OIL & GAS DEFINITIONS

Oil & Gas Definitions

Certain general terms used in the oil and gas industry have special meanings which are set forth below, and other terms, which are of general use in the industry, are also defined below for your reference:

Abandon. A well is permanently plugged and abandoned if it is drilled and found to be a dry hole, or in the case of a producing well, if it ceases to be economically productive.

Acidizing. Pumping acid (usually hydrochloric acid) into a reservoir. As the acid dissolves calcite, the naturally occurring holes in the rock are opened and enlarged, facilitating increased flow from the reservoir. Limestones are frequently treated with acid. Sandstones may be treated with acid if they contain calcite. (The acid does not affect the quartz grains making up the sandstone.) Also, see: Fracturing.

Acre-Foot. In the U.S., the thickness of a pay zone is measured in feet, and the area of the reservoir is measured in acres. An acre-foot is a volume of reservoir rock that is one acre in area and one foot thick. Estimates of recoverable oil or gas from a particular reservoir are generally expressed in barrels of oil per acre-foot, or in MCF (thousands of cubic feet of gas) per acre-foot. Commercial oil recoveries typically range from about 50 to 500 barrels per acre-foot, gas recoveries range from about 10 to 1000 MCF per acre-foot.

Administrative Overhead. All customary and routine legal, accounting, geological and engineering fees, travel, office rent, telephone, secretarial, salaries and other incidental reasonable expenses necessary to the conduct of the Partnership's business. Such expenses do not include direct charges to the Partnership for such services as legal, auditing, accounting or engineering or reserve evaluations.

A. F. E. (Authorization for Expenditure) An estimate of the costs of drilling and completing a proposed well, which the operator provides to each working-interest owner before the well is commenced. Various categories of costs are typically listed as ‘dry hole;’ costs (the costs to drill to the casing point; these are costs that would be incurred if no indications of hydrocarbons are found), completion coast (the additional costs to complete the well), and the total cost.

Affiliate. An "Affiliate" is (i) any person directly or indirectly controlling, controlled by, or under common control with, another person, (ii) any person owning or controlling ten percent (10%) or more of the outstanding voting securities of another person, (iii) any officer, director or partner of a person, and (iv) if such person is an officer, director or partner, any company for which such person acts in any such capacity. "Person" means any individual, company, partnership, trust, estate or other entity.

A. P. I. American Petroleum Institute, a petroleum industry association that sets standards for oil field equipment and operations.

Assessments. Amounts, if any, which the Investors will be required to contribute to the Partnership for costs of lease cost and acquisition cost, drilling, testing, completing / equipping certain zones or formations discovered in the well(s) (see "Assessments") or for the costs of the Partnership to the extent funds are not available from either initial Capital Contributions or well Net Revenues. Also, a Unit owner could be assessed a fee equal to his proportionate allocation of the partnership based on a (per unit) owned, per well, for subsequent work required to be performed on the well (s). Completion and Equipment assessments are some of the additional monies due beyond the original Subscription Amount.

Assignment (Assign). Legal document transferring an interest in a property from one party to another. The receiving party is the ‘assignee’; the transferring party is the ‘assignor’.

Associated Gas. Natural gas that naturally occurs in a reservoir along with (‘associated’ with) oil, in a gas cap, or dissolved in the oil.

At-Risk Limitation. The amount of (tax) losses deductible from gross income is limited to the amount the taxpayer has invested (in cash, property, or recourse debt for which he is liable) that is at risk of being lost.

Back-In. A type of interest in a well or property that becomes effective at a specified time in the future, or on the occurrence of a specified future event, also know as a reversionary interest.

Basin. A natural depression on the earth’s surface, in which (usually water-borne) sediments accumulate over millions of years. The Gulf of Mexico is an example. Several hundred sedimentary basins have been identified around the world.

Barrel (BBL). The standard unit of oil measurement in the U.S. oil industry. A barrel equals 42 U.S. gallons, or 149 liters. [In some countries oil is measured using the metric system; volumes in liters, or weights in metric tons.]

BCF. Billions of cubic feet (of gas). In the U.S. oil and gas industry, the cubic foot is the standard unit of measurement of gas at atmospheric pressure. Billion is 1,000 million (10^9). MCF x 1,000,000 = BCF

Bed. A layer of rock.

Behind Pipe. If a well drills through several pay zones and is completed in the deepest productive reservoir, casing is set all the way down to the producing zone. Viewed from a perspective inside the borehole, reserves in the shallower pay zones up the hole that are behind the casing (pipe), for future production.

Blind Pool. Refers to an oil and gas limited partnership which has not committed to specific prospects, leases, or properties at the time of capital formation (subscription by the limited partners).

Blowout. A sudden uncontrolled flow from a well into the atmosphere (of oil, gas, water, or mud). It can occur when a bore-hole is drilled into a rock-layer in which natural pressures are greater than that exerted by the column of drilling mud in the borehole. The force of the uncontrolled flow from a blowout is dangerous enough; if gas is present, there is the additional danger of explosion and fire.

Bond Log. A tool run in the well bore to determine if the cement job for the casing is in-place and stable for a completion frac.

Bonus. Cash paid to the mineral-rights owner (Lessor) for an oil and gas lease. The bonus is a negotiable provision of the lease.

Borehole. The hole created by the drilling (boring) of a well.

Bottom-Hole Pressure. The pressure in a well, measured by an instrument that is lowered into the bore hole on a wireline. In may be measured under flowing or shut-in conditions.

Capital Costs. Capital Costs shall mean all of the costs incurred by the Partnership in the Drilling Operations, and, if warranted, the Completion Operations to be performed on a Well or other Partnership Properties, and any pipelines built to a Well, which costs are required to be capitalized for federal income tax purposes, including any dry hole tangible costs but excluding any Intangible Drilling Costs, Lease Acquisition Costs, and Operating Costs.

Capital Contribution. All sums contributed by an Investor to the Partnership.

Cased Hole. A borehole in which casing has been run. If the casing does not extend all the way to total depth (the bottom of the hole), the un-cased portion is open hole.

Casing. Large diameter steel pipe placed in a borehole to support the sides or walls of the hole and to prevent them from caving in. It not only prevents the loss (flow) of drilling fluids from the borehole into rocks penetrated by the borehole, but also prevents rock fluids from flowing into the borehole. Individual sections are usually about 30 feet long, and are screwed together as they are lowered (or “run) into the hole. Once casing is run in the hole, it is cemented in place by pumping a slurry of cement into the space between the outside of the casing and the walls of the borehole (the annulus). Casing run from the
surface is called surface casing. Additional strings of “intermediate casing’ may be required during the frilling of the well. Production casing is run in order to complete a well.

Casinghead Gas. Natural gas produced along with oil from an oil well (as distinguished from gas produced from a gas well). Cassinghead Oil is oil produced from a gas well.

Cement. Fluid cement is mixed at the surface, pumped to the bottom of a cased well, forced to flow around the lower end of the casing and up into the space between the casing and the borehole. When the cement solidifies (sets), it holds the casing in place, and provides support.

Circulation. The continuous pumping of drilling fluid (‘mud’) from mud tanks at the surface: down through the drill pipe, out the nozzles in the drill bit, and back up to the surface through the space between the drill pipe and the borehole. The flow of mud moves the rock cuttings (and cavings) away from the drill bit, and carries them up to the surface, where they are strained out of the mud system, by the shale shaker. ‘Lost circulation’ occurs when drilling fluid escapes from an un-cased borehole into porous zones, or holes such as fractures or caverns that occur naturally in the penetrated rocks. Various plugging or clogging materials may be added to the mud in hope of stopping its loss (as on might inject gummy fluid into and automobile tire to stop a leak). Difficult (and often costly) mechanical operations may be required to drill through a zone of lost circulation. If an attempt to drill through zones of lost circulation is unsuccessful, a well might have to be abandoned.

C N G. Compressed Natural Gas.

Code. The Internal Revenue Code of 1986, as amended.

Commercial Well. A Well which, after initial evaluation, appears capable of producing Products in Commercial Quantities.

Completion. (Complete a Well) After the drilling of a successful well, the ‘completion’ includes all the work required to make the well ready for commercial production.

Completed Well. A Well which requires no additional work other than connecting the Well to surface equipment in order to make it capable of production.

Completion Costs. All costs associated with the completion operations of a well (also applies to testing and equipment).

Completion Operations. Those operations involved in the completing and equipping of a Well as more particularly described in the Agreement.

Condensate. Hydrocarbons naturally occurring in the gaseous phase in the reservoir that condenses to become a liquid at the surface (due to the change in pressure and temperature).

Core. A cylindrical column of rock usually 4 to 6 inches in diameter cut in lengths of about 30 feet by a special drill bit. (The operation is a bit like removing the core of an apple). After the core has been brought to the surface, it is examined by the geologist for shows of hydrocarbons. Because of the time and high costs involved, only the most critical intervals are cored in the U.S. (In China, however, it is not uncommon to core an exploratory well from grass-roots to granite.)

Cost. When used with respect to a prospect or drill site, (i) the sum of the prices paid by the seller for such property, including bonuses; (ii) lease locations at retail, as set by seller, title insurance or examinations costs, brokers' commissions, filing fees, recording costs, transfer taxes, if any, and like charges in connection with the acquisition of such property; and (iii) rentals and ad valorem taxes paid by the seller with respect to such property to the date of its transfer to the buyer, interest on funds used to acquire or maintain such property, and such portion of the seller's reason-able, necessary and actual expenses for geological, geophysical, seismic, land engineering, drafting, accounting, legal and other like services allocated to the property in accordance with generally accepted accounting practices, except for expenses in connection with the past drilling of well (s) which are not producers of sufficient quantities of oil or gas to make commercially reasonable their continued operations, and provided that the expenses enumerated in (iiii) hereof shall have been incurred not more than 36 months prior to the Partnership. When used with respect to services, "cost" means the reasonable, necessary expenses incurred by the seller on be half of the program in providing such services including labor expenses and consulting fees determined in accordance with generally accepted accounting principles. When used with respect to Tangible Equipment, "Cost" shall mean the price paid by the seller or contributor but not by an arm's-length transaction; where Tangible Equipment is acquired in a transaction between affiliated parties, the cost shall be that amount so determined by generally accepted oil and gas industry accounting standards. As used elsewhere, "cost" means the price paid by the seller but not by an arm's-length transaction.

Crude Oil. A naturally occurring mixture of liquid hydrocarbons as it comes out of the ground (before or after any dissolved gas has been separated from it, but prior to any process of distilling or refining). Greenish crude is usually high in paraffin (wax) content; blackish oil is more likely to be asphaltic. Different types of source rock generate different types of crude oils.

Cuttings. Small chips of rock (usually about the size of a fingernail) produced by the grinding motion of the drill bit during drilling. The drilling mud carries (‘circulates’) them to the surface where they are strained out of the mud system by the shale shaker. Cuttings are examined under a microscope for direct observation of porosity. When placed under ultraviolet light, any hydrocarbons contained in the pore spaces of the cuttings will give off a distinctive glow (‘fluorescence’). This fluorescence is recorded as a show of oil.

Depletion. The value of naturally occurring mineral deposit is a function of (1) the market value of the mineral, and (2) the concentration of the mineral in the mineral deposit. Physical depletion is the exhaustion of a mineral deposit through production of the mineral. Economic depletion is the reduction in the value of the mineral deposit as it becomes exhausted (less concentrated) through production.

Depletion Allowance. The income tax deduction allowed for the exhaustion of a natural resource.

Depreciation. A tax accounting method in which the value of an asset (starting with its acquisition cost) is reduced each year. Scheduled annual (non-cash) amounts are charged against the asset, representing the gradual loss of value, as it wears out, deteriorates, or becomes obsolete. (Theoretically, such charged amounts accumulate over time, providing funds that could be used to replace the worn out asset.).

Developmental Prospect or Development Well. A well drilled on, or a prospect involving, leases near proven productive areas where the Leases are believed to encompass the same geologic feature or drilled within the proven area of an oil or gas reservoir to the depth of a Stratigraphic horizon known to be productive.

Dip. The angle that a rock layer happens to be inclined (at a specific location), measured relative to a horizontal plane (in degrees).

Directional Drilling. When a drilling rig cannot be positioned directly over a prospect, because of natural or manmade obstacles (building, a park, a swamp, a lake, etc.), it may be positioned off to one side. A borehole can be drilled at an angle (a ‘slant hole’) to reach the subsurface objective.

Division Order. A contract for the sale of oil or gas, by the holder of a revenue interest (royalty, overriding royalty, working interest, etc.) in a well or property, to the purchaser (often a pipeline transmission company). It list the names of revenue interest owners of a producible oil or gas well, along with their respective shares of production revenues, and direct the purchaser to distribute the proceeds of production sales, accordingly.

Drilling. After a well has been drilled vertically T.D., it can then be drilled at an angle to its total horizontal total depth. (See: Horizontal Drilling).

Drill Bit. A tool with very tough steel or diamond teeth that grind rock into small chips during drilling. The diameter of the bits used to drill a well may range from more than 22 inches at the upper part of the hole, to less than four inches at total depth.

Drill Pipe. A special grade of extra-strong steel pipe threaded on both ends that comes in lengths of about 30 feet and diameters from about 2½ to 8½ inches.

Drill Stem Test (DST). When a well is drilled into a potential pay zone, it may be desirable to try to make the zone flow, before continuing to drill ahead. To ‘test’ the zone, drilling is halted, and the string of drill pipe is pulled out of the borehole. The drill bit is removed and a special testing device is attached to the end of the drill string which is lowered back into the borehole.

Drill Site or Location. The tract of land consisting of a portion of the Working Interest in Leases upon which a single well should be drilled according to law, regulation or the established pattern of drilling in the particular area.

Drilling Costs. All costs associated with Pre-drill, re-opening an existing well or new well drilling Operation of a Well.

Drilling Operations. Those operations involved in the drilling of a Well as more particularly described in the Drilling Agreement.

Drilling Rig. The surface equipment used to drill for oil or gas. It consists of a tower framework (derrick) which support the winch (pulley system) used to lift and lower drill pipe, a rotary table that turns the drill string (and drill bit connected to the drill string), engines to drive the winch and rotary table, and pumps to control the flow of the drilling mud.

Dry Gas. Natural gas that contains no appreciable liquid hydrocarbons. It may occur naturally, or may result from passing natural gas (that originally contained liquids) through standard separator equipment installed at a producing well.

Dry Hole. A well that the Managing Partner determines to plug and abandon before equipping.

Dual Completion. When a borehole has encountered two or more widely separated pay zones, the operator has several options: (1) complete the well in the deepest zone and produce that zone until it is depleted (which might be several years), then come up the hole to the next shallower pay zone and complete in it; (2) complete in the deepest pay zone and drill a second well down to the shallower pay zone and complete the second well in the shallower zone, (3) make a dual completion by completing the original well in both pay zones so that each can be produced simultaneously.

Fault. A crack or fracture in the earth’s crust, along which the rocks on one side have moved relative to the rocks on the opposite side. The movement could be sideways or up and down, and can range from a few inches to tens (or even hundreds) of miles. A fault can juxtapose a non-porous layer of rock against an oil-bearing reservoir (sometimes thereby forming a trap).

Feet of Pay. The thickness of the pay zone penetrated in a well. In the case of an oil column floating on water, it is the thickness of the layer of oil (‘the oil column’) above the oil-water contact.

FERC. Federal Energy Regulatory Commission.

Field. (As in OIL FIELD or GAS FIELD) Commercial oil or gas accumulation (or the land area above it). The size of an oil field can range from a few acres, to many.

Fishing. The procedure of locating and attempting to retrieve any object (a ‘fish’) that has accidentally fallen into, or been left in the borehole, and must be retrieved before mechanical operations (drilling, logging, completion, etc.) can be resumed.

Flooding. One of the methods of enhanced oil recovery. Water flooding or gas flooding might be considered secondary recovery methods; miscible flooding or chemical flooding, tertiary recovery methods. The general procedure involves pumping (injecting) a fluid (commonly water) into the reservoir, through wells located around the perimeter of an oil field (peripheral drive). The ‘pressure front’ that is created, flushes oil toward the central part of the filed, resulting in increased production.

Formation. A layer of rock having characteristics that is distinct and recognizable. The rock layer is thus mapable, even among other layers of similar rocks. The thickness can range from a few feet to hundreds of feet. Distinctive features might include mineral composition, texture, diagnostic plant or animal remains (fossils) contained in it, etc.

Fracturing. A procedure undertaken to attempt to increase the flow of oil or gas from a well. A fluid (usually crude oil, diesel oil, or water) is pumped into the reservoir with such great force that the reservoir rock is physically broken and split open. Usually, the ‘frac fluid’ carries small pellets or beads mixed in with it; the idea is for them to get caught in the fractures and prop them open (the beads or pellets are called the propping agent or proppant).

General and Administrative Costs. All customary and routine accounting, legal, geophysical, geological, land, engineering, travel, mail and delivery services, office rent, telephone, compensation to officers and employees, and other incidental expenses of the Managing Partner or its Affiliates necessary or appropriate to the conduct of the business of the Partnership as they relate to placement of the Units offered herein and fulfillment of its obligations hereunder and under the Agreement through the Completion Operation.

Gas Cap. An accumulation of natural gas, above a layer of saturated liquid hydrocarbons, in a reservoir.

Gas Drive. When a well drills into an oil accumulation (which is under considerable natural reservoir pressure), free gas in the gas cap above the oil zone, expands. This forces the oil to flow into the wellbore, and up the surface (‘gas-cap drive’); at the same time, solution gas dissolved in the formation comes out of solution, and it too expands, helping to force oil to flow into the wellbore and up to the surface (‘solution gas drive’).

Gas Injection. A method of secondary recovery in which a gas (usually dry natural gas or carbon dioxide) is injected into an oil reservoir to increase reservoir pressure around the injection well. Some of the gas dissolves in the oil, increasing the oil’s ability to flow. The increased pressure and flowing ability of the oil result in increased production from the nearby production wells.

Geophysicist. A geophysicist applies the principles of physics to the understanding of geology. Emphasis is generally on the earths gravitational and magnetic fields, and the travel of sound waves through the earth. Many U.S. universities offer BS, MS, and PhD degrees in geophysics; the Society of Exploration Geophysicists has over 19,000 members.

Held by Production. Refers to an oil and gas property under lease, in which the lease continues to be in force, because of production from the property.

Horizontal Drilling. The new and developing technology that makes it possible to drill a well from the surface, vertically down to a certain level, and then to turn a right angle, and continue drilling horizontally within a specified reservoir, or an interval of a reservoir. Four gross systems are characterized as (1) short radius, (2) medium radius, (3) long radius, and (4) ultra-short radius. (For comparison purposes: short radius might be 300 feet or less; long radius might be more than 3,000 feet.)

Hydrocarbons. A large class of organic compounds composed of hydrogen and carbon. Crude oil, natural gas, and natural gas condensate are all mixtures of various hydrocarbons, among which methane is the simplest.

Initial Production. The average MCF’S or barrels of production delivered from the total production realized in the first 12-24 hours of well production. Sustained production is generally less.

Intangible Drilling and Development Costs (IDC). Drilling, testing, equipment and completion costs incurred for items which have no salvage value, including without limitation (i) location and surface damages, (ii) drilling costs, (iii) drilling mud, chemicals, fuel and other materials and supplies, (iv) labor, repairs, hauling, clearing, draining, road-making, surveying, cementing, utility charges and other services, (v) drill-stem tests, core analysis and electric logs, (vi) well site engineering and geological services, and (vii) dry hole contributions. Section 263(c) of the Code and the regulations promulgated there under permit these costs to be deducted as expenses if an election to that effect is made by the owner of the operating or working interest.

Investors. The persons, firms, companies, and other entities that are admitted to the Limited Liability Partnership, either as original, additional or substituted Limited Liability Partners, and that are then owners of an interest in the Partnership. Reference to an "Investor" shall mean any one of the Investors. An Investor shall not be deemed to be the owner of any assigned interest in the Partnership unless and until the assignee of such interest in the Partnership has been admitted to the Partnership as a substituted Investor.

Joint. A single section of drill pipe, casing, or tubing, usually about 30 feet long.

Landman. An oil company employee or agent who negotiates the purchase or leases, cures defects in the title to property leased, and assists the oil company in complying with government regulations and reporting procedures. (Some US, universities offer BA degree in Petroleum Land Management, PLM; there are over 12,000 members of the American Association of Petroleum Landmen).

Lease Acquisition Costs. All costs and expenses incurred at any time for lease bonuses paid to and expenses of outside land men or scouts, recording fees, costs of abstracts, fees paid to and expenses of geologists and geophysicists who perform services, cost of performing or acquiring seismic data, exploration rights and options, delay rentals and other similar payments, and other costs related thereto, and any and all consideration paid to others for assignments of leasehold interests or rights to acquire, retain, defend or protect interests.

Leases Locations/Drill Sites. Full or partial interests in oil and gas leases or drill sites, oil and gas rights, fee rights, reservations, permits or other rights authorizing the owner to drill for and reduce to possession oil and gas.

Lifting Costs. The expenditures involved in lifting (pumping) oil from a producing reservoir in a well, up to the surface. Included in lease operating (production) expenses.

Limestone. Sedimentary rock largely consisting of calcite (calcium carbonate). On a world-wide scale, limestone reservoirs probably contain more oil and gas reserves that all other types of reservoir rocks combined.

Limited Turnkey Cost. A cost that is intended to be fixed at a stated cost, but can, due to cost overruns, be adjusted upwards to a pre-determined maximum percentage generally 20%. A “Limited Turnkey” cost is a Turnkey cost with the ability to charge up to 20% more that the Turnkey cost stated. A developer can still be exposed to a profit or loss if the Turnkey cost stated plus the 20% additional adjustment in cost, that can be assessed to the investors. over the Turnkey cost, is not sufficient to pay 100% of the development cost requirement.

Limited Liability Partner. A general partner in a Partnership, a unit owner.

LNG. Liquefied Natural Gas.

Log or Well Logging. (1) A record of information about the performance of some thing or some process. In the oil field a variety of logs are used in the drilling and completion of oil and gas wells. The driller keeps a ‘driller’s log’, which records all mechanical operations undertaken during the drilling of the well. The mud logger keeps a daily ‘mud log’ recording all available information about the type of rock being a penetrated and any possible hydrocarbon shows. (2) Wireline logging is the process of lowering a sensing device down into the borehole on the end of an electric cable (a line made of wire). Wireline logs record measurements of various parameters providing information about the type of rock penetrated, the fluids contained in the rock, or the condition of the borehole. Parameters that can be measured include: diameter of the borehole (caliper log), electrical
resistively of the rock penetrated (resistively or electric log, E-log), density of the rock penetrated (density long and neutron log), acoustic properties of the rock penetrated (sonic or acoustic log), natural gamma-ray log, GR), inclination or dip of the rocks penetrated (dipmeter log), borehole temperature (temperature log). Until fluids have been recovered, wireline logs may be the primary source of information on the quantity and quality of hydrocarbons in the rocks penetrated by the borehole. After drilling the well, the decision to spend additional money to attempt to complete the well to produce oil or gas is often based exclusively on the analysis of wireline log data.

Lost Circulation. See Circulation.

Managing Partner. The term "the Managing Partner" means Oil Estates Pte Ltd or its subsidiaries, LLCs, and predecessors, unless the context otherwise requires.

Memorandum. The Confidential Private Placement Memorandum of the Partnership pursuant to which the Units are offered for sale.

MCF. One Thousand of cubic feet measured at standard temperature (60 degree F) and pressure (14.65 psi). In the Operator. The working interest owner responsible for the drilling, completion and production operations of a well, and the physical maintenance of the leased property. Responsibilities of the operator and other working interest owners are enumerated in the joint operating agreement.

Partner. The Managing Partner or any Limited Liability Partner/ Investor.

Partnership. Means Oil Estates Pte Ltd or its subsidiaries, LLCs, and predecessors, unless the context otherwise requires.

Partnership Unit Percentage of Ownership. That percentage obtained by converting to a percentage the fraction having as its numerator the number of Units owned by such Investor at the time such percentage is determined and having as its denominator the total number of Units owned by all Partners at such time. Example 50 units divided into 100% = Each unit would own 2% of the Partnership.

Partnership Properties. The interests, properties and rights of any type owned by the Partnership.

Pay or Pay Zone. An interval of rock, from which oil or gas is expected to be produced in commercial quantities.

Perf. or Perforation. The blowing of holes into the casing by a special “Perf gun” to allow the completion efforts to go into a particular limited area, and then to allow the production out of that same limited area.

Perforating Gun. An instrument lowered at the end of a wireline into a cased well. It contains explosive charges that can be electronically detonated from the surface.

Petroleum Engineer. A term including three areas of specialization: DRILLING engineers specialize in the drilling, workover, and completion operations; Production engineers specialize in studying a well’s characteristics and using various chemical and mechanical procedures to maximize the recovery form the well; RESERVOIR engineers design and execute the planned development of a reservoir. Many U.S. universities offer BS, MS, and PhD degrees in petroleum engineering; the Society of Petroleum Engineers has over 50,000 members.

Petroleum Geologist. A geologist who specializes in the exploration for, and production of, petroleum. Many U.S. universities have departments which offer BS, MS, and PhD degrees in petroleum geology; the American Association of Petroleum Geologists has about 38,000 members.

Plug. An object (usually of cast iron or cement) set in a borehole to block the passage of fluids. During various operations in the completion or the abandonment of a well, it may be necessary to isolate certain sections of the well. Some plugs can be drilled through (‘drilled out’) after the operation is completed.

Plug Back. To block off the lower section of the borehole by setting a plug, in order to perform operations in the upper part of the hole.

Plugged & Abandoned (P & A). This expression refers to setting cement plugs in an unsuccessful well (a ’dry hole’) or a depleted well, before abandoning the well.

Pipe or Running Pipe. The driller’s term generally used for casing. Running the casing into the wellbore.

Pooling. When tracts of land are smaller than the spacing unit, the separately owned working interest (of these tracts) may be brought together (‘pooled’) in order to obtain a drilling permit. In states where pooling of separately held working interest is required (‘compulsory pooling’ or ‘forced pooling’ – notably Oklahoma and Arkansas): in order to obtain a drilling permit, any working-interest owner can initiate a forced pooling order or participate in the well by paying his proportionate share of the costs, (2) farm-out his interest to the pooling party, or (3) sell or sublease his interest in the proposed well to a third party.

Porosity. The percentage (by volume) of holes or voids in a rock. Commercially productive reservoir rocks typically have porosity’s ranging from about 5% - 20%. The higher the porosity, the more oil or gas that can be contained in the pore spaces, the better quality of the reservoir rock.

Primary Recovery. Production in which oil moves from the reservoir, into the wellbore, under naturally occurring reservoir pressure. In a flowing well, the reservoir pressure is great enough to force the oil up to the surface. In a pumping well, oil is artificially lifted to the surface by pumping equipment.

Proceeds. In respect to any period, the aggregate gross cash receipts received by the Partnership from all sources during such period.

Producing Well. A Well capable of producing oil or gas in commercial quantities, including those Well (s) capable of producing in commercial quantities that are shut in, or Well (s) which are not currently producing in commercial quantities but have been commercially productive Well (s) in the past.

Product, Products or Production. All oil, gas and other mineral products produced, if any, from a Well.

Re-Entry. Assume that a well was abandoned, but subsequent drilling and production in the area suggests that a potential pay zone in the well was missed or ‘passed over’. Instead of drilling a second well to evaluate the zone of interest, a company might drill out the cement abandonment plugs in the original borehole to test the potential zone. Such a ‘re-entry’ can be a rather risky operation, but if successful, the cost may be much less than drilling a new off-setting well.

Regulation D. Rules 501 through 508 as promulgated by the SEC as adopted pursuant to an exemption from registration contained in Section 4(2) of the Securities Act.

Regulations. The United States Treasury Department regulations promulgated under the Code.

Reserves. The amount of oil or gas in a reservoir currently available for production, usually described as barrels of oil, of MCF (thousands of cubic feet) of gas, attributable to a well, to a property, or to an entire field. The term should always be qualified by an adjective, since there are many ways of estimating the reserves. When it is at the level of the pay zone, the bullets are shot into the reservoir rock, piercing the casing (and surrounding cement sheath). The resulting holes allow rock fluids to flow from the pay zone into the borehole.

‘Reserves in place’ describes the amount of oil or gas physically contained in the reservoir. The amount of reserves that can actually be gotten out of the ground (can be recovered) may be only 25% to 30% of the reserves in place.

‘Recoverable reserves’ is an estimate of the amount of oil or gas that can be produced from the reservoir in the future. (No one can know what the actual recoverable reserves are until after they have been produced.)

‘Proved reserves’ the amount of reserves that are considered to be recoverable under existing technology and economic conditions (based on available geologic and engineering data).

‘Proved developed producing reserves’ proved reserves recoverable from currently completed intervals in existing wells using existing facilities. These are the numbers a banker might want to see in considering an application for a loan.

‘Proved behind pipe reserves’ reserves in zones behind the casing in an exiting well (which might be produced if the well were recompleted in those zones).

‘Proved undeveloped reserves’ reserves which could be produced, but drilling new wells, deepening existing wells, or secondary recovery methods would be required.

Estimates of recoverable reserves classified as ‘probable future reserves’ and possible future reserves’ may include a wide variety of geologic and engineering assumptions.

Estimates of ‘undiscovered recoverable reserves’ refer to reserves outside of known accumulations and are, at best, a guess developed from geologic and statistical game theory.

Reservoir. Any rock having enough porosity and permeability to contain appreciable hydrocarbons. Most commercial reservoirs are in sandstone and limestone (limestone/dolomite), rarely in shale or igneous rock.

Reversionary Interest. An interest in a well (s) or property that becomes effective at a specified time in the future or on the occurrence of a specified future event. Also can/will be a reduction of revenue interest.

Risk. Literally: ‘the possibility of loss or injury’. In oil exploration, a level of uncertainty is associated with the various possible outcomes of the undertaking. Risk usually refers to a numerical estimate of the likelihood of the occurrence of these various possible outcomes. Drilling a well in an area where: (1) many wells have already been drilled, and (2) the results of previous drilling have been thoroughly analyzed and evaluated, can be a relatively low-risk proposition:

1. The technology for drilling wells in this area has already been established.
2. There are numerical data from which it is possible to estimate the statistical probability of finding oil or gas.
3. Production statistics allow estimates of reserves per successful well.
4. Most importantly, there are abundant geologic data from which to synthesize a scientific geologic understanding of the sub-surface (which is the key to beating the purely numerical odds of finding oil and gas by random selection of drilling locations). By contrast, drilling a well at the South Pole would be a very high-risk proposition, indeed.

Royalty Interests and Overriding Royalty Interests. Rights to the income from properties, such as mineral leases or producing well (s), without regard to participation in the costs of production of such income. Royalty Interests are carved out of the mineral interests and generally reserved by the landowner when the land is leased to the party who will operate it. Overriding Royalty Interests are carved out of the remaining interest, and their duration is limited by the duration of the lease under which they are created.

Sand. A layer of oil and or gas continued within a formation primarily comprised of sand.

Sandstone. Rock composed mainly of sand-sized particles or fragments of the mineral quartz. Individual grains often occur naturally “glued” together by the mineral calcite. Because quartz grains are rigid, the fabric of the rock will withstand tremendous pressures without being compacted. In this sense, sandstone is very different from shale.

Secondary Recovery. After primary recovery operations have taken their course, various operations may be undertaken to increase the amount of oil that can be proceeded by normal methods of flowing and pumping. The second stage consists of efforts to increase production by addressing condition of the reservoir. Typical operations involve forcing gas (‘gas injection’) or water (‘water flooding’) into the reservoir. This serves to re-pressurize the reservoir, which allows recovery of more oil than would be possible from primary recovery. Tertiary (third stage) recovery includes further efforts to recover additional oil from the reservoir, by altering the physical characteristics of the oil itself- reducing viscosity, or reducing surface tension. These may be largely experimental procedures, like he injection of CO2, detergent-like fluids, steam, or chemically treated water into the reservoir; or injecting air (oxygen) into the reservoir and burning some of the oil in place, to raise the temperature of the oil and improve its ability to flow.

Securities Act. The Securities Act of 1933 and all regulations promulgated thereunder.

Seismic Surveying. The procedure of sending pulses of sound from the surface, down into the earth, and recording echoes reflected back to the surface. By making assumptions about the speed at which sound travels through the various layers of rock, it is possible to estimate the depth to the reflecting surface, It them becomes possible to infer the structure of rocks deep below the earth’s surface.

Severance Tax. A tax paid to the state government by producers of oil or gas in the state. It may be specified either as a percent of the oil or gas taken (‘severed’) from the earth, or as a dollar amount per barrel of oil or per thousand cubic feet (MCF) of gas produced (also called ‘production tax’).

Shale. A type of rock composed of common clay or mud. When clay is compacted under great pressure and temperature deep in the earth, water contained in the clay is expelled, and clay turns into shale.

Shut-in. To stop a producing oil and gas well from producing.

Side Track. When fishing operations have been unable to recover an object in the hole that prevents drilling ahead, the borehole can often be drilled around the obstacle in the original hole. This ‘deviated’ hole is called the side track hole. Although it is somewhat risky, drilling a side track hole may be much less costly that starting a new borehole from the surface.

Slant Hole. (See: directional drilling).

Source Rock. Sedimentary rock, usually shale (or limestone) containing organic carbon (plant and animal remains) in concentrations as high as 5-10% by weight. After being subjected to high temperatures and pressures during millions of years deep in the earth, the organic material is transformed to liquid or gaseous hydrocarbons (which make up petroleum). Usually these hydrocarbons are (naturally) expelled from the source rock, flowing into nearby porous rocks. Because of their natural buoyancy with respect to water, they tend to migrate upward, to emerge at the surface as an oil or gas seep unless they become trapped along the way. Oil and gas fields are accumulations of such trapped hydrocarbons. Some oil shares are believed to represent source rocks in which oil was formed, but from which it was never expelled.

Spud. To spud a well means to start the initial drilling operations.

Squeeze. The procedure of pumping a slurry of cement into a particular space in the borehole (often the annulus between the borehole and the casing), so that the cement will solidify to form a seal.

Stock Tank Barrel (STB). A barrel of oil at the earth’s surface. Recoverable oil is measured in stock tank barrels. Due to the complex interplay between pressure and temperature, the volume of a mixture of oil and gas at reservoir conditions is usually different from the volume of the same amount of the mixture at the surface. (In the early days oil from a new discovery was sometimes collected in the tanks or ponds on a farm that hold water for livestock).

Subscription Agreement. The Agreement between the Partnership and the Investor provides that detailed documentation of the investor’s willingness and understanding of his participation in the Partnership.

Subscription Documents. The Subscription Agreement and the Registered Limited Liability Partnership Agreement that must be submitted by a prospective Investor in order to subscribe for Units in the Partnership.

Sustained Production. The production level of a well that has been in production and has declined from initial production downward to the ‘settled” level.

Swab. A hollow rubber cylinder with a flap (check valve) on the bottom surface. It is lowered below the fluid level in the well. This opens the check valve allowing fluid into the cylinder. The check valve flap closes as the swab is pulled back up, lifting oil to the surface.

Syndication Expenses. All amounts paid to the Managing Partner by the Partnership for expenses the Managing Partner incurs in connection with the placement of Units by the Managing Partner. The number of Units that may be sold by the officers of the Managing Partner cannot be determined.

T. D. / Total Depth. The maximum depth of a borehole. Before the well has been drilled to its planned total depth, the current TD’ changes from day to day as the well is drilled deeper. If the deeper section of a well is plugged off to facilitate mechanical operations on the shallower section, the top of the cement plug would be the ‘plugged back TD’ (as distinguished from the drilled T.D.).

Tangible Equipment. Equipment used by the Partnership in connection with completing and equipping well (s), the cost of which is required to be capitalized for Federal income tax purposes; Tangible Equipment includes surface and production casing, tubing, flow lines, separators, oil storage tanks and battery, and miscellaneous fittings.

Tangible Equipment Costs. Costs for Tangible Equipment incurred by the Partnership, but specifically excluding any costs classified as Operating Costs.

Testing. Preparing a well that has been drilled to be completed. Evaluations of a formation to determine if that formation, after completion, could produce hydrocarbons.

Tight Rock (‘Tite’). Potential reservoir rock whose porosity and permeability turn out to be insufficient for commercial production of oil or gas.

Title. The combination of factors that, together, constitute legal ownership of a property.

Township. A square tract of land six miles on a side, it consists of 36 sections of one square mile each.

Trap. A natural configuration of layers of rock where non-porous or impermeable rocks act as a barrier, blocking the natural upward flow of buoyant hydrocarbons from underlying reservoir rocks. Most oil and gas fields are trapped accumulations of oil and gas.

Trip. Making a ‘trip’ is the procedure of pulling the entire string of drill pipe out of the borehole and the running the entire length of drill pipe back in the hole. This is done to change drill bits, to prepare for coring operations, etc. As the drill pipe is pulled from the hole, the drill bit acts like a piston, sucking fluids out of the formations and the borehole. Gas which is swabbed into the borehole in this manner is called ‘trip gas’. When drilling is resumed, and the mud is circulated up out of the borehole, an inexperienced mud logger might inadvertently record ‘trip gas’ as a true show of gas.

Tubing. Small diameter pipe, threaded at both ends, that is lowered into a completed well. Oil and gas are produced through a string of tubing (which can be periodically removed for maintenance). Turnkey. A fixed cost to the investor - not to exceed a stated amount, regardless of actual cost. A profit or loss can be realized by the developer who is working a fixed cost “Turnkey” arrangement.

Unit. An investment in the Partnership in the amount of $51,035 each (drilling/unit cost, and completion and equipment cost) except as agreed to by the Managing Partner, a minimum Subscription of one (1) Unit is required from each potential Investor. However, under certain conditions the purchase of more or less than one (1) unit may be permitted. Units are subject to the additional assessment costs. Each unit (with all assessments paid) shall own 2.00% of the partnership, before investment payback, then being 1.60% after payback. (Based on 50 unit division of cost/ownership).

Unit Holder. An investor in the Partnership owning unit (s).

Water Drill Location. A drill site contained over water. Drilled from a barge or platform.

Water Drive. The most efficient driving mechanism to force oil and gas out of the reservoir. Due to natural pressures in the reservoir, water moves into the base of the pay zone, displacing the oil-water contact upward and flushing the oil ahead of it, as oil is produced. Toward the end of the life of a water drive well, the fluid that is produced, contains increasing percentages of water, until the well becomes watered out and is abandoned.

Well (s). The proposed well (s) anticipated to be drilled on behalf of the Partnership.

Wellbore. Physically, wellbore refers to a borehole (equipped for, or intended to be equipped for, production); in other words a completed well. In some states (notably Oklahoma) a working interest owner’s rights and obligations might be described as (1) encompassing all oil and gas exploration and development activities within a spacing unit, or (2) being limited to exploration and production only from a particular wellbore (borehole).

Whipstock. A steel blocking device placed (in the bottom of) a borehole. As drilling is resumed, the whipstock forces the drill bit (as it drills ahead) to veer off at a slight angle from the more-or-less vertical borehole that has been drilled down to that point. The new deviated portion of the borehole is called a side track

Wildcat. An exploration well drilled to a reservoir, from which no oil or gas has previously been produced in the nearby surround area. When the well is located far way from all previous drilling attempts, it might be called a ‘rank wildcat’. These wells naturally involve a high degree of risk, but a small percentage of them are successful. When a rank wildcat well comes in as a discovery the return of investment can be very attractive, indeed.

Working Interest. The operating interest under an oil and gas lease entitling the holder, at his or its expense, to conduct drilling and production operations on the leased property and to receive the net revenues from such operations. The Revenue Interest allocated to the owners of the Working Interest reflects the amount allocated from the proceeds of the sale of hydrocarbon products to the owners of the Working Interest in accordance with their respective interests, after payment of all severance taxes and operating expenses, completion costs, transportation cost, among other costs.

Working Interest Owners. The persons, firms, companies, and other entities that are admitted to the Partnership, either as original, additional or substituted Working Interest Unit Owners and that are then owners of an interest in the Programme. Reference to a "Working Interest Unit Owner” shall mean any one of the Working Interest Unit Owners. A Working Interest Unit Owner shall not be deemed to be the owner of any assigned interest in the Partnership unless and until the assignee of such interest in the Partnership has been admitted to the Partnership as a substituted Working Interest Unit Owner.

Write-Off. In common usage: a reduction in taxable income that results when allowable deduction are subtracted from gross income. Zone. A layer of rock penetrated by a borehole that has characteristics which distinguish it from other nearby rock; ‘pay one’, ‘lost-circulation zone’, ‘high-pressure zone, etc.