Unitized Gas to LNG Export 

A number of global LNG export projects – existing, under construction and planned – process (or will process) natural gas produced from unitized gas fields.  Gas produced from unitized gas fields supplies six existing operational LNG export projects – PNG in Papua New Guinea, Tangguh in Indonesia, Snøhvit in Norway, Darwin in Australia, Gorgon in Australia, and Bontang in Indonesia. An additional LNG export project under construction will process gas from unitized fields – Wheatstone in Australia, and at least two planned LNG export projects will process unitized gas, including the Mozambique LNG project which will liquefy gas from both non-unitized and unitized fields in the Rovuma Basin offshore Mozambique. Further details about these LNG export projects are set out in the Annex of this article. 

This article explores issues that are typically addressed in a Unitization and Unit Operating Agreement (UUOA) that may require particular attention in the scenario where the gas to be produced from the unitized area will be liquefied and exported as LNG (i.e., where the unitized reservoir is the upstream component of a dedicated LNG supply chain). 

Considering the LNG Export Project Structure

Existing global LNG export projects generally fall within one of the following five project structures: (i) tolling; (ii) buy-sell; (iii) inside the concession; (iv) unincorporated joint venture; and (v) fully-integrated – depending largely on the commercial objectives of the LNG project sponsors (together with a range of other factors).  These various project structures in turn accommodate different ownership models – ranging from complete symmetry between the ownership of the upstream interests (i.e., the participating interests in the concession) and the LNG export project (i.e., the liquefaction trains and associated infrastructure) to complete separation between the ownership of the upstream interests and ownership of the LNG export project. 

It is likely to be the case that many of the provisions typically found in a UUOA, such as creation of the unit and the manner in which the unit will be operated, can be negotiated without the need to consider major impact on the wider LNG export project.  However, as we discuss below, other provisions that are typically found in a UUOA will need to take into account the wider LNG project to ensure that the upstream component of the LNG supply chain goes hand-in-hand with the associated LNG export project and does not impact its viability.  

The observations in this article are intended to apply to LNG export projects in general rather than to a specific project or project model; and assume that there is (at least some) common ownership between the upstream unit and the midstream LNG export project.  Each LNG project is different and our comments should be considered in light of the relevant project structure and ownership model.   

What is unitization?

An oil or gas reservoir may straddle adjacent contract areas.  Unitization is the process whereby the straddling reservoir is jointly developed by the interest owners in the adjacent contract groups.  Joint development of a straddling reservoir is usually more economical and efficient than separate developments by the adjacent contract groups.  A key principle of unitization is that the straddling reservoir is physically developed as though the boundary between the contract areas does not exist.  

A range of factors has contributed to a steady increase in the number of unitizations across the world over the last three decades.  The end of monopolies by national oil companies in many countries has led to more companies being given rights to conduct exploration and production activities in respect of defined contract areas in those countries.  Exploration blocks offered by host Governments have become smaller, in part due to relinquishments from prior awarded areas, which increases the likelihood of a reservoir straddling more than one contract area.  Further, as host Governments have become more sophisticated about global best practices they have promulgated laws that require developers to unitize straddling reservoirs. Concurrently, technical advances have led to earlier identification of a straddling reservoir.

Unitization of large gas reservoirs internationally has become more common as the world has moved from having numerous “stranded”, undeveloped gas fields to having a relative shortage of large conventional gas fields.  As natural gas’ share of the global energy mix has grown recently, the need for more gas supply has resulted in more gas unitizations; in fact, the LNG plants in PNG, Tangguh, Snøhvit, Darwin, and Gorgon all started LNG production since 2007.

The Unitization and Unit Operating Agreement - UUOA

The unitization agreement between the parties in the groups who hold the adjacent petroleum exploration and development contracts sets out the terms on which the straddling reservoir will be jointly developed. A unit is typically created in which all resources and facilities are jointly owned and each group’s share of production and costs is based on its proportionate share, regardless of the location of the unit facilities.  The unit creates an unincorporated joint venture among the groups and their participants.   In some circumstances the parties will enter into separate agreements in respect of (i) the formation of the unit, and the allocation of unit costs and production between the contract groups; and (ii) the operation of the unit reservoir.  However, it is more common for the commercial and operational provisions to be combined in a single agreement – a unitization and unit operating agreement – the UUOA. 

The petroleum laws of most host countries require the submittal of the UUOA to the host Government (or Governments in the case of a cross-border unitization) for approval, and effectiveness of the UUOA is conditional on receiving that approval.  UUOAs are private contracts between the interest owners, and even though they are usually subject to host Government approval, they are not in the public domain.^[1]  In 2006 the Association of International Petroleum Negotiators (AIPN) produced a model form Unitization and Unit Operating Agreement (AIPN Model Unit Agreement)^[2].  The AIPN Model Unit Agreement is intended to apply to unitizations broadly, and the supporting guidance notes specifically state that the AIPN Model Unit Agreement is of single country application and is not jurisdiction specific.^[3]

The AIPN Model Unit Agreement provides alternative provisions for many of the issues to be addressed in the UUOA.^[4] This permits the parties to choose the provision which best meets their objectives.  In addition, the AIPN Model Unit Agreement contains a number of optional provisions which the parties can adopt if they agree that it is appropriate to do so.  These alternative and optional provisions provide the parties with a degree of flexibility when negotiating a UUOA based on the AIPN Model Unit Agreement.  

A One-Size Fits All UUOA? 

There is no “one size fits all” UUOA due to inherent differences that include: (i) the characteristics of a particular straddling reservoir (e.g., oil or gas, large or small or different reservoir properties on either side of the boundary); (ii) the country in which the straddling reservoir is located (or countries in the case of a cross-border unitization); and (iii) the context in which the straddling reservoir is being developed (e.g., for LNG export).  Whilst the AIPN Model Unit Agreement is extremely useful and relevant as the basis for the negotiation of a UUOA, it is quite often the case that the parties will have to amend, supplement, discard or substitute certain provisions of the AIPN Model Unit Agreement in order to achieve their commercial and/or legal objectives.   Moreover, the AIPN Model Unit Agreement tends to focus on crude oil related issues, and its provisions do not specifically take into consideration the unique issues that may arise in LNG export projects.

Unitization agreements have generally become more detailed, complex and sophisticated over time.  The AIPN Model Unit Agreement introduced a degree of harmonisation which was largely absent before 2006 when international unitization agreements varied considerably in both form and content.  The Nilam Unit Agreement, which when executed in 1982 (and effective from 1980) was one of the first unitization agreements to support an LNG project (Bontang LNG), is by today’s standards, fairly short at 52 pages.  It was followed by the Unit Agreement for the Bayu-Undan Field which was unitized in 1999 and supplies gas to the Darwin LNG plant, which is also much less detailed than more recent UUOAs.  The Tangguh Joint Venture Agreement for the Wiriagar, Berau and Muturi fields (Indonesia) which were unitized in 2002 and supply gas to the Tannguh LNG plant is more than 150 pages which illustrates the trend to a more prescriptive form of unitization agreement connected with an LNG export project.  The PNG LNG Coordinated Development and Operating Agreement which was signed in 2008, and the Unitization and Unit Operating Agreement for the proposed Mozambique LNG project which was signed in 2015,^[5] by contrast, are both extremely detailed agreements and each agreement extends to more than 300 pages.    

Specific Unitization Issues for LNG Export Projects 

     1.  Scope of UUOA

The scope of most UUOAs not connected to an LNG export project will typically mirror the scope of the associated joint operating agreements, and therefore can be categorised as purely an upstream agreement.  

Where the UUOA is connected to an LNG export project and there is common ownership between the parties to the UUOA and the participants in the LNG project, the question arises whether the UUOA should (and can) extend beyond the development of the unit reservoir to cover the development, ownership and operation of the LNG project itself.  The ability for the UUOA to cover the LNG project is likely to depend on a number factors including the prevailing legal and fiscal regime in the host country, and taxation.  Further, if the LNG project is being project financed and the lenders require that the LNG plant facilities are owned by a distinct special purpose vehicle (which is the borrower) it may not be possible for the parties to the UUOA to own the LNG project in the manner they likely own the upstream unit – i.e., as an unincorporated joint venture. One consequence of common ownership of the unit reservoir and the LNG plant within the UUOA is to tie ownership of the LNG project and the unit (i.e., the upstream and the midstream) for the life of the LNG project.  Each of (i) the Tangguh Joint Venture Agreement which is connected to Tangguh LNG, (ii) the PNG LNG Coordinated Development and Operating Agreement for PNG LNG, and (iii) the unitization agreement for the Snøhvit LNG project, encompasses both matters pertaining to the unit reservoir and the development, ownership and operation of the relevant LNG project. 

As more floating LNG (FLNG) projects are developed for liquefaction, it will be interesting to see whether the FLNG project will or will not be encompassed within the UUOA (in the scenario where the FLNG project will be supplied gas from a unit reservoir).  Depending on the chosen project financing structure for the particular FLNG project, arrangements for the funding, development, and use of the FLNG vessel may lend themselves to being incorporated within the UUOA.  In the scenario where the shipping company who supplies the FLNG vessel finances the vessel and leases it to the project sponsors (whilst retaining ownership of the FLNG vessel), it may be possible to capture the lease arrangements and associated charges within the UUOA. The parties would need to consider whether or not the fees payable for the lease of the FLNG vessel can be classified as “unit costs” which are cost recoverable under the relevant petroleum contract.  Kosmos Energy’s proposed LNG project to liquefy gas from its cross-border gas discovery in Mauritania and Senegal, if developed as a floating liquefaction project, may set a precedent for any future unitizations connected to an FLNG export project.    

Most UUOAs explicitly provide that marketing of unit substances is outside the scope of the UUOA. In  the case whether the UUOA is linked to an LNG project and the parties to the UUOA are jointly selling LNG it may be possible and appropriate to include the marketing of LNG within the UUOA, which avoids the need for the parties to enter into a separate LNG marketing agreement.     

     2.  Redetermination

The UUOA sets out the unit equity interest of each group (typically described as the “Tract Participations”) based on an agreed basis for determination (e.g., hydrocarbons initially in place).  The initial Tract Participations are determined after appraisal of the straddling hydrocarbon reservoir, but prior to its development, and are therefore an estimate based on the parties’ understanding of the unit reservoir at the time the parties enter into the UUOA.  

Redetermination is the process whereby the Tract Participations are revised following the occurrence of one of the redetermination triggers set out in the UUOA.  The most common triggers are (i) additional new data becoming available which indicates that the Tract Participations may not be “fair and equitable”; (ii) a specified anniversary after commencement of production of unit substances; and (iii) production of unit substances (i.e., gas or LNG) reaching a defined volume (or percentage of ultimate recovery of unit substances).  Many UUOAs also adopt the AIPN Model Unit Agreement concept of an automatic redetermination if the “Unit Area” is enlarged.   

Approximately 1 trillion cubic feet (tcf) of feed gas is required to produce 0.8 million tons per annum (mtpa) of LNG for 20 years. Hence, a single train 5mtpa LNG train will require a gas-field size of approximately 6-7 tcf. Most (large scale, onshore) LNG export projects are comprised of two or more trains, and therefore need to be supported by reservoirs which hold at least 12 tcf of gas.  It therefore follows that any unitized gas field that supports a (large scale, onshore) LNG export project will have reserves of over 12tcf.  For large gas fields even a small change in the Tract Participations as a result of a redetermination could have enormous economic consequences for the groups, and therefore the redeterminations provisions in a UUOA for an LNG export project are likely to be closely scrutinised due to their potential economic significance. 

Many LNG export projects are structured so that they are capable of being expanded over time by the addition of further liquefaction trains and, if necessary, additional LNG storage tanks.  Where there is common ownership between the upstream participants (i.e., the parties to the UUOA) and the midstream participants (i.e., the owners of the LNG export project), consideration should be given to whether an expansion of the LNG project (including the drilling of additional wells under the UUOA to supply feed gas to the additional liquefaction trains) should trigger the right for a party to call for a redetermination under the UUOA.  LNG export projects require high capital expenditure, and if the project participants are concerned that the initial (or existing) Tract Participations are not representative of the actual Tract Participations, the parties to the UUOA may want to conduct a redetermination prior to making their final investment decision in respect of any expansion of the LNG project – so that they have certainty about their actual interest in, and financial commitment to, the LNG project expansion (upstream and midstream).  For the same reason, the parties may want to provide that no redetermination of the Tract Participations can take place during the construction of the LNG project (initial or expansion), to eliminate the risk that their share of the project construction costs increases (or decreases) as a result of a redetermination. 

     3.  Adjustments

If the groups’ Tract Participations are revised as a result of a redetermination, it follows that (i) the group whose Tract Participation has increased (e.g., from fifty percent (50%) to fifty-five percent (55%)) has under-lifted unit production and underpaid unit costs (the “under-lifted/under-paying group”), and the group whose Tract Participation has decreased (e.g., from fifty percent (50%) to forty-five percent (45%)) has over-lifted unit production and overpaid unit costs (the “over-lifted/over-paying group”). The UUOA will specify the manner in which the group’s entitlements to production and share of costs will be adjusted to reflect their revised Tract Participations – in other words how the over-lifted/over-paying group will supply unit production to the under-lifted/under-paying group, and how the under-lifted/under-paying group will financially reimburse the over-lifted/over-paying group – in order to correct the prior liftings and financial contributions.  Typically (and this is the case in the AIPN Model Unit Agreement), the adjustment provisions in the UUOA will not take into account changes to the market price of unit substances.  The UUOA may provide for symmetry between the period over which the under-lifted/under-paying group reimburses the over-lifted/over-paying group, and the over-lifted/over-paying group supplies the adjustment volume to the under-lifted/under-paying group, in order to avoid a “winner’s curse” situation where the group whose Tract Participation has increased is required to reimburse capital expenditure over a short period yet receives the adjustment volume over a longer period. 

Where the unit produces crude oil, depending on the extent to which the over-lifted group has committed its share of unit oil under long term contracts, volume adjustments are likely to be relatively straightforward. Due to flexible crude supply arrangements, typically short term crude oil sales, and the liquidity of the oil market, the over-lifted/over-paying group should be able to readily supply the adjustment volume to the under-lifted/under-paying group from its revised Tract Participation share of uncommitted unit crude oil.  

Volume adjustments may be more complex in the context of an LNG export project because each group will have entered into prior commitments to sell the LNG produced from its share of unit gas under long term LNG Sale and Purchase Agreements (LNG SPAs), often as a means to underpin third party financing for the LNG project.  Any amendment to the committed supply volume under these LNG SPAs will require the approval of the LNG buyer, and probably any lenders to the project.  Where the groups are separately selling their entitlement to LNG, volume adjustments may be problematic because the over-lifted group may not have sufficient “spare” volumes to supply the adjustment volume to the under-lifted group within a reasonable time frame.  In this case the parties are likely to need to negotiate adjustment procedures which accommodate the over-lifted group’s LNG supply arrangements  - possibly a longer adjustment period using the over-lifted group’s “spare” volumes (which would usually be sold into the LNG spot market), or a cash payment in lieu of volumes. The parties to the UUOA will need to agree how to calculate any cash payment (in lieu of volumes), including how to determine the LNG net back price. This issue is mitigated where the groups are jointly selling LNG because the over-lifted group can assign some of its unit production to the under-lifted group (over a defined “adjustment period”) and collectively the parties can continue to honour their volume supply obligation under the joint LNG SPAs.  

When negotiating the adjustment provisions in the UUOA the parties may also need to consider whether the adjustment should be made by the transfer of a volume of gas (i.e. prior to liquefaction), or LNG. 

     4.  Unit Operating Committee Voting Thresholds 

Many Joint Operating Agreements (JOAs) provide that a Development Plan requires the unanimous approval of the parties.  If the parties do not unanimously approve the Development Plan, the operations contemplated in the Development Plan can be conducted as sole risk operations.  Where the area covered by the JOA is subsequently unitized, the parties (particularly smaller interest owners) may require that the UUOA also provides that a Unit Development Plan requires the unanimous approval of the parties to the UUOA. 

Where the Unit Operator proposes a Unit Development Plan under the UUOA for the expansion of unit operations (i.e., drilling additional wells to increase production of unit substances) in connection with the expansion of the associated LNG project (i.e., development of additional trains), the expansion of the LNG project (and therefore the monetization of gas) is dependent on the parties to the UUOA approving the Unit Development Plan.  Where the Unit Development Plan requires the unanimous approval of the parties to the UUOA, there is a risk that the expansion of the LNG project will be frustrated if any one party to the UUOA withholds its approval of the Unit Development Plan.  There is a risk  that a smaller participant who is already participating in the initial LNG train(s) may not have the funds or the appetite to invest in the expansion of the LNG project, and therefore would withhold its approval of the Unit Development Plan.  

Broadly speaking, traditional sole-risk provisions (where less than all the parties conduct petroleum operations) do not lend themselves well to a unitization context, largely because sole-risk would cause misalignment between the adjacent contract groups, and would be difficult to apply to the concept of each Group having a defined Tract Participation.  One way to eliminate the risk of one or more parties blocking approval of an expansion Unit Development Plan is to lower the voting threshold for the Unit Development Plan under the UUOA to less than unanimity – which lowering is typically dependent on all the parties to the UUOA being willing to accept a lower voting threshold.  If they are not, it may be necessary for the parties to develop bespoke arrangements (such as a “behind the scenes carry”) in order to ensure that the expansion Unit Development Plan is approved without forcing non-approving parties to participate.  Any such bespoke arrangements will need to take into account any restrictions imposed by the underlying petroleum contract and JOA.  

     5.  Default

In the case of a single (not unit) reservoir, a default by all the parties in the group who hold ownership of the petroleum contract can be dealt with relatively straightforwardly – usually by the petroleum contract being terminated by the host Government and all rights reverting to the host Government.  An entire Group default is a more complex issue where the reservoir is unitized because the parties in the non-defaulting Group will require the ability to continue to operate the unit reservoir in the case of a group default by the adjacent contract group.  The AIPN Model Unit Agreement recognises this issue and provides a mechanism to allow the non-defaulting Group to continue to produce unit substances in the event that all the parties in the other Group are in default.

Article 10 of the AIPN Model Unit Agreement sets out the parties’ remedies in the event that a unit interest owner fails to pay its share of unit costs, or (if applicable) to provide security for its share of the decommissioning costs (a “ Defaulting Party”).  In summary, (i) the Unit Operator can require each of the other parties in the Defaulting Party’s group (a “Defaulting Group Party”) to contribute a share of the amount in default, and any Defaulting Group Party who fails to do so will also become a Defaulting Party. The procedure is repeated until the entire shortfall is met by the Defaulting Group Parties or all the Defaulting Group Parties become Defaulting Parties.  If the Defaulting Group Parties contribute to the Defaulting Party’s default, they can exercise their remedies against the Defaulting Party under the relevant JOA (which may include forfeiture of the Defaulting Party’s interest in favour of the contributing Defaulting Group Parties).  If all the Defaulting Group Parties become Defaulting Parties, the Unit Operator can require the parties in the other Group to contribute a share of the amount due from the Defaulting Parties.  And if the parties in the other Group contribute a share of the amount due from the Defaulting Parties, those contributing parties have the right to require the Defaulting Parties to withdraw from the UUOA and to transfer all of their interest in the UUOA (and the relevant JOA and petroleum contract) to the contributing parties.  In many (if not most) jurisdictions the transfer of a unit interest (and a corresponding interest in the JOA and petroleum contract) will require the approval of the host Government, and therefore giving effect to this remedy is conditional on Government approval.^[6]

In the context of an LNG export project, where the parties to the UUOA are also participants in the LNG project, if the UUOA provides for a transfer of the Defaulting Party’s unit interest (as a remedy of last resort), the parties may wish to consider whether this should cause a transfer of the Defaulting Party’s interest in the LNG project, to ensure continued alignment of ownership across the LNG value chain. 

In the case where the UUOA also covers the development, ownership and operation of the LNG export project, it may be appropriate to provide for different remedies depending on the time when the default occurs.  If a party to the UUOA fails to pay its share of the development costs for the LNG plant and associated facilities it may be necessary for the non-defaulting parties to acquire the defaulting party’s rights and obligations under the UUOA to ensure that all of the LNG project development costs are paid and the plant is constructed. If, on the other hand, the default occurs once the LNG plant is operational, it may be sufficient for the non-defaulting parties to acquire (free of charge) the defaulting party’s share of LNG (or the proceeds from the sale of such LNG) as remedy for the default.   

     6.  Withdrawal

Like default, the issue of withdrawal is likely to be more complex in a unitization context where there are two groups of interest holders compared to a non-unit context where there is a single group.  The UUOA will likely need to provide that in the case all the parties in a group wish to withdraw from the UUOA, the parties in the non-withdrawing group can continue to conduct unit operations. Article 15 of the AIPN Model Unit Agreement deals with this issue by giving the parties in the non-withdrawing group the right to acquire the interests of the withdrawing parties without compensation.   

In the case where the UUOA is connected to an LNG export project, there is common ownership between the unit and the LNG project, and ownership of the LNG project is not encompassed within the UUOA, the parties to the UUOA will also need to consider whether a party withdrawing from the UUOA should also be required to withdraw from the LNG project, to ensure continued alignment of ownership between the upstream and the midstream. Further, the parties may which to consider whether a party should only have the right to withdraw under the UUOA after the LNG plant has become operational in order to avoid putting the construction of the LNG plant in jeopardy. 

Conclusion

Many provisions of a commercial nature that are typically addressed in a UUOA, such as redetermination and adjustments, may require particular scrutiny where the UUOA is connected to an LNG export project, in order to ensure that the commercial objectives of the LNG project participants are achieved across the LNG chain, and that the UUOA does not inadvertently create risks for the LNG project participants.

There is often a tendency for the parties negotiating a UUOA to focus on the key commercial provisions, and perhaps to pay less attention to issues such as a transfer of interest, consequences of default or withdrawal from the UUOA.  In the case where the UUOA is connected to an LNG export project matters such as default or withdrawal under the UUOA may have implications for the wider project, and therefore it is extremely important that these issues get due attention.   

There are examples where the development, ownership and operation of the LNG export project are encompassed with the UUOA so that the UUOA becomes a wider project agreement rather than just an upstream agreement. In this case the UUOA is likely to look quite different from a traditional UUOA (not associated with an LNG export project) in some, but certainly not all, regards.  

Annex

Existing LNG export projects processing unitized gas:  

• Gorgon LNG, which exported its first cargo of LNG from Australia’s Barrow Island in March 2016, will be supplied with gas from ‘Greater Gorgon' which refers to several unitized gas fields, including Gorgon, Chandon, Geryon, Orthrus, Maenad, Eurytion, Urania, Chrysaor, Dionysus, Jansz/Io, and West Tryal Rocks;
• PNG LNG, which since 2014 has liquefied gas supplied from Papua New Guinea’s Hides, Angore and Juha gas fields, as well as associated gas from the Kutubu, Gobe, Agogo and Moran oilfields, which were unitized in 2009;
• Tannguh LNG, which since 2009 has liquefied gas supplied from six gas fields comprised within the Wiriagar, Berau and Muturi Production Sharing Contracts (PSC) in Bintuni Bay, Indonesia, which were unitized in 2002;
• Snøhvit/ Hammerfest LNG, which since 2007 has liquefied gas supplied from Norway’s Snøhvit, Albatross and Askeladden fields, which were unitized in 2000;
• Darwin LNG, in Australia’s Northern Territory, which since 2006 has received gas from the Bayu-Undan unit located in Australia and East Timor’s Joint Petroleum Development Area in the Timor Sea; and
• Bontang LNG, in East Kalimantan, Indonesia, which initially started up in 1977 and processes gas from the Badak, and Nilam fields which were unitized in the 1970s and 1980s.  Moreover, the Attaka field was unitized in the 1970s. 

LNG export project under construction that will process gas unitized gas: 

• Wheatstone LNG, which is scheduled to start-up in 2017, and will process gas from a unitized reservoir located offshore northern Australia comprising the Wheatstone, Lago Julimar and Brunello fields. 

Proposed LNG export project that will process unitized gas:

• Mozambique LNG: In November 2015 Anadarko and eni (together with their partners) signed the Unitization and Unit Operating Agreement for the Mamba and Prosperidade gas reservoirs located in Area 1 and Area 4 offshore Mozambique.

^[1]  The UUOA for the Jubilee Field in Ghana dated 13 July 2009, and the HUFFCO/TOTAL Unitization Agreement in Indonesia for the Nilam Unit in East Kalimantan dated 1 January 1980, are publicly available.

^[2]  An AIPN drafting committee is currently undertaking the revision of the 2006 AIPN Model Unit Agreement.

^[3]  However, the AIPN Model Unit Agreement is not intended for use in the United States.

^[4]  For example, Article 5.5 of the AIPN Model Unit Agreement sets out five alternative bases for the redetermination of Tract Participations.   

^[5]  The Mozambique UUOA is pending Government approval.

^[6]  In addition to these remedies, the Defaulting Party’s share of unit production is allocated to the contributing parties during the period of the default, and the Unit Operator has the right to sell that unit production and to distribute the net proceeds to the contributing parties.