‘shared natural resources’
2.3 The principle of sovereign rights over shared hydrocarbons
Article 2 of the CCS and article 77 of the UNCLOS codify the principle of sovereign rights.
According to this principle, a coastal State “exercises over the continental shelf sovereign rights for the purpose of exploring it and exploiting its natural resources”,284 including hydrocarbon deposits.285 The UNCLOS also spells out specific forms of sovereign rights, such as the right to install structures on the CS,286 the right to “authorize and regulate drilling on the [CS] for all purposes”287 and the right to exploit the subsoil by means of tunneling.288 These sovereign rights are both exclusive and inherent. The exclusive nature means that if a coastal State decides
280 Report and Recommendations of the Compulsory Conciliation Commission between Timor-Leste and Australia on the Timor Sea, PCA Case No. 2016-10, 9 May 2018, para. 299, available at https://pcacases.com/web/sendAttach/2327 (latest accessed January 2019).
281 See, for example, South China Sea, paras. 704-705.
282 See Chapters 2.3 and 3 for more details.
283 This understanding of shared natural resources has principally been reflected in the context of international watercourses. See Yearbook of the ILC, 1986, vol. II (Part One), Second report on the law of the non-navigational uses of international watercourses, prepared by Mr. S. C. McCaffrey, Doc. A/CN.4/399 and Add. l and 2. p. 102,
available at http://legal.un.org/docs/?path=../ilc/publications/yearbooks/english/ilc_1986_v2_p1.pdf&lang=EFSRA (last
accessed January 2019). However, the classification of international watercourses as shared natural resources was abandoned by the ILC.
284 CCS, art. 2 (1); UNCLOS, art. 77 (1).
285 Hydrocarbon resources are natural resources of the CS. See Chapter 2.2.
286 UNCLOS, arts. 80 and 60.
287 Ibid., art. 81.
288 Ibid., art. 85.
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not to explore the CS or exploit its petroleum resources, no other State may do so without the explicit consent of the coastal State.289 Prior occupation of the CS or a proclamation is not a prerequisite to the exercise of the sovereign rights.290 Such rights exist ipso facto and ab initio.291 Nowadays, there is no doubt that the principle of sovereign rights has become part of customary international law292 and, therefore, it binds countries that are not parties to the UNCLOS. The UNCLOS provides a coastal State with the criteria for defining the outer limits of its CS beyond 200 nm from the baselines in certain circumstances stipulated in article 76.
The sovereign rights of a State over petroleum resources are also attached to this State by virtue of the entitlements it has over an EEZ.293 Article 56 (3) of the UNCLOS states that in the exercise of EEZ rights with respect to the seabed and subsoil, a State shall act in accordance with the CS regime (Part VI of the UNCLOS).
This thesis explores the operation of the principle of sovereign rights in two contrasting scenarios of oil and gas resource sharing: the first is the sharing of a hydrocarbon deposit located in an undelimited maritime area and the second relates to the sharing of a resource transected by a boundary line. As regards the first scenario, there is legal uncertainty as to the scope of the application of the principle of sovereign rights. Under the second scenario, the difficulty is that although the geographical scope of the principle’s application is clearly set, several States are entitled to exercise sovereign rights over a part of the same accumulation(s) of hydrocarbons and the competitive existence of such rights may entail certain negative consequences.294 A more detailed examination of the principle of sovereign rights in these two contexts is contained in Chapters 3 and 4.
Both the CCS and UNCLOS provide coastal States with sovereign rights to explore for and exploit hydrocarbon resources without defining the content and nature of these activities.
Nonetheless, this issue is important, for example, when considering the question of what type
289 CCS, art. 2 (2); UNCLOS, art. 77 (2).
290 CCS, art. 2 (3); UNCLOS, art. 77 (3). Unlike an EEZ that shall be claimed by a coastal State (UNCLOS, art.
57).
291 North Sea Continental Shelf cases (Federal Republic of Germany v. Denmark and the Netherlands), Judgment, 20 February 1969, ICJ Reports 1969, para. 19.
292 See, for example, Y. Tanaka, The International Law of the Sea, Cambridge University Press, 2012, p. 133; M.
P. Scharf, Customary International Law in Times of Fundamental Change: Recognizing Grotian Moments, Cambridge University Press, 2013, p. 59; A. J. Higginson, “Legal Aspects of Safety, Health and Welfare on the United Kingdom Continental Shelf”, in: R. A. F. Cox (ed), Offshore Medicine: Medical Care of Employees in the Offshore Oil Industry, Springer, 1982; F. Mucci and F. Borgia, “The Legal Regime of the Antarctic”, in: D. Attard et al. (eds), The IMLI Manual on International Maritime Law: Volume I, The Law of the Sea, Oxford University Press, 2014.
293 Supra note 290.
294 See Chapter 4.
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of petroleum activity may lead to a permanent physical modification of the seabed and subsoil or may cause hydrocarbon resources to migrate from the other side of the maritime boundary.295 The production-chain of petroleum resources consists of two parts: upstream and downstream parts.296 Whereas the upstream part includes exploration and exploitation of hydrocarbon resources, the downstream part refers to transportation, storage, refining, marketing, distribution and so forth.297 This research focuses on the upstream part, which can be divided broadly into two phases: exploration and exploitation.
The goal of exploration is to identify maritime areas where commercial oil and gas deposits may be located, by using different methods, including seismic surveys and exploratory drilling.
Seismic is used to identify the presence of a petroleum resource in the CS. The purpose of seismic exploration is to obtain information concerning the geophysical structure of the seabed and its subsoil by transmitting sound waves from a source. These sound waves travel down through the rock layers, which reflect them up to a sensor. This sensor records the acquired information to be interpreted by a scientist.298
In order to confirm a potential accumulation of hydrocarbons, a wildcat well is to be drilled. If the well is found to be dry, it will be plugged and abandoned and offshore drilling equipment will typically be withdrawn. If exploratory drilling discovers a new reservoir, appraisal wells are then drilled to determine the size and geographical extent of the reservoir discovered by the wildcat well. The size of the reservoir needs to be determined to compute the amount of oil and gas that can be produced. If the deposit is significantly large, it may thus be economically justified to develop it further.299
If exploration has proved the existence of a hydrocarbon deposit with commercial potential, exploitation of this deposit may then be commenced. Exploitation includes such activities as drilling recovery wells,300 and construction, placing and operation of installations. It is worth noting that the terms ‘exploitation’, ‘production’ and ‘development’ are usually used interchangeably and are rarely defined in the legal literature. While exploitation indeed
295 These questions are discussed in Chapters 3 and 4, respectively.
296 See, for example, Guide to Extractive Industries Documents – Oil & Gas, World Bank Institute Governance for Extractive Industries Programme, Allen & Overy, September 2013, p. 27, available at http://www.allenovery.com/SiteCollectionDocuments/geiprogram.pdf (last accessed January 2019).
297 Ibid., pp. 27 and 30. See also Becker-Weinberg 2014, op. cit., p. 10.
298 Hyne 2012, op. cit., pp. 215-234.
299 Ibid., pp. 243-244 and 392-397.
300 A recovery well is a well used for production or injection. Norwegian Petroleum Directorate, ABC of oil, http://www.npd.no/en/About-us/Information-services/Dictionary/ (last accessed January 2019).
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encompasses development and production stages, a distinction between these stages may be drawn. Development includes those activities that make the removal of hydrocarbons from a reservoir possible, production covers activities associated with this removal such as treatment and storage of hydrocarbons and other substances, transportation of hydrocarbons (by ship or pipeline) to shore.301 The last phase will typically include decommissioning when the production of the hydrocarbon resource has come to an end.302
Exploration and exploitation operations are usually carried out by private actors authorized by coastal States to do so.