Measurement of Oil and Gas Production in Western Canada
The Ancient Egyptians
Measurement has been a necessity for many centuries in order to facilitate not only commerce but also everyday life. The ancient Egyptians were amongst the pioneers of this and as early as the 4th and 3rd millennia BC measurement was used for surveying land, buying and selling commodities and, of course, the construction of the great pyramids. Weight and length were readily measured by the Egyptians but volume was more difficult and often weight was used as an estimate of volume. We have advanced measurement techniques exponentially since the Egyptians and can now measure the speed of light, the atomic mass of elements and for volumes we have developed meters. However how do we know that the measurements from meters are accurate? As in many business processes the way we ensure accuracy is to implement controls that are properly designed and are operating effectively.
The Influence of SOX and CSOX – Controls over Financial Reporting
Following a number of high profile business failures (often involving fraud) in the 1990s legislation was introduced that was intended to give shareholders comfort that the figures in a company’s financial statements could be relied upon. The legislation was formulated on the basis that the best way to ensure accuracy was to implement internal controls that would either prevent or detect errors. The requirement to have controls over financial reporting has been with us for over two decades and internal controls are now established and embedded in relevant business processes. Until relatively recently there was not a requirement to have controls over the measurement of production, which impacts both company revenues and government royalties. In Alberta and Saskatchewan the regulatory bodies have decided to leverage the methodology that was developed earlier for controls over financial reporting (SOX and CSOX) and apply them to the measurement of oil and gas production. Alberta has been at the forefront of this initiative but Saskatchewan is now taking a similar approach although it is in the very early stages. Accordingly, the remainder of this article will focus on the procedures in Alberta. If you require information regarding compliance in Saskatchewan PFC has produced a specific document for that province and is available on request.
Directive 76 – Operator Declaration Regarding Measurement and Reporting Requirements
The Alberta Energy Regulator (“AER”) formerly known as the Energy Resources Conservation Board (“ERCB”) has implemented many directives but this article addresses primarily the requirements of Directive 76. The directive “sets out requirements according to which operators are to declare the degree to which they have infrastructure in place to ensure compliance with AER measurement and reporting requirements.” In order to give operators guidance as to how they should implement the required infrastructure the AER has documented its Enhanced Production Audit Program (“EPAP”) together with a detailed EPAP Operators Handbook. The EPAP’s process requires that each operator’s senior executives submit an annual declaration attesting to the state of their controls designed to ensure compliance with AER’s measurement and reporting requirements. The directive, which was introduced in at the start of this decade, requires operators to undertake the following: