Archive Monthly Archives: June 2011

Oil & Gas Glimpses: A day as a consultant

Cheri Gilbert, a veteran in the oil and gas industry, gives me an inside look at how she handles her day-to-day job as a consultant handling distributions.

Written in neat handwriting, Cheri Gilbert explains the monthly schedule outlined on the calendar above her desk that dictates how she’ll handle the distributions for her consulting business this month. With a big smile, she begins her narrative explaining exactly how she got a foothold in the oil and gas industry nearly 30 years previously.

Cheri, one of our Accounting Manager clients for nearly a decade with Gilbert Energy Services, has agreed to let me observe her for the morning and pick her brain with questions about how she works in the industry as a project idea for this blog.

SherWare Client Cheri Gilbert

As I climb the stairs of the restored farmhouse where she works out of on the top floor, she ushers me into her quaint office. I again explain my purpose for being there – beginning with my interest in the oil and gas industry and desire to learn how some of our clients operate on a day-to-day basis, explaining that I’m really winging this interview, against my typical journalist instincts, in hopes of seeing what comes out of it.

She smiles broadly, a gesture that I notice continues throughout my time with her in the office. No wonder she’s such a pleasure to work with. Cheri handles the distributions for three companies in the northeast Ohio area and tackles everything from data entry and disbursements to researching and reading leases throughout the month – her schedule being date driven by what her clients need and when.

An accidental future

Like many people involved in the oil and gas industry that wasn’t born into it, Cheri stumbled into the industry by accident. She started her career in the investment banking department of Babbitt Myers & Company in Pittsburgh, Pa., – a field that she said is actually similar to oil and gas.

The department eventually picked up a few oil and gas investments to handle and were responsible for raising money necessary to drill wells. It was at that point that the head of the department decided to form Langasco Energy Corporation to handle the oil and gas, taking Cheri along with him to his new company. When the company eventually sold its assets to big names like Range Resources and Atlas, Cheri was hired to integrate their assets – opening the door to her new career as a consultant.

A SherWare Champion

As an oil and gas consultant the in early 1990s, Cheri was using a DOS-based software program to handle her distribution needs or computing them by hand for new clients. She had been receiving postcards in the mail from SherWare about our new accounting product – but with only a few clients, Cheri wasn’t ready to jump into buying new software.

When she was hired to handle a new start-up company and begin working out of her home, she decided to upgrade her system to be Windows based, and try out the software she’d seen so much about in her mailbox.

As an aside, let me explain that Cheri has been one of our champion clients since purchasing our software in 2003. Not only does she love the industry she works in, but she also loves our product – which is an added bonus for us. As a client who’s been with us for a long time, if anyone wants to talk to her about our products and service – please do. She’s a wonderful resource. OK – back to the interview.

Cheri laughs and explains in a conspiratorial voice how she had to convince her husband to let her purchase the product but how she didn’t give up because she knew it would make things easier. Her enthusiasm is contagious, and as she’s telling me about her purchasing experience, I secretly wish I could bottle up her passion and sell it. Honestly, it’s that infectious.

A changing Ohio landscape

Gilbert Energy Services is in Ravenna, Ohio, the northeast corner of the state seeing a lot of action recently from the Marcellus and Utica shale peaks. Typically an area known for its Clinton drilling, the frenzy of large out-of-state companies coming in and buying up all the unleased acreage at exorbitant unheard of amounts are going to destroy Clinton drilling in the area, she says.

Life as we know it for Ohio drilling is really changing – small independent businesses can’t buy leases anywhere, she says. With these out of state companies going literally door to door signing up leases – they’re taking all the property and pitting neighbor against neighbor. Cheri’s husband runs a separate oil and gas business and as a certified professional landman is seeing some negative aspects of the industry coming out with the new shale plays.

Looking to a better future

From talking to other clients of ours in the state, I hear the same sentiment of a rapidly changing industry – that isn’t necessarily all good thanks to some unscrupulous land leasing practices. For Cheri though, the land side doesn’t define the entire industry.

She’s been in the industry a long time doing revenue distributions and she really likes what she does – she says. For her and others in the industry that she knows, her reputation in the close-knit community of Northeast Ohio is something she isn’t willing to jeopardize for anything.

“I’ll be around for awhile to see this shale run through and hopefully will still be doing distributions for clients around the area,” she says.

 

Understanding the oil and gas industry – Part 2

Exploration & Drilling

Before an oil company can actually go and explore underground for oil and gas, permission must first be obtained from two owners: the surface property owners who own the land where the exploration and production facilities will be built, and the mineral rights owner who owns the actual petroleum beneath the surface. Believe it or not, these aren’t always the same person depending on how the land was sold and the lease was written up.

In fact the United States and Canada are two of a handful of countries that allow the mineral rights of the land to be owned by private individuals or organizations instead of the government. Most countries, especially in the Middle East, have all mineral rights owned by the country’s government which is then mined by the National Oil Companies, regardless of who owns the land.

In the United States, a landman will negotiate the purchase of the exploration and production rights between the oil company and the landowners. Once the rights have been legally secured, the area is ready for drilling to see if oil really exists on the prospective land that’s just been signed.

Once the exploration and production company is ready to move forward and begin drilling, the site must be prepared for drilling. The land is cleared and leveled and access roads, if necessary are constructed. A water source is necessary for drilling, so either a local source is located or water will have to be trucked in or a water well must be dug. The final step in getting the site ready is to dig reservoir pits to hold the rock cuttings and drilling fluids and mud that come out of the ground.

Once the site is ready the exploration company will contract out the drilling work to a company who specializes in drilling and hire a rig and their labor crew by paying their day rates to accomplish the work.

Once started, drilling rigs operate 24 hours a day until the job is complete.

When a new well is drilled, the tall oil derrick that most people associate with oil and gas wells goes up. The derrick is used to hold the cables, pipe sections and other equipment used to lower the rotary drill bit into the ground.

When drilling begins, pressurized drilling fluid or mud is pushed through the hollow pipes that turn the drill bit. The drilling fluid cools the bit and moves the rock cuttings that the drill makes to the surface, as well as coats the drilled hole to prevent cave-ins.

Geologists onsite will then further analyze the rock cuttings that have surfaced to determine if oil is below ground.

Once the well has been drilled, the drilling crew removes the drill string (the pipes and rotary bit) and turns the job back over the exploration and production company, who must then decide how to complete the well based on what they’ve seen so far.

The well will either be given a production completion, if the company decides to go ahead with production and begin building the surface installations required to extract, store and transport the crude oil or a dry hole completion where the well will be plugged with cement and abandoned if there is not a sufficient enough amount of oil to justify further production.

If the well has commercial oil that can viably be produced, then the well will be completed and cased. Casing is intended to prevent the contamination of groundwater as well as protect the structural integrity of the hole. Steel pipes, which are usually 40 feet long are screwed together, placed in the hole and cemented in place to the wall. Once the cement has set, drilling continues through this new layer of casing until the next section has been drilled and the next set of casing can be inserted and cemented into place.

The pipes continue to get smaller in diameter the deeper the well is drilled since each casing pipe has to slide within the previously set casing to reach its final destination. Once the drilling reaches the pay zone, or where the oil is, this final set of casing is perforated so oil can flow up through the casing to the wellhead above ground.

Tubing, which is 2-7 inches in diameter runs through the well for oil and gas to flow through and is held in place by packers, which center the tubing in the well and prevent oil and gas from coming between the casing and the tubing.

If the well is set to begin producing, the exploration and production company will frac the well to begin inducing the oil to flow upward to the wellhead.

Once the well begins producing, a wellhead or Christmas tree, as it resembles, will be installed at the base of the well to regulate the pressure of the well and the flow of oil and gas.

An operating company will then resume care of the well to make sure it is tended to, transported to market when the battery tank is full and the upkeep is presentable and environmentally safe.

As the oil or gas is transported to refineries and markets, purchasers will then begin sending revenue checks to the operating company, who then will turn around and split the revenue between all the investors of the well.

For further reading and information on this process in greater detail, please read Oil 101 by Morgan Downey. He goes into phenomenal detail about the entire process of oil and gas, as well as history and a look at deepwater drilling that was immensely helpful as I researched this topic.

To see a 3D simulation of drilling an oil well, visit Energy In Depth’s animation here.

Understanding the oil and gas industry – Part 1

Geology in the oilfield

Geologists who do the leg work for discovering oil fields will cringe at my less-than technical description of what happens deep underground for oil to be created, but I’ll still give you a brief summary of how I understand it.

When first setting out to see if oil is feasibly underground, geologists look for three things: a source rock, reservoir rock and cap rock. If you read my previous post on Vocabulary you should know, you’ll have read the definitions for these three rocks. If not, here’s another look at what they are.

Let’s first understand what happens underground for oil to be formed.

Kerogen, a naturally occurring organic soluble material that produces hydrocarbons, is found in a source rock. Three types of kerogen produce hydrocarbons. The first one, which produces liquid oil is made of marine algae and plankton. The second, which produces liquid oil and/or gas is made of marine and terrestrial plant and animal material; and the third, which produces mainly coal is made of terrestrial plant material.

If buried deep enough in the earth, over time, these kerogen-laden rocks will be cracked with heat into smaller hydrocarbon molecules which make up liquid oil and gas.

In order for this oil or gas trapped in the source rock to be of any use though, it must first come into contact with a reservoir rock, a rock that has enough porosity and permeability for oil to pass through it and up to an oil well if tapped. Sandstone rocks are the most common type of reservoir rock that meets this criteria. Once these two factors are in place, the third rock geologists look for to point towards an oil find is a cap rock, which will trap the oil and gas below ground so that it cannot rise to the surface over time and leak into the earth – leaving no oil to extract.

To find a cap rock, geologists look for a fault line on the surface near where their prospective field is to indicate that a cap rock may be trapping oil. The whole field of geologists searching for oil is highly technical and they use a host of fascinating tools, surveys and technology to ascertain if oil could indeed be underground – that I can’t do justice here. Just take my word that these professionals really know what they are doing and it’s highly scientific…unlike my description above. You understand now why science was never a strong suit.

Next we’ll take a look at the exploration and drilling side of the oil and gas industry and what it entails.

Oil & Gas Basics: Vocabulary You Should Know

Understanding the oil & gas industry requires a working knowledge of some of the terms used. Take a look at some of the terms you’ll encounter working in the industry below.

[Editor’s Note:  Updated to add extra terms to the list]

terminology

If you’ve looked at any oil and gas reference books or even glance online at some of the websites, you’ll know the list I’m presenting is not a comprehensive one, but one that highlights some key words and phrases I think you should know. Here they are in alphabetical order.

 

Authorization for Expenditure (AFE): A document shown to investors in a well that will estimate drilling and completion costs. An AFE can then be used as drilling occurs to show actual costs versus estimated costs.

 

Annulus: The spacing between the casing and the wall of the borehole, two strings of casing or the tubing and the casing

 

API Number: A unique identifying number for all oil and gas wells drilled in the U.S.

 

Appraisal Wells: “Definition wells” drilled at locations around an existing well to determine the size and quality of the reservoir. Appraisal wells are not as common today because of the expense, and instead 3D seismic analysis is used.

 

bcf: Billion cubic feet

 

Blowout: Uncontrolled flow of gas, oil or other fluids from a well (think Deepwater Horizon Oil Spill)

 

Bonus: A cash fee paid to the lessee (person or company who grants the exploration company the right to drill on their land) of petroleum rights at the beginning of exploration (bonus for signing over the land).

 

Brine: Another word for salt water

 

Borehole: The hole drilled by the drilling bit

 

Cap rocks: Rocks geologists look for that trap the oil and gas so they cannot rise to the surface over time.

 

Casing: Pipe cemented to the wall of the drilled well to seal off the water supply and to keep the hole from collapsing.

 

Christmas Tree (Wellhead): The system of pipes, valves, gauges and other related equipment located at the ground level of a well that controls the petroleum product produced from a well after it is completed.

 

Completion: The installation of permanent wellhead equipment for the production of oil and gas

 

Compression: Term to describe when natural gas needs to be compressed to a higher pressure in order to get it to the pipelines so it can be transported to the market.

 

Concessions (lease agreements): Allow a private individual or organization to explore for and hopefully produce on behalf of the mineral right’s owner

 

Condensate: Hydrocarbons which are in the gaseous state under reservoir condition which become liquids when the temperature or pressure is reduced

 

Delay Rental: Yearly payments made to landowners during their initial agreement to compensate for delayed drilling.

 

Development wells: Wells drilled to begin production after a reservoir has been discovered and defined.

 

Division Order: A breakdown of the owners involved in the well and their decimal share in revenue and expenses, too if they are working interest owners, from an oil and or gas well.

 

Dry hole completion: Used when a well is drilled but not enough sufficient oil is there to justify production. They then complete it by plugging the hole with cement and abandoning it. See plugging & abandoning term

 

Dry well: No commercially viable oil was found in the well.

 

E & P: An abbreviation for Exploration and Production

 

Exploratory well: “Wildcat well” drilled in an unproven area to discover oil

 

Flat Rate Royalty: A flat rate paid to royalty owners in a well instead of a percentage of the production or production sold.

 

Fracturing: A method of breaking down a formation by pumping fluid at very high pressures

 

Gas window: Term used to describe the deeper level in the earth at which any remaining kerogen and the crude oil formed at shallower depths are cracked into methane.

 

Gathering: Expenses incurred to transport natural gas from the well to a pipeline

 

Geological surveys: Tool used by geologists to collect and analyze rock samples to find sedimentary rocks

 

Gravimetric surveys: Tool used by geologists to survey the ground to determine if there are any minute changes in gravity that could indicate the type of rock or fluid below ground.

 

Horizontal: Wells drilled vertically until the desired depth, then horizontal to the oil pay.

 

Independent Producer: An energy company who is usually involved in the exploration and production phase of the oil and gas industry that usually doesn’t have any marketing transportation or refining operations.

 

Injection Well: A well used for injecting fluids into an underground formation to increase the resevoir pressure in order to extract the oil

 

Infill or offset drilling: Drilling additional wells within 40 acre spacing

 

Intangible Drilling Costs (IDC): All costs incurred in drilling a well other than equipment or leasehold.

 

Intangible Completion Costs (ICC): Costs incurred with completing a well that are non-salvageable if the well is dry or not including labor, materials, rig time, etc.

 

Injection Well Completion: Completion of a well that is used to enhance recovery in which gas or liquid is pumped at high pressure into the reservoir through a separate well drilled than the production well to maintain the reservoir’s high pressure.

 

JIB Statements: A statement sent to an owner detailing the revenue earned that month from the wells they have an interest in. With JIB statements, owners are then billed for the expenses incurred that month instead of the amount being deducted automatically from their revenue earned.

 

Landman: Professional who negotiates the purchase of the exploration and production rights.

 

Lead: Geological feature of interest

 

Lease Operating Costs: Day to day costs incurred with the general operation of a well

 

Magnetic Field Survey: Tool used by geologists to survey variations of the earth’s magnetic field. Most oil is contained in non-magnetic rocks.

 

Oil Play: Investing to find oil

 

Oil Window: The term used to describe the range of depths in the earth at which kerogen is heated sufficiently to form liquid oil.

 

Operator: A company or individual who has primary responsibility for maintaining well operations and complying with state rules and regulations.

 

Optimal Rate of Production: The rate at which oil should be produced in order to produce the most from the well before it runs dry.

 

Overriding Royalty: A royalty that gets paid before working interest owners. Usually bestowed on a “Landman“, or the person who acquired or found the lease the well(s) are located on.

 

Payout: When the costs of drilling, producing and operating a well have been recouped from the sale of the products of the well

 

Plugging & Abandoning (P&A): After a well’s productive life, it is usually plugged and abandoned with cement and heavy mud. The wellhead is removed and the casing is cut off 3-6 feet underground and a steel plate is welded on top.

 

Production Well Completion: Completion of a well used to continue producing the well just drilled. The company will then build the surface installations required to extract, store and transport crude oil.

 

Prospect: When surface and mineral rights have been legally secured and the area is ready for drilling.

 

Recovery Factor: Percentage of original oil in place that someone can recover. The average is 30 percent.

 

Remote Imaging Analysis: Tool used by analysts to look at photography and radar images taken from air and satellite to look for fault lines.

 

Revenue Statement: The monthly statement sent from either the purchaser or operator to all the interest holder’s within an oil and gas property detailing the expenses and revenue charged or received each month.

 

Rent: Paid to the lessee (person or company who leased the land to be drilled upon) to retain concession if production is not taking place on the land.

 

Reservoir Rock: A rock that must have access with the source rock, sufficient porosity to hold oil and sufficient permeability to allow oil to pass through it to an oil well.

 

Royalty Interest: An interest in an oil and gas well that gives the owner the right to receive a portion of production from the leased acreage or proceeds from the sale of the oil or gas, but does not typically require them to pay any portion of the drilling or operating costs of the well.

 

Seismic Surveys: Tool used by geologists to create an image of subsurface rock by bouncing sound waves against subsurface material and measuring the time it takes to reflect back.

 

Severance Tax: A state tax levied against royalty and working interest owners based on their share of oil and gas production.

 

Slant Drilling: Wells that deviate from straight down.

 

Source Rock: “Mother rock” which is laden with kerogen, and is a solid dark waxy rock

 

Spud In: To begin drilling the well

 

Step-out Drilling: Additional wells outside the standard 40 acre spacing

 

Step-out Well: A well drilled outside a proven oilfield to determine if production can be expanded.

 

Subsurface Trespass: Using slant drilling to put a well bore under a neighbor’s property

 

Surface Reclamation: The restoration of the surface around a well site after the well is completed

 

Tangible Completion Costs: Lease and well equipment costs incurred from completing a well.

 

Tangible Drilling Costs: Actual costs of drilling equipment.

 

Vertical Wells: Wells drilled straight down

 

Working Interest: An interest in an oil and gas well that shares the expense associated with drilling, completing or operating a well, as well as the share in the revenue made on the well

 

Workover: Remedial work to the equipment within a well, the well pipework, or relating to attempts to increase the rate of flow

 

Want to learn more than just the definitions? Check out our free ebook that walks you through the basics of oil & gas accounting below:

 

Accounting 101 E-Book

OOGEEP director gives insight for educating public on value of oil, gas industry

When most people in the Ohio oil and gas industry hear OOGEEP, they probably associate it with Rhonda Reda – and for good reason. Reda, executive director of the Ohio Oil and Gas Energy Education Program, has seen the program grow into a nationally-recognized education initiative –starting more than a decade ago when she was volunteering her time on the side to help get new program off the ground.

Since we had been discussing throughout May how those of you involved in the oil and gas industry can help educate the public on the value of our industry, here’s some tidbits from Rhonda on what exactly OOGEEP does – arguably one of the best public education initiatives the industry has – and some question and answers from our interview.

OOGEEP was originally formed in 1998 as an extension of the Ohio Oil and Gas Association with the intention of providing education materials, curriculums and workshops for schools in Ohio.

With science scores at all-time lows, the industry wanted to help schools improve those scores, as well as have the opportunity to encourage young scientists to pursue careers in the oil and gas industry.

Today, since the organization has grown to stand on its own – it focuses on three things: curriculum, training and scholarships.

OOGEEP has created its own curriculum to help fill the void in science that teachers across the state literally scramble to attend. Registration for the workshop that begins Wednesday in Marietta, Ohio, sold out in less than two weeks.

The curriculum, which is provided at no cost to teachers who attend the workshop, meets not only state and national standards but was also developed by teachers. During the workshops, teachers receive classroom resource materials, supplies, lesson plans, CEU credits and the opportunity to learn hands-on how the industry is connected to science.

In addition to helping teachers meet science needs in the classroom, OOGEEP has also made Ohio the first state to have an emergency response program for fire departments.

“Because there aren’t a lot of emergencies in Ohio, a lot of people don’t know we even have an oil and gas industry,” Reda said.

The curriculum created by industry leaders, firefighters and the Ohio Department of Natural Resources meets state and national fire standards and provides intense workshops to train firefighters with classroom and hands-on training for how to handle live burns of crude and natural gas emergencies.

In the decade since its inception, the emergency response program has helped firefighters from 650 fire departments in 33 Ohio counties and 7 states be trained on how to handle oil and gas fire emergencies. Those involved in the program are also helping other states set up similar programs.

OOGEEP also supports students with a passion for science by providing awards and scholarships. The organization works with the Ohio Academy of Science to award 16 awards at the state science fair each year. The projects students create are awarded based on STEM – science, technology, energy or math topics.

“I like to compare the state science fair to a state athletic competition,” Reda said. “This is a competition for the best and brightest science kids, and we want to encourage them to pursue careers in this industry.”

Reda said the first science fair winner that OOGEEP awarded actually works for the organization today.

Some of the Science Day award winners from this year have projects that include: “The Best Oil Absorbent Clean-Up Analysis,” “The effect of Motor Oil on the Oxygen Production of Freshwater Plants,” “Simulating the Oil Spill: Cleaning Feathers Effectively,” “Is the Energy from a Renewable Biofuel Equivalent to the Energy in the Same Amount of a Nonrenewable Fossil Fuel?” and “Will Oil Change Our Weather?”

OOGEEP also awards annual scholarships at a college level for students who either live in Ohio or attend an Ohio college or university. Students must apply for the scholarships and they can be renewed all four years while they are in school.

Now that you know a little bit about OOGEEP, let’s hear from Rhoda how it started.

Q: How did you get started in the oil and gas industry?

A: Quite by accident. I lived in Marietta and worked for a small producer at the time and then when my family moved to Columbus I stayed in the industry. I served on several committees with OOGA. While I was in southeastern Ohio, I fell in love with the people in our industry and the science of what we do. We really have a great industry here in Ohio.

Q: I attended the Ravenna Tea Party back in February where a client of ours spoke, and you were also there. How often does OOGEEP participate in events like that?

A: I’ve given 36 speeches in the last three months at Tea Party events. There is a lot of propaganda out there in regards to our industry, so we give a lot of public presentations like at the tea parties and for private groups and we sit down with the media to help them understand how our industry really works.

About 95% of the people who attend these events walk away learning that we are a very technical and precise industry – and they are upset that they were protesting things that they didn’t understand or were misinformed about.

Q: What is the most important part about your job?

A: Helping get factual information to the general public and local communities about what we do as an industry. It’s important for us as an industry to be able to provide solid science education in the classrooms and for us to be allowed to be good corporate sponsors through these science awards and scholarships.

Our current workforce in Ohio is also trained in areas of safety – and that’s something we offer free for the industry.

Q: So how are you guys funded if you offer all these things free?

A: I had a feeling you were going to ask that next. We are funded through a check-off program like the Eat Beef or Drink Milk program you’re probably most familiar with that is also funded that way.

We are funded 5 cents for every barrel of crude oil that is produced in the state and 1 cent for every MCF of natural gas. It all goes into a fund that is voluntarily funded by Ohio’s oil and gas producers. No tax dollar goes into any of our programs.

Our Foundation is funded through donations by businesses in the state, which is how we fund our scholarships and awards.

Q: What has the reaction been from the public with what you do?

A: The general public is happy with our public outreach programs and excited that we educate our students and firefighters at no taxpayer expense. Once they learn about what we’re about, they see that the industry really does try to be good corporate stewards and help the community they are in.

Q: What has been the hardest part of your job?

A: Not really having anything to go off of originally. When we started OOGEEP, we started everything from scratch. We had no guidelines on how to create curriculums and training and class materials – we established those ourselves. But I can’t even say that it’s been the hardest part because it’s been so exciting to see every program grow from the beginning.

I guess I would change it to be that we can’t keep up with the demand for our workshops and public presentations.

Q: How many people do you employ?

A: There are three of us on staff.

Q: Wow. No wonder you can’t keep up.

A: We also have a great network of volunteers without which we wouldn’t get everything done that we do, and the two other ladies on staff in the office are just incredible.

Q: How would you recommend or encourage others in the industry to get involved?

A: One, I would say to join our board or be a volunteer for one of our public outreach programs. We always need people in the industry to help. Two, you can help us out at large tradeshows or public events and three; financial support is always helpful as well.

As far as encouragement for how you can do it on your own, we have factsheets on the economics, energy and environmental benefits of our industry that we’ve researched and developed that you can pass out to those you know, or look at to get a good talking point.

It’s so important that we make sure the industry is giving a clear and consistent message to the public on what are values really are and not let the media and others talk for us.