The 2012 Agreement on the Exploitation of Transboundary Hydrocarbon Resources in the Gulf of Mexico: Confirmation of the Rule or Emergence of a New Practice?

By Garcia Sanchez, Guillermo J.; McLaughlin, Richard J. | Houston Journal of International Law, Summer 2015 | Go to article overview

The 2012 Agreement on the Exploitation of Transboundary Hydrocarbon Resources in the Gulf of Mexico: Confirmation of the Rule or Emergence of a New Practice?


Garcia Sanchez, Guillermo J., McLaughlin, Richard J., Houston Journal of International Law


D. State Practice: Agreements Used to Coordinate Development of Transboundary Reservoirs

Once nations agree to jointly develop the transboundary hydrocarbon reservoir(s) or field(s) they can enter into a variety of agreements. The two most commonly used forms of agreements are cross-border unitization agreements and joint development agreements.

1. Cross-Border Unitization

Cross-border unitization is the joint and coordinated exploitation of a transboundary hydrocarbon reservoir by the interested nations so that the reservoir is developed as if it were owned and controlled by a single unit. (127) Cross-border unitization requires an established boundary agreement between the affected governments. (128) Professor Jacqueline Weaver describes the following typical attributes of cross-border unitization:

* Cross-border unitization is only required once a discovery is made.

* The area covered by the unitization agreement is defined by the extent of the individual reservoir or field.

* The two countries collaborate (through a treaty or other international agreement) on issues related to optimum field development (including, for example, safety), but maintain their sovereign rights on each side of the border.

* The groups of licensees prepare a single development plan and a unit operating agreement, which are then subject to the approval of both countries.

* Each license group's share of production and costs is based on the proportionate share (called the participation factor) of the field's oil and gas in place underlying its license, regardless of the physical location of the production facilities. Each licensee pays its taxes and royalties in accord with the terms of its own contract as if its unit share of production had been produced from its own contract area.

* The legal framework maintains two separate sets of regulations and fiscal terms. (129)

In general terms, a transboundary unitization treaty addresses production allocations and costs among tracts; regulation; the cooperative work plan for the field agreed upon by the operating investors; and a dispute-resolution plan. (130) Unitization also requires the licensees on each side of the boundary to enter into a unit operating agreement. This agreement will govern the rights and obligations between the licensees and the selected unit operator, who manages the day-to-day operations of the unit. Both governments must approve these agreements in order to assure that they are consistent with the terms of the treaty. (131)

2. Joint Development Agreements

Another way to develop transboundary hydrocarbon reservoirs is to establish a joint development zone, within which cooperative development of petroleum occurs despite disputes over sovereignty and the delimitation of the boundary between two or more nations. Joint Development Agreements authorize the cooperative development of petroleum resources in a geographic area that has disputed sovereignty, despite the delimitation of the boundary between two or more sovereigns. (132) Although existing agreements vary in structure, key issues in joint development agreements can be identified as being particularly important, as described by Ana E. Bastida:

1) Sharing resources: contractual provisions establish the basis for sharing production. There is overwhelming support for the principle of equal sharing, but there are exceptions. (133)

2) Management of joint development: three categories of management structures have been identified--single State model; two States/joint venture model, and joint authority model.

3) Applicable law: this provision is necessary to clarify which legal regime will apply in the joint development zone. It should include the petroleum licensing regime, laws governing civil and criminal jurisdiction over individuals in the zone, and rules and regulations governing health, safety and environmental issues. …

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