Canada-N.L. need to address oil royalties, expert says

Government yet to explain how it will meet Law of the Sea requirements

Ashley Fitzpatrick
Published on September 3, 2015
Offshore Newfoundland and Labrador. The red line marks the 200-mile limit and Canada’s exclusive economic zone. Submitted image

Given talk of an oil development in the Flemish Pass Basin, Newfoundland and Labrador needs to consider international royalty requirements for oil pumped in those distant waters.

More specifically, it needs to settle with the Government of Canada on how the bills will be paid.

The issue is addressed in a research paper by lawyer by Wylie Spicer, published today by the University of Calgary’s School of Public Policy. Spicer works with McInnes Cooper in Calgary and is an expert on the United Nations Convention on the Law of the Sea (UNCLOS).

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The Spicer paper


Under that Convention (Canada-ratified in 2003), a development in the Flemish Pass of the lauded discoveries by Statoil and Husky Energy will be treated quite differently than offshore oil developments to date.

So far, producing oil projects off Newfoundland and Labrador are all located within Canada’s 200-mile (370-kilometre) exclusive economic zone. That will be the same for the Hebron development, with its offshore platform currently under construction.

However, the Statoil-Husky finds, including Bay du Nord, are roughly 500 kilometres out and well beyond the 200-mile limit.

“If this field eventually becomes the location of a production facility, Article 82 of UNCLOS requires that Canada make annual payments or in-kind contributions, based on a percentage of production (starting at one per cent after five years of production and levelling out at seven per cent after 12 years) to an international body, which is then obliged to distribute these payments to UNCLOS States Parties based on equitable criteria, bearing in mind the needs of developing countries,” Spicer notes, going on to say he does not see a practical way of providing in-kind contributions.

The payments go to the International Seabed Authority, an organization created by UNCLOS, which then distributes to other parties to the Convention.

The tricky thing, Spicer noted, is that the payments have to be made by Canada, and not Newfoundland and Labrador.

“The party that’s responsible for making this payment is not Newfoundland and it’s not Statoil. It’s Canada,” he said, in an interview this afternoon.

“So Canada has to work its way into this process, so that it can somehow or another generate enough revenue to be able to fulfil its international obligations in Article 82.”

The federal departments of Natural Resources and Foreign Affairs have been examining the issue.

“This paper of mine is really part of that discussion,” Spicer said.

In a statement, the provincial Department of Natural Resources confirmed the royalty issue is being looked at, but not yet settled.

“The details are still under development by Canada (as the coastal state) and other signatories of UNCLOS,” said the statement, from minister Derrick Dalley.

Spicer's paper, with background on the legal agreements, can be read HERE

(NOTE: Updated at 5 p.m. Sept. 3, 2015, to include information from provincial Department of Natural Resources.)