AN APPRAISAL OF THE CONCEPT OF UNITIZATION IN THE OIL AND GAS SECTOR: A COMPARATIVE ANALYSIS OF NIGERIA AND SAO TOME AND PRINCIPE

CHAPTER ONE

GENERAL INTRODUCTION

1.0.0    Introduction/Background to the Study

Unitization occurs when licensees of oil and/or gas reserves pool their individual interests in return for an interest in overall unit. It is then operated by a single company on behalf of group.This happens when a field lies under different licences with differing equity interests[1].

Geology, and nature in general, are never perfect. Given the migratory nature of oil and gas, a hydrocarbon reservoir will often straddle two or more licences or contract areas; indeed, in certain instances, a hydrocarbon reservoir may even straddle international borders[2].

One of the primary objectives of host governments and international oil companies (“IOCs”) is to maximize the economic recovery of petroleum from the “common” hydrocarbon reservoir. Unitization is an approach which the oil and gas industry has developed to ensure that, to the extent possible, this is achieved[3].

In essence, unitization is the joint development of a hydrocarbon reservoir which extends across two or more licence or contract areas (if the field is governed by a production sharing contract regime) in order to ensure the efficient production of the reservoir and to maximize the economic recovery of petroleum from such licences of the contract areas[4].

The net effect of this is that each license group agrees that the license or contract areas are aggregated as a “unit”, with each owner receiving a percentage interest in the unit (“unit interest”)[5].

This study appraise the concept of unitization in the Oil and Gas sector:  A Comparative Analysis of Nigeria and Sao Tome and Principe. Also, it presents a general overview of the principles of unitization, how unitization is commonly documented and what issues generally need to be considered by IOCs when embarking on a unitization.

1.1.0    Statement of the Problem

Unitization in the oil and gas sector can be problematic owning to data exchange between the license groups.  In the bid to preserve the confidentiality of each nation’s own data acquired in respect of their license, it give rise to a lot of issues and concerns among the parties involved.

In practice, negotiation of a confidentiality agreement between the license groups can be a lengthy process particularly where parties fail to agree on the precise purpose for the use of confidential data and subsequently request to see data which is beyond the scope of the confidentiality agreement in place for protecting the confidentiality of the data already exchanged[6].

One other problem in unitization is that of the pre- unitization agreement which parties need to be aware is that interests of the parties contained in the pre-unitization agreement may not necessarily be reflected in the subsequent unitization agreement[7]. This is because the parties will find out more about the reservoir through geological and reservoir engineering studies which will be undertaken as finalization of the unitization agreement, and subsequently once one or more redeterminations are undertaken and it is against this background that this study seeks to investigate the concept of unitization in the Oil and Gas sector using Nigeria and Sao Tome and Principe for analysis.

 

1.2.0    Objectives of the Study

The main objective of this study is to appraise the concept of unitization in the Oil and Gas sector:  A Comparative Analysis of Nigeria and Sao Tome and Principe. The specific objectives of the study are;

1. To examine the fully-termed unitization agreement and to find out better ways on how unitization could be carried out

3. To assess the Nigeria, Sao Tome and Principe and the International Legal Framework and to reveal the pros and cons for the edification and benefit of both countries 

2. To evaluate the taxonomy and Joint Development Agreement and how its contents for a future guide   

4. To contribute to knowledge

1.3.0    Research Questions

The following questions will be addressed in the course of the study;

1. What is the fully-termed unitization agreement and the benefits to the both countries?

3. How has the International Legal Framework helped in unitization of the Nigeria, Sao Tome and Principe?

2. What are the taxonomy and Joint Development Agreement in this case?

1.4.0   Scope of the Study

This study focuses on the concept of unitization in the Oil and Gas sector. It takes an in-depth look at the key legal elements of a fully-termed unitization agreement, the Nigeria, Sao Tome and Principe and the International Legal Framework and evaluate the taxonomy of Joint Development Agreement. 

The scope covered in this study is limited to the examination of the legal framework, concept of unitization in the Oil and Gas sector, pre-unitization agreement, Joint Development Agreement and Analysis of Nigeria and Sao Tome and Principe.

1.5.0   Justification of the Study

The need to carryout study of this nature cannot be overemphasized as this study will be of immense help to nations on how they can better reach a peaceful unitization agreement among themselves. The justification for carrying out the research emerged from a review of the literature on oil and gas joint venture operations which straddle more than one country’s borders.

The study therefore will contribute to the literature relating to the governance of oil and gas and the concept of unitization. The study may have significant economic consequences for both Nigeria and the São Tomé and Príncipe - bearing in mind the importance of oil resources to both countries. It will also help nations to manage their overlapping maritime resources and benefit without disputes among them. 

Pertinently, this study will be significant to policy makers of nations who boundaries and resources are overlapping as the findings will encourage the spirit of cooperation among member states to enter into a joint development arrangement with a view to maximising the benefits accruable for the common benefits of their respective citizens

1.6.0   Methodology

This study deploys a doctrinal approach. The doctrinal method is used to examine how international law in general and particularly recent international framework of Joint Development Agreement and the concept of Unitization. Also, the study was designed as an exploratory review of the existing literature on the subject.

Therefore,  taking into consideration the availability of secondary sources, desktop analytical research methods would be included; this include articles, books, journals conventions, treaties, internet, and case studies.

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[1]Allen, F. (2012) ‘Oil and Security in the Gulf of Guinea: Reflections on the External and Domestic Linkages. Journals of Sustainable Development 4 (5), 132.

[2]Oduntan, O.T.(2007) ’Modalities for Post Boundary Dispute, Cross Border Unitization Upstream Hydrocarbon Exploitation in the Gulf of Guinea? 7 OGEL 37

[3]Pinto, G. (2013). Upstream Oil and Gas Legal Frameworks: Brazil and the United States Compared. West Virginia Law Review 115, 975–1004.

[4]Blanchard, J. M., (2005). Linking Border Disputes and War: an Institutional-Statist Theory. Geopolitics, 10(4), pp. 688-711.

[5]Okafor, C.B (2006) Joint Development: An Alternative Legal Approach to Oil and Gas Exploitation in the Nigeria-Cameroon Maritime Boundary Dispute? International Journal of Maritime and Coastal Law 21, 489.

[6]Churchill, R.R (2000) Joint Development Zones: International Legal Issues" in H. Fox ed., Joint Development of Offshore Oil and Gas vol. II (London: British Institute of International and Comparative Law) 55 - 67.

[7]Yusuf, Y.M. (2009) Is Joint Development a Panacea for Maritime Boundary Dispute and for the Exploration of Offshore Transboundary Petroleum Deposits? IELR 4.