In 1920, H. L. Doherty proposed the term unitization for the cooperative operation of an oil pool as though it were owned and operated by one party. The main methods of unitization are: (1) voluntary, (2) cooperative with divided interests, (3) complete with undivided interests, (4) compulsory. The petroleum geologist determines the outlines of the unit by correlating the assembled well data of each operator. After engineering studies have determined the reservoir characteristics, negotiations begin with royalty owners, many of which, not realizing the benefits of unit operations, refuse to permit consolidation of their interests. The state is a party to the formation of a unit and its conservation laws must be strictly obeyed.
The participation formula divides income and expenses among the members of the unit. It should be as simple as possible and yet cover all aspects which will determine future production of the reservoir. The “split” formula takes into account that oil fields have a primary and a secondary production; hence by use of this formula the economic adjustment is lessened by maintaining income at a stable level during the transition from primary to secondary recovery. The unit operator is appointed by fellow operators and carries out the orders of the operating committee.
The advantages of unitization are chiefly economic, through avoidance of competitive drilling, economic employment of personnel and marketing advantages. Engineering benefits include control of water incursion and reservoir energy, scientific well spacing, and coordination of drilling programs. Unitization tends to have a stagnating effect on the industry, cause restraint of trade, promote unequal distribution of royalty and be monopolistic.
Amerada Petroleum Corporation along with twenty other operators are nearly ready to begin secondary recovery operations in Beaver Lodge and Tioga fields in North Dakota. Water flooding, which is expected to produce an additional 125 million barrels of oil, cannot be initiated until eighty-five percent of the royalty owners agree to the program. From past experience, the benefits of unitization of these two fields should exceed any which could be gained by competitive secondary recovery programs
