Recent Framework Agreements for the Recognition and Development of Transboundary Hydrocarbon Resources Nigel Bankes February 2014

Outline Traditional approaches to transboundary reservoirs The current generation of framework agreements –Five agreements –An analytical framework Scope Identification of transboundary reservoirs Authorization for production Apportionment Dispute resolution Conclusions

Traditional approaches Unity of deposit clause (UK\Norway, 1965) –[1] If any single geological petroleum structure or petroleum field …extends across the dividing line and the [2] part of such structure or field which is situated on one side of the dividing line is exploitable, wholly or in part, from the other side of the dividing line, [3] the Contracting Parties shall, in consultation with the licensees, if any, [4] seek to reach agreement [4a] as to the manner in which the structure or field shall be most effectively exploited and [4b] the manner in which the proceeds deriving therefrom shall be apportioned. –Still used (eg NZ\Australia, 2004) Specific agreements –Frigg (1976), Statfjord (1979), Murchison (1979), and Markham (NL) (1992)

Recent framework agreements Framework Agreement between the United Kingdom and Norway concerning Cross-Boundary Petroleum Co-operation (2005) Agreement between Canada and the French Republic Relating to the Exploration and Exploitation of Transboundary Hydrocarbon Fields (2005) Framework Treaty relating to the unitization of hydrocarbon reservoirs that extend across the delimitation line: Trinidad & Tobago\ Venezuela (2007) Treaty between Norway & Russia concerning Maritime Delimitation and Cooperation in the Barents Sea and Arctic Ocean (2010) Annex II deals with Transboundary Hydrocarbon Deposits Agreement between the US and Mexico Concerning Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico (2012) Premise in each case is an agreed boundary; & these are not JDZs 35pp (UK\Norway); 3pp (Norway\Russia); Not all in force ILC declined (2010) to take up the subject of straddling petroleum deposits

Not all similarly situated UK\Norway –Mature basin; transboundary infrastructure –A number of existing agreements –Issue is how to optimize production and infrastructure in the median line corridor –Goes beyond just transboundary deposits Other agreements –Little or no exploration –The goal is to provide certainty & a clear framework –Confined to transboundary deposits

The baguette or key delimitation (1992) Note the increased potential for transboundary hydrocarbon accumulations

Analytical framework (1) Scope ** (2) Purpose and objectives (3) Identification of transboundary accumulations ** (4) Authorization of production ** (5) The role of unitization ** (6) Determination of reserves & apportionment ** (7) Technical issues (measurement etc.) (8) Fiscal issues (royalties and taxation) (9) Infrastructure issues (10) Environmental issues (11) Institutions and dispute resolution ** (12) Decommissioning (13) Duration and termination.

Scope Generally similar in scope –Coordinated development and apportionment of transboundary reservoirs UK\Norway –Broader in scope –Designed to ensure that the boundary does not get in the way of the most efficient development of any reserves (& infrastructure) located close to the boundary

Identification of transboundary reservoirs Surprisingly not a focus of most of the agreements, or their dispute settlement provisions –Simply a major premise of the agreement –And perhaps an example of deferral to licensees Canada\France provides most detailed treatment –Exchange of information on any well drilled within 10 nm –Ability to trigger reference to TWG and expert determination Russia\Norway and US\Mexico (less detail)

Authorizing production from a TBF The default rule in international law –Rule of capture; extensive literature, Onorato, Ong, Lagoni, Miyoshi, Cameron –Distinguish between seismic exploration & drilling –Guyana v Suriname; 74(3), 83(3): (1) every effort, (2) don’t jeopardize The position under most of these agreements? The position under the US\Mexico Agreement –Very complex –Duty to try to reach agreement on reserves, allocation and unitization –Reference to expert determination –But if cannot reach agreement each can authorize its licensee to proceed, subject only to a duty to exchange production data on a monthly basis.

Unitization Unitization refers to the joint, coordinated operation of the reservoir by all tract owners (licensees); costs & production are shared All of the agreements (except US\M) assume or require unitization prior to production Differ as to the parties to the unitization agreement –Licensee driven UK\Norway; US\Mexico; Canada\France –State driven Norway\Russia; Venezuela\T & T –Canada\France Contemplates an Exploitation Agreement (Parties); and a unitization agreement (licensees)

Apportionment Most difficult issue in any unitization –In UK\Norway; US\M; Canada\France apportionment based on proposal from licensees –Norway\Russia; Venezuela\T & T envisage more direct state involvement; reality may be different All of the agreements provide a role for expert determination –Result is binding in all cases except V\T & T Generally provision for re-apportionment –In light of new knowledge –Generally governed by the same procedure –Who triggers State\licensee; unilateral or by agreement

Dispute resolution Sophisticated and tailored –Standing commissions –Expert determination –Arbitration –Technical working groups –Negotiation, consultation etc Exceptions –Venezuela\T & T, no binding arrangements –US\Mexico, no binding arbitration

Conclusions Common features –Unitization as the preferred approach –No production absent agreement –Binding expert determination to facilitate agreement on apportionment –Sophisticated & tailored dispute settlement provisions Some differences –Role of the state vs that of the licensees –Identification of transboundary reserves Outliers –UK\Norway re scope –Venezuela\T & T re dispute settlement –US\M re production without agreement