Oil production measurements questioned, but state say checks are in place

WILLISTON, N.D. – A Republican candidate for governor who works as an oilfield consultant questions the accuracy of how North Dakota oil production is measured, potentially costing the state oil tax revenue, but state regulators say safeguards are in place to verify the numbers.

About 70 percent of North Dakota well sites have some type of metering system that measures oil volumes while 30 percent of sites do not have meters, said Alison Ritter, spokeswoman for the Department of Mineral Resources Oil and Gas Division.

At 30 percent of North Dakota well sites, truck drivers use a manual method of measuring the oil they load into their trucks, following state regulations and industry standards, Ritter said.

Paul Sorum, who is on the June 14 primary as a Republican candidate for governor, works as a consultant who does business planning for the oil industry. He said he’s read thousands of handwritten trucking tickets that report oil volumes, and he sees too much room for error.

In a debate last week, Sorum said the volume of oil reported could be off by as much as 25 percent.

“I just think the whole system is so loose that a lot of produced oil goes unreported,” Sorum said.

Sorum calls for tighter controls, including more electronic metering and stronger oversight by the North Dakota Industrial Commission.

“There needs to be more verification on site of the process,” Sorum said.

State regulators say there’s already a strong system to verify the accuracy of oil numbers. The Oil and Gas Division receives independent reports from the oil producer, oil transporter and oil purchaser that all have to match up, Ritter said.

“Those all have to balance and we audit that every single month before we put a production report out,” Ritter said.

At well sites without meters, a truck driver will measure the volume of oil in a storage tank before and after loading a truck. In a 400-barrel tank, each foot of oil represents 20 barrels and measurements are taken following American Petroleum Institute standards. Adjustments are made depending on the temperature of the oil.

“It is a very accurate method as long as it’s done per the standards and the person doing it pays attention to what they’re doing,” said David Tabor, production auditing and gas measurement supervisor for the Oil and Gas Division.

State inspectors will observe drivers doing the measurements if they see them in the field, Tabor said.

Troy Stugelmeyer, an independent oil marketer, said the accuracy depends on the experience of the driver.

“With an experienced driver, it can be just as accurate as electronic means,” Stugelmeyer said.

But there are also several variables that introduce opportunities for error, he said. For example, the measuring gauge that is lowered into the oil tank has a weight on the bottom called a bob. If the bob is on its side instead of perfectly upright, the measurement could be off.

“There’s a lot of moving pieces when it comes to the production and sale of oil. Every time there’s an accounting of it, there’s a chance for some stuff to get screwed up,” Stugelmeyer said. “I would say there’s a 5 to 10 percent variable in there that could bite you one way or the other.”

If the accounting is off, however, the purchaser will come back later and investigate, Stugelmeyer said.

“The purchasers do a pretty good job of accounting for every barrel they can,” he said.

Jim Arthaud, CEO of MBI Energy Services, which trains truck drivers on how to properly take measurements of the oil being sold, said he thinks the process is 99.9 percent accurate.

When a truck driver delivers the oil to a pipeline or other destination, the volume received is again verified, Arthaud said.

“I’d have a hard time believing there’s any inaccuracies there, other than your standard plus or minus,” Arthaud said

Oil produced in North Dakota is taxed when it is sold. Tax Commissioner Ryan Rauschenberger said he has confidence in the numbers reported to the Tax Department because the agency cross-checks information with the Oil and Gas Division.

“There’s always kind of a constant compliance and audit method going on,” Rauschenberger said.

The department occasionally finds small coding errors that need correcting, such as oil that was reported in the wrong month or the wrong county, he said.

“We aren’t finding what we consider major errors from month to month,” Rauschenberger said. “I think the public should be very confident in what’s being remitted to the state in terms of oil taxation.”

But many mineral owners do question whether the amount of oil being produced matches up with what they receive on their royalty statements, said House Minority Leader Kenton Onstad, D-Parshall.

Questions raised by mineral owners prompted Onstad to sponsor a bill that was defeated during the last legislative session that called for an independent audit of the Oil and Gas Division.

Onstad has questioned the accuracy of the meters used to measure oil volumes.

The Oil and Gas Division requires the meters to be tested once a month, Tabor said. Three field inspectors verify that the tests are performed according to state standards, he said.

Onstad said he would like to an independent audit to verify that those tests are being done.

“I just think it’s an old system and I think it should be looked at,” Onstad said. “I would think the state would want to know that it’s corrected as well. They’re a huge mineral owner.”