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API Gravity.
It is an arbitrary scale expressing the gravity or density of liquid petroleum products. The
measuring scale is calibrated in terms of degrees API. The higher the API gravity, lighter is the
compound. Light crudes generally exceed 38 degrees API and heavy crudes are commonly
labeled as all crudes with API gravity of 22 degrees or below. Intermediate crudes fall in the
range of 22 degrees to 38 degrees API gravity
Bulk Station
A facility used primarily for the storage and/or marketing of petroleum products which has a
total bulk storage capacity of less than 50,000 barrels and receives its petroleum products by tank
car or truck.
Bulk Terminal
A facility used primarily for the storage and/or marketing of petroleum products which has a
total bulk storage capacity of 50,000 barrels or more and/or receives petroleum products by
tanker, barge, or pipeline.
Carried Interest
A carried interest is an agreement under which one party (the carrying party) agrees to pay for a
portion or all of the pre-production costs of another party (the carried party) on a license in
which both own a portion of the working interest. This arises when the carried party is either
unwilling to bear the risk of exploration or is unable to fund the cost of exploration or
development directly. Owners may enter into carried interest arrangements with existing or
incoming joint venture partners at the exploration stage, the development stage, or both.
Commercial
A project is commercial if the degree of commitment is such that the accumulation is expected to
be developed and placed on production within a reasonable time frame. A reasonable time frame
for the initiation of development depends on the specific circumstances but, in general, should be
limited to around 5 years.
Committed Project
Petroleum development projects are committed when firm commitments have been made for the
expenditures and activities needed to bring a discovered accumulation to the production stage.
Undeveloped projects are committed only when it can be clearly demonstrated that there is intent
to develop them and bring them to production. Intent may be demonstrated with firm
funding/financial plans, declarations of commerciality, regulatory approvals and satisfaction of
other conditions that would otherwise prevent the project from being developed and brought to
production. These commitments should be unconditional, except for timing that may be
dependent on the development of prior committed projects. An example of this would be where
production is dedicated to a long-term sales contract and will only be developed as and when the
capacity is required to satisfy the contract.
Concession
A grant of access for a defined area and time period that transfers certain rights to hydrocarbons
that may be discovered from the host country to an enterprise. The enterprise is generally
responsible for exploration, development, production and sale of hydrocarbons that may be
discovered. Typically granted under a legislated fiscal system where the host country collects
taxes, fees and sometimes royalty on profits earned.
Cost Recovery
Under a typical production-sharing agreement, the contractor is responsible for the field
development and all exploration and development expenses. In return, the contractor recovers
costs (investments and operating expenses) out of the gross production stream. The contractor
normally receives payment in oil production and is exposed to both technical and market risks.
Crude Oil
A mixture of hydrocarbons that exists as a liquid in natural underground reservoirs and remains
liquid at atmospheric pressure after passing through surface separating facilities. Crude is the raw
material which is refined into gasoline, heating oil, jet fuel, propane, petrochemicals, and other
products.
Daisy chain:
Term refers to the "chain" of linked sales and transfers by which a cargo of oil or oil products is
sold many times before being delivered to the customer.
Downstream sector:
It refers to all of the linked businesses which refine and market petroleum including pipeline
systems, refineries, gas distribution, and petrochemical companies.
Farm-in:
An outside party paying a land owner all or a percentage of the drilling costs of a well in order to
obtain a working interest in the land or well.
Farm-out:
The land owner gives a percentage of his land or a portion of his working interest in a well in
order to allow an outside party to drill or explore on his property. This generally reduces risk as
capital is provided by the company farming-in.
Feedstock:
The supply of crude oil, natural gas liquids, or natural gas to a refinery or petrochemical plant or
the supply of some refined fraction of intermediate product to some other manufacturing process.
Field:
The surface area above a petroleum formation.
Flaring:
The controlled and safe burning of gas which cannot be used for commercial or technical
reasons. This usually occurs at the point of production, and during processing.
Gas field:
A field or group of reservoirs of hydrocarbons containing natural gas but insignificant quantities
of oil.
Independent Producer:
Term generally applies to a non-integrated oil or natural gas company, usually active in only one
or two sectors of the industry. An independent marketer buys petroleum products from major or
independent refiners and resells them under his own brand name or buys natural gas from
producers and resells it. There are also independents which are active exclusively either in oil or
gas production or refining.
Joint venture:
An investment undertaken by a consortium, usually with one member acting as the operator.
Loan Agreement
A loan agreement is typically used by a bank, other financial investor, or partner to finance all or
part of an oil and gas project. Compensation for funds advanced is limited to a specified interest
rate. The lender does not participate in profits earned by the project above this interest rate.
There is normally a fixed repayment schedule for the amount advanced, and repayment of the
obligation is made before any return to equity investors. Risk is limited to default of the
borrower or failure of the project. Variations in production, market prices, and sales do not
normally affect compensation. Reserves are not recognized under this type of agreement.
Major
A term broadly applied to those multinational oil companies which by virtue of size, age, or
degree of integration are among the preeminent companies in the international petroleum
industry.
Market capitalization:
It is calculated by multiplying the number of outstanding shares by the current stock price. This
represents the market's valuation of the company at that specific time.
Mineral Interest
Mineral Interests in Properties Including
(i) a fee ownership or lease, concession or other interest representing the right to extract
oil, or gas subject to such terms as may be imposed by the conveyance of that interest,
(ii) royalty interests, production payments payable in oil or gas, and other nonoperating
interests in properties operated by others; and
(iii) those agreements with foreign governments or authorities under which a reporting
entity participates in the operation of the related properties or otherwise serves as
producer of the underlying reserves (as opposed to being an independent purchaser,
broker, dealer or importer). Properties do not include other supply agreements or
contracts that represent the right to purchase, rather than extract, oil and gas.
Natural Gas
A gaseous mixture of hydrocarbon compounds, the primary one being methane.
Natural Gas Field Facility
A field facility designed to process natural gas produced from more than one lease for the
purpose of recovering condensate from a stream of natural gas; however, some field facilities are
designed to recover propane, normal butane, pentanes plus, etc., and to control the quality of
natural gas to be marketed.
Netback:
The amount of money a company receives per barrel of oil equivalent produced, after subtracting
operating costs, royalties, and general and administrative costs.
Net production:
Petroleum production that is owned by a company, individual, trust, or foundation, less royalties
and production due others.
Operator:
The individual, company, trust, or foundation responsible for the operation of the project. It
applies in exploration, development, and production of an oil or gas well or lease.
Petroleum Products
Petroleum products are obtained from the processing of crude oil (including lease condensate),
natural gas, and other hydrocarbon compounds. Petroleum products include unfinished oils,
liquefied petroleum gases, pentanes plus, aviation gasoline, motor gasoline, naphtha-type jet fuel,
kerosene-type jet fuel, kerosene, distillate fuel oil, residual fuel oil, petrochemical feedstocks,
special naphthas, lubricants, waxes, petroleum coke, asphalt, road oil, still gas, and
miscellaneous products.
Pipeline (Petroleum)
Crude oil and product pipelines used to transport crude oil and petroleum products respectively,
(including interstate, intrastate, and intercompany pipelines
Possible reserves:
An estimate of possible oil and/or gas reserves based on geological and engineering data from
undrilled or untested areas.
Probable reserves:
An estimate of oil and/or gas reserves based on penetrated structures, but needing more advanced
confirmation to be classified as proven reserves.
Proven reserves:
The quantity of oil and gas estimated to be recoverable from known fields under existing
economic and operating conditions. It is determined on the basis of drilling results, production,
and historical trends.
Refinery
An installation that manufactures finished petroleum products from crude oil, unfinished oils,
natural gas liquids, other hydrocarbons, and oxygenates.
Reversionary Interest
The right of future possession of an interest in a property when a specified condition has been
met
Risk
It is the probability of loss or failure. As “risk” is generally associated with the negative
outcome, the term “chance” is preferred for general usage to describe the probability of a discrete
event occurring. Risk and Reward Risk and reward associated with oil and gas production
activities stems primarily from the variation in revenues from technical and economic risks.
Many companies use exposure to risk in conjunction with the rights that they are assigned to
operate and to take volumes in kind to support reserves reporting. Technical risk affects a
company's ability to physically extract and recover hydrocarbons and is usually dependent on a
number of technical parameters. Economic risk is a function of the success of a project and is
critically dependent on the ability to economically recover the in-place hydrocarbons.
Royalty
An interest in an oil and gas lease, that gives the owner of the interest, the right to receive a
portion of the production from the leased acreage (or of the proceeds of the sale of production).
Generally does not require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties, which are reserved by
the owner 'of the leased acreage at the time the lease is granted, or overriding royalties,
Royalty holiday
Some jurisdictions or regulators grant royalty free wells in certain situations
Spot market:
An international market in which oil or oil products are traded for immediate delivery at the
current price
Terminal:
An onshore transit facility that receives and stores crude oil and products from offshore
production facilities via pipeline and/or tankers
Unitization:
Owners of adjoining properties pool reserves together to form a single producing unit in which
each has an interest.
Upstream industry:
Produces petroleum, also referred to as upstream sector; namely, exploration and development
companies, seismic and drilling contractors, service rig operators, engineering firms.
Working capital:
Current assets minus current liabilities, shows a company's ability to meet its short-term
obligations.
Working Interest
an interest in an oil and gas lease that gives the owner of the interest the right to drill for and
produce oil and gas on the leased acreage and requires the owner to pay a share of the costs of
drilling and production operations. The share of production to which a working interest owner is
entitled will always be smaller than the share of costs that the working interest owner is required
to bear, with the balance of the production accruing to the owners of royalties. For example, the
owner of a 100% working interest in a lease burdened by a landowner's royalty of 12.5% would
be required to pay 100% of the costs of a well but would be entitled to retain 87.5% of the
production.
Workovers
Major repairs or modifications which restore or enhance production from a well are referred to as
workovers.