Page 30 - Hydrocarbon Exploration and Production Second Edition

Petroleum Agreements and Bidding 17

increasing
complexity
and effort required
to complete equity economically
determination
recoverable
hydrocarbons
initially in place

recoverable hydrocarbons
initially in place

moveable hydrocarbons initially in place

hydrocarbons initially in place

areal extent of hydrocarbons, as mapped to
hydrocarbon-water contact

Figure 2.6 Options for the basis of equity.

the field, uninfluenced by ownership. The split of the costs of development and the
resulting net cash flow will be determined by the ‘equities’ held by the owners of the
licence blocks which the field straddles.
The basis for the equity determination is negotiated between the block owners
(Figure 2.6). This basis could be

areal extent of the accumulation, as mapped to the hydrocarbon–water contact
hydrocarbons initially in place
moveable hydrocarbons initially in place
recoverable hydrocarbons initially in place
economically recoverable hydrocarbons initially in place.

Moving toward the apex of Figure 2.6, the basis for equity becomes progressively
more complex and lengthier to determine. The extreme case of economically
recoverable reserves requires estimates of both the technical development plan and all
of the economic assumptions such as costs and product prices, right through to the
end of field life.
Prior to development, a ‘deemed equity’ may be agreed between the equity
groups in order to set the proportional funding of the field development. This
will usually be reviewed close to first production when more information is
available from the development wells. Adjustments are then made to the initial