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Definitions

3-D Seismic, 3-D Imaging or 3-D Data

Seismic data that are acquired and processed to yield a three-dimensional picture of the subsurface. Advanced technology method of detecting accumulations of hydrocarbons, identified by the collection and measurement of the intensity and timing of sound waves transmitted into the earth as they reflect back to the surface. The method by which a three-dimensional image of the earth’s subsurface is created (through the interpretations of reflection seismic data collected over a surface and 3-D seismic surveys) allows for a more detailed understanding of the subsurface than do conventional surveys and contributes significantly to field appraisal, development and production. Data generally acquired simultaneously along multiple parallel lines are used to generate a three-dimensional procure of subsurface geological strata, rather than a mere cross-section. To provide this 3-D picture, much more data must be acquired.

Bbl

One barrel of crude oil, condensate or other liquid hydrocarbons equal to 42 United States gallons.

BOE

Barrel of oil equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Commercial Well or Producing Well

An oil and natural gas well that produces oil and gas in sufficient quantities such that proceeds from the sale of such production exceed related costs directly associated with such production and taxes.

Completion

The installation of permanent equipment for the production of oil and gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Development Well

A well drilled within the presently proven productive area of an oil and natural gas reservoir as indicated by reasonable reservoir. A well drilled within the proven area of an oil and natural gas reservoir to the depth of a stratigraphic horizon known to be productive. Development wells are drilled to efficiently drain the reservoir and have limited risk once the reservoir is delineated.

Exploitation

The development of a petroleum reservoir. See “Development Well”.

Exploratory Well

A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir, or to extend a known reservoir beyond the limits classified as proved reserves.

Farm-in

An arrangement whereby one oil operator buys in or acquires an interest in a lease or concession owned by another operator on which oil or natural gas has been discovered or is being produced. Often farm-ins are negotiated to assist the original owner with development costs and to secure for the buyer a source of crude oil or natural gas.

Field

An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Finding Cost

An amount per Mcfe or BOE equal to the sum of all costs incurred relating to oil and gas property acquisition, exploration and development activities divided by the sum of all additions and revisions to estimated proved reserves, including reserve purchases.

Formation

A sedimentary bed or series of beds sufficiently alike or distinctive to form an identifiable geological unit.

Independent Producer

A person or corporation that produces oil for the market, having no pipeline system or refinery. (2) an oil-country entrepreneur whose secures financial backing and drills his own well. (3) A company involved in the exploration for, as well as the development and production of, oil and natural gas that is not a Major Oil Company.

Infill Drilling

Wells drilled to fill in between established producing wells on a lease; a drilling program to reduce the spacing between wells in order to increase production from the lease.

Lease

The instrument by which a leasehold or working interest is created in minerals.

Major Oil Company

An integrated oil company that engages in exploration, production, transportation, refining and marketing.

Mbbl

One thousand barrels of crude oil, condensate or other liquid hydrocarbons.

Mcf

One thousand cubic feet of natural gas; the standard unit for measuring volumes of natural gas.

Mcf/d

One thousand cubic feet of natural gas per day.

Mcfe

Mcf of natural gas equivalent, determined using the ration of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Mcfe/d

Mcfe per day.

Mmcf

One million cubic feet of natural gas.

Natural Gas

Gaseous forms of petroleum consisting of mixtures of hydrocarbon gases and vapors, the more important of which are methane, ethane, propane, butane, pentane, and hexane; gas produced from a gas well.

Natural Gas Liquids or NGLs

Liquid hydrocarbons which have been extracted from natural gas (e.g., ethane, propane, butane and natural gasoline).

Net Profits Interest

An interest in an oil and natural gas property entitling the owner to share of the gross revenues from oil and natural gas production less all operating, production, development, transportation, transmission and marketing expenses, as well as production, sales and ad valorem taxes attributable to such production. It does not include any rights to explore for, develop or produce oil and gas from the lands subject to the interest.

Non-operator

Subject to all cases of drilling, completing and operating a well, the working-interest owner or owners other than the one designated as operator of the property; a “silent” working-interest owner.

Offset Well

(1) A well drilled on the next location to the original well. The distance from the first well to the offset well depends upon spacing regulations and whether the original well produces oil or gas. (2) A well drilled on one tract of land to prevent the drainage of oil or gas to an adjoining tract where a well is being drilled or is already producing.

Operating Costs

The cost of operating a producing well or a group of producing properties.

Operator

The individual or company responsible for the exploration, development and production of an oil or gas well or lease.

Pipeline

A tubular system, usually made of steel pipe with welded connections used to transport oil, gas and other fluids.

Possible Reserves

Possible reserves are less certain than probable reserves and can be estimated with a low degree of certainty, insufficient to indicate whether they are more likely to be recovered than not.

Producing (Productive) Well or Property

A well that is found to be capable of producing hydrocarbons in sufficient to indicate they are more likely to be recovered than not.

Production

(1)The removal of hydrocarbons from a subsurface reservoir by wells. (2) Oil and/or natural gas produced from wells. (3) The part of the petroleum industry that is concerned with bringing oil and natural gas to the surface and separating, gauging, storing and preparing it for transport.

Proved Developed Non-producing Reserves or PDNP

Proved developed reserves that can be expected to be recovered from zones behind casing in existing wells, or from zones that shut-in for market conditions, pipeline connections or mechanical reasons and are capable of production, but the timing is uncertain.

Proved Developed Producing Reserves or PDP

Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells and able to produce to the market. Reserves that can be recovered through wells with existing equipment and operating methods. Additional oil and natural gas to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the forces and mechanisms of primary recovery will be included as “proved developed reserves” only after the improved recovery project is in operation.

Proved Reserves

The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years form known reservoirs under existing economic and operating conditions. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.

Proved Reserves

Oil that has been discovered and determined to be recoverable but is still in the ground.

Proved Undeveloped Location

A site on which a development well can be drilled consistent with spacing rules for purposes of recovering proved undeveloped reserves.

Proved Undeveloped Reserves or PUDS

Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have proved effective by actual tests in the area and in the same reservoir.

PV10

When used with respect to oil and gas reserves, PV10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs in effect at the determination date, without giving effect to non-property related expenses such as general and administrative expenses, debt service and future income tax expense or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%.

As the basis for calculation of PV10, reservoir engineers develop a reserve report for each existing well, whether producing or shut-in, and for each proved undeveloped well location.
The reserve report takes into account:

Current rate of production (or estimated initial rate or production of a proved undeveloped location);
The rate at which production, assuming no further reserve additions, is expected to decline;
Future production costs unique to each well;
Development costs associated with the proved undeveloped reserves; and
Any production taxes that must be paid. To calculate the estimated future gross revenue to be generated from the production of proved reserves, engineers must apply an expected price to be received from the sale of such production. Such expected price typically equals the price in effect at the determination date either held flat or escalated at some appropriate rate.

Recompletion

The completion for production of an existing well bore in another formation from that in which the well has been previously completed.

Reservoir

A porous and permeable underground formation containing a natural accumulation of predictable oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Reservoir Engineering

The application of scientific and engineering principles to the production from a developed reservoir for maximum economic return. Reservoir engineering is the “art of development and production for high-economic recovery.”

Royalty Interest

An interest in an oil and natural 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 thereof), but 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, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

Seismic

The use of shock waves generated by controlled explosions of dynamite or other means to ascertain the nature and contour of underground geological structures.

Standardized Measure of Discounted Future Net Cash Flows

The estimated future net cash flows from proved oil and natural gas reserves computed using prices and costs, at the date indicated, after income taxes and discounted at 10%.