If you invest in oil and gas it is very handy to know the terminology used when you read their progress reports.
By understanding the jargon it gives you an exact idea on their progress or lack of it.

I have found that being more informed than the average investor definitely pays dividends in the long run and gives you that “Trading Edge.”which can be vital in getting a profitable trade.

This article was supplied by “Traph.” one of the most popular posters on “Topstocks.

Hi Everyone,I’ll take this to the next commodity OIL and GAS.

Initialising the prospect

1. Seismic aquisition, surface/subsurface data is acquired in the area of interest.

2. Lease acquisition by full purchase or possible farm-in arrangement.

3. Drilling and completion costs, at this stage an accurate estimation of costs is calculated.

4. Calculation of reserve estimates and if feasible to proceed relevant to volumes and production costs.

5. Risk assessment to justify cost and compare to expected returns considering volumes being estimated and capital expenditure.

6. Permit applications.

7. Upon approval, contract drilling rig and logging service providers.

8. Prepare site and move drilling rig into position.

The Important Glossary before proceeding

Blowout: An uncontrolled, accidental release of well pressure, either to the surface or to another formation.

Blowout preventer: A series of valves which offshore can be as high as 50 feet, to control the well and prevent a blowout.

Casing: A steel pipe used to protect the wellbore from caving in. When casing is cemented in place, it forms a hydraulic seal with the rock formations preventing well fluids from migrating up or down the outside of the casing. It also keeps the well fluids separate from ground water sources adjacent to the wellbore.

Core data: A solid column of rock up to 4″ in diameter taken from the wellbore so geologists may study the rock formation for clues as to whether oil or gas is present.

Development Well: A well that is drilled where there has been a discovery, as a result of an exploratory well, and is usually drilled after delineation or appraisal. Oil or gas is produced from this well. A development well is rarely a dry hole.

Drillstem test: A test for productive capacity of an oil/gas reserve when the well is uncased. This test is conducted through the drill pipe to see if oil/gas is present in a certain formation. This test is important to determine if drilling to completion or abandoning the well.

Farm-in/Farm-out: It is an agreement in which the owner of a working interest in an oil and gas lease gives some or all of the interest to another party who wants to drill on the leased acreage. The party farming out the working interest usually retains a royalty or reversionary interest from the party that is farming in.

Fracturing: If the target reservoir lacks sufficient porosity or permeability to produce on its own in commercial quantities this stimulation technique can improve the flow. Enormous pressure is applied to the reservoir by pumping in massive amounts of fluids (water or polymer) to enlarge the channels between pores in the rock.

Logging: The continuous recording as a function of depth of information on the rocks and fluids encountered in a well. The readings are obtained using equipment lowered by a wireline into the well. The test maybe acoustic, radioactive or electrical readings used to identify the types of rocks and their characteristics. Measurement-while-drilling are useful and can accumulate data as drilling at depth continues.

Mud: A mixture of water and chemicals that occupies the borehole during drilling or completion of a well. Its main task is to exert hydrostatic pressure on the reservoir to balance the natural formation pressure and prevent an accidental influx of formation fluid into the borehole. It prevents the sides of the well from caving in as the hole is cut. And transports the rock cuttings from the bottom of the hole to the surface where the geologist can examine them for clues as to the type of rock being penetrated.

Perforating: A downhole perforating gun lowered by wireline, that fires shaped charges through the casing into the desired rock formation resulting in perforations through which reservoir fluids may flow into the wellbore and up to the surface.

Permeability: It’s the capacity of a rock to transmit fluids. A tight rock, sand or formation will have low permeability and thus, low capacity to produce oil or gas, unless the well can be somehow stimulated by fracturing to increase production.

Plug & Abandon: When a well is depleted of economically recoverable oil and/or gas, a permanent plug is set to seal the bottom of the well, as much casing as possible is recovered, and the surface location is restored to its original condition. The well is abandoned and a report is filed with the governing authority.

Porosity: Volume of small to minute openings in a rock that allow it to hold fluids.

Proved Developed Reserves: This can be recovered from known reservoirs in existing wells at today’s prices and technology, using existing facilities. Sub-categories include proved developed producing (PDP) and proved developed nonproducing (PDNP).

Proved Undeveloped: Reserves are expected to be recovered from new wells on previously undrilled leases, or from existing wells where a relatively major expenditure is needed to recomplete a well in a different zone (PUD).

Sedimentary rock: A formation of layered rocks resulting from the consolidation of sediment. Sediments are materials that are transported and deposited by wind, water or ice, chemically precipitated from solution or deposited by organisms.

Spudding: The act of beginning to drill a borehole, usually starting with driving a piece of large diameter pipe (casing) into the ground (or seabed) to guide the bit and protect the surface immediately surrounding the borehole.

Wellbore: Part of a well which is below the surface. Hole diameters vary with the type and purpose of the well. A common well bore diameter is a little less than nine inches.

Working Interest: This is the percentage of ownership that the company has in a joint venture, partnership, consortium, project, acreage or well.

(Source: Dictionary of Geological Terms)

The potential disasters being misunderstood

Well failures can be caused by many factors. Some may severe enough to either halt drilling or abandoning the well entirely. Here are some:

1. Mechanical problems can force a well to be abandoned. Drilling tools may get stuck in the hole and so at times the well must be abandoned.

2. A hydrocarbon-bearing reservoir isn’t present in the well bore even though it may be a few feet away. Reservoirs can be faulted out by small structural displacements in the subsurface that can not be detected using seismic data.

3. Target reservoir is encountered, but the interval is too tight or too thin to produce any economic volumes or contains water instead of hydrocarbons.

4. A well drilled on a seismic anomaly finds conditions that are indeed anomalous but that do not warrant a productive reservoir.

5. The reservoir is found at a depth that is lower than calculated.

6. A well intersects the reservoir at the anticipated depth but the hydrocarbons encountered have leaked because the seal wasn’t adequate. Reservoir and seal are all found as predicted but oil and gas never migrated into the area in the first place.


The basic drilling of a well has not changed much. It is based on data from surface exploration such as 2-D and 3-D seismic, geologists & geophysicists decide on a suitable site to drill.

Companies secure a property lease from the landowner or the appropriate government authority in the case of federal or state land or offshore lease. The company then contracts a drilling rig.

Modern rigs have banks of diesel-driven generators to provide the electrical power that lights the rig and drives the drill. The drilling function can be simplified by grouping it into two systems: the hoisting/rotating system and the circulating system. The former consists of the familiar derrick with its bright yellow block and cable hoist that trips the drill pipe into and out of the hole and supports its massive weight during drilling.

Rotating is accomplished by a rotary drive traditionally located on the drill floor, but more recently located on top the drill string. The so called top drive.

The circulating system pumps heavy drilling fluid down the drill pipe to cool and lubricate the bit, float rock cuttings to the surface, and control well pressures.

Drilling fluid, commonly called mud is a high-tech formula containing chemicals that interact with the rock formations to ease drilling and protect the borehole wall.

The high pressure imposed by the heavy column of mud balances formation pressures, and prevents the influx of well fluids or gas into the borehole. This prevents the catastrophe known as a blow-out and is usually sufficient but for added safety, each rig has a stack of valves just beneath the drill floor or on the seabed called blow-out preventers that can be closed to seal the well in an emergency.

Drilling mud containing rock cuttings circulates up the outside of the drill pipe to the surface where it is filtered, de-gassed and recirculated.

Well Testing

Oil companies have always tried to evaluate a well to answer basic questions such as:

Is there oil or gas?
Can we produce it economically?
How fast can we produce it?
What is the life of the well once in production?

The answers are fundamental to every economic decision that must be made over the life of the well or reservoir.

During drilling, the drill pipe and bit are removed so electronic measuring instruments can be introduced into the well on an electrical cable called a wire line.

The measurements made by these instruments are plotted on a chart called a log. Logs are used to determine the location and thickness of hydrocarbons bearing strata and indicate their orientation in geospace.

Cores, once the only sure way to determine formation mineralogy and physical characteristics, are formation samples cut and recovered from the rock. Cores are now being challenged by sophisticated high-resolution nuclear spectroscopy log images to accurately describe formation texture, porosity and permeability.

Well testing helps determine reservoir volumes as well as pressure and flow rate of the well once it is in production. Computer databases are constructed from the outset, increasing reservoir knowledge with compatibly scaled data as each measurement is taken. This knowledge base facilitates decision making and reduces risk as virtually every decision is prefaced by a cost-benefit analysis that projects its economic effect.

Today, sophisticated computer reservoir models can be integrated with dynamic surface production system models to simulate the entire production system.

Well Completion

As the well reaches its completion phase, decisions become easier because discounted cash flow models can be used to compare the incremental benefit of each expenditure with cost.

The immediate effect of technology improvements can be felt as the well is cased and casing is cemented in place to achieve hydraulic isolation of producing formations. New expandable casing technology has been developed to reduce the cost of casing the well, and improved cements provide a higher marginof safety at less cost.

New, deep penetrating perforating guns fire explosive charges down hole, piercing the casing of the wellbore, the cement and the rock itself to provide flow paths for the hydrocarbons to enter the well and flow to the surface. Finally, a string of production tubing and a packer is run downhole to provide a high pressure conduit for production and the well is topped by a system of valves called “Christmas Tree” Often the drilling rig is released once casing is set, and completion is accomplished with a smaller, less expensive unit.

Well Stimulation

Regardless of the quantity of hydrocarbons present, oil and gas wells do not always behave as we would wish them to. Some require extensive and expensive treatments before they can produce economically.

Sometimes the subsurface formation must be washed with acid to clean out clay or other materials that are clogging the pores and impairing flow. In formations with low permeability such as limestones, hydraulic fracturing is used to crack the rock and create a greater area of flow between the well bore and formation pores.

Conversely, in unconsolidated sandstones, screens must be placed within the well to keep sand from flowing into the well bore, clogging it and eroding the tubular.

Each treatment can be accurately costed, and justified in advance, using cash flow modeling based on incremental added production. Where natural reservoir pressure is lacking wells will not flow to the surface and must be assisted by pumps or artificial lift systems.

Lifting costs can be considerable and must be considered along with locating and development costs, which are those expended to this point. Complicating things is unwanted water production.

More often than not, water is produced along with the oil or gas. Not only does each barrel of water produced mean one less barrel of oil, but the water must be safely disposed of as it is usually salty and of no value for drinking or irrigation.

Valuing an OIL & GAS Company

Any investor searching for that big catch among publicly traded companies requires patience and the ability to apply the right financial criterias when analyzing the annual reports.

Just what are these criteria? and is it worth buying this particular stock?

Pay attention to the following factors:

1. The company’s present and potential cash flow.

2. The total capitalization and value EBITDA (earnings before interest, taxes, and depreciation).

3. The full cycle return on investment.

4. The share price versus net worth.

The Financial Terms Glossary

Cash flow: Annual net income (after tax earnings) plus depreciation, depletion and amortization, deferred taxes and other non cash charges.

Break Up Value: Also called Liquidation or appraised net asset value. Represents the estimated net asset value of a company, assuming that all tangible assets, liabilities and preferred stock were liquidated.

Finding Costs: The cost incurred to find and develop oil and gas reserves.

EBITDA: Earnings before interest, taxes, depreciation and amortization.

EBITDAX: Earnings before interest, taxes, depreciation and amortization, and exploration expenses.

Total enterprise value to EBITDA Also called total capitalization/EBITDA. It is common equity plus long-term debt and preferred stock divided by EBITDA. This ratio allows a company’s cash flow to be viewed on a debt adjusted basis, thereby taking into account the impact of financial leverage on that company’s price/cash-flow.

So here it is, another commodity out of the way and hopefully understood from an investment’s point of view.

Cheers ;)

banksy graffiti · barack obama · banksy art

macbook parts · macbook reviews · cheap macbook

fairey obey giant · peter max art