Unitizing Oil and Gas Fields around the World: A Comparative Analysis of National, Laws and Private Contracts

Article excerpt

   I. INTRODUCTION: OVERVIEW AND SCOPE OF ARTICLE
      A. Introduction
      B. Legal Framework for Unitization: Overview
      C. Scope and Methodology
         1. The Countries in the Survey
         2. Methodology: Twelve-Country Survey
      D. Definitions
      E. Unitization: A Primer
         1. The Unit Concept
         2. In the United States
         3. Outside the United States

  II. SURVEY AND ANALYSIS OF COUNTRY LAWS,
      REGULATIONS, AND MODEL CONTRACT PROVISIONS
      A. Summary Overview of the Twelve-Country
         Comparative Analysis
      B. Absence or Existence of Unitization Provisions
      C. Circumstances Triggering Unitization
      D. Voluntary or Compulsory Unitization
      E. Purposes of Unitization
      F. Oil versus Gas
      G. Area, Depth, and Number of Fields
      H. Factors Determining Unit Interests or
         Redetermination
      I. Recognition for Royalty and Fiscal Purposes
      J. Recognition for Purposes of Perpetuating the
         Contract
      K. Consequences of Failure to Unitize or Secure
         Approval of Unitization Plan
      L. Procedures and the Approval Authority
      M. Unique Provisions
         1. Appointment of the Unit Operator
         2. What the Unitization Agreement Must Contain
         3. Joint Exploration and Drilling under a Service
            Contract
         4. Provisions Dealing with International
            Boundaries
      N. Conclusions and Best Practices
 III. OTHER CONTRACTS RELEVANT TO THE LEGAL
      FRAMEWORK OF UNITIZATION
      A. Operating Agreements
         1. Conduct of Petroleum Operations
         2. Operator
         3. Collective Decisionmaking
       B. Farmout and Acquisition Agreements
       C. Production Sales Contracts
  IV. DOCUMENTING THE UNITIZATION
      A. Pre-Unitization Agreements
      B. Unitization Agreements
   V. KEY ISSUES IN UNITIZATION AGREEMENTS
      A. Unit Area
         1. Areal Extent
         2. Depth
         3. Changes in Unit Area
      B. Unitized Substances
         1. Oil versus Gas
         2. Other Substances Used for Enhanced Recovery
         3. Diluent Used in Heavy Crude Oil Projects
      C. Effect of Unitization
      D. Determination of Tract Interests
         1. Principal Basis for Tract Interests
         2. Conversion Ratios Between Oil and Gas
         3. Pre-Unitization Costs
         4. Other Factors Affecting Tract Interests
      E. Determination of Unit Interests
      F. Redetermination of Tract Interests
         1. Basis for Redetermination
         2. Number of Redeterminations
         3. Timing of Redeterminations
         4. Data Used for Redetermination
         5. Proposal and Approval of Redeterminations
         6. Effects of Redetermination: Production
         7. Effects of Redetermination: Costs
         8. Effects on Host-Government Contracts
         9. Trend Toward No Redetermination
      G. Unit Decisionmaking
      H. Nonunit Operations
         1. Priorities
         2. Drilling Through Unit Reservoirs
         3. Joint Use of Infrastructure
         4. Relationships with Unit Redeterminations and
            Expansions
  VI. CONCLUSIONS
 VII. APPENDIX I
VIII. APPENDIX II

I. INTRODUCTION: OVERVIEW AND SCOPE OF ARTICLE

A. Introduction

Unitization is the joint, coordinated operation of a petroleum reservoir by all the owners of rights in the separate tracts overlying the reservoir. (2) Unitization of oil and gas fields is commonplace in the United States where private ownership of minerals has often resulted in fractionalized ownership of the oil and gas in a common reservoir, such that tens, hundreds, and even thousands, of private landowners (who have leased their tracts in exchange for royalty interests) and their lessees (working-interest owners) have interests in the same reservoir. Without unitized operation of the reservoir, the common law "rule of capture" results in competitive drilling and production with consequent economic and physical waste, as each separate owner attempts to secure his or her "fair share" of the underground resource by drilling more and pumping faster than his neighbor. …