Session 2: Joint Development of Hydrocarbon Resources in the

Session 2:
Joint Development of Hydrocarbon Resources in the
South China Sea: International Legal Framework
Dominic Roughton
Partner, Global Head of Public International Law, Herbert Smith
16 June 2011
• Background to the Guyana v. Suriname decision
• UNCLOS and maritime delimitation: a refresher
• A “right” of capture?
• Twin obligations under UNCLOS Articles 74(3) and 83(3)
• Resolution of international boundary disputes: a note for oil
Guyana v. Suriname: The background
• Area in issue was offshore where
Corentyne River flows into Atlantic
• 1799 border agreement between
Dutch and British colonial
• Some effort to resolve in 1930s by
Mixed Boundary Commission (UK,
Netherlands and Brazil)
• Various draft treaties prepared
1939 – 1971, but never signed
• Still unresolved upon
Guyana v. Suriname: The background
The trigger
• Disputed area suspected to be rich in hydrocarbons
• Exploration rights granted to various oil companies since 1958 by
both Guyana and Suriname
• Guyana concessions to
– CGX granted in 1998
– Esso granted in 1999
• Diplomatic protests from Suriname, 1999
• CGX rig CE Thornton undertook exploratory work in June 2000
and …
Guyana v. Suriname: The background
Guyana v. Suriname: The background
• Esso claimed force majeure provisions against Guyana
• Intercession of third party states: Trinidad & Tobago and then
• National Border Commissions reconvened
• No progress
• Guyana commenced UNCLOS Annex VII arbitration on 24
February 2004
Understanding the competing claims:
An introduction to UNCLOS
Since the 1982 United Nations Convention on the Law of Sea
("UNCLOS") entered into force in November 1994, 160 States have
ratified it.
• Increasingly difficult for States to derogate from UNCLOS provisions
• Provisions are deemed to have become a part of customary international
• Save for Taiwan, all other major players in the South China sea have
ratified UNCLOS
– Brunei, China, Indonesia, Malaysia, Philippines, Vietnam
• UNCLOS often provides a framework for maritime boundary negotiations
even where States have not (yet) formally accepted its authority
– Taiwan
Maritime delimitation: Refresher
High Seas Freedoms
Freedoms (Article 58):
Laying of cables/pipelines
Continental Shelf
Not to
Additional freedoms:
Scientific Research
Continental Shelf
Maritime delimitation: Refresher (con.)
The debate between equidistance and equity
• UNCLOS Art 74/83 adopts compromise language on delimitation
of overlapping EEZ and CS claims
• “by agreement on the basis of international law”
– State practice of equidistance
– Geneva Convention 1958, Art 6
• “to achieve an equitable solution”
– Following North Sea Continental Shelf Cases
Maritime delimitation:
Drawing the line: theory and practice
Current practice: Serpents Isle case (ICJ, 2009)
1. Start with provisional
– Equidistant line (adjacent coasts)
– Median line (opposite coasts)
2. Modify it “to achieve a [more] equitable solution” by taking into account
special/relevant circumstances
– Concave/convex coasts (North Sea CS Cases)
– Islands (Tunisia/Libya)
– Fisheries? (Jan Mayen; Barbados v. Trinidad)
NOTE: “oil concessions and oil wells are not in themselves to be
considered as relevant circumstances justifying the adjustment or shifting
of the provisional delimitation line”
– Cameroon v. Nigeria (ICJ, 2002)
3. Apply test of proportionality
Maritime delimitation:
Effect of oil and gas reserves
The issues
Presence of hydrocarbons can often lead to overlapping claims
between States over maritime areas
Negotiating and entering into a permanent maritime delimitation
agreement can be a very lengthy process
IOCs and oil rich countries will not want to wait so long before
being able to exploit natural resources
May a State maximise its hydrocarbon exploration and production
activities notwithstanding overlapping claims?
The rule of capture
Legal definitions
• “A fundamental principle of oil and gas law holding that there is no
liability for drainage of oil and gas from under the lands of another
so long as there has been no trespass and all relevant statutes
and regulations have been observed.”
– Black's Law Dictionary
• “The legal rule of non-liability for (a) causing oil or gas to migrate
across property lines and (b) producing oil or gas which was
originally in place under the land of another, so long as the
producing well does not trespass.”
– Williams and Meyers, Manual of Oil and Gas Terms
The rule of capture and international law:
Traditional view
• Under international law there is no express provision that calls for
the rule of capture to prevail over that of co-operation in the
context of a common deposit
• Suggestion amongst leading writers and international practice that
the rule of capture has no place in international law
– Aegean Sea Continental Shelf (Provisional Measures)
(ICJ, 1975)
– Conduct of Tunisia and Libya
• So, exploitation only by common consent?
– But risk of sterilising resources
The rule of capture and international law:
UNCLOS Obligations
Obligation of Mutual Restraint re EEZ and Continental Shelf
• Article 74(3)/83(3) of UNCLOS:
“Pending agreement as provided for in paragraph 1, the States
concerned, in a spirit of understanding and co-operation, shall
make every effort to enter into provisional arrangements of a
practical nature and, during this transitional period, not to
jeopardize or hamper the reaching of the final agreement. Such
arrangements shall be without prejudice to the final delimitation”.
• “Not very meaningful” (RR. Churchill and V. Lowe)
The rule of capture and international law:
UNCLOS Obligations interpreted
“Twin obligations” of co-operation and mutual restraint
• Considered in Guyana v. Suriname
• “Twin obligations simultaneously attempt to promote and limit
activities in a disputed maritime area”
• States are required to make “every effort”
– To enter into “practical provisional arrangements”
prior to concluding final delimitation agreements i.e. a
– Not to “jeopardize or hamper the reaching of the
final agreement” on their delimitation disputes
The rule of capture and international law:
Renewed significance of UNCLOS Arts 74, 83
Obligation 1: Enter into “practical provisional arrangements”
• Gathering trend towards encouraging JDZs
– North Sea Continental Shelf (ICJ)
– Eritrea/Yemen (PCA)
• Implicit acknowledgement of “the importance of avoiding suspension
of economic development in a disputed maritime area”
– Must not affect second of two obligations under Art
74/83 to reach a “final agreement”
– But supports argument against sterilisation of natural
• Duty to negotiate in good faith
– Language suggests “drafters’ intent to require of the
parties a conciliatory approach to negotiations”
Obligation 1:
Enter into “practical provisional arrangements”
The solution?
• Optimise the potential economic benefits of the area for both
– “Two brothers drinking from the same well” (MTJA)
• Set aside claims and enter into:– A Joint Development Agreement (“JDA”) to create a
Joint Development Zone (“JDZ”); or
– A preliminary boundary followed by unitisation of the
transboundary reservoir
• Expressly approved by Tribunal in Guyana v. Suriname
– following North Sea CS Cases and Eritrea/Yemen
Obligation 1:
Theory and practice
Important considerations
• Both governments must have the political will to resolve the problem
– Accept resources are being pooled not “shared”
– Accept suspension of sovereignty
– Consensus on major policy issues (area, term, law, split,
tax etc)
• Issues arising from:– Change in government
– Political stability
– Interests of third states/private parties such as IOCs
• No “one size fits all”:– compare and contrast different JDAs even within SE Asia
Obligation 2
“Not to jeopardise or hamper … final agreement”
Settlement of disputes “an important aspect” of UNCLOS
• Criticism of Suriname for use of gunboat to make threats against
drilling rig engaged in exploratory drilling for Guyana
– Significant damages claim ($33+ million)
– Defence of “law enforcement activities” rejected
– Obligation to resort to UNCLOS, Art 290
• Overriding obligation upon States to use “peaceful means” to
settle disputes: Art 279 et seq
• What then are the options for resolving boundary disputes?
Obligation 2:
The “final agreement” …
• A “final agreement”
– Most effective – and cheapest – form of resolution
– Encouraged by UNCLOS Arts 74 and 83
– BUT make the best possible agreement
• What to agree?
– Boundary treaty
– JDA/unitisation – often less “provisional” than may be
– Special agreement to arbitrate/litigate
Obligation 2:
… and how to reach one
Negotiations may take years and may not prove fruitful
• Parties encouraged to seek provisional/interim measures of
protection from ICJ
• BUT Aegean Sea CS decision distinguished from a final order
• Can Parties go further?
Obligation 2:
The tension in Articles 74/83
The “delicate balance”
• Parties’ ability to pursue “economic development” must not be
-BUT• Parties may still do nothing which may have a “permanent physical
impact on the marine environment”
• So what can the Parties do/not do?
Obligation 2:
What is still NOT permissible
• No use of or threats of force
• No “permanent physical impact to the marine environment”
– Unless with joint approval
• Drilling? – or at least certain kinds of drilling?
Obligation 2:
What is or may be permissible
• Seek peaceful resolution as required under UNCLOS
– JDA/unitisation
– Special agreement
– Boundary treaty
• Adopt a conciliatory approach
– ASEAN Declarations
• Co-operate and co-ordinate activities
– CNOOC, PNOC and PV Agreements
• Unilateral exploratory work (maybe?)
– Seismic (Aegean Sea CS)
– Core samples?
– Others?
Resolution of transboundary disputes:
Additional considerations
Only States have rights and obligations under customary
international law and UNCLOS specifically
• Non-States (e.g. oil companies) have no direct rights
– under UNCLOS
– to appear before the ICJ
• Some States have not ratified UNCLOS
– Taiwan
• Some States have not agreed to be bound by the dispute
resolution provisions of UNCLOS
– China
Resolution of transboundary disputes:
New directions?
How can a boundary dispute be resolved?
• Twin obligations under UNCLOS Articles 74(3) and 83(3)
– Discourage sterilisation of natural resources
– Encourage peaceful joint development
• Arguably a reflection of customary international law?
• If so then:
– what is the effect of extended continental shelf claims
before the CLCS?
– does a failure to negotiate in good faith justify an
international right of capture?
– can an oil company use a State’s possible breach of
international law obligations as leverage to persuade it to
agree a resolution?
– what is the utility of investment treaties?
Resolution of international boundary disputes:
A note for oil companies
The lessons of RSM Production v Grenada (ICSID, 2009) *
• Do not lose sight of whose boundary dispute this really is:– “… any involvement by RSM in [maritime boundary negotiations], as a private party
pursuing its own commercial interests, must be regarded as highly unusual by any
ordinary state practice in boundary delimitation negotiations.” (Para 287)
• The “secretive, unilateral, unauthorised, crude ‘horse-trading’ approach, backed up with wild
threats and vexatious litigation if unsuccessful, contradicted the essential principles of
maritime boundary negotiations between states” (Para 327)
• The consequences of this involvement:– “Mr Grynberg’s unilateral attempts to negotiate with Venezuela, despite several express
communications to the contrary by Grenada, together with his US lawsuit against
PDVSA, did not assist in the resolution of maritime boundaries between the two states.
Rather, … Mr Grynberg provoked outright hostility.” (Para 308)
– His strategy was “highly likely to have had negative implications for maritime boundary
negotiations between the two states, if not more serious diplomatic repercussions
between friendly countries.” (Para 314)
• NOTE: “ICSID Tribunals are not empowered to delimit maritime boundaries.” (Para 333)
* Annulment proceedings registered 10 July 2009. An Award in a parallel action was made on 10 December 2010.
Contact details
Dominic Roughton
Global Head of
Public International Law
Herbert Smith
Midtown Tower 41F
9-7-1 Akasaka
Tokyo 107-6241
Tel: +81 3 5412 5412
Fax: +81 3 5412 5413
[email protected]
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