Oilfield Terminology

These are just a few of the terms and abbreviations you'll find used in the oil and gas industry:

- A -

Absentee Bid - A procedure which allows a bidder to participate in the bidding process without being physically present. Generally, a bidder submits an offer on an item prior to the auction. Absentee bids are usually handled under an established set of guidelines by the auctioneer or his representative.

Absolute Auction - An auction where the property is sold to the highest qualified bidder with no limiting conditions or amount. The seller may not bid personally or through an agent. Absolute auctions are also known as an auction without reserve.

Abstract of title - A chronological history of the ownership of a tract of land, including surface rights and mineral rights.

Accredited Investor - A person or institution deemed capable of understanding and affording the financial risks associated with the acquisition of unregistered securities. The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Abandon - A well is permanently plugged and abandoned if it is drilled and found to be a dry hole, or in the case of a producing well, it is not economically productive.

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 restrictions.

Annulus - The space between two concentric objects, such as between the wellbore and casing or between casing and tubing, where fluid can flow.

Anticline - A geological term describing a fold in the earth's surface with strata sloping downward on both sides from a common crest. Anticlines frequently have surface manifestations like hills, knobs, and ridges. At least 80 percent of the world's oil and gas has been found in anticlines.

"As Is" - Selling a property without warranties as to the condition and/or the fitness of the property for a particular use. Buyers are solely responsible for examining and judging the property for their own protection. Otherwise known as "As Is, Where Is" and "In its Present Condition."

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

Auction With Reserve - An auction in which the seller or his agent reserves the right to accept or decline any and all bids. A minimum acceptable price may or may not be disclosed and the seller reserves the right to accept or decline any bid within a specified time. See absolute auction for the definition of an auction without reserve.

Authorization for Expenditure (AFE) - An estimate of the costs of drilling and completing a proposed well, which the operator provides to each working-interest owner before the well is drilled. Various categories of costs are typically listed as 'dry hole' costs (the costs to drill to the casing point; these are costs that would be incurred if no indications of hydrocarbons are found), completion cost (the additional costs to complete the well), and the total cost.

 

- B -

Back In - The type of interest in a well or property that becomes effective at a specific time in the future, or on the occurrence of a specified future event; usually pay out to investors of their initial well costs.

Bbl - The abbreviation for barrel. A barrel of oil is the equivalent of 42 US gallons.

BCF - Billion cubic feet (or gas). In the U.S. oil and gas industry, the cubic foot is the standard unit of measurement of gas at atmospheric pressure.

Behind Pipe - If a well drills through more than one pay zone and is completed in the deepest productive reservoir, casing is set all the way down to the producing zone. Viewed from (a perspective) inside the borehole, reserves in the shallower pay zones up the hole are behind the casing (pipe).

Bidder`s Choice - A method of sale whereby the successful high bidder wins the right to choose a property or properties from a grouping of similar or like-kind properties. After the high bidder's selection, the property is deleted from the group, and the second round of bidding commences, with the high bidder in round two choosing a property, which is then deleted from the group and so on, until all properties are sold.

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 Pool - An oil and gas limited partnership which has not committed to a specific prospect, lease, or property at the time of the limited partners subscribe.

Blowout - The uncontrolled flow of gas, oil or other fluids from a well. This happens when the down-hole pressure gas is not properly balanced by the weight of drilling mud.

Blowout preventer (BOP) - The equipment installed at the wellhead to control pressures in the annular space between the casing and drill pipe or tubing during drilling, completion, and workover operations. Also known as a Christmas tree.

Blue Sky Laws - State regulations governing an offering to sell securities within that state. As with SEC rules, they are intended to protect state residents from being sold securities lacking in substance.

Borehole - The hole created by drilling a well. Also called a well bore.

Bottom-hole - The deepest part of a well.

Bottom-hole Pressure - The reservoir pressure at the bottom of a well. As a well produces, a decline in this pressure occurs.

Broker Participation - An arrangement whereby 3rd-party brokers register potential bidders for properties being sold at auction for a commission. The commission is paid by the owner of the property or the auction firm.

BTU - British thermal unit - A measuring unit of heat energy, used to describe the amount of heat that can be generated by burning oil or gas.

 

- C -

Cased Hole - A well in which casing has been inserted. If the casing does not extend all the way to total depth, the uncased portion is referred to as an open hole.

Casing - Steel pipe which screws together and is lowered into the hole after drilling is complete. It is 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.

Casing Point - After a well has been drilled to its objective depth, the operator is faced with a very important decision, whether to commit additional dollars to "set pipe" and attempt a completion or to abandon the well as non-commercial. This decision point separates the drilling and completion phases of operation, and in many cases, changes the participation percentages of investors.

Cementing or "Setting 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. See also blow-out preventer.

Circulation - The continuous pumping of drilling fluid ("mud") from mud tanks at the surface: down through the drill pipe, out the nozzles of the drill bit, and back to the surface through the space between the drill pipe and the borehole. The flow of mud moves the rock cuttings and carries them up to the mud system, by the shale shaker.

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

Commercial Well - A well which is capable of producing enough oil and, or gas to pay for itself and give a profit to its owners.

Completion - A general term referring to all activities necessary to put a well on production after it has been drilled to casing point. The completion phase of operations generally includes cleaning out the well bore, setting the casing and tubing into the hole, adding surface equipment (pumps, tanks, meters) and perforating the casing so that oil or gas can flow into the well and be brought to surface. Once a well is completed, it is ready to produce oil or gas.

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

Condensate - Hydrocarbons naturally occurring in the gaseous phase in the reservoir that condense into a liquid at the surface (due to the change in pressure and temperature).

Conditions of Sale - The legal terms that govern the conduct of an auction, including acceptable methods of payment, terms, buyer's premiums, possession, reserves and any other limiting factors of an auction. They are usually included in published advertisements or announced by the auctioneer prior to the start of the auction.

Contiguous - Touching at some point or along a boundary.

Contingency - A requirement in a contract that must occur before that contract can be finalized.

Convertible Interest - An interest (usually a non-cost-bearing interest) that may, at the option of the owner or on specified date or owner occurrence be changed into another type of interest (usually a cost bearing interest). Example: a 5% overriding royalty convertible to a 1/8 (=12.5%) working interest after payout.

Core - A cylindrical column of rock usually 4 to 6 inches in diameter cut in lengths of about 30 feet by a special drill bit (the operation is like removing the core from an apple). After the core has been brought to the surface, it is examined by geologist for shows of hydrocarbons.

Cutting or Samples - Pieces of rock cut out of the formation by the bit and circulated to the surface by the mud.

 

- D -

Daily Drilling report - A record / report of the daily operations on a working drilling rig and, traditionally, phoned, faxed, emailed, or radioed in to the office of the drilling company and possibly the operator every morning.

Dampener - An air or inert gas device that minimizes pressure surges in the output line of a mud pump. It is also called a surge dampener.

Deed - A signed, written instrument that conveys title to real property.

Deed Restriction - An imposed restriction in a deed that limits the use of the property.

Degasser - The equipment used to remove unwanted gas from a liquid, especially from drilling fluid.

Density - The mass or weight of a substance per unit volume. Specific gravity, relative density, and API gravity are units of density.

Density Log - A special radioactivity log for open-hole surveying that responds to variations in the specific gravity of formations. It is a contact log (i.e., the logging tool is held against the wall of the hole). It emits neutrons and then measures the secondary gamma radiation that is scattered back to the detector in the instrument. The density log is an excellent porosity-measure device, especially for shaley sands. Some trade names are Formation Density Log, Gamma-Gamma Density Log, and Densilog.

Depletion - The reduction in value of mineral deposits as it is produced. Oil and gas are wasting assets, 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.

Depletion (Gas) Drive - When a well drills into an oil accumulation, free gas in the gas cap above the oil zone, expands. This forces the oil to flow into the wellbore, helping to force oil to flow into the wellbore and up to the surface ("solution gas drive").

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

Desander - A centrifugal device for removing sand from drilling fluid to prevent abrasion of the pumps. It may be operated mechanically or by a fast-moving stream of fluid inside a special cone-shaped vessel, in which case it is sometimes called a hydrocyclone.

Desilter - A centrifugal device, similar to a desander, used to remove very fine particles, or silt, from drilling fluid to lower the amount of solids in the fluid.

Development well - A well drilled to a known producing formation in an existing oil field.

Diamond Bit - A drill bit that has small industrial diamonds embedded in its cutting surface.

Die Insert - A removable, hard-steel, serrated piece that fits into the jaws of the tongs and firmly grips the body of the drill pipe, drill collars, or casing while the tongs are making up or breaking out the pipe.

Dies - A tool used to shape, form, or finish other tools or pieces of metal. For example, a threading die is used to cut threads on pipe.

Dip - The angle that a rock layer lies, measured relative to a horizontal plane.

Dipmeter Survey - An oil well surveying method that determines the direction and angle of formation dip in relation to the borehole. It records data that permit computation of both the amount and direction of formation dip relative to the axis of the hole and thus provides information about the geologic structure of the formation. It is also called a dipmeter log or dip log.

Directional drilling - Drilling in a direction away from the natural direction a wellbore would take. Today's sophisticated rotary steerable tools allow operators to steer around rock or wellbore damage.

Discovery Well - An exploratory well which encounters production in a previously unknown deposit.

Displacement Fluid - In well cementing, the fluid, usually drilling mud or salt water, that is pumped into the well after the cement is pumped into it to force the cement out of the casing and into the annulus (the space between the casing and the outer wall of the well bore).

Dissolved Gas - Natural gas that is in solution with crude oil in the reservoir.

Division Order - A contract with a purchaser of oil and gas which directs the payments of oil and gas revenues to the interest owners of a well.

Doghouse - A small enclosure on the rig floor used as an office and/or as a storehouse for small objects.

Dogleg - An abrupt change in direction in the wellbore.

Down-dip - A term used in a hydrocarbon reservoir that is not flat, i.e., a dipping formation. In such a formation, oil is found down-dip from the gas.

Downhole - Refers to equipment or mechanical operations that take place down a well bore.

Downhole Motor - A drilling tool made up in the drill string directly above the bit. It causes the bit to turn while the drill string remains fixed. It is used most often as a deflection tool in directional drilling, where it is made up between the bit and a bent sub (or, sometimes, the housing of the motor itself is bent). Two principal types of downhole motor are the positive-displacement motor and the downhole turbine motor.

Downtime - Time lost during drilling, often as a result of equipment breakdown.

Drawworks - The hoisting mechanism on a drilling rig. It is essentially a large winch that spools off or takes in the drilling line and thus lowers or raises the drill stem and bit.

Drill - To bore a hole in the earth, usually to find and remove subsurface formation fluids such as oil and gas.

Drill Ahead - To continue drilling operations.

Drill Bit - The cutting or boring element used in drilling oil and gas wells. Most bits used in rotary drilling are roller-cone bits. The bit consists of the cutting elements and the circulating element. The circulating element permits the passage of drilling fluid and utilizes the hydraulic force of the fluid stream to improve drilling rates.

Drill Collars - A heavy, thick-walled tube, usually steel, used between the drill pipe and the bit in the drill stem, used to stiffen the drilling assembly an put weight on the bit so that the bit can drill.

Drill Floor - Also called rig floor or derrick floor.

Drill Pipe - The heavy seamless tubing used to rotate the bit and circulate the drilling fluid. Joints of pipe are generally approximately 30 feet long are coupled together by means of tool joints.

Drill Rig - The equipment used to drill an oil and gas well. There are two types; rotary and cable tools. The rotary type is more modern and efficient.

Drill Stem Test (DST) - A method of formation testing. The basic drill stem test tool consists of a packer or packers, valves or ports that may be opened and closed from the surface, and two or more pressure-recording devices. The tool is lowered on the drill string to the zone to be tested. The packer or packers are set to isolate the zone from the drilling fluid column.

Drill String - The column, or string, of drill pipe with attached tool joints that transmits fluid and rotational power from the kelly to the drill collars and the bit. Often, the term is loosely applied to include both drill pipe and drill collars.

Drillable Packer - A permanent packer that can only be removed by drilling it out.

Drilling Break - A sudden increase in the rate of drilling. Usually it indicates that the drill bit is penetrating a porous layer of strata and/or can indicate crossing a fault.

Drilling Crew - A driller (tool pusher), a derrick hand, and two or more helpers who operate a drilling or workover rig for one tour each day.

Drilling Engine - An internal-combustion engine used to power a drilling rig. These engines are used on a rotary rig and are usually fueled by diesel fuel, although liquefied petroleum gas, natural gas, and, very rarely, gasoline can also be used.

Drilling Engineer - An engineer who specializes in the technical aspects of drilling.

Drilling Fluid (Mud) - Circulating fluid, one function of which is to lift cuttings out of the wellbore and to the surface. It also serves to cool the bit and to counteract downhole formation pressure.

Drilling Out - The operation during the drilling procedure when the cement is drilled out of the casing.

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

Dry hole - Any exploratory or development well that does not find commercial quantities of hydrocarbons.

Dual Completion - A single well that produces from two separate formations at the same time.

 

- E -

E&P - Exploration and production.

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.

Electronic Flow Meter - A device used for monitoring barrels of oil and Mcf of gas flowing from the wellhead. Measurements are typically expressed in real time, actual flow cumulative flow and historical data.

Enhanced oil recovery (EOR) - Refers to a variety of secondary and tertiary recovery processes to increase the amount of oil removed from a reservoir, typically by injecting a liquid (e.g., water, surfactant) or gas (e.g., nitrogen, carbon dioxide).

Escrow - A written agreement among parties, requiring that certain property/funds be placed with a third party. The object in escrow is released to a designated entity upon completion of some specific occurrence.

EUR (Estimated Undeveloped Reserves) - An estimate of the cumulative volume of reserves that will be recovered (from a specified reservoir) over the life of a well.

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

Exploratory well - A hole drilled to find oil or gas in an area previously considered unproductive area or to extend the limit of a known oil or gas reservoir.

 

- F -

Fault - A crack or fracture in the earth's crust.

Feet of Pay - The thickness of the pay zone penetrated in a well.

Field Formation - A geographical area under which one or more oil or gas reservoirs lie, all of them related to the same geological structure.

Fishing - The procedure of locating and retrieving an object (a 'fish') that has accidentally fallen into, or been left in the borehole, and must be retrieved before mechanical operations can be resumed.

Flooding - One of the methods of enhanced oil recovery. The general method involves pumping (injecting) a fluid (commonly water) into the reservoir, through wells located around the perimeter of an oil field. The 'pressure front' that is created, flushes oil toward the central part of the field, resulting in increased production.

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.

Fluorescence - An optical property of some materials: Hydrocarbons glow emitting visible light when they absorb radiation from an ultraviolet source. Liquid crude oils fluorescence with colors that range from brown to yellow to green to blue. The color may give some indication of the density of the oil and its chemical characteristics.

Folding - The bending of layers of rock.

Formation - A geological term that describes a succession of strata similar enough to form a distinctive geological unit useful for mapping or description.

Farmout Agreement - An arrangement in which the responsibility of exploration and development is shifted (by assignment) from the working interest owner to another party. Under the farmout agreement: An operator is obligated to perform a specified exploration and drilling program to earn a working interest in the property.

Field - An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

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.

Fracturing - A procedure undertaken to attempt to increase the flow of oil or gas from a well. A fluid is pumped into the reservoir, with tremendous forces that the reservoir rock is physically broken and split open. usually the 'frac fluid' carries small pellets or beads mixed in with it; the idea is for them to get caught in the fractures and prop them open (the beads or pellets are called the propping agent or proppant). As the pumping pressures are gradually released at the surfaces, the natural reservoir pressures will force the 'frac fluid' out of the reservoir, and back into the well as the well begins to flow. The proppant remains behind., holding the fractures open, thereby increasing the flow of oil or gas from the reservoir into the well. This procedure is also called hydraulic fracturing. 'To frac a well' means to hydraulically fracture a reservoir in a well.

 

- G -

Gas Cap - An accumulation of natural gas, on top of layer of saturated liquid hydrocarbons, in a reservoir.

Gas Column - The vertical height of a gas accumulation above the gas-oil or gas-water contact.

Gas Lift - A method of secondary recovery similar to gas injection, except that the injection well and the production well are both the same well. Dry natural gas is pumped down through the space between the casing and the production tubing, and into the reservoir. Gas dissolves into the oil increasing the oil's ability to flow, and reservoir pressure is increased around the well. The procedure of injecting gas and then flowing the oil-and-gas mixture is carried on intermittently. The gas is separated from the mixture at the surface, where it is stored for re-injection.

Gas-Oil Ratio (GOR) - The volume of gas produced along with the oil from an oil well, usually described in MCF (thousands of cubic feet of gas) per barrel of oil.

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

General Partner - In a limited partnership, the general partner is responsible for managing the partnership's activities (and is commonly the party that put the deal together).

Geophysicist - A geophysicist applies the principles of physics to the understanding of geology.

Gross Acres - The number of acres in which one owns a working interest. A net acre, is a gross acre multiplied by one's working interest owned.

Gravity - A standard adopted by the American Petroleum Institute for measuring the density of a liquid. Gravity is expressed in degrees with lower numbers indicating heavier liquids and higher numbers indicating lighter liquids.

 

- H -

Held by Production (HBP) - An oil and gas property under lease because it is currently producing on that property is considered "held by production".

Horizontal Drilling - The new and developing technology that makes it possible to drill a well from the surface, vertically down to a particular depth and then to turn a right angle, and continue drilling horizontally within a specified reservoir, or an interval of a reservoir.

Hot Oiling - Production of parafinic crude oil usually tends to decline rapidly (as the paraffins in the oil clog the porosity surrounding the well bore). Hot oiling is a method of (temporarily) alleviating this situation by using heating equipment and special procedures to increase the temperature in the reservoir close to the borehole, thereby liquefying the paraffin, and unclogging the pore spaces.

Hydrocarbons - A large class of organic compounds composed of hydrogen and carbon atoms, including crude oil, natural gas and natural gas condensates.

 

- I -

Initial Potential - Flow rate measured during the initial completion of a well.

Initial Production (IP) - 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.

Injection well - A well where gas or water is injected back into the reservoir, usually to increase pressure and thereby stimulate production. In a gas injection well, gas is reinjected into the upper gas portion of the reservoir. Water injection wells are typically found offshore.

Intangible Drilling Costs (IDC's) - These costs include the amounts necessary for the drilling of wells and the preparation of wells for the production of oil and gas, such as wages, fuel, repairs, hauling, supplies, clearing of ground and geological work in preparation for the drilling, construction of derricks, tanks, pipelines, and other physical structures necessary for drilling.

Integrated - When applied to an oil company, it indicates a firm that operates in both the upstream and downstream sectors (from exploration through refining and marketing).

 

- J -

Joint - A single section of drill pipe, casing or tubing, usually about 30 feet long.

Joint Operating Agreement (JOA) - A detailed written agreement between the working interest owners of a property which specifies the terms according to which that property shall be developed.

Joint Venture - Term used to describe a specific oil and gas investment project.

Joint Venturers - Any persons, firms, corporations or other entities that are admitted into a joint venture either as additional or substitute joint venturers and that are then owners of a unit or units in a joint venture.

 

- K -

Kelly Bushing (KB) - Part of the drilling rig, the Kelly is a long hollow steel bar that connects to the upper most end of the drill string. it is square or hexagonal in cross-section. The Kelly bushing is a 'sleeve' in the rotary table through which the Kelly can freely move up and down during drilling. The depth to a particular zone for a well is generally measured from the Kelly bushing, which can be anywhere from about 5 to 50 feet above ground level (dependent on the type and size of drilling rig used).

 

- L -

Lease - A contract by which the owner of the mineral rights to a property conveys to another, the exclusive right to explore for and develop minerals on the property, for a specified period of time. The conveying party is 'lessor'; the mineral rights owner. The recipient is 'lessee'. The terms of the lease are typically negotiated between company, and the owner of the mineral rights.

Lease Bonus - Money paid to a landowner or other holder of mineral rights by the lessee for the execution of an oil and gas lease in addition to any rental or royalty obligations specified in the lease.

Leasehold - The estate or interest a lessee has in an oil and gas lease.

Lifting Costs - The cost involved in lifting (pumping) oil from a producing reservoir in a well, up to the surface, including the lease operating cost.

Lime Stone - Sedimentary rock mostly consisting of calcium carbonate. On a world-wide scale, limestone reservoirs contain more oil and gas reserves than any other type of reservoir rocks.

Limited Partnership - A partnership in which the general partner or partners manage the partnership's activity and are solely liable for them. The limited partners are liable only to the extent of their contributions (and assessments), and they have limited control over policy decisions.

Listing - An employment contract between principal and agent that authorizes the agent (such as a broker) to perform services for the principal and his property.

Listing Agreement - A contract executed by the auctioneer and the seller which authorizes the auctioneer to conduct the auction and sets out the terms of the agreement and the rights and responsibilities of each party.

LNG - Liquefied Natural Gas.

Logs - Records made from data-gathering devices lowered into the wellbore. The devices transmit signals to the surface which are then recorded on film and used to make the record describing the formation's porosity, fluid saturation, and lithology.

Lost Circulation - Occurs when drilling fluid escapes from an uncased well bore into porous zones, or holes such as fractures or caverns that occur naturally in the underground formations.

 

- M -

Management Fee - In oil and gas limited partnership: A fee paid by the limited partners to the general partner for services he provides in the management of the partnership. The amount of such fee is detailed in the partnership agreement.

Mcf - thousand cubic feet, the standard measurement for natural gas.

Midstream - A term sometimes used to refer to those industry activities that fall between exploration and production (upstream) and refining and marketing (downstream). The term is most often applied to pipeline transportation of crude oil and natural gas.

Migration - The motion of oil and gas through layers of rock deep in the earth.

Mineral Acre - The full mineral interest in one acre of land.

Mineral Rights (Interest) - The ownership of all rights to gas, oil, and other minerals as they naturally occur in place, at or below the surface of a tract of land. The mineral owner may execute an oil or gas lease conveying his mineral interest in a tract of land.

Minimum Opening Bid - The lowest acceptable amount at which the bidding must commence.

MMCF - Abbreviation for a million cubic feet of natural gas.

Mud, or drilling mud - A specialized mixture of fluids and solids, or liquid and gaseous fluids, used in drilling wellbores. There are many types of these drilling fluids, usually categorized by the major component such as water-base drilling fluid, gyp mud, emulsion mud, etc. See also drilling fluid.

Mud Engineer - A technician responsible for the proper weight and flow of the mud.

MWD - Measurement while drilling.

 

- N -

Natural gas liquids (NGL) - The portions of gas from a reservoir that are liquefied at the surface in separators, field facilities, or gas processing plants. NGL from gas processing plants is also called liquefied petroleum gas (LPG).

Net Pay (Net Feet of Pay) - The aggregate thickness (in feet) of the pay zone.

Net Profits Interest - A share of the gross production from a property that is carved out of a working interest, and it is figured as a function of net profits from operation of the property.

Net Revenue - That revenue available from the sale of oil and gas after royalties and (NRI) operating costs, including taxes.

Net Revenue Interest - The percentage of production to which a working interest owner is entitled after deducting costs such as royalties.

Non-Accredited Investors - Persons or entities who do not satisfy one or more of the alternative definitions of the term "Accredited Investor" and who, by virtue of their financial resources acumen, satisfy the suitability standards imposed by Rule 506 of Regulation D and otherwise meet the financial investment standards therein required.

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

Non-commercial - A well that is not capable of producing enough oil to pay for the drilling and completion costs.

 

- O -

Offering Memorandum - A legal document provided to potential investors in a venture (such as an oil and gas limited partnership), describing the terms under which the investment is offered.

Oil Column - The vertical height or thickness of an oil accumulation above the oil-water contact. In commercial oil fields, oil columns can range from 5 feet to (rarely!) several hundred feet. See gas column.

Oil - A liquid hydrocarbon.

Oil (API) Gravity - The most widely used indicator of a crude oil's worth to the producer is its API gravity. The less dense oils have a higher API gravity and are generally the most valuable.

On the Pump - An expression that means a well is incapable of flowing and that the oil is being pumped to the surface by a "pumping unit".

Open Hole - Refers to a borehole, or the portion of a borehole, in which the casing has not been set.

Opening Bid - The first bid offered by a bidder at an auction.

Operating expense - The expenses incurred through the operation of producing properties.

Operator - The company or person responsible for the drilling, completion and production operations of a well, and the maintenance of the leased property. Responsibilities of the operator and other working-interest owners are listed in the joint operating agreement.

Outer Continental Shelf - A term used primarily in the U.S. for the offshore areas under federal jurisdiction.

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

Overriding Royalty (ORRI) - A revenue interest in oil and gas, created out of a working interest. Like the lessor's royalty, it entitles the owner to a share of the proceeds from gross production, non-inclusive of any operating or production costs.

 

- P -

Packer - A flexible rubber sleeve that is part of a special section of pipe. The tool may be added to the drilling string. When the drill string is lowered into the borehole, the packer can be expanded (from the surface), to temporarily block off a portion of the annulus of the borehole. Often it may be done during drill stem tests or the squeezing operations.

Pay Zone or Pay - The section of rock, from which oil or gas is expected to be produced in commercial quantities.

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

Percentage Lease - A lease of property in which the rent is based upon the percentage of the sales volume made on the specific premises. There is usually a clause for a minimum rent as well.

Perforate, or "perf" - "perfing" a well means to create holes in the casing or liner of the wellbore through which oil and gas flows from the reservoir up to the surface. Perforation is accomplished with a perforating gun containing strategically placed explosive charges that is lowered into the wellbore.

Perforating Gun - An instrument lowered by a wireline into a cased well. It contains explosive charges that are electronically detonated from the surface. When it is on the level of the pay zone, the bullets are shot into the reservoir rock, piercing the casing (and surrounding cement sheath). The resulting holes allow hydrocarbons to flow from the pay zone into the borehole.

Permeability - A measure of the ability of a rock to transmit fluid through pore spaces. Rocks may have holes or void spaces in them (porosity), but if these holes do not connect, the permeability can be drastically reduced.

Petroleum Geologist - A geologist who specializes in the exploration, and the production of petroleum.

Plug - An object set in a borehole to block the passage of fluids (usually made of cast iron or cement).

Plug Back - To block off the lower section of the borehole by setting a plug, usually to perform operations in the upper part of the hole.

Plugged and Abandoned (P&A) - A depleted well or dry hole that has been (typically) filled with cement and marked, with all surface equipment removed.

Poor-Boy - To 'poor-boy' a well means to try to make do without adequate financing to borrow money, sell interests, make trades, borrow equipment, or otherwise somehow get enough money or credit, to drill the well.

Porosity - A ratio between the volume of the pore space in reservoir rock and the total bulk volume of the rock. The pore space determines the amount of space available for storage of fluids. These spaces or pores are where oil and gas accumulate; therefore, a formation containing a high percentage of porosity can contain more hydrocarbons.

Private Placement Offering - A securities offering not intended for the general public. Private placement offerings do not require SEC registration, provided the securities are bought for investment purposes rather than resale, as specified in the investment letter.

Produced (Formation) 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."

Producing Well - Wells producing oil or gas in commercial quantities.

Proppant, Propping Agent - Beads or Pellets used in the fracturing process.

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

Public Offering - A securities offering for sale to the general public. It must be registered with: (1) the Securities and Exchange Commission of the Federal government and (2) the securities-regulating agencies of the various state in which it will be offered. See private placement.

Pumper - An employee of an operator who is responsible for gauging the oil and gas sold off the leases he has been assigned and who is also responsible for maintaining and reporting the daily production.

 

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Rework Operations - Any major operation performed on a well after its completion in an attempt to restore or improve its ability to produce.

Re-entry - Assume that a well has been abandoned, but subsequent drilling and production in the area suggests that a potential pay zone in the well was missed or 'passed over'. Instead of drilling a second well to evaluate the zone of interest, a company might drill out the cement abandonment plugs in the original borehole to test the potential zone. Such a 're-entry' can be a rather risky operation, but if successful, the cost may be much less than drilling a new well.

Reserves - The amount of oil and gas in a reservoir currently available for production, usually described as barrels of oil, or MCF (thousands of cubic feet) of gas, attributable to a well, to a property, or to an entire field.

Reservoir - Any rock having enough porosity and permeability to contain appreciable hydrocarbons. Most often reservoirs are sandstone and limestone (limestone/dolomite).

Resistivity - The ability of a substance to impede the flow of electricity through it. Variations in the resistivity of various rocks depends largely on the fluids contained in the pores of the rocks: pure oil, pure gas, and fresh water each have high resistivity, while salt water has very low resistivity. Most dry rocks do not conduct electricity (and therefore have high resistivity).

Retained Interest - A fractional interest kept by the owner of a whole interest when the balance of the whole interest is transferred (conveyed) to another party. See carved out interest.

Reversionary Interest - An interest in a well or property that becomes effective at a specified time in the future or on the occurrence of a specified future event. See back-in.

Risk - Literally: 'the possibility of loss or injury'. In oil and gas exploration, a level of uncertainty is associated with the various possible outcomes of the undertaking.

Roughneck - One of the two or three field-hands on the derrick floor during drilling operations, whose job revolves around breaking out the drill pipe, making connections, and stacking drill pipe. It is a tough, physically demanding, and very dangerous job.

Roustabout - A semi-skilled hand that looks after producing wells and production facilities. As the name indicates the greater diversity of general maintenance jobs that must be done. This position is frequently offered to former roughnecks, who due to age or injury, may no longer be fit for the strenuous work on a drilling rig during drilling operations.

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

Royalty Acre - The (mineral owner's) royalty on one acre of leased land.

 

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Salt Water Disposal Well - Many wells produce salt water while producing oil. The disposal of this water is a problem to an operator because of pollution. The best solution to the problem is to pump the waste back into a formation that is deep enough not to pollute shallow water sands. Many stripper wells which are no longer commercial are converted for this purpose.

Sandstone - Rock composed chiefly of sand-sized particles or fragments of the mineral quartz. Individual grains seem to be naturally "glued" together by the mineral calcite.

Saturation - (1) Water-Saturation: the fluid contained in the pores of an oil and gas rock which usually consists of a mixture of water plus oil and gas. Water-saturation is the percent of water contained in the mixture. A low water-saturation (25% for example) implies a high concentration of hydrocarbons (approximately 100-25=75%) and suggests that the rock will produce oil or gas. (2) In a reservoir containing oil, the crude oil is said to be saturated when it contains dissolved natural gas. Any excess gas would accumulate above the oil as a gas cap.

Sealed Bid - A method of sale utilized where confidential bids are submitted to be opened at a predetermined place and time. Not a true auction in that it does not allow for reaction from the competitive market place.

SEC - The Securities and Exchange Commission.

Secondary Recovery - A broad term encompassing any method of extracting oil from a reservoir after a well or field has exhausted its primary production. After primary recovery operations have taken their course, various operations may be taken to increase the amount of oil by normal methods of flowing and pumping. The second stage to increase production is by addressing the condition of the reservoir. Typical operation may involve forcing gas ('gas injection'), or water ('water flooding') into the reservoir. This re-pressurizes the reservoir, which allows recovery of more oil than would be possible from primary recovery.

Secondary Term - The period of time that a lease is automatically extended, as long as there is active drilling or production.

Section - A square tract of land which has area of one square mile (=640 acres). There are 36 sections in a township.

Securities - Securities are commonly thought of as stocks and bonds. As defined by the Securities Act of 1933, securities include any certificate of interest or participation in any profit-sharing agreement, investment contract, or fractional undivided interest in oil, gas, or other mineral rights.

Securities Act of 1933 - Establishes requirements for the disclosure of information for any interstate offering for the sale of securities.

Securities Act of 1934 - Established the Securities and Exchange Commission which regulates the activities of securities markets and their offering requirements.

Sedimentary Rock - Rock that is naturally formed from fragments of other rocks by compression. Sedimentary rocks are important in terms of petroleum because sandstone and limestone are often reservoir rock. Rock is generally classified in one of three categories; sedimentary, igneous or metamorphic.

3-D Seismic - An exploration technique used in the search for oil and gas underground structures. The basic premise behind seismic is the same as ultra sound technology used in the medical field. Sound from a shot hole is recorded from geophones and interpreted to give a picture of the underlying structures within the earth. 3-D has now become a common practice to redefine and identify known as well as unknown structures. Many times these structures contain traps that hold oil and gas yet to be discovered.

4-D Seismic - The newest advances in seismic technology which now takes into consideration a 4th dimension; which is time. With 4-D seismic geologists are now able to monitor the movement and the mobility of oil as it is extracted in the production process.

Selling Expenses - Cost incurred in marketing interests in securities.

Separation - The process of separating liquid and gas hydrocarbons and water. This is typically accomplished in a pressure vessel at the surface, but newer technologies allow separation to occur in the wellbore under certain conditions.

Settled Production - The second phase of production in the producing life of a well.

Severance Tax - A tax paid to the state by producers of oil or gas in that state.

Shale - A type of rock composed of clay or mud. When the clay is compacted under great pressure and temperature deep in the earth, water contained in the clay is squeezed out, and clay turns into shale.

Show - An indication of oil or gas as observed and recorded during the drilling of a well. A geologist would rate a show as 'good', 'fair', or 'poor', etc.

Shut in - To close valves on a well so that it stops production, or a well on which the valves have been closed.

Shut-In Royalty - A special type of royalty negotiated when leasing a property. It commonly pertains to gas production. If a commercially producible gas well is shut-in due to the lack of a gas market, the (pipeline access) lease will remain in effect as long as the working-interest owner (leasee) pays the specified shut-in royalty to the mineral-rights owner (lessor).

Sidetrack - to drill a secondary wellbore away from the original wellbore, usually to bypass a damaged section of the original wellbore.

Situs - The location of a property.

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 state regulatory agencies.

Spud - To spud a well means to begin the initial drilling operations.

Squeeze - forcing cement into a wellbore to isolate perforations or repair damage.

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.

Stripper Oil Well - An oil well capable of producing no more than ten barrels of oil per day.

Stripper Gas Well - A gas well that produces an average of less than 60,000 cubic feet of gas per day.

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".

Subscription Agreement - An application by an investor to join a limited partnership. In most cases, the investor will have to fill out a form created by the general partner evaluating the investor's suitability for the investment in the partnership. In general, limited partners must be approved by the general partner.

Supervisory Fee - Similar to a management fee in an oil and gas limited partnership, it is paid by the partnership to the general partner for direct supervision of mechanical operations at the well site.

Surface Pipe - 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.

Surface Rights - Surface ownership of a tract of land from which the mineral rights have been separated. Surface rights include the full use and rights that belong to the owner with the exception of surface possession is subject to the mineral owners right of access to the land for the purpose of extracting his minerals.

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.

Syndication Expenses - The expenditures incurred by a partnership in connection with issuing and marketing interests in an investment plus fees of the issuer for securities and tax advice, accounting fees for audits and other representations included in the offering memorandum, registration (with the Securities and Exchange Commission of the Federal government and with pertinent state government agencies), brokerage fees, and printing costs of the offering memorandum and various promotional materials.

 

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Tangible Drilling Costs - TDC's are tangible personal property, commonly referred to as lease and well equipment, and including, pipe, casing, tubing, tanks, engines, and machines.

Tank Battery - A group of tanks at a well site used to store oil prior to sale to a pipeline company.

Tanks - When the drilling, testing, completing and equipping of a well is finished the well is said to be completed "to the tanks".

Tar Sand - A sandstone in which the pores between grains are filled with a highly viscous tar.

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

Title - The combination of factors that, together, constitute legal ownership of a parcel of an oil and gas lease.

Tool Pusher - The supervisor over drilling rig operations. Also called 'drilling foreman' or 'rig superintendent'

Top Lease - A conditional lease that may be granted by the mineral-rights owner of a property while a pre-existing recorded lease of that property is nearing expiration, but nonetheless is still in effect. The top lease goes into effect only if and when the existing lease expires (or is terminated).

Total Vertical Depth (TVD) - The maximum depth of the borehole.

Township - A square tract of land six miles on a side, it consists of 36 sections of one square mile each.

Trap - A natural folding or shifting of layers of rock where non-porous or impermeable rocks act as a barrier, blocking the natural upward flow of buoyant hydrocarbons from underlying reservoir rocks. Many oil and gas fields are trapped accumulations of oil and gas.

Trip - Making a 'trip' is the procedure of pulling the entire drill string (drill pipe) out of the borehole and then running the entire length of drill pipe back into the hole. This is done to change drill bits, or prepare for coring operations, etc.

Tubing - A small diameter pipe or tube threaded at both ends, that is lowered into a completed well. Oil and gas are produced through a string of tubing (which can be periodically removed for maintenance).

Turnkey - A drilling contract that calls for a drilling contractor to drill a well, for a fixed price, to a specified depth and to adequately equip it so that the operator need only turn a valve and oil will flow into the tanks or gas into the pipeline.

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.

 

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Unassociated Gas - Natural gas from a gas only reservoir. See also associated gas.

Under balanced 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 water flooding processes or for disposal of produced water.

Unit - A fixed measure of investment into a Joint Venture, the number of units offered is determined by each exploration company and project. For example, a subscription agreement may offer 20 units at $25,000 per unit.

Updip - A term used in a hydrocarbon reservoir that is not flat, i.e., a dipping formation. In such a formation, gas is found updip from the oil.

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

 

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Variance - Government authorization to use or develop a property in a manner which is not permitted by the applicable zoning regulations.

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).

Waiver - The intentional relinquishment or abandonment of a specific claim, privilege, or right.

 

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Wasting Assets - Assets that will eventually lose their value: by depletion as they are produced (natural resources such as oil, gas, minerals, and timber), or by the passage of time (leased mineral rights, patents).

Water Drive - The most efficient driving mechanism to force oil and gas out of a reservoir. Considering natural pressures in the pay zone, displacing the oil-water contract pushing it upward and flushing the oil ahead of it, as oil is produced. Toward the end of the life of a water drive well, the fluid that is produced, contains increased percentages of water until the well becomes watered out and is abandoned. See also gas drive.

Water Flooding - A secondary recovery method for the production of oil from a formation. Oil will float on water. When water is injected into some formations, the oil will float or be washed to the surface, thereby, increasing the amount of production from a well or field. Some formations will not react to this type of stimulation.

Weevil - An unglamorous adjective (or noun) used to describe a "green" hand anyone new and uninitiated, especially to the mechanical operations of an oil rig.

Well servicing - Maintenance work performed on an oil or gas well to improve or maintain the production.

Wellbore - Physically, wellbore refers to the borehole (equipped for, or intended to be equipped for, production or in other words a completed 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 - A reservoir rock is considered to be 'wet' when it contains water but no hydrocarbons. (Ironically, a well that finds only a wet reservoir, is called a dry hole.)

Whipstock - A steel blocking device placed in the bottom of a borehole. When drilling is resumed, the whipstock forces the drill bit to veer off at a slight angle. The deviated portion of the borehole is called a side track.

Wildcat - An exploratory well drilled to a reservoir, from which no oil or gas has previously been produced in the nearby surrounding area. When the well is located far away from all previous drilling attempts, it might be called a 'rank wildcat'.

Working Interest - The interest that provides its owners the right to explore for and produce oil and gas. It is a measurement, as a percentage, of the proportion of the costs of exploration and production borne by the working interest's owner.

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.

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.

 

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Zone - A layer of rock penetrated by a borehole that shows characteristics which distinguish it from other nearby rock; 'pay zone', 'lost-circulation zone', 'high-pressure zone', etc.