CROSS-BORDER UNITISATION & JOINT DEVELOPMENT OFSTRADDLING PETROLEUM RESOURCES ALONG SHARED

INTERNATIONAL BOUNDARY: WHAT OPTIONS ARE THERE FORSTATES IF NO AGREEMENT IS REACHED?

Bitrus Joseph Bulama*

ABSTRACT

The twin-concepts of cross-border unitization and joint development of petroleumdeposit that straddles the common boundary of two or more states have gainedmuch acceptance as evidenced by bilateral state practice. The two concepts providestates with the necessary frameworks for ‘cooperation’ in the joint exploitation of theresources where unilateral development will lead to dispute or inter-states conflicts.The fact that more and more discoveries of straddling petroleum deposits acrossinternational boundaries (some of which either lie across delimited continental shelfboundaries or are found in areas of overlapping continental shelf claims) are beingmade regularly makes these concepts very topical. The existing international legalregime applicable to such deposits merely requires states to “cooperate” indeveloping the common petroleum deposits without imposing any mandatory dutyto agree. Consequently, the tendency that states may fail to agree after negotiationsis ever-present. This paper therefore identifies and discusses the options available tothe states in the event that they are unable to reach any agreement on cross-borderunitization and joint development of their shared petroleum deposit.

INTRODUCTION

Cross-border unitisation and joint development are different

forms of co-operative mechanisms for the development of

petroleum deposits across shared boundaries (land or

maritime), whether delimited or not. There has been a growing

acceptability of the concepts as characterized by bilateral

state practice of jointly exploiting petroleum deposits that

lie across their shared boundaries. This fact was reiterated

by the Arbitral Tribunal in the Eritrea – Yemen Arbitration (Phase II

1

Maritime Delimitation) Case1 where it observed that “in the last

thirty years there has grown up a significant body of

cooperative state practice in the exploitation of resources

that straddle maritime boundaries”.2 There exist presently a

good number of joint-development agreements across the globe3.

This has been attributed to the growing acceptance of the UN

Convention on the Law of the Sea (UNCLOS) and its widespread

ratification by states.4

Both cross-border unitization and joint development are

cooperative practices designed to preserve the unity of the

deposits while respecting the inherent, sovereign rights of

the interested states.5 They are however distinguishable.

Whereas cross-border unitisation applies in respect of reservoir

underlying two or more countries that have delimited boundary

between them, joint development on the other hand, refers to an

arrangement between two or more countries to jointly develop

and share petroleum resources found within a geographic area

1*Bitrus Joseph Bulama holds an LL.M in Petroleum Law and Policy fromthe CEPMLP, University of Dundee, UK. He is a senior lawyer withextensive international and cognate experience in the legal andenergy industry having worked in both the UK and Nigeriajurisdictions. He is an independent researcher and can be reached atask4bulama@yahoo.com.

. Arbitral Tribunal Award, 17 December, 1999. Accessible at http://www.pca-cpa.org. 2 Ibid.3 As at 2005, there were at least 24 Joint Development Agreements aroundthe globe (See Barrow (2005), Joint Development Zones of the WorldSupplement 9, P.3).4 United Nations Convention on the Law of the Sea, 1982, opened forsignature 10 December, 1982 (came into force 11 November, 1994). Availableat http://www.UN.org/depts/los5 Onorato, W.T., ‘Apportionment of an International Common Petroleum Deposit’ (1977), 26, ICLQ, 324-337, at 332-33.

2

that has disputed sovereignty, and usually designated and

developed as joint development zone (JDZ).

The requirement for joint development has received judicial

support at the highest international level, namely the

International Court of Justice (ICJ) in the North Sea Continental Shelf Cases,

where it was held to be particularly appropriate when it is a

question of preserving the unity of deposits6. Although, both

concepts have received international acceptability, the

absence of precise mandatory international legal regime (apart

from the general requirement to cooperate) leaves such

practice at the mercy of states. The extant rules of

international law applicable to the exploitation and

development of shared petroleum resources only requires states

to cooperate by ‘consulting’ and ‘negotiating’ in good faith.

Such consultation and negotiation is not necessarily required

to end with any specific agreement. It is perhaps for this

reason that Cameron describes the requirement for cooperation as

no more than mere ‘rules of engagement’ rather than rules of

cooperation.7 It then goes without saying that the tendency

for states to fail to reach an agreement after negotiations is

therefore ever-present. This paper discusses the options

available to the states in the event that they are unable to

reach any agreement.

2. WHY CROSS-BORDER UNITISATION AND JOINT DEVELOPMENT?

Petroleum deposits, like other natural resources are often a

major source of national income just as they are also a major

6 North Sea Continental Shelf Cases, (1969), ICJ, Rep.52, Para.99. 7 Cameroon, P .D., ‘The Rules of Engagement: Developing Cross-Border Petroleum Deposits in the North Sea and the Caribbean, Vol.55, ICLQ, July (2006), P.561.

3

source of conflict and instability if not properly managed.

According to Onorato, “…it is a potential source of

international dispute as to the nature and extent of rights as

may be asserted by the several sovereigns under whose

territory the pool lies”.8 The potential for conflict is even

stronger where the petroleum deposits straddle the common

boundary of two or more countries, particularly where the

shared boundary has not been delimited. ”9 This cannot be

farther from the truth given that as at 2004, only 160 out of

400 maritime boundaries delimitation have been formally

agreed10. There are still a good number of unresolved maritime

boundaries delimitation disputes11 and more are cropping up as

more straddling Petroleum deposits are being discovered across

states boundaries.

One of the ways of avoiding conflicts is to have both

countries to agree to a cross-border unitization or joint

development of the common deposits. Unitisation addresses the

problems of determining the ownership and sovereignty over

resources by treating the transboundary oil and gas reserves

as a single unit during their development and operation and

dividing this unit into agreed proportions. The drivers behind

the two concepts range from legal, technological and economic

8 Onorato,W.T., ‘Apportionment of an International Common Petroleum Deposit’(1977), 26, ICLQ, 324-337,P.19 Onorato,W.T., ‘Apportionment of an International Common Petroleum Deposit’(1977), 26, ICLQ, 324-337,P.110 Prescott, V., and Schofield, C., The Maritime Political Boundaries of theWorld (2nd Edition), Martinus Nijhoff Dordrecht, (2004), 1. Also Cameron, P.D.Op.cit., P.564. 11 Examples of unresolved maritime boundaries include those between Barbados, and Trinidad and Tobago, Morocco and the Canary Islands, Iran andKuwait, Guyana and Venezuela, and Russia and Ukraine over the Strait of Kerch.

4

to strategic reasons. However, the following factors have been

specifically identified:

2.1. Geological Character of Petroleum:

Hydrocarbon is highly fugacious in nature. The fluidity of

petroleum does not respect man-made boundaries. It is highly

mobile so much so that it has been described as ‘wild animal’.

As a consequence of its straddling and migratory character one

owner can from his own territory perfectly tap and extract oil

from the others’ land. Under the property law, prior to

appropriation rule, there would be no liability for draining

or causing oil and gas resources to migrate in another

territory as long as there was no trespass on that territory.12

Therefore, the tendency for states driven by economic

considerations to aggressively exploit resources within their

boundary as quickly as possible in an attempt to produce as

much oil as possible from a field before their neighbouring

states who have access to the same field could commence is

very high. This could, and had indeed been a great source of

dispute between states. Unitization and joint development are

therefore one of the ways by which such inter-states disputes

are avoided.

2.2. The Rule of Capture:

This practice originated in the United States in the early 20th

century, where subsoil minerals including oil and gas are

property of the landowner. Because oil flows, one owner can

capture it from another’s land. According to Hardwicke, under the

rule of capture; “the owner of a tract of land acquires title

to the oil and gas which he produces …though it may be proved

12 See Black’s Law Dictionary5

that part of such oil and gas migrated from adjoining lands”.13

This led to competitive drilling which was damaging to the

soil and also reduces field pressure causing wastage of

hydrocarbon resources and increased operational expenditure.

This explains why some regulatory measures in the form of

compulsory unitization had to be introduced. It has thus been

observed that the wasteful competitive extraction, a by-

product of the rule of capture, could be the driving force for

the bilateral agreements.14 The applicability of the rule of

capture at international level has been denounced by a group

of lawyers15who assert that there is no such thing as

‘international rule of capture’ because it will not only lead

to competitive extraction, it could also lead to conflict

between neighbouring states.

2.1.3 Unity of Petroleum Deposits:

The unity of deposit as a principle is attributed to Gidel, who

first proposed respect for the preservation of the “unity of

the deposit” as a means of resolving the problem of common or

shared petroleum deposits that straddle the boundary between

two states.16 Consequently, joint development and trans-

13 Hardwicke, ‘The Rule of Capture and its Implications as Applied to Oil and Gas’, 13, Texas Law Review, (1935) 391 at 393. 14 Supra note 6, p. 88.15 See Miyoshi, The Basic Concept of Joint Development of Hydrocarbon Resources on theContinental Shelf, 3 Int’l J. Estuarine L. (1988), 6 and Appendix 3. Miyoshinotes that a group of lawyers specializing in the International Law of theSea and Energy at the Third Workshop on Joint Exploration and Development of OffshoreHydrocarbon Resources in South East Asia, held in Bangkok from Feb., 25 – March 1,1985, broadly agreed that no international rule of capture exists, citinghandwritten Memorandum entitled “Summary Thoughts” by Van Dyke, Chairman ofthe final session.16 In the Memorandum on the Regime of the High Seas, prepared by the UN Secretariat for International Law Commission,(1950),2.Yearbook, Int’l Law Commission, No.67,112,Para.337,UN.Doc.A/CAN.4/SER.A/1950/Add.1; See also Ong, Op.cit ,P.778.

6

boundary unitization is designed, inter alia, to preserve the unity

of such deposits while respecting the inherent rights of the

interested states.17 The preservation of unity of such deposit

according to Ong, is therefore intrinsic to any agreement

between interested States, be it boundary delimitation

agreement incorporating a trans-boundary unitization clause,

or a joint development agreement, and unitization appears to

be legally appropriate and efficient solution for the common

deposit.18

2.1.4 The Efficiency Principle:

The efficiency principle has to do with the need to maximize

total recovery of petroleum deposits from a reservoir. It

seeks to maximize the exploitation potentials of the reservoir

in an efficient manner taking into account the physical

properties of the soil and scientific precepts of the geology.

This approach ensures a proper recovery of hydrocarbons from

the ground.

As for joint development between countries, a number of economic

and practical reasons have also been identified as drivers

behind such practice. They 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;

(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.19 Weaver on his

17 Ong, D.M., Ibid.18 Ong, Ibid, P.780.19 Onorato, supra note 6, p.116.

7

own part attributes the practice of joint development of

common petroleum deposits to: first, the promulgation of some

UN General Assembly resolutions; second, the UN Convention on

the Law of the Sea; and third, the economic interest of the

impacted countries.20

3. INTERNATIONAL LEGAL REGIME ON CROSS-BORDER DEVELOPMENT OF

PETROLEUM RESOURCES

There is a plethora of UN Resolutions and Conventions touching

on cross-border development of petroleum deposits shared by

two or more countries. For instance, the UN General Assembly

Resolution 3129 adopted on 13 December, 1973 provides that “It is

necessary to ensure effective cooperation between countries through the

establishment of adequate international standards for the conservation and

harmonious exploitation of natural resources common to two or more states in the

context of normal relations between them”.21 It stressed that states

sharing resources should cooperate on the basis of a system of

information and prior consultation. Similarly, Article 3 of the 1974

Charter of Economic Rights and Duties of States (CERDS) otherwise referred

to as UN General Assembly Res. 3281 (XXIX) also provides for

cooperation in the exploitation of natural resources by

states.22 There are several other UN Resolutions and

Conventions encouraging states to cooperatively develop

20 See Weaver, J.L., et al, International Unitisation of Oil and Gas Fields:The Legal Framework of International Law, National Laws, and PrivateContracts, Vol.5, Issue 2, OGEL, (April, 2007), p.9121 UN General Assembly (1973) “Cooperation in the field of environmentconcerning natural resources shared by two or more states” UN GeneralAssembly Res. 3129; I.L.M. XIII, 232.22 Others UN Resolutions on cooperation include (but not limited to): United Nations Environment Program (UNEP) in its “Draft Principles” ILM XVII, 1098 (1978); United Nations Convention on the Law of the Sea (UNCLOS), 1982 – Articles 74(3)& 83(3).

8

natural resources that lie across their common boundaries. The

most prominent of these are discussed hereunder.

3.1 The UN Convention on the Continental Shelf, 1958:

The 1958 Convention23provides in Article 2(1) that “the coastal state

exercises over the continental shelf sovereign rights for the purpose of exploring it

natural resources.” This right over the continental shelf is

exclusive in the sense that if the coastal state does not

explore the continental shelf or exploit it natural resources,

no one may undertake these activities, or make a claim to the

continental shelf without express consent of the coastal

states.24 This right is inherent in the coastal states as it

does not depend on occupation, effective or notional, or on

any express proclamation. Article 6 of the Convention provides for

what may be regarded as requirement for ‘cooperation’ when it

talks about agreement between two adjacent states on their

common boundary. In the absence of such agreement, the

boundary shall be taken to be the median line unless otherwise

justified by special circumstances, or shall be determined by

the application of the principle of equidistance from the

nearest point of the baselines. The 1958 Convention can arguably

be said to have set the general framework for cross-border

cooperative or joint development of common or shared natural

resources between adjacent states.

3.2. The UN Convention on the Law of the Sea, 1982:

23 The UN Convention on the Continental Shelf, 1958; Website: http:www.oceanlaw.net/texts/genevacs.htm (Last visited on 24th December, 2006).24 Article 2(2).

9

The UNCLOS25 confers sovereign rights on coastal states over

Exclusive Economic Zones (EEZ) and the Continental Shelf26

extending to ‘200 nautical miles from the baseline, for the

purpose of exploring and exploiting, conserving and managing

the natural resources’. The Convention requires the coastal

states to exercise this sovereign right over the exclusive

economic zone and the continental shelf in a manner that has

due regard to rights and duties of other states.

The delimitation of the exclusive economic zone and the

continental shelf between states shall be effected by

agreement on the basis of international law in order to reach

an equitable solution.27 Where no agreement is reached yet, the

states are required, in the spirit of understanding and

cooperation, to make every effort to enter into provisional

arrangement, not to jeopardize or hamper the reaching of the

final agreement, and such an arrangement shall be without

prejudice to the final delimitation.28

3.3 Sovereign Rights of Coastal States:

From the inception of the Continental Shelf regime, following

the Truman Proclamation of 1945,29 the coastal states sovereign

rights to explore the seabed and exploit its natural resources

were said to be both inherent and exclusive.30 This assertion

is further reinforced by the provisions of Article 2(2) and 77(2) of

the 1958 Convention on the Continental Shelf and the 1982 Convention on the

25 UNCLOS was opened for signature on December 10, 1982.26 Articles 56(1) and 77(1) of the UNCLOS. 27 Articles 74 (1) and 83 (1).28 Articles 74 (3) and 83 (3)29 The Truman Proclamation of 1945, Proclamation N.2667, Policy of theUnited States with respect to the Natural Resources of the Subsoil andSeabed of the Continental Shelf;Sept.28,1945;10 Fed.Reg.12,303 (1945). 30 Ong, Supra P.774

10

Law of the Sea, respectively. The exclusive nature of these rights

prevents their being lost to another state in the absence of

express agreement to the contrary.31If the coastal state itself

has not explored or exploited its continental shelf, no other

state may do so without its express consent.

Article 81 of UNCLOS, 1982, explicitly consolidated these exclusive

rights by further granting the coastal states the exclusive

right to authorize and regulate drilling on the continental

shelf for all purposes. These sovereign rights do not depend

on occupation, express or notional, by the coastal states.

Thus, Ong, concludes that “international law assumes that

sovereign rights to exploit natural resources on the seabed

and subsoil extending to at least 200 nautical miles from the

baseline, and possibly to the edge of the continental margin,

are allocated among the coastal states of the world, and

cannot be lost through neglect”32 The ICJ in the North Sea

Cases affirmed the foregoing when it held that the sovereign

rights of a coastal state exist ipso facto and ab nitio by virtue

of its sovereignty over the adjacent land territory.33

3.4 Delimitation of the Continental Shelf:

The ICJ provided a definitive statement on the meaning of

delimitation when it noted that the basic concept of

continental shelf entitlement means that delimitation

essentially consists in drawing a boundary line between areas

that already appertain to one or another of the affected

states.34 The delimitation of the continental shelf and the31 See IAN Brownlie, Principles of Public International Law, 215 (5th Ed., 1998) cited in Ong, Ibid. 32 Ong, Op.cit. P.238 33 North Sea Cases (Supra), p. 22, para. 19.34 North Sea Cases (Supra),P.22,cited in Ong,P.775

11

exclusive economic zones between the states shall be effected

by agreement between the states on the basis of international

law in order to achieve equitable solution.35 However, the

exclusive nature of the sovereign rights of the coastal state

over its continental shelf serves to exacerbate the problems

associated with delimitation and managing any deposits on the

shelf, especially when overlapping claims have been made.36

Article 83 of UNCLOS deals specifically with the delimitation of

the continental shelf between countries with opposite or

adjacent coasts. In the Malta-Libya Case37 the ICJ for the first

time recognized the concept of continental shelf in UNCLOS as

part of customary international law. As a result, each coastal

state, whether or not a signatory to UNCLOS, was entitled to

200 nautical mile of the continental shelf, regardless of

whether the shelf was continuous or extended that far.38

3.5 Delimitation of the Exclusive Economic Zone (EEZ)

UNCLOS, 1982 establishes and defines the EEZ as 200 nautical

miles from the territorial sea.39 The EEZ gives the coastal

states sovereign rights, but not sovereignty,40 over certain

activities such as exploring, exploiting, conserving and

managing the natural resources, on the surface and subsurface

of the sea. The entitlement to the EEZ also confers coastal

states the rights to other activities for economic purposes.41

35 Articles 74(10) and 83(1) of the 1958 Convention and UNCLOS, 1982, respectively.36 Ong, Loc.cit., P.776. 37 Case concerning the Continental Shelf (Libya Arab Jamahiriya – Malta) Judgement(1985), ICJ.38 Weaver, supra note 6, p.8239 Articles 55-58, UNCLOS, 1982.40 Weaver, supra note 6, p. 83.41 Henkin, L., et al, International Law – Cases and Materials (3rd ed. 1993), p. 84

12

All other countries enjoy the freedom of navigation, over

flight, and other lawful acts associated with the operation of

ships, aircrafts, submarine cables, and pipelines that are

compatible with UNCLOS.42 The method of delimitation of the EEZ

is set forth in Article 74 of UNCLOS, and it provides that the

delimitation of the EEZ between countries 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 ICJ,

in order to achieve an equitable solution. Where no agreement

is reached within a reasonable time, the countries concerned

shall resort to the dispute settlement procedure, provided for

in the Convention.43 However, where there is an agreement in

place between the countries, then questions relating to the

delimitation of the EEZ shall be determined in accordance with

the provision of that agreement.

4. FRAMEWORK FOR COOPERATIVE DEVELOPMENT OF PETROLEUM

RESOURCES

4.1 The Requirement for Cooperation:

The question as to whether there is a general international

obligation to cooperate with respect to shared natural

resources has continued to attract comments and debates from

scholars across the divide. There is plenty of evidence to

support the argument that a requirement to cooperate exists.44

These may be found in a number of UN General Assembly Resolutions45,

provisions of Conventions, international case law, bilateral state42 Ibid, p.1292 (referring to Article 58 of UNCLOS), cited by weaver, supra note 6, p.8443 See Part XV, UNCLOS, 1982.44 Cameron, supra note 3, p.562.45 See for example UNGA.Res.3129 (xxviii), and UNGA Res.3281 (xxix), quoted in Cameron, Ibid.

13

practice as well as academic writings. Article 123 of UNCLOS, for example,

imposes a general principle of cooperation on states with

potentially conflicting interests at regional level.

The practice of negotiating and seeking agreement on the

exploration and exploitation of common deposit and the

apportionment of the minerals according to Lagoni is not a

mere usage but has given rise to customary rule of current

international law.46 On his own part, Cameron argues that “…

while the relevant principles of international law appear to

require states to cooperate in the development of common

resource deposit, particularly with respect to consultation

and negotiation, the scope of such cooperation remains

unclear…”47 He concludes that the international legal regime

might therefore be better described as providing states with

‘rules of engagement’ rather than rules of cooperation.48

Similarly, Ong submits that states practice alone is

insufficient or too ‘ambiguous’ to infer the existence of a

rule of customary international law.49 According to him: “a rule

of customary international law requiring cooperation

specifically with a view towards joint development or trans-

boundary unitization of a common hydrocarbons deposit has not

yet crystallized…the essential element of ‘opinion juris’ remains

indiscernible”.

The requirement to cooperate has to be reconciled with the

Principle of permanent sovereignty of states. The sovereign

rights of coastal states to explore the seabed and exploit its

46 Lagoni, R., Op.cit,P.239;47 Cameron, Op.cit.,Pp.560-6148 Ibid. 49 Ong, Op.cit., P.794.

14

natural resources are treated as both inherent and exclusive

in the continental shelf regime. Such sovereign rights, as

earlier mentioned, cannot be lost through neglect and do not

depend on occupation, express or notional. Consequently, any

requirement to cooperate must have some limitations in the

light of this.50

The principle that states have a general obligation to

cooperate in the exploitation of a common deposit can now be

reformulated in two cardinal rules of customary international

law. First, is an obligation to cooperate in reaching

agreement on exploration and exploitation of the resource; and

second, in the absence of such agreement, there is an

obligation to exercise mutual restraint with respect to the

unilateral exploitation of the resource.51 Note however that

the requirements to cooperate appear to differ according to

whether there is a boundary settlement in place or not.52

Where the boundary is already delimited and deposit is found

to cross boundary lines or situated in an area that is subject

to overlapping claims, Article 83 (3) of UNCLOS simply imposes a

general obligation to cooperate. The content and extend of

such general requirement remains uncertain, being analogous to

an ‘agreement to agree’.53 Similarly, while states are required

to notify, inform, and consult other interested states parties

for joint development of shared resources, and to negotiate in

good faith, there is no obligation on them to reach any

specific form of agreement.54

50 Cameron, Op.cit, P.562. 51 Ong, Lo.cit., P.802. 52 Cameron, Op.cit.,P.563 53 Ibid, P.564. 54 Ibid.

15

4.2 The Procedure for Cooperation:

Three broad principles have been identified as guiding the

procedure for cooperation by states under the international

law.55 These three principles are (a) the exercise of mutual

restraints, (b) consultation and negotiation, and (c) good

faith. The first procedural aspect of cooperation has to do

with the duty to exercise mutual restraints from undertaking

activities within their territory or control that is capable

of damaging the natural resources the environment of the other

party, preserving the unity of petroleum deposit.56 The

provision of Article 83 (3) of UNCLOS requiring states to make every

effort not to jeopardize or hamper the reaching of the final

agreement, has been interpreted to mean an obligation on

states to refrain from unilateral action capable of depriving

other states of the gains of exercising their sovereign right

of exploitation.57 To this extent, Ong asserts that only

unilateral action not amounting to irreparable prejudice to

other states’ rights are likely to be allowed.58 On his part,

Lagoni argues that in the absence of a permissive treaty

provision, no state may exploit, as to explore, a common

deposit before negotiating the matter with the neighbouring

state or the state concerned.59 He advised that interested

states should be urged on mutual restraint as soon as the

overlapping claims are discerned.60

55 Cameron, Ibid, P.565 ; See also Ong, P.796; Lagoni,P.23856 Cameron, Ibid.57 See Ong,P.798 58 Ong, Ibid.59 Laguna, Op.cit.,P.23560 Ibid.P.354

16

The second procedural requirement for cooperation in the

development of a shared deposit hinges on exchange of

information, consultation and negotiations between states. The

Convention requires that negotiations must be conducted in

good faith and the negotiating states are required to act in a

manner that would not constitute an abuse of rights under the

Convention.61Cameron argues further that the requirement to

cooperate by opening negotiation is an open-ended one. That

states are not required to conclude the negotiations with a

successful outcome.62Article 142 of the UNCLOS on the rights and

legitimate interests of coastal states provides further

guidelines on the procedure for negotiations. Prior

notification is required as part of the consultation and prior

consent must be obtained from coastal states concerned before

any exploitative activity is commenced.63

The third procedural requirement for cooperation is that

parties should negotiate in good faith (i.e. “in the spirit of

understanding and cooperation).64 The duty to conduct

negotiations in good faith is a general principle of

international law.65 This may therefore exclude a state from

prolonging the negotiation period unjustifiably.66 Cameron

submits that the standard of good faith in the context of

negotiations on continental shelf boundary agreements is met

by application of the so-called equitable principles that such

agreements are supposed to reflect.67 However, while this rule61 Cameron, Op.cit., P.566. 62 Ibid. 63 Article 142 (2); Cameron, P.567.64 Ong, Op.cit., P.798.65 Cameron, Loc.cit., P.567.66 Ong, P.784; Cameron, Ibid.67 Cameron, Ibid ; See also Ong, ibid

17

obliges the parties to negotiate in good faith it does not

necessarily imply a duty to reach a specific type of

agreement.68

4.3 Failure to Agree and the Implications:

The likelihood that states may fail to agree after

negotiations is ever-present. Where this occurs, what then

happens? Cameron is of the view that “in the event of a failure

to agree, they may choose to make further efforts at

developing cooperative arrangements, or go ahead independently

and develop the resources”69 Under the UNCLOS, 1982, the only

option that appears available to the states parties where no

agreement is reached “within reasonable time” is recourse to

the compulsory dispute settlement procedures under Part XV.70 However, this

is without prejudice to any agreed regional settlement

mechanisms that may be available. The question has been asked

that: if a state unilaterally proceeds to exploit a petroleum

deposit that straddles an international boundary or an area

where such a boundary is under discussion, in the absence of

prior agreement with its neighbour, would there be a risk of

repercussions in international law?71 Obviously, such a

unilateral is not only deplorable, but also unacceptable.

5. WHAT OPTIONS ARE THERE FOR STATES IF NO AGREEMENT IS REACHED?

5.1 Options for States where Agreement is not Reached

The point has already been made that the states may fail to

agree after negotiations. Where states are unable to reach an

68 Ong, supra note 9, p.796.69 Ibid. 70 Article 83(2).71 Ong, Ibid, p. 559

18

agreement after going the whole gamut of negotiations, four

broad options may be available to them.

First, the states may go ahead independently to develop the

resource with due regard to the principle of mutual

restraints.72 Second, the States may exercise restraints from

undertaking any exploratory activity in their common boundary

(this may not be an economically wise option). Thirdly, the

states may resort to the compulsory dispute settlement

mechanism under Part XV of Article 83 (2) of UNCLOS. The fourth and

perhaps the most appealing of the options is that the states

may choose to make further efforts at developing other forms

of temporary cooperative arrangements.

5.1.1 The First Option for States: Unilateral Action

A unilateral action occurs where one state proceeds on its own

to explore and exploit petroleum straddling resources on its

own side of a shared delimited boundary. This may happen if a

government is convinced that it is in the legitimate and

overall economic interest of its people to exploit the

petroleum resources on its own side of the delimited boundary

with an uncooperative neighbour.73 A decision to go ahead

unilaterally is sometimes politically justifiable,

particularly where a neighbouring state decides to be

unnecessarily uncooperative and recalcitrant. The

uncooperative state that refuses to negotiate may invariably

be deemed to have forfeited its ability to hold the other

state responsible for the violation of its sovereign rights.74

72 See Cameron, Loc.cit., P.559 73 Although, Ong argues that such unilateral action can only be respect of ‘exploration’ and not ‘exploitation’ of the deposits.74 Miyoshi, supra, note 28, cited in Ong, supra, p. 801.

19

Such an uncooperative state may however be compensated in

return for its acquiescence to the unilateral exploitation.75

The Continental Shelf regime which vests sovereign rights on

coastal states to explore the seabed and exploit its natural

resources seems to provide some basis or rationale for

unilateral action.76 This was affirmed by the ICJ in the North

Sea Cases that the sovereign rights of a coastal state exist ipso

facto and ab nitio by virtue of sovereignty over the adjacent land

territory.77 A state needs not be deprived of the benefits of

exercising its sovereign rights to explore and exploit its

natural resources. There are few examples where one state had

to take unilateral action in a shared boundary. Australia, for

instance took a unilateral action in the Ashmore Reef (in the

Ashmore and Cartier Islands), an area subject to disputing claims

between Australia and Indonesia. Australia unilaterally closed the

surrounding waters to Indonesian traditional fishing and

created a natural park in the region while continuing to

prospect for hydrocarbons in the vicinity.78 However, it is

important to note that only unilateral actions not amounting

to irreparable prejudice to the other state’s rights are

likely to be allowed.79

In furtherance of his cautionary note against unilateral

action, Ong asserted that unilateral action is permissible in

respect of ‘exploration’ and not ‘exploitation’ of the

75 Ong, ibid.76 See Article 77 (2) of UNCLOS, 198277 North Sea Cases (Supra) at 22, para. 19.78 See CIA – The WorldFactbook – Field Listing – Disputes – International. Available at: http://www.cia.gov/library/publications/the-world-factbook/fields/2070.hmtl79 Ong, Ibid

20

deposits because the fluidity of the resource continues to

complicate issues.80 That the lack of an international rule of

capture means that interested states are proscribed from

unilaterally exploiting the deposit, including any part of the

deposit that is on their own side of an agreed or putative

boundary.81 This is true to the extent that even if a state

extracts the resources on its own side of the agreed or

putative dividing line, such unilateral extraction would drain

the other state’s share.82 This could, in extreme cases, lead

to hostilities between the two countries. For example,

unilateral action created tension between Azerbaijan and Russia

when Azerbaijan unilaterally signed an agreement with BP led

consortium to explore the resources in the disputed Caspian

Sea in 1994. The Russian government immediately wrote the

British Embassy in Moscow stating that the ownership of the

Caspian resources remained unresolved83 and hence such an act

amounted to a unilateral action that may hamper the resolution

of the Caspian Sea dispute. Similarly, Iran, one of the

parties to the Caspian Sea dispute also challenged

Azerbaijan’s unilateral action in the disputed waters of the

Caspian Sea. Against this background, unilateral action may

not be a good option for states.

5.1.2 Second Option for States: Mutual Restraint

Mutual restraint by both states is another option opened to

states in the event of failure to reach an agreement to

80 Ong, P.800.81 Ong, Ibid. 82 Ibid83 Hober, K., ‘Ownership of the Oil and Gas Resources in the Caspian Sea: Problems andSolutions – International Arbitration and Contractual Clauses’, Stockholm ArbitrationReport 2004, 1 Juris Publishing Inc., p.1.

21

jointly develop their shared petroleum deposit. There is an

obligation on states to exercise mutual restraint or refrain

from unilateral action capable of depriving other states of

the gains of exercising their sovereign rights of

exploitation.84 Accordingly, Lagoni observes that in the absence

of a permissive treaty provision, no state may exploit, as to

explore, a common deposit before negotiating the matter with

the neighbouring state concerned. He advised that interested

states should be urged to exercise mutual restraint as soon as

the overlapping claims are discerned.85

It may be a herculean task to get states to exercise mutual

restraint because not only is petroleum exploitation an

activity of considerable economic and national sensitivity, it

also co-exists uneasily with the concept of state’s

sovereignty. It is nevertheless the most appropriate option in

cases involving potentially hostile neighbouring states and

where the states could not agree on creating a JDZ over their

common area of overlapping claims. This option will not only

calm tension, it would avoid the possibility of any armed

conflicts over the disputed shared area.

Mutual restraint was exercised by Brunei and Malaysia in 2003

over the disputed Limbang area. Both countries had to cease oil

and gas exploration in their offshore and deep-water seabeds

pending the outcome of an agreement over the allocation of the

disputed areas.86 Another example of mutual restraint is the

‘2002 Declaration on the Conduct of Parties in the South China Sea’ which

84 Ong, supra p.79885 Lagoni, p.35486 CIA – The WorldFactbook - supra note 211.

22

requires disputing countries of China, Malaysia, Philippines, Taiwan,

Vietnam and Brunei to exercise mutual restraint over the disputed

Spratly Islands. This has greatly eased tension but it is however

believed to have fallen short of a legally binding “code of

conduct” desired by several of the disputants.87

5.1.3 Third Option for States: Recourse to Disputed Resolution

The third option is recourse to the compulsory dispute settlement

procedure under Part XV of UNCLOS, 1982.88 This is the only option

that appears available to the parties where no agreement is

reached “within reasonable time”. Indeed, in Ong’s words “the

only recourse available should the negotiation prove fruitless

is resort to the compulsory dispute settlement procedure under

Part XV of the Convention.89 However, this is without prejudice

to any agreed regional settlement mechanisms that may be

available. States are at liberty to invoke the compulsory

settlement procedure if no agreement between them is reached

“within a reasonable period of time”. The Cameroon v. Nigeria Land

and Maritime Boundary Dispute over the Bakassi Peninsula submitted

to the ICJ for resolution is a good example of recourse to the

international dispute settlement option.

A number of dispute settlement mechanisms are available. These

include the International Tribunal on the Law of the Sea (ITLOS), the

International Court of Justice (ICJ) or an arbitral tribunal constituted

in accordance with Annex VII of the Convention.90 Although, this

option is limited as states may declare in writing at any time

that they will not accept compulsory settlement of certain87 Ibid88 Article 83 (2) of UNCLOS.89 Ong, supra note 9, p. 784.90 See Cameron, supra note 3, p.568.

23

categories of disputes including, inter alia, those relating

to sea boundary delimitation.91 To this extent therefore,

resorting to dispute settlement as an option depends largely

on the willingness or otherwise of the states.

This option is not without some weaknesses. For instance, what

happens if one of the states is not a signatory to the

relevant Conventions or refuses to accept or submit to the

compulsory jurisdiction of the ICJ or ITLOS? In such

instances, this option becomes lame and the states may

therefore chose to adopt any other procedure acceptable to

them to resolve their dispute or resort to any of the other

options like unilateral action, mutual restraint or temporary

arrangement that allows for the exploitation of shared

resources. To this end, political will on the part of the

states is sine qua non in international arbitration. The lack of

political will has been identified as the major stumbling

block to the resolution of the Caspian Sea dispute among the

littoral states of Russia, Kazakhstan, Iran, Azerbaijan and Turkmenistan.

However, some states practice, especially in the South China Sea

and the wider Asian Pacific region in particular, shows that states

are beginning to appreciate the practical benefits of setting

aside disputes over maritime delimitation in favour of

mutually beneficial exploitation of resources. Examples in the

North Sea (Markham Field, 1992) and the Persian Gulf (Yemen, 1998)

regions, as well as more recent agreements on the Caribbean

(Colombia-Jamaica, 1993), eastern Atlantic (Guinea Bissau- Senegal,

1993/1995), and Southern Atlantic (Argentina- United Kingdom,

1995) regions, also attest to the increasing preference for91 Ibid.

24

mutually beneficial (cooperative) exploitation than resorting

to dispute.92

5.1.4 The Fourth Option: Provisional Arrangements

The fourth and perhaps the most commendable option is that

states may choose to explore and make further efforts at

developing other temporary forms of cooperative arrangements.

Along this line, Ong has identified three basic models for

states, namely:

(1) The first model is that both states may appoint one of the

states to manage the development of the deposits located in a

disputed area on behalf of both states. The other state shares

in the proceeds from the exploitation after the first state’s

costs are deducted.93 A caveat must be sounded here that this

option may not appeal to many states because it may be seen as

an affront on the sovereign rights of the state on whose

territory part of the deposit being exploited by the other

state lie. Not many states therefore would like to put

themselves in this position, especially when a disputed seabed

area subject to overlapping claims is involved, as such

apparent acceptance may cast doubt on the strength of these

states’ claim to the area. Example of this model include: the

1958 Saudi Arabia - Bahrain, the 1969 Abu Dhabi – Qatar and the 1989 Australia –

Indonesia (Timor Gap Treaty) Agreements. While Saudi Arabia –

Bahrain’s agreement divided a disputed area of the continental

shelf in the Persian Gulf between the two countries, it

simultaneously provided for the equal sharing of the net

income derived from exploitation of resources in the disputed92 See Ong, ibid at 797.93 Ibid.

25

area (Fashtu bu Saafa Hexagon).94 The arrangement provided that

only Saudi Arabia would administer the designated area and

Bahrain would only be entitled to half of the net revenue

therefrom.95

(2) The second option consists of agreement establishing a

system of compulsory joint-venture between the states and

their national (or other nominated) oil companies in

designated development zones. Here, the strategic control of

the hydrocarbon development in the joint development zone is

retained by the two states by requiring both of them to

approve the joint operating agreements. A good example of

this model is the 1974 Japan – South Korea Agreement96 which provides

for exploration and exploitation in a defined joint

development zone to be carried out in further subdivided zones

by entities nominated by both states under a joint operating

agreement that, in turn, gives a single entity exclusive

operational control over the relevant subzones97 The strategic

control of the hydrocarbon development in the joint zone is

retained by the two countries by requiring both of the to

approve the joint development.98 Other examples of this model

are the 1974 France – Spain Agreement, the 1992 Malaysia – Vietnam MOU,

the 1993 Colombia – Jamaica Treaty, the 1995 Argentina – United Kingdom

Joint Development Declaration, amongst others.

94 Article 2 of the Agreement between Bahrain and Saudi Arabia, Report No. 7– 3, in Int’l Maritime Boundaries 75, supra note 118, p.1489. See also Ong,ibid.95 Similar arrangement applied to the Abu Dhabi – Qatar Agreement.96 See Choon-ho Park Japan- South Korea Report No.5, 12 Int’l Maritime Boundaries, supra note 118, p.1065. 97 See Articles V (I) and VI respectively. See also Ong, supra note 9, p.789. 98 Article V (2); quoted in Ong Ibid

26

(3) Third model requires a higher level of cooperation than

the two earlier models, and consequently reduces the national

autonomy of the states. This option consists of an agreement

by interested states to establish an international joint

authority or commission with legal personality, with

comprehensive mandate to manage the development of the

designated zone on behalf of the states.99 Such joint

authorities have been described as ‘strong’ institutions with

extensive supervisory and decision-making powers and wide-

ranging functions, as opposed to the ‘weak’ liaison or

consultative type of bodies under the direction of the parties

established by some agreements embodying second joint-

development model described above.100 An early example of this

is the Sudan – Saudi Arabian Agreement of 1974 which established a

joint commission charged with enormous powers and functions.101

Other examples are the Malaysia – Thailand Joint Development Agreement of

1979 – 1990 which established the Malaysia-Thailand Joint

Authority, the 1989 Timor Gap Zone of Cooperation Treaty between

Australia and Indonesia, and more recently the Guinea Bissau –

Senegal Agreement of 1993 and its Protocol.102

Ong however concludes that “while the above examples of the

three models show that interested states have a variety of

choices, they do not demonstrate acceptance of the joint

development solution per se as required by international

law”.103

99 Ong, Ibid at p. 791.100 See Miyoshi, supra note 28, Pp. 43-44, cited in Ong, ibid.101 Article VIII of the Agreement102 Ong, pp. 791-792103 Ibid.

27

6. CONCLUSIONS

Ample evidence exists to show that the twin–concepts of cross-

border unitization and joint development of shared petroleum

deposits are gaining acceptability as characterized by the

growing bilateral state practice. However, the absence of a

mandatory obligation under the extant international legal

regime other than the open-ended requirement to cooperate,

coupled with the fact that the customary international law on

this practice has not yet crystallized leaves the practice

largely at the mercy of the neighbouring states. The

development of petroleum deposits along shared international

boundary is a serious economic activity of considerable

sensitivity to the affected states. The extant international

legal regime only provides the framework for the states to

notify, consult, and negotiate in good faith. Countries are

thus not obligated to agree at the end of the day.

This paper has identified four broad options, where states

fail to agree after negotiations. First, the states could

resort to unilateral action, i.e. go ahead independently to

develop the natural resources. The problem with this option is

its tendency to breed conflict between neighbouring states.

The second option is mutual restraints, which requires states

to stay action on the exploitation of the petroleum resources

in a disputed area. Although, this option is highly

recommended, it however co-exists uneasily with the concept of

state sovereignty and may not be attractive to states,

especially when viewed against the economic benefits that

would be lost if states exercise mutual restraint. The third28

option is the recourse to the compulsory dispute settlement

mechanism under UNCLOS. Again, the problem with this option is

that recourse to dispute resolution may impact negatively on

the bilateral relationship of two neighbouring states. It is

perhaps for this reason that some states have shown preference

for an amicable settlement through cooperative arrangements

rather than having recourse to dispute settlement.104 Another

weakness with this option is that a state may not be a

signatory to the UNCLOS or may therefore refuse to accept or

submit to the jurisdiction of the ICJ or ITLOS. Thus, this

option depends largely on the willingness of the states.

Fourthly, the states may make further efforts at developing

other provisional forms of cooperative arrangements in which

case three models were identified. This option is perhaps the

most viable in that the three models suggested by Ong are

capable of achieving peaceful exploitation and utilization of

shared petroleum agreement similar to what cross-border

unitization or joint development aims to achieve.

However, the point must be stressed here that the success or

otherwise of any agreement on cross-border unitization or

joint development rests largely on the political will,

economic aspirations and the willingness on the part of the

concerned states to cooperate.

104 A good example is the Nigeria – Sao Tome e Principe Joint DevelopmentAgreement in which both countries agreed to develop their common area ofoverlapping claims as a Joint Development Zone rather than resorting to thecompulsory dispute mechanism available to the under UNCLOS.

29

REFERENCES1. PRIMARY SOURCES

International Conventions:

1. United Nations Convention on the Continental Shelf, 1958

(signed into force on April 29, 1958), in Ley, S.H.,

30

Churchill, R., and Nordquist, M., (eds.), New Direction on the

Law of the Sea, Vol.1 (New York: Oceana Publications, 1973).

2. United Nations Convention on the Law of the Sea, 1982,

Opened for signature 10 December, 1982 (entered into force 11

November, 1994). Available at http://www.UN.org/depts/los

2. SECONDARY SOURCES

Books:

1. Tarvene, B., Cooperative Agreements in the Extractive

Petroleum Industry, (Kluwer Law International, 1996).

2. Brownlie, IAN, Principles of Public International Law, (5th

Edition, 1998).

3. Henkin, L., et al, International Law – Cases and Materials (3rd ed. 1993),

Articles:

1. Cameron, P.D., ‘The Rules of Engagement: Developing Cross- Border

Petroleum Deposits in the North Sea and the Carribean’, International &

Comparative Law Quarterly, Vol.55, 559 (July, 2006).

2. Hober, K., ‘Ownership of the Oil and Gas Resources in the Caspian Sea:

Problems and Solutions – International Arbitration and Contractual Clauses’,

Stockholm Arbitration Report 2004, 1 Juris Publishing Inc.

3. Kramer, B.M., Compulsory Pooling and Unitization: States Options in

Dealing with Uncooperative Owners, Journal of Energy Law & Policy,

Vol.7, 255 (1986).

4. Lagoni, R., ‘Oil and Gas across National Frontiers’, American Journal

of International Law, Vol.73, 215 (1979).

31

5. Miyoshi, ‘The Basic Concept of Joint Development of Hydrocarbon Resources

on the Continental Shelf’, 3 Int’l J. Estuarine L. (1988), 6 and

Appendix 3.

6. Ong, D.M., ‘The New Timor Sea Arrangement 2001: Is Joint Development of

Common Offshore Oil and Gas Deposits Mandated under International Law?

International Journal of Marine and Coastal Law,Vol.17, No.1,

79,(2002).

7. Ong, D.M., ‘Oil and Gas Deposits: “Mere” States Practice or Customary

International Law? American Journal of International Law, Vol.93,

771-804, (1999).

8. Onorato, W.T., ‘Apportionment of International Common Petroleum

Deposit’, International & Comparative Law Quarterly, Vol.26, 324,

(1977).

9. Prescott, V., and Schofield, C., The Maritime Political Boundaries of

the World (2nd Edition), Martinus Nijhoff Dordrecht, (2004).

10. Weaver, J.L., et al, ‘International Unitisation of Oil and Gas Fields:

The Legal Framework of International Law, National Laws, and Private Contracts’,

Vol.5, Issue 2, OGEL, (April, 2007).

32