Unitisation and unitisation

agreements
Danielle Beggs
Justyna Bremen
Denton Wilde Sapte LLP

1.

Introduction
This chapter gives an introduction to the concept of unitisation and an overview of
the commercial issues involved. It does not attempt to provide a comprehensive
review of the legal regimes underlying national and international unitisation
arrangements, because these are described in detail in other works and are beyond
the scope of this chapter.

2.

Why unitisation is necessary

An oil or gas field may underlie more than one, even several, adjacent licence or
concession areas which are often held by different licensees or concession holders. In
the absence of any special arrangements, the producers in each licence or concession
area will undertake their own separate petroleum production activities in respect of
the portion of the field which underlies their own particular concession area.
This is particularly the case in jurisdictions where the rule (or law) of capture
applies. This rule provides that a producer who extracts petroleum from its portion
of a cross-concession area field will not be legally liable to account to the producers
from any adjacent concession area for the extracted petroleum. Under this rule, this
is so even where it could be proved that the extracted petroleum originates from a
part of the field which lies in the adjacent licence area, so long as the extracting well
does not trespass onto the adjacent licence area.
The practical consequence of this rule is that the producers in each licence area
will compete to extract the most petroleum from the common field for their own
exclusive benefit. This competition between the different producer groups could
result in an unnecessary and wasteful duplication of production facilities and often
means that a particular field might not be exploited in the most efficient manner,
nor to the fullest extent possible. This may ultimately reduce the amount of
petroleum recovered from the common field. The most cited illustration of this issue
was the situation in a number of states in the United States in the early years of the
industry, where the law of capture meant that very large numbers of wells were
drilled very close together.
To overcome these problems the different producers of adjacent licence areas
may decide jointly to develop common fields as single units to maximise efficient
production from the common field. It is also in the national interest for a countrys
petroleum reserves to be developed in a way that enhances the total amount of
petroleum recovered from each field. For that reason, in many jurisdictions the

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