Unitisation and unitisation agreements

Unit equity is important because it determines each partys entitlement to the

hydrocarbons produced (the unit substances), the money each party is expected to
contribute, and each partys voting rights.
There are many different methods for calculating the volumes of hydrocarbons in
the field at the time the unitisation agreement is entered into. This is a technical issue
discussed in detail in other publications,10 but for the purposes of this chapter it
should be noted that this is an important issue that will be the subject of detailed
negotiations between the parties. Once the licensee groups participating interests
have been calculated, there may be instances where the parties wish further to adjust
the interests. For example, if one group of licensees were to have undertaken extensive
work before unitisation took place, the parties may decide that those licensees will be
compensated by an increased interest, rather than a cash payment. Any such
adjustments will need to be documented in the agreement (most likely in one of the
annexures which set out how various calculations and determinations are made).
Because the participating interest is used to calculate not only what proportion of
hydrocarbons the parties will receive but also the amount of money to be contributed
towards works going forward, it is important for any such adjustments to be carefully
considered in the context of the whole unitisation agreement.
7.5

Redeterminations
A calculation of the amount of hydrocarbons attributable to each tract can only ever
be a very good estimate until such time as those hydrocarbons are extracted. For this
reason, the agreement will often make provision for the unit equities to be adjusted
during the term of the agreement, when more accurate information is available. This
adjustment mechanism is referred to as a redetermination and is one of the most
complicated issues in unitisations.
A redermination provision needs to deal with the following:
The trigger for a redetermination this could include providing for
redeterminations to take place at certain regular intervals during the term of
the agreement; upon a certain volume of hydrocarbons being produced; or
by one party making a case for it. Care should be taken to ensure there is
some limit on this procedure being triggered, as it can be a lengthy and
expensive process to deal with.
Timing it is usual to limit redeterminations to the first few years of
production. It should be possible for the parties to get a more accurate
assessment of the field quite soon after more extensive drilling has taken
place. Importantly, it would not be practical for a redetermination of the
quantity of hydrocarbons each party is entitled to lift to take place towards
the end of the life of the field.
The redetermination procedure to be followed the operating committee (see
below) will usually be in charge of undertaking the redetermination
procedure, although provision may also be made for a separate

10

See paragraph 1-743 of United Kingdom Oil and Gas Law (see n 3 above) for a detailed discussion of the
most common methods of calculation.

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