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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, if is not economically productive.

ACIDIZING
A technique for increasing the flow of oil and gas into a well. Hydrochloric acid is pumped into the oil-bearing rock. The acid dissolves limestone in the producing zone enlarging pores and flow into the well bore with less restrictions.

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.

ANNULUS
The donut-shaped space around the outside of the drill pipe in an open borehole. A cased well has two annular spaces: one between the drill pipe and the casing, the other between the casing and the borehole.

ASSOCIATED GAS
Natural gas that naturally occurs in a reservoir along with oil, in a gas cap.

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 provided. 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.

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BACK IN
The type of interest in a well or property that becomes effective at a specific time in the future, or on the occurrence of a specified future event. See reversionary interest.

BARREL OF OIL
The standard unit of oil measurement in the U.S. oil industry. A barrel equals 42 U.S. gallons, or 159 liters. [in some countries oil is measured using the metric system; volumes in liters or weights in metric tons.]

BASIN
A natural depression on the earth's surfaces, in which (usually water-borne) sediments accumulate over millions of years. The Gulf of Mexico is an example.

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 (of gas). In the U.S. oil and gas industry, the cubic foot is the standard unit of measurement of gas at atmospheric pressure. Billion is 1,000 million

BEHIND PIPE
If a well drills through more than one pay zone 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 (pipe).

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.

BLIND POOL
Refers to an oil and gas limited partnership which has not committed to a specific prospects, leases, or properties at the time of the limited partners subscriber.

BLOWOUT
An unexpected violent eruption of oil and gas from a well during the drilling phase of operation. This happens when high pressure gas is encountered and the proper precautions have not been taken. The initial eruption is followed by an uncontrolled flow of fluids from the well.

BLOWOUT PREVENTER
A "BOP" is a large, specially designed valve that is mounted on top of the well during the drilling and completion stages of operation. The operator can close this valve to stop the flow of oil or gas in case of emergency.

BOREHOLE
The hole created by drilling boring of a well

BOTTOM-HOLE
The deepest part of a borehole

BOTTOM HOLE PRESSURE
The reservoir pressure at the bottom of the well. When the well is flowed, a decline in pressure occurs. The amount of decline in pressure related to the amount of oil production will give an engineer information regarding the reserves of the well.

BTU
British thermal unit, a unit of heat energy, used to describe of amount of heat that can be generated by burning oil or gas.

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C&E
Well completion and equipment cost.

CASING
Steel pipe which screws together and is lowered into the hole after drilling is complete. It is used to seal off fluids and keeps the hole from caving in.

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

CEMENT OR "SET PIPE"
A process whereby cement is pumped into the hole between the walls of the hole and the outside of the casing. Upon hardening, the cement holds the pipe in place and prevents fluid movement in the hole.

COMMERCIAL WELL
A well which is capable of producing enough products to pay for itself and give a profit to its owners.

COMPLETION
A general term referring to all activities necessary to put a well on production after it has been drilled to casing point.

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

CUTTING OR SAMPLES
Pieces of rock cut out of the formation by the bit and circulated to the surface by the mud. Geologists study this rock for signs of oil and gas as the well is drilled.

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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.

DEPOSIT
An accumulation of oil, gas or other minerals which is capable of production.

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

DISCOVERY WELL
An exploratory well which encounters production in a previously unknown deposit.

DIVISION ORDER
A contract with a purchaser of oil and gas which directs the payments of oil and gas revenues to the interest owners of a well.

DRILLING
The act of boring into the earth.

DRILLING RIG
The equipment used to bore into the earth. There are two types: a. Rotary b. Cable tools. The rotary type is more modern and efficient.

D&A
Dry and abandoned.

D&T
Drilling and well test cost.

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ELECTRIC LOG
An electrical survey made on uncased holes. A special tool is lowered into the hole which ejects an electrical current into the rock and records its resistance to the current. The data from the survey is used by the geologist to determine the nature of the rock and its contents.

EXPLORATION
A general term referring to all efforts made in the search for new deposits of oil and gas.

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FLOWING WELL
A well capable of producing oil or gas by its own energy without the aid of a mechanical pump. Normally a pump is put on the well after the pressure reduction inhibits the rate of production.

FRACING
The process of pumping fluids into a productive formation at high rates of injection to hydraulically break the rock. The "fractures" which are created in the rock act as flow channels for the oil and gas to the well.

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GAS WELL
A well that produces natural gas which is not associated with crude oil.

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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 to realize that a well cannot maintain the flow rates it made during the first stages of its life.

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NON-COMMERCIAL
A well that is not capable of producing enough oil to pay for the drilling.

NRI
(Net Revenue Interest) That percent of the production revenue allocated to the working interest after first deducting proceeds allocated to royalty and overriding interest.

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OIL
A liquid hydrocarbon. (see "Crude Oil")

OIL GRAVITY
The most widely used indicator of a crude oil's worth to the producer is its API gravity. Normally, the price which a producer receives for his oil depends on its gravity, the less dense oils (higher API gravity) being the most valuable. This price schedule is based on the premise that the lighter oil contains higher percentages of the more valuable products such as gasoline. API Gravity (degrees) = (141.5/sp.gr.) - 131.5.

OIL & GAS LEASES
A contract between an oil operator and a landowner which gives the operator the right to drill for oil and gas on his property for a consideration. It is simply a "ticket to hunt".

ON THE PUMP
An expression that means a well is incapable of flowing and that the oil is being pumped to the surface by a "pumping unit".

OPERATING EXPENSE

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PAYOUT
When the costs of drilling, producing and operating have been recouped from the sale of products on a well.

PERMEABILITY
A measure of the resistance of rock to the movement of fluids. Rocks may have holes or void spaces in them (porosity), but if these holes do not connect, the permeability can be drastically reduced.

POROSITY
A measure of the relative volume of void space in rock to the total rock volume. These spaces or pores are where oil and gas accumulate; therefore, a formation containing a high percentage of porosity can contain more hydrocarbons.

PROVEN RESERVES
Oil and gas which has not been produced but has been located and is recoverable.

PUMPER
An employee of an operator who is responsible for gauging the oil and gas sold off the leases he has been assigned and who is also responsible for maintaining and reporting the daily production.

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

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

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SALT WATER DISPOSAL WELL
Many wells produce salt water while producing oil. The disposal of this water is a problem to an operator because of pollution. The best solution to the problem is to pump the waste back into a formation that is deep enough not to pollute shallow water sands. Many stripper wells which are no longer commercial are converted for this purpose.

SECONDARY RECOVERY
A broad term encompassing any method of extracting oil from a reservoir after a well or field has exhausted its primary production.

SEDIMENTARY ROCKS
Rock is generally classified in one of three categories: a. Sedimentary; b. Igneous; c. Metamorphic.

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

STRIPPER WELL
The final state in the life of a producing well.

STRUCTURAL TRAP
A fold or break (or both) in the earth's crust which creates an impervious trap for oil and gas. Oil will migrate underground through rock until it is "trapped".

SURFACE PIPE
Pipe which is set with cement through the shallow water sands to avoid polluting the water and keep the sand from caving in while drilling a well.

SWAB
A tool which is lowered down the pipe on a wire line. The "swab" is then pulled out of the hole. As it travels up the pipe, rubber elements expand so that the fluid in the pipe is trapped above the swab and pushed to the surface. This operation is necessary when the formation pressure is not high enough to blow the fluids in the pipe to the surface.

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TANK BATTERY
A group of tanks at a well site used to store oil prior to sale to a pipeline company.

TESTING
When each new well is competed, a series of tests are run on the well. The various tests are used to estimate the daily deliverability, payout, and reserves.

TUBING
Small diameter pipe which is installed in the casing. Oil is produced through tubing because it increases the viscosity of fluid and a well's flow capabilities.

TURNKEY CONTRACT
A contract in which an operator or drilling contractor agrees to furnish all labor and materials necessary to drill a well to a certain depth or stage of completion for a specified sum of money. The operator or contractor assumes all of the responsibility and risks involved in completing the operation.

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VISCOSITY
The resistance of fluid to flow. A high viscosity fluid will not flow as easily as a low viscosity fluid (Mud will not move as easily as water).

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WATER FLOODING
A secondary recovery method for the production of oil from a formation. Oil will float on water. When water is injected into some formations, the oil will float or be washed to the surface, thereby, increasing the amount of production from a well or field. Some formations will not react to this type of stimulation.

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

WORKING INTEREST
Oil and Gas Working Interests.
A working interest in an oil or gas property is one that is burdened with the cost of development and operation of the property, such as the responsibility to share expenses of drilling completing or operating an 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.

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

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