Last week, the government of Newfoundland and Labrador and Equinor Canada announced a framework agreement for the potential development of the $6.8-billion Bay du Nord deep-water offshore oil project. It is welcome news, coming as it does amid reports of a nearly $40-billion decline in capital investment in Canadian oil and gas projects over the past three years.
If the project proceeds, it will trigger Canada’s obligation under Article 82 of the United Nations Convention on the Law of the Sea (UNCLOS) to make payments to as-yet-unidentified members of the international community. Such payments would be based on production from the project, commencing after the fifth year of production and rising to seven per cent by the twelfth year. Article 82 of UNCLOS has never before been triggered anywhere in the world.
It appears that last week’s agreement is silent on Article 82. The agreement therefore raises the question: Who will pay? Canada, Newfoundland or industry? (Or possibly some combination of them). Yet another serious federal-provincial dispute and public controversy over the development of oil and gas resources appear inevitable.
The Bay du Nord project site lies approximately 270 nautical miles (500 km) offshore. Canada’s rights to explore and develop seabed resources in the area are not in dispute; UNCLOS confirms continental-shelf rights beyond 200 nautical miles, independently of Canada’s 200-nautical-mile exclusive economic zone. Indeed, Canada’s continental rights, as affirmed by UNCLOS, in some areas extend more than 350 nautical miles offshore.
Under Article 82 of UNCLOS, however, Canada is obliged to make the prescribed payment to the international community on all production beyond 200 nautical miles.