Updated: How to Improve Your Hydrocarbon Allocations in 5 Easy Steps

Production accounting should be a top priority for every upstream oil and gas organization. It could even be argued that production accounting is the heartbeat of each of these companies. This statement certainly isn’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. 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. Involve the field in the allocation configuration to ensure the right equipment is included in your allocation scenarios. 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 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 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
• 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.

Best Practice #5: Ensure Everyone Has Access to All Production Data

Finally, ensuring everyone in your organization has access to production data is essential to supporting each of the aforementioned best practices. In other words, your system/platform should provide access to data in each stage of the data capture, validation, and reporting process. For example, instead of withholding access to allocation results until they are finalized, enlist the help of the field and engineers throughout the daily and monthly validation process.  

Early involvement from the right people ensures correct allocations and avoids costly prior period adjustments in the future. The more eyes you have on your data, the better. When there are numerous people monitoring and validating data, and ensuring accuracy throughout all facets of production, operational efficiency prevails.

What’s to Gain from Implementing These Best Practices?

A lot, really – and these are just the tip of the iceberg:

• 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