Mechanisms for Russian-Norwegian Cross-border Petroleum Cooperation in the Arctic

Both Norway and Russia intend to explore and eventually develop petroleum deposits in the previously disputed area in the Barents Sea. It is quite likely that some deposits straddle the boundary line established by the delimitation treaty in 2010. This possibility is allowed for in the delimitation treaty, which stipulates that trans-boundary fields shall be unitized and developed in cooperation between the license holders on each side of the border. The question is if the two sides will approach such arrangements in the same way and if the Norwegian and Russian sides have the same understanding of principles and procedures for upcoming unitization agreements. Norway has experience from the application of mechanisms of unitization to cross-border fields in the North Sea, while Russia has a different set of experiences from cross-boundary cooperation. Furthermore, unitization and licensee cooperation will be subject to different legal frameworks. The principles established for the development of the Frigg field in the North Sea, discovered in 1971, formed the basis around which all Norway?s international as well as national unitization agreements have evolved. Russia has far more experience in the petroleum industry than Norway, but this experience derives overwhelmingly from onshore activities. The need to find an arrangement in case of international trans-border discoveries became evident in the aftermath of the breakup of the Soviet Union. An agreement on delimitation of the exclusive economic zone and continental shelf in the Baltic Sea was signed with Lithuania in 1997 and in 1998 a delimitation agreement with Kazakhstan was signed. In the latter case there were expectations of substantial petroleum discoveries. The arrangements made to explore and exploit such deposits differ from the model chosen by Norway and UK in the North Sea, however. The resources have not been apportioned according to their geographical location between the two countries. Instead the two countries have set up several cooperation projects to develop fields jointly. Each party has the right to hold 50 per cent in these projects, which would correspond to reflect share in investments as well as profits. And development have been left to specially created joint venture companies, and not to one of the license holding companies as operator, which is the model used in the North Sea unitization projects as well as elsewhere on the Norwegian continental shelf. The projects in the Caspian Sea have not taken off, partly because of contradictions in Russian legislation, Gazprom?s export monopoly and the preferred role for state companies in new offshore projects since 2008, whereas early work and investments in the Caspian was dominated by the private Russian oil company Lukoil. Even if Russian practical experience differs from Norway?s, the project has revealed that unitization closer to Norway?s approach has been considered in reports made for Russian authorities. This may help explain Russia?s readiness to negotiate the Barents Treaty along such lines. However, not all aspects of trans-boundary unitization are clear under the Treaty between Russian and Norway. Therefore, national laws and regulations, agreements between the host governments and the licensees will play a role. The relationship and division of roles between companies and the authorities differ in the Norwegian and the Russian oil industries. A key question concerns the term operator. This is a central concept in Norwegian legislation and practice but has no firm basis in Russian law. In the Barents Sea, the parties have yet to explore and agree on organizational models for joint activities that can be compatible with the respective institutional environments. For companies holding licenses on either side of the border this amounts to major uncertainties concerning timing, shape and ultimately the profitability of development. Such considerations could make them reluctant to invest in exploration in the first place. The project has found that there are objective differences between Norwegian and Russian legislation and practice, but it has also found that the underlying principles and thinking of Norway and Russia have much in common. It seems safe to conclude that there is agreement on the primary purpose and advantage of unitization, namely developing a cross-boundary deposit as one unit. When it comes to more secondary issues, the approaches of the two countries are different: apportionment of resources between the parties has been carried out differently, and the organization of joint activities also clearly differs. Discussion is likely to arise around the practicalities of implementing field unitization. The differences here are not insurmountable, although arriving at a joint understanding will probably take time. Ultimately, much will depend on both parties? interest in developing transboundary fields.

As petroleum exploration activities start along the Norwegian-Russian boundary in the Barents Sea, government and commercial stakeholders are faced with the prospect of discovering trans-boundary deposits. The Norwegian-Russian delimitation agreement states that trans-boundary fields shall be unitized and developed in cooperation between the license holders on each side of the border. Norway has experience from the application of such mechanisms to cross-border fields along its border with the UK, while Russia has a different set of experiences. Unitization and licensee cooperation will be subject to different legal frameworks. It follows that Russian and Norwegian stakeholders may have differing expectations and approaches toward the management of cross-border deposits. RUNEC addresses three main research questions: 1)What are the shared and unique features of Russian and Norwegian experiences (frames) from international cooperation on cross-border petroleum developments? 2) How does Russian and Norwegian legislation support or challenge unitization and joint field operation? 3) What expectations do stakeholders in Norway and Russia have toward cooperation models in relation to joint field developments in the Barents Sea and what perceptions do Russian and Norwegian stakeholders have about each other?s frames? New knowledge is generated by a unique two-country data set and analyses theoretically based in academic studies of factors influencing cross-cultural business ventures. Data will be collected from empirical studies of past field development experiences and legal regulations, including relevant bilateral treaties and qualitative semi-structured interviews with three stakeholder groups in each country.