accounting for oil&gas production

IN THE NAME OF GOD

Oíl & gas production

chapter 9

Presented by:

Mehrnoosh Salehzadeh

Introduction • After ending development phase, the well is placed on production by

installing surface equipment that will :

• (1) collect and gather the produced emulsion of natural gas, oil, and

water from the well;

• (2)separate the gas, oil, and water;

• (3) treat the gas and oil as necessary to minimize any remaining

impurities and bring the gas and oil to a marketable condition;

• (4) store the oil briefly prior to sale;

• (5) measure the volumes produced and sold;

Production costs (Lifting costs)

• Labor costs (direct or indirect)

• Repair & maintenance (ordinary or extra-ordinary)

• Material & supplies (inventory)

• Overhead costs (calculations based on contracts)

Production process

Well head (Christmas tree)

separator

storage

transformation

Onshore

offshore

Allocation of production costs

• No. of direct labor hours

• Amount of direct labor costs

• No. of wells

• No. of miles driven

• Barrels of water injected

• No. of drilling days

• ..

• ..

Crude oil production

• The volume of crude oil produced & sold is measured in

barrels and the quality of that is based on its gravity.

Standards for measuring oil

• The worldwide standard for a barrel is 42 US. Gallons of

liquid measured at 60 F.

• API gravity: a measure of the density of oil based on

its specific gravity.

• API gravity = (141.5 / specific gravity) - 31.5

API Lighter crude oil price

Some points

• BS&W

*(Basic Sediment & Water)

• Price:

* geographic area

* the amount of sulfur (sweet,intermediate,sour)

* date of sale

* API gravity

Dispositions

• Outright sale

• Direct supply

• Indirect supply

• Exchanges

• Frac oil

• Oil used in operations

• Un-merchandisable oil

Allocating oil

• Oil allocating is typically based on well tests.

• Theoretical production:

* the amount of oil that was produced from a

well based on the tests results & the number of

days that the well actually produced during the

month.

allocating oil (part2)

• If there is an inventory in the tank from the beginning of

the period, tow methods can be used:

* FIFO (example page 239)

* available for sale (example page 241)

Quality of oil

• Factors such as the gravity of the oil can materially affect

the value or selling price of the oil.

• For this purpose, tow methods can be used:

* gravity barrel method (example page 243)

* value-on-value method (example page 244)

Natural gas

• Associated gas: natural gas that comes from oil wells ;

* free gas: The gas can exist separate from oil

*dissolved gas: The gas can be dissolved in the crude oil

• Non-associated gas: the natural gas that comes from gas

wells in which there is little or no crude oil

Types of gas

• The natural gas is characterized in several ways

dependent on its components:

• Wet gas

• Dry gas

• Sour gas

• Acid gas

• ..

• ..

Gas products

• Raw gas is processed into various products

such as:

• Natural gas

• Natural gas liquids (NGL)

• Liquefied petroleum gas (LPG)

• Liquefied natural gas (LNG)

• Compressed natural gas (CNG)

• ..

• ..

Gas production

• Gas is generally sold in a different market than oil.

• Gas sales are typically of tow types:

* long term contract sales (producer & pipeline company)

*short term sales:

* spot market sales

* direct sales

Gas measurement

• Many physical factors affect gas volume measurement

such as temperature, pressure, compressibility, gravity,

etc..

• When measuring gas in Mcf, the standard for pressure is

often 14.73 pounds per square inch (psi) at 60 F.

• When gas is measured on an energy content basis such

as Btu, its not affected by pressure or temperature.

Conversion methods

MMBtu: Mcf * MMBtu/Mcf = MMBtu

MMBtu * sales price per MMBtu = total sales value

Or

Mcf : Btu factor per Mcf * price/MMBtu = price/Mcf

Mcf * price/Mcf = total sales value

Orifice meter

Turbine meters

Allocating gas

• The most commonly used methods for gas allocation involves

the use of metering & well tests.

• When joint production of oil & gas occurs gas allocation may

involve the use of gas-oil ratios (GORs).

• Metered gas allocations (example page 250)

• Allocation based on well tests (example page 251)

• Allocation based on dry gas production (example page 252)

• Allocating flash gas (example page 254)

• Allocating based on GOR (example page 255)

performance measurement

&

evaluation

• The most popular ratios for companies to evaluate the

efficiency of their operating & producing operations are as

follows:

• Lifting costs per BOE= total annual lifting costs / annual production in BOE

• DD&A per BOE= total annual DD&A / annual production in BOE

• Average daily production= annual production /365(days)

• Average daily production per well= (annual production /365) / net wells

• Average production per employee= annual production / NO. of full time employees

Thank

you!