1. With assistance from Deidra Garyk
Emulsion Fees in a low price environment(or any environment) Using JP-05 and other methods
PJVA Morning Session
Sept 30, 2015
Rick Steffensen
Tim Reimer
With assistance from Deidra Garyk

2. Emulsion fees
Formula based
Rules of thumb
Market based
Disputes

3. Market Based Fees
Emulsion, oil handling and water disposal fees have historically been market based:
The processor will charge what the market will bear
The producer can truck emulsion to another facility to obtain a better fee
It can be difficult to determine “reasonableness”

4. Formula based fees
Fees determined mathematically, and would usually include:
A capital component, utilizing a defined capital cost and defined rate of return
An operating cost component, either on a fixed basis or on a flow through basis with 13th month adjustments
JP05 is a dispute resolution tool, but the formula can be used for any type of fee

5. JP-05 Economic Principles
Fees for capacity involve returns reflecting investment risks
The risk with unused capacity remains with the facility owners

6. JP05 Capital Fee Determination
Cap fee = 20%ROR* Capital Rate Base
Facility Capacity
Note there is only 1 variable: Capital

7. JP05
To calculate emulsion fees, are companies revising any of the variables? Which ones?
JP calculations are guidelines only.
Too often companies won’t adjust or negotiate their fees because they used the JP-05 calculation
Don’t use Lost GCA when calculating oil fees – it’s for GAS

8. JP05
Circumstances and risks determine relevant range for fees – this principle applies to both oil and gas
Goal is not to get the highest fee; it’s to get the optimal amount of fee revenue – be careful of scaring away producers or having producers increase fees at their facilities in retaliation

9. Operating Costs
Basic principle, operating fee is based on flow through of costs allocated to throughput, and will include:
Direct Costs
Overhead
Working Capital Allowance
(Operating costs+ overhead)/6*20%
Turnaround costs in the year incurred.
Some large facilities amortize the turnaround costs
Fixed operating cost vs.13th month adjustment, which is better?

10. Operating Costs
Do producers prefer to see T/A costs transparently separated out of opex or hidden within?
Pipeline Opex includes:
Cathodic protection
Property taxes
Surface rentals if there’s a riser, otherwise negligible costs

11. JP-05 Example Calculation
Capital cost $ 2,000,000
Facility Capacity: 200 m3/day
Owners throughput: 150 m3/day
Third party throughput: 50 m3/day
Operating days/year: 350
Rate of return: 20%
Capital fee: $5.71/m3
Operating cost: $200,000 per year
Operating fee: $2.85/m3
Total fee: $8.56/m3

12. JP-05 Example Calculation
Simple battery: emulsion treating and storage tank
Complex battery, with several functional units: treating, water disposal, clean oil terminal, vapor recovery with compression and gas pipeline
Consider a separate calculation for each component
The feed streams may have different water % and different solution gas content
Consider basing fees on the emulsion volume, not just the oil volume: the water content will increase with time, and different streams can contain a water content that is very different the original design

13. Rules of Thumb
Gas pipeline: When capital cost data is not known, use accepted distance fees $0.01-$0.015 /mcf mile. Or $0.20 to $0.35/e3m3 km
This rule of thumb was developed using an average of historical actual fees. The number is a combination of calculated fees and negotiated fees
This fee may need updating

14. Rules of Thumb
Oil fees using an energy equivalent: using a conversion of 6 mcf equivalent to 1 barrel (1 barrel has approximately 6 mmbtu)
This yields a fee of $0.056 per barrel per mile or $0.22 per m3 per km
Oil fees using a volume equivalent
For example: a gathering system operating at 150 psi (1000 kpa) 1 mile of pipe would contain the equivalent of 3.5 mcf of gas or 60 barrels of oil
The gas fee of $.015 per mcf per mile would yield an equivalent of $ per barrel per mile or $0.003 per m3 per km

15. Rules of Thumb
A rule of thumb works if the majority of producers accept it
Would there be value in developing a rule of thumb based on actual fees?
Would producers be willing to submit actual data to the PJVA to enable an average rule of thumb fee to be developed

16. Questions How to determine emulsion handling capacity: peak flow rate?
Emulsion pipes that carry condensate and gas: are companies charging separate fees for the gas and condensate?
In this low price environment some fees are apparently being charged only on the oil volume portion in a high water cut area. Is this a viable approach that some Operator’s are willing to use

17. Questions How are companies determining water disposal fees?
Would some company be willing to pay for water that they needed for a water flood (assuming the water is compatible)