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Permalink Reply by Daryl Brown on October 10, 2017 at 10:20am

William,

Here is the answer to your question.  Each tank on a lease is capable of holding a certain amount of oil and every tank varies in size.  The law requires each tank to be "strapped" which means someone comes out and takes official measurements of the tank and then those measurements are converted such that each inch on the tank correlates to a measurement of the oil in the tank.  So if the tank has 12 feet 6 and 1/4 inches of oil then using those tank strappings the pumper can tell you exactly how much oil is in that tank.  Once the tank reaches a certain level it is then isolated and no more oil flows to that tank.  The pumper takes the measurement, records it then calls the load in.  The company doing the hauling then comes out and takes their own measurement before and after the pull they load off the tank and that then tells them how much oil was taken from the tank.  Many trucks have a meter on their the truck although not all of them do and this confirms the amount taken from the lease.  The truck transports the oil to a location where it can be injected into a pipeline or off loaded and there is usually a meter there as well called a LACT unit  http://petrowiki.org/Liquid_flow_meter_proving_and_LACT_units and this again measures the volume of oil taken from the lease and transported.  To complicate matters further as you know from studying physics that measurements involving volume change depending on temperature.  The temperature is also factored in to the calculation by the transporter.  I'm saying all this to tell you that there are many safeguards to ensure you as the royalty owner are not being screwed but needless to say this process is imperfect.  It is however the way things are done and it is a pretty good system that the industry lives by.  To further safeguard each state has rules regarding this process but a transporter must delcare what lease the oil came from and those records must match up.  If oil shows up without an origination point it is considered stolen and then the authorities get involved.  It's a pretty tight system so you can rest easy.

I have left out many details related to BS&W (Base sediment and water) specific gravity and many other things that are part of this process so please don't hate on me for not telling all the details.  We would be here for days if I went into every little minute detail.  I'm just trying to give you a somewhat broad overview of how this works.

As for value........  Oil in Ohio, PA, WV is not the same as oil delivered to Cushing OK which is where the NYMEX Oil contract price is settled.  There are differences in quality and location that we could discuss for days.  A good rule of thumb is that Oil price for barrels in the NE will garner from 50 - 60% of what a true spec barrel in Cushing Oklahoma will command.  So $25/barrel is closer to accurate...........

I hope this helps you.

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Permalink Reply by william george allison on October 10, 2017 at 12:09pm

thank you sir for explaining that to me    BILL

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