Jargon Buster: Glossary of Terms

anticline

 * In geology, a rock formation under which oil and gas are often found; they look like domes sticking up out of the ground and for the first century of the oil industry, before more sophisticated measuring devices were developed, they were how geologists looked for hydrocarbons. Anticlines show structural traps, which are relatively easy to spot, but in recent years oil exploration has been forced by the end of easy discoveries to look for more complex stratigraphic traps.

API gravity index

 * A system of measurement developed by the American Petroleum Institute used worldwide to denote how "light" or "heavy" a grade of crude oil is. The higher the API index in fact the lighter the crude oil is so that "light" crudes (such as Libyan) are 35° and above, heavy grades (such as Iranian) are below 30° and super-heavy grades (such as some grades from Venezuela) are below 20°. See also: heavy oil, light oil

appraisal well

 * Appraisal wells are drilled after seismic surveys and a discovery well have shown some oil or gas is present, in order to determine if the find is big enough to be a commercial discovery. See also: wildcat well, development well, showing

associated gas

 * Natural gas mixed up, or "associated", with oil in a rock structure and produced at the same time as the oil. Sometimes the gas is dissolved within the oil but separates as it comes up to the surface. For a long time, such gas was treated as a waste product disposed of by flaring or venting. See also: non-associated gas, enhanced oil recovery, liquid petroleum gas

back-in right

 * A feature of oil and gas contracts that allows a party, often a government, to acquire an equity participation once a commercial discovery has been made without carrying the risk of exploration. In action: "The President of Guinea Bissau called for 33% back in rights for the State into all mineral projects in order to establish a large and fundable National Mining Company" (Brian Menell Group 2010)."

barrels of oil equivalent (boe)

 * A way of measuring energy production or consumption across different energy sources. Other hydrocarbons like natural gas and coal and occasionally even renewables are measured for the amount of energy they produce compared to a barrel of oil.

barrels per day (bpd)

 * The standard way of measuring oil production. A barrel is about 42 US gallons or 158 litres, though the exact number varies according to crude oil grades. The world currently consumes around 90 million barrels of oil a day, a quarter of it in the United States.

benchmark crude

 * Oils against which other oils are priced, either at discount of premium depending on the crude oil grades. There are three primary benchmark crudes which serve in the different oil markets of the world: Brent Crude, West Texas Intermediate (WTI), and Dubai crude.

bitumen

 * A component of crude oil which is very heavy and viscous; high amounts are extracted from oil sands, although it has low value relative to other products of the refining process and so is often cracked to form other more commercially valuable products. In its raw form, it is used to make roads in the form of asphalt.

block

 * Method used to designate an area of land which could be made up of several oil fields, which divides up land into workable areas for separate consortia or companies to work on.

blowout

 * The sudden and uncontrolled release of crude oil or natural gas from a well when pressure control systems fail. This risk can be mitigated by using a blow-out preventer (BOP), however only as a last line of defence to shut off the top of a well and prevent a gusher. It was a blowout which was responsible for the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

booking

 * The process by which reserves are added to the balance sheet of an oil company. This is a crucial point, as reserves form key assets for the company. Oil companies such as the supermajors who have shares listed on major stock markets must conform to regulations concerning how they book oil and gas assets. Royal Dutch Shell triggered a global scandal in 2004 when it was forced to admit that it had overbooked many of its assets.

Brent crude

 * The leading global benchmark for Atlantic basin crudes, it is used to price two thirds of the world's internationally traded crude supply. Brent is a light, sweet crude produced in the North Sea, which usually trades within a few dollars of WTI. See also: benchmark crude

british thermal unit (Btu)

 * A unit used to describe the amount of energy released when different fuels are burned, with coal producing 25 million Btu of energy per ton and oil producing 5.6 million Btu per barrel.

bunkering

 * The illegal removal, or theft, of oil from a pipeline or other distribution system. Bunkering is sometimes as simple as drilling a hole in a pipeline and collecting the oil in a drum. More complex operations involve equipping tankers with false bottoms to conceal extra-legal shipments, or to make unauthorized shipments from well site storage tanks. Bunkering is a chronic issue in Nigeria and Iraq, although it exists in many other countries. In action: "The theft of oil – known in Nigeria as “bunkering” – along with fraud in the allocation of a controversial fuel subsidy, may together have cost the state US $14 billion in 2011." (Financial Times 2012)

cap rock

 * A layer of impermeable rock which may trap oil, gas or water beneath it.

coal bed methane (CBM)

 * natural gas found in coal beds during underground operations. Sometimes referred to as coal seam gas (CSG), it is already in significant production in the United States and Canada, and enormous resources are proven in Australia and China. Globally, it makes a modest contribution to the energy mix but this is expected to increase. See also: unconventional energy sources

commerciality

 * A discovery of hydrocarbon reserves in sufficient quantities to justify further investment to bring a field to production. Commerciality is a legal term widely applied in contracts - from the moment an operating company declares commerciality, a set of regulatory and fiscal conditions kick in. See also: reserves, appraisal well, giant field In action: "Further drilling will be required to establish the commerciality of the block SL 2007-01-001 discovery." (Petroleum Economist 2011)

completion

 * The final stage in the installation and development of an oil or gas well, enabling it to begin producing, often taken on by oilfield service companies.

concession

 * A lease agreement by which an oil company can enjoy the exclusive right to produce oil in any given area, as ownership of the oil is transferred from the natural owner, such as the state or landowner, to the lease holder at the wellhead. Concessions were used widely in the early days of the oil industry and came to be viewed as symptomatic of exploitation by IOCs, particularly the Seven Sisters, and were replaced in many countries by production sharing contracts. But some countries, such as the United Kingdom and Norway, still operate them today. See also: service contract

condensates, natural gas

 * Liquid fuels such as ethane, butane and pentane, which are present in the mix of natural gas when it comes out of the ground. These liquids are condensed out of gas before it is shipped by pipeline and captured for separate sale. Also known as natural gas liquids (NGLs). See also: wet gas

consortium

 * A group of companies which join forces to pursue a joint project, and may submit joint bids for projects during a licensing round. The trend in the oil industry over the last generation is for companies to collaborate more and more, on a case by case basis, forming consortia, to share the risk of projects which demand ever high amounts of investment. See also: joint venture, project financing, working interest

contingent resources

 * Resources estimated to be potentially recoverable but at a given date, not commercially viable. There is acknowledged lack of clarity in-industry between contingent resources and unproven resources.

cost recovery

 * Part of a production sharing agreement which allows IOCs to claim and recover the investments they made to explore, develop and start producing oil. The important point to note is that cost recovery comes before any split of profits. Cost recovery can often reach billions of dollars. It is usually capped at a certain percentage of the value of production in any given year. Cost recovery can become a point of contention between companies and governments since governments are often unable to verify the reasonableness of costs submitted by the IOCs with their sophisticated accounting and hundreds of global affiliates. Such disputes have recently occurred in Indonesia, India and Iraq. See also profit oil, cost oil

cracking

 * A second stage refining process which has become widespread in the last 20 years. After fractional distillation has produced a range of commercially valuable fuel products, there are byproducts like tar and bitumen. Since demand for these is limited, cracking is applied to convert them into more in-demand products, such as gasoline and diesel oil, by subjecting them to high temperatures and pressures. The term is chemical in origin, as the process involves breaking up or "cracking" the longer hydrocarbon chains in the lower value products into the shorter ones in fuel products.

crude blends

 * A mixture of different crude oil grades designed to raise the value of the grades. For example, a certain grade of heavy oil may not be so commercially valuable alone, but when mixed with light oil the blend produced may be more valuable than the value of the initial volumes of individual heavy and light crude, so overall, the commercial value is increased. Blending can happen either in pipelines or at the refining stage where a company may seek to be producing a particular mix of fuel products in response to fluctuating market demand.

crude oil

 * A fossil fuel formed from organic material over millions of years and extracted directly from the rocks where it is found, which can be further processed into various fuels and petrochemical products for consumers. Natural gas is often found dissolved in the oil. See also: petroleum, petroleum products, associated gas

crude oil grades

 * The qualities of oil from a particular field which determine the steps needed to process it into usable products and its marketability. Crude oils can be "light" or "heavy" depending on their API Gravity Index, they can also be "sour" if they contain a lot of sulphur or "sweet" if they do not. Beyond these major characteristics, which dictate a crude grade's market value when sold against benchmark crudes, there so many other characteristics that every crude can be chemically "fingerprinted". See also: light oil, heavy oil

dependency, natural resource

 * Although the dependency of economies and government spending in many countries has been widely reported, the International Monetary Fund has provided a formal definition of the concept: where natural resource exports have accounted for either at least 25% of a country's exports over the previous few years or at least 25% of a government's budget. The IMF identified 34 countries which fit that definition in 2008. Natural resource dependency is linked to the concept of resource curse.

depletion

 * The decline in production that begins to appear in oil reservoirs as resources become exhausted. Global depletion is currently estimated at between 3% and 5% per year. The impact can be managed by implementing suitable 'depletion policies' such as enhanced oil recovery. See also: Hubbert curve, Peak Oil, plateau production. In action: "The most important depletion policy instruments have been the frequency in licensing rounds, awards of licenses, and use of the fiscal system." (Chatham House)

development well

 * A well drilled at an existing oil field which is already producing. Many fields require continuous drilling of new wells to maximise production, and development wells can far outnumber the wild cat wells that were made to discover the resource in the first place.

diesel

 * One of a series of petroleum products produced out of crude oil during fractional distillation, commonly used to power our cars as a heavier alternative to petrol using a special compression engine. Diesel is also widely used by military vehicles.

discovery well

 * see wildcat well

downstream

 * The series of operations that take place once oil has been found and produced out of the wellhead. Sometimes divided into midstream and downstream, with transport and the refining process taking place midstream and marketing and distribution occurring in the downstream phase. In action: "ConocoPhillips announced it would separate its profitable 'upstream' oil exploration and production business from the low-margin “downstream” jobs of refining and marketing." (Economist 2011) See also: upstream, integrated energy company

drilling mud

 * A mixture of clay, water and chemicals pumped down a well to make drilling more effective, by lubricating and cooling the mechanism and flushing rock cuttings to the surface. Also known as 'drilling fluids'.

dry well

 * A well which is drilled but fails to produce oil or gas in commercially viable quantities. Sometimes known as a dry hole. See also: commercial discovery, appraisal well, development well

Dubai crude

 * One of three global benchmark crude oils, also known as Fateh, it is produced in the United Arab Emirates and was for many years the only crude oil grade in the Middle East freely traded on the spot market.

Dutch disease

 * A factor in the resource curse, so named after the crisis following large gas discoveries in the Netherlands in the 1960s, whereby large inflows of foreign petrodollars can have damaging consequences for an economy. As the local currency appreciates, the producing country's non-commodity exports become less competitive on world markets, and inflation can occur on the domestic market. Dutch Disease is one element in resource curse.

elephant field

 * A field with reserves totalling over 1 billion barrels. See also: giant field

energy mix

 * The combination of energy sources used to satisfy a country or region's energy consumption. The energy mix evolves over time in response to changing lifestyles and technologies. For example, oil has dropped from about half of global primary energy consumption in 1973, when oil crisis tripled prices overnight, to about a third today, while use of natural gas has risen, particularly with the development of shale gas. Many countries are now trying to diversify their mix to maximise modrn renewables such as solar and wind power, which now account for 3% of total global energy consumption. In action: "A diversified mix of energies will increase security of supply." (European Commission 2007)

energy security

 * The concept that energy is so essential to modern economies that governments need to plan to ensure security of access, even when the industry itself is in the hands of the private sector. This often involves trying to diversify energy sources. For example, the USA seeks to diversify from Middle Eastern oil, or Europe from Russian gas.

enhanced oil recovery (EOR)

 * A set of technologies to increase the recovery rate of a producing field and offset depletion. Methods can include injecting natural gas, chemicals, or water into a field to increase pressure, as well as horizontal drilling. They account for an increasingly important part of global oil production. See also: depletion

environmental impact assessments (EIA)

 * Carried out by companies before beginning a project to identify any possible environmental, social or economic impacts, both positive and negative, and any measures needed to mitigate. Contracts now often specify the implementation of such studies but although various best practice initiatives exist at a global level such as those of the Global Reporting Initiative in Amsterdam or the International Petroleum Industry Environmental Conservation Association (IPIECA) in London, they are rarely specified in contract. EIAs are rarely made public, existing as a document held between companies and host governments.

Extractive Industries Transparency Initiative (EITI)

 * The major existing transparency mechanism in the oil industry. EITI started in 2002 and now has 35 countries as members or candidates. To achieve compliance, a government and the oil companies have to release information about the payments they have made to each other, in a process overseen by civil society. EITI's current chair is the British politician Clare Short.

farmout agreement

 * The sale of rights to a discovery once oil has been struck. Also known as a 'farm-down', this is a common practice among smaller exploration companies funded by seed and venture capital but who cannot then bear the costs of getting the oil out of the ground alone. The 'farmee' usually pays the 'farmor' (sic) a sum on signature, and to bear a proportion of operational costs. There may or may not be an agreement for the farmee to be involved in actual production activities. See also working interest

Finding and Development (F&D) costs

 * In the upstream oil and gas business, the costs of purchasing, researching and developing properties with the goal of establishing commodity reserves.

flaring, gas

 * Oil production is sometimes accompanied by associated gas. When infrastructure to capture the gas does not exist, the gas is often burned at the wellhead, or flared, to get rid of it. This is a waste of energy as well as a source of greenhouse gas. According to the World Bank, the top five gs flaring countries in the world are Russia (26%), Nigeria (11%), Iran (8%), Iraq (7%) and Algeria (4%). The Global Gas Flaring Reduction partnership was set up in 2002 to address the problem, grouping companies, governments and international agencies such as the UN. The World Bank estimates the total amount of gas flared was reduced by 22% between 2005 and 2010. In action: "The annual 35 bcm of gas flared in Africa alone is equal to half the continent’s power consumption." (Financial Times 2012)

floating liquefied natural gas (FLNG)

 * A concept being developed by Royal Dutch Shell to access offshore gas fields which might otherwise remain 'stranded'. Instead of the need for costly seabed pipelines to onshore processing facilities, the idea is to build a platform which floats above the field on the sea surface and can liquify the gas into LNG ready for shipping directly to market. The first FLNG facility is due to be completed in 2017.

fracking
see hydraulic fracturing

fractional distillation

 * How crude oil is refined into usable products like petrol and natural gas. Crude oil enters one a series of chambers, each one hotter than the last. Individual products such as diesel or gas oil are distilled out of the mix at each stage.

frontier exploration

 * High-risk exploration activities in unchartered territories, or in challenging environments such as Somalia. See also: wildcat well

fuel oil

 * One of the heavier, more viscous products obtained from the fractional distillation of crude oil. Fuel oil mostly has industrial uses in engines and furnaces.

futures contract

 * An agreement between two parties to buy and sell a specified quantity of crude oil, with the price agreed today, and the delivery and payment to take place at a specified date in the future. The main crude oil futures markets are the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE). Futures combine with the spot market to form the overall trading environment for oil and gas.

gas to liquids (GTL)
see liquefaction

gasoline
see petrol

giant field

 * Sometime defined in terms of reserves (exceeding one billion barrels) and sometime in terms of production output (exceeding 100,000 barrels per day). Even larger super-giant fields are generally those whose reserves exceed five or even ten billion barrels. However the definitions remain contested.See also: elephant field

groundwater

 * Water held in rocks beneath the water table. It can be polluted or depleted during the drilling process, particularly hydraulic fracturing. See also: environmental impact assessment

gusher

 * A well from which oil gushes without being pumped, and an icon of oil exploration during the 19th and 20th centuries, perhaps most memorably depicted in the 1956 film 'Giant' starring James Dean. Nowadays thought of as wasteful and polluting, gushers usually happen as the result of technical failures.

heavy oil

 * More viscous grade of crude oil with a lower API Gravity than light oil. Production of heavy oil is becoming more common around the world despite greater extraction and processing costs, because light oil supplies have dwindled. Extra-heavy oil, such as that found in the Orinoco belt of Venezuela, is generally defined as having an even lower API Gravity of 7 to 11°. See also: oil sands

horizontal drilling

 * A type of directional drilling which allows drillers to access pockets of reserves that are harder to reach by a vertical well, often used as a cost-effective technique at offshore locations. In 1990, Iraqi leader Saddam Hussein accused Kuwait of using horizontal drilling to steal Iraqi oil and used it as a pretext to invade in the first Gulf War. See also: enhanced recovery

hydraulic fracturing

 * Also known as fracking, it involves shooting water, sand and other compounds at rock structures at such high velocity that they produce small fractures through which crude oil and natural gas can then be extracted. The development of fracturing in the United States since 2005 has led to a massive increase in shale gas production, despite environmental and safety concerns associated with the procedure.See also: enhanced oil recovery

hydrocarbons

 * Compound existing exclusively of hydrogen and carbon; the majority of naturally occurring hydrocarbons are found in crude oil and all oil and gas products as well as coal are hydrocarbons.

Hubbert's curve

 * A mathematical model developed in 1956 by the US geologist Marion King Hubbert which depicts the life cycle of a drilling operation as a bell shaped curve and predicts extraction rates will slow once peak production at a field has been reached. It is widely disputed but is seen as the foundation of peak oil theory. See also: depletion, plateau production

International Energy Agency (IEA)

 * Created in 1974 in response to the oil crisis, the IEA first had the mandate of coordinating energy policy among consumer countries, particuarly global disruptions of supply. Based in Paris, it has evolved into an influential government-sponsored think tank and is sometimes seen as "the consumers OPEC".

integrated energy company

 * A company active in all stages of the value chain, from exploration through production to shipping and refining, to distribution and retail marketing of fuel products. Most supermajors are integrated energy companies.

international oil company (IOC)

 * A private sector oil company with operations in many countries. The largest IOCs are supermajors and the largest historically were the Seven Sisters. The term is often used in contrast to national oil companies, state-owned entities created after waves of resource nationalism in the 1960s and 1970s led to nationalisation of the sector in many countries.

joint venture (JV)

 * A well-established feature of the oil and gas industry whereby two or more companies agree to share profit, loss and control in a certain project, common in the 'upstream sector where projects can be too big for a single company to finance on its own. Partners can be from both the public and private sectors. In action:: "JVs are a useful way of gaining the benefits of collaboration without the economic and political risk associated with a merger or other business combination." (Ernst & Young 2011)

kerosene

 * The primary source of fuel for many types of aircraft, produced from fractional distillation. Until the invention of electricity it was the main source of lighting in the home, as it was used in lanterns, and it was the most widely used product of petroleum before the invention of the motor car.

LIBOR

 * The London Interbank Overnight Rate, a rate of interest often used in the financial terms which govern oil contracts.

licensing round

 * An event at which oil and gas acreage is opened up by a government to competing bids by exploration and production companies or consortiums. Licenses are then awarded to the most attractive bid. Competitive and transparent licensing rounds are seen as key to efficient management of a nation's resources and are often implemented by using auctions which publicly state the criteria under which bids will be judged. See also: block, working interest

light oil

 * Light crude oil is made up of smaller molecules than heavy crude oil and therefore produces a higher percentage of commercially valuable products (like gasoline and diesel) when refined, thus fetching a higher price on global markets. See also: grades of crude oil, heavy oil

liquefaction

 * Conversion of gases to liquid form, usually for ease of storage and/or transport

liquefied natural gas (LNG)

 * Natural gas which has been converted into liquid form by cooling it to approximately −162 °C (−260 °F), for ease of storage and transport. This expensive process is used when a gas pipeline is unavailable to transport the gas produced to marketplace. The first LNG plant was built in Algeria in 1962. Qatar accounts for 25% of global LNG production. LNG's market position has been challenged in recent years by the explosive growth in shale gas inside he United States, leading to recalculations of how much gas the US, once seen as a major LNG market, will import in future years. See also: liquefaction

liquid petroleum gas (LPG)

 * Often referred to as 'liquefied petroleum gas', an example of an associated gas produced as a byproduct of oil extraction and refining, which is popular as a fuel for domestic use in India and other countries without reliable oil or natural gas supplies.

local content

 * The purchasing of local goods and services and training and development of national staff as a result of oil production with the goal, from the host government side, of maximising broader economic growth as a result of the oil industry and building national expertise which over time allows full national control of the industry. Local content is often a negotiation point between companies and governments stipulated in the terms of contracts, Brazil is sometimes seen as one of the most successful examples of local content application.

metering

 * Measuring the amount of oil or gas produced out of a well or flowing down a pipeline for commercial purposes. Meters can now measure many different crude oil grades flowing down one pipe to up to 0.15% accuracy. See also: bunkering

midstream

 * see downstream

migration

 * The process whereby conventional oil and gas resources gradually 'migrate' away from the source rock where they were generated into cap rock which impedes their rising to the surface and leaking. It can take millions of years for oil and gas deposits to migrate a few kilometres within rock formations.

muds

 * see drilling mud

naphtha

 * Similar in form to petrol (gasoline), naphtha is produced from fractional distillation. It is primarily used in the chemical industry, including to make lighter fluid, cleaning solvents and fuel for camp stoves, and can also be further refined through cracking to produce more valuable products such as high octane gasoline.

national oil company (NOC)

 * A state-owned oil exploration and production company, usually used in contrast to the idea of IOCs. Because of the wave of nationalisations caused by resource nationalism, the NOCs now reprsent 18 out of the biggest 20 oil companies in the world, measured in terms of their oil and gas assets. Some NOCs are run on corporatised lines and have started to compete internationally, notably CNPC from China, Algeria's Sonatrach, Petronas from Malaysia and Petrobras from Brazil. Petrobras and Colombia's Ecopetrol also have minority private sector shareholders.

natural gas

 * Primarily methane. It occurs naturally and is used as a fuel.

natural gas condensates
see condensates, natural gas

nodding donkey

 * A device used in oil production when the pressure inside a well is not sufficient to force oil to the surface, consisting of a long beam which 'dips' in and out of the well to extract crude. A common feature of oil landscapes also known as a 'pumpjack' or 'grasshopper pump'.

non-associated gas

 * Natural gas found in reservoirs where no liquid hydrocarbons are present or where no significant quantities of liquid hydrocarbons exist. Contrasts with associated gas.

offshore

 * The drilling of wells into the seabed. Offshore drilling began in the nineteenth century and significant production was achieved on Venezuela's Lake Maracaibo in the 1920s but modern techniques began in the Gulf of Mexico in the 1940s. Offshore is generally regarded as drilling that takes place on the continental shelf in less than 200 metres of water, but in recent years deep offshore has evolved with drilling in water deeper than 2,000 metres. Offshore is often controversial because of environmental risks but is a growing component of global production and is particularly significant to production in Brazil, West Africa, the Gulf of Mexico and increasingly the Levantine basin. See also: pre-salt

oil in place (OIP)

 * Crude oil estimated to exist in a field or a reservoir. Not all that oil will be extracted, however, because of the properties of a rock formation. The exact percentage will depend on the recovery rate.

oil sands

 * An unconventional energy source, made up of a mixture of sand, water and bitumen. Usual techniques cannot be applied here and extraction often resembles mining more than conventional drilling, using techniques that are far more energy- and capital intensive. Oil sands have only recently been included in the world´s oil reserves due to high oil prices and technological advances. The largest deposits currently known are the Athabasca tar sands in Canada. See also: heavy oil

oil-backed loan

 * A loan in which future oil revenues are pledged as collateral by a producing country. A prominent feature of Chinese engagement in resource-rich African countries such as Angola and Nigeria, and often used to finance large infrastructure projects. In action: "If the Government of South Sudan feels that oil-backed loans are currently necessary to prevent economic collapse, it is critical that robust protections are put in place to minimize future costs and consequences." (Global Witness 2012)

oilfield service companies
see service companies

OPEC

 * The Organization of the Petroleum Exporting Countries, a cartel formed in 1961 through which 12 member states agree on a shared quota for the production and sale of petroleum. OPEC is intimately linked to the rise of resource nationalism and the industry in all of its member states is dominated by national oil companies. As of 2012, OPEC produced about 40 percent of the world’s oil. With its large share of global production, OPEC has become effective in determining the price of oil on international markets, but there can be charp divergence of interests between its various members, who are all in different situations as regards their state of depletion and degree of dependency on oil revenues. See also: swing producer,

operator

 * The company within a consortium with overall decision-making authority at an operational level on an oil or gas project, usually also with the greatest financial stake. See also: joint venture, working interest

Peak Oil

 * The controversial idea that the world will soon run out of oil and gas. Everyone agrees that oil and gas, as depletable resources in contrast to renewables, will run out sometime. But peak oil says that moment is very close because global oil production has already peaked. The theory relies on Hubbert's Curve.

petrochemicals

 * Chemicals derived from petroleum or other fossil fuels, largely used in the plastics industry. There are currently 4,000 chemicals classified as petrochemicals.

petrodollar

 * Since oil sales are generally denominated in US dollars, petrodollars are the funds from oil sales. The dollar denomination has had implications for linkages between the oil industry and the US economy which has led some producers, notably Venezuela in recent years, to debate ending it.

petrol

 * Or gasoline, one of the key products of crude oil used mostly for transport.

petroleum

 * The term of art to denote both crude oil and petroleum products produced by refining. The terms "oil" and "petroleum" are sometimes used interchangeably.

pipeline

 * A pipe, usually underground, used to transport oil or gas over long distances. Although pipelines can be constructed underwater most oil transport by sea is done by tankers. Because pipelines are so expensive and significant ones often cross multiple national borders, pipeline negotiations often involve complex geopolitics.

plateau production

 * Keeping production out of a mature oilfield steady for a number of years. This usually involves using enhanced oil recovery techniques to mitigate depletion.

play

 * A slang term commonly used in the industry for an investment decision. In action: "International players are taking a closer look at Australia's Cooper-basin shale play." (Petroleum Economist 2012)

possible reserves

 * Have a 10% certainty of being produced. Combined with proven reserves and probable reserves in the industry term 3P. See also: reserves

pre-salt

 * Oil and gas deposits that are found beneath huge layers of salt, deep in the rocks. Pre-salt deposits could not be exploited commercially until recently because of technological limitations but now represent a significant portion of projected future finds. The most famous pre-salt region is Brazil's Tupi field, under 2000 metres of water and a further 5000 metres of salt, sand and rock. See also: offshore

probable reserves

 * Have a 50% certainty of being produced under current market conditions. Probable and proven reserves are often combined in a definition known as 2P, which is the most common way to assess the amount of oil a field is likely to produce. See also: reserves

production sharing contract (PSC)

 * An agreement between a company and a host country on the percentage of oil each party will receive after specified costs and expenses have been paid under cost recovery. Under a PSC, the company generally gives the state cash payments in the form of royalties and income tax. the Also known as a production sharing agreement (PSA). See also: concession, service contract

profit oil

 * The portion of revenues divided up between participating parties and a host government in a production sharing contract, once the operator has recovered its investment by deducting cost oil production. In action: "As the profit oil is split between the companies and the state, the cost of “allowable expenditures” is passed on to the state in the form of reduced profit oil." (Civil Society Coalition on Oil in Uganda 2010)

project financing

 * Arrangements for capital linke to individual production projects. Even supermajor oil companies use financing from banks and financial instruments such as bonds extensively because of the increasingly capital-intensive nature of oil exploration and production. Global investment in upstream has risen from about $100 billion in 2000 to about $600 billion in 2011, a level which the industry anticipates is likely to hold or rise in the next decade.

prospective resources
see resources

proven reserves

 * Classified as having a 90% certainty of being produced at current prices, with current commercial terms and government consent, and are also known in industry as 1P. See also: reserves

recovery rate

 * The amount of oil that will ne extracted compared to the amount of oil in place. Historically rates of 25% were common but rates are now rising to 50% above because of extensive use of enhanced oil recovery.

refining

 * Processes which convert crude oil and gas into usable products, such as fractional distillation and cracking. Refining is a huge industry in its own right but with volatile profit margins in recent years which have caused some integrated energy companies to consider getting out of it.

rent

 * A revenue stream that accrues above and beyond a normal economic return on activity or profit. The concept was first developed by economists Adam Smith and David Ricardo in the 18th and 19th centuries. It dominates the economics of the global oil industry because of sharply varying costs of production for a commodity sold at roughly the same price. For example, it could cost $5 to produce a barrel of oil in Libya and $60 in some fields in Canada, yet both sell for the same price, meaning the margins are massively different. Economists differentiate between rent and a normal return on capital, or profit, and argue that it should be treated differently. Rent encourages rent-seeking, an integral part of the concept of resource curse.

reserves

 * A subset of oil and gas resources, which are commercially viable to extract. Definitions used around the world still differ somewhat but there is increasing standardisation under a series of definitions produced by the US Society of Petroleum Engineers (SPE). Reserves are further divided into the sub-categories: proven reserves, probable reserves, and possible reserves. Classification of reserves can be crucial to the value of a company, as it is a key way for a company to show its assets through booking reserves.

reserves-production ratio

 * The number of years a country can continue producing at its current rate given the level of its proven reserves. BP's Statistical Analysis for 2012 estimated the global R/P ratio at 54 years. At one end of the spectrum are the United States, Norway and the United Kingdom with respectively 10, nine and seven years production left. At the other, Saudi Arabia has 65 years left, Kuwait 97 years and Iran 99 years.

resource diplomacy

 * The use of state diplomacy to negotiate access to natural resources. For example, the USA has used resource diplomacy in the Gulf and China is increasingly using it in Africa.

resource nationalism

 * The political feeling that control of natural resources should be in the hands of the countries which own them. Resource nationalism grew in the oil industry as a result of dominance by the Seven Sisters and led to the creation of OPEC and nationalisation of the industry in many industries, leading to the rise of the national oil companies.

resource-backed loans
see oil-backed loans

resources

 * All quantities of petroleum which are known to exist including those which are not, at that time, considered to be commercially viable to extract. This can change as technology develops and with higher oil prices, for example, the oil sands were previously classified as resources but are now reserves.

resource curse

 * The theory that natural resource wealth can sometimes paradoxically create negative development outcomes in producing countries, due to weakened government institutions, neglect of other key sectors of the economy (known as Dutch Disease), corruption, high income inequality and pollution. Sometimes called the 'paradox of plenty'. See also: rents In action: "The resource curse is not inevitable. What's needed is transparency and accountability." (Petroleum Economist 2011).

royalties

 * A percentage share of production, or of the value of the production which goes to the government regardless of the rate of production or costs to the operator. Royalty rates often change incrementally as production increases. In calculating revenue flows from an oil project, royalties take precedence, with other categories such as cost oil and profit oil subordinate. Concession type contracts are almost entirely based on royalties.

royalty interest

 * In contrast with a working interest, the ownership of a portion of revenues produced from an operation without bearing the ongoing production costs. See also: royalty, production sharing contract In action: "It's generally recommended that investors without deep pockets and a solid working knowledge of oil and gas exploration stick with limited liability royalty interests." (Investopedia)

sedimentary basin

 * Geologically, areas where there have been huge deposits of organic matter millions of years ago which may then have become compacted and 'cooked' into oil and gas. Because of continental shift and other geological movements, such areas can now be deep inland even if they were originally underwater. For example, the Texas and Oklahoma oilfields of the United States are part of a sedimentary basin formed in what was an extended Gulf of Mexico while in Libya oil-bearing formations of the Sirte Basin extend a thousand kilometres inland, into the Sahara desert.  See also: cap rock, anticline In action: "The sedimentary basins in New Zealand that are likely to contain oil and gas are young (less than 80 million years old)" (Encyclopedia of New Zealand 2012)

seismic survey

 * Technology similar to ultrasound used to build a picture of underground rock structures during early stage oil and gas exploration. Seismic works by sending out sound pulses and using the measurements of how and when they return to estimate rock structures, since different kinds of rock offer different levels of resistence to the signals. Combined with information from an appraisal well these surveys form the basis for further investment decisions. Seismic data has increased exponentially in recent years with the development of data acquisition and interpretation technology. See also: anticline, source rock, commercial discovery

service companies

 * Oil companies which do everything but actually own or bid on resources with governments. The oil industry has been subject to outsourcing since the 1980s meaning that supermajors often contract large parts of their operations to service companies. The largest, such as Schlumberger and Halliburton, employ tens of thousands of employees and can win single field contracts worth hundreds of millions of dollars.

service contracts

 * An agreement whereby a foreign oil company is contracted to produce a country's oil reserves on a simple fee basis. The state maintains sole rights over the reserves, and the contractor is compensated by a fee per barrel, plus cost recovery See also: production sharing contract, concession

Seven Sisters

 * A term coined in the 1950s to describe the oil companies which dominated the early years of the global oil industry. They were Anglo-Persian Oil Company (now BP), Gulf Oil, Standard Oil of California (Socal) and Texaco (now Chevron), Royal Dutch Shell, Standard Oil of New Jersey (Esso) and Standard Oil Company of New York (Socony) (now ExxonMobil).See also: international oil company

shale gas

 * Natural gas formed from being trapped within shale rock formations; currently the source of 20% of US natural gas production due to the increase in hydraulic fracturing, or fracking, and predicted to increase in importance in the future by the EIA.

showing, oil or gas

 * When a company announces that oil has been found in an exploratory well. Exploration companies often use showings to make dramatic public announcements to boost their profile and share price, but a showing does not necessarily mean that commerciality will be declared.

signature bonus

 * Lump sum of money paid up front by companies to governments upon signing a production sharing contract or concession agreement. Sometimes used as the deciding factor in a tie-breaker between bidders. In action: "Under the last bid round in Libya, Occidental paid $1 billion as a signature bonus"

slant drilling
see horizontal drilling

sour oil

 * Crude oil grades which have high sulphur, decreasing their market value, in contrast to sweet oil.

source rock

 * Organic-matter rich rocks- typically, shales, sandstones or carbonates- in which petroleum forms, if it is subjected to high temperatures over prolonged periods of time. See also: cap rock

sovereign wealth fund (SWF)

 * Government-held investment funds to hold budgetary surplus, often resulting from rents as a method of better managing resource revenues by investing rather than spending, and increasingly popular as an attempt to shield against the resource curse. In 2012 SWFs were estimated to hold nearly $5 trillion. In action: "Although sovereign-wealth funds hold a bare 2% of the assets traded throughout the world, they are growing fast." (Economist 2008).

spot market

 * The global market where oil can be traded dynamically. Before the spot market appeared in the 1970s oil was traded largely in long-term fixed contracts. But now a single shipment of oil can be traded up to ten times from the time it leaves a producing country to the time it reaches port.

spudding

 * The very start of the drilling process at a new well by getting rid of any bits of rock, dirt or other sediment.

stabilisation fund

 * A fund used to smooth government income between one year and the next to mitigate the high volatility of revenues that economies with natural resource dependency suffer from. Stabilisation funds are different to sovereign wealth funds.

strategic reserves

 * Government-held stocks of crude to guarantee a country against economic breakdown in the case of major world turbulence, and a key part of energy security. These reserves were developed after the 1973 oil crisis. Up to five billion barrels are held globally in such reserves, with the United States alone holding nearly a billion barrels.

subsidies, energy

 * Most oil exporting countries have traditionally heavily subsidised energy at home. Over time the cost of these subsidies has become crippling to many state budgets, but they are almost impossible to remove politically.

subsoil rights

 * Who owns resources under the ground. In many countries, sub-soil rights belong to the state which is why the state develops an oil industry when deposits are found. In the United States, by contrast, sub-soil rights attach to the landowner at the surface, which is what triggered oil rushes in Texas, Oklahoma, and elsewhere.

super-giant field
see giant field

supermajor

 * The world's largest publicly owned oil and gas companies and the modern day equivalent of the Seven Sisters, considered to be BP, Chevron, ExxonMobil, Royal Dutch Shell and Total, with ConocoPhillips sometimes also included. See also:: international oil company

sweet oil

 * Crude oil grades which have low sulphur, increasing their market value, in contrast to sour oil.

swing producer

 * A country which has production capacity significantly above what its actual levels of production are, allowing it to raise production overnight and therefore lower market prices. Saudi Arabia has been the sole swing producer for the last 30 years. Other countries such as Iraq and Libya sometimes debate a similar role.

tar sands
see oil sands

tight hole

 * A drilling well about which all information is kept confidential, most often used for appraisal wells.

transit fees

 * Fees charged by a country to allow oil or gas to be transported across its territory, either by pipeline or through shipping channels such as the Suez and Panama Canals.

transparency

 * Improved access to information such as revenues, prices and contract terms, helping to 'follow the money' and prevent corruption. Transparency first emerged as a high profile norm in the 1990s as issues of governance came to dominate the global debate on development. A growing movement demanding greater transparency in the oil and gas industry centres around the EITI initiative. See also: rent and rent-seeking ''In action: "Transparency of payments made from a company to a government can help to demonstrate the contribution that their investment makes to a country. (EITI)"

unconventional energy sources

 * Any resources accessed by means other than the conventional oil well method. This is an umbrella term that shifts over time, but currently used to refer to sources such as shale gas, coal bed methane and oil sands. ''In action: "While these reserves may hold the key to the future oil supply, companies must deal with the additional time, cost and resources it takes to extract the unconventional oil." (Financial Times 2010)'

unitisation

 * The way a single oil bearing rock formation is divided by two countries when it straddles a border. For example the United Kingdom and Norway have a unitisation agreement in the North Sea. Unitisation requires agreed borders, but since the oil could be sucked from one side of the border to the other also goes beyond it to require agreement and cooperation on geological studies and production figures.

unproven reserves
see reserves
 * An umbrella term for probable reserves and possible reserves.

upstream

 * The capital intensive, high risk-high reward, initial stages of the industry involving exploration and production. See also: midstream, downstream, integrated energy company

venting

 * When associated gas is simply released into the atmosphere. Venting is even more harmful to the environment than flaring since methane is many times more potent as a greenhouse gas than the carbon dioxide produced when it is burned.

well completion
see completion

West Texas Intermediate (WTI)

 * The US crude oil benchmark, traditionally trading within a few dollars of Brent crude. It is a light oil with a low sulphur content, so it is considered to be a high quality crude. See also: benchmark crudes

wet gas

 * Natural gas containing other hydrocarbons that condense as the gas rises to the surface and lower temperatures than existed in the reservoir. Typically, wet gas contains less than 85% methane. The natural gas liquids are generally separated from the methane to ensure that the natural gas sent to consumers has a consistent thermal energy content; though wet gas is sometimes more valuable than dry gas, as the liquids are themselves sellable commodities such as butane. See also: dry gas, condensates

wildcat well

 * An exploratory well into rock structures not known to contain oil resources, under conditions of little or no geological certainty. A high risk "make or break" venture for drilling companies. If the well is in a field that has not produced before it is known as a "new-field wildcat". If it is more than 3 kms away from any producing well it is called a "rank wildcat". If the well discovers oil, it is known as the "discovery well" of that field. See also: appraisal well development well

working interest

 * The percentage stake taken by a company in an oil or gas operation, where they are liable for a proportion of the ongoing operating costs but also has a claim to a share of the profits. This contrasts with a royalty interest. See also: production sharing contract, cost recovery