Well Definitions

ABANDON WELL

A well no longer in use, whether dry, inoperable or no longer productive.

AD VALOREM TAX

Latin for according to value. For producing minerals, this tax is levied at the county level.

ALLOWABLE

The amount of oil, gas, or other substances, a well or field is allowed to produce under orders of a state or other regulatory agency.

AMI

Area of mutual interest.

API NUMBER

“A unique identifying number for all oil and gas wells drilled in the U.S. The system was developed by the American Petroleum Institute. An API well number can have up to 14 digits. The first two digits are the state code, the next three digits are the county code, the next five digits represent the unique identification number for the well, and sometimes you will see an additional two digits that represent a sidetrack code and another two digits that represent a sequence of events.”

APO

After payout.

APPORTIONMENT

The division of royalties or monies among the owners of interest in lands subject to production.

BARRELL (BBL)

In the oil and gas industry, a barrel is 42 U.S. gallons measured at 60º Fahrenheit.

BCF

The abbreviation for billion cubic feet of gas.

BPO

Before payout.

BRENT CRUDE OIL

Refers to any or all of the components of the Brent Complex, a physically and financially traded oil market based around the North Sea of Northwest Europe.

COMPLETION

This is the process which takes place immediately after the drilling operation is complete. This involves the setting of casing, tubing, packers, possibly down hole pumps, possibly hydraulic fracturing, possibly installing sand screens etc.

DEPLETION

The reduction in value of an asset by reason of the taking away of exhaustible material assets or resources, such as the cutting of trees from a forest or the removal of oil from a well.

DEVELOPMENTAL WELL

A well drilled to a known producing formation in an existing oil field.

DISCOVERY WELL

The first oil or gas well drilled in a new field. The discovery well is the well that is drilled to reveal the actual presence of a petroleum-bearing reservoir. Subsequent wells are called development wells.

DOWNSTREAM

This term is used in describing oil and gas operations occurring after the sales meter.

DRILLING OPERATIONS

Any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of the lessee under the lease.

DRILLING PERMIT

In those states that regulate well spacing, the authorization from the regulatory agency to drill a well.

DRILLING RIG

The equipment used to bore into the earth. Rotary style drilling is what is primarily used in today’s drilling.

DRY HOLE

Any well that fails to discover oil or gas in paying quantities.

ESCHEATED

In today’s usage, this is the process whereby property to which there is no claimant is returned to the state, usually the state comptroller’s office.

EXPLORATORY WELL

Any well drilled for the purpose of securing geological or geophysical information to be used in the exploration or development of oil, gas, geothermal, or other mineral resources.

EXPRESS COVENANT

A written promise in a lease, assignment or other instrument.

FARM-IN

An arrangement whereby an Operator buys in or acquires an interest in a lease owned by another Operator on which oil or gas has been discovered or is being produced. Often farm-ins are negotiated to help the original owner with development costs and to secure for the buyer a source of crude oil or natural gas.

FARMOUT

Assignment or partial assignment of an oil and gas lease from one lessee to another lessee. Also referred to as a farm-out or farm out.

FIELD

Area of oil and gas production with at least one common reservoir for the entire area.

FIELD RULES

Spacing and production rules mandated by the state for a common reservoir in an area.

FIELD-WIDE UNIT

The combining of all wells and ownership interests within an entire field for the purpose of maximizing the overall benefit to all parties. The practice of field wide unitization is used more often in offshore fields and onshore in fields that require enhanced recovery.

FORCED POOL

The act of being forced by state law into participation in an oil and/or gas producing unit. Often referred to as Force Pooled

FORMATION

Geological term that refers to a separate layer of rock or group of intermingled beds.

FRACTURE, FRACING, FRACKING

The process of using high pressure to pump sand laden gelled fluid into subsurface rock formations in order to improve flow into a well bore.

FRESH WATER

With respect to oil and gas production, fresh water which is found at shallower depths, is differentiated from salt water or brine which is usually found along with hydrocarbons. Fresh water or water of certain purities is needed for hydraulic fracturing.

GAS LIFT

The process of raising or lifting fluid from a well by means of gas injected down the well through tubing or tubing casing annulus. Injected gas aerates the fluid to make it less dense, forcing the fluid out of the well bore.

GATHERER

Includes any pipeline, truck, motor vehicle, boat, barge, or person authorized to gather or accept oil, gas, or geothermal resources from lease production or lease storage.

GATHERING LINE

A pipeline, usually within an oilfield which gathers produced oil and/or gas to bring it to a more common point for further transmission.

GEOPHONE

Acoustical sensor used in seismic exploration for collecting reflected waves.

HORIZON

A zone of a particular formation, such as the reservoir horizon, being that portion of a formation of sufficient porosity and permeability to form a petroleum reservoir.

HORIZONTAL DRILLING

A well of which a portion is drilled horizontally to expose more of the formation surface area to the well bore.

HYDROCARBON

An organic chemical compound of hydrogen and carbon, called petroleum. The molecular structure of hydrocarbon compounds varies from the simplest, methane (CH4), a constituent of natural gas, to the very heavy and very complex. Octane, for example, a constituent of crude oil, is one of the heavier, more complex molecules.

IMPENETRABLE SUBSTANCE

A stratum that cannot be drilled through.

INDEPENDENT PRODUCER

An energy company, usually in the exploration and production segment of the industry – and generally, with no marketing, transportation or refining operations. Also known as a non-integrated producing company in the oil industry.

INITIAL PRODUCTION

The rate of initial flow from a well.

INJECTION WELL

Well used to inject fluids (usually water) into a subsurface formation.

JOINT OPERATING AGREEMENT

An agreement between or among concurrent owners for the operation of a concurrently owned tract or leasehold for oil, gas and other minerals.

LAND FARMING

A waste management practice in which oil and gas wastes are mixed with or applied to the land surface in such a manner that the waste will not migrate off the land-farmed area.

LOCATION

Well site.

MCF

One thousand cubic feet of natural gas measured at standard pressure and temperature conditions.

NATURAL GAS LIQUIDS

Ethane, Propane, Butane, Isobutane, Pentanes, and some heavier hydrocarbons are often referred to as Natural gas liquids or NGLs. These heavier hydrocarbon liquids, NGLs, traditionally have a higher value than the gaseous natural stream. Liquids that are often processed through a plant to separate the heavier hydrocarbon liquids from the natural gas stream.

NET REVENUE INTEREST

An owner’s interest in the revenues of a well.

NET WORKING INTEREST

The share of production remaining to the working interest owners after all royalties, overriding royalties, production payments, and other reservations or assignments have been deducted.

OFFSET WELL

A well drilled on one tract of land to prevent drainage of oil and gas to an adjoining tract of land on which a well is being drilled or is already in production.

OIL WELL

Any well that produces one barrel or more crude petroleum oil to each 100,000 cubic feet of natural gas.

OPEC

Organization of Petroleum Exporting Countries.

OPERATING EXPENSE

The costs of operating a well to produce oil & gas.

OPERATOR

A company or individual, acting for himself or as an agent for others who has primary responsibility for maintaining well operations and complying with state rules and regulations.

PAYOUT

Generally, the point in time when production revenues from a well [or zone, or geologic horizon] equal expenses [including operating costs, royalties, other burdens and taxes].

PERFORATIONS

Holes within and through casing and cement into the productive formation.

PERMEABILITY

Ability of rock to transmit fluids through pore spaces.

PLUGGED AND ABANDONED (P&A)

Plugging and abandoning a well. After a well’s productive life, it is usually plugged and abandoned with cement and heavy mud. The wellhead is removed, and the casing cut off 3-6 feet underground, and a steel plate welded over the top.

POOLED UNIT

Unit created by combining separate mineral interests under the pooling clause of a lease or agreement.

POOLING

The combining of small or irregular tracts into a unit large enough to meet state spacing regulations for drilling.

POOLING AND UNITIZATION CLAUSE

In an oil and gas lease, the clause that permits the lessee to pool or unitize the leased tract.

POSSIBLE RESERVES

Possible reserves are less certain than Probable reserves and can be estimated with a low degree of certainty. Used to refer to reserves that have a greater than 10% chance of being recovered (P10).

PROCESSING PLANT

A plant to remove liquefiable hydrocarbons. Processing plants strip out condensate and NGLs from the gas production stream, as well as other gases or impurities.

PRODUCER

A producer of oil and gas, also sometimes referred to as an Operator, or the Oil Company

PRORATION UNIT

Acreage allocated to a well, usually by a government authority, that can be drained by a well in a specific formation or depth.

PROVEN RESERVES

Oil or gas which has not yet been produced but has been located and is economically recoverable. Used to refer to reserves that have a 90% (P90) or better probability of being produced in the current environment.

RECOMPLETION

The completion for production of an existing well bore in another formation from that in which the well was previously completed.

REGULATORY AGENCY

The body within each state that administers oil and gas policy set by state government. These bodies serve as the repository for public data related to oil and gas operations within the state.

RESERVE PIT, MUD PIT

Pit used to collect spent drilling fluids, cutting, and wash water during drilling operations.

RESERVOIR

A porous, permeable sedimentary rock containing oil and gas.

RESERVOIR ENGINEERING

The application of scientific and engineering principles to the production from a developed reservoir for maximum economic return.

RESIDUE GAS

Gas remaining after processing and extraction of NGL.

REVENUE STATEMENT

The monthly statement sent by either the First Purchaser or the Operator to the interest holders within an oil or gas producing property. These statements detail production volumes and pricing for hydrocarbons that are produced and sold each month.

ROYALTY STATEMENT

Account of finances that details a wells production and prices received. Mineral Owners receive these monthly or as revenue crosses certain thresholds depending on the state and operator.

RULE OF CAPTURE

Rule applied by the courts that give title to oil and gas produced from a tract of land to the party reducing it to possession.

SALT WATER DISPOSAL WELL (SWD)

Well used for the purpose of injecting produced water back into the ground.

SECONDARY RECOVERY

Enhanced recovery of oil or gas from a reservoir beyond the oil or gas that can be recovered by normal flowing and pumping operations. Secondary recovery techniques involve maintaining or enhancing reservoir pressure by injecting water, gas, CO2 or other substances into the formation.

SEDIMENTARY ROCK

Rock made up of aggregated sediments.

SEVERANCE TAX

A state tax levied against both royalty and working interest owners upon their pro rata share of oil and gas production. Each state sets its own severance tax rates, and often have special provisions for low-rate wells, secondary recovery wells, etc.

SHUT-IN

To close the valves on a well so that it stops producing.

SHUT-IN WELL

Usually, a gas well shut-in for lack of a market or pending connection with a pipeline.

SOUR GAS (H2S)

Any natural gas containing more than 1-1/2 grains of hydrogen sulfide per 100 cubic feet or more than 30 grains of total sulfur per 100 cubic feet.

STRIPPER WELL

A mature well which is at or toward the end of its economic life.

STRUCTURAL TRAP

An underground fold or break (or both) which creates an impervious trap where oil and gas can accumulate. Oil will migrate underground through rock until it is “trapped”.

SUBSTANDARD ACREAGE

Amount of acreage that is less than the standard amount for a proration unit for a field.

SWEET GAS

Natural gas not containing hydrogen sulfide.

THREE (3-D) SEISMIC, THREE DIMENSIONAL SEISMIC

Advanced method for collecting, processing, and interpreting seismic data in three dimensions. Three-dimensional seismic data is collected from closely spaced lines over an area of interest. The advantages of using three-dimensional seismic include increased resolution as well as improved interpretational tools and data displays.

TRANSPORTER

Common carrier by pipeline, railway, truck, motor vehicle, boat, or barge.

UNDERPRODUCTION

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

UNITIZATION, UNITIZATION AGREEMENT, UNIT AGREEMENT

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

UPSTREAM

Refers to the searching for and the recovery and production of crude oil and natural gas. Commonly referred to as the exploration and production (E&P) sector.

VISCOSITY

The resistance of fluid to flow. A high viscosity fluid does not flow as easily as a low viscosity fluid.

WATERFLOOD, WATERFLOODING

A form of secondary recovery, the process of injecting water into injection wells causing oil to migrate to adjacent producing wells.

WELL SITE

The physical location on which an oil or gas well is drilled. The size of the well site generally ranges from about ½ to 2 acres, depending on the footprint of the production facilities needed.

WEST TEXAS INTERMEDIATE

A specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. WTI is known as a light sweet oil because it contains 0.24% sulfur, making it “sweet,” and has a low density, making it “light.”

WILDCAT

A well drilled in an unproven area for the purpose of discovering a new field or reservoir.

WORKOVER

Operations on a producing well to restore or increase production.