Danielle Beggs, Justyna Bremen

expenditure and budgeting;

ownership and disposal of the petroleum produced;
sole risk operations and non-unit operations;
decommissioning; and
default, assignment and termination.
Below we have set out a more detailed discussion of some of these issues.
7.2

Creation of a new unit

The primary function of a unitisation agreement is to create a new unit out of
individual licence or concession areas held by various producers. The terminology
used will vary according to the agreement in question, but generally the agreement
will provide for the parties to undertake unit operations in relation to the unit
area, being the total area of the parties respective licences, without regard to the
boundary lines between the licences.
The portion of the field area covered by one licence area is often referred to as
the tract owned by the relevant licensees.
All the rights, liabilities and obligations of the parties under the agreement will
be in proportion to their unit equity (often referred to as the tract participation),
which will be set out in the agreement. Often the parties rights, liabilities and
obligations are expressed to be several in proportion to their unit equities, rather
than joint and several.

7.3

Unitised substances
The agreement will typically refer to all the hydrocarbons produced as a result of the
unit operations as unitised substances, and this will include crude oil and/or gas.
There may be instances where both crude oil and gas are present in the field, but only
one is subject to unit operations for instance, if crude oil is only found in one part
of the field, attributable to only one licensee group. However, this is not typical.

7.4

Determination of tract participations/unit equity

Where a number of parties decide to conduct exploration and production activities
in a standard JOA-type situation, their respective interests in the joint venture will
be agreed at the outset, usually according to their financial contribution to the
venture, and will not change unless one or more of the parties decide to sell the
whole of part of their interest in the venture. In a unitisation, however, the situation
is more complicated. This is because the two (or more) groups of licensees need to
determine what interest each group will have in the unit. This is one of the most
significant differences between a unitisation agreement and a joint operating
agreement. Each group of licensees will wish its unit equity to be based on the
percentage of total hydrocarbons in that portion of the field which actually underlies
its tract. The interest held by each individual party will then be that proportion of
the unit equity that the party is entitled to under that groups joint operating
agreement. So for example, if group A has a participating interest of 60%, and group
A is made up of four licensees, each holding a 25% interest, then each of those
licensees will ultimately be entitled to 15% of the hydrocarbons produced.

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