Unitisation and unitisation agreements

relevant petroleum authority may have powers to compel producers to develop a

field as a single unit.
Unitisation is the term used to describe this process, where the producers agree
jointly to develop a particular field as a single unit, in accordance with the
geophysical boundaries of the actual field rather than the artificial boundaries of the
individual concession areas, determined at the time the licence or concession award
was made.
Unitisation can apply to several adjacent concession areas in one country (eg, in
the United Kingdom, the Britannia gas field). It can also apply to cross-border fields
if there is intergovernmental agreement on this issue (eg, in the United Kingdom and
Holland, the UK/Dutch Markham Gas Field).
Unitisations are becoming increasingly common. There are a number of reasons
for this. As oil and gas areas mature, exploration blocks become smaller, making it
more likely that two or more licences may relate to one field. At the same time,
geophysical studies are become more sophisticated, leading to earlier identification
of common fields. Governments are also taking a more proactive role in managing
their oil and gas resources and are encouraging or directing producers to unitise
common fields.
A unitisation and unit operating agreement (in this chapter referred to as a
unitisation agreement) is the principal agreement negotiated and entered into by the
producers to regulate the basis upon which the unitisation will take place, and the
way in which the unitised field will be operated between the unitising producers.
In the United States and Canada, it is typical for producers to enter into two
separate agreements a unit agreement and a unit operating agreement. The unit
agreements deals with the creation of the unit (ie, to set out the parties respective
interests in the unit, in terms of the sharing of costs and production, and the
appointment of a unit operator). The unit operating agreement, on the other hand,
then deals with how operations will be carried out on a day-to-day basis.1 Outside the
US and Canadian context, however, it is standard for parties to enter into a single
unitisation agreement, dealing with both creation of the unit and unit operations.
In some cases, before the producers in a field decide to enter into a unitisation
agreement, they will first enter into a pre-unitisation agreement in order to set out
the terms upon which the parties may carry out any joint appraisal drilling and
evaluation of the field. Such an agreement may provide for the way the cost of the
appraisal studies is shared between the parties. This may need to be adjusted once it
is determined how production in the field will be split between the parties (ie, once
the parties unit equities are determined, as discussed below).
3.

Unitisation distinguished from other arrangements

Sometimes a decision is made by licensees to develop separate fields as one, for greater
efficiency and pooling of resources. Such arrangements, often referred to as pooling,
must be distinguished from unitisation. Pooling is an established part of US oil and

See para 4.2 of International Unitization of Oil and Gas Fields: the Legal Framework of International
Law, National Laws, and Private Contracts, Association of International Petroleum Negotiators (AIPN).

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