How to Improve Your Hydrocarbon Allocations in 4 Easy Steps

Production accounting should be a top priority for every upstream oil and gas organization

It could be argued that production accounting is the heartbeat of every upstream oil and gas company.

Those words certainly aren’t meant to minimize the many other E&P disciplines, only to highlight the significance of hydrocarbon allocations.

There are so many internal and external customers who rely on accurate and timely allocations data to do their jobs well. Reservoir engineers need the data to make production forecasts and perform optimization analysis. Production engineers need it to maintain product flow and identify equipment-optimization opportunities. Revenue accountants need it to value the hydrocarbons, allocate sales, and distribute revenue. The list goes on and on.

Because the success of so many teams and the organization as a whole depends on what happens in the production accounting department, sound practices that produce quality, timely allocations data must be followed.

So what are those best practices? Let’s take a look …

Best Practice #1: Get Field Operations Involved Early And Often

All too often, the production accounting and field operations groups meet in person only when, say, a new field data capture solution is being deployed. This simply isn’t enough interaction between these two teams. Here’s what my colleagues and I recommend instead: Take the time to educate your field operators on the basics of allocations. Explain how missed and/or inaccurate measurements skew allocations data and, as a result, affect other departments’ work. Give them access to allocated-versus-measured results. Put together, these efforts create better data and better allocations.

Best Practice #2: Continuously Assess The Quality Of Your Measurements

Waiting until month’s end to investigate potential anomalies in readings or relying on monthly readings alone to process hydrocarbon allocations are good ways to miss well-performance issues. Something as seemingly small as a discrepancy in gravity calculations on a run ticket can skew well- and completions-level revenue distributions in a big way. For that reason, field operations, measurement, production engineering, and production accounting teams should all work together to establish acceptable tolerances for each of their producing fields. It would also serve you well to set up your allocations to calculate gain/loss where necessary, and to modify your allocations methodology when the data coming from similar measurement points is highly varied.

Best Practice #3: Use Flexible, Date-Effective Algorithms

Because of increased scrutiny from regulatory agencies and because operating conditions change over time, your allocation calculations should be flexible. Let’s use a pair of wells – Well A and Well B – as a simple example. If the two wells require compression before the first measurement point, the allocation of sales and lease use is a straightforward process. But what if Well B requires, say, 15 Mcf in compression beyond the wellhead to make it to the sales point? Then that 15 Mcf should be allocated proportionately and the sales attributable to Well B should decrease. Gas lift and what’s produced as a result of that lift should also be taken into account when performing allocation calculations.

Best Practice #4: Make Daily And Monthly Validations

Reviewing your measurement data on a daily basis is a must if you want to maintain accurate allocation results. At a minimum, your field operators and production accountants should always be keeping an eye out for changes in data trends. An even better approach would be to implement exception-based surveillance processes that trigger alerts and tasks when predefined events occur. On a monthly basis, you should make it a point to compare these: the sum of your daily readings against the purchaser statements, the allocated results against the theoreticals, and the daily well-completion allocations against the month-end finals. And, for audit purposes, you should have a close process in place that allows you to reference all of the inputs and outputs related to each month’s calculation results.

So what’s to gain from implementing these best practices?

Well, lots: more reliable and repeatable results, less rework, fewer prior period adjustments, less risk, better reserves reporting, reduced exposure to regulatory fines and partner litigation, improved asset and corporate performance – all things that make every upstream professional’s heart beat a little easier.

Want To Learn More?
Watch this webinar to learn how to make more accurate and timely allocations for your business.

About The Author
Clara Fuge is a Vice President of Product Management at P2. With more than 20 years’ experience providing software solutions to the energy industry, her expertise lies in upstream hydrocarbon accounting and production operations. Clara graduated with a degree in Economics from the University of Texas at Austin and is a member of several industry groups, including the American Petroleum Institute’s Committee on Production Measurement & Allocation. A self-proclaimed “allocations geek,” she is passionate about giving oil and gas companies the tools needed to report accurate well production. When she’s not working, Clara enjoys spending time with her husband and their three dogs.