Page 135 - Well Logging and Formation Evaluation

CHAPTER 9

EQUITY

DETERMINATIONS

Equity determination becomes necessary when part of an accumulation
extends across a boundary and becomes subject to different conditions.
Such a boundary may be a result of (a) different ownership of the acreage,
such as occurs in the North Sea, where different groups of companies
control different blocks, or (b) international boundaries. In either of these
cases, it becomes necessary to determine the relevant amounts of hydro-
carbons lying on either side of the boundary. Typically, following an
equity determination there will be a unitization agreement, whereby a
single commercial unit is formed with the aim of optimizing the total
recovery of the field.
Equity denotes the share of this controlling unit held by the various
parties. Ahigher equity will involve a greater share of the profits, but also a
greater share of the costs and liabilities. Since the parties involved will want
to make the most profit from the field, there will usually be an attempt by
each party to maximize its own equity. The process whereby an agreement
is reached on how the equity is divided is called an equity determination.
Especially where international boundaries are concerned, equity deter-
minations may take many months or years to conclude and may involve
significant deferment of the hydrocarbon production. Recognition of this
fact, together with a tendency for field sizes to become smaller, has led to
a more pragmatic approach in recent years. However, the costs of the
technical work are still sizable. When a field is first discovered and there
are insufficient data available to make a proper equity determination,
“deemed equity” will typically be agreed upon by the parties. This is a
rough working agreement to enable appraisal/development of the field to
progress, with costs reallocated and recovered as appropriate following a
full equity determination at a later stage.

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