Cross Border Unitisation
Note: This Article appeared in the July 2015 edition of Energy Now.
In Trinidad and Tobago’s continued development of our oil and gas sector, it is clear that success in the deep water acreage is of paramount importance and we look forward to seeing the results of the exploration work being done in that area. There are however discovered reserves that straddle the maritime boundary between Trinidad and Tobago and Venezuela that also merit our attention due to the impact that unlocking these resources can have on our economy.
Some of the work required to exploit these resources has already been done. The governments of Trinidad and Tobago and Venezuela have executed a Framework Treaty relating to the Unitisation of Hydrocarbon Reservoirs (the ‘Framework Treaty’). The Framework Treaty provides that any hydrocarbon reserves that extend across the maritime boundary of the countries are to be developed as a unit and, as the title suggests, it establishes the general legal framework required to achieve this objective. The Framework Treaty requires the governments to enter into a unitisation agreement for each cross border discovery which will set out the volume of hydrocarbons in the discovery and allocate those volumes between the two countries. Of the known cross border discoveries between the countries: Kapok-Dorado, Manakin-Coquina and Loran-Manatee; the governments have only executed a unitisation agreement in respect of the Loran-Manatee Field (the ‘Unitisation Agreement’). Approximately 27% of the estimated 7.5 trillion cubic feet of the reserves in the Loran-Manatee Field have been allocated to Trinidad and Tobago with the remaining 73% being allocated to Venezuela. From a legal perspective, the following are a few of the issues that we need to consider as we seek to develop these resources.
The Framework Treaty and the Unitisation Agreement are important but are only the first of many contracts required to develop the field. These agreements are only between the governments thus, from a Trinidad law perspective, their effect is to unitise the interests of the respective governments in the hydrocarbons in the ground. Both agreements recognize that the contractors that have an interest in the production sharing contract on the Trinidad side and the licensees on the Venezuelan side have to enter into a unit operating agreement. In fact, those companies have to enter into a unitisation and unit operating agreement as the rights of the companies to the hydrocarbons that will be produced have not been unitised by either the Framework Treaty or the Unitisation Agreement. The negotiation of a unitisation and unit operating agreement should therefore be a primary focus of all parties that have an interest in the field.
The Framework Treaty only establishes a framework for the development as it sets out a number of areas where more detailed agreement is still required. These include applicable health, safety and environmental regulations; the payment of taxes and royalties; security; cross border pipelines; and decommissioning. One area of concern is that the Framework Treaty provides that any dispute between the parties is to be ultimately resolved by direct negotiation between the governments. Given the significant areas which still require agreement, including the fact that each government has the right to seek a redetermination of the allocation of volumes, it is not sufficient to rely on negotiation between two sovereign nations and provision should be made for international arbitration to settle any unresolved disputes.
Two final points to consider. The development of these cross border resources slip in and out of public attention. The Framework Treaty establishes a Ministerial Commission which is to meet at least twice per year and a Steering Committee which is to meet at least every two months. It would be useful for those involved in the industry to receive information as to whether these bodies are in fact meeting and, to the extent that it is not confidential, the progress that is being made or the lack thereof. The service companies in the industry should also be interested in the provisions of the Framework Treaty that requires compliance with the local content policies of both governments. Again, this is another area which will require further detailed agreement between the governments but where, in a development of this size, operators are required to maximize the use of local goods and services, we need to pay particular attention and contribute to the development of this area.
I trust that we are all are sharpening our Spanish speaking skills; and I hope that we get to put them to good use.
