Common Terms Used in Oil and Gas

·         AFE – Authority for Expenditure. The portion of the well cost that the non-operating, working interest owner is responsible for paying the operating oil company in order to participate.  This usually comes with an election letter that is signed and returned to the operating oil company affirming participation.
·         Bakken/ Three Forks formations – Stratigraphic rock units from the Late Devonian to Early Mississippian age located within the Williston Basin.
·         Bbl, Barrel – In the oil and gas industry, a barrel is 42 U.S. gallons measured at 60ºF.
·         Break Even (BE) –Breakeven point, measured in time, at which the initial investment into a well is recovered. Typically measured starting at the time of initial production of a well forward.  Also referred to as payout timeframe.
·         BOPD/BPD – Refers to the number of barrels of oil produced per day.
·         Barrels of Oil Equivalent (BOE) – A measurement of the amount of energy produced by burning a barrel of crude oil (US 42 Gallons). In the US 5,800 cubic feet of natural gas equals 1 BOE.
·         Casing – Steel pipe placed in an oil or gas well to prevent the wall of the hole from caving in, to prevent movement of fluids from one formation to another and to aid in well control.
·         Choke – A device with an orifice installed in a line to restrict the flow of fluids. Surface chokes are part of the Christmas tree on a well and contain a choke nipple, or bean, with a small diameter bore that serves to restrict the flow. Chokes are also used to control the rate of flow of the drilling mud out of the hole when the well is closed in with the blowout preventer and a kick is being circulated out of the hole.
·         Completion – 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 allowance – Used for tax and accounting purposes. The method of recording the gradual use of natural resources over time. In the US, the current depletion allowance, using the percentage depletion method, for tax purposes is 15% of gross production revenue received.  Consult your tax professional for further information.
·         Divest – The reduction of mineral rights used to reduce risk in certain areas/wells.
·         Drilling Rig (Derrick) – A tower used for lifting and positioning drill pipe and casing above the well bore. Contains the motors and machinery used to turn the drill bit.
·         Estimated ultimate recovery (EUR) – The sum of the proven reserves at a specific time minus the cumulative production up to that time.
·         Flowing, flow rate, etc. – Refers to the fact that a well is producing oil and at what rate it is producing i.e. the well is “flowing” at a rate of 400 barrels per day.  A well may "flow" without any lift assist or external pump jack for several months after coming into production.
·         Fracking, Hydraulic Fracturing, etc. – 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.  Fracking is part of the completion process.
·         Horizontal wellbore – The part of the well bore that is drilled underground horizontally through the targeted formation.  Most wells are drilled 10,000 feet or more horizontally.
·         Intangible Drilling Costs (IDC) – Refers to the expense associated with the intangible items used to drill and complete a well. Items such as water, mud, casing and sand are considered “intangible costs”. In the US, the current tax law allows for 100% of IDC’s to be deducted or expensed in the tax year they were paid. Consult your tax professional for further information.
·         IP Oil – The number of barrels of oil produced during the initial production test, usually 24 hours.
·         Infill well – Refers to the additional wells drilled in a spacing unit after the initial well.  The Bakken could support up to 4 infill wells and portions of the Williston Basin with multiple benches of the Three Forks could potentially support up to 12 infill wells in the same spacing unit.
·         Kickoff point (KOP) – The depth in a vertical hole at which a deviated or slant hole is started; used in directional drilling.
·         Lease bonus – Refers to the amount paid per acre to acquire an oil & gas lease.
·         MCF – One thousand cubic feet, a measurement of gas volume only.
·         MMCF – One million cubic feet; a measurement of gas volume only.
·         Measured Depth (MD) – The total distance of a well from surface to the bottom, measured in feet.
·         Natural Gas Liquids (NGL) – Gas that is processed through a plant to separate the heavier hydrocarbon liquids from the natural gas stream. These heavier hydrocarbon liquids, NGLs, traditionally have a higher value than the gaseous natural stream.
·         Net Revenue Interest (NRI) – An owner’s interest in the production revenues of a well.
·         Net mineral acres (NMA) – The amount of mineral acres actually owned under the gross surface acres.
·         Oil Field – A region with an abundance of oil wells extracting oil & gas from below ground.
·         Oil & Gas Mineral Lease (OGL) – The agreement outlining the basic terms of developing lands or minerals such as royalty interest to be paid, length of time of the primary lease, description of lands. These contracts can be assigned and are referred to as AOGL’s or assignment of oil & gas leases.
·         Oil Play – A group of oil fields or prospects in the same region controlled by the same set of geological circumstances.
·         Royalty Interest & Overriding Royalty Interest (RI, ORRI) – Refers to an overriding royalty interest and/or a royalty interest in the revenues of a well.
·         Pay Zone – The reservoir rock in which oil and gas are found in exploitable quantities.
·         Pool – Refers to the oil & gas producing formation or pool. Similar to pay zone.
·         Pooling Refers to the pooling of mineral rights to create a spacing unit, field, production unit, etc.
·         Pump Jack – The above ground drive for a reciprocating piston pump used to mechanically lift liquid out of a well if there is not enough bottom hole pressure for the liquid to flow all the way to the surface.
·         Risk Penalty – The penalty imposed by an operating oil company for failing to participate in an oil well by paying the proportion of AFE costs, i.e. not sharing in monetary risk. The risk penalty in North Dakota for companies like Black Bear Resources is 200% of what SHOULD have been paid and is recovered from the production revenue a company WOULD have received.
·         Spacing – Refers to the concept by which government entities control well density.
·         Spacing unit – Refers to the area allotted to a well where an operating oil company has acquired a majority working interest and will drill at least one well. In North Dakota, this is usually 1280 acres.
·         Spud Date – The date selected by the Oil & Gas Commission as the date on which the ground was first penetrated for the purposes of drilling a well.  Generally thought of as the date the drill bit penetrates the ground.
·         Surface Casing – Outer casing cemented in the upper portion of the well bore to protect fresh water formations from contamination.
·         Salt Water Disposal Well (SWD) – Well used for disposal of saltwater/wastewater produced and pumps it into an underground formation.
·         Tangible Drilling & Completion Costs (TDC) – Refers to the expense of the tangible items used to drill & complete a well. Items such as pump jacks and storage tanks are considered “tangible costs”. In the US, the current tax law allows for TDC’s to be depreciated over a seven year period.  Consult your tax professional for additional information.
·         True Vertical Depth (TVD) – The true distance from surface to the well bore, measured in feet.
·         Total Depth (TD) – The total depth of a well bore including the vertical & horizontal legs of the well, measured in feet.
·         Unitization – Refers to the combining of multiple spacing units and wells, specifically to prevent waste and maximize the ultimate oil recovery from one pool.
·         Vertical wellbore – The portion of the well bore that is drilled vertically from the surface into the ground to the targeted formation or kickoff point.
·         West Texas Intermediate (WTI) – A grade of crude oil used as a benchmark in oil pricing.
·         Williston Basin – A large intracratonic sedimentary basin in eastern Montana, western North Dakota and South Dakota and southern Saskatchewan known for its rich deposits of petroleum, natural gas and potash.
·         Working Interest (WI) – Interest(s) in a well which bears the drilling and operating expenses.
·         Workover – Used to refer to any kind of oil well intervention involving invasive techniques. Production tubing repair, pump replacement and unplugging are things that are considered a “workover”