Glossary

• 35% Tax Bracket
  The highest tax bracket in the current U.S. income tax system.
• 3-D Seismic
  A relatively new 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.
• Abstract of title
  A chronological history of the ownership of a tract of land.
• 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:

  1. An individual who alone, or with a spouse, has a net worth of over $1 million.
  2. 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.
  3. A financial institution such as bank, broker/dealer, insurance company or business development company.
  4. Any director, officer or general partner of the issuer.
  5. A trust or business partnership, with assets in excess of $5 million, that wasn’t formed for the purpose of acquiring the unregistered securities.
  6. Any entity wholly owned by accredited investors.

• 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 well
  Increasing the flow of oil from a well by pumping hydrochloric acid into the well under high pressure. This reopens and enlarges the pores in the oil-bearing limestone formation.
• Acre
  The most common of land measure in the United States. A square 210 feet on a side (44,100 sq. ft) would be a bit larger than an acre (43,560 sq. ft). There are 640 acres in a square mile.
• Acre-foot
  In the U.S., the thickness of a pay zone is measured in feet, and the area of the reservoir is measured in acres. An acre-foot is a volume of reservoir rock that is one acre in area and one foot thick.
• Allowable
  The maximum amount of oil or gas a well or field is permitted to produce per day. It is typically set by state regulating agencies, after considering the economic market for the product, the maximum efficient rate (MER), and other factors.
• Annular space
  The space between a well’s casing and the wall of the borehole.
• Annulus of a well
  The space between the surface casing and the inner, producing well-bore casing.
• 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.
• API
  American Petroleum Institute, a petroleum industry association that sets standards for oil field equipment and operations.
• API gravity
  The gravity (weight per unit of volume) of crude oil expressed in degrees according to an American Petroleum Institute recommended system. The higher the API gravity, the higher the crude. High-gravity crudes are generally considered more valuable.
• Aquifer
  An underground water reservoir contained between layers of rock, sand or gravel
• Assessments
  Additional capital contributions that maybe required by the limited partners during the course of the partnership’s existence.
• Arab oil embargo of 1973-74
  During the Arab-Israeli conflict in October 1973, Arab oil producers cut off shipments to the Unites States and the Netherlands in retaliation for their support of Israel. At the same time, they cut down production. The shortage was felt by all oil-importing nations, with world prices moving sharply higher. Price and allocation controls suppressed some of this increase in the United States, but gasoline lines were still prevalent.
• Asphalt
  A solid hydrocarbon which may be deposited within the reservoir rock, in well equipment, or in surface lines and tanks.
• Associate gas
  The gas that occurs with oil either as free gas or in solution. When occurring alone, it is referred to as unassociated gas.
• 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.

• Back-in
  A type of 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.
• Barrel standard
  Unit of measurement in the petroleum industry. One barrel of oil equals 42 U.S. gallons.
• Basement rock
  Igneous or metamorphic rock lying below sedimentary formations in the earth’s crust. Basement rock does not contain petroleum deposits.
• Basin
  A depression in the earth’s crust in which sedimentary materials have accumulated. Such a basin may contain oil or gas fields.
• Basis
  Another term for the cost of property that is used in computing gain or loss, for federal income tax purposes.
• BCF (billion cubic feet)
  The cubic foot is a standard unit of measure for gas at atmospheric pressure.
• Behind pipe
  If a well drills through several pay zones 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.
• Blind pool
  Refers to an oil and gas limited partnership which has not committed to specific prospects, leases, or properties at the time of capital formation.
• Blowout
  A sudden escape of oil or gas from a well, caused by uncontrolled high pressure. It usually occurs during drilling.
• Blowout insurance
  An insurance policy that protects the insured party (working interest owner) from liabilities which might arise from a blowout during the drilling, completion, or production of a well.
• 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.
• Blue sky laws
  State regulations governing an offering to sell securities within that state (analogous to Securities Exchange Commission registration requirements at the Federal level). It originated with the first state securities laws enacted in the U.S. (Kansas, in 1911), intended to protect state residents from being sold securities as lacking in substance with a sky high potential.
• 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.
• Borehole
  The hole created by drilling a well.
• BOP (blowout preventer)
  An assembly of heavy-duty valves attached to the top of a well casing to control pressure.
• Bottom-hole pressure
  The pressure of the reservoir or formation at the bottom of the hole. A decline in pressure indicates some depletion of the reservoir.
• Bottom-hole pump
  - A compact, high-volume pump located in the bottom of a well, not operated by sucker rods or a surface power unit.
• Bridle
  The cable link between the “horsehead” and the pump rod on a pumping unit.
• BS&W (basic sediment and water)
  Material pumped up with oil and gas which must be separated out.
• Btu (British thermal unit)
  A standard measure of heat content in a fuel. One Btu equals the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit at or near 39.2 degrees Fahrenheit.
• Butane
  A hydrocarbon associated with petroleum. It is gaseous at ordinary atmospheric conditions.

• Cable drilling
  A method of well-drilling that employs a reciprocating, rather than a rotary, motion to penetrate rock. In the nineteenth century, until Drake’s time, power was supplied by men. Drake used a steam-powered cable rig. Today, cable rigs are powered by gasoline or diesel engines.
• CAOF (calculated absolute open flow)
  A figure representing a gas well’s theoretical producing capability per day.
• Capital funds
  Monies invested in a business for use in conducting the operations of the business.
• Capital asset
  An asset acquired as an investment, for the purpose of creating a product or service intended to be used in the activities or operations of a business.
• Capital costs (Oil & Gas Tax Usage)
  For Federal income tax purposes, the costs of capital expenditures which may be recovered by deduction against income (through depreciation and depletion).
• Capital expenditure
  An expenditure intended to benefit the future activities of a business, usually by adding to the assets of a business, or by improving an existing asset.
• Capitalize
  To treat certain expenditures as capital expenditures for Federal income tax computations.
• Carried interest
  A fractional working interest in an oil and gas lease that comes about through an arrangement between co-owners of a working interest.
• Carved out interest
  The fractional interest conveyed to another party by the original owner of the whole interest.
• C&E
  Well completion and equipment cost.
• Casing pipe
  Used in oil wells to reinforce the borehole. Sometimes several casings are used, one inside the other. The outer casing, called the “surface pipe,’ shuts out water and serves as a foundation for subsequent drilling.
• Casinghead
  The portion of the casing that protrudes above the surface and to which control valves and flow pipes are attached.
• Casinghead gas
  Natural gas produced from an oil well, as opposed to gas produced from a gas well.
• Casinghead gasoline
  Highly volatile, water-white liquid hydrocarbons separated from casinghead gas.
• Cash distributions
  Money paid by an oil and gas partnership to its partners.
• 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 “set pipe” and attempt a completion or to abandon the well as non-commercial. The success or failure of many companies has been dependent on these decisions.
• Cavings Rock
  Fragments that break off from the walls of a borehole and fall into the borehole during drilling operations.
• Cement
  Fluid cement is mixed at the surface, pumped to the bottom of a cased well, forced to flow around the lower end of the casing and up into the space between the casing and the borehole. When the cement solidifies (sets), it holds the casing in place, and provides support.
• Cement squeeze
  Forcing cement into the perforations, large cracks, and fissures in the wall of a borehole to seal them off.
• Choke
  An orifice installed in a pipeline at the well surface to control the rate of flow.
• Christmas tree
  An assembly of valves, gauges, and chokes mounted on a well casinghead to control production and the flow of oil to the pipelines.
• 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.
• Lost circulation
  Is indicated when drilling fluid escapes from an uncased borehole into porous zones, or holes such as fractures or caverns that occur naturally in the penetrated rocks. Mechanical operations may require to drill through a zone of lost circulation. If an attempt to drill through zones of lost circulation are unsuccessful, a well might have to be abandoned.
• Clean oil
  Crude oil containing less than 1 percent sediment and water; “pipeline oil”, oil clean enough to send through a pipeline.
• CO2 injection
  A secondary recovery technique in which carbon dioxide (CO2) is injected into wells as part of a miscible recovery program.
• Coal gasification
  The chemical conversion of coal to synthetic gaseous fuel.
• Coal liquefaction
  The chemical conversion of coal to synthetic liquid fuel.
• Cogeneration
  The combined production of electrical or mechanical energy and usable heat energy.
• Commissions
  Payments to qualified agents of the sponsor of a limited partnership, for selling interests in it to investors. Commissions may take the form of a percent of partnership interests sold, an oil and gas interest, or stock in the sponsor’s company.
• Common carrier
  A person or company in the business of transporting the public or goods for a fee. In the industry, a person or company engaged in the movement of petroleum products, like a public utility.
• Completed well
  A well made ready to produce oil or natural gas. Completion involves cleaning out the well, running steel casing and tubing into the hole, adding permanent surface control equipment, and perforating the casing so oil or gas can flow into the well and be brought to the surface.
• Condensate
  Liquid hydrocarbons separated from natural gas, usually by cooling.
• Confirmation well
  A well drilled to “prove” the formation encountered by an exploratory well.
• Contribution
  In oil and gas limited partnerships: the payment of money, property or services by an investor.
• 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.
• Convey (conveyance)
  Legal term to transfer the title of a property from one party to another, typically by deed.
• Connate water
  The water present in a petroleum reservoir in the same zone occupied by oil and gas considered by some to be the residue of the primal sea, connate water occurs as a film of water around each grain of sand in granular reservoir rock and is held in place by capillary attraction.
• Conventional energy sources
  Oil, gas, coal, and sometimes nuclear energy, in contrast to alternative energy sources such a solar, hydroelectric and geothermal power, synfuels, and biomass.
• Conveyance
  Legal term for transferring the title of a property from one party to another, typically by deed.
• Core
  Samples of subsurface rocks taken as a well is being drilled. The core allows geologists to examine the strata in proper sequence and thickness.
• CNG
  Compressed Natural Gas
• Creekology
  Refer to locating the next well, on the basis of science and geology, and gross natural features on the surface of the land.
• Cracking
  The process of breaking down the larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules, thus increasing the gasoline yield from crude oil. Cracking is done by application of heat and pressure, and in modern time the use of a catalytic agent.
• Crude oil
  Liquid petroleum as it comes out of the ground. Crude oils range from very light (high in gasoline) to very heavy (high in residual oils). Sour crude is high in sulfur content. Sweet crude is low in sulfur and therefore often more valuable.
• Crude oil equivalent
  A measure of energy content that converts units of different kinds of energy into the energy equivalent of barrels of oil.
• Cuttings
  Chips and small rock fragments brought to the surface by the flow of drilling mud as it is circulated and examined by geologists for oil content.

• Deductions
  Tax items which may be subtracted from gross income to arrive at taxable income in Federal income tax computations.
• Deed
  - A written document by which the title to a property is transferred from one party (the grantor) to another (the grantee).
• Deepwater port
  An offshore marine terminal designed to accommodate large vessels such as VLCCs and tankers, connected to the shore by submerged pipelines.
• Delay rental
  Cash payments to the mineral rights owner (lessor) by the working interest owner (lessee), for the privilege of postponing the commencement of drilling operations on the leased property.
• Deliverability
  A well’s tested ability to produce.
• 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.
• DIP
  The angle that a rock layer lies, measured relative to a horizontal plane.
• Dipmeter log
  A wireline log that tells the angle and direction of the dip of rocklayers penetrated in the borehole.
• Direct Participation Program (DPP)
  A business venture structured to allow investors to directly participate in the cash flow and tax benefits of the underlying investment.
• Discovery well
  An exploratory well which encounters production in a previously unknown deposit.
• Diesel oil
  A petroleum fraction composed primarily of aliphatic (linear of unbranched) hydrocarbons. Diesel oil is slightly heavier than kerosene.
• Differential-pressure sticking
  A condition in which a section of drillpipe becomes stuck in deposits on the wall of the borehole.
• Directional drilling
  Drilling at an angle, instead of on the perpendicular, by using a whipstock to bend the pipe until it is going in the desired direction. Directional drilling is used to develop offshore leases, where it is very costly and sometimes impossible to prepare separate sites for every well; to reach oil beneath a building or some other location which cannot be drilled directly; or to control damage or as a last resort when a well has cratered. It is much more expensive than conventional drilling procedures.
• Distillate
  Liquid hydrocarbons, usually colorless and of high API gravity, recovered from wet gas by a separator that condenses the liquid out of the gas. The present term is natural gas.
• Distillate fuel oil
  A term subject to a variety of definitions. Sometimes the definition is based on the method of production, but other definitions are based on boiling range, viscosity, or use.
• Distributor
  A wholesaler of gasoline and other petroleum products; also know as a jobber. Distributors of natural gas are almost always regulated utility companies.
• Division order
  A contract for the sale of oil or gas, by the holder of a revenue interest in a well or property, to the purchaser (often a pipeline transmission company).
• Downtime
  Time lost during drilling, often as a result of equipment breakdown.
• Domestic production
  Oil and gas produced in the United States as opposed to imported product.
• Downhole
  Refers to equipment or operations that take place down inside a borehole.
• Downstream
  All operations taking place after crude oil is produced, such as transportation, refining, and marketing.
• Drill bit
  The part of the drilling tool that cuts through rock strata.
• Drill string
  Also called drill pipe or drill stem. Thirty-foot lengths of steel tubing screwed together to form a pipe connecting the drill bit to the drilling rig. The sting is rotated to drill the hole and also serves as a conduit for drilling mud.
• Drilling
  The act of boring a hole through which oil or gas may be produced if encountered in commercial quantities.
• Drilling break
  A sudden increase in the rate of drilling.
• Drilling fund
  The generic term employed to describe a variety of organizations established to attract venture capital to oil and gas exploration and development. Typically the fund is established as a joint venture or limited partnership.
• Drilling mud
  A mixture of clay, water, chemical additives, and weighting materials that flushes rock cuttings from a well, lubricates and cools the drill bit, maintains the required pressure at the bottom of the well, prevents the wall of the borehole from crumbing or collapsing, and prevents other fluids from entering the well bore.
• Drilling platform
  An offshore structure with legs anchored to the sea bottom that supports the drilling of up to 35 wells from one location.
• Drilling rig
  The surface equipment used to drill for oil or gas, consisting chiefly of a derrick, a winch for lifting and lowering drill pipe, a rotary table to turn the drill pipe, and engines to drive the winch and rotary table.
• Drillstem test
  A test through the drill pipe prior to completion to determine if oil or gas is present in a formation.
• D&A
  Dry and abandoned.
• D&T
  Drilling and well test cost.
• Dry hole
  A well that either produces no oil or gas or yields too little to make it economic to produce.
• Dry natural gas
  Natural gas containing few or no natural gas liquids (liquid petroleum mixed with gas).
• Dual completion
  Completing a well that draws from two or more separate producing formations at different depths. This is done by inserting multiple strings of tubing into the well casing and inserting packers to seal off all formations except the one to be produced by a particular string.
• Due Diligence
  In an offering of securities, certain parties who are responsible for the accuracy of the offering document, have an obligation to perform a “due diligence” examination of the issuer; issuer’s counsel, underwriter of the security, brokerage firm handling the sale of the security. Due diligence refers to the degree of prudence that might properly be expected from a reasonable man, on the basis of the significant facts which relate to a specific case.

• Economic interest
  An interest in oil and gas in the ground. It entitles the owner to a deduction from gross income derived from production of that oil and gas as specified in Federal income tax regulations.
• Electrical well logging
  A method of oil exploration that originated with Conrad Schlumberger, who first tested it in 1927 on a 1,500-meter well in France. As used today, the process is very simple. Current passes into the ground, through the resistive medium and into the sonde. The resulting charts show the varying resistance, the conductance, and the self-potential of the strata surrounding the well at every level, and geophysicists use them to assay whether petroleum is present in a formation.
• 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 oil and gas flows from the wellhead. Measurements usually expressed at headquarters on computer screen as flow of gas in thousands of cubic feet and barrels of oil (42 gallon barrels). Measurements typically expressed in real time, actual flow cumulative flow and historical data.
• Enhanced oil recovery
  Injection of water, steam, gases or chemicals into underground reservoirs to cause oil to flow toward producing wells, permitting more recovery than would have been possible from natural pressure or pumping alone.
• Ethanol
  The two-carbon-atom alcohol present in the greatest proportion upon fermentation of grain and other renewable resources such as potatoes, sugar, or timber. Also called grain alcohol.
• Expenses (Tax Usage)
  Expenditures for business items that have no future life (such as rent, utilities, or wages) and are incurred in conducting normal business activities.
• Exploration
  The search for oil and gas. Exploration operations include: aerial surveys, geophysical surveys, geological studies, core testing and the drilling of test wells.
• Exploratory well
  A well drilled to an unexplored depth or in unproven territory, either in search of a new reservoir or to extend the known limits of a field that is already partly developed.
• External casing packer
  A device used on the outside of the well casing to seal off formations or protect certain zones. The packer is run on the casing and expanded against the wall of the borehole at the proper depth by hydraulic pressure or fluid pressure from the well.
• Extraction plant
  A plant for the extraction of the liquid constituents in casinghead gas or wet gas.
• EUR (estimated undeveloped reserves)
  Expected (or estimated) Ultimate Reserves: An estimate of the cumulative volume of reserves that will be recovered (from a specified reservoir) over the life of a well.

• Farm in
  When one company drills wells or performs other activity on another company’s lease in order to earn an interest in or acquire that lease.
• Farm out agreement
  An arrangement in which the responsibility of exploration and development is shifted (by assignment) from the working interest owner to another party.
• Farmer’s oil
  An expression that refers to the landowner’s share of oil from a well drilled on his property. This royalty is traditionally one-eighth of the produced oil free of any expense to the landowner.
• Fault
  A break in the continuity of stratified rocks or even basement rocks. Faults are significant to oilmen because they can form traps for oil when the rock fractures, they can break oil reservoirs into noncommunicating sections, they help produce oil accumulations, and they form traps on their own.
• Fault trap
  A geological formation in which oil or gas in a porous section of rock is sealed off by a displaced, nonporous layer.
• Fee lands
  Privately owned, nonpublic lands.
• Feet of pay
  The thickness of the pay zone penetrated in a well.
• Field
  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.
• Fishing tools
  Special instruments equipped with the means for recovering objects lost while drilling the well.
• Five-spot waterflood program
  A secondary-recovery operation in which four injection wells are drilled in a square pattern with the production well in the center. Water from the injection wells moves through the formation, forcing oil toward the production well.
• Flaring
  The burning of gas vented through a pipe or stack at a refinery, or a method of disposing of gas while a well is being drilled. Flaring is regulated by state agencies. Venting (letting gas escape unburned) is generally prohibited.
• Flooding
  One of the methods of enhanced oil recovery. Water flooding or gas flooding might be considered secondary recovery methods.
• Flow Through concept
  In ventures structured as partnerships (or S corporations), certain items of tax significance (profit, loss, etc.) are passed on to the partners (or S corporation shareholders) in the venture. In a venture structured as a “C” corporation, the responsible tax-paying party would be the corporation itself (not its shareholders).
• Flowing well
  A well that produces through natural reservoir pressure and does not require pumping.
• Formation
  A geological term that describes a succession of strata similar enough to form a distinctive geological unit useful for mapping or description.
• Fossil fuels
  - Fuels that originate from the remains of living things, such as coal, oil, natural gas, and peat.
• Fracturing
  A well stimulation technique in which fluids are pumped into a formation under extremely high pressure to create or enlarge fractures for oil and gas to flow through. Proppants such as sand are injected with the liquid to hold the fractures open.
• Front-end costs
  Costs that are paid out of initial investment in a venture, first, before the venture activities actually begin.
• Fuel oil
  See Heating oil.
• Future prices
  Refers to the New York Mercantile Exchange (NYMEX) which introduced futures contracts for crude oil in 1985 and natural gas in 1990.
• Flange up
  To complete the drilling of a well.
• 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.

• Gamma-ray logging
  A technique of exploration for oil in which a well’s borehole is irradiated with gamma rays. The varying emission of these rays indicates to geologists the relative density of the rock formation at different levels.
• Gas cap
  The gas that exists in a free state above the oil in a reservoir.
• Gas condensate
  Liquid hydrocarbons present in casinghead gas that condense when brought to the surface.
• Gas lift
  A recovery method that brings oil from the bottom of a well to the surface by using compressed gas. Gas pumped to the bottom of the reservoir mixes with fluid, expands it, and lifts it to the surface.
• Gas-cut mud
  Drilling mud permeated with bubbles of gas from downhole. The circulation of such mud can be severely impaired, seriously affecting drilling operations.
• Gas-oil ratio
  number of cubic feet of natural gas produced along with a barrel of oil.
• Gas well
  A well that produces natural gas which is not associated with crude oil.
• Gasoline
  A volatile, inflammable, liquid hydrocarbon mixture.
• 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). His liability to the partnership’s creditors is limited.
• Geophones
  The sound-detecting instruments used to measure sound waves created by explosions set off during seismic exploration work.
• Geophysicist
  A geophysicist applies the principles of physics to the understanding of geology.
• Geothermal energy
  Energy produced from subterranean heat.
• Gravimeter
  A geophysical device that has been particularly useful in finding salt domes. Actually, it is a weight on a spring. The spring gets longer in high-gravity areas and shorter in areas of gravity-minus. Magnetism helps the oil geologist understand its measurements
• Gross income
  Total income from an activity, before deduction of (1) items that may be treated as expenses (such as intangible drilling costs), and (2) allowed tax items (such as depletion allowance, depreciation allowance, etc.).
• 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.
• Groundwater
  The water in underground rock strata that supplies wells and springs.
• Guaranteed payments
  - Payments by a partnership to one or more of its partners for services rendered.
• Gun perforation
  A method of creating holes in a well casing downhole by exploding charges to propel steel projectiles through the casing wall. Such holes allow oil from the formation to enter the well.
• Gusher
  - A well drilled into a formation in which the crude is under such high pressure that at first it spurts out of the wellhead like a geyser. Gushers are rare today owning to improved drilling technology, the use of drilling mud to control downhole pressure, and oilmen’s recognition of their wastefulness.

• Hang the rods
  To pull pump rods out of the well and hang them in the derrick on rod hangers.
• Heating oil
  Oil use for residential heating.
• Heavy oil
  A type of crude petroleum characterized by high viscosity and a high carbon-to-hydrogen ration. It is usually difficult and costly to produce by conventional techniques.
• Held by production
  - Refers to an oil and gas property under lease, in which the lease continues to be in force, because of production from the property.
• History of a well
  A written account of a well’s drilling and operation, required by law in some states.
• Horizon
  A specific sedimentary layer in a cross section of land, especially one in which a petroleum reservoir is found.
• Horizontal drilling
  The newer and developing technology that makes it possible to drill a well from the surface, vertically down to a certain level, and then to turn at a right angle, and continue drilling horizontally within a specified reservoir, or an interval of a reservoir.
• Hot oiling
  Some crude oils contain significant paraffin (waxy) hydrocarbons. Production of this type oil usually tends to decline rater 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.
• Horsehead
  The curved guide or head piece on the well end of a pumping jack’s walking beam. The guide holds the short loop of cable, called the bridle, attached to the well’s pump rods.
• Hydraulic fracturing
  - A method of stimulating production from a low-permeability formation by creating fractures and fissures by applying very high fluid pressure.
• Hydrocarbons
  A large class of organic compound of hydrogen and carbon. Crude oil, natural gas, and natural gas condensate are all mixtures of various hydrocarbons, among which methane is the simplest.
• Hydrometer
  An instrument that measures the specific gravity of liquids.
• Hydrostatic head
  The height of a column of liquid. The difference in height between two points in a body of liquid.

• In situ
  In its original place. Refers to methods of producing synfuels underground, such as underground gasification of a coal seam or heating oil shale underground to release its oil.
• Independent producer
  1. A person or corporation that produces oil for the market, who has no pipeline system or refining. 2. An oil entrepreneur who secures financial backing and drills his own wells
• Infill drilling
  Wells drilled to fill in between established producing wells to increase production.
• Initial potential
  Flow rate measured during the initial completion of a well in a specific reservoir (initial daily rate of production).
• Injection well
  A well employed for the introduction into an underground stratum of water, gas or other fluid under pressure. Injection well are employed for the disposal of salt water produced with oil or other waste. They are also use for a variety of other purposes: 1) Pressure maintenance, to introduce a fluid into a producing formation to maintain underground pressures which would otherwise be reduced by virtue of the production or oil or gas, 2)Secondary recovery operations, to introduce a fluid to decrease the viscosity of oil, reduce its surface tension, lighted its specific gravity, and drive oil into producing wells, resulting in greater production of oil.
• Intangible drilling costs
  Items such as services, labor, chemicals, materials, and supplies that are considered a “sunk cost” of drilling. These can al be written off, providing that the well is “spudded” no later than 90 days after the end of the calendar year in which the investment is made.
• Investment Tax Credit (ITC)
  A credit against income taxes, usually computed as a percent of the cost of investment in certain types of assets.
• Isopachous map
  - A geological map showing the thickness and shape of underground formations. A tool used to determine underground oil and gas reservoirs.
• 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.

• Jack or Unit
  An oil-pumping unit. The pumping jack’s walking beam provides the up-and-down motion to the well’s pump rods.
• Jack-up rig
  A floating platform with legs on each corner that can be lowered to the sea bottom to raise or jack up the platform above the water.
• Jet fuel
  See Kerosene.
• Jetting
  - Injecting gas into a subsurface formation for the purpose of maintaining reservoir pressure.
• Joint
  single section of drill pipe, casing, or tubing, usually about 30 feet long.
• Joint Operating Agreement
  A detailed written agreement between the working interest owners of a property which specifies the terms according to which that property will be developed.
• Joint venture
  A large-scale project in which two or more parties (usually oil companies) cooperate. One supplies funds and the other actually carries out the project. Each participant retains control over his share, including liability and the right to sell.
• Junk basket
  A magnet used to retrieve small tools lost in the well. A fishing instrument.

• Kelly bushing
  - Part of the drilling rig, the Kelly is a long hollow steel bar that connects to the upper end of the drill string.
• Kerogen
  The hydrocarbon in oil shale. Scientists believe that kerogen was the precursor of petroleum and that petroleum development in shale was somehow prematurely arrested.
• Kerosene
  The petroleum fraction containing hydrocarbons that are slightly heavier than those found in gasoline and naphtha. Kerosene (also spelled kerosene) was the most important petroleum product because of its use for home and commercial lighting; in recent years demand has risen again as a result of kerosene’s use in gas turbines and jet engines.
• Keyseating
  A condition in which the drill collar of another part of the drill string becomes wedged in a section of crooked hole.
• Kick Occurs
  when the pressure encountered in a formation exceeds the pressure exerted by the column of drilling mud circulating through the hole. If uncontrolled, a kick leads to a blowout.
• Kill a well
  To overcome downhole pressure by adding weighting elements to the drilling mud.

• Lag time
  The time it takes for cuttings to be carried (circulate) from the bottom of the borehole up to the surface by the mud system.
• Land & Legal
  A department responsible for legally confirming mineral rights for purchase, sale, or lease. MPG’s Land and Legal department boasts an untarnished 6-year record of excellence.
• Landman
  A self-employed individual or company employee who secures oil and gas leases, checks legal titles, and attempts to cure title defects so that drilling can begin.
• Landowner royalty
  The share of the gross production of the oil and gas on a property without deducting any of the cost of producing the oil or gas. The usual landowner’s royalty is one-eighth of gross production.
• Law of capture
  A legal concept on which oil and gas law in some states is based: since petroleum is liquid, and hence mobile, it is not owned until it is produced.
• Lead lines
  - The lines through which production from individual wells is run to tanks.
• Lease (Oil and Gas)
  - A contract by which the owner of the mineral rights to a property conveys to another party, the exclusive right to explore for and develop minerals on the property, during a specified period of time.
• Lease acquisition costs
  Bonus payments.
• Lease broker
  An individual engaged in obtaining leases for speculation or resale.
• Lease hound
  - Someone who goes out and aggressively acquires oil and gas leases from the landowner, and then turns around and sells or trades them to an oil company planning to drill a well in the area.
• Lease offering (lease sale)
  An area of land offered for lease – usually by the U.S. Department of Interior – for the exploration for and production of specific natural resources such as oil and gas. Such a lease conveys no title or occupancy rights apart from the right to search for and produce petroleum or other natural resources subject to the conditions stated in the lease.
• Lease or Sublease
  Any transaction in which the owner of operating rights in a property assigns all or a portion of these rights to any other party.
• Lifting costs
  The costs of producing oil from a well or lease; the operating expenses.
• Lignite
  A solid fuel of a grade higher than peat but lower than bituminous coal.
• Limestone
  Sedimentary rock largely consisting of calcite. On a world-wide scale, limestone reservoirs probably contain more oil and gas reserves than all other types of reservoir rock combined.
• Limited partner
  In a limited partnership, a partner whose liability is limited to the amount of his investment in the partnership (plus any assessments and his share of undistributed partnership earnings).
• Limited partnership
  A legal entity; when two or more partners conduct business jointly and in which one or more of the individual investor is liable only to the extent that they have invested.
• 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).
• LNG (liquefied natural gas)
  - Natural gas that has been converted to a liquid through cooling to -260 degrees Fahrenheit at atmospheric pressure.
• 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. The filing of a log is required by the federal government if the drill site is on federal land.
• Lost circulation
  - A serious condition that occurs when drilling mud pumped into the well does not return to the surface, but goes into the porous formation, crevices, or caverns instead.
• LPG (liquefied petroleum gases)
  Hydrocarbon fractions lighter than gasoline, such as ethane, propane and butane, kept in a liquid state through compression and/or refrigeration, commonly referred to as “bottled gas.”

• Managing General Partner (MGP)
  The managing partner of a limited partnership, who is responsible for the operation of the partnership and, ultimately, any debts taken on by the partnership. In an oil and gas partnership, the general partner will select drilling sites and oversee drilling activity. In return for these services, the general partner collects certain fees and often retains a percentage of ownership in the partnership.
• Maximum efficient rate (MER) 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.
• Mid-continent crude
  Oil produced mainly in Kansas, Oklahoma, and North Texas.
• Midstream or Middle distillates
  Refinery products in the middle of the distillation range of crude oil, including kerosene, kerosene-based jet fuel, home heating fuel, range oil, stove oil and diesel fuel.
• Migration
  The movement of oil and gas through layers of rock deep in the earth.
• Milling
  Cutting a “window” in a well’s casing with a tool lowered into the hole on the drillstring.
• Mineral Lease/Rights
  Also known as oil or drilling rights. These documents legally constitute permission to access and/or remove mineral assets. In many instances, surface rights (those for the land above) are separate from mineral rights. All rights must be clarified before any deal can be brokered. To find out more about this process, Click here.
• MMCF Million cubic feet.
  The cubic foot is a standard unit of measure for quantities of gas at atmospheric pressure.
• Monocline
  A geologic formation in which all the strata are inclined in the same direction.
• MPG Operating, LLC
  The operational arm of MPG, MPG Operating provides management at the project sites. This includes overseeing drilling, ongoing development, site maintenance, and all aspects of production.
• Mud
  A fluid mixture of clay, chemicals, and weighting materials suspended in fresh water, salt water, or diesel oil.
• Mud (drilling mud)
  A fluid mixture of clays, chemicals, and weighed materials suspended in fresh-water, salt-water, or diesel oil. It cools and lubricates the drill bit, carries cuttings to the surface, maintains the required pressure at the bottom of the hole, and coats the inside of the borehole with a sort of plaster called ‘mud cake’ which helps prevent the walls from caving into the hole. ‘Mud weight’ is the density of the mud measured in pounds per gallon (ppg). It can be controlled at the surface by the addition of various substances, such as barite (barium sulfate-BaSO4), a heavy mineral 4.5 times as dense as water. 8.3 ppg = the density of water .15 ppg = 2x the density of water .20 ppg = 2.4x the density of water The pressure exerted by the column of mud in the borehole must be greater than natural pressures in rocks likely to be encountered during drilling. Drilling with too light of mud weight could result in a blowout.
• Mud engineer
  A technician responsible for proper maintenance of the mud system.
• Mud logger
  A technician who uses chemical analysis, microscopic examination of the cuttings, and an assortment of electronic instruments to monitor the mud system for possible indications of hydrocarbons (shows).
• Multiple completion
  Completion of a well in more than one producing formation. The tubing of each production zone extends up to the Christmas tree to be piped to separate tankage.
• MWD
  Measurement while drilling.

• Natural gas
  A mixture of hydrocarbon compounds and small amounts of various nonhydrocarbons (such as carbon dioxide, helium, hydrogen sulfide, and nitrogen) existing in the gaseous phase or in solution with crude oil in natural underground reservoirs.
• Naval petroleum reserves
  Areas containing proven oil reserves that were set aside for national defense purposes by Congress in 1923 (located in Elk Hills and Buena Vista, California; Teapot Dome, Wyoming; and on the North Slope in Alaska).
• Net profits interest
  A share of gross production from a property that is carved out of a working interest, and is figured as a function of net profits from operation of the property.
• Net Revenue Interest (NRI)
  The percentage of revenues due an interest holder in a property, net of royalties or other burdens on the property. A landowner leases his mineral rights to an oilman. The landowner retains a royalty of 1/8 (=12.5%); his net revenue interest is 12.5%. The oilman’s net revenue interest would be 87.5% (=100% – 12.5%).
• NGL (natural gas liquids)
  Portions of natural gas that are liquefied at the surface in lease separators, field facilities, or gas processing plants, leaving dry natural gas. They include, but are not limited to, ethane, propane, butane, natural gasoline, and condensate.
• 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.
• Non-commercial
  well that is not capable of producing enough oil to pay for the drilling.

• OCS (outer continental shelf)
  A gently sloping underwater plain that extends seaward from the coast.
• Octane
  - An hydrocarbon of the paraffin series. It is liquid at ordinary atmospheric conditions, although small amounts may be present in the gas associated with petroleum.
• Octane number
  A performance rating used to classify motor fuels by grading the relative antiknock properties of various gasolines. A high-octane fuel has better antiknock properties than one with a low number.
• Offering memorandum
  A legal document provided to potential investors in a venture describing the terms under which the investment is being offered.
• Offset well
  A well drilled near the discovery well. Also a well drilled to prevent oil and gas from draining from one tract of land to another where a well is being drilled or is already producing.
• Offshore platform
  A fixed structure from which wells are drilled offshore for the production of oil and natural gas.
• Oil column
  The vertical height (thickness) of an oil accumulation above the oil-water contact.
• Oil gravity
  The density of liquid hydrocarbons, generally measured in degrees.
• Oil in place
  The crude oil estimated to exist in a field or a reservoir. Oil in the formation not yet produced.
• Oil pool
  An underground reservoir containing oil. An oil field may contain one or more pools, each of which has its own pressure system.
• Oil rig
  A drilling rig that drills for oil and gas.
• Oil run
  1. The production of oil during a specified period of time. 2. A tank of oil gauged, tested, and put on a pipeline.
• Oil shale
  A fine-grained, sedimentary rock that contains kerogen, a partially formed oil. Kerogen can be extracted by heating the shale, but at a very high cost.
• Oilfield services
  Described as service companies that do work in and for the oilfield. These services may include: cementing, perforating, trucking, logging, etc.
• On the pump
  A phrase used in reference to a well that no longer flows from natural reservoir energy by is produced by means of a pump.
• OPEC (Organization of Petroleum Exporting Countries)
  An international oil cartel originally formed in 1960 and including in 1983: Saudi Arabia, Kuwait, Iran, Iraq, Venezuela, Quatar, Libya, Indonesia, United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon.
• Operator
  The individual or company responsible for the drilling, completion and production operations of a well, and the physical maintenance of the leased property.
• Operating expense
  The expenses incurred through the operation of producing properties.
• Organization costs
  - Direct costs incurred in the creation of a new business organization such as an oil and gas limited partnership.
• Outcrop
  A portion of bedrock or other stratum protruding through the soil level, indicating a fault or some other oil-bearing 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, free of any operating or production costs.
• Overthrust belt
  A geological system of faults and basins in which geologic forces have thrust layers of older rock above strata of newer rock that might contain oil or natural gas. The Eastern Overthrust Belt runs from eastern Canada through Appalachia into Alabama. The Western Overthrust Belt runs from Alaska through western Canada and the Rocky Mountains into Central America.

• Packer
  A flexible rubber sleeve that is part of a special joint of pipe.
• Pay zones
  The term to describe the reservoir that is producing oil and gas within a given wellbore. Pay zones (or oil reservoirs) can vary in thickness from one foot to several hundred feet.
• Payoff
  The time when a well’s production begins to bring in revenues.
• Payout
  The amount of time it takes to recover the capital investment made on a well or drilling program.
• Perforating gun
  - An instrument lowered at the end of a wireline into a cased well. It contains explosive charges that can be electronically detonated from the surface.
• Perforation
  A method of making holes through the casing opposite the producing formation to allow the oil or gas to flow into the well. See the Gun perforation.
• Permeability
  A measure of the ease with which a fluid such as water or oil moves through a rock when the pores are connected. Geologists express permeability in a unit named the darcy, but oilmen use the millidarcy because most of the rocks they come in contact with are not very permeable.
• Petrochemicals
  Chemicals derived from crude oil or natural gas, including ammonia, carbon black, and other organic chemicals.
• Petroleum
  - Strictly speaking, crude oil. Also used to refer to all hydrocarbons, including oil, natural gas, natural gas liquids, and related products.
• Petroleum engineer
  - A term including three areas of specialization: 1) Drilling engineers specialize in the drilling, workover, and completion operations, 2) Production engineers specialize in studying a well’s characteristics and using various chemical and mechanical procedures to maximize the recovery from the well, 3) Reservoir engineers design and execute the planned development of a reservoir. Many U.S. universities offer BS, MS, and Ph.D. degrees in petroleum engineering.
• Petroleum geologist
  A geologist who specializes in the exploration for, and production of, petroleum.
• Pinch out
  The disappearance of a porous, permeable formation between two layers of impervious rock over a horizontal distance.
• Pipeline
  - A tube or system of tubes used for the transportation of oil or gas. Types of oil pipelines include: lead lines, form pumping well to a storage tank; flow lines, from flowing well to a storage tank; lease lines, extending from the wells to lease tanks; gathering lines, extending from lease tanks to a central accumulation point; feeder lines, extending from leases to trunk lines; and trunk lines, extending from a producing area to refineries or terminals.
• Pipeline gas
  Gas under enough pressure to enter the high-pressure gas lines of a purchaser; gas in which enough liquid hydrocarbons have been removed so that such liquids will not condense in the transmission lines.
• Plug back
  - To block off the lower section of the borehole by setting a plug, in order to perform operations in the upper part of the hole.
• Plugged & Abandoned (P&A)
  This expression refers to setting cement plugs in an unsuccessful well (a dry hole) or a depleted well.
• Plugging a well
  - Filling the borehole of an abandoned well with mud and cement to prevent the flow of water or oil from one strata to another or to the surface.
• Pool
  1) (noun) An underground reservoir containing or appearing to contain a common accumulation of oil and natural gas. A zone of a structure which is completely separated from any other zone in the same structure is a pool. 2) (verb) To combine two or more tracts of land into one unit for drilling purposes. This may be accomplished voluntarily, or through compulsion.
• Pooling
  A term frequently used interchangeably with “Unitization” but more properly used to denominate the bringing together of small tracts sufficient for the granting of a well permit under applicable spacing rules.
• 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 measure of the number and size of the spaces between each particle in a rock. Porosity affects the amount of liquid and gases, such as natural gas and crude oil, that a given reservoir can contain.
• Possible reserves
  Areas in which production of crude oil is presumed possible owing to geological inference of a strongly speculative nature.
• Present net value
  The present value of the dollars (income, or stream of income) to be received at some specified time in the future, discounted back to the present at a specified interest rate.
• Primary recovery
  - Production in which oil moves from the reservoir, into the wellbore, under naturally occurring reservoir pressure.
• Primary term
  The basic period of time during which a lease is in effect.
• Private Placement Offering
  A securities (investment) offering not intended for the general public. This document gives investors details about a company’s business plan, investment information, and other pertinent details. Private placements are offerings of stocks or bonds that institutions or accredited, wealthy individuals may participate in, but which the public at large is excluded from.
• Probable reserves
  Areas which are unproven but presumed capable of production because of geological inference, for instance, proximity to proven reserves in the same reservoir.
• Producing horizon
  - Where the well is actually produced, since it may be drilled to a greater depth.
• Producing platform
  An offshore structure with a platform raised above the water to support a number of producing wells.
• Production
  A term commonly used to describe taking natural resources out of the ground.
• Production test
  A test made to determine the daily rate of oil, gas, and water production from a potential pay zone.
• Proppants
  - Materials used in hydraulic fracturing for holding open the cracks made in the formation by the fracturing process. Proppants may consist of sand grains, beads, or other small pellets suspended in fracturing fluid.
• Prospect
  A lease or group of leases on which an operator intends to drill.
• Proved behind-pipe reserves
  - Estimates of the amount of crude oil or natural gas recoverable by recompleting existing wells.
• Proved developed reserves
  - Estimates of what is recoverable from existing wells with existing facilities from open, producing payzones.
• Proved reserves
  Estimates of the amount of oil or natural gas believed to be recoverable from known reservoirs under existing economic and operating conditions.
• Proved undeveloped reserves
  - Estimates of what is recoverable through new wells on undrilled acreage, deepening existing wells, or secondary recovery methods.
• Public lands
  Any land or land interest owned by the federal government within the 50 states, not including offshore federal lands or lands held in trust for Native American groups.
• Public Offering
  A securities (investment) offering intended for sale to the general public. It must be register with 1) the Securities and Exchange Commission of the Federal government and 2) the securities-regulating agencies of the various states in which it will be offered.
• Pump
  - A device that is installed inside or on a production string (tubing) that lifts liquids to the surface.
• Pump off
  To pump a well so rapidly that the oil level falls below the pump’s standing valve, rendering the well temporarily dry.
• Pumping well
  A well that does not flow naturally and requires a pump to bring product to the surface.
• 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.

• Quad
  One Quadrillion (1,000,000,000,000,000) Btus
• Quitclaim deed
  A document by which one party (grantor) conveys title to a property, by giving up any claim which he may have to title (although he does not profess that claim is necessarily valid).

• R&D
  Research and development.
• Ram
  A closure mechanism on a blowout-preventer stack.
• Re-entry
  A well was abandoned, but subsequent drilling and production in the area suggests that a potential pay zone in the well was missed or passed over.
• Rework operations
  Any major operation performed on a well after its completion in an attempt to restore or improve its ability to produce.
• Reamer
  A tool used to enlarge or straighten a borehole.
• Reclamation
  The restoration of land to its original condition by regrading contours and replanting after the land has been mined, drilled, or otherwise has undergone alteration from its original state.
• Recoverable resources
  An estimate of resources, including oil and/or natural gas, both proved and undiscovered, that would be economically extractable under specified price-cost relationships and technological conditions.
• Reef
  - A buildup of limestone formed by skeletal remains of marine organisms. It often makes an excellent reservoir for petroleum.
• Refiner
  - A person or company that has any part in the control or management of any operation by which the physical or chemical characteristics of petroleum or petroleum products are changed.
• Refining
  - Manufacturing petroleum products by a series of processes that separate crude oil into its major components and blend or convert these components into a wide range of finished products, such as gasoline or jet fuel.
• Relief well
  A well drilled in a high-pressure formation to control a blowout.
• Reserve
  That portion of the identified resource from which a usable mineral and energy commodity can be economically and legally extracted at the time of determination.
• Reserve (pool)
  A porous and permeable underground formation of producible oil and/or natural gas, confined by impermeable rock or water barriers, and characterized by a single natural pressure system.
• Reservoir
  A porous, permeable sedimentary rock formation containing quantities of oil and/or gas enclosed or surrounded by layers of less permeable or impervious rock. Also called a “horizon.”
• Reservoir pressure
  The pressure at the face of the producing formation when the well is shut-in. It equals the shut in pressure at the wellhead plus the weight of the column of oil in the hole.
• (Electrical) 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 reserved by the owner of a whole interest when the balance of the whole interest is transferred to another party.
• 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.
• Risk
  The possibility of loss or injury. A level of uncertainty is associated with the various possible outcomes of the undertaking. Risk usually refers to a numerical estimate of the likelihood of the occurrence to these various possible outcomes.
• Roof rock
  A layer of impervious rock above a porous and permeable formation that contains oil or gas.
• Rotary drilling
  A method of well-drilling that employs a rotating bit and drilling mud to cut through rock formations.
• 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.
• Round trip
  Pulling the drillpipe from the hole to change the bit, then running the drillpipe and new bit back in the hole.
• Royalty
  - A payment to a landowner or mineral rights owner by a leaseholder on each unit of resources produced.
• Royalty Funds
  Generally speaking, a royalty fund is when royalty interests are being bought, sold and held by the funds sponsors. In nearly all leasing situations, once a lease has been developed, it provides a revenue stream. A portion of the revenue stream is set aside for royalty which generally amounts to 12.5% and overriding royalty &/or carried working interest of 2-5%. In a royalty fund the objective of the fund is to generate it’s revenue from royalties that are held from different producing fields throughout the country. The main feature to owning a percentage of a royalty fund is that with an oil royalty the royalty owner (or interest owner) pays no percentage of operating or developmental costs associated with the production of the oil or gas. Royalty programs generally offer a low risk factor along with a relatively low return. However, their main feature is that these types of programs last for many many years.
• Run ticket
  A record of the oil run from a lease tank into a connecting pipeline. An invoice for oil delivered.
• Running the tools
  - Putting the drillpipe, with the bit attached, into the hole in preparation for drilling.

• Salt dome
  A subsurface mound or dome of salt.
• Salt-bed storage
  Storage of petroleum products in underground formations of salt whose cavities have been mined or leached out with superheated water.
• 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.
• Sample
  Cuttings of a rock formation broken up by the drill bit and brought to the surface by the drilling mud. These are examined by geologists to identify the formation and type of rock being drilled.
• Sample log
  A record of rock cuttings made as a well is being drilled. A record is then kept that shows the characteristics of the various strata drilled through.
• Sandstone
  Rock composed mainly of sand-sized particles or fragments of the mineral quartz.
• Saturation
  1. The extent to which the pore space in a formation contains hydrocarbons or connate water. 2. The extent to which gas is dissolved in the liquid hydrocarbons in a formation.
• Schlumberger (pronounced “slumber-jay”)
  - The founder of electrical well logging, now the name for any electrical well log.
• Scout
  An individual who observes and reports on competitor’s leasing and drilling activities.
• Secondary recovery
  The introduction of water or gas into a well to supplement the natural reservoir drive and force additional oil to the producing wells.
• Secondary recovery
  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. Tertiary (third stage) recovery includes efforts to recover additional oil from the reservoir, by altering the physical characteristics of the oil itself such as reducing viscosity, or reducing surface tension. These are largely experimental procedures, like the injection of CO2, detergent-like fluids, steam, or chemically treated water into the reservoir; or injections of air (oxygen) into the reservoir and burning some of the oil in place which raise the temperature of the oil and improve its ability to flow.
• Section
  A square tract of land having an 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, however, 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 and sale of securities.
• Securities Exchange Act of 1934
  Established the Securities and Exchange Commission which regulates the activities of securities markets.
• Sedimentary basin
  - A large land area composed of unmetamorphized sediments. Oil and gas commonly occur in such formations.
• Sedimentary rock
  Rock formed by the deposition of sediment, usually in a marine environment.
• Seismic exploration
  A method of prospecting for oil or gas by sending shock waves into the earth. Different rocks transmit, reflect, or refract sound waves at different speeds, so when vibrations at the surface send sound waves into the earth in all directions, they reflect to the surface at a distance and angle from the sound source that indicates the depth of the interface. These reflections are recorded and analyzed to map underground formations.
• Seismograph
  A device that records natural or manmade vibrations from the earth. Geologists read what it has recorded to evaluate the oil potential of underground formations.
• Selling Expenses
  Expenses incurred in marketing interests in securities and commonly paid out of the investor’s capital investment.
• Settled production
  The second phase of production in the producing life of a well. (see IP).
• Separator
  A pressure vessel used to separate well fluids into gases and liquids.
• Service well
  A well drilled in a known oil or natural gas field to inject liquids that enhance recovery or dispose of salt water.
• Set casing
  To cement casing in the well hole, usually in preparation for producing a commercial well.
• Severance
  The owner of all rights to a tract of land can sever the rights to his land (vertically or horizontally). In horizontal severance, for example, if he chooses to sell all or part of the mineral rights, two distinct estates are created: the surface rights to the tract of land and the mineral rights to the same tract. The two estates may change hands independently of each other.
• Severance tax
  Tax paid to the state government by producers of oil or gas in the state.
• Shale
  A type of rock composed of common clay or mud.
• Shale oil
  The substance produced from the treatment of kerogen, that hydrocarbon found in some shales, which is difficult and costly to extract. About 34 gallons of shale oil can be extracted from one ton of ore.
• Shale shaker
  A vibrating screen or sieve that strains cuttings out of the mud before the mud is pumped back down into the borehole.
• Sharing arrangement
  An arrangement whereby a party contributes to the acquisition, or exploration and development, of an oil and gas property, and receives as compensation, a fractional interest in that property.
• Shoestring sands
  Narrow strands of saturated formation that have retained the shape of the stream bed that formed them. In the United States, such a formation is located in Kansas.
• Shoot a well
  A technique that stimulates production of a tight formation by setting off charges downhole that crack open the formation. The early wells were shot with nitroglycerin; then dynamite was used. The nitro man has been replaced today by acidizers and frac trucks.
• Show
  An indication of oil or gas observed and recorded during the drilling of a well.
• Shut-down well/shut-in well
  A well is shut down when initial drilling ceases for one reason or another. A well is shut in when the wellhead valves are closed, shutting off production, often while waiting for transportation or for the market to improve.
• Shut-in
  To stop a producing oil and gas well from producing.
• Shut-in pressure
  The pressure at the wellhead when valves are closed.
• Shut-in Royalty
  - A special type of royalty negotiated in the leasing of a property.
• Side track
  When fishing operations have been unable to recover an object in the hole that prevents drilling ahead, the borehole can often be drilled around the obstacle in the original hole.
• Skidding the rig
  Moving a derrick from one location to another on skids and rollers.
• Solution gas
  Natural gas that is dissolved in the crude oil in a reservoir.
• Sour Crude or Gas
  Oil or natural gas containing sulfur compounds, notably hydrogen sulfide a poisonous gas.
• Source rock
  Sedimentary rock, usually shale containing organic carbon in concentrations as high as 5-10% by weight.
• Spacing unit
  The surface area size of a parcel of land on which only one producing well is permitted to be drilled to a specific reservoir. The acreage that the single well should drain all (or most) of the recoverable oil or gas from that portion of the reservoir that lies within the spacing unit. State agencies regulate the size of the spacing unit for different reservoirs, in order to facilitate efficient exploitation of oil and gas from them. ‘Increased density’ means the spacing unit is reduced: 2 wells (instead of one) per 640 acres which amounts to 1 well per 320 acres.
• Spot market
  A short-term contract (typically 30 days) for the sale or purchase of a specified quantity of oil or gas at a specified price.
• Spud
  To spud a well means to start the initial drilling operations.
• Squeeze
  The procedure of pumping a slurry of cement into a particular space in the borehole (often the annulus between the borehole and the casing), so that the cement will solidify to form a seal.
• Steel reef
  Refers to the artificial reefs formed by the substructures of offshore drilling and production platforms which are inhabited by a rich variety of marine life.
• Step-out well
  A well drilled near a proven well, but located in an unproven area, that determines the boundaries of the producing formation.
• Stipper oil well
  An oil well capable of producing no more than 10 barrels of oil per day.
• Stocktank barrel
  A barrel of oil at the earth’s surface.
• Stratigraphic test
  A hole drilled to gather information about rock strata in an area.
• Stratigraphic trap
  A porous section of rock surrounded by nonporous layers, holding oil or gas. They are usually very difficult to locate, although oilmen believe that most of the oil yet to be discovered will be found in these traps.
• Structural trap
  A reservoir created by some cataclysmic geologic event that creates a barrier and prevents further migration. The most common structural traps are anticlines, in which at lease 80 percent of the world’s oil and gas have been discovered.
• Structure
  Subsurface folds or fractures of strata that form a reservoir capable of holding oil or gas.
• Submersible drilling barge
  A vessel capable of drilling in deep water. The hull is flooded to sink the barge beneath the water level, and a drilling platform is jacked up above the surface.
• Submersible pump
  A bottom-hole pump for use in an oil well when a large volume of fluid is to be lifted.
• Subscription
  The manner by which an investor participates in a limited partnership through investment.
• Substructure
  A platform upon which a derrick is erected.
• Supervisory fee
  Analogous 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 rights
  Surface ownership of a tract of land from which the mineral rights have been severed.
• 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 hollow rubber cylinder with a flap (check valve) on the bottom surface. It is lowered below the fluid level in the well. This opens the check valve allowing fluid into the cylinder. The check valve flap closes as the swab is pulled back up, lifting oil to the surface.
• Sweet crude
  Crude oil with low sulfur content which is less corrosive, burns cleaner, and requires less processing to yield valuable products.
• Syncline
  A downfold in stratified rock that looks like an upright bowl. Unfavorable to the accumulation of oil and gas.
• Syndication expenses
  Expenditures incurred by a partnership in connection with issuing and marketing its interests to investors: legal fees of the issuer for securities and tax advice, accounting fees for audits and other representations included in the offering memorandum.
• Synfuels
  - Fuels produced through chemical conversions of natural hydrocarbon substances such as coal and oil shale.
• Synthetic crude oil (syncrude)
  A crude oil derived from processing carbonaceous material such as shale oil or unrefined oil in coal conversion processes.
• Synthetic gas
  Gas produced from solid hydrocarbons such as coal, oil shale, or tar sands.

• Take-or-pay contract
  A (long-term) contract between a gas producer and a gas purchaser, such as a pipeline transmission company.
• Tangible Equipment Costs
  Expenditures for tangible property, such as drilling equipment and machinery are recoverable through a depreciation allowance that spans for five to seven years.
• Tank bottoms
  A mixture of oil, water, and other foreign matter that collects in the bottoms of stock tanks and large crude storage tanks and must be cleaned or pumped out on a regular basis.
• Tank battery
  A group of tanks at a well site used to store oil prior to sale to a pipeline company.
• Tanker
  An ocean going ship which hauls crude oil.
• Tar sand
  A sandstone in which the spaces between grains are filled with a highly viscous tar.
• Tar sands
  Rocks (other than coal or oil shale) that contain highly viscous hydrocarbons that are unrecoverable by primary production methods.
• Tax preference items
  Certain items of income, or special deductions from gross income which are given favored treatment under Federal tax law.
• TCF
  Trillion cubic feet.
• Tectonic map
  A geologic map showing the structure of the earth’s crust.
• Tender
  1. A permit issued by a regulatory body for the transportation of oil or gas. 2. A barge or small ship that serves as a supply ship and/or storage facility for an offshore rig.
• Tertiary recovery
  The recovery of oil that involves complex and very expensive methods such as the injection of steam, chemicals, gases, or heat, as compared to primary recovery, which involves depleting a naturally flowing reservoir, or secondary recovery, which usually involves repressuring or waterflooding.
• 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.
• Therm
  A measure of heat content. One therm equals 100,000 Btus.
• Third for a quarter
  Sometimes also known as a “quarter for a third”. A widely used arrangement for promoting an oil deal to another party.
• Tight formation
  - A sedimentary layer of rock cemented together in a manner that greatly hinders the flow of any gas through the rock.
• Tight hole
  well about which the operator keeps all information secret.
• Tight sand
  A formation with low permeability. Gas produced from a formation so designated by the Federal Energy Regulatory Commission qualifies for a higher market price.
• Time value of money
  The concept that a dollar in hand today is worth more than a dollar that will be received in some future year.
• Title
  The combination of factors that, together, constitute legal ownership of a property.
• Tool pusher
  The supervisor of drilling rig operations.
• Top lease
  A (conditional) type of lease that may be granted by the mineral-rights owner of a property while an pre-existing recorded lease of that property is nearing expiration, but nonetheless is still in effect. The top lease would become effective only if and when the existing lease expires (or is terminated).
• Total depth (TD)
  The maximum depth of a borehole.
• Township
  A square tract of land six miles on a side, it consists of 36 sections of one square mile each.
• Transfer rule
  When an interest in an oil and gas property already proven to be capable of commercial production is transferred, the transferee taxpayer is generally not entitled to percentage depletion, although he may still be entitled to cost depletion, in computing his depletion allowance deduction from gross income.
• Trap
  A natural configuration of layers of rock where non-porous or impermeable rocks acts as a barrier, blocking the natural upward flow of hydrocarbons.
• Trip
  Making a “trip” is the procedure of pulling the entire string of drill pipe out of the borehole and then running the entire length of drill pipe back in the hole.
• Tubing
  Small diameter pipe, threaded at both ends, that is lowered into a completed well. Oil and gas are produced through a string of tubing.
• Turnkey
  A drilling contract that calls for a drilling contractor to drill a well, for a fixed price, to a specified depth. The purpose of drilling a well by turnkey contract may be related to the timing of Federal income tax deductions. For income tax purposes, expenses are deductible from gross income as they are incurred. When a turnkey contract is entered into toward the end of the current tax year, the drilling costs may be pre-paid at that time. The idea is to give a working interest owner (or investor) in the well, the opportunity to deduct the intangible drilling costs from his gross income in the current tax year.
• 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.

• ULCC (Ultralarge crude carrier)
  A large tanker built especially to carry 500,000 dwt and up of crude oil.
• Unassociated gas
  Natural gas that occurs alone, not in solution or as free gas with oil or condensate.
• Underwriter
  One who guarantees the sale of securities to investors. He is at risk to the extent he assumes the responsibility of paying the net purchase price to the seller at a pre-determined price. He charges a fee for this service.
• Undiscovered recoverable resources
  - Resources outside of known fields, estimated from broad geologic knowledge and theory.
• Updip well
  A well located high on a structure where the oil-bearing formation is found at a shallower depth.
• Upstream
  Activities concerned with finding petroleum and producing it, compared to downstream which are all the operations that take place after production.

• Vapor pressure
  The pressure exerted by a vapor held in equilibrium with its solid or liquid state.
• Viscosity
  fluid’s resistance to flowing.
• VLCC (very large crude carrier)
  A tanker built to carry 200,000 to 350,000 dwt of crude oil.

• Wall sticking
  A condition in which a section of the drillstring becomes stuck on deposits of filter cake on the wall of the borehole in a well.
• Wasting assets
  Assets that will eventually lose their value.
• Water drive
  The most efficient driving mechanism to force oil and gas out of the reservoir.
• Water-drive reservoir
  A reservoir in which the pressure that forces the oil to the surface is exerted by edge or bottom water in the field.
• Waterflooding
  A secondary recovery method in which water is injected into a reservoir to force additional oil into the wells.
• Well platform
  An offshore structure that supports a well’s surface controls and flow piping.
• Well program
  The procedure for drilling, casing, and completing a well.
• Wellbore
  Physically, wellbore refers to a borehole, in other words a completed well.
• Wellhead
  A device on the surface used to hold the tubing in the well. The wellhead is the originating point of the producing well at the top of the ground.
• West Texas Intermediate
  West Texas Intermediate
• Wet
  A reservoir rock is said to be “wet” when it contains water but no hydrocarbons.
• Wet gas
  Natural gas containing liquid hydrocarbons – commonly condensate.
• 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.
• Whipstock
  A steel blocking device place in a borehole. As drilling is resumed, the whipstock forces the drill bit to veer off at a slight angle.
• Wildcat
  An exploration well drilled to a reservoir, from which no oil or gas has previously been produced in the nearby surrounding area.
• Wildcatter
  An operator who drills the first well in unproven territory.
• 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 nonpassive losses by reason of the working interest exception. In such a 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 claims 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 nonpassive. 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.
• Workover
  To clean out or work on a well to restore or increase production.
• Workover rig
  The rig used when oilmen try to restore or increase a well’s production.
• Write-off
  In common usage: a reduction in taxable income that results when allowable deductions are subtracted from gross income.

• Zone
  A specific interval of rock strata containing one or more reservoirs, used interchangeably with “formation.”
• Zone isolation
  Sealing off a producing formation while a hole is being deepened. A special sealant is injected into the formation, where it hardens long enough for the hole to be drilled. Afterward, the substance again turns to liquid, unblocking the formation.