Oil and Gas Unit
The oil and gas industry is a tricky place not just because it’s rough and sweaty, but the terminologies of this industry can be highly confusing to say the least. But remember, you’re not alone when it comes to being confused about these units.
For instance, some people call it pooling, while others call it unitization. So, an oil and gas unit may have different names that just add to the confusion of people who are new to the field. So, in this post, we will clear the air to understand what an oil and gas unit is and how it works.
Distinguishing an Oil and Gas Unit is Important
There are certain terminologies that are often confused with the term unit. However, they are dramatically different. So, understanding these differences can help you with your professional or general knowledge about the oil and gas sector.
More importantly, if you’re an oil and gas operator, it’s essential to learn the key aspects of an oil and gas unit.
What’s an Oil and Gas Unit
An oil and gas unit is the result of unitization. Hence, anything in the oil industry that is unitized, turns into a new unit. This unit is singular and a much larger entity than its constituents. For instance, merger or combining of two pieces of land for drilling or exploration purposes.
When you’re at an oil and gas drilling site, a unit refers to the allowed region or boundary of a consolidated area where you are allowed to drill, explore and produce minerals.
Oil and gas units provide options for joint operations to the operators and producers of mineral resources. They have numerous advantages such as:
- Economic operations
- Accountability by the owners
- No need of multiple tanks for produced hydrocarbons
- No requirement of multiple leases, parcels and owners to carry out drilling and extraction
A unit depends on the concepts like pooling and unitization. Therefore, it’s important to understand the two terms. Let’s find out what these terms are and how they are related to an oil and gas unit.
Unitization is also known as unit operations. It means to consolidate minerals or leasehold interests that usually cover the sources of supply. It refers to the development across a reservoir or oil field and is significantly larger than a pooled unit.
With unitization, concerned parties can ensure unified development and operation over the designated area or oil field. Whether they are oil producing wells or prospective reservoirs, which allows drilling companies to explore, drill and produce minerals more efficiently.
It mainly focuses on the economic aspect of drilling and production, so that the extracting companies can not only drill faster but save valuable cost too.
Outcome of Unitization
The outcome of unitization is that it brings lessors and land owners on the same page. It mainly applies to mineral rights and helps maximize the value extracted from oil and gas operations. Typically, the key players in unitization are mineral right operators, landowners, and the local governments of the region.
Unitization often becomes necessary. For instance, there are several instances where crude oil supplies may be spread across different properties that are beyond the drilling limits. Since these resources are all underground, it’s difficult to predict and thereby extract from a single location.
Hence, if the owners or drilling companies wish to extract the resources, they need permissions which results in unitization. Once unitized, the drilling and exploration can become more effective and efficient.
It means that oil and gas unitization refers to combining and forming a single entity. Mineral leases, mineral rights and pieces of land can be unitized in a singular entity to benefit different players involved with the separate units.
Generally, the word pool means to combine different entities together to form one. When it comes to the oil and gas sector, a pooled unit or pooling is referred to as joining or combination of tracts. Generally, these are small tracts or parts of tracts.
The purpose of pooling is to have enough area or acreage that will allow the oil and gas companies to receive a well drilling permit. A pool is also called a unit. Generally, the leasehold owners form the unit via the authority given by the mineral owner of a specific drilling site or oil well.
Essentially, unitization and pooling are quite opposing concepts, which means that the oil and gas operators must be precise when it comes to using these terminologies in their professional affairs.
Types of Pooling
There are different types of pooling depending on different factors. Here is a quick look:
Voluntary pooling means that you have a choice to join a unit in your close vicinity. When a neighboring unit has oil tracts, you can choose to pool together. It benefits all the stakeholders who join the pool.
With voluntary pooling, you can enjoy oil and gas royalty payments whether or not the oil and gas unit is used for extraction from your part of the property.
It’s also called mandatory pooling. In this type of pooling, there is forced unitization of your oil and gas rights. Compulsory pooling is generally enforced by local governments, so you may receive a pooling order if the authorities want to limit the number of oil wells in a specific region.
Oil and Gas Pooling Can be Complicated
Since you’re likely to share resources and property with other stakeholders, pooling of an oil and gas unit can be a complicated process to go through. Therefore, it’s important to read the pooling agreement thoroughly before you sign it.
One of the common drawbacks of oil and gas pooling is less royalty payments. Moreover, it can deplete your mineral resources pretty quickly.
As a result of pooling and unitization, an oil and gas unit is formed. It has many benefits like royalty payments for oil and gas resources, shared use of facilities and prevention of certain legal issues too. Therefore, if you’re an oil and gas property owner or have any mineral rights, learning about oil and gas units can be useful for you to avoid any complications.