Unitization Agreement

An example is the redefinition of Balmoral Field7, where the underwriters attempted to reduce their shares because of the high cost of capital and the resulting losses to the licensees. Although the case itself focused on the contractual interpretation of the provisions of the unitary agreement concerning the calculation of participation by the designated expert, the case shows that ukCS licensees will use the redefinition provisions in a single agreement to achieve a reduction in economic losses resulting from the reduction of their shares per unit. In most cases, adjacent contracting areas are located within a single country and the parties to the UUOA must conduct the unity process in accordance with the laws in that country. However, there are a number of examples where the reservoir crosses the agreed international border between two countries or is in an agreed common development zone (where the border is not agreed) and in these scenarios, the two host countries will likely have different legal rules for unification. Bilateral agreements or association agreements between governments with an agreed border or having concluded a specific common development zone in the absence of an agreed border overcome the problem of different legal systems by creating a common framework for cross-border unity. However, regardless of the common framework, additional complexities arise when the unit relates to a reservoir located in two countries. In some UKCS unit agreements, it is also customary to include provisions allowing a party to the single agreement to request a change in the unit area if the proposed extension area is provided: the single agreement between the parties in the groups holding the adjacent contracts sets out the conditions under which the interterritorial reservoir is developed jointly. This generally results in a unit in which all resources and facilities are jointly held and each group`s share of production and costs is based on the agreed share in the unit, regardless of the location of the facilities. In certain circumstances, the parties enter into two separate agreements concerning: (i) the formation of the unit and the distribution of unit costs and production between the contractual groups (a “unit agreement”); and (ii) the operation of the unit tank (“unit operating agreement”).

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