OIL & GAS INVESTMENT GLOSSARY
Essential terminology for understanding oil and gas investments. From IDC to working interest, learn the language of energy investing.
A
Accredited Investor
An individual with net worth exceeding $1 million (excluding primary residence) or annual income over $200,000 ($300,000 with spouse) for the past two years. Required for most private oil and gas investments.
AFE (Authorization for Expenditure)
A detailed estimate of drilling and completion costs for a well, provided to working interest owners before drilling begins.
B
Barrel (BBL)
Standard unit of measurement for crude oil, equal to 42 U.S. gallons. Production is often reported in barrels per day (BOPD).
BOPD (Barrels of Oil Per Day)
A common measure of oil production rate. A well producing 100 BOPD yields approximately 3,000 barrels per month.
C
Carried Interest
An arrangement where one party pays the costs for another party's share of drilling, typically in exchange for a larger revenue share.
Completion
The process of finishing a drilled well to make it ready for production, including casing, perforating, and installing production equipment.
D
Depletion Allowance
A tax deduction that allows investors to recover their capital investment as the oil or gas reserve is depleted. The percentage depletion rate is 15% of gross income for qualifying investors.
Development Well
A well drilled in a proven area with known oil or gas reserves. Lower risk than exploratory wells due to established production history.
Direct Participation Program (DPP)
An investment structure allowing accredited investors to directly participate in oil and gas operations, receiving pass-through tax benefits and proportional revenue.
Dry Hole
A well that fails to produce commercial quantities of oil or gas. Also called a "duster." Tax deductions still apply to drilling costs.
E
EUR (Estimated Ultimate Recovery)
The total amount of oil or gas expected to be produced from a well over its entire productive life.
F
Farmout
An agreement where the owner of a lease assigns part of the working interest to another party in exchange for drilling or development.
H
Horizontal Drilling
A drilling technique where the wellbore is turned to run horizontally through the reservoir, increasing contact with the producing formation.
I
IDC (Intangible Drilling Costs)
Non-salvageable drilling expenses including labor, chemicals, mud, and fuel. Typically 60-80% of well costs and 100% tax-deductible in the year incurred.
J
JIB (Joint Interest Billing)
Monthly statement sent to working interest owners detailing their share of operating expenses and revenues.
L
Landman
A professional who negotiates oil and gas leases, researches title records, and manages land and mineral rights.
Lease Operating Expenses (LOE)
Ongoing costs to operate a producing well, including labor, electricity, maintenance, and workovers.
M
MCFG (Thousand Cubic Feet of Gas)
Standard unit for measuring natural gas production. One MCF equals approximately one million BTUs of energy.
N
Net Revenue Interest (NRI)
The percentage of production revenue an owner receives after all royalties and burdens are deducted from the working interest.
O
Operator
The company responsible for day-to-day drilling and production operations. Nexus partners with experienced, vetted operators.
P
Payout
The point at which cumulative revenue equals the initial investment, after which the investor has recovered their capital.
Perforating
Creating holes in the well casing to allow oil and gas to flow from the reservoir into the wellbore.
Proved Reserves
Oil and gas quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable.
PUD (Proved Undeveloped)
Reserves expected to be recovered from new wells on undrilled acreage or existing wells requiring major expenditure for completion.
R
Royalty Interest
A share of production revenue free of operating costs. Royalty owners receive income without expense obligations, typically 12.5-25% of production.
S
Spud Date
The date when drilling operations begin on a new well.
T
TDC (Tangible Drilling Costs)
Physical equipment with salvage value such as casing, tubing, and wellheads. Depreciated over 7 years using MACRS.
Turnkey
A drilling contract where the operator agrees to drill a well for a fixed price, assuming all risk of cost overruns.
W
Working Interest (WI)
An ownership share in an oil and gas lease that bears proportional drilling and operating costs but also receives proportional revenue.
Workover
Operations on a producing well to restore or increase production, such as cleaning, repairing, or stimulating the well.
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