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Property rights and sovereign rights—The case of north sea oil
International Review of Law and Economics (1985), 5 (121-127)
BOOK REVIEWS Peter Cameron, Property Rights and Sovereign Rights-- The Case o f North Sea Oil, London: Academic Press, 1983. 193 pp. This eminently readable and interesting book is partly based on Dr Cameron's Edinburgh PhD thesis on 'Property Rights and the Role o f Government'. It thus contains rauch weil researched and original material, including numerous interviews conducted by the author with both oil company executives, government officials and politicians, relating to the development of the licensing system for exploration and exploitation o f North Sea oil resources. Dr Cameron is a lawyer, now a lecturer in Dundee University's Centre for Petroleum and Mineral Law Studies; bis thesis was written from a jurisprudential viewpoint, with especial reference to the sociology of law. His adoption of an historical method enables hirn to throw considerable light on a variety of aspects of the licensing regime and the limitations which broad political and economic implications have imposed on the attempts o f successive governments, whatever their political complexion, to translate public (Crown) ownership of the rights to the resources in situ into a system of control of their extraction dependent on private companies to provide the technology and capital for this purpose, which would ensure commensurate public benefit whilst leaving oil companies a share of profits which was reasonable in relation to the huge risks and investments involved but which at the same time would not provoke them to move their exploratory activities elsewhere in the world. One is reminded by this account o f the difficulties experienced by Siamese twins in determining whether to make the accommodations necessary to live jointly or whether to risk the severance operation knowing one partner may not survive. After tracing the history of various governments', especially the 1974-77 Labour Government's, struggles to develop and change the initial 1966 licensing terms m which were both highly advantageous to oil companies and without provision for renegotiation--in order to increase public revenue and public participation, first by establishing BNOC (British National Oil Corporation) and more recently Britoil, and to stimulate involvement o f British firms, Dr Cameron concludes that: The British experience with the international oil industry in the 1970s showed that the social, economic and political framework of a capitalist society imposes many constraints upon radical options in oil policy and that, at the crucial moment, even a Labour Government with goals limited to 'controlling the oil multinationals' was totaUy unprepared (and unwilling) to engage in a conflict of will with a cross-section of British capitalism (p. 189). It is obvious from the above that this book is not only provocative but will be o f interest to a wide readership: anyone with an interest in the development of North Sea oil exploitation will find it absorbing, whether lawyer, economist, politician, sociologist, oll industry or government official or merely an intelligent observer. But for lawyers and economists in particular the historical route taken by Dr Cameron
122
Book reviews
discovers the obstacles in the path of changing the ways in which wealth is held by tinkering with legal techniques. Dr Cameron argues that though there has been a radical change in the form of agreement made between producing states and private companies for natural resource development (offen referred to as a 'movement from concession to contract', though Dr Cameron considers this an oversimplification), which departs from traditional agreements giving companies exclusive long-term (up to 46 years) rights over large territorial areas in return for royalties and income tax only, and moves towards contractual arrangements such as joint ventures, service contracts or participation arrangements, nevertheless in a capitalist society like Britain, attempts to depart from 'the theoretical cornerstone o f a concession contract. - the vesting of a property-right in a foreign oil company', have been constrained by numerous factors. These include the world-wide involvement of British capital in a broad variety of enterprises in other states, especially the USA; the location of BP's headquarters in the UK; and Britain's economic dependence, especially in the recession following O P E C ' s oil price rises from 1973, or its overseas trade and investment. These considerations, backed by intensive oil company lobbying, rauch of it from America, prevented the Labour Government from nationalizing oll, as Third World states had done, and fear o f reprisals (cessation o f exploration of the UK shelf or removal o f companies' activities to other states) even limited its freedom to change the concession system, despite the internal legislative sovereignty of Parliament. Contemplation of nationalization and retrospective legislation provoked what Dr Cameron calls 'The Crisis o f Legality' (Chapter 5), viz. a conflict concerning legitimacy of the state exercising its power to defeat vested private property rights, and such powerful lobbying that the government backed o f f these radical options and instead, by a process of private negotiation with the companies, hammered out compromises acceptable to both, which could be presented as a new regime 'consented' to by the industry. The ideologies of both could thus be seen to be protected to some extent. Unlike Professor Denman, who in a recent work advocated complete privatization of the UK shelf, with oil companies being awarded exclusive alienable rights to 'territory' and resources in situ, Dr Cameron, though he does contencl (unlike most authors in this field who view licences merely as administrative devices for allocating territory) that the recipients of petroleum production licences hold a new 'property', carefully points out that the UK Continental Shelf Act vests in the Crown only the rights appertaining to it in international law and that these are limited by the 1958 Continental Shelf Convention to sovereign rights to explore and exploit its resources; international law does not clearly confer full sovereignty over the shelf on the UK. Dr Cameron suggests that subsequent legal developments, such as the North Sea Cases, may have changed this, hut omits to indicate that the 1982 UN Law of the Sea Convention (LOSC) still confers on states, whether in their EEZ or their shelf, only sovereign rights to explore or exploit, in order to preserve residual freedoms of other states in the waters above. A close examination o f the many obligations now imposed on states concerning environmental protection, conservation of living resources, navigation, etc., by regional conventions and by custom (as evidenced by the LOSC) throws doubt on the proprietorial view of states' shelf rights, but, oi course, it depends how one defines 'property'. Dr Cameron maintains that the term covers rights such as companies have to dispose o f the oil (aprofit äpr«ndre) hut admits that 'property' is not confined to a judicial concept; it has social and economic connotations. The resulting 'cavalier use' of the term by officials, the industry and politicians
Book reviews
123
in sundry reports has compounded the confusion. Nevertheless, Dr Cameron had admirably provided the reader with real insights into the difficulties, once private firms were employed to exploit public resources, of changing or controlling the system, when though speedy exploitation was in the interests o f both, the companies could threaten to move elsewhere. He concludes that the resultant compromises, even though BNOC was initially successful, led to too little control too late. The book includes two useful brief annexes outlining UK Petroleum Taxation and Licence Rounds, as well as an index and quite extensive bibliography, though the reviewer was surprised that use had not been made to the relevant background provided by C. Mason (ed.) The International Management of Resources." The Political Implications o f North Sea Oil and Gas (I 979) and M. Saeter and I. Smart (eds.) The Political Implications o f North Sea Oil and Gas (1975). P. Bernie
London School o f Economics A. I. Ogus and C. G. Veljanovski (eds.), Readings in the Economics o f Law and Regulation, Oxford: Clarendon Press, Oxford University Press, 1984.361 pp. £17.50 (hardback), £10.95 (paperback). Professors Ogus and Veljanovski have compiled a useful collection of recent articles on law and economics. Many of the selections will be familiar to anyone with even a passing knowledge of the literature in the field: Ronald Coase's 'Problem of Social Cost', Guido Calabresi's The Costs o f Accidents, to take just two examples. For American readers, however, the primary interest of the book is the inclusion o f a number of articles by British writers, including the editors themselves, which complement and extend the basic and more well-known material. The book aims to be comprehensivemmoving from private law to public law and finally to legal institutions. Thus, in addition to the material on property, torts, and contract which is common to most courses in law and economics, the authors include papers dealing with monopoly and regulation and with crime and legal procedures. Since the book is only 350 pages long, however, this breadth is gained at the cost of depth. Articles are generally very heavily excerpted. While this has been done with considerable sensitivity to the preservation o f the basic arguments, it produces the somewhat dizzy feeling of covering a lot o f ground at high speed. This problem is particularly severe in the latter part o f the book where the theory and techniques of regulation are skimmed over in a mere 60 pages. I would have preferred a somewhat deeper look at fewer issues. It seems to me, for example, that the topics of monopoly and regulation can be best dealt with in courses on antitrust, trade regulation and administrative law. This leaves more time in a course on law and economics for procedural issues; for example, class actions, the role o f the jury, the costs of litigation, etc. Each selection is followed by a set of notes that summarize and extend the arguments in the text and mention additional related references. This will be useful for students and others who want to explore particular issues more fully. However, for pedagogical purposes it would have been more interesting to pose questions rather than list issues. Such questions can be used to generate class discussion and move the analysis beyond the text. The editors' comments do have the advantage, however, o f providing a balanced view of the place o f economic analysis in legal scholarship. By avoiding exaggerated claims, the editors also undercut equally exaggerated criticisms.
BOOK REVIEWS Peter Cameron, Property Rights and Sovereign Rights-- The Case o f North Sea Oil, London: Academic Press, 1983. 193 pp. This eminently readable and interesting book is partly based on Dr Cameron's Edinburgh PhD thesis on 'Property Rights and the Role o f Government'. It thus contains rauch weil researched and original material, including numerous interviews conducted by the author with both oil company executives, government officials and politicians, relating to the development of the licensing system for exploration and exploitation o f North Sea oil resources. Dr Cameron is a lawyer, now a lecturer in Dundee University's Centre for Petroleum and Mineral Law Studies; bis thesis was written from a jurisprudential viewpoint, with especial reference to the sociology of law. His adoption of an historical method enables hirn to throw considerable light on a variety of aspects of the licensing regime and the limitations which broad political and economic implications have imposed on the attempts o f successive governments, whatever their political complexion, to translate public (Crown) ownership of the rights to the resources in situ into a system of control of their extraction dependent on private companies to provide the technology and capital for this purpose, which would ensure commensurate public benefit whilst leaving oil companies a share of profits which was reasonable in relation to the huge risks and investments involved but which at the same time would not provoke them to move their exploratory activities elsewhere in the world. One is reminded by this account o f the difficulties experienced by Siamese twins in determining whether to make the accommodations necessary to live jointly or whether to risk the severance operation knowing one partner may not survive. After tracing the history of various governments', especially the 1974-77 Labour Government's, struggles to develop and change the initial 1966 licensing terms m which were both highly advantageous to oil companies and without provision for renegotiation--in order to increase public revenue and public participation, first by establishing BNOC (British National Oil Corporation) and more recently Britoil, and to stimulate involvement o f British firms, Dr Cameron concludes that: The British experience with the international oil industry in the 1970s showed that the social, economic and political framework of a capitalist society imposes many constraints upon radical options in oil policy and that, at the crucial moment, even a Labour Government with goals limited to 'controlling the oil multinationals' was totaUy unprepared (and unwilling) to engage in a conflict of will with a cross-section of British capitalism (p. 189). It is obvious from the above that this book is not only provocative but will be o f interest to a wide readership: anyone with an interest in the development of North Sea oil exploitation will find it absorbing, whether lawyer, economist, politician, sociologist, oll industry or government official or merely an intelligent observer. But for lawyers and economists in particular the historical route taken by Dr Cameron
122
Book reviews
discovers the obstacles in the path of changing the ways in which wealth is held by tinkering with legal techniques. Dr Cameron argues that though there has been a radical change in the form of agreement made between producing states and private companies for natural resource development (offen referred to as a 'movement from concession to contract', though Dr Cameron considers this an oversimplification), which departs from traditional agreements giving companies exclusive long-term (up to 46 years) rights over large territorial areas in return for royalties and income tax only, and moves towards contractual arrangements such as joint ventures, service contracts or participation arrangements, nevertheless in a capitalist society like Britain, attempts to depart from 'the theoretical cornerstone o f a concession contract. - the vesting of a property-right in a foreign oil company', have been constrained by numerous factors. These include the world-wide involvement of British capital in a broad variety of enterprises in other states, especially the USA; the location of BP's headquarters in the UK; and Britain's economic dependence, especially in the recession following O P E C ' s oil price rises from 1973, or its overseas trade and investment. These considerations, backed by intensive oil company lobbying, rauch of it from America, prevented the Labour Government from nationalizing oll, as Third World states had done, and fear o f reprisals (cessation o f exploration of the UK shelf or removal o f companies' activities to other states) even limited its freedom to change the concession system, despite the internal legislative sovereignty of Parliament. Contemplation of nationalization and retrospective legislation provoked what Dr Cameron calls 'The Crisis o f Legality' (Chapter 5), viz. a conflict concerning legitimacy of the state exercising its power to defeat vested private property rights, and such powerful lobbying that the government backed o f f these radical options and instead, by a process of private negotiation with the companies, hammered out compromises acceptable to both, which could be presented as a new regime 'consented' to by the industry. The ideologies of both could thus be seen to be protected to some extent. Unlike Professor Denman, who in a recent work advocated complete privatization of the UK shelf, with oil companies being awarded exclusive alienable rights to 'territory' and resources in situ, Dr Cameron, though he does contencl (unlike most authors in this field who view licences merely as administrative devices for allocating territory) that the recipients of petroleum production licences hold a new 'property', carefully points out that the UK Continental Shelf Act vests in the Crown only the rights appertaining to it in international law and that these are limited by the 1958 Continental Shelf Convention to sovereign rights to explore and exploit its resources; international law does not clearly confer full sovereignty over the shelf on the UK. Dr Cameron suggests that subsequent legal developments, such as the North Sea Cases, may have changed this, hut omits to indicate that the 1982 UN Law of the Sea Convention (LOSC) still confers on states, whether in their EEZ or their shelf, only sovereign rights to explore or exploit, in order to preserve residual freedoms of other states in the waters above. A close examination o f the many obligations now imposed on states concerning environmental protection, conservation of living resources, navigation, etc., by regional conventions and by custom (as evidenced by the LOSC) throws doubt on the proprietorial view of states' shelf rights, but, oi course, it depends how one defines 'property'. Dr Cameron maintains that the term covers rights such as companies have to dispose o f the oil (aprofit äpr«ndre) hut admits that 'property' is not confined to a judicial concept; it has social and economic connotations. The resulting 'cavalier use' of the term by officials, the industry and politicians
Book reviews
123
in sundry reports has compounded the confusion. Nevertheless, Dr Cameron had admirably provided the reader with real insights into the difficulties, once private firms were employed to exploit public resources, of changing or controlling the system, when though speedy exploitation was in the interests o f both, the companies could threaten to move elsewhere. He concludes that the resultant compromises, even though BNOC was initially successful, led to too little control too late. The book includes two useful brief annexes outlining UK Petroleum Taxation and Licence Rounds, as well as an index and quite extensive bibliography, though the reviewer was surprised that use had not been made to the relevant background provided by C. Mason (ed.) The International Management of Resources." The Political Implications o f North Sea Oil and Gas (I 979) and M. Saeter and I. Smart (eds.) The Political Implications o f North Sea Oil and Gas (1975). P. Bernie
London School o f Economics A. I. Ogus and C. G. Veljanovski (eds.), Readings in the Economics o f Law and Regulation, Oxford: Clarendon Press, Oxford University Press, 1984.361 pp. £17.50 (hardback), £10.95 (paperback). Professors Ogus and Veljanovski have compiled a useful collection of recent articles on law and economics. Many of the selections will be familiar to anyone with even a passing knowledge of the literature in the field: Ronald Coase's 'Problem of Social Cost', Guido Calabresi's The Costs o f Accidents, to take just two examples. For American readers, however, the primary interest of the book is the inclusion o f a number of articles by British writers, including the editors themselves, which complement and extend the basic and more well-known material. The book aims to be comprehensivemmoving from private law to public law and finally to legal institutions. Thus, in addition to the material on property, torts, and contract which is common to most courses in law and economics, the authors include papers dealing with monopoly and regulation and with crime and legal procedures. Since the book is only 350 pages long, however, this breadth is gained at the cost of depth. Articles are generally very heavily excerpted. While this has been done with considerable sensitivity to the preservation o f the basic arguments, it produces the somewhat dizzy feeling of covering a lot o f ground at high speed. This problem is particularly severe in the latter part o f the book where the theory and techniques of regulation are skimmed over in a mere 60 pages. I would have preferred a somewhat deeper look at fewer issues. It seems to me, for example, that the topics of monopoly and regulation can be best dealt with in courses on antitrust, trade regulation and administrative law. This leaves more time in a course on law and economics for procedural issues; for example, class actions, the role o f the jury, the costs of litigation, etc. Each selection is followed by a set of notes that summarize and extend the arguments in the text and mention additional related references. This will be useful for students and others who want to explore particular issues more fully. However, for pedagogical purposes it would have been more interesting to pose questions rather than list issues. Such questions can be used to generate class discussion and move the analysis beyond the text. The editors' comments do have the advantage, however, o f providing a balanced view of the place o f economic analysis in legal scholarship. By avoiding exaggerated claims, the editors also undercut equally exaggerated criticisms.