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Title 15 . Revenue
Chapter 55 . (Repealed)
Section 115. Accounting for shrinkage when oil and NGLs are commingled

15 AAC 55.115. Accounting for shrinkage when oil and NGLs are commingled

(a) In determining a producer's tax liability under AS 43.55 and this chapter, if the quantity of oil produced from a lease or property is calculated from a volumetric measurement of commingled oil and NGLs rather than directly metered, the producer shall account for the effect of volumetric shrinkage on the producer's volumes of oil and NGLs due to blending of the NGLs with the oil by

(1) calculating the volumetric shrinkage percentage using the equation in customary units that is set out in section 5.3 of the American Petroleum Institute Manual of Petroleum Measurement Standards, Chapter 12 (Calculation of Petroleum Quantities), Section 3 (Volumetric Shrinkage Resulting from Blending Light Hydrocarbons with Crude Oils), 1st edition, July 1996; as described in this paragraph, section 5.3 is adopted by reference;

(2) calculating the total shrinkage-adjusted volume of commingled oil produced from the lease or property during the month by solving the following equation for Q OIL :

Q OIL = MV BLEND / (1 - S) - MV NGL

where

Q OIL = the total shrinkage-adjusted volume of oil produced from the lease or property during the month by all producers and commingled with NGLs;

MV BLEND = the total metered volume of commingled oil and NGLs produced from the lease or property during the month by all producers;

S = the volumetric shrinkage percentage calculated under (1) of this subsection; and

MV NGL = the total pre-commingling metered volume of NGLs produced from the lease or property during the month by all producers and commingled with oil;

(3) calculating the total shrinkage-adjusted volume of NGLs produced from the lease or property during the month by subtracting Q OIL from MV BLEND ;

(4) calculating the total shrinkage amount by subtracting the shrinkage-adjusted volume of NGLs under (3) of this subsection from MV NGL ;

(5) calculating the producer's share of the total shrinkage amount by multiplying the total shrinkage amount under (4) of this subsection by the ratio of the producer's pre-commingling metered volume of NGLs from the lease or property during the month to MV NGL ;

(6) calculating the producer's quantity of commingled NGLs for production tax purposes by subtracting the producer's share of the total shrinkage amount under (5) of this subsection from the producer's pre-commingling metered volume of NGLs from the lease or property during the month; and

(7) calculating the producer's quantity of commingled oil for production tax purposes by subtracting the quantity of NGLs under (6) of this subsection from the producer's metered volume of commingled oil and NGLs from the lease or property during the month.

(b) In accounting for the effect of volumetric shrinkage percentage under (a) of this section, a producer

(1) shall express all metered volumes and all specific gravities and API gravities as adjusted to 60 degrees Fahrenheit and approximately 15 pounds per square inch absolute;

(2) shall estimate the concentration in liquid volume percent of lighter component in commingled oil and NGLs by dividing the pre-commingling metered volume of NGLs by the metered volume of the commingled oil and NGLs;

(3) if the measured pre-commingling API gravity of the commingled oil is unavailable, shall calculate the API gravity of that oil from the specific gravities of the pre-commingling NGLs and of the commingled oil and NGLs, treating the specific gravity of the commingled oil and NGLs as the volume-weighted average of the specific gravities of the oil and of the NGLs and using the following equations to convert between API gravity and specific gravity:

API = 141.5/SG-131.5

SG = 141.5/(API + 131.5)

where

API = the API gravity; and

SG = the specific gravity.

(c) In determining economic limit factors under AS 43.55.013 and 15 AAC 55.021, if (a) of this section applies, a producer shall account for the effect of volumetric shrinkage due to commingling of NGLs with oil by using Q OIL under (a)(2) of this section as the volume of commingled oil produced from the lease or property and by using the total shrinkage-adjusted volume of NGLs under (a)(3) of this section, converted from barrels to Mcf equivalents, as the volume of gas in the form of commingled NGLs produced from the lease or property.

(d) The following example illustrates (a) and (b) of this section:

Step One: Estimate concentration in liquid volume percent of lighter component ("C") under (b)(2) of this section.

Input 1: Known volumes

(number of barrels)

Metered NGLs 126,839 = MV NGL

Blended Stream 1,267,000 = MV BLEND

Calculation 1: Concentration of NGLs in mixed stream

(ratio of the two inputs from Input 1)

C = 126,839 / 1,267,000 = .100 = 10.0%

Step Two: Estimate the API gravity difference ("G") under (b)(3) of this section.

Input 2: Known gravities

(degrees API)

Blended Stream 34.0

Metered NGLs 90.0

Calculation 2A: Convert the API gravities into specific gravities.

Blended Stream SG BLEND = 141.5/(API+131.5)

= 141.5/(34.0+131.5) = 0.855

Metered NGLs SG NGL = 141.5/(API+131.5)

= 141.5/(90.0+131.5) = 0.639

Calculation 2B: Back calculate the estimated specific gravity of the oil stream.

Calculation 2Bi: Estimate Oil Volume.

MV BLEND - MV NGL = Oil Volume

= 1,267,000 - 126,839 = 1,140,161

Calculation 2Bii: Obtain the products of multiplying the specific gravities from Calculation 2A by the respective volume for each stream from Step One.

MV BLEND * SG BLEND = PRODUCT BLEND

= 1,267,000 * 0.855 = 1,083,285

MV NGL * SG NGL = PRODUCT NGL

= 126,839 * 0.639 = 81,050

Calculation 2Biii: Estimate the implied product for oil.

PRODUCT BLEND - PRODUCT NGL = PRODUCT OIL

= 1,083,285 - 81,050

= 1,002,235

Calculation 2Biv: Calculate the estimated specific gravity for the oil stream.

PRODUCT OIL / OIL VOLUME = SG OIL STREAM

= 1,002,235 / 1,140,161 =.879

Calculation 2C: Convert oil specific gravity into API gravity.

Oil API=141.5/SG - 131.5=141.5/.879 - 131.5 = 29.5

Calculation 3: Calculate "G," where "G" equals the difference between known NGL API gravity and calculated oil API gravity from Calculation 2C.

G = 90.0ΓΈ - 29.5ΓΈ = 60.5ΓΈ

Step Three: Calculate volumetric shrinkage percentage ("S") under (a)(1) of this section.

S = 4.86 * 10 -8 * C * (100-C) .819 *G 2.28

= 4.86 * 10 -8 * 10.0 * (100-10.0) .819 * 60.5 2.28

= 0.2236 percent, or 0.002236

Step Four: Calculate the shrinkage-adjusted oil volume, QOIL , under (a)(2) of this section using the result from Step Three.

Q OIL = MV BLEND / (1 - S) - MV NGL

= 1,267,000 / ( 1 - 0.002236) - 126,839 = 1,143,000

Step Five: Calculate the shrinkage-adjusted NGL volume under (a)(3) of this section using the result from Step Four.

Shrinkage-adjusted NGL Volume = MV BLEND - Q OIL

= 1,267,000 - 1,143,000

= 124,000

Step Six: Calculate the total shrinkage amount under (a)(4) of this section using the result from Step Five.

Total Shrinkage Amount = MV NGL - Shrinkage-adjusted NGL

Volume

= 126,839 - 124,000 = 2,839

Producer A:

Step Seven A: Calculate the producer's share of the total shrinkage amount under (a)(5) of this section using the result of Step Six.

Input 3a:

Producer's Metered NGL Volume 92,061

Total Metered NGL Volume (MV NGL ) 126,839

Producer's Share of Total Shrinkage Amount = Total Shrinkage Amount * Producer's Metered NGL Volume/MV NGL

= 2,839 * 92,061 / 126,839 = 2,061

Step Eight A: Calculate the producer's NGL quantity under (a)(6) of this section using the result of Step Seven A.

Producer's NGL Quantity = Producer's Metered NGL Volume

- Producer's Share of

Total Shrinkage Amount

= 92,061 - 2,061 = 90,000

Step Nine A: Calculate the producer's oil quantity under (a)(7) of this section using the result of Step Eight A.

Input 4a:

Producer's Metered Commingled Volume 657,000

Producer's Oil Quantity = Producer's Metered Commingled

Volume - Producer's NGL Quantity

= 657,000 - 90,000 = 567,000

Producer B:

Step Seven B: Calculate the producer's share of the total shrinkage amount under (a)(5) of this section using the result of Step Six.

Input 3b:

Producer's Metered NGL Volume 34,778

Total Metered NGL Volume (MV NGL ) 126,839

Producer's Share of Total Shrinkage Amount = Total Shrinkage

Amount * Producer's Metered NGL Volume/MV NGL

= 2,839 * 34,778 / 126,839 = 778

Step Eight B: Calculate the producer's NGL quantity under (a)(6) of this section using the result of Step Seven B.

Producer's NGL Quantity = Producer's Metered NGL Volume

- Producer's Share of Total

Shrinkage Amount

= 34,778 - 778 = 34,000

Step Nine B: Calculate the producer's Oil Quantity under (a)(7) of this section using the result of Step Eight B.

Input 4b:

Producer's Metered Commingled Volume 610,000

Producer's Oil Quantity = Producer's Metered Commingled

Volume - Producer's

NGL Quantity

= 610,000 - 34,000 = 576,000

History: Eff. 1/1/2000, Register 152

Authority: AS 43.05.080

AS 43.55.011

AS 43.55.013

AS 43.55.016

AS 43.55.110

AS 43.55.900

Editor's note: The American Petroleum Institute Manual of Petroleum Measurement Standards, Chapter 12, Section 3, may be reviewed during business hours at the Alaska Department of Revenue, Oil and Gas Audit Division, 550 W. 7 th Avenue, Suite 500, Anchorage, AK 99501 and may be obtained from the American Petroleum Institute, Order Desk, 1220 L Street N.W., Washington, D.C. 20005-4070.


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Last modified 7/05/2006