ACCORDING to reports, Guyana will likely be taking in billions of US dollars in oil revenues by the mid-2020s—an amount that could transform nearly every aspect of life here. Therefore, it’s imperative to understand how oil production levels are accurately measured, monitored and audited.
Measuring and monitoring oil production and flow rates is a regular process for oil companies, and a standardized system of international best practices is in place to manage it. The process includes multiple monitoring points and third-party verification, as there are strong incentives from all parties involved to make sure that all oil is accurately accounted for.
Guyana’s Production Sharing Agreement with the Exxon-led consortium of oil companies requires that the operator maintain accurate accounting records for oil production and states that the Minister of Natural Resources has a right to evaluate data related to production as part of any audit, and the minister or his representative has the right to witness all crude lifting operations.
This is standard practice. In production operations across the globe, operators report production volumes to the relevant government authorities, which receives its share of either the physical oil or the profits—depending on the government’s preference.
It’s a typical practice in the industry to have at least three different monitoring points where the oil is measured at a modern production facility like the Liza Destiny floating production, storage, and offloading vessels (FPSOs) that will produce oil in the Stabroek Block. The three standard points of measurement are 1) at the well-head where the oil first comes up to the production platform or vessel; 2) during processing or storage of crude oil, and 3) when the crude oil is offloaded onto a transport ship for sale.
These measurements are made routinely during the course of normal production and offloading operations, and the data is normally uploaded to central databases in real time for the operators to review.
Volumes do change during the production and processing cycle as hydrocarbon gases condense into liquid form or vice versa. Crude oil and gas emerging from ancient subsea reservoirs is not naturally uniform and consistent and can contain many impurities until it is processed, so measuring the volumes at multiple points in the cycle is important.
It is considered industry best practice for the petroleum production and offloading process to be overseen and administered by third-party verifiers—independent personnel who work for a number of independent and well-regarded international companies that specialize in various types of hydrocarbon measurement oversight and certification.
These companies are highly specialized and commonly service many different production sites owned by oil companies across the world. Such companies rely on a reputation for independence and trustworthiness so that governments and both parties to crude sales contracts will view them as unbiased.
This level of attention to detail is critical for companies. Since most major oil companies are publicly traded, they face constant scrutiny from regulators like the US Securities Exchange Commission. A major miscalculation or misstatement of final production figures would be a serious problem with consequences for the company’s stock price and potential legal implications.
However, minor discrepancies and imbalances are a fact of life in the industry since the rate at which oil actually flows from a naturally-formed geologic reservoir is variable and not all of what is produced will be usable petroleum. It’s commonplace for government audits to find minor inconsistencies and there are provisions in the PSA for resolving them.
In most cases, if a measurement or metering error is found, the oil producer will either simply agree and pay the difference, or the two sides will negotiate a settlement. In the rare event that something like professional arbitration or mediation is needed, PSAs often have clauses citing which international dispute resolution body will have the final word.
In Guyana’s case, the contract stipulates that in the event of a protracted dispute, the case will move to the International Centre for Settlement of Investment Disputes—the well-regarded independent dispute settlement body of the World Bank that has been in operation for more than 50 years.
With oil expected to start flowing in Guyana in 2020, it is more important than ever for people to take the time to understand the systems that will help produce, measure, process, and sell this new resource.