Canada is test case of UN law on oil drilling in the sea

UN Article 82 could mean millions in additional costs for drilling companies.

Canada is test case of UN law on oil drilling in the sea

World Bulletin/News Desk

As energy companies reach further out into the seas and oceans to extract precious oil, drilling firms have been warned that they may incur millions in additional costs under a UN rule.

Article 82 of the UN International Seabed Authority, or ISA for short, could add $1 billion to costs over the 15-year life of a typical oilfield if oil remains at the current $80 a barrel.

Coastal countries with oil reserves far out into the deep water are watching a test case in Canada involving Statoil, a Norwegian company.

Statoil discovered what it believes to be sizeable oil deposits 270 nautical miles off the coast of Newfoundland near where the Titanic sunk in 1912.

It began appraisal drilling this month and if the company decides to begin production, Canada and Statoil will be the first to become liable to Article 82.

Under the existing UN Convention on the Law of the Sea, companies are allowed to drill and mine up to 200 nautical miles from the coastline.

That rule has been dormant for years, because the technology did not exist to range farther and deeper into waters.

But now that technology exists for such exploration, countries and companies are going to have to pay for crossing the 200 nautical mile line. The payments start at 1 percent of revenues in the sixth year and are raised 1 percent per year to a maximum of seven percent.

But also to be hashed out is whether the payments are calculated on gross or net revenues – Article 82 does not say.

Also, under UN rules a nation does not own the seabed past the 200 miles when there is an “extended continental shelf” of shallow water. But sometimes the depths reach 3.1 miles (5,000 meters), so that is another wrinkle that needs to be ironed out.

“Interpretation can be quite open,” Yannick Beaudoin told news media. He is with GRID-Arendal, a Norwegian foundation that works with the UN and aids countries in mapping rights to the shelf.

Canada, the United States and Norway are already warning companies of the possible financial implications of Article 82 and the rule is why countries are watching the situation in Canada.

“It does seem likely that the Statoil field will be the first Article 82 area to go into production,” Michael Lodge told news media. He is legal counsel to the ISA.

The money collected by the UN under Article 82 is distributed in large part to developing nations.

Last Mod: 20 Kasım 2014, 16:41
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