Maritime Boundary Delimitation and Oil and Gas Deposits: Implications for Energy Companies (II)

By Ondotimi Songi and Denye Ayemieye

Relevant/Special Circumstances and Equitable Solution

What can be gleaned from the foregoing discussion is that although the relevant/special circumstances are not expressly provided for under UNCLOS for maritime boundary delimitation, the courts and tribunals have usually been called by the parties to a maritime boundary dispute to take into consideration relevant/special circumstances of each case with the aim of realizing an equitable solution to the dispute.

Generally, relevant/special circumstances refer to situations that will alter the anticipated results that will be produced if the equidistance principles are applied. In the North Sea Continental Shelf cases[1], the ICJ stated that there are no limits to what may constitute a relevant/special circumstances so that factors the courts or tribunals will take into consideration in arriving at an equitable solution appears inexhaustible. However, it will appear that with respect to the continental shelf, “only those that are pertinent to the institution of the continental shelf as it has developed within the law, and to the application of equitable principles to its delimitation, will qualify for inclusion.[2]

Following from case law jurisprudence, special/relevant circumstances may be classified into geographical and non-geographical. For geographical factors, the courts have placed reliance on the coastal geography of a coastal state such as the shape of the coastline, the presence of islands, etc.[3] In the North Sea Continental Shelf cases, Germanys’ concave coast nature was held to be a relevant circumstance. Some non-geographical factors have included the conduct of the state parties, security considerations, etc.[4]

It will thus appear that the court and tribunals have wide powers and discretion in determining what constitutes relevant/special circumstances because the court and tribunals struggle with defining applicable principles that will constitute such circumstances. The situation is worse as the courts and tribunals will have to come up with delimitations that are aimed at achieving equitable solutions, arguably not only in the latter’s view but also in the face of litigants.[5]

It is in this light that this paper will now turn to considering whether the courts and tribunals will have any regard to the existence of oil and gas deposits (natural resources) which is an economic factor when delimiting maritime boundaries between opposite and adjacent states. Importantly, the paper will highlight some of the implications the position of the courts and tribunals will have on oil and gas companies.

Maritime Boundary Delimitation and Oil and Gas Deposits: Implications for Energy Companies

The crux of maritime delimitation under UNCLOS revolves around the ‘equitable solution’ slogan in the absence of any agreement by the parties. It will thus make sense that litigants in a maritime dispute should argue that the presence of oil and gas deposits will be beneficial to their economic development and should thus be regarded as aiding to achieve an equitable solution especially if the state litigant is a poor or developing country. After all, UNCLOS envisages the sovereign rights of coastal states to explore and exploit their natural resources in the EEZ and Continental Shelf.[6]

However, it will appear that although control of natural resources is a major component of the law of the sea, yet it is not considered for the purpose of maritime boundary delimitation, so that the existence of oil and gas deposits may not be considered a relevant/special circumstance by the courts and tribunals.[7] In other words, while the peaceful exploration, exploitation and conservation of natural resources is a major focus of the law of the sea, it seems natural resources (in this case oil and gas deposits) becomes inconsequential in this instance. One begins to wonder if the much touted ‘natural resources’ in the law of the sea and particularly under the constitution of the oceans (UNCLOS) is a case of much ado about nothing.

Nevertheless, the main reason for this attitude of courts and tribunals is the fact that “in carrying out maritime boundary delimitation, they (courts and tribunals) are not engaged in an exercise in distributive justice and dividing the area into just and equitable shares”.[8] Therefore, socio-economic factors such as the population size, wealth of a country, land mass, and existence of natural resources (including oil and gas) has been held to be irrelevant.[9] Another basis for this approach by the courts and tribunals is that these factors are subject to change over time and would thus require another maritime boundary delimitation in the event of any changes which negates the standing principle of the permanence and stability of maritime boundaries.[10] In essence, international courts and tribunals do not place much relevance or significance to the existence of oil and gas deposits when delimiting maritime boundaries between opposite or adjacent States.

In almost every case where the presence of natural resources such as oil and gas or fisheries have been decided, the courts and tribunals had no reason for delimiting maritime boundaries on the mere existence of oil and gas deposits straddling the line, or because these oil and gas deposits were concentrated on one side. Specifically, in the recent case of Cameroon/Nigeria case, the court had been asked by Nigeria to consider the oil licenses that had been awarded in the disputed area as a relevant/special circumstance. The ICJ noted that: “although the existence of an express or tacit agreement between the parties on the siting of their respective oil concessions may indicate a consensus on the maritime areas to which they are entitled” they were not to be considered a relevant circumstance that would justify the shifting of a provisional delimitation line.  In the Cameroon/Nigeria case, the ICJ found that there was no agreement to that effect.[11] The ICJ further observed that: “the court’s jurisprudence shows that, in disputes relating to maritime delimitation, equity is not a method of delimitation, but solely an aim that should be borne in mind in effecting delimitation’.[12] A similar decision had earlier been reached in the 1982 Tunisia/Libya case though not on oil and gas deposits but on the existence of fisheries.[13]  In the case involving Guinea and Guinea-Bissau case[14], the Tribunal in rejecting economic considerations as a relevant circumstance noted that: “it […] does not have a power to compensate for the economic inequalities of the States concerned by modifying a delimitation which it considers is called for by objective and certain considerations.[15]

In the most recent case of Guyana v. Suriname (2007)[16] prior to the determination of the disputed maritime boundaries, both countries had awarded oil concessions to oil and gas companies in areas that straddled competing claims by both countries. Although the Permanent Court of Arbitration (PCA) took into consideration the general conduct of the parties in reaching an equitable solution, referring to Nigeria/Cameroon Case, the PCA rejected Guyana’s argument its conduct in granting oil concessions should determine the outcome of the maritime boundary. The PCA restated the international courts and tribunals’ reluctance to accord significance to hydrocarbons in delimiting maritime boundaries. Similar decision was reached in the case of Nicaragua v. Honduras where the ICJ noted that the granting of oil concessions failed to indicate any form of tacit agreement between the two States as to where maritime boundaries should lie.

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It would appear that where there is an express or implied agreement between the parties as to oil concessions in disputed areas, this would be taken into account as a special/relevant circumstance by courts and tribunals as noted in the cases discussed. Therefore, it may be argued that economic considerations are not entirely irrelevant in maritime boundary delimitations as there may be occasions where the courts and tribunals may place reliance on them. Although not on mineral deposits, in the Gulf of Maine case the Chamber also noted that economic and social factors could be taken into consideration if the applied criteria and methods of delimitation would “be revealed as radically inequitable, that is to say, as likely to entail catastrophic repercussions for the livelihood and economic well-being of the population of the countries concerned.”[17] Thus in the Greenland and Jan Mayen case[18] where both states emphasised their dependence on the exploitation of resources (capelin fish species), the court adjusted the median line finding that “the median line was too far to the west of Denmark to be assured of an equitable access to the capelin stock, since it would attribute to Norway the whole of the area of overlapping claims”.[19] However, Judge Schwebel in his separate opinion disagreed with this decision noting that the court has by this distributive justice approach departed from its own case law.

However, with respect to oil and gas deposits, it seems the prevailing law is that unless there is an agreement (express or implied) between the parties, it would not amount to a special or relevant circumstance for the courts and tribunals. By extension, it means oil and gas deposits are not entirely irrelevant to maritime boundary delimitation because coastal states may in their agreements deal with issues of oil and gas deposits as “there is no legal limits to the considerations which States may take account for the purpose of making sure that they apply equitable procedures.”[20] Interestingly, there is a growing body of State practice with respect to agreements in dealing with oil and gas deposits in disputed maritime boundaries which is aimed at avoiding conflict and also fulfilling or complying with articles 74(3) and 84(3) of the 1982 UNCLOS that talk about embarking on provisional measures of a practical nature pending the final outcome of the maritime dispute.

One major practical way that has been used by states in achieving this is through the establishment of Joint Development Zones (JDZs) with the instrumentality of a Joint Development Agreement[21] because international oil and gas companies are usually hesitant in invest in disputed maritime zones even though there are vast amount of oil and gas deposits.[22] The Nigeria/Sao Tome and Principe JDZ is a good working example. Briefly, the JDZ was established by treaty[23] providing for a joint control of the parties over the exploration and exploitation of the resources in the JDZ, and a 60/40 split of benefits and burdens in favour of Nigeria.[24] Importantly, although valid for 45 years and subject to review after 30 years, the parties undertake no renunciation of their claims to the disputed maritime zone (EEZ).

For energy companies, the implications or significance of this analysis is to alarm oil and gas companies operating offshore to be very reluctant and be weary of engaging in disputed waters because of the economic risks it portends and the possibility of being subject to legal liability. In the Aegean Sea Continental Shelf Case[25] between Greece and Turkey, the ICJ had stated that “seismic exploration of the natural resources of the continental shelf without the consent of the coastal State might, no doubt, raise a question of infringement of the latter’s exclusive right to exploration”. Although this position appears watered down in the Guyana v. Suriname case to the effect that unilateral ‘seismic exploration’ in disputed waters may be acceptable under international law[26], the point being emphasized is that energy companies may be held legally liable for infringing the exploration rights of coastal States. This might happen in a situation where the State that had not granted the oil concession to the energy company wins the case on the disputed maritime boundary. It should be noted that “concessions unilaterally granted or exploration unilaterally undertaken” cannot “create new rights or even deprive the other State of any rights to which in law it may be entitled.”

It has been suggested that energy companies may in the light of possible economic loss and legal liability, “obtain some indemnity or contractual reversionary mechanism to address the potential adverse consequences of a resolution to the dispute that is unfavorable to the state purporting to grant a concession or permission for offshore exploration and exploitation”. However, it is argued here that it may be better for energy companies to be abreast with disputed boundaries and endeavor not to invest in such disputed areas as a precautionary measure. It might also be argued that energy companies interested in disputed maritime areas may engage the various disputing States with a view to helping them reach provisional measures of a practical nature for the purpose of exploiting the resources in the disputed area.

Conclusion

Every country seeks to exercise sovereignty over such maritime boundaries so that it can among other things issue oil and gas licenses or concessions to prospective investors (energy companies). This paper has shown that there is largely a case of flexibility in the law of delimitation of maritime boundary with the basic aim being to achieve an equitable solution taking into consideration relevant/special circumstances. In seeking to arrive at an equitable solution international courts and tribunals have resorted to geographical and non-geographical factors as constituting relevant/special circumstances. However, the courts and tribunals have almost clearly held that the existence of natural resources such as oil and gas deposits will not be given any significance in maritime boundary delimitation as it is not engaged in an exercise of distributive justice that is relative and tentative. However, oil and gas deposits may form the basis of agreements entered into by state parties in which case it may be taken into consideration by the courts and tribunals, but it may be argued that even in this sense, what the court may be giving regard to is the conduct of the parties and not the mere presence of oil and gas deposits. For energy companies, caution is the watch-word when dealing with host governments in disputed maritime areas as they might end up incurring economic loss and/or legal liability.

Nutshell

The authors have in this paper examined decisions of the courts and prominent practices and have analyzed issues which courts take into consideration in the attempt to arrive at an equitable solution with regards to issues/disputes regarding maritime boundary delimitation in the event of the existence of natural resources. This is the final installment of this interesting paper. Read, learn, share and discuss!!!

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[1] North Sea Continental Shelf, Judgment, I.C.J. Reports 1969, p. 50, para. 93

[2] Libya/Malta Continental Shelf Case [1985] ICJ Reports 13 at p. 40, para. 48

[3] Nicaragua and Honduras in the Caribbean Sea (Nicaragua v. Honduras, Judgment of 8 October 2007); Qatar v. Bahrain (supra) note 8

[4] Greenland/Jan Mayen case (supra) note 5; and Libya/Malta Continental Shelf Case (supra) note 13

[5] Dundua, N., “Delimitation of Maritime Boundaries between Adjacent States, 2006-2007, p.37, available at: http://www.un.org/depts/los/nippon/unnff_programme_home/fellows_pages/fellows_papers/dundua_0607_georgia.pdf (last accessed 5 January, 2012)

[6] See article 56 of UNCLOS

[7] Tunisia/Libya Continental Shelf case [1982] ICJ Reports 18; Libya/Malta case (supra) note 13; and Greenland/Jan Mayen case (supra) note 5

[8] Churchill, R.R., and Lowe, A.V., (supra) note 6 at p. 187; see also Greenland/Jan Mayen Case [1969] ICJ Rep. 3 at pp. 66-67

[9] Churchill, R.R., and Lowe, A.V., (supra) note 6 at p.190

[10] Dundua, N., (supra) note 16 at p.68

[11] Cameroon/Nigeria [2002] ICJ Rep 303

[12] Ibid

[13] Tunisia/Libya case (supra) note 18; see also Gulf of Maine case [1984] ICJ Reports 246

[14] Guinea/Guinea-Bissau Maritime Boundary Arbitration (1985) 25 ILM 251 (1986)

[15] Ibid. Par. 123

[16] In the Matter of an Arbitration between Guyana and Suriname (Guyana v. Suriname) (P.C.A. Award of Sep. 17, 2007)

[17] Par. 237 although this was not the situation in this case

[18] ICJ Judgment of 14 June 1993. Case concerning maritime delimitation in the area between Greenland and Jan Mayen (Denmark v. Norway)

[19] Par. 76

[20] 1969 North Sea case, Par. 93

[21] JDAs are international agreements between two or more states to develop and share certain resources in a specified zone, in respect of which both countries claim rights and the zone in which such co-operation takes place is the joint development zone (JDZ)

[22] Rothwell, D., and Stephens, T., The International Law of the Sea (Oxford: Hart Publishing, 2010)

[23] TREATY between the Federal Republic of Nigeria and the Democratic Republic of São Tomé e Príncipe on the Joint Development of Petroleum and other Resources, in respect of Areas of the Exclusive Economic Zone of the two States, February 2006

[24] Article 3 of the Treaty

[25] See Aegean Sea Continental Shelf Case (Greece v. Turkey), 15 I.L.M. 985, 992-93, 30-32 (I.C.J.)

[26] The reason for this view was that such activities might not lead to permanent physical change.