Declining oil fields have recently become a chief concern of oil companies as demand on crude is persistently strong. Stock exchange quotations of an oil producer tend to depend on explored reserves data as much as on its revenue repots. Extracting oil from the seabed is becoming a most popular way of replenishing oil reserves.
Over the past 60 years of deep sea oil extraction, rig technology has advanced, enabling firms to drill up to 3,000 meter beneath the sea bed. At the same time, oil prices, which have not fallen below $30 for several years, are able to cover costs of underwater extraction.
Oil reserves are national property, and international oil companies have to sign contracts with governments to win a right for production. The same is true for deep sea reserves. However, it is not always clear which country owns an oil field. Shortly after WWII, U.S. President Harry Truman declared America’s sovereignty over the continental shelf along the U.S. coast.
Several governments followed suit although an exclusive right on the continental shelf was not generally recognized for a while.
The 1958 Convention on Continental Shelf allowed coastal states to “construct and maintain or operate on the continental shelf installation and other devices necessary for its exploration and the exploration of its natural resources, and to establish safety zones” around them necessary for their protection.
The United Nations Convention on Law of the Sea in 1982 extended sovereign rights of coastal states to a distance of 200 nautical miles from their territorial waters. This are was declared the exclusive economic zone (EEZ) where a country was entitled to tap natural resources, be it fish, oil or gas. The blueprint, however, left a number of questions unanswered. Vagaries of nature in some cases left more than one country with claims for the coastline and the EEZ.
In the Gulf of Guinea, major OPEC member and experienced oil producer Nigeria collided with Sao Tome and Principe, a small African country with 200,000 people living on two islands of 1,000 sq. km in the gulf with no experience of oil production whatsoever. The islands are situated so close to Nigeria’s coast that the two EEZs overlapped.
The two parties were equal in the dispute. The tiny islands were entitled to an exclusive economic zone as big as that belonging to the large Nigeria, as the zone’s area is not calculated as a percentage of the country’s territory. The islands were able to stand up for their rights on the 200 mile zone as was Nigeria. The right did not depend on the country’s manpower potential or experience in oil production.
A hike in oil prices in the 2000s played a key part in the dispute, making oil production highly lucrative. At the same time, international oil giants would not start extraction in the Gulf of Guinea until the dispute was settled. In February 2001, Nigeria and Sao Tome and Principe signed a deal on joint production of oil and other natural resources in the EEZs.
Sao Tome’s government called the treaty a unique and historic compromise in settling a maritime border dispute. The two countries created a 36,000 sq. km joint zone to tap seabed oil resources. The treaty gave Nigeria 60 percent and Sao Tome and Principe 40 percent of the revenues from oil extraction. A joint ministerial council was set up to manage the common zone. In the joint development authority, Nigeria and Sao Tome were represented by two directors each. The agreement is in force for 45 years with a right of possible prolongation.
The parties, however, do not enjoy equal right and liabilities in the zone. Nigeria did not only receive 60 percent of all oil revenues. Two first chief executives of the Joint Development Authority were Nigerians. The company was headquartered in Nigeria’s Abuja. Production was set up basing on the country’s experience. For example, foreign companies were offered to sign a production sharing contract with the same terms as it is in Nigeria. On another note, it was Nigeria that took on early costs on drilling works. Sao Tome and Principe is not giving its 40-percent share until it receives adequate oil revenues. Nigeria and Sao Tome’s leaders announced results of an international tender for production in May 2005, naming winners for five wells.
The foreign companies noted, however, that the Joint Development Authority had not always been transparent, causing conflicts of interests. A member of the ministerial council, for one, happened to be a major shareholder in the winning company. The foreigners, however, agreed that receiving a license to extract oil in the joint zone was easier than gaining a license for operations in Nigeria where the process is “tiring and bureaucratic.”
In any case, developments have shown that growing oil prices, depleting oil reserves underground and deep sea rig technology advancements would only multiply territorial disputes and claims to the continental shelf.
Over the past 60 years of deep sea oil extraction, rig technology has advanced, enabling firms to drill up to 3,000 meter beneath the sea bed. At the same time, oil prices, which have not fallen below $30 for several years, are able to cover costs of underwater extraction.
Oil reserves are national property, and international oil companies have to sign contracts with governments to win a right for production. The same is true for deep sea reserves. However, it is not always clear which country owns an oil field. Shortly after WWII, U.S. President Harry Truman declared America’s sovereignty over the continental shelf along the U.S. coast.Several governments followed suit although an exclusive right on the continental shelf was not generally recognized for a while.
The 1958 Convention on Continental Shelf allowed coastal states to “construct and maintain or operate on the continental shelf installation and other devices necessary for its exploration and the exploration of its natural resources, and to establish safety zones” around them necessary for their protection.
The United Nations Convention on Law of the Sea in 1982 extended sovereign rights of coastal states to a distance of 200 nautical miles from their territorial waters. This are was declared the exclusive economic zone (EEZ) where a country was entitled to tap natural resources, be it fish, oil or gas. The blueprint, however, left a number of questions unanswered. Vagaries of nature in some cases left more than one country with claims for the coastline and the EEZ.
In the Gulf of Guinea, major OPEC member and experienced oil producer Nigeria collided with Sao Tome and Principe, a small African country with 200,000 people living on two islands of 1,000 sq. km in the gulf with no experience of oil production whatsoever. The islands are situated so close to Nigeria’s coast that the two EEZs overlapped.
The two parties were equal in the dispute. The tiny islands were entitled to an exclusive economic zone as big as that belonging to the large Nigeria, as the zone’s area is not calculated as a percentage of the country’s territory. The islands were able to stand up for their rights on the 200 mile zone as was Nigeria. The right did not depend on the country’s manpower potential or experience in oil production.A hike in oil prices in the 2000s played a key part in the dispute, making oil production highly lucrative. At the same time, international oil giants would not start extraction in the Gulf of Guinea until the dispute was settled. In February 2001, Nigeria and Sao Tome and Principe signed a deal on joint production of oil and other natural resources in the EEZs.
Sao Tome’s government called the treaty a unique and historic compromise in settling a maritime border dispute. The two countries created a 36,000 sq. km joint zone to tap seabed oil resources. The treaty gave Nigeria 60 percent and Sao Tome and Principe 40 percent of the revenues from oil extraction. A joint ministerial council was set up to manage the common zone. In the joint development authority, Nigeria and Sao Tome were represented by two directors each. The agreement is in force for 45 years with a right of possible prolongation.The parties, however, do not enjoy equal right and liabilities in the zone. Nigeria did not only receive 60 percent of all oil revenues. Two first chief executives of the Joint Development Authority were Nigerians. The company was headquartered in Nigeria’s Abuja. Production was set up basing on the country’s experience. For example, foreign companies were offered to sign a production sharing contract with the same terms as it is in Nigeria. On another note, it was Nigeria that took on early costs on drilling works. Sao Tome and Principe is not giving its 40-percent share until it receives adequate oil revenues. Nigeria and Sao Tome’s leaders announced results of an international tender for production in May 2005, naming winners for five wells.
The foreign companies noted, however, that the Joint Development Authority had not always been transparent, causing conflicts of interests. A member of the ministerial council, for one, happened to be a major shareholder in the winning company. The foreigners, however, agreed that receiving a license to extract oil in the joint zone was easier than gaining a license for operations in Nigeria where the process is “tiring and bureaucratic.”In any case, developments have shown that growing oil prices, depleting oil reserves underground and deep sea rig technology advancements would only multiply territorial disputes and claims to the continental shelf.
Via: Kommersant
by Sergey Minaev
by Sergey Minaev
