SPE 167360

Hydrocarbon Accounting
Vivek K Tiwari, KNPC-Kuwait

Copyright 2013, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE Kuwait Oil and Gas Show and Conference held in Mishref, Kuwait, 7-10 October 2013.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been
reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect any position of the Society of Petroleum Engineers, its
officers, or members. Electronic reproduction, distribution, or storage of any part of this paper without the written consent of the Society of Petroleum Engineers is prohibited. Permission to
reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of SPE copyright.

Abstract

Hydrocarbon Accounting
Hydrocarbon accounting is the process used to track gas and oil ownership from the point of production to the point of sale. Errors and delays
in hydrocarbon accounting can result in significant financial loss. It is essential that every effort is made to ensure allocation rules are
comprehensive and equitable, that computer systems which execute such rules are correctly programmed, that measurements are accurate,
and that reporting is timely. The accuracy and timeliness of hydrocarbon accounting is essential in order to satisfy joint venture partners, allow
operators to make the best commercial decisions, and to fulfill the requirements of the industry regulators. When you consider that even
relatively minor errors and delays can ultimately add up to significant financial distortion, with the potential for millions to be removed from your
account sheet, its importance becomes all the more evident. Therefore Hydrocarbon Accounting is a very important aspect of any refinery.
This will allow to identify product losses as well as use the accurate actual results to compare against the plan. A good accounting system will
ensure better performance monitoring, yield accounting, loss identification. It also forms the basis of any future study for improving current
system. The process though seems to be simple requires lot of understanding of concept of oil accounting, follow up, team effort and rigors
instrument maintenance regime for proper material balance.

The Hydrocarbon Accounting with respect to KNPC and Local Marketing depots will be the reconciled transfer quantities for
transaction between Refineries and Local Marketing depots and also daily inventories for each refinery and local marketing depots. The
reconciliation system will help KNPC generate the best achievable mass balance throughout the refineries and local marketing system by
taking into account all the relevant measurements from each entity as well as all movements or transactions between refinery and local
marketing system. This will allow KNPC to identify product losses as well as use the accurate actual results to compare against the plan

The hydrocarbon accounting becomes more important when it comes to custody transfer/fiscal transfer operations. As the money
value is attached to these kinds of transactions, the transparency of system is of prime importance. A great effort has to be taken in this
regards in order to have best possible reliable measuring instruments for accounting. The type of flow meter along with its design flow rate,
calibration frequency, prover, prover calibration details are of prime importance in order to get the correct custody transfer quantities. This kind
of operations requires the flow instrument with high accuracy as this is the main criteria for any custody transfer operations, online analyzers
as this will help to get the correct specific gravity and mass conversion, redundancy in the system i.e. it has to have another measuring
instrument to validate the earlier one. This will help to reconcile any differences arising due to quantity shown by instruments in the same flow
skid or line. These kinds of custody transfer transactions are accounted with agreed procedure or a guideline which is to be followed during
day today accounting, conflict resolution in case of any discrepancy and same has to be acceptable to all concerned stake holders.

The paper here considers the transaction between Refinery and Local Marketing depots of KNPC refineries. There is transfer of
Mogas (UL-91/95), Mogas (UL-98), Gas Oil, Kero product through cross-country pipeline which cater to single grade or multiple grade i.e. a
pipeline can be used for more than one grade of material. The changeover of material from one grade to another is done by in- line colorimeter
which senses the dye which is injected in each grade of product, it is further validated manually by physical observation. The transfer of
materials between refineries and local market is governed by the plan agreed between refinery and local market as per local demand .The
plan is prepared by considering shutdowns in refineries units and outages of tanks in refinery and local marketing depots. Two refineries of
KNPC cater to two Local Marketing depots. The as is procedure had issues or limitation which can be listed as below:

1.
The suppliers figures is considered to be final figure of transfer however the discrepancy resolution procedure was of
concern.
2. The basis for accounting was different as refinery followed English System & Local Marketing followed SI system. This
further leads to difference in the allocated quantity as they are derived by following different API standards.
3. The system was not integrated the data flow was limited to each system as the system was not connected.
4. Accurate and timely information generation was matter of concern.
The development of the system was also a part of recommendation from high level committee to build a system which will increase the
transparency, accountability, data sharing and based on standard accounting principle. With the above limitation it was decided to build a
system with guidelines and procedure which will be followed in order to mitigate any discrepancy arising during day to today
transactions.KNPC uses a standard reconciliation tool to carry out daily reconciliation (material balance) for refineries and the same tool is
2 SPE 167360

being used to build new reconciliation model .A study was conducted on following lines to develop the system:
1. Local Market TMS (Terminal Management System) was studied and integration process was developed with Refinery
RTDBMS system. This required lot of interactions between various departments within the refinery and local marketing.
2. Refinery and Local Marketing systems were integrated using an interface developed jointly with the help of Local
marketing system vendor .A validation of the data flow was done and data started getting updated in KNPC RTDMS
system.
3. A visit to both local marketing depots was conducted in order to understand the oil flow within the depots including gantry,
slop tanks etc. A discussion was done on the operating procedures, daily report generations and discrepancy handling
techniques.
4. Data collection was done with respect to LM flow meters, the design data sheet and calibration details were
obatined,Tanks ,the calibration table along with tanks design were obtained, Temperature and Pressure instrument
details ,line-ups with respect to tanks, manifold, metering skid,valves,gantry loading system along with instruments
involved were captured and the biases was developed.
5. A line diagram was developed integrating refinery tanks, meters, pipes and local marketing tanks, pipes and flow meter
system.
6. A common basis was developed i.e. the system will be used for accounting with following base conditions.

Unit of Measure Type UOM Description UOM

Liquid Volume Barrels BBL
Mass Tons T
Temperature Degrees Fahrenheit °F
Liquid Density Standard Gravity SG
Pressure Pounds per square inch PSI

7. The above data was used to develop Local Marketing reconciliation model with consideration to all the measuring points,
tanks, logics etc.
8. Model Configuration was completed along with data validation. A rigorous data validation was carried with each
instrument in order to check the correct mapping done during integration.
9. Logics were developed in order to further increase redundancy in the accounting systems by creating virtual calculation
blocks. The similar calculation blocks where created to add and subtract the flow, inventory, dispatch etc.

With above efforts a system was developed. It was further complemented by conducting trail runs between refineries & local marketing depots
to ascertain the accuracy of instruments involved in the transactions with various transfer scenarios. An exhaustive exercise was done to cross
check each instrumentation involved in the transactions between refinery and local market depots with plan and procedure of trial in place. A
report was developed where each trial run was evaluated on the biases of fixed parameters. The outcome of the trial was further circulated for
comments and then final report was released emphasizing the performance of various instruments involved in transfer. As a feed back to the
published report a calibration schedule was developed along with the fixed calibration frequency. Proactive measures were discussed in order
to increase the accuracy of the system.

The reconciliation model is being used on daily basis with following steps:

a. Import the data from the from the process data historian systems into the logical model.
b. Data validation is done before starting the daily reconciliation of model.
c. Reconcile the logical models in mass through the inbound algorithm within the reconciliation system.
d. Highlight the resulting imbalances in the Graphical User interface depending on all the settings of the expert system and the
tolerances and accuracies of the objects. The accuracy is allocated to all the flow elements in the model.
e. Allowing the user to do adjustments to improve the results into a realistic and explainable overall result of the reconciliation.
f. Run all required reports needed to verify the result as well as to provide the results out of the work stream to other users.

The following reports are being generated on daily basis as an output from the reconciliation system:

1. Daily Reconciled Transaction Reports. This report gives the reconciled quantity of transfer between refineries and local marketing.
2. Local Marketing Material Balance Report. This report gives the daily material balance for Local marketing depots along with
loss/gain summary.
3. Instrument Accuracy Report. This report gives the daily deviation between raw and reconciled values of flow elements involved in
the reconciliation of transfer between refinery and Local Market.
4. Local Marketing comparison report. This report showcases the daily transfer quantity between refinery and local marketing for raw
as well as reconciled values.
5. Gross Tank Inventory. This report illustrates the daily gross stocks of Local Marketing depots and refinery tanks.
6. Net tank Inventory. This report illustrates the net stocks of Local Marketing depots and refinery tanks.

A guideline was developed to carry out daily reconciliation activity with all possible scenarios of operations. This guideline is being
followed in order to do the daily reconciliation. A meeting was arranged with all the stake holders in order to discuss the guidelines. A healthy
discussion led to agreement on guidelines and further it was put into practice.

As a step further to develop a robust system a list was prepared with all the concerned departments who are required to be a part of
this system so as to increase the transperancy,accuracy and accountability in the system. A responsibility and accountability with respect to
each department was discussed and developed. A RACI chart i.e. (Responsibilty, Accountability, Consultation, Information) was developed
along with performance standard was developed with following parameters:

i. An activity is listed.
ii. Activity owner is decided.
iii. Activity trigger instance is mentioned.
iv. How the activity will be carried out is defined.
SPE 167360 3

v. The output of the activity to be circulated to all the stake holders.

vi. Validation procedure for the output of the above activity is decided.
vii. Owner of the above activity is decided.

The above performance standard procedure is mentioned for each activity in the RACI chart. With these performance standard in place the
clarity in roles and responsibility has increased. However in addition to these activities a point of contact has been nominated from all the
concerned departments which will further increase the response time for any discrepancy arising during day to day accounting.

The development of Local Marketing Reconciliation model has been possible due to overall team efforts support from all the departments
involved .The success factor for the above in-house development can be illustrated as below.

 Technical Knowhow of a reconciliation tool and Oil Accounting as a daily practice.

 The project was owned by every stakeholder as his own and hence the teething challenges at the start were quickly resolved.
 A great team effort and good co-ordination between departments.

The benefits of the above in house development can be further illustrated as below:

 Standardization of Accounting Practices which has led to following benefits.

i. Intercompany comparisons
ii. To protect the interests of investors - to show true and fair view of the financial position. To ensure that managements do
not mislead.
iii. Everything is standardized, to make things transparent.

 Accurate and timely allocation information could be provided.

 It helped to eliminate the errors and bias which could lead to financial loss and costly disputes.
 It also helped to demonstrate a commitment to be transparent and auditable corporate governance.
 Instrument Healthiness is always in Check.
 Clear Responsibility demarcation leads to further increase in performance and system robustness.
 Building internal experience. This helps to increase confidence on in house talent pool as well as reduce dependency on
consultation services.

This exercise helped to promote in house talent along with system improvisation to boost KNPC’s operational excellence and
improved performance analysis.