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Oil & Gas Terms

Oil & Gas Definitions

-A-

Accredited Investor. 
A person or institution deemed capable of understanding and affording the financial risks associated with the acquisition of unregistered securities.  The SEC recognizes the following parties as accredited:

1. Any natural person whose individual net worth (or joint net worth with that person's spouse, if applicable) at the time of purchase exceeds $1,000,000.
2. Any natural person who had an individual income in excess of $200,000 (or $300,000 with spouse) in each of the past two years and who reasonably expects an income in excess of $200,000 (or $300,000 with spouse) in the current year.
3. A financial institution such as a bank, broker/dealer, insurance company or business development company.
4. Any director, officer or general partner of the issuer.
5. A trust or business partnership, with assets in excess of $5 million, that wasn't formed for the purpose of acquiring the unregistered securities.
6. Any entity wholly owned by accredited investors.
7. Any other "Accredited Investor" as that term is defined in Regulation D as adopted by the Securities and Exchange Commission.

Abandoned Well
A well no longer in use, whether dry, inoperable or no longer productive, and the previous operator has intentionally relinquished its interest in the well.

Acidizing
A technique for increasing the flow of oil and/or gas into a well. Hydrochloric acid is pumped into the oil-bearing rock. The acid dissolves limestone in the producing zone enlarging pores and flow into the well bore with less restriction.

Associated gas
Natural gas produced with crude oil from the same reservoir.

-B-

Barrel of Oil
42 U.S. gallons of oil at 60 degrees Fahrenheit.

BCF
The abbreviation for billion cubic feet of gas. (see "cubic foot of gas")

BCF/D
The abbreviation for billion cubic feet of gas per day.

BHP
The abbreviation for bottom-hole pressure

BIT
A bit is the drilling tool that bores or cuts into the earth. There are two basic types: the cable tool bit which moves up and down the hole, striking the bottom, chipping away the rock, and the rotary bit which revolves to grind the rock. The rotary is the modern technique used in most drilling operations.

Blind Nipple
Nipple (pipe with threads at both ends) that can be blocked off from formation pressure and give a false pressure measurement.

Blowout
An unexpected violent eruption of oil and gas from a well during the drilling phase of operation. This happens when high pressure gas is encountered and the proper precautions have not been taken. The initial eruption is followed by an uncontrolled flow of fluids from the well.

Blowout Preventer
A "BOP" is a large, specially designed valve that is mounted on top of the well during the drilling and completion stages of operation. The operator can close this valve to stop the flow of oil or gas in case of emergency.

BOPD - The abbreviation for barrels of oil per day.

Bottom Hole Pressure
The reservoir pressure at the bottom of the well. When the well is flowed, a decline in pressure occurs. The amount of decline in pressure related to the amount of oil production will give an engineer information regarding the reserves of the well.

Bradenhead Completion
A head, screwed into the top of the casing, used to confine gas in the well until release through an outlet into a pipeline.

Bridge Plug
A downhole tool (composed primarily of slips, a plug mandrel, and a rubber sealing element) that is run and set in casing to isolate a lower casing interval while testing an upper section.

Brine Well
A well used for injecting fresh water into geologic formation comprised mainly of salt. The injected freshwater dissolves the salt and is pumped back to the surface as a saturated sodium chloride brine solution used as a feedstock in petrochemical refineries and in oil and gas well drilling and workover operations.

-C-

C&E
Well completion and equipment cost.

Casing
Metal pipe inserted into a wellbore and cemented in place to protect both subsurface formations (such as groundwater) and the wellbore. A surface casing is set first to protect groundwater. The production casing is the last one set. The production tubing (through which hydrocarbons flow to the surface) will be suspended inside the production casing.

Cement of “Set Pipe”
A process whereby cement is pumped into the hole between the walls of the hole and the outside of the casing. Upon hardening, the cement holds the pipe in place and prevents fluid movement in the hole.

Christmas tree
The assembly of valves, pipes, and fittings used to control the flow of oil and gas from a well.

Coiled tubing
A long, small diameter pipe flexible enough to be stored on and deployed from a large, truck-mounted roll. Used to replace jointed pipe in certain types of drilling, completion, and workover operations.

Commercial Well
A well which is capable of producing enough products to pay for itself and give a profit to its owners.

Common Reservoir
A pool or accumulation of oil or gas that is produced in more than one well.

Completion
A general term referring to all activities necessary to put a well on production after it has been drilled to casing point. Oil in its natural state of composition. "Crude" is classified according to its physical properties: a. Paraffin Based, b. Asphaltic Based, c. Mixed Based.

Compressor
An engine used to increase the pressure of natural gas so that it will flow more easily through a pipeline.

Condensate (also called Lease Condensate)
Liquid hydrocarbons separated from gas production.

Crude Oil
Liquid petroleum as it comes out of the ground as distinguished from refined oils manufactured out of it.

Cubic Foot of Gas or Standard Cubic Foot of Gas
As a unit of volume, 1,728 cubic inches. As applied to water, 7.48 gallons. As applied to natural gas, the volume of gas which, when saturated with water vapor at 60ºF and at a pressure of 30 inches of mercury occupies one cubic foot of volume.

Cutting or Samples
Pieces of rock cut out of the formation by the bit and circulated to the surface by the mud. Geologists study this rock for signs of oil and gas as the well is drilled.

-D-

Depletion
The reduction in value of mineral deposits as it is produced. Oil is a wasting asset, in that proceeds from the well represent both income and return of capital.

Depletion Allowance
An allowance granted on taxable income from oil and gas by the Federal and most State Governments. The current Federal rate is 15% of gross income. The law is rather involved and a tax specialist should be used when computing the tax free portion of income. This information is supplied to each partner prior to filing his income tax returns on April 15th of each year.

Deposit
An accumulation of oil, gas or other minerals which is capable of production.

Development well
A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive; a well drilled in a proven field for the purpose of completing the desired spacing pattern of production.

Discovery Well
The first oil or gas well drilled in a new field. The discovery well is the well that is drilled to reveal the actual presence of a petroleum-bearing reservoir, Subsequent wells are development wells.

Disposal Well
Well used for disposal of saltwater into an underground formation.

Dissolved Gas
Commonly referred to as solution gas. (Refer to solution gas)

Downhole
A term used to describe tools, equipment, and instruments used in the wellbore, or conditions or techniques applying to the wellbore.

Downstream
This term indicates the refining and marketing sectors of the industry. More generically, the term can be used to refer to any step further along in the process.

Drill Cuttings
The small pieces of rock created as a drill bit moves through underground formations while drilling.

Drilling
The act of boring into the earth.

Drilling Rig
The equipment used to bore into the earth.

Dry Gas
The volume of gas remaining after all water and natural gas liquids have been removed.

Dry Gas
Natural gas that does not have a significant content of liquid hydrocarbons or water vapor.

Dry Hole -- Any well that fails to discover oil or gas in paying quantities.

-E-

E&P
Exploration and production. The "upstream" sector of the oil and gas industry.

Electric Log
An electrical survey made on uncased holes. A special tool is lowered into the hole which ejects an electrical current into the rock and records its resistance to the current. The data from the survey is used by the geologist to determine the nature of the rock and its contents.

Enhanced Oil Recovery (EOR)
The use of any process for the displacement of oil from the reservoir other than primary recovery.

Ethane
A colorless odorless gaseous hydrocarbon with the characteristics of the predominant molecule, CH3CH3.

Exploration
A general term referring to all efforts made in the search for new deposits of oil and gas.

Extraction Loss
The reduction in volume and energy content of natural gas resulting from the removal of natural gas liquid constituents.

-F-

Field
Area of oil and gas production with at least one common reservoir for the entire area.

Field Rules
Spacing and production rules for the common reservoir in an area.

Flowing Well
A well capable of producing oil or gas by its own energy without the aid of a mechanical pump. Normally a pump is put on the well after the pressure reduction inhibits the rate of production.

Formation 
A separate layer of rock or group of intermingled beds.

Formation damage 
The reduction in permeability in reservoir rock due to the infiltration of drilling or treating fluids into the area adjacent to the wellbore.

Frac
High pressure or explosive method of fracturing rock formations

Fuel and Shrinkage
The difference between the amount of gas produced at the wellhead and the gas that enters a pipeline that can be associated with providing energy to on lease equipment or removal of solution gas. The losses include but are not limited to those from the separation process and field use, as well as fuel, flare gas and plant liquids extraction.

-G-

Gas Lift
The process of raising or lifting fluid from a well by means of gas injected down the well through tubing or tubing casing annulus. Injected gas aerates the fluid to make it exert less pressure than the formation pressure, consequently forcing the fluid out of the wellbore.

Gas-Oil Ratio (G.O.R.) - Number of cubic feet of gas produced per barrel of oil.

Gas-to-Liquids (GTL)
The conversion of natural gas to a liquid form so that it can be transported easily. Typically, the liquid is converted back to natural gas prior to consumption.

Gas Well
A well that produces natural gas which is not associated with crude oil.

Gatherer - Includes any pipeline, truck, motor vehicle, boat, barge, or person
authorized to gather or accept oil, gas, or geothermal resources from lease production or lease storage.

Gathering Line -- A pipeline that transports oil or gas from a central point of production to a transmission line or mainline.

- H -

Henry Hub
Located in Erath, LA, the Henry Hub is a pipeline interchange and the delivery point for the New York Mercantile Exchange (NYMEX) active natural gas futures contracts. Natural gas from the Gulf of Mexico moves through the Henry Hub onto interstate pipelines serving the Midwest and the Northeast.

Horizontal Drilling
A well which is not vertically drilled as defined in Statewide Rule 86.

Hub
A location where several pipelines interconnect. Also known as a market center.

Hydrocarbon
An organic chemical compound of hydrogen and carbon, called petroleum. The molecular structure of hydrocarbon compounds varies from the simplest, methane (CH4), a constituent of natural gas, to the very heavy and very complex. Octane, for example, a constituent of crude oil, is one of the heavier, more complex molecules.

- I -

IDC
(Intangible Drilling Costs) All cost incurred in drilling a well other than equipment or leasehold. These expenses are 100% tax deductible even if the well is productive.

Independent Producer
An energy company, usually in the exploration and production segment of the industry and generally, with no marketing, transportation or refining operations. A non-integrated producing company in the oil industry.

Injection Well
Well used to inject fluids (usually water) into a subsurface formation by pressure.

IP
(Initial Production) Production from a well is generally broken down into three categories: a. Flush or Initial b. Settled c. Stripper. It is important for investors to realize that a well cannot maintain the flow rates it made during the first stages of its life.

- K -

<Kelly Bushing
Drilling rig equipment that fits inside the rotary table and is also used as a reference point on logs to calculate depth.

- L -

Lease
A legal document conveying the right to drill for oil and gas, or the tract of land on which a lease has been obtained where the producing wells and production equipment are located.

Lifting costs
The cost of producing oil from a well or lease.

Limited Liability
If a taxpayer holds his working interest through any of the following entities, the entity is considered to limit his liability, and the taxpayer's interest in the activity will not be exempt from the passive loss rules
1. A limited partnership interest is a partnership in which the taxpayer is not a general partner.
2. Stock in a corporation.
3. Any entity other than a limited partnership or corporation that, under applicable state law, limits the potential liability of a holder of such interests for all obligations of the entity to a determinable fixed amount. (e.g., the taxpayer's capital contributions).

Log
To conduct a survey inside a borehole to gather information about the subsurface formations; the results of such a survey. Logs typically consist of several curves on a long grid that describe properties within the wellbore or surrounding formations that can be interpreted to provide information about the location of oil, gas, and water. Also called well logs, borehole logs, or wireline logs.

Long String
Last string of casing set in the well, covering the productive zone.

Low Temperature Extraction (LTX) Unit
Condensation of gas into a liquid by refrigeration.

- M -

Mcf
One thousand cubic feet of natural gas measured at standard pressure and temperature conditions.

MMbo
Million barrels of oil.

MMBtu
One million British thermal units, 252,000 Kilocalories or 293 Kilowatt Hours.

MMcf
One million cubic feet.

Mud
Drilling fluid used to lubricate the drill string, line, the walls of the well, flush cutting to the surface and create enough weight to prevent blowouts.

Multiple 49(b)
Rule governing gas well production from an oil reservoir gas cap.

Multiple Completion
The completion of a single well into more than one producing horizon. Such a well may produce simultaneously from the different horizons, or alternatively from each.

- N -

Natural Gas or Gas
A naturally occurring mixture of hydrocarbon and non-hydrocarbon gases in porous formations beneath the earth's surface, often in association with petroleum. The principal constituent is methane.

NGL, Natural Gas Liquids
Hydrocarbon liquids extracted from natural gas.

Non - Commercial
A well that is not capable of producing enough oil to pay for the drilling.

Non-associated gas
Natural gas produced from a reservoir that does not contain significant quantities of crude oil.

NRI
(Net Revenue Interest) That percent of the production revenue allocated to the working interest after first deducting proceeds allocated to royalty and overriding interest.

 - O -

Odorant
Any malodorous substance added to natural or LP-gas in small concentrations for the purpose of making the presence of the gas detectable.

Offshore Well
(SWR 14) Any well subject to Commission jurisdiction for which the surface location is on state lands in or on the Gulf of Mexico, that is not a bay well. (see bay well)

Oil & Gas Leases
A contract between an oil operator and a landowner which gives the operator the right to drill for oil and gas on his property for a consideration. It is simply a "ticket to hunt".

Oil Gravity
The most widely used indicator of a crude oil's worth to the producer is its API gravity. Normally, the price which a producer receives for his oil depends on its gravity, the less dense oils (higher API gravity) being the most valuable. This price schedule is based on the premise that the lighter oil contains higher percentages of the more valuable products such as gasoline. API Gravity (degrees) = (141.5/sp.gr.) - 131.5.

Oil Well
Any well which produces one barrel or more crude petroleum oil to each 100,000 cubic feet of natural gas.

Open-flow Test
A test made to determine the volume of gas that will flow from a well during a given time span with minimum restrictions.

Operating Expense
The expenses incurred through the operation of producing properties.

Operator
A person, acting for himself or as an agent for others and designated to the Commission as the one who has the primary responsibility for complying with its rules and regulations in any and all acts subject to the jurisdiction of the Commission.

- P -

Payout
When the costs of drilling, producing and operating have been recouped from the sale of products on a well.

PPM
Parts per million.

Perforations
Holes through casing and cement into the productive formation.

Permeability
Ability of rock to transmit fluids through pore spaces.

Pit
Hole dug out in the ground surface for temporary storage of fluids during drilling operations.

Plug
Seal off formations to stop open communication of formation fluids within a well.

Pooled Unit - Unit created by combining separate mineral interests under the pooling clause of lease or agreement.

Porosity
Percentage of the rock volume that can be occupied by oil, gas or water.

Proration Unit
Acreage allocated to a well for the purpose of determining an allowable.

PSIA
Pounds of pressure per square inch absolute, using absolute zero as a base.

PSIG
Pounds of pressure per square inch guage, using atmospheric pressure as a base.

PSI (pounds per square inch)
An English system of measure of the amount of pressure on an area that is 1 inch square.

Processing Plant
A plant to remove liquefiable hydrocarbon.

Produced water
The water extracted from the subsurface with oil and gas. It may include water from the reservoir, water that has been injected into the formation, and any chemicals added during the production/treatment process. Produced water is also called “brine” (and may contain high mineral or salt content) or “formation water.” Some produced water is quite fresh and may be used for livestock watering or irrigation (where allowed by law).

Product
Includes refined crude oil, crude tops, topped crude, processed crude petroleum, residue from crude petroleum, cracking stock, uncracked fuel oil, fuel oil, treated crude oil, residuum, casinghead gasoline, natural gas gasoline, gas oil, naphtha, distillate, gasoline, kerosene, benzine, wash oil, waste oil, blended gasoline, lubricating oil, blends or mixtures of petroleum and/or any and all liquid products or by-products derived from crude petroleum oil or gas, whether hereinabove enumerated or not.

Propane
A gaseous hydrocarbon with the characteristics of the predominant molecule CH3CH2CH3.

Proven Reserves
Oil and gas which has not been produced but has been located and is recoverable.

- R -

Rat Hole
Hole adjacent to well bore for storage of the kelly joint when not in use during drilling operations.

Reclamation Plant
Plant that treats and reclaims waste oil.

Regular Permit
Permit to drill, plug back or deepen that does not require an exception.

Reserve Pit
Pit used to collect spent drilling fluids, cutting and wash water during drilling operations.

Reservoir
A porous, permeable sedimentary rock containing commercial quantities of oil and gas.

Residue Gas
Gas remaining after processing and extraction of NGL.

Royalty
A percentage interest in the value of production from a lease that is retained and paid to the mineral rights owner.

- S -

Salt Water Disposal Well (SWD) –
A well used for the purpose of injecting produced water back into the ground.

Secondary Recovery
Hydrocarbons produced in one well bore by increasing reservoir pressure with water injected into an adjacent well bore.

Solution Gas
Gas which is dissolved in oil in the reservoir under pressure.

Spacing
the distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.

Spot Market
Short term, non-regulated, arms length contract sales of natural gas, crude oil, refined products, or liquid petroleum gas.
Spud Date - Date that drilling begins.

Stimulation
the term used for several processes to enlarge old channels, or create new ones, in the producing formation of a well designed to enhance production. Examples include acidizing and fracturing.

Storage Gas
A gas that is stored in an underground reservoir.(see underground hydrocarbon storage)

Storage Tank
Tank for the accumulation of oil pending transferal to a pipeline company or other purchaser.

Stratigraphic Cross Section
Series of electric logs that illustrate formation correlation with one formation as a datum.

Structural Cross Section
Series of electric logs that illustrate subsurface structure by placing the logs relative to sea level.

Structural Trap
A fold or break (or both) in the earth's crust which creates an impervious trap for oil and gas. Oil will migrate underground through rock until it is "trapped".

Substandard Acreage
Amount of acreage that is less than the standard amount for a proration unit for a field.

Surface Casing
Outer casing cemented in the upper portion of the wellbore to protect fresh water formations from contamination.

Surface Pip
Pipe which is set with cement through the shallow water sands to avoid polluting the water and keep the sand from caving in while drilling a well.

Swab
A tool which is lowered down the pipe on a wire line. The "swab" is then pulled out of the hole. As it travels up the pipe, rubber elements expand so that the fluid in the pipe is trapped above the swab and pushed to the surface. This operation is necessary when the formation pressure is not high enough to blow the fluids in the pipe to the surface.

Sweet Gas
All natural gas except sour gas and casinghead gas.

- T -

Tank Battery
Tanks for oil storage before delivery to a refinery.

Testing
When each new well is competed, a series of tests are run on the well. The various tests are used to estimate the daily deliverability, payout, and reserves.

Therm
A unit of heat equivalent to 100,000 British Thermal Units (Btu).

3-D, Three Dimensional Seismic
Advanced method for collecting, processing, and interpreting seismic data in three dimensions. Three-dimensional seismic data are collected from closely spaced lines over an area and the data are processed as a volume. The advantages of three-dimensional seismic methodology include increased resolution (through 3-d migration and deconvolution) as well as improved interpretational tools and data displays (such as closely spaced parallel seismic lines, horizontal time sections).

Tidal Disposal
Discharge of produced water or other waste materials into tide influenced waters.

Tolerance Acreage
Small amounts of acreage assigned to a proration unit after the unit is already established.

Transportation or to Transport
The movement of any crude petroleum oil or products of crude petroleum oil has been stored to any other receptacle by any means or method whatsoever, including the movement by any pipeline, railway, truck, motor vehicle, barge, boat, or railway tank car.

Transporter or transporting agency
Includes any common carrier by pipeline, railway, truck, motor vehicle, boat, or barge, and/or any person transporting oil or a product by pipeline, railway, truck, motor vehicle, boat, or barge.

Tubing
String of pipe set inside the well casing, through which the oil or gas is produced.

Turnkey Contract
A contract in which an operator or drilling contractor agrees to furnish all labor and materials necessary to drill a well to a certain depth or stage of completion for a specified sum of money. The operator or contractor assumes all of the responsibility and risks involved in completing the operation.

- U -

Underground Hydrocarbon Storage
The use of sub-surface geologic formations for storing liquid, liquefied or gaseous hydrocarbons, such as natural gasoline, propane and natural gas.

Underbalanced drilling
Drilling under conditions where the pressure being exerted inside the wellbore (from the drilling fluids) is less than the pressure of the oil or gas in the formation.

Underground injection
The placement of gases or fluids into an underground reservoir through a wellbore. May be used as part of enhanced oil recovery or waterflooding processes or for disposal of produced water.

Unitization
Joint operations to maximize recovery among separate operators within a common reservoir.

Unitization Tract
Land subject to a unitization agreement.

Upstream
The exploration and production portions of the oil and gas industry.

- V -

Viscosity
The resistance of fluid to flow. A high viscosity fluid will not flow as easily as a low viscosity fluid (Mud will not move as easily as water).

- W -

Waterflood
Injecting water in one well causing oil not recovered by primary production to migrate to an adjacent well.

Wellhead
The equipment at the surface of a well used to control the pressure; the point at which the hydrocarbons and water exit the ground.

Wet gas
Natural gas containing significant amounts of liquifiable hydrocarbons.

Wildcat well
A well drilled in an area where no current oil or gas production exists.

Workover
Operations on a producing well to restore or increase production. A workover may be performed to stimulate the well, remove sand or wax from the wellbore, to mechanically repair the well, or for other reasons.

Working Interest
A working interest in an oil or gas property held by the taxpayer directly or through an entity that does not limit the liability of the taxpayer is not treated as a passive activity, whether or not the taxpayer materially participates in the activity. Thus, an owner of a working interest in oil or gas property is permitted to deduct otherwise allowable losses attributable to the working interest against other income without limitation under the passive loss rule.
A working interest in an oil or gas property is one that is burdened with the cost of development and operation of the property, such as the responsibility to share expenses of drilling completed or operating oil and gas property, according to working or operating mineral interest in any tract or parcel of land. Rights to overriding royalties, production payments, and the like do not constitute working interests because they are not burdened with the responsibility to share expenses of drilling, completing, or operating oil and gas property.

Write Offs
That portion of an oil investment which is deductible for tax purposes. All intangibles are deductible.

WTI
West Texas Intermediate, a type of crude oil commonly used as a price benchmark.

- Z -

Zone
Interval of subsurface formation.

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