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«LEGAL ASPECTS OF OFFSHORE OIL AND GAS OPERATIONS OLIVER L. STONE* The states' own title to the lands, minerals and other things underlying the ...»

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To the extent the shelf convention is applicable, it rejects both these doctrines. To its applicable extent, it vests in the coastal nation the exclusive sovereign right to explore and exploit the natural resources. However, the concept inherent in that Convention is that exploitation for natural resources under waters deemed and recognized to be high seas, is not entirely inimical to the doctrine of freedom of the seas. The non-territorial waters above the continental shelves are high seas, yet the convention recognizes exploitation rights in the subsoil.

The International Law Commission, as heretofore noted, recognized exploitation of the sub-soil of the high seas (outside continental shelves) as one of the freedoms of the high seas, 7 ' but felt that such exploitation had not yet assumed sufficient practical importance to justify special regulation. 72 The only limitation the ILC would appear to attach to this freedom is that those exercising it "refrain from any acts which might adversely affect the use of the high seas by nationals of other nations." Article 2 of the Convention on the High Seas specifies the four main freedoms of the high seas (navigation, fishing, laying submarine cables and pipelines, and overflight), followed by the recitation that these freedoms, "and others which are recognized by the general principles of international law, shall be exercised by all States with reasonable regard to the interests of other States in their exercise of the freedom of the high seas."

It is permissible for nationals of any nation to undertake exploitation of the oil and gas under the bottom of the high seas, and outside continental and insular shelves. The question is, what results

71. Supra note 69.

72. ILC Rep. at 24.

73. Id.

NATURAL RESOURCES JOURNAL [VOL. 8

flow when one succeeds in that effort? What right or interest does he acquire? Is it "exclusive" in the sense that he alone can develop and produce the reserve of oil, gas or other mineral which he discovers, or is his interest "inclusive," i.e., a common interest to which all comers have equal access?

At some future date, the oilmen of the world will possess the technical capability to drill and produce wells, no matter the depth of the water overlying the drill site, unless the incentive to undertake the nigh prohibitive research and development cost is frustrated by fear that legal and political considerations will so entangle them that the devices cannot be put to use, or if they are successfully put to use, that their owners can have no reasonable assurance of protection to develop and produce what they find, together with reasonable tenure to do so. Assuming a private interest wishes to undertake, on its own, such drilling under the bottom of the ocean depths, we can, in the present state of the matter, but note the risks and surmise some of the possible consequences. At present, anyone undertaking on his own to drill in the distant offshore areas must first satisfy himself that he is not on some nation's continental shelf. If he drills and establishes the capability to exploit the underwater minerals at the drill-site, some nation might claim that he has established the extent of its continental shelf, and thus vested in it the exclusive right to do what he did, and proving that he was without right to do it. The consequences, although not presently formulated, could be devastating.

Assuming the explorer can be reasonably satisfied that his drillsite is not on any nation's continental shelf (and that his drilling will not establish it to be so) and assuming that he does discover an oil or gas reservoir, what rights does he thereby establish for himself ?

Here the situation becomes even more uncertain. We have seen that the International Law Commission deemed the freedom to explore and exploit the subsoil of the high seas to have not yet assumed sufficient practical importance to justify special regulations. Therefore, there are no regulations governing his rights or duties nor, of course, those governing the rights or assertions of others who might wish to try their hand, or drill-bit, snug up against his. In the present state of affairs, the very freedom invoked by the first explorer to try his hand might be urged against him by those who would like to become his immediate neighbor. The discoverer will urge that by his discovery he has acquired the exclusive right to exploit the

OFFSHORE OIL AND GAS OPERATIONS

JULY 19683 reserve he discovered. The latecomers will urge the non-exclusive nature of the discoverer's interest and assert equal rights to exploit the reserve.

It has been said that in dealing with the minerals underlying the deep sea floor and seeking reasonable principles for application, we are dealing with "fixed and firm real estate... [and to] make real estate valuable it must have ascertainable boundaries and be subject to clear and exclusive rights of occupancy.17 4 That is a sound initial approach which must be recognized and accommodated in any endeavor concerning mineral exploitation of the ocean's depths.

The Committee on Natural Resources and Development of the White House Conference on International Cooperation has recognized this concept. In its 1965 report the Committee points out that the bottom of the deep sea floor is covered by small nodules that contain various minerals which it may be possible to mine within the next few years. These resources, the Committee states, "are clearly outside national jurisdictions, ' 7 and the possibility of their exploitation raises the two problems of the orderly exploitation of the nodules, and the distribution or sharing of the mineral rights. The report then continues: "Producers must have exclusive mining rights to areas that are sufficiently large to permit them to operate economically and without fear of congestion or interference.





Controversy has developed as to whether jurisdiction and control of the ocean floor and its underlying minerals should be vested exclusively in the United Nations. A resolution supporting internaEly, The Laws Governing Exploitation of the Minerals Beneath the Sea, presented to the N.Y. Section of American Institute of Mining, Metallurgical and Petroleum Engineers, Jan. 1966, at 13. Mr. Ely mentions four concepts which have been suggested, viz.: (1) the proposal by the Committee on Natural Resources and Development to the White House Conference on International Cooperation [an agency of the United Nations be established for international marine resources]; (2) assume for the time being that all practicable undersea development is sufficiently close to some coastal nation that the Shelf Convention applies; (3) treat the seabed beneath the high seas as open to appropriation and occupancy by all, free of licensing authority of any nation or international organization and let the matter develop on a piece by piece basis; and (4) let the structure conducting the operation fly the flag of some nation with which it has a "genuine link" (the test of recognition of the flag of a vessel under the High Seas Convention), and the explorer thereby appropriates a segment of the seabed and the jurisdiction, and perhaps sovereignty, of his flag attaches to the discovery. Id., 10-12.

75. The White House Conference on International Cooperation, National Citizens Commission, Report of Committee on Natural Resources Conservation and Development 5 (1965).

76. Id.

NATURAL RESOURCES JOURNAL [VOL. 8

tional control has been presented to the United Nations by Malta, 77 but it has been met by firm opposition. Resolutions have been introduced in Congress to the effect that, in view of studies pending pursuant to existing United States law relating to the resources of the bed of the ocean beyond the continental shelf and our national goals for the development of such resources, "any action to vest control of deep ocean resources in an international body would be premature and ill advised; and the President is requested to instruct the United States representatives at the United Nations to oppose any action at this time to vest control of the resources of the deep sea beyond the Continental Shelf of the United States.

Until the time when a regime applicable to the natural resources on and under the ocean beds comes into existence, suppose a private interest wishes to drill into the subsoil of the deep sea floor, beyond all continental and island shelves. How might it minimize the risks heretofore indicated; how might the country of its nationality support it? The structures involved in such operations might fly the flag of some nation. The explorer would thereby appropriate a segment of the seabed, and the jurisdiction of the flag nation attach to the discovery.

Any private interest undertaking such operations on its own, by use of structures which float, whether at or en route to the drill-site, should certainly acquire a "nationality," by carrying the flag of its country and by complying with the country's requirements in that regard. If the structure is actually a "vessel," some countries might require it to do so before leaving port. This would afford the protection of the flag nation and might possibly give added weight to its claim to discovery rights. Moreover, the consequences of the structure being "stateless" might be severe. 79 But assuming compliance

77. The Malta Resolution and Memorandum appear in 113 Cong. Rec. H11945 (daily ed. Sept. 14, 1967).

78. H. J. Res. 830, 90th Cong., 1st Sess. For statements in support of this and similar resolutions see 113 Cong. Rec. A4315 (daily ed. Aug. 24, 1967) ; Id. H11823 Sept. 13,

1967. Id. Hl1945 Sept. 14, 1967.

79. When the Conventions on the Law of the Sea were before the Senate for its advice and consent in 1960, one of the questions asked by the Senate Foreign Relations Committee of the Department of State was, what is the significance of a nation withholding recognition of the national character (flag) of a ship? What are the practical consequences? The answer was: "The significance... is that the ship could as a general rule be regarded as stateless and thus the stipulation in Article 6 of the Convention on the High Seas that a ship is subject to the exclusive jurisdiction of the flag state would not need to be heeded. The practical significance would be that any state so desiring could assert the right to exercise jurisdiction over such a vessel as if it were its own even while the vessel was on the high seas." See Hearings, Conventions on the Law of the Sea, Senate Foreign Relations Comm., 86th Cong., 2d Sess. at 84.

JULY 1968] OFFSHORE OIL AND GAS OPERATIONS

with its nation's requirements, if any, so that its drilling structure can legally clear port for its destined use, there is no legal barrier to its doing so. The principal risks appear to be: ( 1) that the well might later be determined to have been drilled in some nation's continental or island shelf, in which event the operator proves itself out of the right to do what it did, and (2) if successful, the operator may have no assurance of the exclusive right to any area except that occupied by its well.

On one proposition there is probably substantial agreement: The pioneer who undertakes the tremendous risk of drilling under the great depths of the ocean should be entitled, within reasonable area and time limits, to the exclusive right to develop, produce, and own the mineral reserve which he has discovered. Otherwise, incentive is frustrated. Within the foregoing concept, reasonable but subordinate rights could exist in others. Until such time, if ever, that international accord is reached as to how such operations are to be dealt with, some nation-perhaps that of the discoverer's nationality-must assume the lead in implementing the rights of the discoverer. With that assurance, and with reasonable rules which we can hope will be developed over time, the energy reserves which may underlie the ocean depths can be made available to mankind.

VI

LAWS APPLICABLE TO OIL AND GAS OPERATIONS ON THE

OUTER CONTINENTAL SHELF OF THE UNITED STATES °

The Outer Shelf Act extends the "Constitution and laws and civil and political jurisdiction of the United States" to "the subsoil and seabed of the outer Continental Shelf and to all artificial islands and fixed structures which may be erected thereon for the purpose of exploring for, developing, removing, and transporting resources therefrom, to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State.

"8. The Act adopts as "the law of the United States," for application to the subsoil, artificial islands and fixed structures in the outer shelf, "the civil and criminal laws of each adjacent State as

80. This discussion will be limited to occurrences arising out of or in connection with oil and gas operations, or closely related thereto, and things which happen to, on or related to the fixed structures, artificial islands, pipelines, etc., used in connection with such operations. Admiralty matters, such as ship collisions occurring on the waters overlying the shelf, will not be dealt with.

81. 43 U.S.C.A. § 1333 (1958).

[VOL. 8

NATURAL RESOURCES JOURNAL

of August 7, 1953," but only to the extent such state laws "are applicable" and "not inconsistent with the Act or other Federal laws and regulations... now in force or hereafter adopted. 's2 Respecting the "body" of law to be applied in the outer Shelf,8 it 3 has been specifically held that federal maritime law is applicable.

Another case arising from occurrences in the outer continental shelf is Guess v. Read, 4 a libel under the Death on the High Seas Act.



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