How to Find Opportunity in NGL Complexities05/08/2015
For oil and gas operators, properly managing NGLs can lead to better operational decision-making and healthier profits
A natural gas is a natural gas is a natural gas, right?
Well, not exactly.
Nothing revolutionary here, but different gases serve different purposes and fetch different prices.
The latter part of that sentence is the focus of this post.
When liquid and residue gas prices were closely aligned, being compensated based on the delivered heat content alone was satisfactory; the price disparity between the dry gas and the gas’s processed components wasn’t significant.
That isn’t the case today. Per the U.S. Energy Information Administration: “High value of liquids drives U.S. producers to target wet natural gas resources.”
That pretty much sums it up. Liquids currently own a distinct price advantage, and all those involved in producing them want their fair share of the proceeds.
And rightfully so.
So how can you get out in front of this price-imbalance situation and use it to make better operational decisions?
Follow these three best practices…
Your Operations personnel are in the best position to validate the NGL volumes reported from the plant tailgate, convert these volumes to a gas equivalent volume and compare it against the actual measured volumes and the theoretical volumes, then make informed operational decisions. If either of these two comparisons vary by more than a few percentage points, it may be time to calibrate a few meters or redo some analysis. This process also helps your Operations staff better determine which wells should be flowed and reworked.
Your Production Accounting group needs to allocate the liquids to the individual completions. This enables them to determine how much was produced, from where, and make accurate revenue and royalty distributions, thus reducing audit, regulatory, and litigation risk.
Calculations performed daily keep your Operations staff abreast of what’s going on, allow you to make daily accruals, and put more intelligence in the hands of your Marketing division. That plant statements don’t arrive until late in the cycle doesn’t help, but what you can do is use historical shrink and yield data to create daily liquid-residue split estimations. You can also use your most recent gas analysis to estimate your production’s component breakdown. This is the more rigorous approach, but it allows you to make more accurate revenue estimations.
To illustrate, I recently looked at a plant statement that showed that an operator had delivered 25,000 million British thermal units (MMBTU) to the plant one day. If the operator was compensated at the then-going rate for heat content, a check for $110,000 would’ve been cut. On the other hand, if the operator was compensated based on the production’s individual liquid components – butane, ethane, hexane, etc. – a $164,000 payday would’ve been had.
So no, not all natural gases are created equal. Adopting these three best practices not only will put more cash in your pockets, it’ll keep your partners and royalty owners very happy as well.
About The Author
As a Director of Product Management at P2, Terry manages the P2 Merrick product suite. He has more than 35 years of upstream oil and gas experience, 21 of those spent with large independent producers. Terry is P2’s representative to the PRODML SIG Executive Committee, which is dedicated to creating data-exchange standards across the North American upstream industry. A graduate of Colorado School of Mines, Terry enjoys spending time with his family, woodworking, and tutoring high school math students. He’s also travelled the world with his church choir.