OIL & GAS: WHAT EVERY INVESTOR SHOULD KNOW

Oil & gas has its own language. Understanding a few core terms can make it easier to understand what you are investing in, how a well produces revenue, and where the costs come from.

You don't need to be an industry expert. But knowing the basics can help you ask better questions and evaluate opportunities more confidently.

1. WELL TYPES & DRILLING

Developmental Well

A well drilled in an area with known production to develop additional reserves.

Exploratory Well

A well drilled to test an area or formation where commercial production has not yet been established.

Horizontal Well

A well drilled vertically and then extended horizontally through the reservoir. This is widely used in unconventional oil and gas development.

Vertical Well

A well drilled primarily straight down into a target formation. Vertical wells are commonly used in conventional oil and gas development.

Recompletion

Work performed on an existing well to access another formation or improve production.

2. OWNERSHIP & REVENUE

Working Interest (WI)

An ownership interest that gives the owner a share of production and responsibility for a share of development and operating costs.

Non-Operated Working Interest (Non-Op WI)

A working interest where the owner participates economically but does not operate the well or manage day-to-day activities.

Royalty Interest (RI)

An interest that entitles the owner to a share of production revenue without bearing the same operating and development costs as a working-interest owner.

Net Revenue Interest (NRI)

The percentage of production revenue attributable to an owner after royalties and other applicable burdens.

Joint Venture (JV)

An arrangement where two or more parties participate in developing or owning an oil & gas asset, with economics and responsibilities defined by agreement.

3. RESERVES & PRODUCTION

Production

The amount of oil or natural gas produced by a well, typically measured in barrels per day (Bbl/d) for oil and thousand or million cubic feet per day (Mcf/d or MMcf/d) for natural gas.

Gross Production

The total oil or natural gas produced by a well or group of wells before applying an owner's ownership or revenue interest.

Net Production

The portion of production attributable to an owner based on their applicable ownership or revenue interest.

PDP Proved Developed Producing

Reserves associated with wells that are currently producing oil or natural gas.

PDNP Proved Developed Non-Producing

Reserves associated with wells that have been drilled but are not currently producing.

PUD Proved Undeveloped

Reserves expected to be recovered through future development, such as drilling new wells.

Estimated Ultimate Recovery (EUR) An estimate of the total amount of oil or natural gas expected to be recovered from a well or reservoir over its productive life.

Decline Curve

A projection of how production from a well is expected to change over time. It is commonly used to estimate future production and cash flow.

4. OPERATIONS & COSTS

AFE (Authorization for Expenditure)

A document that estimates the expected costs of a planned operation, such as drilling, completion, or significant well work.

LOE (Lease Operating Expense)

The ongoing costs required to operate and maintain a producing well, including labor, maintenance, utilities, and field services.

Completion

The process of preparing a drilled well for production, which may include casing, perforation, stimulation, and hydraulic fracturing.

Hydraulic Fracturing (Fracking)

A process that uses pressurized fluid to create fractures in underground rock, helping oil and natural gas flow into the well.

THE BIGGER PICTURE Understanding the basics makes it easier to follow an oil & gas opportunity, evaluate the information presented, and ask the right questions before making an investment decision.

This article is provided for general educational purposes only and does not constitute investment, tax, legal, or financial advice.