Page 29 - Hydrocarbon

16 Unitisation and Equity Determination

There is an active market in trading ownership of oil and gas properties as companies
adjust their portfolios to match their requiredriskprofileor their availablebudgets.

2.6. Unitisation and Equity Determination

We have seen how blocks are defined by a grid system. Unfortunately, nature
does not confine the hydrocarbon field size to the regularities of the grids imposed,
and commonly a field will span two or more blocks, often owned by different
groups. In the early days of field development, the simplest way of defining the
rights to exploration and development drilling was to confine the drilling rig to the
boundaries of the block.
Assuming wells were drilled vertically, the bottom hole location of the well
should be within the owner’s block. Production from that well, however, could be
from the neighbouring block. It would therefore be in the interest of the licence
block owner to site the production wells at the periphery of his block and to produce
aggressively, thus draining a neighbouring block without concerns of reprisal from
his neighbour. This gave rise to situations such as that shown below at Spindletop,
Texas in the early 1900s (Figure 2.5).
Apart from the obvious inequity of this arrangement, it also led to hugely sub-
optimal field development costs and reservoir management. To overcome this, most
governments will insist that the field is ‘unitised’ and treated as one unit for
development purposes. The owners of the field or the Government will nominate an
operator, and the development will be planned based on the physical properties of

Figure 2.5 Field development at Spindletop,Texas, early 1900s.