Glossary of Terms
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:
- An individual who alone, or with a spouse, has a net worth of over $1 million.
- An individual who alone had income in excess of $200,000 in each of the past two years (or with a spouse, in excess of $300,000 in each of the past two years) and has a reasonable expectation of doing as well in the current year.
- A financial institution such as bank, broker/dealer, insurance company or business development company.
- Any director, officer or general partner of the issuer.
- A trust or business partnership, with assets in excess of $5 million, that wasn’t formed for the purpose of acquiring the unregistered securities.
- Any entity wholly owned by accredited investors.
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.
BARREL OF OIL
42 U.S. gallons of oil at 60 degrees Fahrenheit.
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.
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.
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.
C&E
Well completion and equipment cost.
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CASING
Steel pipe which screws together and is lowered into the hole after drilling is complete. It is used to seal off fluids and keeps the hole from caving in.
CEMENT OR “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.
COMMERCIAL WELL
A well which is capable of producing enough products to pay for itself and give a profit to its owners.
COMPLETION
A general term referring to all activities necessary to put a well in production after it has been drilled to casing point.
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.
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.
DEPOSIT
An accumulation of oil, gas or other minerals which is capable of production.
DEVELOPMENTAL WELL
A well drilled to a known producing formation in an existing oil field.
DISCOVERY WELL
An exploratory well which encounters production in a previously unknown deposit.
DRILLING
The act of boring into the earth.
DRILLING RIG
The equipment used to bore into the earth. There are two types: a. Rotary b. Cable tools. The rotary type is more modern and efficient.
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.
EXPLORATION
A general term referring to all efforts made in the search for new deposits of oil and gas.
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.
FRAQING
The process of pumping fluids into a productive formation at high rates of injection to hydraulically break the rock. The “fractures” which are created in the rock act as flow channels for the oil and gas to the well.
GAS WELL
A well that produces natural gas which is not associated with crude oil.
IDC (Intangible Drilling Costs)
All costs incurred in drilling a well other than equipment or leasehold.
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.
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NON-COMMERCIAL
A well that is not capable of producing enough oil to pay for the drilling.
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.
OIL
A liquid hydrocarbon. (see “Crude Oil”)
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&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”.
OPERATING EXPENSE
The expenses incurred through the operation of producing properties.
PAYOUT
When the costs of drilling, producing and operating have been recouped from the sale of products on a well.
PERMEABILITY
A measure of the resistance of rock to the movement of fluids. Rocks may have holes or void spaces in them (porosity), but if these holes do not connect, the permeability can be drastically reduced.
POROSITY
A measure of the relative volume of void space in rock to the total rock volume. These spaces or pores are where oil and gas accumulate; therefore, a formation containing a high percentage of porosity can contain more hydrocarbons.
PROVEN RESERVES
Oil and gas which has not been produced but has been located and is recoverable.
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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.
SECONDARY RECOVERY
A broad term encompassing any method of extracting oil from a reservoir after a well or field has exhausted its primary production.
SEDIMENTARY ROCKS
Rock is generally classified in one of three categories: a. Sedimentary; b. Igneous; c. Metamorphic.
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”.
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.
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.
TANK BATTERY
A group of tanks at a well site used to store oil prior to sale to a pipeline company.
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.
TUBING
Small diameter pipe which is installed in the casing. Oil is produced through tubing because it increases the viscosity of fluid and a well’s flow capabilities.
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.
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).
WORKING INTEREST
An interest in an oil and gas lease that is subject to some portion of the cost of development, operation and maintenance.
