Page 138 - Well Logging and Formation Evaluation

128 Well Logging and Formation Evaluation

force. There will typically be provisions made for further equity determi-
nations during the life of the field. However, as time progresses, the incen-
tive for determination may be less in view of the decreasing remaining
value of the field and likely increasing determination costs (resulting from
additional data acquired).
Many methods have been used for the actual determination. Among the
most common are:

1. Technical determination. In this procedure, a series of technical meet-
ings are called between the parties, and in theory a common technical
position is agreed upon from which the equity may be determined. In
practice these have typically been found not to work, since each party
will tend to cling to a technical case that optimizes its own position.
Such negotiations have been known to go on for years, with eventual
resort to the courts, resulting in a loss of value all around. Therefore,
this procedure has more or less been abandoned (and rightly so).
2. Fixed equity. Early in the field life, a company that is likely to control
a very high proportion of the equity may offer the minority parties a
fixed percentage, which is not subject to future equity determination.
This has the advantage for the majority shareholder of not having to
devote a lot of resources to negotiating over a small percentage or even
share data with the minority party. It may have advantages for the
minority shareholder that is a small company and does not want the
expense of a full equity determination.
3. Management negotiation. This is just an extension to the deemed
equity procedure. The managers might recognize that some adjustment
is needed to the deemed equity after some years, but they do not wish
to go to the full expense of a full technical procedure. They would nor-
mally give themselves the option to call a full equity determination at
some point in the future.
4. Sealed bids. Full technical determinations can also be avoided if each
party makes a sealed bid, stating its equity case, to an independent third
party (such as a judge). If the sum of the equity bids is less than, say,
110%, each share can be prorated downward accordingly. If the total
is greater than 110%, then a full technical procedure can be instigated.
5. Expert determination. In a full technical procedure, all of the avail-
able data are handed over to an independent expert who will make the
determination. In theory this sounds like the most logical way to do
an equity determination. However, a number of pitfalls can arise:
• The parties have to be able to agree on a suitable expert.