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Paul F. Worthington

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Paul F. Worthington

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Paul F. Worthington

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Paul F. Worthington

Petroleum Unitization is concerned with the development of a subsurface oil and/or gas accumulation that straddles a man-made demarcation line such as a domestic licence boundary. It provides a legal, operational and technical framework for developing the accumulation in a seamless rather than competitive manner so that costs are minimized and the recovery of petroleum is maximized. The legislation that governs petroleum unitization varies between jurisdictions. It can be structured within a tripartite framework of statutes, implementing regulations and production contracts but these three levels are utilized diversely and sometimes not at all. Partly for these reasons, petroleum unitization is reportedly continuing to evolve with no jurisdiction having a perfect regulatory governance. This volume sets out to improve the situation by identifying more comprehensive prescriptive elements for unitization statutes, implementing regulations and pertinent clauses within operational contracts. The objective is to attain greater revenues through Pareto-optimization and without environmental compromise.

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Paul F. Worthington

Roman water law served as a basis for the early English common law of surface-water rights. The subsequent evolution of ground-water rights encompassed both a reasonable-use rule and an absolute-ownership rule. The latter did not respect prior use and allowed each property owner to extract ground water to suit his needs even if this resulted in ground-water capture from adjoining properties. The law of capture was adopted for onshore oil and gas reservoirs in the USA in the late nineteenth century and it remains to this day. It resulted in wasteful drilling and oversupply as property owners protected their petroleum resources by competitively siting production wells along property boundaries. Attempts to mitigate such unhelpful consequences included well spacing controls together with pooling of acreages. However, these measures did not prevent the capture of petroleum. The recognition that cross-boundary accumulations should be developed seamlessly led to the concept of unitization.

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Paul F. Worthington

Petroleum unitization provides the legal, technical and operational framework for developing a straddling oil and/or gas accumulation in the most efficient and effective manner so that no coventurer with an interest in a straddled contract area is disadvantaged and most, if not all, see tangible gains. The exercise is most beneficial where petroleum resources are owned by the State. The unitization process often begins with a Pre-Unit Agreement that can be a precursor for a Unitization and Unit Operating Agreement (UUOA) subject to the exploitation of a straddling accumulation being declared commercial. In addition to prescribing how a straddling field is to be operated, the UUOA also quantifies Initial Tract Participation and how this is to be redetermined later in field life. Despite the recognized benefits, from a legislative perspective no jurisdiction has succeeded in developing a perfect solution to the problems associated with petroleum unitization, which therefore lacks effective regulatory governance.

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Paul F. Worthington

There are few published comparisons of domestic unitization statutes and implementing regulations for petroleum-producing countries wherein the petroleum resources and the rights to produce them are owned by the State. Where such comparisons have been documented, they confirm diverse legislative governances with no single jurisdiction having petroleum unitization legislation that is a candidate for a benchmarking model. In the absence of such a benchmark, a legislative framework for domestic unitization has been adopted here pursuant to the work of others. The tripartite framework comprises national petroleum or subsurface laws of the host governments, implementing petroleum regulations of host-government agencies, and petroleum production contracts between host-government agencies and coventurers, as these pertain to unitization. This threefold framework is subordinate to the national constitution. It defines the legal reference for a vertical relationship between the State and coventurers and for a horizontal relationship between the coventurers themselves.

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Paul F. Worthington

A review of unitization legislation for more than 100 jurisdictions has been carried out with reference to a tripartite legislative framework of petroleum statutes, implementing regulations and petroleum production contracts. By drawing upon both primary and secondary sources, petroleum laws, petroleum regulations, and model or historical petroleum production contracts could be discovered for the majority of producing countries and those anticipating production. Scrutiny of documents from all three levels of the tripartite legislative framework has identified 90 federal or national jurisdictions for which unitization prescription exists at one or more of these levels within the context of conventional oil and gas reservoirs. These 90 groups of legislation constitute the working dataset for this study. For this purpose, subnational legislation has not been included.

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Paul F. Worthington

An analysis of petroleum unitization legislation from 90 selected jurisdictions has been structured through reference to the adopted tripartite legislative framework of statutes, implementing regulations and petroleum production contracts (PPCs). This has been done by grouping the jurisdictions according to the occurrence of discovered legislation at one, two or all three levels of the adopted framework, thereby giving rise to seven groups. The selection of two lead jurisdictions from each group has been used to create a kernel for the analysis of unitization legislation for that group. The 14 jurisdictions thus selected were Angola, Canada, Côte d’Ivoire, Indonesia, Madagascar, Norway, Oman, Pakistan, Peru, Thailand, Turkmenistan, Trinidad and Tobago, Tunisia and the United Kingdom. A comparison of unitization legislation across these 14 jurisdictions has shown that no two jurisdictions have the same legislation for petroleum unitization. The analysis has reinforced the view that from a unitization legislative standpoint, no jurisdiction has got it right.

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Paul F. Worthington

A detailed examination has been made of legislation from those four of the selected 90 jurisdictions that have issued unitization regulations, rules or guidelines. The four jurisdictions are Bolivia, Brazil, Mexico and Nigeria. Overall, these four jurisdictions have more comprehensive unitization legislation than others, for example by including prescription that deals with the basis for tract participation and with redetermination of equity. Yet, no two jurisdictions have the same unitization legislation. Indeed, some prescriptive elements are present in no more than one jurisdiction, for example provision for a pre-unit agreement and consideration of alternatives to unitization. The PPCs are generally less prescriptive of unitization matters than regulatory levels of legislation. Through such comparisons the analysis has identified additional prescriptive elements for inclusion in a tripartite legislative framework for unitization. All these elements are candidates for more effective unitization legislation.