The American Petroleum Institute (API) on Tuesday said it was 'disappointed' by actions of the U.S. Senators to oppose ratifying the Law of the Sea Treaty.
An API spokesperson said that the treaty would have provided the certainty and predictability provided by the treaty "to commit the billions of dollars of resources needed to develop some of our vast offshore resources."
"It could also cause companies to be ineligible to compete for resources around the global in areas that are party to the treaty," the spokesperson said.
The National Ocean Industries Association (NOIA) – which also supported the treaty due to the enhanced certainty and assurance it provided for frontier oil and gas exploration in areas under U.S. protection – hopes the Senate will continue its dialogue on the treaty and efforts for ratification.
"While areas addressed by the Treaty will be technically accessible in the near future, the fact remains that our current national policy prohibits oil and gas exploration in approximately 85 percent of our outer continental shelf, preventing us from knowing precisely how many resources may lie in wait in these vast areas," the NOIA spokesperson told Rigzone in an email.
Sen. Jim Inhofe (R-Okla.) on Monday declared victory for U.S. sovereignty after gathering support from 35 U.S. senators to oppose ratification of the Law of the Sea Treaty, which will ultimately impact boundaries in regions such as the Arctic and future oil and gas exploration and production activity worldwide. With Senate ratification of a treaty requiring 67 votes in favor, the Law of the Sea Treaty will not be ratified.
The Law of the Sea Treaty, formally known as the Third United Nations Convention on the Law of the Sea, was adopted in 1982 to define the rights and responsibilities of nations in their use of the world's oceans and provide guidelines for business, the environment, and natural resources management.
However, the United States never ratified the treaty due to concerns by then-President Ronald Reagan that provisions governing offshore oil, gas and minerals outside any state's territorial waters are unfavorable to U.S. economic and security interests.
U.S. businesses had pushed the United States to ratify the treaty in an effort to boost domestic energy production and end China's near-monopoly on rare earths, Agence France-Presse reported on June 28.
Sen. John Kerry (D-Mass.), head of the U.S. Senate Committee on Foreign Relations, held a series of hearings in May and June to seek to ratify the treaty. Representatives from the U.S. military and industries, including American Petroleum Institute (API) President and CEO Jack N. Gerard, testified before the committee about the treaty.
The Obama administration and Secretary of State Hillary Clinton have expressed support, along with former Secretary of State Condeleeza Rice and a number of former U.S. government officials.
A number of industry associations and businesses have also expressed support in ratifying the treaty in an effort to further U.S. national security and economic interests, including the API, ConocoPhillips, Marathon Oil Corp., Rowan Cos. and the National Oil Industries Association.
However, Inhofe and other senators were opposed to the breadth and ambiguity of obligations created by the treaty. Inhofe said the bill would have given the United Nations (U.N.) taxing authority, potentially transferring billions of dollars from the U.S. Treasury. The treaty also would give the U.N. the ability to regulate 70 percent of the earth's surface.
"There is not one concrete example that can be made where a company would benefit from our involvement in the Law of the Sea treaty," said Inhofe in a July 16 statement.
Two other senators, Rob Portman (R-Ohio) and Kelly Ayotte (R-N.H.) on Monday announced they would vote against the Law of the Sea Treaty in their own opposition letter after concluding the breadth of activities its regulates and ambiguity of obligations its creates are not in the United States' best interest.
The senators acknowledged that the treaty would provide additional tools to U.S. diplomatic and military leaders in resolving maritime disputes, and that the treaty would enhance investment in energy development and mineral extraction by increasing certainty about ownership claims.
However, the treaty's terms reach well beyond those good intentions, Portman and Ayotte said a July 16 letter to U.S. Senate Majority Leader Harry Reid. They also noted that the provisions primarily clarify rights that the United States already possesses under customary international law and other means of asserting.
"The real issue is not whether the United States will defend its maritime rights, but rather who will have the final say on the scope of those rights," the senators said in the letter.
"We are simply not persuaded that decisions by the International Seabed Authority and international tribunals empowered by this treaty will be more favorable to U.S. interests than bilateral organizations, voluntary arbitration, and other traditional means of resolving maritime issues," the senators said.
Former Secretary of Defense Donald Rumsfeld testified before the committee on June 14, saying that, despite the modest fixes made in 1994 in a separate agreement signed by some, but not all, of the treaty's parties to address flaws identified in the Reagan-era version of the treaty, the treaty still remains a "sweeping power grab" that could prove to be the largest mechanism for the worldwide redistribution of wealth in human history.
Treaty Would Provide Certainty for O&G Investment
API's Gerard testified on June 28 before the U.S. Senate Committee on Foreign Relations in support of the treaty, saying the Law of the Sea Convention "provides the certainty that companies need to invest the billions required and offers the potential of greatly and definitely broadening the offshore areas from which we can access new resources to meet our nation's growing energy needs."
Gerard said the convention provides a "clear, objective" means of asserting U.S. authority and gaining international recognition of that authority, reducing the potential for jurisdictional conflicts between nations. This potential for conflict is expected to grow as exploration and production moves further offshore and into harsh climate areas such as the Arctic, Gerard said.
Ratifying the treaty would also give the United States "a seat at the table" as the Commission on the Limits of the Continental Shelf divide up millions of square miles of offshore territory and assigning management rights to all global marine resources. Gerard noted that Convention broadens the continental shelf definition in a way that favors the United States, and secures an additional 4.1 million of square miles of ocean under U.S. jurisdiction.
"Given the rapid economic and political changes sweeping the world, the U.S. can no longer afford to be left out of the process," Gerard commented. "U.S. accession would ensure that American companies that are engaged in offshore energy production remain competitive in the global market."
While royalties of up to 7 percent would ultimately be shared with the International Seabed Authority – an independent intergovernmental body established by the Convention – the United States would still retain at bonus bids, annual rental fees, and most of the royalties from these leases.
"We recognize that the royalty sharing provision is a tradeoff for the certainty that the Convention will provide and the vast economic returns that the United States will realize through development of its extended continental shelf," Gerard said.
"But without the certainty provided through the convention, the likelihood of companies investing will decrease, and the United States would likely collect little to no bonus bids, rentals or royalties at all with regard to the extended continental shelf," he added.
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