Optimizing Unitization Formulas
Authors: Osborne Homer C. , LaFayette Billy F. 
Published: December 2007

With unitization of oil and gas producing properties becoming so important, the industry has need of a few guidelines to aid in the negotiation of unit participation formulas. Many times it has been possible for the operators in a proposed unit to agree upon a principle to be used in designing a formula, and then experience difficulty in translating these principles into a specific formula giving specific weighting factors to each of the parameters of interest in such a way as to accomplish their objective.

A direct method of interpreting these principles or objectives into specific weighting factors has been developed and is described in this paper. Some of the objectives that might be of interest are:

To find a formula that will make as uniform as possible for each operator the difference, measured as a fraction of the total unit, between his final participation and the maximum of his fractional tract factors [parameters]. The same except measured as a fraction of his maximum fractional tract factor. The same except measured as a fraction of the difference between his maximum and his minimum fractional tract factors. To find a formula that will minimize the total of the differences, as opposed to making the differences uniform, as measured on any of the above bases.

Results for a sample case are presented for the sake of comparison.

Introduction

In the past several years the operating interests of a large segment of our domestic petroleum industry have increasingly found various good reasons to pool their interests and operate jointly their properties in many fields. This practice has become so common that today it is not unusual to find that a large company may have an interest in more than 100 fields that are in various stages of unitization. It is apparent, References and illustrations at end of paper. then, that a large amount of manpower is being devoted to unitization work by the industry.

The ideas presented herein can help substitute objectivity for some of the uncertainty that in the past has accompanied many of the evaluations and negotiations in connection with unitization. In the development of this approach the method has been to:

state some reasonable objectives of a unitization committee; express each objective mathematically; and, derive from these mathematical expressions, formulas that will yield unique weighting factors for a participation formula for each stated objective.

At the outset it should be understood that this approach will not take the place of negotiation, but it will enable negotiations to be more enlightened by providing dependable guidelines. Each party to the negotiations can be assured that a derived formula is the very best attainable to accomplish a stated objective with the data as presented.

FORMULATION OF OBJECTIVES

Once the unitization committee has met, selected the parameters upon which to base a unitization formula, evaluated each parameter on each tract and prepared a table of tract ownership, the stage is set for negotiations to begin on the final participation formula for the unit. It is at this point that the technique presented herein may be applied. The committee may select any of several objectives of unitization and have a single unique participation formula derived that will best satisfy the conditions of the objective. The objectives that have been used in this work, not an exhaustive list, are as follows:

1] To find a formula that will make as uniform as possible for each operator the difference, measured as a fraction of the total unit, between his final participation and the maximum of his fractional tract factors [parameters such as acres, wells and acre-feet].

2] The same as 1] above except measured as a fraction of his maximum tract factor.