When allocation "back out" agreements can become "lose out" agreements. (April 2018)

• Record Type: Journal Article
• Authors: Stockton, Phil
• Is Part Of: Flow measurement and instrumentation. Volume 60(2018)
• Page Start: 185
• Page End: 199
• Publication Date: 2018-04
• Subjects: Fluid dynamic measurements -- Periodicals; Flow meters -- Periodicals; Fluides, Dynamique des -- Mesure -- Périodiques; Débitmètres -- Périodiques; 681.2805
• DOI: 10.1016/j.flowmeasinst.2018.02.022
• Languages: English
• ISSNs: 0955-5986

Abstract

Abstract: When a newly developed third party field is tied back to existing infrastructure, such as a pipeline system, there is the potential for the new field's production to cause an increase in back pressure and reduce the flow of the incumbent fields already producing through the system. This is termed "back out" and in effect defers some of the incumbent fields' production. Back out agreements are sometimes put in place, within the allocation system, to compensate the incumbent fields for the reduction in flow they experience. This may take the form of a transfer from the third party of hydrocarbons to the incumbent fields so that in effect they do not experience deferment and suffer resultant economic loss As the production matures the situation reverses and the incumbent fields back out the third party field, the transfer then proceeding in the opposite direction. The assumption often made is that eventually the transfers will cancel one another and over their lifetime, all fields' cumulative allocation will equal their cumulative production This paper presents the concept of how back out calculations typically work and presents a simplified mathematical model of a system where an incumbent field is backed out by a new field introduced into a pipeline. This simplified model is used to illustrate potential problems with the concept of back out, particularly in the repayment period and shows that there is the very real potential for "back out" to become "lose out" for the new field. Finally the paper discusses methods to overcome the pitfalls exposed by the analysis. Highlights: A simplified model is used to analyse the long term behaviour of back-out systems. The model shows that the repayment phase duration is infinite. Repayment models are proposed that incorporate the fields' cessation of production. Back-out payment is justified because of the time value of money. One alternative incorporates the time value of money into the calculations.