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Equity Determinations 129

• Essentially all the technical work has to be reperformed, involving
considerable time and cost. There may also be difficulties in trans-
ferring all the data to the expert in a format that can be readily used.
• If the expert’s results significantly erode the equity of one party from
that previously assumed, the results may be challenged and not
accepted by the party disadvantaged.
6. Expert guidance. Rather than have the expert perform all the techni-
cal work from scratch, another option is for all the parties to submit a
technical report to the expert, stating their respective cases for their
proposed equity positions. By auditing the reports and analyzing the
strengths and weaknesses of each, the expert may derive a new equity
split. This is certainly a quicker and cheaper alternative to expert deter-
mination. However, the problem remains that a party losing equity may
challenge the expert’s results.
7. Expert pendulum arbitration. This procedure is similar to expert
guidance, except that the expert is asked only to choose between the
various cases submitted, not interpolate between them. The idea is that
it puts pressure on the parties not to make a claim for unreasonably
high equity, since it will probably result in their case not being chosen.
This procedure is quicker and simpler than expert guidance but suffers
from the same weaknesses. It also introduces a “lottery” element that
some companies might not find acceptable.

In my view a management negotiation is nearly always the preferred
route for equity determination, since it saves a lot of time and money, and
even a full technical determination is probably not nearly as accurate as
the technical experts would have us believe. However, in most of the
equity determinations I have been involved in, the goodwill between com-
panies has been lost at an early stage as a result of middle managers trying
to gain points and taking a nonpragmatic view. Therefore, there is usually
no alternative to a full equity determination. I am aware of one company
devoting 16 man-years of work in-house to an equity determination, with
additional expert/legal costs amounting to millions of dollars. I also know
of a field (straddling an international boundary) that was shut in for 7 years
because a unitization agreement could not be reached.

9.3 THE ROLE OF THE PETROPHYSICIST

Assuming that a full technical determination is made that is related to
HCPV or BOE, the petrophysicist will play a crucial role in the equity