United States: Gaps In The Ice: Maritime Boundaries And Hydrocarbon Field Development In The Arctic

By Vinson & Elkins LLP and RLLP¹

The paper argues that an effective legal framework for oil and gas exploration and exploitation must address two principal concerns: delimitation of international boundaries and rules for developing fields that may be under two or more states' territories.

Delimitation is adequately covered by the existing framework and should not cause concern, because the majority of Arctic oil and gas resources either lie within single state's sovereign land, or cross already delimited boundaries. Remaining boundaries can be delimited based on well-established principles. Furthermore, the economic and political pressures impelling oil and gas production will ensure states turn their minds to the question of maritime boundary delimitation.

As for cross-boundary hydrocarbon-resource exploitation, the set of rules were sparse until the 2010 Barents Sea Agreement between Norway and Russia, which represents the state-of-the-art bilateral treaty that will effectively address cross-border hydrocarbon-field exploitation. This approach is expected to be preferred by the Arctic states. Following on the 2010 Barents Sea Agreement, other useful practices at a finer level of detail will likely form precedent for future bilateral treaties.

Unitization agreements and Joint Operating Agreements, including those among private parties, will provide the finer details of fieldlevel treaties or protocols.

I. INTRODUCTION

The allure of the Arctic grows as the ice caps melt. The media remains fixated with the idea of a mother lode of offshore oil and gas setting off a "Great Game" in the North The predictions of a "resource cold war" or maritime confrontations in the Arctic are further fuelled in the media by events such as Russia planting its flag on the seabed and purporting to stake its claim to vast portions of the Arctic.

To this narrative, add the recent political tensions in a number of oil-rich regions that have highlighted the need for a stable supply of oil and gas. At the same time, Arctic oil and (especially) gas must compete with the immense, new gas potential that can now be exploited by hydraulic fracturing. Despite the hype this economic imperative to develop Arctic hydrocarbon (and other) resources in this global market has encouraged Arctic states to delimit their boundaries and consider the most effective way to exploit their resources.

This paper examines whether the existing legal framework, coupled with the states' commercial interests, can act to prevent such disputes. Upon inspection, it is expected that existing international law will render this potentially explosive argument quite routine in practice.

This is not to say that there are no more treaties to be concluded and cooperative regimes to develop; but the existing international legal framework, particularly in light of recent state practice² on bilateral, cross-border hydrocarbon development, suggests that fear of a "new cold war" in the Arctic should be. . . put on ice.

Even though maritime border delimitation principles are well known, the current "system" on Arctic border-straddling hydrocarbon fields is neither codified nor complete. It has instead developed organically through state and private actors seeking a practical approach to ensure effective exploitation of the many resources available in the Arctic region. This patchwork of norms on border-straddling field regimes will be filled organically because those who fail to reach practical agreements will be unable to successfully exploit those resources.

Part II of this paper considers the legal norms that govern maritime borders in the Arctic, and the less-developed norms on cross-border field development. We then apply international law to the authoritative United States Geological Survey map of hydrocarbon resource potential. We conclude that the vast majority of hydrocarbon resources lie in undisputed, national territories. Part III turns to state practice on cross-border hydrocarbon development of fields that may straddle an international boundary. Here, the recent Norway-Russia delimitation treaty represents a breakthrough in the Arctic: a state-of-the-art treaty with both delimitation and resource-development rules. This recent treaty should not surprise, as it continues Norway's state practice from the North Sea oilfields. Nonetheless, outside of this treaty, the state practice of the other members of the Arctic Five remains far less developed, as we know. Finally, Part IV considers other practice as precedent for field-level exploitation treaties or protocols to existing treaties.

II. THE LAW OF BORDER DELIMITATION AND CROSS-BORDER HYDROCARBON DEVELOPMENT IN THE ARCTIC

A. The International Legal Framework Governing the Arctic

The background rule is the well-established international law principle³ that states have the sovereign right to resources under their land. This makes it important to determine under which state's land natural resources sit. In the Arctic, terrestrial boundaries have long been agreed. But that question becomes more difficult when applied to offshore resources. As the Arctic ice caps melt and exploitation technology develops, states are forging into areas that were until now largely inaccessible. The immense financial and energy-security stakes⁴ animating this drive into the Arctic offshore make the regulation of maritime boundaries and potential borderstraddling fields more pressing.

Applied in this context, an international law of hydrocarbon resource development has to provide two sets of norms: boundary-delimitation rules and cross-border, hydrocarbon-field development rules. Those norms are found in a variety or sources, detailed below.

As for delimitation, the "Arctic Five" (Canada, Denmark, Norway, the Russian Federation, and the United States of America) have reached bilateral agreements that supersede the multilateral ones governing Arctic maritime borders. These bilateral treaties have mitigated the ambiguity and inflexibility of multilateral treaties. But the bilateral treaties do not cover all Arctic maritime borders. Therefore, multilateral legal regimes supply some rules for maritime boundary delimitation.

Cross-border hydrocarbon-development rules are necessary because oil and gas reservoirs can straddle lines on a map, resulting in two or more states having sovereignty claims over the same deposit. Until the 2010 Barents Sea Agreement between Norway and Russia, discussed below, there were very few clear norms on point in the Arctic. Nonetheless, though, the 2010 Barents Sea Agreement does not definitively resolve the issues everywhere in the Artic because that treaty binds only Russia and Norway. Elsewhere in the Arctic, the ambiguity of potentially overlapping sovereign claims could obstruct efficient and effective exploitation of cross-border fields. With no legal framework, states may either act unilaterally, exposing them to the potential claims from the bordering state or states; or states may forego development entirely because of the risk of such claims.

Outside of the Norway/Russia border, a patchwork legal system currently applies to exploiting potentially border-straddling Arctic hydrocarbon regions⁵:

• International law, which includes both the multilateral and bilateral treaty system and customary international law ("CIL");
• National laws, which a state may apply to sovereign resource; and
• Private contracts between parties given rights on both side of the boundary, which often mirror the international law as agreed by the relevant states.

For current purposes we focus on the international framework.

B. The Multilateral Legal Framework

1. United Nations Convention on the Law of the Sea

The United Nations Convention on the Laws of the Sea ("UNCLOS"), which enjoys widespread acceptance with 160 state parties, presents the generally recognized framework on maritime boundary determination and represents a useful starting point to set out the current Arctic legal framework. UNCLOS does not present a completely binding pan-Arctic solution to border delimitation, however. Because the United States are not party to UNCLOS, it does not apply to any borders with the United States.

That said, UNCLOS (which does apply to four of the Arctic Five and which enjoys very broad acceptance) does address maritime border delimitation by requiring an equidistance rule⁶ as amended by special circumstances.⁷ While case law shows a willingness to amend the equidistance principle using special circumstances, there is some dispute over what constitutes "special circumstances." Certain factors, such as the relative length of the state's coastlines and configuration of the land frontier are generally accepted as special circumstances⁸. The cases are less settled on whether other factors can be taken into account as special circumstances to amend the equidistance line⁹. For example, in the Tunisia-Libya case¹⁰ the conduct of the parties in granting petroleum deposits was considered when adjusting the equidistant delimitation line.¹¹ (No further cases have applied this factor, though.) That same case also held that economic principles would not be considered in amending an equidistant line. On the other hand, other cases, such as the Gulf of Maine case¹², found that economic considerations should be taken into account as special circumstances if the failure to consider them would result in "serious economic repercussions"¹³. Furthermore, the tribunal in the Suriname-Guyana case¹⁴ found that the threat of the use of force may be a factor in delimiting a boundary¹⁵, but, again, subsequent cases have not confirmed this.

As for any principles governing cross-border resource deposits, UNCLOS says next to nothing. It merely requires that states act "in a spirit of understanding and cooperation,....[to] 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"¹⁶. UNCLOS does not however, offer any non-contentious forum or procedure for reaching such agreement.

Even though UNCLOS does provide a forum for dispute resolution and limits the potentially applicable laws, many states wish to use a more certain procedure for delimiting boundaries and dealing with cross-border resources. States have thus generally favored the bilateral-treaty approach, using UNCLOS principles in negotiations.

2. 1958 Geneva Conventions

The 1958 Geneva Conventions are multilateral treaties that theoretically apply to the United States' maritime boundaries. A number of treaties were signed in Geneva in 1958, two of which have relevance for our purposes: the "Convention on the Territorial Sea and Contiguous Zone" and the "Convention on the Continental Shelf" (the "Geneva Conventions")¹⁷.

The Geneva Conventions established a sparse delimitation regime for the territorial sea and continental shelf that UNCLOS later built on. They established the equidistance principle, but encouraged state parties to reach a further agreement addressing enforcement of equidistance. The cross-boundary resource-exploitation provisions in the Geneva Conventions are non-existent.

Nonetheless, a number of Arctic states remain signatories to one or both of the Geneva Conventions (see Appendix A), and these conventions remain in force for such states. But their relevance is unclear, and in any event slight, in light of later accession to UNCLOS. Article 311(1) of UNCLOS provides that "This Convention shall prevail, as between State Parties, over the Geneva Conventions on the Law of the Sea of 29 April 1958". Article 311(2) of UNCLOS goes on to provide that "the rights and obligations of State Parties which arise from other agreements compatible with ...[UNCLOS]... and which do not affect the enjoyment by other State Parties of their rights or the performance of their obligations under ...[UNCLOS]" are not altered¹⁸.

The Geneva Conventions are not thus expressly overruled by UNCLOS for all of the Arctic Five¹⁹, so their provisions remain potentially relevant: To the extent the inter-state relationship involves purely parties to UNCLOS, their provisions will be superseded as opposed to overruled. But for two Arctic boundaries (where the United States is involved) the Geneva Conventions supplies principles:

• Russia-United States border: While the Geneva Conventions theoretically apply here, the 1990 bilateral agreement between the United States and the USSR delimits this boundary and supersedes the Geneva Conventions (which in any event envisaged states to reach mutual agreement); and
• Canada-United States border: Canada is only a party to one of the Geneva Conventions, that related to the Continental Shelf²⁰ (which is the most relevant to the question of international delimitation). As multilateral treaties²¹, only states party to the relevant Geneva Convention will be entitled to enforce its provisions, meaning the Convention on the Territorial Sea and Contiguous Zone is not applicable to this border.

While the Geneva Conventions are outdated²², they are generally considered to have been adopted into custom, having been used as a basis for UNCLOS, and apply universally across the Arctic and the globe. Nonetheless, despite being bound by the Geneva Conventions, unofficially, it would seem that the United States²³ really recognizes UNCLOS principles.

3. Customary International Law (CIL)

CIL largely mirrors UNCLOS' maritime-boundary-delimitation principles. CIL delimits boundaries by importing a principle of equidistance²⁴, subject to certain conditions established in case law²⁵.

In a similar manner to UNCLOS, CIL also requires cooperation between states for the development of cross-border resources. But the method of such cooperation is not established. Some commentary²⁶ argues that there is a heavy presumption that terms similar to commercially used joint-development agreements must be used. Most authors do not share this view, suggesting that "'there is no developed, crystallized [sic]^,27 or express rule or custom under international law requiring unitization for apportioning... common petroleum deposits"²⁸.

C. The Bilateral Treaty Framework

Given states eagerness to control the delimitation of their boundaries and act cooperatively, bilateral treaties have been a popular method to deal with international oil and gas deposits. These bilateral treaties obviate any further ineffective multilateral treaties.

Moreover, advances in technology have eased some of the difficulties of negotiating bilateral treaties for cross-border resource development, by creating greater certainty over a field's potential profits. Because upfront resource estimates are better, post-hoc redetermination and reallocation are less critical, so "commercial terms" of a cross-border unitization can be agreed at an earlier stage. Greater certainty also opens up the possibility for earlier unitization of fields²⁹.

While bilateral treaties are a popular choice for states globally (and in the Arctic), if a bilateral treaty framework must nonetheless be comprehensive across the Arctic region. This requires considering the number of boundaries and location and type of resources.

1. International Maritime Boundaries in the Arctic

As detailed in Table 1 below and Exhibit 1, just seven Arctic international maritime boundaries require delimitation. Of these seven boundaries, four have bilateral treaties in place. That leaves just two to be governed by UNCLOS and one (between the United States and Canada) to be governed by the limited provisions of the 1958 Geneva Convention on the Continental Shelf and CIL.

But how much do these boundaries and gaps matter?

2. The Arctic's Oil- and Gas-Rich Provinces

The United States Geological Survey ("USGS")³⁰ estimates that twenty-five Arctic provinces have significant hydrocarbon deposits. Seven of them are in disputed territory or straddle international boundaries³¹ and therefore require a legal framework for cross border hydrocarbon resources. These provinces are: the East Barents Basin ("EBB"), the Amerasia Basin ("AM"), the West Greenland-East Canada ("WGEC"), the Eurasia Basin ("EB"), the Lomonosov-Makarov Basin ("LM"), the North Chukchi-Wrangel Foreland Basin ("NCWF"), and the Hope Basin ("HB")³². These provinces are shown in Exhibit 2.

Some of these seven oil- and gas-rich provinces straddle a single international boundary, meaning one bilateral agreement can establish the legal framework for more than one hydrocarbon rich province.

Table 1 shows the maritime boundary delimitation treaties currently in place, and specifies the USGS provinces, if any, which straddle that boundary. This table provides an analysis of where the gaps in the treaty framework lie.

Table 1: Delimitation Treaties in Potentially Disputed USGS Circum-Arctic Survey Provinces

Two oil-rich provinces (EBB and EB) straddle the international boundary between Russia and Norway³³. The 2010 Barents Sea Agreement delimited this boundary and provided for preunitization negotiations if hydrocarbon deposits straddle it.

Two more of the oil rich provinces, NCWF and HB, straddle Arctic boundaries between Russia and the United States³⁴. The 1990 Maritime Delimitation Agreement between the United States and USSR, still in effect today, delimits this boundary and would govern disputes over these resources.

One of the provinces, WGEC, is anticipated to have deposits under the Arctic boundaries between Denmark (through Greenland) and Canada. The border has been largely delimited, but the two states continue to dispute sovereignty over the tiny Hans Island itself³⁵.

Not all bilateral treaties deal with the entire international boundary between states. As can be seen from Exhibit 1³⁶, four of the seven boundaries have been delimited, but not in their entirety. The Canada-Greenland boundary is delimited only in part (in the Labrador Sea); the northern section of this boundary still requires delimitation. Similarly, small sections of the Denmark-Norway border remain undelimited.

Footnotes

1 The authors would like to express their gratitude to M. Imad Khan, Associate, Vinson & Elkins LLP and Kiran Bhat, summer associate at Vinson & Elkins in 2011, for their assistance in researching and editing this paper.

2 Treaty between the Kingdom of Norway and the Russian Federation concerning Maritime Delimitation and Cooperation in the Barents Sea, and Arctic Ocean (2010) (hereinafter "2010 Barents Sea Agreement").

3 See e.g. UN Convention on the Law of the Sea, Article 56.

4 United States Geological Survey, Circum-Arctic Resource Appraisal: Estimate of Undiscovered Oil and Gas North of the Arctic Circle, available at http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf.

5 Jacqueline L. Weaver and Davis F. Asmus, Unitizing Oil and Gas Fields Around the World: A Comparative Analysis of National Laws and Private Contracts. 28 HOUS. J. INT'L L. 3 (2006).

6 See e.g. Article 15 in relation to the Territorial Sea; Article 74(1) in respect of the EEZ; Articles 76(8) and 83 (1) in respect of the Continental Shelf. While Articles 74(1) and 83(1) do not directly provide for a principle of equidistance, Guyana v. Suriname demonstrates that this is what was intended. PCA, Award of the Tribunal, The Hague, 17 September 2007.

7 Special circumstances are established and applied to vary the equidistance principle in the mass of case law. But the Case Concerning the Continental Shelf (Tunisia v. Libyan Arab Jamahiriya) [1982] ICJ Rep 18 held that the principles of equidistance and special circumstances were mutually exclusive, allowing use of only one of the two.

8 Id.; North Sea Continental Shelf Cases (Federal Republic of Germany v. Denmark and the Netherlands) [1969] ICJ Rep. 3, 47; Case Concerning Delimitation of the Maritime Boundary in the Gulf of Maine Area (Canada v. United States), [1984] ICJ Rep. 246.

9 Note that not all the cases referred to relate to UNCLOS; they do, however, relate to the use of the equidistance principle (in UNCLOS or CIL) and its adjustment by special circumstances (taking into account the Tunisia Libya case referred to above). Therefore, any special circumstances would presumably apply universally to delimitations under UNCLOS and CIL.

10 Tunisia v. Libyan Arab Jamahiriya, supra note 7.

11 See also Case Concerning Maritime Delimitation in the Area between Greenland and Jan Mayen (Denmark v. Norway) [1993] ICJ Rep. 38.

12 Gulf of Maine, supra note 8.

13 Id., at 301.

14 Guyana v. Suriname, supra note 6.

15 The Tribunal referred to Article 293 of UN Convention on the Law of the Sea which provides for the application of UNCLOS and other rules of international law so far as they are not incompatible with UNCLOS. The Tribunal then applied M/V Saiga (No.2) in which ITLOS found that "considerations of humanity must apply in the laws of the sea as they do in other areas of international law." Saint Vincent and the Grenadines v. Guinea, Judgment, ITLOS Reports 1999, pg. 7.

16 United Nations Convention on the Law of the Sea, article 83(3) (1982).

17 The United States is a party to both of the Geneva Conventions (see Appendix B).

18 This position is similarly upheld in Article 30 of the Vienna Convention on the Law of Treaties. But only three of the Arctic five states are a party to such convention: Norway is not a party and the United States has yet to ratify the Convention.

19 Neither by express statement or the use of a different approach.

20 Convention on the Continental Shelf (1958). Canada has yet to ratify the Convention concerning the Territorial Sea and Contiguous Zone.

21 The Geneva Conventions must apply directly between two states for either state to be able to enforce it. In the Arctic this means any state wishing to enforce the provisions of the Geneva Conventions against the United States must also be a party to the Geneva Conventions. This principle is set out in Article 34 of the Vienna Convention on the Law of Treaties.

22 This was achieved by updating the principles in UNCLOS and also seen with the specific reference in the preamble to UNCLOS: "Noting that the developments that have occurred since the United Nations Conferences on the law of the Sea held at Geneva in 1958 and 1960 have accentuated the need for a new and generally acceptable Convention on the Law of the Sea."

23 From informal conversations with persons at the United States Office of Ocean and Polar Affairs.

24 See e.g. Gulf of Maine, supra note 8; Maritime Delimitation and Territorial Questions (Qatar. v Bahrain) [2001] I.C.J. Rep. 40. But see Guinea v. Guinea Bissau Arbitration, International Maritime Boundaries I, at 857-865 (J.I. Charney and L.M. Alexander eds. 1993).

25 See other papers in the Special Edition which discuss case law in greater depth.

26 David M. Ong, Joint Development of Common Offshore Oil and Gas Deposits: "Mere" State Practice or Customary International Law? 93 AM. J. INT'L L. 771 (1999).

27 William T. Onorato, Appointment of an International Common Petroleum Deposit, 26 INT'L & COMP. L.Q. 324, 327 (1977).

28 Ana E. Bastida et al., Cross-Border Unitization and Joint Development Agreements: An International Law Perspective, 29 HOUS. J. INT'L L. 355 (2007).

29 In the United States, domestic unitization agreements are usually only reached after primary production; however, the development of technology means that unitization can now be achieved immediately after the appraisal stage, while a development plan is being established.

30 United States Geological Survey, supra note 4.

31 It should be noted that some commentators argue that the USGS is not an entirely accurate assessment of the oil and gas resources available in the Arctic, and it is by no means conclusive. However, for the purposes of this paper we have considered their assessment to be the most persuasive and extensive research carried out in the region.

32 Phillip Budzik, US Energy Information Administration Office of Integrated Analysis and Forecasting Oil and Gas Division, Arctic Oil and Natural Gas Potential, available at http://205.254.135.7/oiaf/analysispaper/arctic/pdf/arctic _oil.pdf . See Appendix B.

33 Id.; see Appendix B.

34 Id.

35 Julie A. Paulson, Melting Ice Causing the Arctic to Boil Over: An Analysis of Possible Solutions to a Heated Problem, 19 IND. INT'L& COMP L. REV. 349, 371 (2009).

36 International Boundaries Research Unit, Maritime jurisdiction and boundaries in the Arctic region, available at http://www.dur.ac.uk/resources/ibru/arctic.pdf.

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