Competition in Exploration and Production

Competitiveness is a term that is easily associated with petroleum exploration and production. By the simple fact that limited petroleum resources are found concentrated in a few dispersed locations on the earth, men have competed vigorously to discover and lay claim to the valuable commodity that hides deep underground. The process starts with competition to gain geologic and geophysical knowledge to point the likely direction of oil-bearing rock. Prospective lands are then hotly pursued and drilling is quickly undertaken to make the initial discovery; so that more land may be acquired and more wells drilled into a pool. Production is frequently taken as rapidly as possible (or as allowed by regulatory authorities) in order to ensure no one else produces oil or gas from underneath one's lands first. This competitive nature permeates the oil business. The race to have the most reserves, the best technology, the lowest operating costs, etc. have all become goals in themselves. These benchmarks are used by analysts, management and ourselves to measure success and have created in the work force the associated independent behaviours and communication styles.

Joint Pool Ownership Necessitates Interaction

The reality of producing hydrocarbon reserves economically, however is a very different world. One doesn't have to look very far to see that there are few currently operating projects which are entirely owned and operated by one company. In most instances, fields are unitized or there are other joint venture partners. Once a field has been delineated, the ownership of the limited reserves in the ground are basically determined. With more than one producer in a pool, inequitable operations can result (competing depletion schemes, one operator "draining" another, etc.). Competing to get the oil out of the ground only creates inefficiencies. Effective recovery relies on careful strategies of depletion and enhanced recovery. Thus regulatory authorities and the petroleum companies themselves have recognized the need to co-operate; pooling arrangements, Joint ventures and "unitized" operations are frequently the result. This type of arrangement requires a great deal of interdependent interaction between individuals of the involved companies if the venture is intended to be successful.

Joint operations are characterized by having one owner, (usually the owner with the largest working interest in the property), act as operator on behalf of the remaining owners. Since the relationship between the working interest parties is a business one, a legally binding document called the joint operating agreement is drawn up and executed by all the working interest owners. This document is intended to anticipate all the possible sharing and decision making requirements necessary to effectively exploit the pool it lays out explicitly how expenditures and revenues are to be divided, how decisions are to be made, which decisions can be made by the operators in isolation and which ones require partner approvals. The original documents are typically amended and upgraded to cover expansions and changes that may occur in the life of a property.

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