Donner Properties Oil and Gas Exploration

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Oil drilling derricks in east Texas - Donner Properties Oil and gas industry terminology

These general terms will assist the general public to understand terminology used in the Oil and Gas business. Additionally these terms will assist a person new to the Oil and Gas business or an experienced person to better understand terms and forms when filing reports or documents with Donner Properties.

Donner Properties shall not be held liable for improper or incorrect use of the following public information, which is provided via this Web site as a public service for informational purposes only. PLEASE NOTE that the following is not a legal document and is not intended to be used as such.

Users of this information are responsible for checking the accuracy, completeness, currency and/or suitability of this information themselves. Donner Properties makes no representation, guarantees, or warranties as to the accuracy, completeness, currency, or suitability of this information. Donner Properties specifically disclaims any and all warranties, representations or endorsements, express or implied, with regard to this information, including, but not limited to, all implied warranties of merchantability, fitness for a particular purpose, or non infringement


Drilling abbreviations

ADJCK - Adjustable Choke

P&A - Plugged and Abandoned

BC - Barrels condensate

PBHL - Proposed bottom hole

BCPD - Barrels condensate per day

PI - Petroleum information

BHL - Bottom hole location

PPM - Parts per million

BHSIP - Back hole shut-in pressure

PSI - Pounds per square inch

BW - Barrels of water

SI - Shut-in

BWPD - Barrels water per day

SITP - Shut in tubing pressure

D&A - Dry and abandoned

STH - Side track hole

FEL - From the east line

TD - Total depth

FNL - From the north line

TVD - True vertical depth

FSL - From the south line

WOC - Waiting on completion

FTP - Flowing tubing pressure

WOCR - Waiting on completion rig

FWL - From the west line

WOCT - Waiting on cement

IPF - Initial potential flowing

WOO - Waiting on orders

MCFGPD - 1000 cubic feet/gas/day

WOPL - Waiting on pipeline

MD - Measured depth

WOPT - Waiting on potential test

MTD - Measured total depth

WOR - Waiting on rig

MW - Mud weight

WOSP - Waiting on state potential

Industry terms

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.

Acre-Feet - Unit of volume; one acre of producing formation one foot thick. One acre foot equals 7,758 barrels, 325,829 gallons or 43,560 cubic feet.

Adjacent Estuarine Zones - This term embraces the area inland from the coastline of Texas and is comprised of the bays, inlets, and estuaries along the gulf coast.

Administrative Penalty - Statutory penalty imposed by the RRC for violation of a rule.

Administrative Procedure and Texas Register Act (APTRA) - The statute setting out procedures to be followed by state agencies for rulemaking and contested cases.

Allowable - Amount of oil or gas which a well, leasehold or field may produce per month under proration orders of the RRC.

Associated Reservoir - Oil and gas reservoir with a gas cap. Gas production from these reservoirs is generally restricted in order to preserve the gas cap energy thereby increasing ultimate recovery.

Basic Sediment and Water (BS&W) - Impurities and water contained in the fluid produced by an oil well.

Bay Well - (SWR 14) Any well under the jurisdiction of the Commission for which the surface location is either:

  • (a) located in or on a lake, river, stream, canal, estuary, bayou, or other inland navigable waters of the state; or
    (b) located on state lands seaward of the mean high tide line of the Gulf of Mexico in water of a depth at mean tide of not more than 100 feet that is sheltered from the direct action of the open seas of the Gulf of Mexico.
  • Bbl, Barrel -- In the energy industry, a barrel is 42 U.S. gallons measured at 60 º 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

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

    Blowout Prevention - Casinghead equipment that prevents the uncontrolled flow of oil, gas and mud from the well by closing around the drillpipe or sealing the hole.

    BOPD - The abbreviation for barrels of oil per day.

    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.

    BTU, British Thermal Unit(s) -- The amount of heat required to raise the temperature of one pound of water one degree Fahrenheit under standard conditions of pressure and temperature.

    Casing - Pipe cemented in the well to seal off formation fluids or keep the hole from caving in.

    Casinghead Gas - Gas found naturally in oil and produced with the oil.

    Casing-Tubing Annulus - Space between the surface casing and the production casing.

    Christmas Tree - The system of pipes, valves, gauges and related equipment that is located on the well at ground level and that controls the flow of gas and other petroleum products produced from the well.

    Commission - The Railroad Commission of Texas.

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

    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.

    Diagonal - Farthest distance between two points on a proration unit.

    Discovery Date - Date assigned to discovery of a new field.

    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)

    District Office - The Commission designated office for the geographic area in which the property or act subject to regulation is located or arises.

    Downstream -- This term is used in describing operations performed after those at a point of reference.

    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.

    Electric Logs - Recording that indicates the well's rock formation characteristics by different responses to electric current.

    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.

    Exploratory Well - Any well drilled for the purpose of securing geological or geophysical information to be used in the exploration or development of oil, gas, geothermal, or other mineral resources, except coal and uranium, and includes what is commonly referred to in the industry as "slim hole tests," "core hole tests," or "seismic holes".

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

    Farmout - Assignment or partial assignment of an oil and gas lease from one lessee to another lessee.

    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.

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

    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.

    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 Well - Any well:

    • (A) which produces natural gas not associated or blended with crude petroleum oil at the time of production;

      (B) which produces more than 100,000 cubic feet of natural gas for each barrel of crude petroleum oil from the same producing horizon; or

      (C) which produces natural gas from a formation or producing horizon productive of gas only encountered in a wellbore through which crude petroleum oil also is produced through the inside of another string of casing or tubing. A well which produces hydrocarbon liquids, a part of which is formed by a condensation from a gas phase and a part of which is crude petroleum oil, shall be classified as a gas well unless there is produced one barrel or more of crude petroleum oil per 100,000 cubic feet of natural gas; and that the term "crude petroleum oil" shall not be construed to mean any liquid hydrocarbon mixture or portion thereof which is not in the liquid phase in the reservoir, removed from the reservoir in such liquid phase, and obtained at the surface as such.
  • 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.

    Geothermal Energy and Associated Resources--

    • (A) All products of geothermal processes, embracing indigenous steam, hot water and hot brines, and geopressured water; (B) Steam and other gases, hot water and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations;

      (C) Heat or other associated energy found in geothermal formations;

      (D) Any by-product derived from them.
  • Geothermal Resource Well - A well drilled within the established limits of a designated geothermal field.
    • (A) A geopressured geothermal well must be completed within a geopressured aquifer.

      (B) A geopressured aquifer is a water-bearing zone with a pressure gradient in excess of 0.5 pounds per square inch per foot and a temperature gradient in excess of 1.6o F per 100 feet of depth.
  • 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 simplet, 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.

    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.

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

    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.

    Mcf -- One thousand cubic feet of natural gas measured at standard pressure and temperature conditions (see "cubic foot of gas").

    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.

    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.

    Natural Gasoline - Gasoline manufactured from casinghead gas or from any natural gas.

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

    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 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.

    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.

    Overproduction - Production in excess of the well's monthly allowable.

    PPM -- Parts per million.

    Perforations - Holes through casing and cement into the productive formation.

    Permeability - Ability of rock to transmit fluids through pore spaces.

    Person - Any natural person, corporation, association, partnership, receiver, trustee, guardian, executor, administrator, and a fiduciary or representative of any kind.

    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.

    Pollution - Unauthorized contamination of surface or subsurface waters or land.

    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.

    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.

    Quad -- One quadrillion (1,000,000,000,000,000) British Thermal Units (BTU)

    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.

    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.

    Sour Gas - (SWR 79) Any natural gas containing more than 1-1/2 grains of hydrogen sulfide per 100 cubic feet or more than 30 grains of total sulfur per 100 cubic feet, or gas which in its natural state is found by the Commission to be unfit for use in generating light or fuel for domestic purposes.

    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.

    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.

    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.

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

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

    Texas Offshore - This term embraces the area in the Gulf of Mexico seaward of the coast line of Texas comprised of:
     

    • (A) the three league area confirmed to the State of Texas by the Submerged Land Act (43 United States Code §§1301?1315); and

      (B) the area seaward of such three league area owned by the United States.
  • 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 or the products of either from any receptacle in which any such crude petroleum or products of crude petroleum oil or the products of either 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. It is the purpose of this definition to include the movement or transportation of crude petroleum oil and products of crude petroleum oil and the products of either by any means whatsoever from any receptacle containing the same to any other receptacle anywhere within or from the State of Texas, regardless of whether or not possession or control or ownership change. (See gatherer in general terms section and transmission line in section pertaining to oil and gas well production reporting)

    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.

    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.

    Underproduction - Production that is less than the allowable assigned to a proration unit.

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

    Unitization Tract - Land subject to a unitization agreement.

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

    Wells

    • Development Well -- A well drilled to a known producing formation in a previously discovered field.

      Exploratory Well - Any well drilled for the purpose of securing geological or geophysical information to be used in the exploration or development of oil, gas, geothermal, or other mineral resources, except coal and uranium, and includes what is commonly referred to in the industry as "slim hole tests," "core hole test," or "seismic holes".
  • Wildcat Well - A well drilled for the purose of discovering a new field or reservoir.
  • Zone - Interval of subsurface formation.

    Other common industry terms

    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.

    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.

    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.

    CASING POINT

    When the well has been drilled to its objective depth, the operator is faced with a very important decision, whether to commit additional dollars to "setting pipe" and attempt a completion or to abandon the well as noncommercial. The success or failure of many companies has been dependent on these decisions.

    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 on production after it has been drilled to casing point.

    CRUDE OIL

    Oil in its natural state of composition. "Crude" is classified according to its physical properties: a. Paraffin Based, b. Asphaltic Based, c. Mixed Based.

    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.

    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.

    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.

    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.

    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.

    D&A

    Dry and abandoned.

    D&T

    Drilling and well test cost.

    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.

    FRACING

    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 cost incurred in drilling a well other than equipment or leasehold. These expenses are 100% tax deductible even if the well is productive.

    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.

    LIMITED LIABILITY

    Entities limiting 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).

    NONCOMMERCIAL

    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".

    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".

    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.

    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.

    REAL ESTATE INVESTMENT TRUSTS (REITs)

    A trust or association that invests in a variety of real estate. REITs are managed by one or more trustees, like a mutual fund, and trade like a stock. No federal income tax needs to be paid by the trust if 75% of the income is real-estate related and 95% of the income is distributed to investors. Individual investors can be taxed.

    REWORK OPERATIONS

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


    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.

    SETTLED PRODUCTION

    The second phase of production in the producing life of a well. (see IP).

    STRIPPER WELL

    The final state in the life of a producing well.

    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, pay out, 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).

    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.

    WILDCAT

    A well that is drained one or more miles from a proven well.

    WORKING INTEREST

    Oil and Gas Working Interests.
    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. Likewise, contract rights to extract or share in oil and gas, or in the profits from extraction, without liability to share in the costs of production do not constitute working interests. Income from such interests is generally considered to be portfolio income.

    A special rule applies in any case where, for a prior tax year, net losses from a working interest in a property were treated by the taxpayer as non passive losses by reason of the working interest exception. In such case, any net income realized by the taxpayer from the property (or any substituted basis property) in a subsequent year also is treated as active income. For example, suppose a taxpayer clams losses with regard to a working interest that starts to generate net income. If he transfers the interest to an S corporation in which he is a shareholder or to a partnership in which he is a limited partner, the income will continue to be non passive. The income from that interest may not be offset by other passive activity deductions.

    IN GENERAL -- The term "passive activity" shall not include any working interest in any oil or gas property which the taxpayer holds directly or through any entity which does not limit the liability of the taxpayer with respect to such interest.

    INCOME IN SUBSEQUENT YEARS -- If any taxpayer has any loss for any taxable year from a working interest in any oil or gas property which is treated as a loss and is not from a passive activity, then any net income such as property (or any property the basis of which is determined in whole or in part by reference to the basis of such property) for any succeeding taxable year shall be treated as income of the taxpayer which is not from a passive activity. If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27(a) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent that the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income.

    WRITE-OFFS

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

     

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