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

This case was about a dispute between Eritrea and Yemen over sovereignty of the Red Sea area between them. (223) In regard to petroleum arrangements and the maritime boundary between the parties in the Red Sea, the Tribunal agreed with the ICJ judgment in the North Sea Continental Shelf Cases that delimitation of the States' areas of continental shelf may lead to an overlapping of the areas appertaining to them. (224)

[S]uch a situation must be accepted as a given fact and

resolved either by an agreement, or failing that by an

equal division of the overlapping areas, or by

agreements for joint exploitation, the latter solution

appearing particularly appropriate when it is a

question of preserving the unity of a deposit. (225)

The Tribunal noted that this is of particular relevance to Yemen and Eritrea, because they face each other across a relatively narrow compass and benefit from a culture of free movement of fishermen, a wide-ranging trade, a common rule, and a common religion. (226) This, in essence, suggests that where Eritrea and Yemen discover significant oil reserves straddling a boundary, a joint user approach is advised.

B. International Treaties and Agreements

1. Cross-Border Unitization Agreements

Some examples of bilateral unitization agreements can now be found in different parts of the globe, both across delimited borders and across the boundary of JDZs. (227) It is noteworthy that unitization treaties between states generally follow the same practice used in domestic unitization agreements and provide for two distinct binding dispute resolution mechanisms. Common practice has been to subject most disputes to arbitration, except for disputes over technical issues, such as the redetermination of the apportionment ratio, which are subject to expert determination. (228)

2. Unitization Treaties

a. Agreements in the North Sea

There are four examples of field-specific agreements between states regarding the exploitation of straddling petroleum reservoirs by way of unitization in the North Sea. (229) It should be noted that these unitization agreements got their legal force from the bilateral delimitation agreements signed between the United Kingdom and Norway on March 10, 1965 and between the United Kingdom and the Netherlands on October 6, 1965. The first explicit provision for action to be taken in the event of the discovery of a cross-border petroleum deposit was made in the 1965 U.K.-Norway agreement. The agreement contained a commitment to cooperate in the development of petroleum deposits that straddle the boundary between the two states. The agreement stipulated:

If any single petroleum reservoir extends across the

dividing line and the part of such reservoir, which is

situated on one side of the dividing line, is exploitable,

wholly or in part, from the other side of the dividing

line, the two states are obliged, in consultations with

the licensees, if any, to seek to reach agreement as to

the manner in which the petroleum reservoir shall be

most effectively exploited and the manner in which the

proceeds deriving therefrom shall be apportioned. (230)

There is no specific obligation to cooperate through unitization; however, this is the approach that has been adopted as the best possible option for the exploitation of the cross-border petroleum deposits in all of the agreements between states concerning the North Sea. (231) The U.K.-Norway Delimitation Treaty provided the basis for the unitization of three international cross-border petroleum fields on the U.K.-Norway boundary line. (232) The most important example, in terms of oil volume and associated gas, is the Statfjord Agreement. The Statfjord Agreement, and the Murchison agreement of the same year, largely followed the pattern of the earlier Frigg Agreement. (233) The other example of unitization across an international boundary in the North Sea was the Markham agreement.

i. Frigg Agreement, 1976

"The Frigg Gas Field lies across the Norway-U.K. continental shelf boundary." (234) A consortium led by Elf Acquitaine Norway discovered the field in 1969. (235) By May 1972 it was ascertained that the reservoir straddled the boundary line, which divided the continental shelf between the United Kingdom and Norway. (236) Pursuant to Article 4 of the U.K.-Norway Delimitation Treaty the states were obliged "in consultation with the licensees, if any, [to] seek to reach agreement as to the manner in which the structure or field shall be most effectively exploitated and the manner in which the proceeds deriving therefrom shall be apportioned." (237) The governments of both states confirmed a series of arrangements entered into by the consortia and signed the Frigg Agreement on May 10, 1976, (238) which placed the unitization of the field on the level of public international law. (239) Article 2 of the Frigg Agreement provided:

The two Governments shall consult with a view to

agreeing a determination of the limits and estimated

total reserves of the Frigg Field Reservoir and an

apportionment of the reserves therein as between the

Continental Shelf appertaining to the United Kingdom

and the Continental Shelf appertaining to the Kingdom

of Norway. For this purpose the licensees shall be

required to submit to the Governments a proposal for

such determinations. (240)

The Article further provided:

The two Governments shall endeavour to agree to the

apportionment of the reserves of the Frigg Field

Reservoir before production of the reserves commences.

If they are not able to do so, then pending such

agreement, the production shall proceed on the

provisional basis of a proposal for the apportionment

submitted by the licensees, or, if there is none, on the

provisional basis of equal shares. Such provisional

apportionment shall be without prejudice to the

position of either Government. (241)

The Frigg Agreement allocated the proceeds derived from the field, and the costs of development, according to portion of the deposit lying within the jurisdiction of the respective parties. (242) A special commission was established to supervise the whole operation. (243) Each government was obligated to require its licensees to submit a scheme to conserve the Frigg field reservoir for productive operations. This scheme was subject to approval of the two governments. (244) This field production depletion scheme had to be reviewed at intervals of not more than four years and any resulting revision of the scheme also had to be submitted to the governments for their approval. (245) The governments were given the duty of ensuring that their licensees implemented any approved scheme. (246) There was no unitization, joining or merging in the matter of jurisdiction. (247) To mitigate the effect of separate jurisdictions, the Frigg Agreement provided for consultation between the two governments in order to ensure that all installations were subject to uniform safety and construction standards. (248) Regarding fiscal matters, the respective jurisdictions were also kept separate. (249)

In case any production license was cancelled in whole or in part, the government was obliged to ensure that the exploitation of the Frigg gas continued in accordance with the terms of the Frigg Agreement and the agreements between the licensees. (250) In such situations the government was required to issue a new license in replacement of the expired, surrendered, or revoked license; or conduct operations as if it were a licensee itself; or take any other action to continue operations as agreed by the two governments. (251)

ii. Statfjord Agreement, 1979

Oil was discovered in July 1971 in the Brent Formation in the subsoil of the Norwegian continental shelf. (252) Later, oil was also discovered in the underlying Statfjord and Dunlin Formations. (253) It was established in 1975 that the oil and associated gas deposits extended across the line dividing the continental shelf between the United Kingdom and Norway. (254) As in the case of the Frigg Agreement, the provisions of Article 4 of the U.K.-Norway Delimitation Treaty were applicable. (255) In this context, the two governments constructed an agreement to exploit the petroleum reservoirs including, a regulation for the offtake of production. (256) The Statfjord Agreement between the United Kingdom and Norway was signed on October 16, 1979, (257) and followed the pattern of the earlier Frigg Agreement to a significant extent.

The basic feature of the Frigg Agreement--exploitation of the reservoirs as a single unit--was unchanged in the Statfjord Agreement; however, the Statfjord Agreement is more simple, clear and consistent. (258) For example, in the Statfjord Agreement the term "reserves" was properly defined unlike in the Frigg Agreement. (259) Also, the time schedule envisaged for a redetermination of the Statfjord field reservoirs was much more elaborate than the Frigg schedule. There was also a requirement of a work program to be approved by the two governments. (260) The main difference between the agreements was found in the rules for the transportation and destination of the products; there was no specific provision on means of transportation or destination of the products under the Statfjord Agreement. (261)

iii. Unitization of the Sunrise and Troubadour Fields, 2003