The Need to Feed

Some years ago I was involved in the development of a big oil field discovered in UK waters. Since it lay across two licence areas, the field had to be unitised. Essentially this is an agreement between both licence groups to develop the field jointly.

The biggest single issue in any unitisation is share. How are the oil reserves distributed between the two licence areas, and how will production be shared between the two licence groups?

Traditionally the two groups agreed provisional shares, which were redetermined periodically when there was more technical data on the field. Historically these redetermination exercises were highly complex and divisive, and resulted in the huge destruction of value.

I made a presentation to the two licence groups on the history of redeterminations. I strongly advised them to agree fixed shares for the whole life of the field, so that no redeterminations were ever conducted.

A few days later I received a telephone call from a director of the oil and gas consultancy that was in line to produce the redetermination procedures and conduct the redetermination exercises. If the owners accepted my advice, none of this would be necessary, and there would be no work for the consultancy.

He came quickly to the point. “It is all very well you feathering your own nest. But there are others of us out here who also need to feed.”

I thought for a while before replying:

“My professional obligations require me to put my client’s interests first. My own interests do not come into it at all. Can I assume that the same applies to you?” He did not reply.

I went on: “It would suit me, personally, if they go the old route. That way I will be involved in drafting and negotiating the redetermination procedures, and probably also in the redetermination exercises. That is almost a job for life. But you cannot convince me that it is in my client’s interests to get involved in that old farce.”

“You have made your position perfectly clear” he replied, and rang off.

The owners did take my advice, and I never heard from the consultancy again.

Chris Thorpe

Chris Thorpe is a respected independent lawyer in the upstream oil and gas industry, and an established lecturer and author. Chris has a LLB in law from Magdalene College, Cambridge and trained as a barrister in London. He worked for eight years' as an in-house lawyer for BP and Marathon. Since 1991, Chris has run his own upstream legal practice, CPTL, which has acted for many upstream clients. He has extensive experience of international upstream transactions, principally in the North Sea, the FSU, Africa and the Middle East. Chris has spoken at many UK and International Conferences and Seminars, both public and in-house. His most popular current lecture is Fundamental of Upstream Petroleum Agreements, a two-day course with accompanying book.