Over the last several years, there has been a surge in offshore drilling, for the drilling of both crude oil and natural gas. New technologies, growing world appetite for alternative fuel sources, and political considerations have powered this movement. Areas never thought of as energy sources are now utilized for their natural resources.
Consequently, and in concert with the surge, many investors find that investing in energy projects has potential for large returns. Investors may be eyeing this from both a macro and micro level. Individual investors may be seeking to put their money in small scale projects and institutional investors, such as hedge funds and mutual funds, are funding these projects with billions of dollars.
These investing opportunities are not limited to Gulf of Mexico offshore drilling; investors are considering investing opportunities in places like the Arctic and the Mediterranean Sea.
Note that in addition to the risks associated with any form of investing, maritime investing in offshore drilling projects has additional risk. Before investing, consult with a knowledgeable attorney to understand the legal ramifications of investing in international energy-drilling projects.
The United Nations Committee on the Laws of the Seas, or UNCLOS, went into effect in 1994. It has 164 member nations that signed and ratified the UNCLOS treaty. Per UNCLOS, sovereigns have rights to maritime, offshore minerals that are 200 nautical miles from the coastline of that sovereign.
In the event that there is a dispute, which is likely considering the overlapping and competing interests in minerals 200 miles offshore, UNCLOS provides that such disputes are to be resolved in one of two ways:
- Disagreeing countries draw an equidistant line in between themselves, which will become the de facto border for nautical minerals. France and England have such an agreement in the Straits of Dover.
- Drawing an equidistant line and then negotiating adjustments to achieve a fair result. Russia and Norway have such an agreement where they search for oil and gas.
If the parties are unable to agree, the parties usually head to a court overseen by a world body. In court, the court should apply a “disproportionality test,” which is where a country’s claim to an area is disproportionate to its coastline.
From an investor standpoint, there are several issues with this setup:
- The nature of the disputes can cause serious interruption to any offshore project;
- These disruptions can be costly;
- High-cost of litigating these disputes;
- Possibility of sovereigns where one sovereign is not part of the UNCLOS treaty, thereby making these dispute resolution techniques irrelevant.
Currently, Israel and Lebanon are disputing natural gas fields in the Mediterranean. Israel is not a signatory to UNCLOS so, per international law, it is not bound by UNLCOS dispute resolution protocol. Thus, dispute resolution will be difficult.
Interested in investing in a maritime project? Speak with a lawyer who understands the maritime trade and understands the law. Speak with the Kolodny law firm, experienced maritime attorneys.