Category: Oil and Gas business

An agreement between the parties to a well and a host country regarding the percentage of production each party will receive after the parties participating in all the expenses have recovered a specified amount of costs and expenses. The contractor usually bears all risk and costs for exploration, development and production. In return, if exploration is successful, the contractor is given the opportunity to recover the investment from production, subject to a specific limit. The contractor also receives a stipulated share of the production remaining after cost recovery, referred to as profit hydrocarbons. Ownership is retained by the host government, however the contractor usually receives title to the prescribed share of the volumes as they are produced.

This system is often popular in jurisdictions where the legal system is viewed as not being stable and does not afford sufficient protection for a corporation’s investments. The corporation thus insists on a contract with the state or state company in order to secure some additional measure of security through international law. The host countries also like this system because they feel it gives them some added security as well in that they share in the production, which is oftentimes shared even before all the investor’s costs have been recovered. In these cases production is first split into a cost component – Cost Oil or cost Gas – and a profit component – Profit Oil or profit Gas. The proportion allowed for the recovery of costs in a given year is often limited to ensure that the profit component is positive and that the state will receive at least a minimum level of annual or monthly revenues.

PSC systems typically also include corporate income tax, royalties, bonuses, and land rental fees to form the overall fiscal system. In this way they are similar to concession systems.

Production sharing regimes that place a ceiling on the amount of production available for cost recovery produce an effect that is similar to that of royalty. With a ceiling on the amount of production available for cost recovery, an investor will not share in the economic rent until much later in the project life as it takes longer to recoup its initial investment

A test of the well’s producing potential usually done during the initial completion phase. Test made to determine the daily rate of oil, gas, and water production. Production testing is carried out after electric logging, especially if the results of these are not conclusive. The testing may last a couple of weeks, cost considerable money and is meant to provide further details of the main gas content and subsurface information.

A combination of a potential test and a bottomhole pressure test the purpose of which is to determine the effects of different flow rates on the pressure within the producing zone of the well to establish physical characteristics of the reservoir and to determine the maximum potential rate of flow.

The last string of casing set in a well, inside of which is usually suspended a tubing string.

An area of exploration in which hydrocarbons have been predicted to exist in economic quantity. A prospect is commonly an anomaly that is recommended by explorationists for drilling a well.

A project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target.

Project activities in this case are focused on assessing the chance of discovery and assuming discovery, the range of potential recoverable quantities under a commercial development program

The first stage of hydrocarbon production, in which natural reservoir energy, such as gasdrive, waterdrive or gravity drainage, displaces hydrocarbons from the reservoir, into the wellbore and up to surface. Initially, the reservoir pressure is considerably higher than the bottomhole pressure inside the wellbore. This high natural differential pressure drives hydrocarbons toward the well and up to surface. However, as the reservoir pressure declines because of production, so does the differential pressure. To reduce the bottomhole pressure or increase the differential pressure to increase hydrocarbon production, it is necessary to implement an artificial lift system, such as a rod pump, an electrical submersible pump or a gas-lift installation. Production using artificial lift is considered primary recovery. Thus, primary recovery produces oil and gas using the natural pressure of the reservoir as the driving force to push the material to the surface

The amount of production after deducting cost oil production allocated to costs and expenses that will be divided between the participating parties and the host government under the production sharing agreement.

Production remaining after allowable cost recovery is commonly referred to as profit oil, profit gas, or profit petroleum and is usually shared between the state and the investor

Primary target usually refers to the most important reservoir which an O&G company hopes will contain hydrocarbons when drilling. Secondary target refers to other possible reservoirs that may be above or below the primary target, which are usually thought to be not as attractive for various reasons as the primary target, possibly because they are thinner, of variable quality, are of low poroperm qualities, etc. In real life secondary targets can turn out to be better than primary, or both targets can be good or both bad