Fundamentals of Investing in Oil and Gas

wettability: As water and oil are insoluble, only one or the other will be in direct contact with the solid rock of a formation. The term wettability refers to whether oil or water is in direct contact with rock within a reservoir.

Organization of Economic Cooperation and Development (OECD): An economic bloc of nations ultimately arisen out of the Marshall Plan.

possible plus probable plus proven (P10) (3P): A cumulative estimate of reserves that might be achieved, but only under favorable circumstances, indicating a 10% degree of confidence.

flaring: Trace amounts of natural gas from a geographically isolated oil well is difficult to bring to market. Traditionally, this gas was separated from crude oil and burned directly at the field. This practice is now illegal in the U.S except in temporary circumstances.

shale: Kerogen-rich source rock of a shale-like structure. Can be strip-mined in a manner similar to coal, and the resulting shale oil can be refined into products like gasoline and diesel fuel. Often mistakenly confused with the concept of "tight oil."

oil shale: Kerogen-rich source rock of a shale-like structure. Can be strip-mined in a manner similar to coal, and the resulting shale oil can be refined into products like gasoline and diesel fuel. Often mistakenly confused with the concept of "tight oil."

mega-well: A single oil well whose production is so large that it alters the fundamentals of the regional or global market.

Two distinct seasonal factors affect the gasoline market: the so-called "summer driving season" phenomenon and the EPA's regulations on summer volatility and winter carbon monoxide emissions.

In the summer, the EPA requires refineries to produce gasoline that is less likely to evaporate into the air. The resulting "summer blend" of gasoline contains fewer oxygenates and a narrower range of hydrocarbon molecules necessary to comply with strict volatility regulations. Ultimately, summer blend gasoline is a slightly purer product, making it more expensive to produce.

Refinery Complexity Analysis
Developed by Wilbur L. Nelson in 1960 and expanded in 1976, the Nelson Complexity index uses simple numbers to represent the cost of adding complex enhancement systems to a refinery. This relative-cost index is useful to accountants, regulators, investors and others. A baseline rating of 1.0 is assigned to a basic atmospheric distillation unit. Advanced techniques, such as coking and catalytic cracking, are given a Nelson Complexity rating of 6.0. Cost and capacity estimates can then be taken into account to determine whether or not adding new equipment can be a profitable venture.

The Bottom of Barrel index (BoB) is a newer index gaining popularity. BoB is calculated by simple division of a refinery's enhancement capacity to its basic separation capacity. Essentially, this figure quantifies the degree to which a refinery can process heavier crude oil feedstocks. To put this concept in perspective, the 2011 BoB index for the U.S. refining industry as a whole is estimated at 55%, the rest of the world's average at 21%, and the total world average (including the U.S.) at 28%.

Oil shale + heat + water + hydrogen --> shale oil