Every February, the State’s attention seems to turn toward the North Slope. People become interested in whether or not oil production has increased, and what the experts expect to happen next. Inevitably, this leads to questions about “fair share” and “competitiveness.”

People voice different interpretations of the data they are presented. People like me have to try to explain how a reduced decline rate is actually an increase in production. And then there’s the speculation about what caused the changes we see.

Eventually we start our annual debate about oil taxes. But of course our confirmation biases prevent us from hearing what others say. The conversations fill with hyperbole and rhetoric. The lobbyists and consultants flood into the Capital building, spinning the numbers to fit their talking points.

And the whole system is complicated enough that you can find data to support any position you have. You can focus in on a single variable to validate your beliefs, even if the larger picture washes out the findings. Or you can just torture the data until it confesses to the finding you want to be true.

In the end, the picture is so muddy that no one really knows what the data are saying. How can we know which tool to use if we don’t understand the problem?

That is what I am trying to help fix through this endeavor. I want us to have informed debate based on factual information. That’s what this blog is all about. No spin, no agenda, just the facts.

Oil Industry

So let’s start by looking at the oil industry. There is no question that the oil industry is important to Alaska’s economy. It provides good paying jobs to thousands of people. Those paychecks help support the rest of the economic system. The tax and royalty revenues the industry contributes are what pay for almost all of the government services we enjoy. And the money that those resources generated in the past is what provides us with our dividend check each October.

The health of the oil industry is vital to our economy. And understanding what is going on in the industry must be a starting place for any broader conversation. That is why it surprises me that we don’t have a better handle on the data. And without a good understanding of the data, how can we speak intelligently about what those data mean? Why do we provide so little effort into understanding what is going on and what will happen next?

Forecasts

Right now, the only agency that provides a forecast of the oil production is the Department of Revenue (DOR). Yet, their data is confidential and their forecasts are weak. Historically, actual production has come in below their forecast 96% of the time.

While I helped to improve the situation back in 2012 (when I worked for DOR back then, I was part of the reason we introduced “risking” to the forecast), there is still work to be done. Now that DNR is helping generate the production forecast, it is a little better. But there is still room for improvement.

DOR also provides a price forecast, which combines with the production forecast to project future state revenues. As I said before, the oil price forecast is not very good either (ironically they tend to miss in the opposite direction).

The State relies too much on these forecasts for them to be unreliable. Especially now, as budget cuts, taxes, and reductions to the PFD are perennial issues that threaten government shutdowns.

We need an unbiased, non-partisan, third-party to intervene and interpret the data. Someone that can double-check the numbers, understand the issues, and inform the conversation. That’s the role I’m trying to fill.

Data Problems

But the problem isn’t just in the forecasts. It starts with the data. If we can’t agree on what history was, how can we possibly agree on what the future may be?

For example, look at the production data for the last 15 years from the various sources that provide it.

Let me help reconcile why these numbers are different.

Data Sources

In case you want to double-check my numbers, let me explain how I got these data. The DOR RSB figures come directly from its annual publications. DOR receives these data as part of tax filing requirements, and therefore the data are confidential in detail.

The DOR website also provides daily throughput numbers, which it receives from Alyeska every night. You can get them here.

The DNR data come from its website. These data are provided to fulfill the royalty requirements of the lease agreements. These data are very detailed and are not confidential. However, they only provide the detailed information back to 2012 on the website. This data is in a report format, so it’s a pain to use for anything else.

AOGCC has a fantastic data extraction tool you can access here. These data are provided to the Alaska Oil and Gas Conservation Commission at a very detailed level by the producers. These data are not confidential except in very specific circumstances.

And EIA publishes its numbers here, but they are delayed compared to other sources.

Reconciling Production Data

So what was production in 2017? These different sources provide answers ranging from 527,912 to 479,986 barrels of oil per day. That’s a 48,000 barrel per day difference between sources. How can we be certain if actual production rates differ from forecasts due to errors in forecasting or errors in reporting? And if you try to combine data sources (like using AOGCC data to forecast what DOR will report), good luck.

Fortunately, there are good reasons for the different data reporting. But, you need to understand these differences before you use the data.

AOGCC is the Source Data

It turns out, AOGCC is the most reliable data source. It is reported down to the well level, on a two month delay. And these data are publicly available. From what I can tell, these data are the source data for everyone else.

EIA Data

Let’s start with the EIA. This discrepancy was the most concerning to me, since it is consistently lower than the others. I dug around their disclaimers, made a few phone calls, and played with the AOGCC data until I figured it out.

The EIA uses the AOGCC production data, but does not include the production of Natural Gas Liquids (NGLs). They also report the numbers as calendar year averages.

Once I made these adjustments, the data line up almost exactly (any accountants out there might still wonder about the remaining difference. It bothers me too, but let’s just call it a rounding error).

AOGCC FY EIA AOGCC CY without NGLs
2002          1,039,515          953,641          953,693
2003          1,018,419          946,756          946,641
2004          1,001,939          885,836          885,881
2005              928,892          844,595          844,691
2006              863,514          723,956          723,977
2007              756,736          707,142          707,146
2008              740,517          669,683          669,737
2009              714,000          637,644          637,724
2010              658,887          589,419          589,493
2011              618,026          550,937          550,530
2012              594,967          514,541          514,692
2013              546,445          499,997          500,244
2014              545,578          478,162          479,137
2015              501,941          464,518          464,933
2016              516,377          474,117          474,723

So, I don’t recommend you use the EIA data. It’s incomplete.

One down, 2 to go.

DNR Data

Let’s tackle the DNR question next. On its website, DNR makes available a production history file. That file is expressed in calendar year averages. When I compare those number to AOGCC numbers (also expressed in calendar year averages and including NGLs), they look to be very much the same. However, there is a 9,000 barrel difference in 2005 that cannot be explained. I believe this is a data entry error is one of the agency’s data (here is an example of why we need third-party corroboration).

CY  DNR Prod (CY) AOGCC (CY including NGLs)
2002          1,032,745    1,032,745
2003          1,021,159    1,021,160
2004              961,730       961,734
2005              918,247       909,381
2006              781,373       781,385
2007              768,458       768,457
2008              726,361       726,415
2009              691,205       691,262
2010              638,269       638,258
2011              600,704       600,704
2012              564,710       564,800
2013              548,767       548,639
2014              522,789       522,778
2015              509,581       509,562
2016              518,997       518,825

Production and Transportation Differences

The other file available on DNR’s website is titled “TAPS throughput.” Looking at the difference between throughput and production should be enlightening.

CY  DNR Prod (CY) DNR TAPS (CY) Difference
2002          1,032,745          1,000,916                31,829
2003          1,021,159              993,276                27,883
2004              961,730              935,108                26,621
2005              918,247              891,104                27,143
2006              781,373              759,081                22,292
2007              768,458              740,170                28,288
2008              726,361              703,551                22,809
2009              691,205              672,028                19,178
2010              638,269              619,655                18,614
2011              600,704              582,395                18,309
2012              564,710              547,202                17,508
2013              548,767              533,832                14,935
2014              522,789              512,827                  9,962
2015              509,581              507,802                  1,779
2016              518,997              517,188                  1,809

TAPS is the only way for oil to move off the North Slope. So, the difference between production and throughput should be the amount of oil that is used on the North Slope. There are only two ways this happens. First, a small amount of oil is refined at the topping plants at Kuparuk and Prudhoe Bay. Second, NGLs make for good enhanced oil recovery (EOR) fluids. When a field doesn’t have the native NGLs it needs to perform EOR operations, it gets them from somewhere else. For years, this was happening between Prudhoe Bay and Kuparuk.

Looking at the table above, the volume of produced oil that stays on the North Slope looks to be decreasing steadily as production declines. That is, until 2014. At that point, something changed. I happen to know what that change was.

According to the Petroleum News, ConocoPhillips converted the Oliktok Pipeline from NGL transportation to fuel gas in late 2014. That pipeline was previously delivering NGLs produced from Prudhoe Bay over to Kuparuk for miscible injection (a type of EOR). By the way, the article also says that the pipeline is returning to NGL transportation this month (August 2018).

Royalty and Production Report Variance

Next, we need to resolve the differences in the production report and the royalty report on the DNR website. This one is actually simple. The royalty report only includes State leases (and only goes back to 2012).

CY Royalty Report Production Report Difference
2012          542,551          564,710          22,159
2013          527,383          548,767          21,384
2014          503,295          522,789          19,494
2015          489,447          509,581          20,134
2016          485,918          518,997          33,080

The difference is production from Federal and ASRC lands. The increase in 2016 is production from CD5.

DOR Numbers

Now we are just left with the DOR numbers.

Unfortunately, DOR does not provide monthly data. So, let me convert the AOGCC data to fiscal year and see how DOR compares. We already saw that AOGCC data is the source data for EIA and that is matches the DNR reports. So it should line up with DOR too.

FY DOR AOGCC Difference
2002    1,008,600          1,039,515                30,915
2003       987,000          1,018,419                31,419
2004       973,800          1,001,939                28,139
2005       911,300              928,892                17,592
2006       839,700              863,514                23,814
2007       734,200              756,736                22,536
2008       715,400              740,517                25,117
2009       692,700              714,000                21,300
2010       642,600              658,887                16,287
2011       599,900              618,026                18,126
2012       579,400              594,967                15,567
2013       531,600              546,445                14,845
2014       530,400              545,578                15,178
2015       501,000              501,941                      941
2016       514,700              516,377                  1,677
2017       526,500              527,912                  1,412

These differences look familiar. It appears that DOR does not count reinjected NGLs as production. So, if you want to use AOGCC data to forecast DOR production numbers, you need to account for reinjected NGLs.

DOR Transportation and Production Variances

Ok, one last item. How close are the daily run tickets that Alyeska provides to the final production numbers that DOR reports in its annual publication? Since the DOR numbers pull the reinjection numbers out, they should be close. Let’s check.

FY DOR  Daily Reports Difference
2002    1,008,600          1,002,923                  5,677
2003       987,000              986,350                      650
2004       973,800              970,571                  3,229
2005       911,300              909,769                  1,531
2006       839,700              838,101                  1,599
2007       734,200              731,798                  2,402
2008       715,400              699,841                15,559
2009       692,700              691,130                  1,570
2010       642,600              640,785                  1,815
2011       599,900              597,813                  2,087
2012       579,400              579,027                      373
2013       531,600              530,920                      680
2014       530,400              529,649                      751
2015       501,000              499,971                  1,029
2016       514,700              514,364                      336
2017       526,500              526,440                        60

It looks like the daily throughput reports are a very reliable indicator of the DOR production numbers (other than an anomaly in 2008). This means that you can use the daily data to update your forecasts in real-time without corrupting your data.

Takeaways

Data can be tricky. While there are very good reasons for the differences in the data, we need to be careful when we use them. Here are a few recommendations from me.

First, I recommend that we all use AOGCC production data when we talk about Alaska oil production. This is going to become a more serious issue as production from GMT, Willow, Liberty, and ANWR start to flow.

We need to agree on what counts as “production” when some is taxable, some is royalty bearing, some is neither, and some is reinjected into the ground. We are going to need a way to differentiate those production types without confusing the conversation.

Second, be careful to ask what the data mean whenever it is presented to you. Comparing fiscal year and calendar year data is a common mistake that can lead to spurious conclusions. Comparing different data sources can lead to similar confusion.

And finally, let’s get a better handle on the data we are using to make important policy decisions. I’ll be here trying to help, but only for as long as I can afford to do it. If you want to keep me working on things like this, consider making a donation to the cause.

 

2 thoughts on “Reconciling Oil Production Data: How Can We Agree on the Future if We Don’t Understand the Present?

  1. Appreciate this information Ed. I’ve wondered about this.

    Is it safe to assume Alyeska measures throughput at the TAPS terminus? GVEA has a pipeline in Fairbanks that connects to TAPS for a local refinery (or two when they are both operating). That would, I assume, account for part of the difference between production and throughput. Thanks again.

  2. Hi Dan,

    Alyeska sends a report out a midnight every night that includes the Pump Station 1 and the Valdez terminal volumes. I’m not sure which number DOR publishes, but I believe it is the PS1 number. You are correct that a few thousand barrels come off at the refinery in North Pole, but I’m almost positive those numbers are included in the production total. .

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