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Contractual Regulation of Hydrocarbon Field Development Relations at the Domestic and International Levels with the Use of Unitization Agreement
 
PIIS231243500022482-8-1
DOI10.18572/2410-4396-2021-4-94-99
Publication type Article
Status Published
Authors
Lyubov I. Shevchenko 
Affiliation: Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs of the Russian Federation (MGIMO University)
Address: Russian Federation, Moscow
Journal nameEnergy law forum
EditionIssue 4
Pages94-99
Abstract

One of the tasks of the Energy Strategy of Russia is a comprehensive analysis of various spheres of the fuel and energy complex of the economy to identify the problems of functioning and use any required mechanisms for the regulation of different relations arising in this sphere including creation of an improved system of the applicable energy law, broader and more efficient use of the contractual regulatory potential. The issue of the use of contractual regulation methods in subsoil use attracts the most interest in this sphere; unitization agreements are of special significance. Such agreements enable mutually beneficial cooperation between various parties to the energy community in the hydrocarbon field development at the domestic and international levels facilitating the approximation of states in the legal and political framework. The author continues studies of unitization agreements that were briefly characterized from the legal standpoint by the author in the third issue of the Energy Law Forum journal for 2021.

Keywordsenergy law, hydrocarbon field development, transborder fields, unitization agreements
Received01.12.2021
Publication date20.12.2021
Number of characters18964
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1 Domestic subsoil laws of many states include provisions on the regulation of transborder hydrocarbon fields requiring subsoil users to cooperate with each other in the field development as such cooperation has a positive impact on the rational use and protection of subsoil. The achievement of these objectives is facilitated by unitization agreements as a tool used in subsoil use that is gathering momentum in its application practice and is an efficient method to reach a consensus in the development of transborder fields.
2 It should be noted that unitization as a form of cooperation between two or more subsoil users entitled to develop and exploit a single field has been reflected in the Russian law in the Regulation on the Procedure for Licensing of Subsoil Use [1]. Unitization implies that all transborder field users enter into a single unitization agreement granting certain rights and imposing certain obligations on each party to such agreement in terms of the joint field development. Not only individual subsoil users, but also states can be parties to a unitization agreement. The main goal of a unitization agreement is that if a field is developed jointly by several subsoil users, the latter, although acting on their own behalf, will do good and facilitate the activities of other parties to the agreement for the purposes of the most efficient exploitation of the field.
3 The following types of agreements can be singled out in this sphere: international unitization agreement referring to an interstate transborder field, where the subjects are states whose borders are crossed. In this case, the parties agree on a single fundamental action plan in relation to the use of the transborder field. Another type of a unitization agreement is characteristic of the cases when a field is located in a federated state on the administrative border of two constituent entities of the Russian Federation. In this case, the mentioned activity is primarily regulated by the laws of the constituent entities the field is located in and the field use agreement concluded between such constituent entities. Federal subsoil use laws may be applied to the solution of fundamental issues except for the cases when the field itself is owned by the state. One more type is a unitization transborder field use agreement concluded between the direct holders of rights to such a field, namely, between subsoil users. However, we cannot conclude that the state makes no impact on the activities of subsoil users: the state sets the key unitization parameters and exercises due control over the agreement conclusion and fulfillment process.
4 As a general rule, unitization agreements have a certain structure used as a basis, depending on their specific features. General requirements for the structure, content of unitization agreements are imposed by special typical (standard) agreements developed by government organizations. If the parties desire to introduce some amendments to a typical (standard) unitization agreement in accordance with the specifics of the established relations, the introduction thereof should be approved by the relevant authorized agencies; a standard unitization agreement may be amended only following a review and obtainment of a positive conclusion from the relevant agencies.
5 A unitization agreement should at all times determine the following:
  • territory of the agreement consisting of several sites;
  • obligations of the parties, namely the obligation to develop the field based on a single project and a common approved cost estimate;
  • shares in the unitization agreement and the share revaluation procedure;
  • procedure for the assessment and reevaluation of mineral reserves for the distribution of extracted products;
  • procedure for the distribution and redistribution of extracted products and costs between subsoil users;
  • establishment of a governing body to oversee transactions under the agreement;
  • appointment of an operator, its rights and obligations;
  • procedure for drawing up and approving of cost estimates and development programs;
  • information exchange procedure;
  • customs regime peculiarities;
  • taxation and accounting.
6 The following concepts and terms play the fundamental role in the regulation of unitization relations:
  • unit area: an area described in a unitization agreement, where exploration and development under the unitization agreement are carried out (unit); association of license holders based on a unitization agreement;
  • participating area: a part of a unit area that contains an economically feasible amount of natural resources (serving as the unitization goal) according to the geological data or a part required for the performance of works at the unit area and benefiting from the extracted natural resources (unitized site);
  • unitized substances: oil and gas are deposited in the ground under a unit area and extracted in an economically feasible amount under a unitization agreement;
  • unit operator: a legal entity or its subdivision acting as a unit;
  • unit holders: parties to a unitization agreement represented by license holders;
  • working interest: rights to a share of unitized substances or interest in the site such substances lie in. The rights delegated to a unit area operator under a unitization agreement are not considered its working interest.

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