A Solid Allocation Engine Provides Foundation of Accuracy for Building Your Oil & Gas Business

04/15/2021
A Solid Allocation Engine Provides Foundation of Accuracy for Building Your Oil & Gas Business

It is no secret to anyone who follows oil and gas performance that the numbers regarding a company’s production and remaining reserves are essential to the company’s valuation – its foundation for future performance, growth, and shareholder value. These numbers are not treated lightly – they are the lifeblood of a company, and their analysis is often the core focus of teams of analysts inside the company, and, increasingly, outside the company in the form of large investors and market analysts.

Allocations, like the energy value chain itself, flow downstream through an organization and its operations. Without strong, accurate allocations to start, a company’s balance sheet, its revenue, its lease payments to landowners, and even projections of future performance could be inaccurate and cost a company millions or more, plus damage its reputation.

Your Company’s Reputation Depends on Accuracy

Allocations serve as the foundation upon which the value of a company is built, as well as its reputation. In the realm of production operations, that foundation is built upon a scalable, trusted allocation engine that employs the pillars of accuracy, flexibility, auditability, and ultimately, reliable, consistent performance.

And much like a company’s solid reputation can take decades to earn, building a robust allocation engine that delivers the kind of flexibility and reliability to address an increasing multitude of complex reporting scenarios does not happen overnight!  

Innovative Solutions to Meet Unique Allocation Needs for Unconventional Resources

P2 Merrick has been working with customers like you for nearly 25 years to meet your evolving needs for allocation reporting and to deliver new, adaptive solutions to specific requirements of the ever-changing energy landscape.

Increasingly, stakeholders want a better understanding of the source and path of each hydrocarbon stream as it moves across the entire production chain, particularly as it relates to allocation of U.S. unconventional production. Allocation of these resources is a more complex process that not all allocation systems can handle. P2 Merrick, the industry’s most trusted leader in accurate, reliable production allocation reporting systems, has the most flexible, auditable system that delivers consistent performance for your diverse resource base, not just a subset.   

Gas Lift

Our customers are increasingly using gas lift to stimulate the oil production from a well. In these scenarios, a producer may buy back gas from their gas marketer at their central sales point or recycle field gas for this purpose. While both the amount used for lift and the amount coming back up out of the well may be measured, it is critical to be able to calculate whether the gas produced is lift gas or formation gas.

This leads to challenging scenarios. Allocation experts must keep track of the inventory of gas that was injected, how much has come out, and how much remains. What happens if the amount injected is more than the amount recovered, sometimes referred to as negative gas? Do you allocate sales to that well? What about lease use? To address this need, P2 Merrick further refined our allocation reporting process to solve these questions, which no other allocation system in the market can handle as accurately as we do today.

Oil Price Fluctuations, Increased M&A Make Prospect Allocation Assessment Essential

In today’s volatile oil price environment, the market is ripe for M&A activity. However, the variable oil price requires companies to closely scrutinize possible asset or company acquisitions to determine their true value and remaining reserves potential. Rather than taking the seller’s estimates at face value, it is imperative acquisition teams review the tools – the allocation engine – the seller has used to value their production and remaining reserves.

More simplified allocation systems offer price advantages to smaller operators; in some cases, software tools are offered for free, often as a means for the developer to secure clients to help build the tool as they go. This tradeoff of functionality and reliability comes at a significant cost and risk in terms of flexibility, auditability, and performance.

Less robust allocation systems seldom offer the range of allocation sophistication, performance, and proven, time-tested accuracy needed for today’s complex reporting and valuation environment. Some competing production reporting systems claim to offer superior performance, but a look under the hood reveals their allocation engines are often limited to a single module for reporting, which requires users to revert to spreadsheets outside the system, meaning decreased efficiency and greater potential for errors.

Acquired Reserves Must be Held to the Same Rigor as Your Own Production

These less advanced tools lack the level of auditability critical to acquisitive companies seeking to secure future reserves values at a competitive price necessary to ensure future margin growth and protection. Why would you not put those prospective reserves estimates to the same rigorous and reliable assessment as you do your own production?

Relying on less than an “apples-to-apples” detailed assessment than what is offered by the industry’s most trusted allocation engine – delivered by P2 Merrick – is not a risk worth taking.

P2 Merrick gives you more than just the engine to accurately allocate your reserves and estimated future production, we give you peace of mind, plus confidence in your numbers and in the value you deliver to your shareholders.

To chat with us about enhancements we are making to meet evolving regulatory requirements and stakeholder expectations, including your C-suite leadership, please visit our website, or contact us at p2merrick@p2energysolutions.com.

 

Authored by:

Clara Fuge

 

 

Clara Fuge, SVP, Production Solutions

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