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COMMON INDUSTRY TERMS AND PHRASES

The oil and gas industry’s language is vital for clear communication in its complex operations. Its unique terms reflect the technical and specialized nature of the field, ensuring precision, collaboration, and safety across all stages of production and investment.

 GLOSSARY

A

  • Abandoned Well – A well that is no longer in use or maintained by the operator. Typically, a series of steps must be done, including plugging/capping the well.

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  • Acre-Foot – A unit of volume obtained from one acre of surface area that’s one foot deep. This is equivalent to 7,758 barrels of oil or 43,560 cub feet of gas.

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  • Ad Valorem Tax – More commonly known as a “property tax”. It is typically a county tax based on the appraised value of the oil and gas in the well and related equipment.

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  • Anadarko Basin – Oklahoma’s oil and gas basin, where most of our wells are located (see image below).​

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  • ​Assignment – A legal instrument that transfers leases and royalty interests.

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  • Assignee – The individual to whom oil and gas leases or overriding royalties are assigned.

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  • Assignor – The individual conveying oil and gas leases or overriding royalties in an assignment.

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  • Authority for Expenditure (AFE) – The projected budget/cost to drill a well.​

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B

  • Basin – Refers to a large, low-lying area (often below sea level). This creates an environment for organic rich shales and for other sedimentary rock. These features help comprise a petroleum system (see image below).​

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C

  • Casing – A large diameter pipe cemented into the well. This is done for a variety of reasons (prevent wellbore collapse, protect freshwater formations, etc.).

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  • Commercial Well – An oil and gas well that has produced or is producing enough oil and gas to be economically viable.

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  • Commodity Price – Crude oil and natural gas are both commodities that are priced on a commodity exchange. These prices fluctuate for a variety of reasons (political, economic, supply/demand, etc.).

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  • Crude Oil – Unrefined petroleum or liquid production. This is the raw, extracted oil which is different than hydrocarbons that have been refined into products such as gasoline or heating oil.

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D

  • Depletion Allowance - This relates to oil and gas investments. This is done by using either a percentage of estimated depletion or from a cost associated with the depletion.

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  • Division Order – An instrument defining the proportional ownership for oil and gas. Usually, a well or lease will have multiple owners.

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  • Dry Hole – A well that fails to produce oil and gas in economic quantities.

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E

  • Extraction Loss (Shrinkage) – The loss of gas plant liquids during extraction. This includes liquids like propane, ethane, butane, and plant condensate.

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F

  • Formation – A continuous body of rock in the subsurface that is distinctive and can be reasonably mapped. There can be multiple producing formations beneath any given surface.

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H

  • Horizontal Drilling – A well that builds from a vertical trajectory to a horizonal trajectory and extends horizontally for contact with more surface area of the producing formation.

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  • Hydraulic Fracturing (Fracking) – A process in which fluid consisting of water, chemicals, and sand is pumped into a well at high pressures. This widens and creates fractures in rock formations, allowing for the extraction of oil and natural gas (see image below).

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I

  • Increased Well Density – Permitting more additional wells in previously drilled location.

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  • Interest Type – The type of interest owned in an asset. Types include working interest, royalty interest, and overriding royalty interest.

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J

  • Joint Interest Billing (JIB) – Costs incurred while drilling/operating well.

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M

  • Mineral Lease – This refers to the agreement between a mineral owner and entity to allow the entity to explore for oil and gas within certain terms.

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  • Mineral Owner – The owner of the rights and interests in a mineral estate. This can be “severed” from the surface rights. When the mineral owner does not have surface ownership, they still have the right to purchase the mineral interests.

 

  • Mineral Rights – Owning the rights to recover the minerals below the surface of a property. This can be separate or “severed” from surface rights.

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N

  • Net Interest Revenue (NRI) - The amount of revenue paid to the working interest owner (see 1.12).

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  • Net mineral Acres – The net mineral acres owned by an entity. For example, if an entity owns 20% of the minerals in a tract of land comprising of 100 acres, the net mineral acres would be 20 acres.

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O

  • Operating Expense – The ongoing costs for keeping an oil and gas well in operation and production. These are different from the costs to drill and complete the well.​​

​P

  • Peak Oil – The hypothetical point in time when global production reaches its maximum rate. After this point is reached, global supply will gradually decline.

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  • Plugged and Abandoned (P&A) – A well that has been plugged and abandoned. This is usually done with cement (see image below).

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  • Pooling Order – Forces sharing of costs and revenues from a well in units formed by the operators.

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  • Production Date – The first day oil/gas is generated from well.

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R

  • Revenue Statement – The statement, usually monthly, sent by either the operator or the purchaser to all the interest holders in an oil and gas property.

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  • Royalty – Funds received from the production of oil or gas. These funds are free of costs, except for taxes.

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S

  • Severed Minerals – Minerals in which the title has been severed from the surface title. It’s not uncommon for the mineral owner and surface owner to be different.

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  • Shale – A fine-grained sedimentary rock that forms from the compaction of tiny fragments and of other mineral particles.

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  • Spud Date – Date the work begins.

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  • Surface Casing – Large diameter casing set in the upper portion of the wellbore to protect freshwater aquifers and to provide structural integrity for the wellbore.

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  • Surface Owner – Owning rights to the surface of the property. This doesn’t guarantee rights to the minerals as these estates can be severed.

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  • Surface Rights – Ownership rights in a parcel of real estate limited to the surface. It does not include rights to the oil and gas minerals. However, surface owners usually own the right to participate in operations such as source water wells, water disposal, and pipeline right of way.

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T

  • Tubing – A small diameter pipe within the casing. An example is production tubing which is used to help provide an easy path for hydrocarbons from the reservoir to the surface.

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V

  • Vertical Drilling – Provides access to a well that is not faced horizontally at its deepest point. Extraction can only occur directly beneath the well head when using vertical drilling techniques (see image below).

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W

  • Wellbore Rights Only – Participation in that specific working well only.

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  • Working Interest – The rights granted to the lessee of a property to explore for and to produce and own oil, gas, or other minerals. Both costs and revenues are shared based on the percentage of ownership. Costs include drilling, completing, and ongoing expenses.

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