Boundary Battle: Newfoundland 1, Nova Scotia 0

Calling the decision "profoundly disappointing," Nova Scotia Premier John Hamm promised to defend his province's position that it owns most of the Laurentian sub-basin, an undersea area south of the Grand Banks that may hold huge reserves of oil and natural gas. An arbitration panel rejected Nova Scotia's contention that its marine boundary with Newfoundland was established 37 years ago.

Another round of hearings scheduled in November will determine the actual boundary, but no final decision will be made before next April. In the unanimous decision, the Canadian tribunal confirmed the position of Newfoundland and Labrador that the line dividing the respective offshore areas of Newfoundland and Labrador and Nova Scotia had not been resolved by agreement.

The biggest loser in the panel's decision could be the energy industry, said Hamm. Companies probably will wait on expanding their exploration and development offshore Nova Scotia and Newfoundland until the boundary issue is resolved, which could take up to a year.

"What the oil and gas industry wants is certainty, and until we can provide that they will be reluctant to make the kinds of commitments we would expect them to make," Hamm said. But he won't give up without a fight. "It is not the intention of this government to concede valuable acreage," Hamm said in a statement following the decision.

Meanwhile, Newfoundland Premier Roger Grimes was delighted, calling the three-member panel's decision a huge step forward. "The government here never did accept the notion that there had been an agreed-to boundary in the mid-1960s," Grimes said. "The tribunal's decision represents an important victory for Newfoundland and Labrador. We are one step away from the establishment of a line and the resolution of a dispute that has prevented exploration from proceeding in highly prospective areas between Newfoundland and Labrador and Nova Scotia."

Grimes said "much work" remains. In Phase Two of the arbitration, the tribunal will determine a line to separate the offshore areas of Newfoundland and Labrador and Nova Scotia. "Our energies, therefore, will be focused on effectively presenting Newfoundland and Labrador's arguments to the tribunal," said Grimes.

Grimes said he and Hamm "appreciate the importance of resolving this dispute as quickly as possible." He said the premiers agreed to meet "within the next couple of weeks in St. John's, if possible, to discuss possible areas of cooperation which may be in our mutual interest."

Hamm wants to establish an interim agreement that would allow exploration pending a settlement. Grimes, however, apparently is not optimistic about an interim agreement.

The outcome of the boundaries is high stakes --- the 60,000-square-kilometer basin is estimated to hold up to 9 Tcf and 700 MMbbl, which would top the Sable and Hibernia projects combined. The boundary will determine how the two provinces control development and the money in royalties expected if the exploration and development there pays off.

The arbitration panel was considering a claim by Nova Scotia that its boundary was fixed in a 1964 statement between the Atlantic provinces and the Quebec government --- an agreement that was never signed by the then-premiers.

"For the most part, Nova Scotia seemed to have placed all its eggs in the basket of the joint statement of Sept. 30, 1964," wrote the panel. However, the tribunal found that the statement was not binding. "The terms of the joint statement are more consistent with a political, provisional or tentative agreement, which may lead to a formal agreement but which is not itself that agreement."

By dismissing the 1964 agreement, Hamm said the panel's decision could cause other East Coast governments to also contest other marine boundary agreements. Hamm said Nova Scotia will continue its arguments for the boundary line described in the 1964 agreement, but Grimes has not said how large he wants Newfoundland's claim to be.

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