Oil and gas unitization occurs where a petroleum accumulation straddles a boundary between domestic licence blocks or a delimited border between  different countries, each of which has petroleum exploitation concessions or rights.  It is founded on the principle that the exploitation of a straddling hydrocarbon reservoir system as a single unit will be more efficient, effective and equitable than separate developments with the inevitable cross-boundary or cross-border capture of hydrocarbons.  For these reasons, unitization is often required by petroleum regulators as a precondition for development approval.  Unitization happens only once in the life of a straddling field.

Oil and gas unitization is governed by and enacted through a Unitization and Unit Operating Agreement (UUOA). Ideally, unitization at the onset of development is in accord with the reclassification of hydrocarbon volumes from Contingent Resources to Reserves (Fig. 1).  In addition to specifying how the straddling field is to be managed and operated, the UUOA also defines Tract Participation, i.e. the percentage share (or equity) of each licence or country in the petroleum accumulation (Fig. 2).  Tract Participation determines the entitlement to recovered hydrocarbons as well as the obligatory contributions to capital and operating expenditures.

Initially, Tract Participation should be determined or otherwise agreed by the parties at the end of field appraisal, so the equity apportionments at the point of unitization cannot take account of any data obtained through development drilling.  For this reason, a UUOA will often make provision for some future determination of Tract Participation, known as a Redetermination of Equity.  The number of such equity redeterminations can vary from zero for small complex fields for which equity has been fixed at the outset to one mandatory redetermination for mid-size fields with a further three or more optional redeterminations for very large fields.  The purpose of equity redetermination is to retune the Tract Participation according to a prescribed workflow and by making use of the enlarged database relative to the point of oil and gas unitization.  Readjustments of capital inputs and uplifted petroleum volumes are made retroactively to the effective date of unitization.

Oil and gas unitization at the point of development is required in many jurisdictions where the petroleum resources are owned by the State.  However, unitization situations vary across jurisdictions and geological provinces and therefore each case must be considered separately and thoroughly.

Park Royd staff have undertaken petroleum unitization and equity redetermination assignments in all five continents for regulators, state oil companies, major energy companies and mid-size independents.  This extensive experience has included drafting unitization guidelines for governments, writing UUOAs for intended development units, acting as independent expert in respect of equity redetermination and other disputes related to oil and gas unitization, preparing technical cases on behalf of major energy companies for submission to an independent expert, and running public and in-house training courses that are designed to prepare attendees for participating in unitization and equity redetermination projects.  The deliverables collectively bring together strategic, commercial and technical aspects of oil and gas unitization in a way that helps concerned parties to achieve an equitable outcome.