unitization originated in the United States for the efficient development of common petroleum reservoirs by the owners of the rights in the separate tracts overlying the reservoir. (84) Practice in the survey states indicates that this principle has subsequently been accepted and practiced in other parts of the world.

Any cross-border unitization will need to be agreed to at two levels: (1)the impacted states will need to reach an agreement and (2)the respective license holders will need to enter into a unit operating agreement. The purpose of the first agreement is to set out the rights and obligations of each state with respect to the field development and incorporate procedures requiring agreement of both states to minimize conflicts. (85) In a cross-border field, the unit operating agreement between the licensees will follow the normal pattern in most respects. However, it will be subject to the provisions of the relevant treaty so that, for example, the selection of the unit operator or a redetermination of tract participants will require the agreement of the respective states. The unit operating agreement itself will require the approval of both states in order to ensure that it embodies the requirements of the treaty. The treaty is binding only on the respective states; it does not bind the license holders directly, as they are not parties to it. (86)

D. The Concept of Joint Petroleum Development Agreements

The joint petroleum development agreement refers to an arrangement between two states to develop and share jointly in agreed proportions the petroleum found within a designated zone of seabed and subsoil of the continental shelf or EEZ, to which both states are entitled under international law. (87) By contrast, as explained before, a cross-border unitization arises in a situation dealing with the treatment of an identified deposit, that is a specific petroleum reservoir or field that lies across a delimited boundary line. (88)

The Joint Development Zone (JDZ) is generally established as a temporary solution for a specified period of time, without prejudice to subsequent delimitation, but it can be a permanent solution in place of a delimited boundary. (89) Even where the border has been delimited, a JDZ may be created as part of the boundary settlement, but this is a less common alternative because states where boundaries are delimited tend more towards the unitization of specific fields. (90)

Nevertheless, before such a zone is created, the states must be able to: (i) accept pooling together of sovereign rights over the area or zone; (ii) have a consensus ad idem on all the major policy matters ab initio; and (iii)never lose sight of the paramount objective--exploring for and producing oil and gas. (91)

There are a number of economic and practical reasons why states may choose joint petroleum development. The primary reasons are: (i) a strong desire to exploit any resources that may exist in the area as soon as possible, (ii) an understanding that alternative approaches, such as delimitation, are likely to lead to significant delays with, potentially, a serious negative impact on bilateral relations, and (iii) a recognition that the approach has been demonstrated to work and that the body of existing agreements can serve as a useful basis for formulating any new agreement. (92)

An examination of previous joint development agreements reveals some variation in the handling of important policy matters, but common issues include the fundamental agreement to cooperate, the percentage share of the costs and profits, the definition of the zone and specific resources to be developed, and the legal and fiscal framework. (93)

The joint petroleum development agreement recognizes the rights both states have to the continental shelf, EEZ, or area in question under international law. (94) These rights in general may give rise to overlapping claims, where there is a disputed marginal or fringe area. These rights--now recognized in two major treaties: the 1958 Geneva Convention on the Continental Shelf and the 1982 UNCLOS--also form customary international law. The JDZ agreement creates a binding agreement with legal obligations between contracting states. (95) This is in line with the Vienna Convention on the Law of Treaties (VCLT), which is recognized as customary international law. (96) Article 26 of the VCLT embodies one of the fundamental principles of customary international law, pacta sunt servanda, which means every treaty in force is binding upon the parties to it and must be performed in good faith. (97) It may be necessary to incorporate the terms of the treaty into national law to avoid conflict between existing national laws applicable to the zone or its resources. (98)

E. Rules Applicable to Develop Common Deposits

Lagoni observes that the legal literature is divided into three main positions with regard to the rules applying to the exploitation of cross-border petroleum deposits. (99) The idea that specific rules apply to this situation is most often based on the fluid, migratory nature of oil and gas, which in some cases justifies specific rules and obligations restricting territorial sovereignty, as opposed to "solid" minerals, where the fundamental principle of territorial sovereignty applies. (100)