Correlative Rights In Oil Reservoirs On The United Kingdom Continental Shelf
Authors: Daintith Terence 
Published: December 2007

THE PROBLEM DEFINED

Problems of adjusting the correlative rights of different operators entitled to exploit the same oil reservoir arise in the United States from the fact that a single reservoir may underlie many different small parcels of land whose owners may confer or exercise as parcels of land whose owners may confer or exercise as many independent rights to drill into the reservoir. The placing of all rights of ownership in petroleum in situ in the United Kingdom, and all rights exercisable in relation to petroleum in the seabed of the United Kingdom continental shelf, in the hands of the British Crown, could have operated to prevent such problems arising here. It has not done so, because of the Government's decision not to exploit that petroleum itself, but to involve as many private oil companies as possible in the undertaking by means of a licensing possible in the undertaking by means of a licensing system. In its application to the offshore area, the system involves the division of the territory into a large number of relatively small blocks. While a licensee may often hold two or more adjacent blocks, it has frequently been found that a discovered reservoir extends under a neighbouring block licensed to a different company or consortium. When this happens, the same kinds of issues relating to correlative rights arise as have troubled lawyers in the United States, only here the rights in question are not those of owners and their lessees, but of the licensee companies. Where a reservoir is found to extend under separately licensed blocks, the different licensees will normally seek to agree as to how and when it is to be exploited and in what proportions the oil is to be divided; and to judge from the lack of public controversy about the reservoirs of this kind in the North Sea, they usually succeed in the endeavour. This paper, however, considers the rights of the parties in the absence of such agreement, not in any spirit of pessimism, but because an appreciation of the nature and extent of those rights is an important element of information for the parties negotiating such an agreement. parties negotiating such an agreement.

INVOKING THE POWERS OF THE MINISTER

In the North Sea we are operating at the frontiers not only of technology, but also of law. The legal situation is both complex and uncertain: complex by reason of the interaction of international and national law regulating operations on the continental shelf, uncertain because of the absence of any authoritative judicial decisions regarding English or Scots law on rights connected with oil in situ. The lawyer must therefore work by a process of inference and analogy, and often he will be faced with a choice of analogies, which may point in opposite directions. Amid this uncertainty it seems best to start on the firmest ground: the relationship between the Minister and the licensee, constituted by the licence.

No-one doubts that this is a contractual relationship, though we may remark in passing that it is a contract with strong regulatory elements, both procedurally, in the legislative requirement to promulgate procedurally, in the legislative requirement to promulgate model clauses, and substantively, in that the licence gives the Minister substantial powers to control the licensee's activity. Indeed, two of our neighbouring jurisdictions, Norway and France, draw a distinction, as regards legal effect, between the regulatory and purely contractual terms of licences. We do not. purely contractual terms of licences. We do not. Among the contractual rights, therefore, of the Minister under the licence is the right in clause 26 to require each licensee interested in a single geological petroleum structure or petroleum field to participate in an agreed scheme for the unit development of that field. We shall follow the licence clauses in using henceforward the term "field", while remarking that in the ordinary language of the oil industry "field" is a broader concept than "pool" or "reservoir" and that the absence of detailed definition in the clause could well give rise to argument as to the very existence of the basic condition for unitisation when complex structures are encountered. This right may, however, only be exercised where the Minister considers that unit development "is in the national interest in order to secure the maximum ultimate recovery of petroleum and in order to avoid unnecessary competitive drilling". These are strict and narrow conditions, not all of which may be present in every case of a shared field. present in every case of a shared field. P. 73