Fundamental Legal Issues in the Oil and Gas Industry I:

Principles of Ownership of Oil & Gas in situ

After discussing the current reform initiatives in the oil and

gas industry, this week begins a new series, which goes back

to the fundamental legal issues of the oil and gas industry. In

this new series, we expect to discuss the very basic legal

issues in the industry. To that extent, much of the discourse

would be descriptive by nature although it is expected that

references would be made in a comparative context to the

experiences of various jurisdictions including Nigeria. The

series begins by discussing the issue of ownership of oil and

gas in situ within and across jurisdictions.

Fundamental Principles of Ownership

The ownership of oil and gas as with most other minerals is

based on the theory of state sovereignty. This jurisprudential

theory denotes the competence, independence and equality

of states. As relates to mineral ownership, state sovereignty

suggests that the sovereign (which in modern days denotes

the State or the government) has the right to exclusive legal

dominion over that area and all the minerals contained

within it.
The dominion of sovereigns over natural resources has been

exercised in different ways. In most jurisdictions, the state

has reserved ownership of the natural resources for itself. In

most cases this right has been held by the central

government. In Nigeria, for example under our constitution,

“…the entire property in and control of minerals, mineral oils

and natural gas in, under or upon any land in Nigeria or in ,

under or upon the territorial waters and Exclusive Economic

Zone of Nigeria shall vest in the Government of the

Federation…” The same principle applies in the Great Britain,

where ownership of petroleum was vested in the Crown by

the Petroleum (Production) Act of 1934, which extinguished

hitherto common law rights of the landowner to the

petroleum in the subsurface.

In other cases, the State may grant these rights to

constituent entities such as states or provinces. Argentina is

an example of such a case. Previously, ownership of

petroleum had been vested in the federal government,

however after the passage of the “Federalization” law as well

as an amendment to the constitution; ownership of

petroleum was shared between the Federal and the provincial

governments depending on where the petroleum was found.

Petroleum discovered on the land territory of the states as

well as on the continental shelf up to 12 nautical miles

measured from the province’s coastline was granted to the

provinces, whilst ownership rights over reservoirs located on

the continental shelf beyond the 12 nautical miles limit were

reserved exclusively for the Federal Government.

The State in some limited cases has also exercised its legal

dominion over natural resources by granting these rights to

private citizens. In the United States and Canada for

example, following common law principles, the owner of the

soil owns the minerals beneath the land. Therefore, where

the land under which mineral resources are discovered is

owned by private individuals, such individuals would exercise

the right of ownership over the mineral resources.

Key Concepts Influencing Ownership in Waters

In the discussion above, we have mentioned “territorial

waters”, “exclusive economic zone” and “continental shelf”.

These international law terms have been used in determining

the extent of the sovereignty of a coastal state over adjacent

waters as well as its rights to exploit the resources which

may be found subsea under these waters.

Territorial waters or “territorial sea” has been defined by the

United Nations Convention on the Law of the Sea 1982

(“UNCLOS 1982”) as a belt of coastal waters extending at

most twelve nautical miles from the baseline of a coastal

state. The territorial sea is regarded as part of the sovereign

territory of the State, therefore it holds the power over

mineral resources in the same way as it would over mineral

resources found under land. In the position that the twelve

nautical mile limit would overlap with another State’s

territorial sea, the median point is taken as the border area.

The exclusive economic zone is also another creation of

international law. Under UNCLOS 1982, the exclusive

economic zone of a State extends to a distance of 200

nautical miles out from its coast. By this definition it includes

the territorial waters of the State. It should be noted that the

coastal state only has rights under international law to the

exploitation of resources found within the zone and the zone

(out with the territorial waters) may not be considered a part

of the territory of the country. Under the Exclusive Economic

Zone Act, Nigeria has proclaimed its exclusive economic zone

as extending up to 200 nautical miles from the coast. Under

the Act, Nigeria may exercise sovereign rights in relation to

the conservation and exploitation of natural resources of the

seabed, its subsoil and superadjacent waters.

The continental shelf of a coastal state is also defined in

UNCLOS 1982 as comprising the seabed and subsoil of the

submarine areas that extend beyond its territorial sea

throughout the natural prolongation of its land territory to

the outer edge of the continental margin, or to a distance of

200 nautical miles from the baselines from which the breadth

of the territorial sea is measured where the outer edge of the

continental margin does not extend beyond up to that

distance. The continental shelf is used as an alternative

measure by which a State may define the extent of its limits

to exploit resources. Similar to the exclusive economic zone,

the coastal state is empowered under UNCLOS to exercise

“continental shelf sovereign rights for the purpose of

exploring it and exploiting its natural resources.”

Joint Development Zones

The practical application of the concepts above in relation to

national boundaries have led to disagreements between

neighbouring states over the limits of their boundaries in

adjacent waters, seabed and the subsea. The existing

international treaties have laid out certain principles in

relation to boundary delimitation, which states have

employed in resolving these disputes. In addition to these

mechanisms, the concept of the joint development zone

(“JDZ”) has emerged as a means of jointly exploiting the

natural resources which may be located in contentious areas.

Across the world, a number of joint development treaties

have been signed by various countries, each unique in the

manner that it has chosen to address the joint development

of resources. For example under the Nigeria – Sao Tome JDZ,

the exploration for and exploitation of natural resources

within the area is administered by a joint development

authority. The Bahrain-Saudi Arabia as well as the Abu Dhabi-

Qatar agreements anticipate the sharing of revenues, whilst

the terms of exploitation is determined by one state.

Concluding Remarks

This paper has tried to capture in a succinct manner, the

legal issues which may arise in relation to the determination

of ownership of oil and gas in situ. The next episode in this

series would focus on the manner in which the ownership

rights discussed here are exploited through licensing.

Adeoye Adefulu holds a Ph.D in oil and gas industry reform

from the Centre for Energy, Petroleum and Mineral Law &

Policy, University of Dundee. He is a partner in the law firm

of Odujinrin & Adefulu e s t 1972.