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The psychological game of unitisation

In the oil and gas industry, so much depends on technical excellence. The same applies to unitisation – when you’re dividing up a straddling field that crosses the licence boundaries of two or more companies, you need a sound technical understanding of the opportunity in the ground in order to maximise the value of the development.

But tests and models aren’t all that matters in unitisation. When potential value is on the table, commercial discussions can quickly become disputes, and intractable at that. Before long, the technical reality of the opportunity gets mixed in with human emotions, as everyone starts calling for the biggest slice of the pie.

At its highest level, unitisation is as much a commercial and psychological question as it is a technical one. The more complex the field is to divide – or the more entrenched the disagreements become – the more you need to approach the issue with diplomacy as well as data.

 

The technical: Unitisation disputes first require technical mastery to resolve

While diplomacy and mediation are crucial factors in unitisation discussions, the process still rests on a bedrock of technical mastery. The goal is always to accurately assess the resources in each of the units that make up a field, and for that you need to be able to devise a reliable model that shows what each party has in the ground beneath them.

The first step is to settle on a basis of determination (B.o.D)

This is the parameter used to calculate the tract participation – how much each party is entitled to. The parameter you can choose will depend on the complexity of the field in question, as well as how much you know about it.

Let’s imagine the simplest case – two companies share a straddling field and need to work out how much oil is available. If you’ve drilled some wells you can understand the porosity of the rock, while electronic logs and maps can help to calculate the hydrocarbons initially in place (HCIIP), and this is most commonly used as a basis of determination.

But oil fields and gas fields are often not that straightforward. Rock properties such as porosity can vary considerably on either side of the block boundary, while the variable presence of oil and gas may add another layer of complexity. Similarly, if you know not all the oil in the unit area is economically recoverable, you’ll get calls for a more sophisticated B.o.D to calculate an accurate value proxy for each company’s tract participation.

In these situations, while expert determination can consider weighting and value based on the technical models each company creates, you’ll often first want another independent expert, such as Rockflow, to help two parties to first settle on an appropriate B.o.D, so that the final decision will be as equitable as possible.

 

The commercial: Why unitisation disputes require more than technical expertise

As with many upstream oil and gas projects, the uncertainties involved can be such that purely technical arbitration can’t account for all the variables. Commercial interests can be just as potent in unitisation negotiations as rock porosity and hydrocarbons.

It should be no surprise that once money enters the conversation, reaching a resolution becomes far more difficult. If one company has begun investing in developing their portion of the field, they can argue that their project is already worth something concrete while the others are merely speculative in value. It then becomes a dispute between greenfield and brownfield, and a technical determination likely won’t settle that by itself.

In an ideal world, you would complete your unitisation before anyone develops anything – that way no one has invested any capital into the project and each party starts negotiations on relatively equal footing. But when that isn’t possible, unitisation often becomes a case of agreeing on a commercial number rather than relying on a technical solution to an increasingly complex question.

 

The psychological: Why unitisation disputes often go beyond commercial

When it comes to unitisation, everyone would love for negotiations to be a simple case of deciding on a technical parameter or a commercial figure. But we’re never just dealing in matters of oil, gas and rock – we’re also dealing with people, and human psychology always comes into play.

When diplomacy is needed, sometimes the best approach to take is a pragmatic one. For example, you might have a complex field with four or five parties involved, and at first glance it appears that they’re all arguing over the same points. But if you take the time to listen, you might find that two of the companies are making a lot of noise over high-level issues, while the others are debating details.

Resolving conflict

If you approach those negotiations from a purely technical or commercial perspective, that conflict won’t be resolved. But if you bring human psychology to the table, you can focus on the individual conversations going on in the room. Instead of trying to hear everyone out at once, you can work on proposing a reasonable commercial solution to the first group of companies and discuss detailed concerns with the second, without the two perspectives derailing each other.

 When this psychological element is in play, it’s invaluable to bring in a consultant practised at navigating such diplomatic waters. When everyone around the table wants to fight for the highest value for their share, this consultant acts like an honest broker in the middle. Their interest is only to get everyone aligned and maximise the value of the entire field so that it produces more for every party than they could achieve on their own.

This sensitivity to diplomatic situations is a significant part of why companies keep coming back to Rockflow. Rockflow is in a very select list of companies recognised as experts in unitisation disputes – not just in technical determination, but also in the commercial and psychological aspects that so often complicate the process.

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