Measuring Oil & Gas Production – Verifying Volume!
October 13, 2017
Every day, those who own oil and gas royalties are paid upwards of $85,000,000 for the minerals produced from their land. Even at just a percentage of about 17% of the value of the minerals, royalties can really add up. Before offering your oil and gas royalties for sale, you should have a thorough understanding of the way production is measured. Even though the market price may fluctuate, the method for verifying volume when selling oil and gas royalties is always the same.
U.S. laws on oil and gas production require these hydrocarbons to be measured at the well site before being transported. Gross volume is first measured by the site operator using check meters, then by measuring the volume in storage and transport tanks. Any oil and gas royalties that are due to be paid to you are based on this initial measurement of the crude product.
Initial Measuring of Crude Oil
Unrefined, raw crude oil typically contains salt water, sediment, and other impurities when extracted from the ground. If you are the owner of oil and gas royalties, the oil must be accurately measured so you can be paid. To do this properly, the crude product must be put through an onsite filtering process that removes the water and sediment.
After passing through a gun barrel separator or a free water knockout, the volume of the isolated crude product can be measured as it is prepared to be transported offsite. The separated crude oil is then either moved into tanks that will transport it or it is immediately transported through a pipeline from the well site.
Measuring Crude Oil as Tanks are Filled
Smaller amounts of the product, 100 barrels (Bbls) per day or less, are measured as the transport tanks are filled. Amounts that are over 100 Bbls per day are measured by valves that record volume as it enters the pipeline. This initial volume is then recorded.
Samples of the oil are next tested at the delivery site for sediment content. Using a centrifuge that separates the oil from the sediment and calculates sediment amount, the true volume of the crude oil is then determined. This is the volume measurement used to calculate the payments that will be made to you for your oil and gas royalties.
How Natural Gas Is Measured
Measuring natural gas to determine payment for your oil and gas royalties is a little easier. Natural gas production is measured at most wells using an orifice meter, a device installed in a gas pipeline where the gas is being extracted from the ground. The meter records pressure and volume, allowing operators to determine the amount of natural gas collected. This will decide the volume that your oil and gas royalties will be based on for payment.
To verify volume, each pipeline is typically set up with one meter owned by the site operator and another meter owned by the First Purchaser. This method of double-checking and comparing helps to verify actual volume and to ensure that those who sell oil and gas royalties are being paid according to accurate measurements.
When you have oil and gas royalties for sale, you are paid a royalty percentage based on the volume of product extracted from the ground. To accurately calculate your oil and gas royalties, both types of hydrocarbons must be carefully measured to determine the actual volume of product collected, minus any contaminants. If you sell oil and gas royalties, it is important you know the ways hydrocarbons are measured and how measurements are reflected on your statement so you understand how your payment amount was calculated!
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