Oil and Gas Glossary of Terms

Oil and Gas Glossary of Terms for Production Financing

Oil and Gas Glossary of TermsWelcome to our oil and gas glossary of terms.  The oil and gas industry has many unique terms and abbreviations. These terms are frequently found in proposals, leases, contracts, and other oil and gas business transaction documents. It is important to understand these terms to understand the legal implications of contracts and other business transactions.  Business Finance Solutions has helped numerous companies in the oil and gas industry with production financing, working capital, mergers and acquisitions over the years. Below are just a few of the more important terms we think you should recognize when you engage in an oil and gas production financing transaction or other business deal in the oil and gas industry.




Authorization For Expenditure. Required by investor or lender. Is a proposal which outlines the costs and expenses associated with an oil and gas project.


American Petroleum Institute.  The organization which sets unit standards in the oil and gas industry. Can also be used to describe an API specification such as the viscosity of the oil.


Bakken Shale

The Bakken Formation /ˈbɑːkən/ is a rock unit from the Late Devonian to Early Mississippian age occupying about 200,000 square miles (520,000 km2) of the subsurface of the Williston Basin, underlying parts of Montana, North Dakota, Saskatchewan, and Manitoba. See “Three Forks.”


One barrel. Equals 42 gallons of liquid, normally crude oil or natural gas liquids (see NGLs ).


One billion cubic feet of natural gas.


One billion cubic feet of natural gas equivalent.


United States Bureau of Land Management – The federal department that leases public land for exploration and production of minerals.


Barrel of oil equivalent.

The amount of energy found in a barrel of crude oil. The measurement allows crude oil, natural gas liquids, and natural gas to be combined to produce a standardized measurement.


Barrel of oil equivalent per day. One barrel of oil is generally deemed to have the same amount of energy content as 6,000 cubic feet of natural gas.


The benchmark for pricing Brent North Sea Crude oil.


The measure of energy. British thermal unit. One British thermal unit is the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.


Carrying and Retaining Costs

Carrying and retaining costs are all costs incurred to maintain the lessee’s property. Examples include delay rentals, property taxes, lease maintenance costs, and legal defense costs associated with defending working interest rights. The bulk of carrying and retaining costs are incurred in employee salaries, materials, and supplies.


Condensate to gas ratio.


The work necessary to get a drilled oil or gas well online or producing. It is the process of doing the work and installing the permanent equipment necessary for the well to begin generating revenues. Refers to the work performed and the installation of permanent equipment for the production of natural gas and crude oil from a recently drilled well.

Conventional well

Oil or gas well that is drilled vertically into a reservoir or pool of oil or natural gas.


Coiled tubing is a tool used for a variety of oil well intervention processes, most notably for cleaning out sand from the bottom of the well.


Coiled tubing (CT) cleanout.


Coiled tubing (CT) drilling.



Drilling and completions.


Daily drilling costs.

DJ Basin

The Denver Basin, sometimes also called the Julesburg Basin, Denver-Julesburg Basin (after Julesburg, Colorado), or the DJ Basin, is a geologic structural basin centered in eastern Colorado in the United States, but extending into southeast Wyoming, western Nebraska, and western Kansas. It underlies the Denver-Aurora Metropolitan Area on the eastern side of the Rocky Mountains.



Exploration and production.

Eagle Ford Shale

The Eagle Ford Group (also called the Eagle Ford Shale) is a sedimentary rock formation deposited during the Cenomanian and Turonian ages of the Late Cretaceous over much of the modern-day state of Texas.


The U.S. Energy Information Administration.


End of field life. The point where an oil or gas field reaches the end of its economic life.


Enhanced oil recovery. Through multiple well intervention strategies, allows producers to increase oil or gas production volumes.


Fracture, Fracture Stimulation, Fracturing or Fracking

Also called hydraulic fracturing, fracturing is the process whereby primarily shale rock is opened wider by injecting high-pressure water, chemicals, sand, or other proppants. The sand or other proppant holds open the rock so natural gas or oil can flow into the well bore from the tight rock.


G&C Costs

Geological and geophysical costs.


Gas to liquid ratio.



Held by production – a mineral lease is held by production once a well is drilled and is producing oil, NGL, or natural gas. Some leases require the well (s) continue to operate for a specified number of days or the lessee will lose their HBP.



Hedging Contract

Hedging is a risk mitigation strategy used by oil and gas producers to protect them against a downturn in the price of their commodity.

Held by Production

See HBP.

Henry Hub Pricing

The benchmark for pricing natural gas at Henry Hub Louisiana.

Horizontal Drilling

Horizontal or directional drilling is the process of changing the path of a drill bit from vertical to horizontal or lateral direction. Horizontal drilling allows the well bore to follow a good “vein” of oil or natural gas.



Joint Venture.


Joint Venture Partner.


Lifting Cost

Various definitions. The EIA defines lifting costs as all costs to operate and maintain wells and related equipment and facilities per barrel of oil equivalent (boe) of oil and gas produced by those facilities after the hydrocarbons have been found, acquired, and developed for production.


Letter of Agreement, Letter of Authority, Letter of Authorization.


Lease operating expense.


Last 12 months of earnings before interest, tax, depreciation, and amortization plus exploration expense, excludes gain/loss on sale of assets.



Thousands of barrels of crude oil or natural gas liquids (see NGL).


Millions of barrels per day.


Millions of barrels of oil per day.


Millions of barrels of oil equivalent.


Millions of barrels of oil equivalent per day.


Memorandum of Understanding – an agreement between two companies outlining the nature of a working relationship.


Master Service Agreement. An oilfield term for a contract between a producer or other entity and its suppliers or service providers. It is a general contract and does not guarantee work, but does outline the terms of the relationship.


Material Safety Data Sheet.


Net production

After all royalty owners and production due others is paid, net production is the amount left is owned by a company, individual, trust, or foundation.


Natural gas.

NGL (s)

Natural Gas Liquids include ethane, propane, butane, and other natural gasolines which are extracted from wet gas.

Niobrara Formation

The Niobrara is in places a commercial hydrocarbon reservoir. Natural gas is produced from the Niobrara in the eastern Denver Basin. Oil is produced from the Niobrara in the North Park Basin and new fracturing methods are allowing much larger areas to be tapped for oil.

Non-operational Interest

A working interest owner in a well, but is not the operator.


A non-producing well. See also “P”


Net present value.


Net revenue interest.



Oil and gas.


Oil-based drilling mud.


The party designated in the Operating Agreement to conduct the operations of the well.


Overriding Royalty Interests do not constitute an ownership of minerals under the ground. Instead, overriding royalties constitute ownership of a portion of the revenues generated from oil and gas production, free of the costs of production.

Override Royalty




A producing well. See “NP.”


To plug and abandon a well. There can be substantial expense related to P&A.


Proved, developed and producing oil and/or gas reserves.


Proved developed oil and gas reserves are reserves that are expected to be recovered through existing wells with existing equipment and operating methods.


An area in which hydrocarbon accumulations or prospects of a given type occur. For example, the shale gas plays in North America include the Barnett, Eagle Ford, Fayetteville, Haynesville, Marcellus, and Woodford, among many others. Outside North America, shale gas potential is being pursued in many parts of Europe, Africa, Asia, and South America.

Powder River Basin

The Powder River Basin is a geologic structural basin in southeast Montana and northeast Wyoming, about 120 miles (190 km) east to west and 200 miles (320 km) north to south, known for its coal deposits, coal bed methane and oil and gas reserves.

Permian Basin

The Permian Basin is a sedimentary basin largely contained in the western part of the state of Texas and the southeastern part of the state of New Mexico. It reaches from just south of Lubbock, to just south of Midland and Odessa, extending westward into the southeastern part of the adjacent state of New Mexico. See “Eagle Ford Shale”


Petroleum Engineer or Professional Engineer.

Production Taxes

Also called severance tax. A tax imposed on the removal of nonrenewable resources such as crude oil, condensate and natural gas, coal bed methane and carbon dioxide. Severance tax is charged to producers, or anyone with a working or royalty interest, in oil or gas operations in the imposing states.

Proved Undeveloped Reserves

Reserves that are expected to be recovered from new wells on undrilled acreage,

Pronghorn Member

North Dakota oil bearing formation See “Bakken Shale.”


See “Proved Underdeveloped Reserves.”

PV 10

The value of reserves is defined as the present value of the estimated future oil and gas revenues, reduced by direct expenses and discounted at an annual rate of 10%. Both the pricing of future oil and natural gas, and the discount rate is standardized under this method.


Produced water.



A subsurface body of rock having sufficient porosity and permeability to store and transmit fluids. Sedimentary rocks are the most common reservoir rocks because they have more porosity than most igneous and metamorphic rocks and form under temperature conditions at which hydrocarbons can be preserved. A reservoir is a critical component of a complete petroleum system.


Royalty Interest. (See Royalty)


Reservoir management plan.


In the oil and gas industry, this refers to ownership of a portion of the resource or revenue that is produced.


Sanish Sand

Alternative to Pronghorn Member. See “Pronghorn Member”


Synthetic oil-based drilling mud.


South Central Oklahoma Oil Province (SCOOP) – an extension of the liquids-rich Cana Woodford shale play.


Safety Data Sheet – A Safety Data Sheet (SDS) is basically an updated format for a material safety data sheet (MSDS). Manufacturers are transitioning from MSDS to SDS. There are currently a number of different MSDS styles and formats in use in the United States. New rules require a standardized format which features 16 sections in a strict ordering.


Sooner Trend Anadarko Basin Canadian and Kingfisher Counties See “SCOOP.”


Salt water.


Salt water disposal well.


Three Forks Formation

Deeper alternative to Bakken Shale. See “Bakken Shale.”


Unconventional Resource

An umbrella term for oil and natural gas that is produced by means that do not meet the criteria for conventional production. What has qualified as unconventional at any particular time is a complex function of resource characteristics, the available exploration and production technologies, the economic environment, and the scale, frequency and duration of production from the resource.

Unproved properties

Unproved reserves are based on geologic and/or engineering data similar to that used in estimates of proved reserves; but technical, contractual, economic, or regulatory uncertainties preclude such reserves being classified as proved.


Unique well identifier.



Volatile organic compound.



Waterflooding or water injection is where water is injected into the oil field, usually to increase pressure and thereby stimulate production. Water injection wells can be found both on- and offshore, to increase oil recovery from an existing reservoir.


See “Waterflood.”


See “Working interest.”

Working Interest

A percentage of ownership in an oil and gas lease granting its owner the right to explore, drill and produce oil and gas from a tract of property. Working interest owners are obligated to pay a corresponding percentage of the cost of leasing, drilling, producing and operating a well or unit.


The benchmark for pricing for West Texas Intermediate crude oil.



American Petroleum Institute

Oil and Gas Journal