Investor Education
OIL & GASINVESTOR GLOSSARY
Understand common terminology used in direct oil and gas investments, production, drilling, ownership structures, taxation, and investor reporting.
Understanding the Asset Class
KEY TERMS FORENERGY INVESTORS
Oil and gas investments use specialized terminology related to geology, drilling, production, ownership, revenue, and taxation. This glossary provides general definitions to help investors better understand common concepts encountered when reviewing direct participation opportunities.
Project-specific definitions, ownership rights, financial terms, and obligations are governed by the applicable offering and operating documents.
Oil & Gas Terminology
INVESTOR GLOSSARY
- Accredited Investor
- An individual or entity that satisfies applicable financial, professional, or organizational standards under securities laws. Certain private investment opportunities may be limited to accredited investors.
- Bakken Formation
- A major oil-producing geological formation within the Williston Basin, primarily located in North Dakota and Montana.
- Barrel of Oil
- The standard unit used to measure crude oil production. One barrel equals 42 U.S. gallons.
- Completion
- The process of preparing a drilled well for production after drilling operations have been completed.
- Depletion
- A tax concept associated with the reduction of a natural resource as it is produced. Certain oil and gas investments may qualify for depletion deductions depending on the structure and investor circumstances.
- Denver-Julesburg Basin
- An oil and natural gas producing region located primarily in northeastern Colorado and parts of southeastern Wyoming. It is commonly referred to as the DJ Basin.
- Direct Participation
- An investment arrangement that provides participation in the income, expenses, and potential tax consequences of underlying assets, often through a partnership or other pass-through structure.
- Distribution
- Cash or property paid to investors under the governing investment agreements. Distributions may include operating proceeds or a return of capital; amounts and timing are not guaranteed.
- Drilling
- The process of creating a wellbore to reach underground oil or natural gas formations.
- Gross Working Interest
- The percentage ownership in an oil and gas lease or well before deducting royalties and other production burdens. It generally determines the owner’s share of drilling, development, and operating costs.
- Horizontal Well
- A well typically drilled vertically, then curved to extend horizontally or nearly horizontally through an oil- or gas-bearing formation, increasing contact with the reservoir.
- Intangible Drilling Costs
- Certain drilling and development expenses that do not have salvage value. Depending on applicable tax rules and the investment structure, some intangible drilling costs may qualify for tax deductions.
- Lease Operating Expense
- Expenses associated with operating and maintaining producing oil and gas wells and related equipment.
- Net Revenue Interest
- The percentage of production or production revenue attributable to an ownership interest after royalties and other production burdens. It does not represent profit after operating costs.
- Niobrara Formation
- An oil and natural gas producing geological formation associated with the Denver-Julesburg Basin and other Rocky Mountain regions.
- Operated vs. Non-Operated Working Interest
- An operated working interest (op) is held by the party responsible for managing drilling, production, and daily well operations. A non-operated working interest (non-op) is held by an owner who shares in revenue and costs while another party manages operations. Both carry cost obligations; decision-making rights depend on the governing agreements.
- Operator
- The company or party responsible for managing drilling, completion, production, and day-to-day operations of an oil and gas project.
- Private Placement Memorandum
- A disclosure document commonly used in private securities offerings that describes the investment structure, terms, risks, use of proceeds, and other material information.
- Production
- The extraction of oil, natural gas, or other hydrocarbons from a completed well.
- Proved Reserves
- Estimated quantities of oil or natural gas that geological and engineering data demonstrate with reasonable certainty can be recovered from known reservoirs under existing economic and operating conditions.
- Royalty Interest
- An ownership interest that generally receives a share of production or its proceeds without bearing drilling and operating costs. Taxes and certain post-production costs may apply under the governing agreements.
- Severance Tax
- A tax imposed by certain jurisdictions on the extraction or production of natural resources such as oil and natural gas.
- Three Forks Formation
- An oil-producing geological formation within the Williston Basin that is closely associated with the Bakken petroleum system.
- Wellbore
- The drilled hole extending from the surface into an underground geological formation.
- Williston Basin
- A major petroleum-producing basin extending across North Dakota, Montana, South Dakota, and parts of Canada. It includes the Bakken and Three Forks formations.
- Working Interest
- An ownership interest in an oil and gas operation that may provide participation in production revenue while also carrying responsibility for a share of development and operating costs.
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Definitions on this page are provided for general educational purposes only. Terminology may have different meanings depending on the investment structure, governing agreements, applicable laws, and individual circumstances. Investors should review all applicable offering documents and consult qualified legal, tax, and financial advisors before making an investment decision.
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