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

Abstract

The development of petroleum resources through cooperative rather than competitive mechanisms has assumed great importance globally. Unitization is the joint, coordinated operation of a petroleum reservoir by all the different owners of the reservoir; it is the best mechanism for assuring the maximum recovery of hydrocarbons in an efficient manner. Unitization is common in the United States where private ownership of mineral interests has created many small tracts of land with multiple ownership interests. As oil and gas resource development spreads around the globe, unitization is increasingly pursued in many other countries where different license holders seek to exploit blocks located in a common reservoir. Yet, virtually no analysis has been done on the unitization provisions of laws and contractual agreements outside of the United States.

This article first surveys and compares the unitization laws, regulations and model contracts of 11 developing countries (including Angola, Brazil and China) and the United Kingdom, in terms of many key factors such as whether the country has unitization provisions, what circumstances trigger unitization, and what factors determine unit interests of the different participants.

The article then looks at the practices used to unitize different parties' interests in international projects, including the use of pre-unitization agreements and combined unitization and unit operating agreements. The article next analyzes 11 actual unitization contracts from a diverse group of countries, such as Algeria, Ecuador, Indonesia and the United Arab Emirates. Key provisions are compared and summarized, such as the depth and areal extent of the unitization, the determination and redetermination of tract interests, and the procedures for unit decisionmaking.

The article concludes with observations about best practices for unitization and also includes appendices of the assembled laws, regulations and model contracts used in the analysis and a mathematical example of a unit redetermination.

Keywords: petroleum, unitization, resource development, Angola, Brazil, China, United Kingdom, international agreements, unit operating agreement, Algeria, Ecuador, Indonesia, United Arab Emirates

JEL Classification: F23, H49, K23, L16, L71, Q32