Will fields with both oil and gas have greater difficulties in agreeing on unitization contracts than fields with oil or gas alone?
Some fields have large enough quantities of both oil and natural gas that coordination must be achieved for the production of both, rather than oil alone. I am trying to determine if it would be more difficult for owners of the land to agree and sign a unitization contract with both oil and gas on the property than with only oil or only gas on the property.
2 Answers | Add Yours
There should be no difference between oil and gas fields and fields with only one type of fossil fuel with regard to the difficulty of coming to unitization agreements. Instead, the main cause of difficulty should be the number of entities that hold the rights to tracts within the field.
A unitization agreement designates one entity to remove both gas and oil in a given field. Since there is only one entity that will do this, regardless of whether there is gas, oil, or both in the field, there should be no difference in the difficulty of coming to an agreement. What should make a difference is the number of parties to the agreement. This is determined by the number of parties that own land within the field. Since all must agree to the unitization agreement, a larger number of parties makes it more difficult to come to agreement.
13 Fields with both oil and gas will be harder to unitize because now those who produce gas will have differing interests from those who produce oil. The oil producers will probably want a slower extraction of the gas, which is necessary to drive their oil to the surface, while gas producers may prefer to exhaust the gas more quickly. Slower extraction of the gas does not ultimately bring forth a higher total output, but slower extraction of the oil does do so.
We’ve answered 319,863 questions. We can answer yours, too.Ask a question