The new AIPN model of Unitization and Unit Operating Agreement

The Association of International Petroleum Negotiators (AIPN) has recently released a new model of the Unitization and Unit Operating Agreement (UUOA). This model supersedes the 2006 model and includes new relevant features derived from unitization experiences around the world, such as an international accounting procedure exhibit and specific anti-bribery obligations. Along with this release, the AIPN has also launched a Pre-Unitization Agreement (PUA), which may be used on early stages of a unitization process.

This 2020 UUOA model is consistent with, and applicable to, product sharing agreements (and includes instructions for modifying it for use with other type of schemes, e.g., license contracts) and aims to provide more flexibility to adjust the UUOA to the parties' needs. Some of the main new features of the 2020 version of the UUOA are:

• It contains provisions that allow unitizing two blocks under two different contracts from the same host government
• It allows parties to include a single specific reservoir or all reservoirs within the unit area
• Although the 2006 UUOA model provided for general provisions on anti-bribery, the 2020 UUOA model contains more specific obligations and provisions consistent with international and domestic regulations
• It contains broader provisions regarding change in control
• It includes an accounting procedure exhibit, which has been modeled from the 2012 AIPN Joint Operating Agreement model form and adapted to the unitization activities

Regarding the PUA, this new model addresses pre-unit activities such as acquisition of data, joint acquisitions, governmental approvals, and the preparation and negotiation of other relevant agreements. Still, under the PUA model, none of the parties are obliged to enter into a UUOA.

These new models could ease the negotiations between upstream operators and the Mexican Government in the event of a unitization, considering that they provide internationally accepted provisions aligned with the industry's best practices.

In Mexico, unitization procedures are regulated mainly by four legal instruments: (i) the Hydrocarbons Law, which states that the Ministry of Energy is entitled to instruct a unitization; (ii) sections 62 through 64 of the Hydrocarbons Law Regulations; (iii) the Guidelines that establish the procedure to instruct the unitization of shared fields and approve the terms and conditions of the unitization agreement, published by the Ministry of Energy in the Official Federal Gazette on March 15, 2018, and (iv) the relevant Exploration and Extraction Contract, and/or the Allocation Title (Asignación), as applicable.

For further information on the new AIPN UUOA and PUA models and the Mexican legal framework applicable to unitization procedures, please contact César Fernández.