U.S. DEPARTMENT OF THE INTERIORBUREAU OF LAND MANAGEMENT
 
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UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
WASHINGTON, D.C. 20240
http://www.blm.gov
 
July 28, 2009
 
In Reply Refer To:
3160 (310) P
 
EMS TRANSMISSION 07/30/2009
Instruction Memorandum No. 2009-186
Expires: 09/30/2010 
 
To:                   All Field Officials
 
From:               Assistant Director, Minerals and Realty Management
 
Subject:           Policy for Verifying Heating Value of Gas Produced From Federal and Indian
                        Leases 

Program Area:  Fluid Minerals.

Purpose:  To provide field offices (FO) with guidance for ensuring that the proper gas heating values are being reported on the Oil and Gas Operations Report (OGOR).

Policy/Action:

  1. The gas heating value (sometimes referred to as British Thermal Unit (BTU) content) reported on the OGOR-B must be verified along with the volume reported as part of all Production Inspection/Production Reviews (PI/PR).  The verification of the heating value must be documented in a format similar to the sample format in Attachment 1.
  2. Verification of the heating value must be accomplished by comparing the heating value shown on OGOR-B with the gas analysis or analyses submitted for the measurement point(s) on the case being verified (see Attachment 2 for averaging methodologies and examples).
  3. Any error discovered, regardless of the amount or mineral interest percentage to the Federal government, will be pursued to identify the cause of the error/missing production data and correct the error if necessary (see Instruction Memorandum (IM) 2009-174 “Request for Modified or Missing Oil and Gas Operations Report from the Minerals Management Service” for procedures on discrepancy/missing production data processing).
  4. When verifying heating values, the “dry” heating value shown on the gas analysis must be used unless water vapor content has been determined as part of the gas analysis.  
If the actual water vapor was determined, the “real” or “actual” heating value on the gas analysis must be used. 

Timeframe: Effective immediately.

Background: On December 17, 2007, the U.S. Department of Interior, Subcommittee on Royalty Management, published a report entitled “Mineral Revenue Collection from Federal and Indian Lands and the Outer Continental Shelf” (Royalty Management Report).  This report includes over 100 recommendations to improve the way Federal and Indian mineral revenues are collected and verified.  Of these recommendations, a significant number concern the method and frequency of determining the heating value of gas, as well as the reporting, tracking, and verification of this information.  

Implementation of Royalty Management Report Recommendations
 
This IM was prepared to implement, in part, Recommendations 3-3, 3-4, and 3-10
of the Royalty Management Report.  Specifically, the recommendations are as follows:
 
3-3: MMS and BLM should establish consistent guidelines for requesting BTU information from gas producers, and should systematically examine the validity of that information;
 
3-4: MMS and BLM should establish procedures to systematically compare the BTU values reported on the Oil and Gas Operations Reports (OGOR) with gas analysis reports to determine whether BTU reporting is accurate;
 
3-10: MMS and BLM should require gas analysis reports from all operators, at a frequency to be determined by the agencies.  Specifically, MMS and BLM should determine the frequency at which gas analysis reports should be submitted to the agencies.  [Note: This recommendation also calls for the BLM and MMS to estimate the impacts of requiring submission of lab analysis reports.]
 
This IM addresses these recommendations by providing a frequency for reviewing gas analyses and implementing procedures to 1) compare the gas analyses with heating values reported by the operator on the OGOR-B, 2) document that the comparison was made, and 3) follow through with the resolution of any discrepancies found.  In addition this IM documents the importance of verifying reported heating value and assesses the impacts to industry resulting from this verification.
 
Heating Value Reporting Basis
 
The heating value of a gas can be reported three different ways depending on the amount of water vapor present or assumed to be present in the sample:
  • Dry
  • Wet or saturated
  • Real or actual 
In the vast majority of cases, the actual water vapor content of a gas sample is not determined through analysis; therefore, the amount of water vapor that exists in the sample must be assumed. The heating value is reported on a dry basis if it is assumed the gas sample contains no water vapor.  If it is assumed that the sample is saturated with water vapor at 14.73 pounds per square inch absolute (psia) and 60Fahrenheit (F), the heating value is reported on a wet or saturated basis.  Heating value reported on a wet basis is about 98.3 percent of the heating value as reported on a dry basis.
 
In the rare instance where the water vapor content of the gas sample is determined through analysis, no assumptions regarding water vapor content are needed.  Instead, the heating value is based on the actual amount of water vapor that was detected.  This is called a “real” or “actual” heating value.  In the sample gas analysis shown in Attachment 1, water vapor is not listed as a component of the sample which indicates that no analysis for water vapor was performed.
 
This IM establishes the BLM policy that, when verifying the heating value reported on OGOR-B, the dry reporting basis from the gas analysis must be used unless the water vapor content was determined as part of the analysis, in which case the real or actual heating value will be used.  If it is found that the operator has been reporting on the wrong basis, it must be resolved per the instructions in IM 2009-174, “Request for Modified or Missing Oil and Gas Operations Report from the Minerals Management Service.”  The description of what was found must state (for typical gas analyses): “Gas volumes have been determined based on the assumption that no water vapor is present. Heating value must be based on the same degree of water saturation.  The heating value must, therefore, be reported on a dry basis.”
 
The Minerals Management Service (MMS) regulations (30 CFR 202.152(a)(1)(i)) state:
 
“Report gas volumes and British thermal unit (Btu) heating values, if applicable, under the
 same degree of water saturation.”
 
The BLM has interpreted this to mean a dry or real/actual reporting basis.  In order to determine gas volumes, the relative density (or specific gravity) of the gas must be known.  The relative density is determined from the same gas analyses that are used to determine heating value.  Because water vapor cannot be detected by most gas chromatographs, the vast majority of gas analyses do not include water vapor as a constituent of the gas sample even if some water vapor is present.  While adjustments to the heating value of the gas can be made based on assumptions of water saturation, relative density is rarely adjusted to account for the water vapor that may or may not be present.  In essence, the relative density used to determine volume is almost always on a “dry” basis because water vapor is excluded from the calculation.  The “dry” relative density is included in the calculations to determine gas flow rate and gas volume; therefore, the volume is ultimately determined on a “dry” basis.  According to the MMS regulation cited above, if volume is reported on a “dry” basis, heating values must also be reported on a dry basis.
 
In the rare instance where water vapor content is actually measured and included in the gas analysis, the relative density calculation includes the actual water vapor content.  This would result in volume being determined on a “real” or “actual” basis.  If volume is determined on a real or actual basis, then the heating value must also be reported on a real or actual basis according to the MMS regulations.
 
Benefits and Impacts of Implementing Heating Value Verification Procedures
 
In addition to establishing a heating value comparison procedure, Recommendations 3-4 and
3-10 also call for the BLM to analyze both the impacts and benefits of requiring gas analyses to be submitted and to perform the comparisons required by this policy.
 
The existing BLM procedure for conducting a PI/PR requires the operator to submit all production records needed to verify the OGOR reported volumes.  The gas analysis is part of the production records that are requested in order to verify relative density, which is a critical factor in verifying OGOR volumes.  Because the additional requirements identified in this IM will use the same gas analyses that are already being requested, implementation of this IM will have no additional impact on industry.  Policies increasing the frequency of PI/PRs could result in minor cost increases for operators, but that is beyond the scope of this IM.
 
The potential benefits of implementing this IM are significant.  The heating value reported on OGOR-B has a direct relationship to the amount of royalty due.  In other words, a 10 percent error in reported heating value will result in a 10 percent error in royalty due.  With onshore gas royalties around $2 billion per year, even a 1 percent error in reported heating value would result in a $20 million per year error in royalty paid.
 
Prior to this IM, the BLM had no formal policy on heating value reporting basis.  In fact, the BLM has historically carried forward a policy (USGS, CDM Part 644.4A, page 41, June 24, 1980) that heating value should be reported on a wet or saturated basis, thereby resulting in an automatic reduction as high as 1.74 percent in the heating value due to water vapor, whether or not there was actually water vapor present.  This IM replaces the affected parts of CDM Part 644.4A.  The shift to a dry or real/actual reporting basis may increase royalties up to $35 million per year.
 
Budget Impact: Implementation of this IM may result in a minor increase in the time it takes to perform a PI/PR.  However, given the increase in Petroleum Accounting Technician (PAT) staff already budgeted, there should be no additional significant budget increases required.
 
Manual/Handbook Sections Affected:  This IM will be incorporated into the revision of Onshore Oil and Gas Order #5 and into the manual and handbook that will be developed for oil and gas production verification.
 
Coordination:  This IM was coordinated with the Fluid Minerals Division (WO-310), MMS/Minerals Revenue Management (MRM), MMS/Offshore Energy and Minerals Management (OEMM), the Fluids Team, and the Gas and Oil Measurement Team. 
 
Contact:  If you have any questions concerning the content of this IM, please contact Mike Wade at 303-236-1930, or your staff may contact Rich Estabrook at 707-468-4052.
 
 
Signed by:                                                                   Authenticated by:
Timothy Spisak                                                            Robert M. Williams
Acting, Assistant Director                                            Division of IRM Governance,WO-560
Minerals and Realty Management
 
2 Attachments:

 
Last updated: 10-20-2009