Allocations Contribute to Production Data as Crux of Upstream Oil & Gas (Part I)

Accurate, timely, and thorough production data is the lifeblood of all oil and gas organizations with nearly every discipline and department relying on it to make decisions. Ensuring hydrocarbon allocations are accurate is an important, sometimes elaborate, responsibility that feeds this production data set. There are multiple consumers who rely on allocation results that may be reported in various aggregated formats depending on the scenario. These include systems that apply currency valuations to the hydrocarbons to determine payments to working interest and royalty owners, tax payments, reports to partners, regulatory agency filings, economic forecasting and reservoir management systems, and marketing systems.

In this blog, we will introduce and define allocations. In part two of our series centered around allocations, we will discuss key attributes of an allocation system, and in part three, we will follow a “day in the life” of a production analyst that really puts on display the breadth and depth of management associated with performing allocations.

What is a Hydrocarbon Allocation?

A hydrocarbon allocation is a mathematical process that uses available measurement data to determine how much one or more wells (or completions) with individual or shared custody transfer points and other field equipment contributes to each product stream (oil, gas, water, NGLS). The methodology used to formulate an allocation calculation for a specific set of wells is driven by several inputs (listed below) each of which can also impact the frequency in which the process is run – monthly, daily, intra-day.

• The available measurement and layout of the producing facilities
• Well ownership or partner arrangements
• Commercial contractual obligations
• Local regulatory directives
• The hydrocarbon streams involved

Building and Performing Allocations

It is the responsibility of an upstream oil and gas operator to perform these calculations for wells which they operate. The results of a hydrocarbon allocation form the basis for calculating the total hydrocarbons produced by each well (at a completion or formation level) within an allocation regime (also referred to as an allocation network or gathering system).

In the best-case scenario, allocation calculations for a specific set of wells happen at the same time as plans for the development of a new field. This allows the operator to select and install measurement that is appropriate for the selected allocation process; however, fiscal limitations associated with each well/field (the well’s expected production capacity) and regulatory imperatives in certain producing regions may also impact the type of measurement available and the associated allocation calculation. An example that would affect the allocation calculations is whether the oil production merits installation of an oil pipeline LACT meter or only a set of inventory tanks. Of course, allocation calculations for a specific set of wells or field may need modification if any of the following occur:

• New wells within the field are completed or re-worked
• Measurement equipment is removed or added
• Commercial and regulatory requirements change

As such, allocation calculations must be applied using measurement, facility connections, producing wells, and allocation methodologies in effect for the date range that is being processed. 

Complexity of Allocations

All of the above considerations will dictate the level of complexity in the allocation regime, the product streams which will be measured and allocated, and the units of measure in which they will be reported. A simple, one-tier allocation network example includes one or more wells flowing to a common gas sales point, oil sales point, and water transfer point with each product stream allocated to the well(s) based on its last well test and downtime.

More complex allocation networks may include different groups of wells flowing through multiple tiers of measurement prior to the custody gas transfer point with common and non-common use of formation gas as fuel; artificial stimulation which impacts calculation of formation production; application of gas and liquid analyses at each measurement point; and the storage and movement of liquids. And depending on commercial and regulatory requirements, allocation calculations may require reporting in multiple units of measure including volumes, mass, and energy content.

It is important to note that regardless of the system or process you use to perform allocations, the accuracy of the results is dependent on the quality of measurement data on which it is based and on the flexibility of the calculations used to determine the basis for the allocation. Daily allocations rely on a combination of data fed from automation systems (SCADA, historians) that must be validated, and data manually captured by field operators (well tests, downtime events, equipment flow rates, and oil sales runs, i.e. run tickets or exports). Where independent integration is not available, monthly allocations may rely on measured readings equal to the summation of daily readings, integration statements, and purchase statements from relevant parties.

Next Up: Key Components of an Allocation Process

Stay tuned for our next blog that covers the key attributes of whatever system or process you rely to on perform allocations. We’ll take a look at things like:

• Flexibility
• Auditability
• Speed
• Improving hydrocarbon allocations in five easy steps

BONUS: We explored these topics and more during a recent webinar: The Who, What, and Why of Upstream Hydrocarbon Allocations. Click the link to watch the recording, or click the banner below.