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Offshore oil and gas resources: economics, politics and the rule of law in the Nigeria-Sao tome e Principe joint development zone.

There is an axiom in the oil industry that reserves produced must be replaced; otherwise, the continued sale of a company's reserves will result in its eventual liquidation. (1) As a result, companies with upstream operations (i.e., exploration and production) are evaluated by Wall Street as much on their reserve replacement record as on their ability to generate earnings. (2)

In the first decade of the 21st century, the scramble for reserve replacement has become increasingly intense. The causes are two-fold: a relentless increase in global oil demand, fueled in particular by China's rapid economic growth, coupled with a failure of the industry to develop new reserves to replace those being consumed and to meet the growing demand.

One of the more ominous explanations for this failure of supply to keep up with demand is that global oil production has peaked. As a consequence, future discoveries will be inadequate even if demand were eventually to level off. (3) A different explanation advanced by some oil companies is that restrictions on access to new resources imposed by host governments in some of the most prospective regions of the world have had the effect, if not the purpose, of preventing these countries from realizing their full productive potential.

These factors have put pressure on the oil industry to take maximum advantage of technological advances that permit exploration and production of oil and gas in remote, frontier areas, both on land and at sea, including offshore drilling in deep water. (4) The first offshore well out of sight of land was drilled nearly 60 years ago. (5) More recently, steady advances in technology have led companies to consider drilling in water as deep as 10,000 feet. (6) The technology to permit such drilling has been steadily improving over the past 50 years, but its cost, compared to that of on-shore exploration, has made it problematic, especially in times of relatively low oil prices. In the past few years, with crude prices well above $30 per barrel, accompanied by predictions that they could remain at or above that level indefinitely, the economics of using this technology have improved dramatically.

The recognition that a new economic reality may now apply to offshore oil and gas exploration and production is reflected ill the growing number of wells being drilled offshore, many beyond the territorial waters of the states off whose coasts the wells were drilled. (7) Some of these wells are approaching the limits of the states' offshore jurisdiction-for example, the Hibernia Field platform off the coast of Newfoundland is 195 miles southeast of St. John's. (8)

Prior to 1958, the legal status of wells drilled offshore beyond a coastal state's territorial limits was uncertain. Despite the Truman Proclamation of U.S. sovereignty over its continental shelf and similar assertions by a number of other states, customary international law had not developed generally accepted principles with respect to the status of such ventures on the high seas. (9) In 1958, however, the UN Convention on the Continental Shelf was finalized. (10) It provided clear recognition of the right of a coastal state to "construct and maintain or operate on the continental shelf installations and other devices necessary for its exploration and the exploitation of its natural resources, and to establish safety zones around such installations and devices and to take in those zones measures necessary for their protection." (11)

Twenty-five years later, the 1982 UN Convention on the Law of the Sea (UNCLOS) expanded states' rights over their continental shelves to cover structures and installations potentially capable of interfering with those rights. (12) Moreover, it provided that a coastal state had "sovereign rights [over its continental shelf] for the purpose of exploring it and exploiting its natural resources" for a minimum of 200 nautical miles (nm) from the baseline of its territorial sea, regardless of the physical characteristics of the continental shelf, and up to 350 nm if the outer edge of the continental margin extended beyond that 200-nm limit. (13) In addition, UNCLOS added the concept of an "exclusive economic zone" extending 200 nm from the baseline of a coastal state's territorial sea, within which the state has:

(a) sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to the seabed and of the seabed and its subsoil, and with regard to other activities for the economic exploitation and exploration of the zone, such as the production of energy from the water, currents and winds; [and]

(b) jurisdiction as provided for in the relevant provisions of this Convention with regard to:

(i) the establishment and use of artificial islands, installations and structures;

(ii) marine scientific research; [and]

(iii) the protection and preservation of the marine environment. (14)

The oil industry's interest in offshore resources, coupled with concerns over the need to protect the world's fisheries from both overexploitation and pollution, prompted many coastal states to assert their sovereignty, under UNCLOS, over areas previously considered to be of only limited economic interest. It was inevitable, given the variability of geography, that these claims would result in conflicts between states whose adjacent or opposite coastlines were the basis for equally ambitious jurisdictional claims.

UNCLOS provides, in the first instance, for delimitation of the continental shelf between states with opposite or adjacent coasts to be effected by "agreement on the basis of international law." (15) Failing agreement "within a reasonable period of time," the states concerned are to resort to the compulsory dispute settlement procedures in Part XV of UNCLOS. States have the right, however, to opt out of these procedures with respect to boundary delimitation, even after having signed, ratified or acceded to UNCLOS. (16)

A number of states with conflicting maritime boundary claims have followed the prescriptions of UNCLOS and have negotiated, rather than litigated, a resolution of their conflicts. In so doing, some have elected to defer delimitation of their maritime boundaries (without prejudice, however, to their legal positions) by entering into cooperative arrangements in which they undertake to develop resources such as oil and gas in the disputed area on a joint basis. Whether or not these arrangements should be considered dispute resolution mechanisms, or strategies for economic development, they have had the effect of reducing political tensions between the states and of permitting development of the natural resources in the disputed zone to proceed more rapidly than would otherwise have been possible. (17)

Most discussions of the use of joint development arrangements to resolve maritime boundary disputes focus on the rights of states, rather than their nationals or others authorized by them, to explore for and develop natural resources in their territorial waters, on their continental shelf or in their exclusive economic zone. This focus reflects the nearly universal principle that oil and gas resources are the property of the state and are to be managed by the state for the benefit of its citizens. (18) However, much of the development of offshore oil and gas resources is actually managed by private-sector international oil companies (IOCs) pursuant to concessions, licenses, leases, production sharing contracts and other agreements under which these companies have primary responsibility for the development of the resources. The IOCs derive their rights to explore for, develop and produce oil and gas from the states having sovereignty over those resources. If any doubt exists as to a state's right to develop resources in an area over which it claims sovereignty, that doubt will extend to the rights of companies contracting with the state to develop the resources, whether they are acting on their own (i.e., where they have an ownership interest in the resources under a concession or otherwise) or on behalf of the state (e.g., under a production sharing contract).

The absence of a fully-defined legal regime is not necessarily an impediment to the development of natural resources; the oil industry has operated successfully in places where there was no written law or policy on resource ownership and development. On the other hand, the existence of conflicting claims of ownership can be a problem, especially where the conflict may lead to military confrontation or unilateral action by one of the states to assert its claim. (19)

It is worth noting that it is not necessary for a boundary dispute to exist in order for a joint development arrangement to make sense or to be implemented. Two neighboring states might find it more efficient to develop a resource jointly, whether or not their rights to the resource are implicated by maritime or territorial boundaries. (20)


There are significant variations ill the joint development arrangements that are in existence today--there are at least 20--but most fall into one of three basic models identified by a research team assembled in 1985 at the British Institute of International and Comparative Law (BIICL) to analyze the feasibility of developing a model joint development agreement: (21)

* Model I: each state retains authority to license its own nationals (or other licensees selected by the state) to operate within the joint development zone, with provision for compulsory joint ventures between these licensees;

* Model II: a joint authority with licensing and regulatory powers manages development of the resources on behalf of both states; and

* Model lie one state manages development of the resources on behalf of both with the other state's participation limited to revenue sharing and monitoring.

Some items are common to all three models; without these it would be difficult to implement a joint development arrangement: (22)

* a description of the boundaries of the Joint Development Zone (JDZ);

* a summary of the objectives of the arrangement, including the resources to be developed and the participants' respective shares of the benefits and costs of implementing the arrangement;

* a "without prejudice" clause, intended to preserve the rights of the parties with respect to their maritime boundary claims until such time as they are harmonized ("delimited");

* in the case of Model II, a description of the institutional structure of the arrangement, and in the case of all models, an allocation of responsibility for policy decisions and day-to-day administrative activities;

* a choice of the laws that are applicable in the JDZ;

* a procedure for settling disputes between the parties;

* the effect of the arrangement on any third party rights; and

* the date on which the arrangement is to take effect and the period during which it is to remain in effect.

The principles of joint development appear straightforward, but implementation can be a challenge, especially when the area in question has not been previously developed and there exists a substantial disparity between the cooperating states' resource development experience. The recent joint development agreement between Nigeria and Sao Tome e Principe serves to illustrate these challenges.


On 21 February 2001, the Federal Republic of Nigeria and the Democratic Republic of Sao Tome e Principe (Sao Tome) entered into a treaty on the "Joint Development of Petroleum and other Resources, in respect of Areas of the Exclusive Economic Zone of the two States." (23) Described by representatives of Sao Tome as "a unique and historic compromise ... in resolving a maritime border dispute," the treaty established a JDZ covering an area of approximately 35,000 square kilometers that includes the "seabed, subsoil and the superjacent waters thereof." (24) It provides for "joint control by the States Parties of the exploration for and exploitation of resources" within the JDZ "aimed at achieving optimum commercial utilization." (25) Nigeria was allocated 60 percent and Sao Tome 40 percent of "all benefits and obligations arising from development activities" in the JDZ. (26) The treaty provides for the parties' rights and responsibilities under the treaty to be exercised by a Joint Ministerial Council (JMC) with overall responsibility for activities within the JDZ, and a Joint Development Authority (JDA) responsible to the JMC, responsible for the management of activities within the JDZ. (27) The IDA is governed by a board consisting of four "executive directors," two appointed by Nigeria and two by Sao Tome. Decisions of the executive directors are to be arrived at "by consensus," failing which the matter is to be referred to the JMC. The JMC appoints one of the executive directors to act as chairman of the JDA and of the board; the appointments are for a one-year period. (28) The treaty is to remain in force for a period of 45 years and can be continued thereafter if both states so agree. There is also provision for a review of the treaty by the states in year 30. In the event that the treaty is terminated, provision is made for the joint development regime to continue in effect so that "development contracts with an expiry date after such ... termination" are not affected. (29)

The history of Sao Tome's strategy for developing its offshore oil and gas resources, including the history of its negotiation of this treaty with Nigeria, is beyond the scope of this paper. However, accounts confirm what might have been expected based on even a cursory study of Sao Tome's history, political environment and economy, namely that the country was at a disadvantage in attempting to launch a new offshore oil industry on an equal footing with Nigeria. (30)

A former Portuguese colony, Sao Tome gained its independence in 1975. In 1990, the country adopted a new constitution providing for a multi-party democracy. Sao Tome is a tropical island nation. Located in the Gulf of Guinea off the West African coast, the country consists of two main islands, Sao Tome and Principe, and a number of smaller islets, which together have a total land area of just over 1,000 square kilometers. According to the CIA's World Factbook, it is the smallest country in Africa, with a population of less than 200,000.

The country imports all of its fuel, most manufactured and consumer goods and a significant portion of its food. Its productive base is "undiversified as it relies almost exclusively on cocoa exports and external donations." (31) It has no history of oil or gas production.

In contrast to Sao Tome, Nigeria is one of the dominant countries in Africa, with a long history as an oil exporting country, including significant offshore, deep water experience. While Nigeria has suffered from a variety of difficulties, ranging from corruption and mismanagement of the energy, sector, to environmental damage and human rights abuses, it has been producing oil and gas for many years. Its energy sector is mature compared to most of its African neighbors, including Sao Tome. Nigeria was therefore well-positioned to assume responsibility for managing the joint development zone on behalf of both countries (BIICL Model III), had Sao Tome been willing to accept that arrangement. However, as indicated above, the two states decided on a joint development strategy (BIICL Model II) that required the creation of an entirely new institutional and legal framework for development of oil and gas resources in the area covered by their overlapping maritime claims.


Although a joint development model was selected, the political realities were such that Nigeria assumed a dominant position in the JDA. In addition to acquiring a 60 percent interest in the area, Nigeria's initial management role in the IDA was also significant. The first chairman of the IDA's Board was appointed by Nigeria; the IDA's head office was located in Abuja, Nigeria; and although provision was made for a satellite office in Sao Tome, that office was not established until 2004. The initial decisions made by the JDA were all patterned after Nigerian industry practice, including those with respect to the legal and fiscal regimes that would apply in the JDZ and the form of the Production Sharing Contract (PSC) under which companies awarded licenses would operate. Nigeria agreed to underwrite the initial costs of operating the JDZ, until such time as revenues from the area permitted Sao Tome to contribute its 40 percent share.

The Abuja-based IDA had the opportunity to design from the ground up its system for promoting and licensing acreage in the JDZ. (32) It could have adopted a process that involved complete transparency with respect to the legal and fiscal regimes that would apply, as well as the procedures by which licenses to explore for and develop resources would be awarded. In fact, the process by which it designed the system was relatively opaque. Some of the companies that were interested in the JDZ were consulted, and the JDA conducted a "road show" to describe opportunities in the JDZ to potential bidders. But the JDA's published requirements for bidders to be qualified were so general that neither the bidders themselves, nor the JDA, nor advisors consulted by Sao Tome's president, could determine with any certainty whether the firms submitting bids were actually qualified. This left the IDA with effectively unfettered discretion, which rendered it vulnerable to political pressure and other outside influence.

It was probably inevitable, therefore, that problems would arise in the JDA's assessment of the qualifications of firms that submitted bids in the first licensing round. Although a UK-based consulting firm was hired to assist with the evaluation, its analysis of the financial, technical and management capabilities of bidders was not publicly disclosed. As the IDA prepared to announce the results of the round at the end of 2003, it advised both states of its proposed awards to the companies that had submitted bids. The JDA initially proposed to award licenses for five of the nine blocks on offer, after concluding that bidders for three of the blocks were not qualified (one of the blocks received no bids).

The Report of the Licensing Round Committee on the Evaluation of Bids for the 2003 JDZ Licensing Round, completed in December 2003, and setting out the recommendations referred to above, was not made public. (33) However, advisors to Sao Tome's president were informed of the recommendations. Finding little support for some of the awards that were proposed in the report, they delivered a confidential memorandum to the president questioning the recommendations. (34) After an extended period of internal deliberation, the IDA decided to award licenses for only one of the blocks on offer, and it deferred consideration of licenses for the other blocks on offer to a later, unspecified date.

The decision by the IDA to refrain from awarding licenses to bidders whose qualifications could not be established required a significant exercise in diplomacy because it required the rejection of bids from companies in which Nigerian nationals apparently held significant interests. In reaching its decision, the JDA demonstrated a willingness to heed criticism and reconsider its bidding practices.

In the second bid round, conducted in 2004, some of the companies whose bids had appeared problematic in the first bid round submitted bids once again. The process by which the JDA evaluated bidders was again kept confidential, but it appears not to have utilized the UK-based consulting firm that was involved in the first licensing round, and it is unclear whether the JDA took other, equivalent steps to verify the credentials of the bidders.

In May 2005, Presidents Olusegun Obasanjo of Nigeria and Fradique de Menezes of Sao Tome announced the award of five blocks, including awards to some of the companies that had been identified as problematic in the first round. (35) When questions were raised as to the qualifications of the bidders, the JDA issued a statement asserting that its decision bad been "conducted in conformity with the principles of accountability and transparency and in line with the Abuja Declaration on Transparency and Good Governance," which had been signed by the presidents of Nigeria and Sao Tome in June 2004. (36) However, the report of the Licensing Round Committee on the evaluation of the bids was again not made public.

Shortly before the IDA issued its May 2005 statement on the probity of its second licensing round, the Petroleum Affairs Commission of Sao Tome's National Assembly announced that a Parliamentary Investigation Commission would be created to evaluate the conduct of the IDA and that "the Public Prosecutor [would] be urged to initiate a ... procedure" to examine the outcome. (37) Among the Petroleum Affairs Commission's findings that prompted its call for an investigation were the following:
 "There is a complete dysfunction at the Joint Development Authority
 and at the [Joint] Ministerial Council.... [For] example ... the
 bank account ... established by the Joint Authority to receive the
 signature bonus was not executed;

 "The structure of negotiation and follow-up are not working well,
 which affects Sao Tome and Principe's bargaining power;

 "The ... authorization given to [one of the bidders in the first
 bid round] ... to transfer its options from [that] ... round to the
 second licensing round through a Ministerial Council Resolution ...
 [should be] ... contest[ed] to the utmost degree, [because it]
 deeply affects the Santomean interests.

 "[The Special Advisor to the President of the Republic of Sao
 Tome] ... was removed from the Joint Ministerial Council meeting
 room because he was the only person that could object with valid
 arguments [to] the positions taken by the opposing side;

 "There was little transparency in the process of oil blocks
 licensing, ... [for example]:

 The opening of [one company's] ... bid ... was ultimately dismissed
 even though it presented the best proposal, under the argument that
 the required documentation was not presented on time;

 The re-inclusion of companies eliminated on technical grounds; and

 The ... conflict of interest ... due to the participation of ... a
 shareholder of [one of the bidders] ... in the Joint Ministerial
 meetings." (38)

In September 2005, Sao Tome's attorney general launched an investigation into a number of these issues. (39) The jurisdiction of the attorney general to pursue his investigation has not been established and President de Menezes has not commented on the investigation.


The problems encountered by the JDA in conducting its first two licensing rounds, though serious, might actually have been worse had the parties opted for a joint development arrangement of the type described in BIICL Model III, in which Nigeria would have managed the JDZ on behalf of both countries. The most recent licensing round in Nigeria was accompanied by an unusual amount of activity designed to improve transparency, but the requirement that non-Nigerian bidders be paired with local investors, together with other changes in the terms and conditions of the licenses to be awarded, appears to have eliminated all but a few of the IOCs most capable of developing offshore acreage in that country. (40) In addition, Nigeria's process for awarding licenses generally has been described by IOCs as "bureaucratic and cumbersome." By comparison, the JDA has been remarkably "businesslike" and pragmatic in its negotiations with the IOCs. (41)

Although the operation of the Joint Development Zone is still in its infancy, some preliminary lessons can be drawn from the experience with the first and second licensing rounds:

* First, the procedures followed by a licensing authority should be carefully planned and fully disclosed prior to implementation. (42) In the case of the JDA's first bid round, although input from IOCs was solicited, it appears to have been only partially reflected in the legal and fiscal terms that were put in place, as well as in the Production Sharing Contract (PSC) that companies awarded acreage were expected to sign. As a result, negotiation of the first PSC was not completed until after the second bid round was under way.

* Second, interests should not be awarded to companies with little or no financial capability, technical expertise or operating experience, even if they are included in a bid group assembled by a fully qualified IOC. As Nigeria's recent experience suggests, such companies may not be able to fulfill their obligations, with the result that their interests may need to be reallocated, delaying implementation of the work program to which the group is committed. (43)

* Third, a state like Sao Tome that is embarking on a new natural resource development strategy needs to have access to its own sources of industry expertise, regardless of whether it is pursuing the project on its own or jointly with another state. If Sao Tome lacked experienced local nationals to participate in the implementation of its strategy, it should have contracted for staff having that expertise in order to buy the time necessary to develop its own domestic expertise. While this would have been costly, it is a practice that has been followed by many other countries, including some that have been very successful in developing their oil and gas resources. (44) There are, however, pitfalls in this strategy that need to be recognized from the outset if they are to be avoided or effectively managed:

** Individual consultants bring only their own perspectives to the table. Those perspectives, no matter how well grounded in industry experience, are likely to have been developed on the basis of economic, political and other conditions very different from those prevailing in Sao Tome.

** Consulting firms offer broader and deeper reservoirs of talent, and are capable of overcoming cultural biases, but there is a risk that they will become advocates for the points of view prevailing within the JDA, rather than objective proponents of industry best practices, in order to preserve their consulting relationship with the host government(s).

** Reliance on outside experts can result in a lack of continuity. The occasional or opportunistic use of individual experts and consultants is not a substitute for building capacity within the country, as well as within the JDA. This takes time, and requires a combination of formal training, some of which may need to be undertaken outside Sao Tome, as well as on-the-job training under the supervision of qualified, experienced personnel.

Some of the problems outlined above can be minimized through the use of a team of experts assembled specifically for the purpose of assisting with development issues and operating pro-bono or on some other basis that does not render the firm financially dependent on its client. For example, the research team assembled by the British Institute of International and Comparative Law was able to integrate into its advice on structuring joint development arrangements a wide range of perspectives, including those of both industry and exporting countries. (45) While this team was not created for the purpose of assisting a single country, it did develop a model treaty with a range of options for use by countries seeking guidance in this area. Some of the assistance provided to Sao Tome by a team of scholars and practitioners assembled by Columbia University's Earth Institute could be considered as approaching this standard. However, their assistance has focused primarily on issues of domestic concern to Sao Tome, such as strategies for managing its revenues from activities in the JDZ, rather than on its participation in the JDA's activities. (46)

The most promising single strategy for a successful and equitable outcome of Sao Tome's new joint resource development program would be a consistent application of the principles of transparency that have been espoused by both Nigeria and Sao Tome. Transparency means more, however, than just reporting the amounts of payments made by IOCs to the JDA. Transparency consistent with the principles of the Abuja Declaration should have led the JDA to publish drafts of the laws, rules, regulations, guidelines and standards that it proposed to use in administering the JDZ well in advance of the dates on which they became effective; to conduct public hearings to elicit opinions from industry and other stakeholders on its proposals; to publish minutes of its meetings, including copies of any reports or other submissions by those participating in the meetings (such as the consultant hired to conduct due diligence on firms submitting bids); to issue reports reflecting the results of the JDA's deliberations, including its decisions to incorporate or reject suggested changes in its proposed standards; and to publish the reports of the Licensing Round Committee, including the basis for awarding interests in JDZ acreage, at the time of the announcement of the results of each licensing round. This commitment to openness could have prevented some of the problems identified by the Petroleum Affairs Commission as having been present in the most recent licensing round.

The transparent procedures described above can only make a lasting difference if they are incorporated into a broader culture of compliance with the rule of law. Exposing the JDA's strategies to the scrutiny that comes with transparency and the free circulation of information can "help make up for the deficits of even weak institutions, as civil society, the press, and responsible elements of government can use such information to demand accountability and to press for reform. Transparency cannot assure the responsible [administration of public resources]..., but without transparency abuse is almost certain." (47)

Among the reasons advanced by Sao Tome for the country's willingness to construct an entirely new regime for developing the resources in the JDZ was its observation that the strategies followed by other oil exporting countries in the region were far from trouble free and therefore could not be used as models for the JDZ without significant modification. There was wisdom in this observation. It is not too late for the JDA to execute a course correction, but, as in the case of the first bid round, it will take diplomacy and an exercise of significant political skill. A first step would be for Sao Tome to seek additional long-term expertise from outside the country to provide ongoing assistance to its representatives in the JDA, as well as to those responsible for the country's petroleum sector. In doing this, Sao Tome would be following in the footsteps of many other successful oil exporting countries, if not those in its immediate vicinity.


(1) "Reserves" are the "unproduced but recoverable oil and/or gas in place in a geological formation whose existence has been proven by production." See Richard D. Seba, Economics of Worldwide Petroleum Production (Tulsa, OK: OGCI and PetroSkills Publications, 2003), 540.

(2) Standard & Poor's, "Industry Report Card: U.S. Oil And Gas" at servlet/Satellite?pagename=sp/sp_article/ArticleTemplate&c=sp_article&cid= 1128612178 (7 October 2005): "As the production capacity of oil and gas fields depletes over time, the key to success in the E&P industry is to discover and develop or acquire new reserves more cheaply than the revenues they produce."; Robert Pirog, CRS Report for Congress 4 August 2005, "Oil Industry Profits: Analysis of Recent Performance," at hnp://

(3) The leading proponent of this concept has, for many years, been M. King Hubert. See See also Matthew R. Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Hoboken, NJ: John Wiley & Sons, Inc., 2005).

(4) Exxon Mobil Corporation, at Publications/deepwater/exploration/mn_exploration.html: "Since drillers first moved offshore more than 50 years ago, the meaning of deep water has changed. To many in the business, it means water too deep for conventional free-standing steel platforms. Today that depth is roughly 400 meters (1,300 feet), greater than the height of the Empire State Building in New York City. The industry's definition of deep water will change again as ExxonMobil and others begin exploring in water depths of 3,000 meters (10,000 feet) and more."

(5) Joseph A. Pratt, Tyler Priest and Christopher J. Castaneda, Offshore Pioneers--Brown & Root and the History or Offshore Oil and Gas (Houston: Gulf Publishing Company, 1997), xii.

(6) "FPSO Solutions for 10,000-ft GOM Field Development" JPT Online, October 2005, at,2439, 1104_1585_0_4407518,00.html.

(7) The term "state" refers to a sovereign nation, not to a local jurisdiction such as a state of the United States, even though such "states" (of the United States) may have jurisdiction over oil and gas exploration in the territorial waters adjacent to their coasts; Infield Energy Data Analysts, "Subsea Market Update to 2009" at subsea_production_market_reports.htm+growth+in+the+number+of+ offshore+oil+wells&hl=en): "2,121 subsea wells are forecast to be installed in the period 2005-2009. This represents a 71% growth from the period 1999-2003, where 1,242 wells were installed."

(8) "Offshore Eastern Canada hosts rapidly increasing oil and gas industry," Alexander's Gas & Oil Connections, News & Trends: North America 6, no. 12, 2 July 2001, at; "The driving force behind the claim would be to gain control over natural gas and oil reserves that may be located outside Canada's current 200-mile limit. The Hibernia oil rig off Newfoundland is located near the edge of the 200-mile limit, but the oil field itself extends well into international waters." "Canada Eves 'Big Chunk' of Sea Floor--Extending 200-Mile Limit Another 150 Miles Would Include Rights to all Resources," Telegraph Journal, 20 November 1998, at

(9) R. R. Churchill and A. V. Lowe, The Law of the Sea, Third edition (Yonkers, NY: Juris Publishing, Inc., 1999), 143-44.

(10) Convention on the Continental Shelf, Geneva, 29 April 1958, 15 U.S.T. 1606, T.I.A.S. No. 5639, 516 U.N.T.S. 82. The text is available at

(11) Ibid., Art. 5.

(12) United Nations Convention on the Law of the Sea (UNCLOS), Montego Bay, 20 December 1982, 21 I.L.M. 1261 (1982); U.N. Publ E.83.V.5 (1983), at See also Handbook on the Delimitation of Maritime Boundaries (New York: United Nations, Office of Legal Affairs, Division for Ocean Affairs and the Law of the Sea, 2000); R. R. Churchill and A. V. Lowe, no. 11.

(13) The "normal baseline" for "measuring the breadth of the territorial sea is the low-water line along the coast as marked on large-scale charts officially recognized by the coastal State"; UNCLOS, Arts. 5 and 76; Handbook, Chapter 1.

(14) Ibid. Art. 56.

(15) Ibid.

(16) Ibid., Art. 298: A state declaring that it does not accept the 1982 Convention's compulsory, procedures for binding decisions is nonetheless obligated, at the request of any party to the dispute, to accept submission of the matter to conciliation under Annex V, Section 2. Australia is a recent example of a state that, having previously signed the 1982 Convention, declared in March 2002 that it would be exempt from the compulsory dispute settlement procedures--in all probability because of its then pending maritime boundary negotiations with East Timor; Gillian Triggs and Dean Bialek, "The New Timor Sea Treaty and Interim Arrangements fur Joint Development of Petroleum Resources of the Timor Gap" (The University of Melbourne Faculty of Law, Public Law and Legal Theory Research Paper No. 45, 2003), 330, at However, in the Timor Sea Treaty (ATNIF II) between the Government of East Timor and the Government of Australia, which was opened for signature 20 May 2002, the states agreed upon a compulsory and binding process for dispute resolution. The text of the Timor Sea Treaty is available at PDFFILES/TREATIES/AUS-TLS2002TST.PDF.

(17) "Border disputes tend to become nasty both on land and on the sea and to produce conflict often disproportionate to tire stakes involved. Economic and security interests are only part of the picture. The rest is nationalist pride and the possessiveness of the mine and the thine. Maritime boundaries, whose importance has increased tremendously with the expansion of national jurisdiction over the sea, are no exception to this rule." Cf. Phaedon John Kozyris, "Equity, Equidistance, Proportionality at Sea: The Status of Island Coastal Fronts and a Codea for the Aegean," in Theodore C. Kariotis, ed., Greece and the Law of the Sen 23 (The Hague/London/Boston: Kluwer Law International, 1997).

(18) Ernest E. Smith, "World Energy Resources--Ownership, Control and Development," Chapter I in Ernest E. Smith et al., International Petroleum Transactions, Second Edition, Chapter I (Denver, CO: Rocky Mountain Mineral Law Foundation, 2000), 28-29. Professor Smith describes the basic principle: "Virtually all mineral ownership regimes are based on the jurisprudential theory of state sovereignty. The sovereign of a defined geographical area has exclusive legal dominion over the area, including its natural resources. The sovereign can recognize private ownership of these resources or it can treat them as state-owned. The sovereign can require all development of state-owned minerals to be accomplished by a state agency, or it can authorize development by private companies, including foreign corporations." In the United States, which follows "established precepts of English common law, the owner of the soil owns the minerals beneath his land."; Ibid., 39.

(19) "Oil and gas in troubled waters," Economist, 8 October 2005, 52, describing recent tensions between Japan and China over oil and gas deposits straddling what Japan says is the border line between the two countries' exclusive economic zones: "[T]he Chinese navy made a dramatic appearance near a Chinese drilling platform.... It deployed five vessels, including missile-equipped destroyers and frigates.... Japanese officials said that one of the boars had turned a gun turret ... on to a Japanese P3-C reconnaissance aircraft that was monitoring the activity."; and "Iran Shows its Teethes [sic] to Azerbaijan," Iran Press Service, 25 July, 2001, at azarbaijan_oil_dispute_25701.htm): reporting that Iran had "moved closer to a military showdown [with Azerbaijan] after [an] Iranian navy ship forced foreign oil firms operating in a disputed oil zone ... between the two countries to stop operation."; c.f. Doug Bandow, "Faulty Repairs: The Law of the Sea Treaty is Still Unacceptable," Cato Foreign Policy Briefing no. 32, 12 September 1994, at, suggests that U.S. mining companies would be better served by a "lawless" environment than by the deep-seabed mining provisions of the 1982 Convention. U.S. support for IOCs adversely affected by foreign state action has not been consistently "robust."; Stephen D. Krasner, Defending the National Interest: Ran, Materials Investments and U.S. Foreign Policy (Princeton, N.J.: Princeton University Press, 1978).

(20) "Unitization" is the term of art used in the industry to describe an arrangement for the joint development of an oil or gas resource that straddles an agreed boundary. See International Petroleum Transactions at 321.

(21) David Anderson, "Developments in Maritime Boundary Law and Practice," in D. A. Colson and R. W. Smith, eds., International Maritime Boundaries 5 (Leiden/Boston: Martinus Nijhoff Publishers, 2005), 3216; Hazel Fox, ed., Joint Development of Offshore Oil and Gas I, Chapter 4, "Development Models" (London: The British Institute of International and Comparative Law, 1989/1990); David Lerer, "How to negotiate and structure a joint development agreement," Oil and Gas Journal Online at Section=ARCHI&C=Explo&ARTICLE_ID=186306&KEYWORDS=jda%20.

(22) Fox, II, Part I.

(23) The text of the treaty is available on the website of the Nigeria-Sao Tome and Principe Joint Development Authority at; Colson and Smith, eds., No. 24 (Nigeria-Sao Tome and Principe, Report Number 4-10), 3649-82."

(24) Statement by His Excellency Rafael Branco, Minister of Public Works, Infrastructure, Natural Resources and Environment, DRSTP, "JDZ Road Show" (Houston, TX: June 2003) at IDA website; Treaty Art. 2.

(25) Ibid., Art. 3.

(26) Ibid.

(27) Ibid., Arts. 8 and 9.

(28) Ibid., Art. 10.

(29) Ibid., Art 51.

(30) Colson and Smith, eds., no. 24, 3638-48; Taju Umar (Executive Director, Monitoring & Inspections and Chairman of the Board, IDA), "The Nigeria-Sao Tome & Principe Joint Development Zone, 'A Unique Investment Opportunity,'" Presentation to American Association of Petroleum Geologists-Houston, 13 March 2002, available on the Nigeria-Sao Tome IDA website at; Gerhard Seibert, "Sao Tome e Principe: The difficult transition from aid-dependent cocoa producer to petrol state," paper delivered at the Annual Conference of the African Studies Association of Australia and the Pacific (AFSAAP), 26-29 November 2004, University of Western Australia, at conferences/2004pro_ceedings/seibert .PDF; J. G. Frynas, G. Wood and R.M.S. Soares de Olivera, "Business and Politics in Sao Tome e Principe: From Cocoa Monoculture to Petro-State," Lusotopie 2003, 33-58, at http://www.; U.S. Department of State, Bureau of African Affairs, "Background Note: Sao Tome and Principe," October 2005, at; World Bank, Sao Tome and Principe, Country Brief, September 2005, at SAOTOMEEXTN/0,,MENUpk:382775~PAGE.

The contrast between the results of Nigeria's negotiation with Sao Tome, and the recent treaty between Australia and East Timor is striking. In the Timor Sea Treaty, a 90-10percent split of benefits (and costs), in favor of East Timor, was agreed to. Timor Sea Treaty Art. 4. In addition, after a three year transition period, administration of the Joint Petroleum Development Zone will be handled by the East Timor Government Ministry, responsible for petroleum activities or, if so decided by the Ministry, an East Timor statutory authority. Timor Sea Treat Art. 6; Gillian Triggs and Dean Bialek, no. 12.

(31) Ibid., "Sao Tome and Principe, Country Brief."

(32) The literature on this subject is limited, but a recent book by Michael A.G. Bunter, The Promotion and Licensing of Petroleum Prosective Acreage (The Hague, Kluwer Law International, 2002), is an exceptionally detailed resource. Mr. Bunter is a petroleum geologist and Fellow of the Royal Geographical Society. According to its preface, the book originated "as a set of course notes for a series of lectures given by the author at the Center for Energy, Petroleum, Minerals Law and Policy at the University of Dundee [CEPMLP]."; Ibid., xi; A review of the book can be found on the Dundee Center's website at In 2004, Chatham House and CEPMLP announced an initiative on good governance of the national petroleum sector. Information with respect to the most recent "Good Governance Workshop II," 21-23 September 2005, which included a discussion of "transparency in licensing," is available on the Chatham House web site

(33) "Report of the Licensing Round Committee on the Evaluation of Bids for the 2003 JDZ Licensing Round," Abuja, Nigeria, 9 December 2003 (not publicly available; copy in the author's files).

(34) Memorandum dated 24 April 2004, from the Columbia University Advisory Group to H. E. President Fradique de Menezes. re "Maximizing STP and Nigeria Government Revenues" and "Negotiation of the PSC's" (not publicly available; copy in the author's files).

(35) JDA Press Release, "Announcement of Block Awards in the 2004 JDZ Licensing Round," 31 May 2005, at; "Five Oil Blocks Awarded in the 2004 Joint Development Zone (JDZ) Licensing Round," Oilvoice, 2 June 2005, at

(36) The Abuja Declaration was signed on 26 June 2004 by President Olusegun Obasanio of Nigeria and President Fradique de Menezes of Sao Tome, at JDA website, It provides, in part, the following:

"2. All payments to the Joint Development Authority by oil companies shall be made public on an individual company basis, quarterly and annually, by the Joint Development Authority and by the companies ....

"5. The Joint Development Authority shall make public the basis for all awards of interest in the Joint Development Zone including the technical and due diligence analysis supporting such awards. All bids and supporting data, other than geological or similar proprietary data, shall be made public."

"7. All information which is to be made public pursuant to this Declaration shall be posted and maintained on the website of the Joint Development Authority in order to assure open access to such information for all individual groups."

(37) Unofficial translation of the 19 May 2005 Report of Sao Tome's National Assembly's Petroleum Affairs Commission (copy available in the author's files).

(38) The author has selected these as representative of eight examples of problems in the IDA's procedures set forth in the Commision's Report.

(39) "The attorney general of ... Sao Tome will put Nigeria on the spot this weekend with plans to request its help with an investigation into awards on five blocks in the joint development zone (JDZ) between the two countries.... If the probe gathers force, it could lead to the bid round being voided, or at least prompt some US companies to reassess ... their positions, sources say." Christina Katsouris, "Sao Tome: Legal eagle takes on Nigeria," Energy Compass (7 October 2005).

(40) See Willy H. Olson, "The Nigerian bidding round 2005--An observer's reflections on the transparency issues," presented at Chatham House, (London, 21-23 September 2005), at

(41) Author's interviews with representatives of IOCs active in Nigeria and Sao Tome.

(42) Bunter, no. 36, Chapter 8.

(43) "The Nigerian government has received only $1 billion of the $2.6 billion pledged in signature bonuses in the country's end-August auction of oil blocks.... About 44 oil blocks were awarded out of 76 on offer in Nigeria's licensing round. The list of winners included ... companies from the Niger Delta.... created by politicians and entrepreneurs to bid as local content vehicles for 10% stakes reserved for indigenous companies on all blocks.... [There were] doubts that some [of these] bidders would be able to pay signature bonuses or meet work programs." Cf. "Nigeria May Extend Bid Bonus Deadline at Request of Firms," International Oil Daily, (18 October 2005).

(44) Reliance on expatriates to supplement the expertise of local nationals has been commonplace in most of the producing countries of the Middle East. For a history of Saudi Arabian Oil Company's efforts to train local nationals to replace expatriates at all levels of the organization. Thomas A. Pledge (Ali M. Dialdin and Muhammad A. Tahlawi, eds.), Saudi Aramco and Its People--A History of Training (Houston, TX: Aramco Services Company, 1998).

(45) Bunter, no. 17.

(46) Since 2003, Professor Jeffrey Sachs, director of Columbia University's Earth Institute, has led a diverse team of experts advising Sao Tome on a pro bono basis, with travel expenses paid through a grant from the Open Society Institute. The three areas of focus of this effort are: (i) the development of an oil revenue management law, to establish an institutional framework for transparency and accountability in public expenditure over time; (ii) the design and execution of a national forum, through which citizens can be informed about the country's oil revenues and provide input on how such revenues might be spent; and (iii) the formulation of a plan of action for sustainable economic development, through improvements in health, education, agriculture, physical infrastructure, electrification, telecommunications and fisheries. A description of this project's activities and results can be found at http://www.earthin

(47) Joseph Bell and Teresa Faria, "Legal Reform: Critical issues in an Oil Revenue Management Law," Macartan Humphreys, Jeffrey Sachs, Joseph Stiglitz, eds., Escaping the Resource Curse, forthcoming 2006.
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Author:Groves, Hurst
Publication:Journal of International Affairs
Geographic Code:6NIGR
Date:Sep 22, 2005
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