Definitions and Key Terms
- BPD – Barrels Per Day (1 barrel = 42 US gallons)
- BBL – Barrel (unit measure)
- Authorization for Expenditures (AFE) – An itemization of all costs needed to drill and complete a well.
- Working Interest – The interest in an oil leasehold which is subject to the payment of the expenses of development, operation, and maintenance of a well and is subject to the payment of Landowners Royalty and Overriding Interests.
- Net Revenue Interest – the amount of the interest owned in the proceeds derived from a producing well less all royalty Interest.
- Intangible Drilling Costs – Those costs related to drilling, testing, and completion operations on the well which after no salvage value are immediately deductible. IDC’s usually represent 60-80% of the well cost.
- Tangible Drilling Costs – Items of cost that generally have a salvage value ordinarily required to be capitalized for Federal Income Tax purposes and which relate to equipment placed on the well.
- Royalty Payments – Paid to the landowner or the mineral interest owner.
- Gross Production – Refers to the total oil production before royalties.
- Field Formation – A geographical area with one or more oil reservoirs.
- Reserves – Estimated amount of recoverable oil contained in underground rock formations.
- Pay Zone – The thickness of oil producing reservoir, used to calculate reserves.
- Prospect Area – A parcel of real estate that is being contemplated for well drilling. It can vary from several acres to several thousand acres.
- Types of Wells – Exploratory or Wild Cat, drilled to discover new field; Discovery, locates new field; Appraisal, drilled to side of discovery well to determine size of new field; Development, drilled in the known extent of the field.
- Recoverable Oil – Oil that can be produced to make money under current economic and engineering conditions.
- Initial Production (IP) – The first 24 hours of oil production from a completed well.
- Waterflood – Water is pumped down injection wells into depleted reservoir to push some remaining oil to producing wells.
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