Oil & Gas Investing 101: Unlocking the Basics for New Investors

Oil & Gas Investing 101: Key Terms Every Sophisticated Investor Should Know

A Wealth From Wells Educational Guide

At Wealth From Wells, we believe informed investors make better decisions. Whether you’re just beginning your energy investment journey or refining your strategy, this glossary introduces essential oil & gas terms—organized for clarity and practical application.

Section A: Well Types & Drilling Strategy

Developmental Well
Drilled in a known producing area to tap into proven reserves.
Low risk; used to expand production in existing fields.

Exploratory Well
Targets areas with limited or no existing production to discover new reserves.
Moderate to high risk; potential for significant upside.

Wildcat Well
A form of exploratory well drilled in completely unproven areas.
High risk, high reward; often the first test in frontier regions.

Infill Well
Drilled between existing wells in a developed field to improve recovery.
Used to optimize field performance.

Step-Out Well
Drilled just beyond known reserves to test the potential extension of a field.
Moderate risk; may validate additional drilling locations.

Recompletion
Modifying an existing well to access a different formation or improve flow.
Cost-effective method to increase output without drilling a new well.

Horizontal Well
A well drilled vertically and then extended laterally through the reservoir.
Maximizes contact with the productive zone, especially in shale plays.

Vertical Well
A well drilled straight down into the formation.
Simpler and lower-cost, but less efficient in unconventional reservoirs.

Section B: Ownership Structures & Revenue Models

Working Interest (WI)
Ownership stake that includes rights to production and responsibility for operating costs.
Offers full economic exposure—both gains and expenses.

Non-Operated Working Interest (Non-Op WI)
You share in revenues and costs but do not control day-to-day operations.
Common among passive investors seeking exposure without operational duties.

Royalty Interest (RI)
Entitles the holder to a portion of revenue without any cost obligations.
Lower risk; paid off the top before expenses.

Net Revenue Interest (NRI)
The percentage of production revenue an owner receives after deducting royalties and burdens.
NRI = WI × revenue interest factor.

Joint Venture (JV)
A partnership between two or more parties—often operators and capital providers—to jointly develop oil & gas assets.
Risk, cost, and reward are shared; terms vary by agreement.

Energy Fund
A professionally managed investment vehicle (often private equity or limited partnership) that pools capital to invest in multiple oil & gas projects.
Offers diversification but less transparency and control than direct ownership.

Section C: Reserves, Risk, and Performance

Proved Developed Producing (PDP)
Reserves from wells that are actively producing oil or gas.
Cash-flowing and considered the lowest-risk reserve category.

Proved Developed Non-Producing (PDNP)
Reserves from wells that are drilled but not yet producing.
Awaiting infrastructure or additional work before production begins.

Proved Undeveloped (PUD)
Reserves confirmed to exist but requiring new drilling to produce.
Higher future potential; not yet generating revenue.

Decline Curve
A projection of how a well’s production rate will decrease over time.
Used to forecast future cash flows and estimate asset lifespan.

Section D: Operational & Engineering Terms

Fracking (Hydraulic Fracturing)
A process that uses pressurized fluid to fracture rock and release hydrocarbons.
Essential for producing oil and gas from shale and tight formations.

AFE (Authorization for Expenditure)
An estimate of costs and required investor approval for drilling or project development.
Used as a budgeting and approval document.

Lease Operating Expense (LOE)
Ongoing costs to operate and maintain a producing well.
Includes labor, maintenance, utilities, and equipment.

Spud Date
The date on which drilling operations officially begin.
Marks the start of project execution.

Completion
Preparing a drilled well for production through casing, perforation, and often fracking.
Final step before a well begins producing.

API Gravity
A measure of crude oil’s density relative to water.
Higher API gravity indicates lighter, more valuable oil.

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