Oil & Gas class midterm (copy)

What is the difference between fossil fuels and renewables?

Fossil fuels are energy sources like coal, oil, and natural gas that formed from ancient organic matter over millions of years. Renewables are energy sources that nature replenishes at about the same rate we consume them.

What does renewable mean?

The energy source is replenished by nature at about the same rate as consumption.

Why do the slides project continued strong oil and gas demand?

Total energy demand will outpace renewables growth.

Why can renewable energy not replace every use of oil and gas?

Oil and gas products are extensively and intricately woven into modern life, and sources of renewable energy can't substitute for all existing uses of oil and gas.

What are the four gases, from lighter to heavier?

Methane, Ethane, Propane, Butane (Mice Eat Peanut Butter).

How does gas molecular weight affect energy content and value?

Heavier gases have a higher energy content (i.e., an Mcf of butane will generate more heat when burned than an Mcf of methane) and generally have a higher market value if sold as a purity product.

What can a produced gas stream contain?

Methane, heavier gases, suspended hydrocarbon liquids, and contaminants.

A portion of any suspended liquids may condense out of the gas stream at the production site as the gas cools and expands as it passes through processing equipment. This liquid is?

condensate

Why must wet, rich, or contaminated gas be processed?

prior to entering a long-haul pipeline.

What is pipeline gas mostly made of?

almost pure methane, with small amounts of heavier hydrocarbons and some contaminants.

What is liquefied natural gas (LNG)?

Almost pure methane that has been cooled to its liquefaction temp to shrink its volume (1/600th) so that it can be economically shipped by ocean carriers.

Natural Gas Liquids (NGL)

The suspended liquid molecules and liquefied gas molecules removed from the gas stream.

Why has the U.S. built new export facilities, with more under construction?

the goal is to make a profit selling cheap U.S. gas in the international LNG markets

What are the benefit and main costs of LNG transport?

Overcomes pipeline limitations. However, liquefaction is an expensive process and shipping costs can also be substantial.

Which regions are identified as the biggest LNG markets in the slides?

Asia and Europe.

The average composition of crude oil can range from?

light and thin to heavy and viscous.

Crude oil gravity is expressed in degrees using what?

"API Gravity" scale.

What is crude oil made of?

A diverse mix of liquid and solid molecules (with some entrapped gas molecules) that has liquid characteristics overall.

What does a higher API gravity indicate?

Lighter crude. The scale is counter-intuitive with heavier crudes having a lower value.

Why does light crude generally sell for more than heavy crude?

Light crudes tend to sell for a higher price because they contain more of the light-liquid molecules that make high-value products like gasoline, jet fuel and diesel.

What do sweet and sour mean for crude oil?

Low sulfur = "Sweet." High sulfur = "Sour."

Why does sulfur lower crude oil value?

High sulfur content lowers the value of crude oil because sulfur levels are tightly restricted in refined products and removal adds to refining costs.

What additional hazard is associated with hydrogen sulfide in gas?

Hydrogen sulfide (H₂S) gas is highly toxic (similar situation with natural gas: sulfur lowers value).

How do gas plants separate gas components?

Gas plants primarily use chilling to separate gas components.

What does distillation do in an oil refinery?

Refineries use a heat-driven distillation process to sort ranges of molecules.

What does cracking do in an oil refinery?

Refineries use a "cracking" process to break some of the heavier molecules into lighter, higher-value molecules.

What does coking do in a sophisticated refinery?

The most-sophisticated refineries also have "coking" equipment to break up the heaviest molecules and remove some of the carbon, which forms "coke."

How many U.S. gallons are in one barrel of oil?

Oil is measured and priced in 42-gallon "barrel" units.

How is pipeline-quality gas priced?

million British Thermal Units (BTUs).

How are U.S. gas volumes measured?

cubic-foot multiples.

What is the gas-to-oil-equivalent conversion used in the course?

6 Mcf (Thousand cubic feet) of gas is one "Barrel of Oil Equivalent" (BOE). (Measurement and pricing units can differ outside the U.S.)

What is the upstream sector?

exploration and production.

What is the midstream sector?

begins when production leaves the production site.

"Integrated" companies

companies that produce oil and gas AND refine crude oil.

Independent producers ("independents")

companies that produce oil and gas but do NOT refine crude oil.

Where does the downstream sector begin?

begins with crude oil refining. All crude oil must be refined.

Some companies specialize in?

"midstream" services (Gather & Further Process -> Trade, Transport & Storage)

Oil & gas industry midstream businesses

gas processors, pipeline operators, storage operators, marketers, tanker operators

Industry is supported by a wide range of?

contractors and suppliers

A wide variety of what serve the industry and play a leading role in several key activities, such as seismic, drilling, construction and operations

contractors and suppliers

How do integrated companies differ from independent producers?

Integrated = companies that produce oil and gas AND refine crude oil. Independent producers ("independents") = companies that produce oil and gas but do NOT refine crude oil.

What roles do Schlumberger and Halliburton play?

Schlumberger and Halliburton are contractors/suppliers.

Most producing nations have National Oil Companies (NOCs) that are mostly or entirely owned by what?

the government.

What is a national oil company (NOC)?

NOCs have varying degrees of capability, ranging from non-operators, to in-country operators, to exclusive in-country operators, to international operators (operating beyond their country borders).

Does the United States have a national oil company?

No. The U.S. does not have a National Oil Company.

Most producing nations claim ___________ ownership of oil and gas resources.

government

Who commonly controls mineral contracts with international companies in producing countries?

Any minerals contracts with international oil and gas companies are commonly controlled by oil ministries.

Are all oil-exporting nations members of OPEC?

No. Many (but not all) oil-exporting nations are members of the OPEC cartel.

What technologies do the slides credit with greatly reducing U.S. oil import dependence?

The U.S. used to be a large oil importer but is almost self-sufficient now because of unconventional oil production (horizontal drilling and hydraulic fracturing).

Which two bodies establish rules for U.S.-based, publicly-listed oil and gas companies?

both FASB and SEC.

Some of the rules apply to all companies and some apply specifically to?

oil and gas producing (upstream) activities.

What are the U.S. oil and gas accounting methods in the course?

FASB Successful Efforts Method & SEC Full Cost Method.

What methods are considered to be "GAAP" compliant although the Successful Efforts method is preferred by FASB?

Successful Efforts Method & Full Cost Method.

What is the main difference between Successful Efforts and Full Cost?

The primary difference is the treatment of exploration costs.

Which method expenses exploration costs except for successful exploration wells?

Successful Efforts

Which method capitalizes and amortizes exploration costs as part of an overall development effort?

Full Cost

SEC is heavily involved in public company reporting because of?

the Securities Acts of 1933 and 1934

What explains the SEC's heavy involvement in public-company reporting?

The Securities Acts of 1933 and 1934, the Acts passed after financial failures following the stock market crash of 1929.

Who has ultimate authority over U.S. public-company accounting and reporting?

The SEC has ultimate authority over public company accounting and reporting but relies on FASB to lead on GAAP matters, with their oversight.

What prompted expanded SEC involvement in oil and gas accounting, reporting and disclosures?

The Energy Policy and Conservation Acts of 1975 and 1976, the Acts passed following the Arab Oil Embargo of 1973-74.

The process solidified the use of the what method as an acceptable alternative?

Full Cost method

What was directed to collect oil and gas data that led to disclosure requirements still in effect today?

the SEC

What does Regulation S-K address, and which part covers oil and gas?

Regulation S-K includes requirements for information that must be included in a 10-K. (Regulation S-K addresses entirety of 10-K)

What has disclosure requirements that apply specifically to companies with oil and gas producing activities?

S-K Part 1200

What does Regulation S-X address?

Regulation S-X addresses requirements for the preparation and presentation of financial statements and footnotes in the financial section of the 10-K. (Financial Statement and Footnotes Portion of 10-K addressed by regulation S-X)

What has rules that apply specifically to oil and gas producing activities and also includes rules for the Full Cost method?

S-X Part 4-10

Where are FASB's GAAP rules organized?

Accounting Standards Codification

What is consistent with and substantially overlaps with the financial statement requirements in SEC Regulation S-X?

Accounting Standards Codification

What is the scope of ASC 932?

ASC 932 has requirements that apply specifically to oil and gas producing activities, generally referred to as the "upstream" sector ("Entities Engaged in Oil and Gas Producing Activities"). (Financial Statements, Footnotes and Supplemental Disclosures addressed by FASB ASC 932)

ASC 932 primarily pertains to?

Treatment of oil-and-gas-related costs under the Successful Efforts method

ASC 932 primarily pertains to?

"Supplemental Disclosures" that specify the presentation format for oil and gas data required in Regulation S-X as well as some information required by S-K.

What is a sedimentary basin?

A large accumulation of sediments and resulting sedimentary rock

Does every sedimentary basin contain oil and gas?

No. Oil and gas can be found in sedimentary basins, but not all sedimentary basins have oil and gas.

Why are former offshore sedimentary basins common locations for oil and gas?

Oil and gas is most commonly found in sedimentary basins that were originally formed in an offshore environment because organic debris from plankton can mix with sediments and provides a carbon and hydrogen rich organic source for oil and gas.

What is the most common type of source rock for oil and gas?

"Shale" because it is made from fine sediments like silt and clay that are best at preserving organic debris. Heat and pressure from deep burial over millions of years can turn the organic debris in shale into oil and gas.

What is porosity?

The amount of void space in rock capable of holding fluid.

Rock with high _______ is capable of holding more oil and gas within a given volume of rock than rock with low ______.

porosity

What is permeability?

The ability for fluid to flow through rock by moving from pore space to pore space.

Oil and gas will flow more easily from high-________ formations into wellbores drilled into the formations?

permeability

Can a rock contain oil and gas but still be difficult to produce?

Yes. Shale and other types of "tight rock" may have pore spaces containing oil and gas, but they have extremely low permeability so it is difficult to extract oil and gas from the rock.

The industry has traditionally not tried to produce from shale source rock because oil and gas will not flow adequately to?

"conventional" (traditional) vertical wells due to low permeability.

How do conventional reservoirs form?

A portion of the oil and gas formed in shale escapes and migrates into other porous and permeable formations such as sandstone and limestone. Trap-like structures in those formations may create accumulations of migrating oil and gas.

A portion of the oil and gas formed in shale escapes and migrates into other porous and permeable formations such as?

sandstone and limestone.

Trap-like structures in those formations may create accumulations of?

migrating oil and gas.

Why can conventional reservoirs often be produced with vertical wells?

Oil and gas can be produced from those "conventional" reservoirs with vertical wells (whereas shale source rock has low permeability, so oil and gas will not flow adequately to conventional vertical wells).

Producing oil and gas from organic shale and other types of oil and gas bearing "tight rock" has been made possible by?

The development of "unconventional" horizontal drilling and hydraulic fracturing techniques.

What technologies make production from tight rock possible?

The development of "unconventional" horizontal drilling and hydraulic fracturing techniques.

Unconventional development currently dominates?

onshore activity in the U.S. lower 48.

Conventional vertical-well drilling is dominant where?

elsewhere

How does onshore U.S. mineral ownership differ from most countries in the slides?

Almost everywhere in the world, governments claim ownership of oil and gas rights. In the U.S., the majority of onshore mineral rights are privately owned (there is also a small amount of private ownership in Canada).

In the U.S., the majority of what are privately owned? There is also a small amount of private ownership in Canada.

onshore mineral rights

However, the U.S. government and state governments have substantial ownership of onshore mineral rights and all offshore rights, so?

the federal government and many states have an important impact on access to oil and gas rights.

Why do U.S. federal and state governments still strongly affect access to minerals?

The U.S. government and state governments have substantial ownership of onshore mineral rights and all offshore rights, so the federal government and many states have an important impact on access to oil and gas rights.

Many rights and privileges come with land ownership and some of the rights can be?

separated/severed and owned by different parties.

What is fee simple absolute ownership?

Land that has all of its rights intact is said to be owned in

How can mineral and surface ownership be separated?

Mineral rights can be severed from surface rights by either conveyance or reservation.

In oil-and-gas-prone areas, it is not uncommon that the mineral estate has been what?

severed from the surface estate.

Which estate is dominant in the slides, and what right does this give it?

The mineral estate is considered to be the "dominant" estate and includes the right to use the surface as reasonably necessary to explore for, extract and transport minerals.

Oil and gas companies do not want to own surface rights, just?

mineral rights.

How do oil and gas companies most commonly acquire U.S. mineral rights?

They can buy the mineral estate to get mineral rights, and sometimes do. However, the most common method of acquiring mineral rights in the U.S. is by LEASING them.