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Fundamentals of Oil and Gas Allocation

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As attentions are turned by prices in the oil and gas industry, the value of fundamental management techniques—such as proper allocations that blend both daily and monthly allocations—are an effective tool to aid in the optimization of an oil and gas field.

Allocations, when done properly, can be used as the pulse of your oil and gas producing field. This is accomplished through proper settings for accurate daily measurement values, which lay the foundation to support accurate month-end sales allocations. While an oil and gas allocation can range from simple to complex, I have put together some fundamental principles that deliver consistently correct results in allocations and their auditability. These principals will also facilitate improved management for the variety of events that occur in daily oil and gas production.

1. Good Daily Values Are the Basis for Good Monthly Values

Throughout the month, wells within a delivery system experience variations in production based on many factors. Because of these variations, the proper attributable production and sales value allocations can only be accurately achieved based upon the closest reasonable daily measurement from each source of production.

  • Well Tests can sometimes be the most reasonable daily measurement of a product stream, but in order to be sure they are as accurate as possible, there should be standards in place to test at least once monthly (and more in higher fluid volume environments).
  • Tracking pump efficiencies and fluid levels can often reveal inefficiencies that cause lower than optimal contribution of a well at any given point.
  • Tracking downtime throughout each day (down to the hour) will lead to better allocations, and also better insights to prevent the same. It will allow the true contribution of a well to be estimated more accurately, and thereby result in better production management.

2. Electronic Measurements

Electronic measurements at the wellhead are more accurate, and desirable wherever possible. With new production measurement techniques, electronic and automated measurements are more achievable than ever before. They should be strongly considered for any new production.

3. Color Cut Tanks

Creating color cuts on tanks to measure water is more meaningful than many companies realize. The simple things in measurements, such as color cutting a tank when measuring, can give good insights into actual production and cause the month-end process to be much more accurate.

4. Get Good Estimates on Fuel Usage

It is undoubtedly a good practice to measure fuel from a field to run equipment, such as compressors. Beyond that, knowing the efficiency and accuracy with which fuel is being used is very helpful in optimizing production and preventing equipment and fuel loss. Simple measurements and accounting for fuel can lead to better insights for a field when evaluating the true cost of production. Especially in fields where gas can be sold, or re-utilized in various gas lift methods for optimization. An MCF wasted is money lost.

5. Have a System That Can Adapt to Changes

Unfortunately, a change in your delivery system doesn’t always fall fortuitously at the beginning of the month. You need to have a system that can adapt to changes on the fly, as they occur in the field. Changes that occur mid-month in a delivery system must maintain accurate daily tracking that will lead to proper monthly allocations of sales. Make sure your system for allocations is capable of adapting to those changes while still building for a monthly allocation.

6. Better Measurement, Better Allocations, Better Management of Production

When working with companies to get accurate oil and gas allocations, a common problem that is often encountered is lack of adequate data from the field. This can occur for a variety of reasons. In older fields, measurement methods are often antiquated (or non existent) from the wells. Typically, however, it is a case of inadequate well tests. I have seen cases where a well test from 3 years back was being used as the basis for allocation. The problem this creates is that not only are the allocations certainly misappropriated, but also the viability of the well is often masked when old data is used for new allocations. On older fields, well tests should be done at least monthly to get reasonably accurate allocations. Daily values should be kept on each producing point, so that downtime is adequately accounted for as well.

7. Have a Process to Reconcile Sales Tickets to Purchaser Statements

By tracking and rolling up accurate field tickets as they occur in oil sales and liquids sales, you will have the base of information that can reconcile differences and then allocate reconciled monthly volumes against the summation of solid daily estimates and measurements. This process will lead to both auditable values that can be traced back to source measurements and standards in your field, and greater insights to the profitability of each contributing point of production in the field.

Without a process that reconciles these values regularly, the risk for lost production due to missed sales tickets or improper field allocations will occur. Moreover, it will leave the company at risk of an audit that would reveal lack of integrity between true field performances.

How is oil and gas allocation handled in your fields? Do you have standard approaches that are designed to reveal and reflect accurate field performance, and thereby allow for better management of production?