Glossary of Oil and Gas Terminology:
API – American Petroleum Institute
Acoustic log – a well log that records the acoustic characteristics of subsurface formations, based on the amount of time required for a sound wave to travel a specific distance through rock. Porosity can be determined this way.
Acidize – to treat an oil-bearing limestone formation to increase oil production. Hydrochloric acid will be injected into the well under pressure to open or enlarge pores in the formation.
Area of Interest – the area immediately surrounding a productive well in which its investors have the implied right to participate in future wells drilled by the same operator
Artificial Lift – anytime oil is pumped out of a well by means of a rod, tubing, or submersible pump it is referred to as artificial lift
Assignment – a transfer of a property or interest via contract to another individual or entity; most commonly, an oil or gas lease
BOPD (abbr.) – Barrels of oil per day
Back in provision – an option reserved in a farmout agreement whereby the party granting the farmout has the option to convert an overriding royalty into a working interest once conditions are favorable to do so
Barrel (Bbl) – a measure of volume for petroleum products in the US. A barrel is equal to 42 gallons
Battery – when two or more tanks are connected together to receive oil production on a lease; also called Tank Battery
Behind the pipe – refers to reservoirs that due to low permeability were passed through but not tapped because they were uneconomical to produce
Bit – the boring device used in drilling oil and gas wells. The bit consists of a cutting and a circulating element. The cutting portion, or teeth, are usually made of steel, tungsten carbide or industrial diamonds. The circulating element permits easy passage of the drilling fluids which assist in improving drilling rates.
Blowout – when oil or gas erupts from a well in a dangerous, uncontrolled manner; also called a wild well
Blowout Preventer (BOP) – a heavy-duty valve located at the wellhead to control well pressure. A stack or assembly of these valves is called a Christmas tree.
Casing – steel pipe placed in a well after it is drilled to prevent the walls from caving in, to prevent movement of fluids from one formation to another, and to ease the extraction of oil if the well is productive
Cementing – when a slurry of cement and water is applied to the well walls after the casing has been run into the hole. It provides a protective sheath around the casing and prevents the undesirable migration of fluids, such as oil or gas into underground water reserves.
Completion – to finish a well so it is ready to produce oil or gas. After reaching total depth (TD), casing is run and cemented, casing is perforated next to the producing zone, tubing is run and control valves are installed at the wellhead.
Crude oil – liquid petroleum as it comes out of the ground, before it has been refined for end use
Depletion – the exhaustion of a natural resource; an oil or gas reserve is depleted when all or most of the economically recoverable hydrocarbons have been produced
Developmental well – a well drilled in a proven oil field
Discovery well – the first well drilled in a new field that reveals the presence of oil and gas reservoirs
Dry Hole – any well that does not produce oil and gas in quantities large enough to justify production
Electric Log – an electrical survey is conducted on an uncased well to assist the geologist in determining the nature of the rock below; a special tool emits an electric current into the hole and the resistance of the rock to the current is recorded
Exchange – the sale of one property and the acquisition of another property in a transaction structured as a tax-deferred, like-kind exchange pursuant to Section 1031 of the Internal Revenue Service. The purpose of a 1031 exchange is to defer depreciation recapture and capital gains income tax liabilities. Also known as 1031 Exchange
Exploration – A general term referring to the search and discovery of oil and gas deposits
Field – a geographic area in which a number of oil and gas wells produce from a continuous reservoir. A field may have several separate reservoirs at varying depths. The term field may refer to the surface area only or may refer to underground productive formations as well.
Formation – a bed or deposit composed of the same kind of rock throughout. Each formation is given a name as a result of the study of the formation at the surface or based on the fossils found in the formation.
Formation Competency Test – a test used to determine the amount of pressure required to cause the formation to fracture
Formation Testing – the process of gathering pressure data and fluid samples to determine a formation’s production potential before choosing the completion method to be used
Fracing – when liquids are forced into the well at high rates to hydraulically fracture the rock formation and release oil and gas into the wellbore
Hydrocarbon – an organic compound consisting of hydrogen and carbon. The majority of hydrocarbons found naturally occur in crude oil
Initial Production (IP) – the early production of a well; this is used to determine the ability of the well to produce upon completion. Investors should understand that a well may not be able to maintain the same flow rates of this initial stage in its life.
Intangible Drilling Costs (IDC) – the cost to drill a well outside of equipment costs and leasehold interests. These expenditures are 100% tax deductible even if the well is productive
Lease – 1) a contractual arrangement between a landowner, as lessor, and a company or individual, as lessee, that grants the right to exploit the premises for minerals or other products 2) The term or duration of such a contract 3) Property used or occupied under the terms of such a contract.
Mast – a portable derrick that can be raised into position as a single unit. Because the standard derrick must be assembled piece by piece, they have largely been replaced by the mast.
Measured depth (MD) – the total length of a well measured in feet along its course underground. Measured depth may be different than the true vertical depth especially in directional drilling.
Mineral rights – ownership of mineral rights gives the owner the right to exploit, mine, or produce any or all of the minerals lying below the surface of the property; also Mineral Estate or Mineral interest.
Mud – a liquid used during the drilling process that not only cools and lubricates the bit, but also brings cuttings to the surface and helps prevent blowouts by holding back subsurface pressures.
Natural gas – naturally occurring mixture of hydrocarbons found in underground rock formations, which may contain some quantities of nitrogen, carbon dioxide, hydrogen sulfide and water vapor. Natural gas is widely used and is an important energy source. It is often informally referred to simply as gas.
Net Revenue Interest (NRI) – The percentage of production revenue remaining after deducting royalties
Nipple – a pipe fitting that is threaded on both ends and is used to make a connection between pipe joints and other tools
Offset Well – a well drilled next on the next drilling or spacing unit adjacent to a producing well
Oil Gravity – the most widely used indicator of a crude oil’s worth is its API gravity, with the less dense oils (higher gravity) being the most valuable. This is based on the idea that lighter oil contains higher percentages of more valuable products such as gasoline.
Oil well – any well from which oil is produced
PSI (abbr.) – pounds per square inch
Packer – a down-hole expanding plug used in a well to seal off certain sections of tubing or casing when either cementing and acidizing, or when a production formation is to be isolated. Packers are run on the tubing or the casing, and when in position, can be expanded mechanically or hydraulically against the pipe wall or the wall of the wellbore.
Payout – the point at which the costs of drilling, completing and operating a well have been recovered and the well can begin to show a profit
Pay Zone – an interval of rock from which oil or gas is expected to be produced in commercial quantities
Permeability – a measure of how easily fluid can flow through the pores of rock or cement
Pipe – long, hollow cylinder usually made of steel through which liquids are conducted. A general term that may be used in the oilfield to refer to casing, drill pipe, line pipe, or tubing.
Plug – an object or device that blocks a hole or passageway (such as a cement plug in a borehole)
Poor boy – a term Matt uses frequently; meaning to ‘make do’ or ‘to do on a shoestring’
Proven reserves – oil and gas that has not yet been produced but has been located and is recoverable
Reservoir – a subsurface, permeable rock body in which oil and/or gas have accumulated
Salt Water Disposal Well – because wells often produce salt water with crude oil, the treated waste water will be pumped back into a suitable formation deep enough not to pollute shallow water sands or a stripper well may be converted for this purpose
Saturation – the degree to which the pore space in a formation contains hydrocarbons
Secondary Recovery – a recovery method used to produce oil from a reservoir when the oil was not recoverable by primary methods
Sour crude – oil containing significant amounts of hydrogen sulfide, or another acid gas, that gives off a pungent odor
Stake a well – once exploration techniques have determined that reserves of underground hydrocarbons may exist, a certified and registered land surveyor locates the precise location on the surface where the well should be drilled and drives a stake into the ground to mark the spot
String – an assembly of individual lengths of pipe or tubing joined together to create a continuous length that can be thousands of feet long
Stripper well – a well that is nearing depletion that produces very little oil or gas
Sweet crude – oil containing little or no sulfur; said to have a sweet aroma
Tubing – relatively narrow-diameter pipe that is run into the well to serve as a conduit for bringing oil and gas to the surface
Tongs – large wrenches used for turning drill pipe, casing, or tubing. Referred to as makeup tongs when used to screw one length of pipe to another for making up a joint. Referred to as breakout tongs when separating or unscrewing connected pipe. When the tongs are suspended in the derrick or mast, they are referred to as lead tongs when used to lower or raise pipe from the hole.
Tackle – an assembly of ropes or sheaves used for pulling; also called a hoist.
Trip in – to go in the hole
Trip out – to come out of the hole
Turnkey Contract – a contract in which the contractor furnishes all materials and labor to drill a well to a certain depth or stage of completion for a specified sum of money
Well – the hole made by the drilling bit. It may be have casing in it or may be open (uncased); also called wellbore, borehole, or hole.
West Texas Intermediate Crude Oil (WTI) – a type of crude oil produced in the United States and used as a benchmark in oil pricing. It is a light, sweet crude oil which means it has a low density and relatively low sulfur content.
Working Interest – the interest in oil or gas that includes all responsibility for drilling, developing and operating costs; also known as Operating Interest