Glossary of terms

Accredited Investor 

An accredited investor has a net worth of $1 million (not including their primary residence) or has made $200,000 the last two years and expects to make the same this year, or $300,000 if filing jointly.

Barrel (BBL) 

A barrel is a unit of measure used in the United States to report oil production. One barrel equals 42 U.S. gallons (35 imperial gallons) at 60 degrees Fahrenheit. Outside of the US, oil production is reported in cubic meters.


A depression in the crust of the Earth, caused by plate tectonic activity and subsidence, in which sediments accumulate.Basins are formed by forces above the ground (like erosion) or below the ground (like earthquakes). They can be created over thousands of years or almost overnight. The major types of basins are river drainage basins, structural basins, and ocean basins.


Casing is a series of steel pipes that are run into a drilled oil well to stabilize the well, keep contaminants and water out of the oil stream, and prevent oil from leaching into the groundwater. Casing is installed in layers, in sections of decreasing diameter that are joined together to form casing strings. The five types of casing string are conductor casing, surface casing, intermediate casing, casing liner, and production casing.

Casing is typically made from carbon steel, but as the primary structural component of the well the grade of steel used to make the casing, and the specifications of the finished material, are very important.

Depletion Allowance

Depletion allowance is a tax deduction allowed by the IRS to compensate for the “using up” of a natural resource such as oil, gas, timber or minerals. It is a way to recover costs for capital investments.


The term drilling indicates the whole complex of operations necessary to construct wells of circular section applying excavation techniques.

To drill a well it is necessary to simultaneously carry out the following actions (drilling process):‍

  • to overcome the resistance of the rock, crushing it into small particles measuring just a few
  • to remove the rock particles, while still acting on fresh material
  • to maintain the stability of the walls of the hole
  • to prevent the fluids contained in the drilled formations from entering the well.

Environmental, Social, and Governance (ESG) Criteria

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

Exit Strategy

An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist, or business owner to liquidate a position in a financial asset or dispose of tangible business assets once predetermined criteria for either has been met or exceeded.


An oil field is a piece of land beneath which fossil fuels can be extracted for economic value. Most of the world’s oil is concentrated in oil fields located in the Middle East, along with other large deposits discovered beneath the ocean’s surface.


Flowback refers to process fluids that are collected at the surface after hydraulic fracturing operations are completed. The fluids contain both the hydraulic fracturing fluids, and volatile hydrocarbons.


Oil and gas are formed from organic material mainly deposited as sediments on the seabed and then broken down and transformed over millions of years. If there is a suitable combination of source rock, reservoir rock, cap rock and a trap in an area, recoverable oil and gas deposits may be discovered there.


Hydraulic fracturing, or “fracking” as it is more commonly known, is just one small method of the broader process of unconventional development of oil and natural gas. Fracking is a proven drilling technology used for extracting oil, natural gas, geothermal energy, or water from deep underground.


A fuel is any material that can be made to react with other substances so that it releases energy as thermal energy or to be used for work. The concept was originally applied solely to those materials capable of releasing chemical energy but has since also been applied to other sources of heat energy such as nuclear energy (via nuclear fission and nuclear fusion).


The word “greener” in the oil and gas industry refers to new ways and efficient methods to produce green energy that has a significantly less or no carbon footprint. 

Horizontal Drilling

A horizontal well is a type of directional drilling technique where an oil or gas well is dug at an angle of at least eighty degrees to a vertical wellbore. This technique has become increasingly common and productive in recent years.

Intangible Drilling Costs (IDC)

Intangible drilling costs are the expenses incurred while developing well sites for items that are not a part of the functioning well and have no resale value. Examples of intangible drilling costs are labor, survey work, ground clearing, repair, and supplies.


A person who owns land, especially a large amount of land. In the oil and gas industry, the landowner is a person an entity that leases out the land for drilling of oil and gas.


Lateral means a pipe, chamber or other conveyance used to carry and distribute effluent.

Lease Operating Expenses

Lease operating expenses are recurring costs associated with an active well and its associated equipment. These costs can include rent, insurance, and payroll. If multiple parties are involved, each party’s lease operating cost is represented by their working interest in the well. Reducing lease operating costs is a significant function of a management team.


MCF is an abbreviation derived from the Roman numeral M for one thousand, put together with cubic feet (CF) to measure a quantity of natural gas. In terms of energy output, one thousand cubic feet (MCF) of gas is equal to approximately 1,000,000 BTU (British Thermal Units). For example, a natural gas well that produces 400 MCF of gas per day operates with a daily production rate of 400,000 cubic feet.

Mineral Rights

Mineral rights are the ownership rights to underground resources such as fossil fuels (oil, natural gas, coal, etc.), metals and ores, and mineable rocks such as limestone and salt. In the United States, mineral rights are legally distinct from surface rights. Surface rights give the owner the right to use the surface of the land for residential, agricultural, commercial, and other purposes. Mineral rights entitle the owner to own and exploit any natural resources found beneath the land.

Natural Gas

Natural gas, also called methane gas or natural methane gas, colourless highly flammable gaseous hydrocarbon consisting primarily of methane and ethane. It is a type of petroleum that commonly occurs in association with crude oil.

Oil and Gas Lease

An oil and gas lease is a legal agreement where the lessor (mineral rights owner) allows a lessee (oil and gas company) access to the minerals and property. Usually, in return, the lessee pays the lessor royalty payments.

Pay Zone

The pay zone is a term used to describe the reservoir that is producing oil or gas within a particular wellbore. A pay zone is a reservoir or part of a reservoir that contains hydrocarbons that can be extracted economically.


Petroleum, also called crude oil, is a fossil fuel. Like coal and natural gas, petroleum was formed from the remains of ancient marine organisms, such as plants, algae, and bacteria.


Reserve pits are storage pits that are used in oil and gas drilling operations. They hold mud and wastewater pulled up from the drilling site to keep it from contaminating the groundwater. They are dug next to a drilling rig and are commonly used to hold drilling muds and fluids in natural gas or oil fields.

PDP (Proved Developed Producing Well)

Proved Developed Producing (PDP) wells are those that are currently producing at economic rates and selling to a market.

PUD (Proved Undeveloped Reserve)

Proved Undeveloped (PUD) well locations are those that have not been drilled (or still require a significant investment to access petroleum recovery), are reasonably certain to be economically productive, and are laterally continuous with Proved Developed wells.

Proven Reserves

Proven reserves (sometimes called “proved reserves”) refer to the quantity of natural resources that a company reasonably expects to extract from a given formation. Proven reserves are established using geological and engineering data gathered through seismic testing and exploratory drilling.


Industrial pumps are essential devices required in every phase of oil and gas operations. Basically, they help transfer process fluids from one point to another.


Act of grinding a narrow notch across a surface-breaking indication until the bottom of the indication is located and then measuring the depth of the indication with a depth gauge for comparison to acceptance criteria.


A rig is a drilling platform in the ocean used in the search for natural gas and crude oil in order to sink bore holes. Drilling rigs can sample subsurface mineral deposits, test rock, soil and groundwater physical properties, and also can be used to install sub-surface fabrications, such as underground utilities, instrumentation, tunnels or wells.


A royalty is a legally binding payment made to an individual or company for the ongoing use of their assets, including copyrighted works, franchises, and natural resources. In most cases, royalties are revenue generators specifically designed to compensate the owners of property when they license out their assets for another party’s use.


Spudding is the process of beginning to drill a well in the oil and gas industry. A larger drill bit is initially used to clear a surface hole, which is then lined with casing and cement to protect groundwater. After the surface hole is completed, the main drill bit—which performs the task of drilling to the total depth—is inserted and this process can also be referred to as “spudding in.”

Tangible Drilling Costs

Tangible drilling costs are the actual direct costs of drilling equipment, such as rigs and machinery. When drilling a new well, about 30% of the drilling costs are tangible. These costs are 100% tax-deductible but must be depreciated over 7 years. 

Vertical Market

A vertical market is a market encompassing a group of companies and customers that are all interconnected around a specific niche. Companies in a vertical market are attuned to that market’s specialized needs and generally do not serve a broader market. As such, vertical markets typically have their own set of business standards. They may also have high barriers to entry for new companies.


A wellbore is a hole that is drilled to aid in the exploration and recovery of natural resources, including oil, gas, or water. A wellbore is the actual hole that forms the well. A wellbore can be encased by materials such as steel and cement, or it may be uncased.

Working Interest

This is a type of oil and gas investment in which the investor is responsible for drilling and other costs. In return, working interest owners receive a percentage of the oil and gas revenue, related to the amount of interest they hold.

A carried working interest is the amount one party (typically a dealmaker) earns after the operator pays drilling costs and completes sales on the well. It is a simple equation: working interest ownership = revenue from oil production – operating expenses – burdens (landowner royalty + overriding royalty).