Oil and Gas Department Job Functions
Their job is to find new sources of oil and gas in deposits in certain types of sedimentary rock in a very limited number of available areas. They have to be as accurate as possible; otherwise, they will be drilling very expensive dry holes. Since modern technology has developed sophisticated tools and techniques that increase their accuracy. It is logical that the oil and gas industry knows that the best place to look for oil and gas is where it has already been found in known hydrocarbon areas. The focus is also limited to areas where existing, producing operations previously exist since the organizational infrastructure is already in place. By doing this, they can evaluate information from existing wells, for instance, by comparing logs and their formations from nearby wells to better understand the rock strata. There also might be some down-hole rock samples from well cores. All of this information from multiple wells that are nearby can be correlated to help predict what lies in between and around an area of interest. You can spot this very easily when you walk into a room and you see logs hanging on the wall with the formations all lined up giving an extremely good idea what probably lies in the area of interest. If they go into frontier areas, they will usually be drilling what is called the industry calls wildcat wells since they are high risk with potential of finding richly rewarding large, new discoveries. This can be more easily done by: 1) starting with purchased specialized satellite photos for a large surface view, 2) using aircraft that take gravity and magnetic surveys and 3) a field study of exposed rock and other surface features. This can be done over a very wide area at a reasonably low cost. Seismic in smaller areas can be used by using geophysical contractors who set geophone sensors at the surface to detect the reflections of the acoustic waves that pass between rock layers and identify where there is a change in rock characteristics causing only some of the waves to be reflected back to the surface. The data is received by a truck with seismic recording equipment which stores the information so can be later computer processed to show underground images that show the structure of the layers of rock. It also will show the size and outside boundaries which limit the critical migration of oil and gas traps. In the past, there was only a 2D seismic; now, a more expensive 3D grid has been developed which provides a much better analysis. Depending on the location, the terrain and the size and type of the survey, seismic acquisition and processing can cost millions of dollars. One of the advantages of owning this product is the availability of selling and reselling all or parts of the seismic to other oil and gas operators. Even old seismic can be sold since the data can be reprocessed to bring it more up to current standards. Areas are divided into what is called prospects which can be sold and/or developed. Shale areas, even if they are good quality, do not compare to conventional oil and gas areas; so, it has to be developed by using horizontal drilling and multi-stage, hydraulic fracturing.
Geologists have been focused primarily on the history of rock formation, characteristics, geological studies, mapping and well monitoring.
Geophysicists have been focused primarily on physics, computer based modeling and geophysical analysis. They study Earth features depending on gravity and magnetic and seismic information while using computers for modeling and calculations.
The land department handles the leases and agreements which allow the oil company to conduct the drilling of the wells. Ownership records make sure that everyone is paid the right amount. Landmen go to the courthouse to look at the actual land records in order to determine who owns the mineral rights and determine if the minerals have already been leased to someone else. If they have been leased by someone else, they still can be purchased or a farmout arrangement can be arranged. The chain of ownership will have to be traced back as far as need; copy key documents; and make entries on a form called a run sheet which will be reviewed later by an attorney issuing a title opinion. They acquire the mineral rights from the mineral owners using a lease to acquire the rights to develop the minerals. The entity leasing the mineral rights will pay the mineral owner an upfront signing bonus plus a royalty percentage of the value of the oil and gas produced. There are challenges in obtaining leases. The landowner and mineral owner rights might have been divided and are now separate; so, knocking on the landowner’s door will not work. Also, families multiply in size and move away; so, instead of contacting one person, you might have dozens to track down. Sometimes the courthouse records have not been updated to reflect changes in ownership. Some will sign and some will not sign. A surface use agreement needs to be signed with the landowner if they are not the mineral owner. The landowner should be paid for damages for land use and to avoid any future disagreements. Easements will have to be arranged to allow pipelines to cross other properties. Arrangements and payments will have to be made for the use of cattle guards, fencing, gravel and water.
A title opinion is prepared by the attorney based on documents and the run sheet form prepared by the landman to make sure the mineral owners own the minerals. The title opinion identifies any weakness or problems with the chain of ownership requiring the landmen to cure and resolve any outstanding issues.
Lease & Title Analyst
There are many agreements that the lease and title analyst must control: curative documents, dirt usage agreement, easements, joint interest agreements, leases, non-consents, payouts, right of way agreements, surface use agreements, title opinions, unitization agreements, water usage agreements and other agreements. These documents are scanned so others can access them while maintaining careful control of the original documents. It is important to note that they maintain a calendar of payments due so that checks can be issued. The analyst specializes in the rules, terms and agreements that govern oil and gas exploration agreements. Analysts manage and interpret various technical provisions in the contracts signed by both land owners and oil companies to assure the understanding of the mutual rights of the parties under the agreements. Lease analysts are critical to the oil and gas industry since they are experts at the complexity of controlling, managing and interpreting the agreements and their important terms of leases signed with the mineral, royalty and property owners. The terms of a simple lease are fairly uniform, written by and for the operator who has a conflict of interest. However, the royalty owners are getting wiser and smarter every day by getting professional help adding an attachment to the lease which gives them additional and better rights, e.g., the right to perform an audit of the payments received by the oil company.
Divison Order Analyst
Division orders list everyone that has an ownership in a well or a lease. It lists what kind of interest they have and their percentage interest. They use curative documents and title information to set up division orders which is verified with the attorney’s title opinion. Division order information is then sent to all interest owners for verification and signature. The accounting department will use the ownership information to allocate expenses and revenues. Expenses will be invoiced by the joint interest department charging non-operator partners for their share of cost and the revenue department will pay the net revenues to the right ownerships. The Division Order has the 1) oil and gas company’s name, 2) producing property’s legal description, 3) what kind of interest they have (mineral, royalty or working interest) and their net revenue decimal interest (NRI). It might be 3-6 months from the time a well is completed to the time you receive a division order.
Contracts are the start and foundation of most working relationships which used to be based on a handshake deal. Once you have the contract signed, everyone knows what is required of them and the work can confidently begin. These are used heavily in procurement. The contract administration retains electronic and physical copies of the contracts. Suppliers who are used heavily on a regular basis will normally have a contract with the oil company and the important attachments, e.g., price lists. This is important since a contract is a fixed reference point with the usual terms and conditions so that a new contract does not have to be repeatedly re-negotiated for every purchase. New suppliers are checked out in advance so that they can be added to an approved vendor list so future invoices can be paid. A master service agreement (MSA) is used for supplier services and includes terms and requirements, e.g., the requirement for the vendor to carry a minimum insurance to cover any liabilities as well as supplying a certificate of insurance.
The procurement or purchasing function acquires the materials and services from suppliers for the oil and gas company. They have to develop relationships and contacts which help make sure a supply is available when and where needed and at a reasonable price which requires coordination of the purchases. Vendors are considered partners where both the oil company and the vendors mutually benefit. A purchasing department can have only one person; however, that might be lacking in internal controls. Larger companies divide their purchasers into categories to assure better expertise in important areas resembling the drilling, completion and production groups and functions. Better pricing can be obtain by buying in quantity for multiple offices and oil fields. When there is a shortage, larger acquisitions can made to make sure there are no interruptions, for instance, a rig has to shut down since there is no casing available. Supplier arrangements and contracts will probably be signed and in effect for several years. Purchasing can be based on competitive bidding or direct negotiations. Many times, prices are based on an agreed price schedule or a percentage of the supplier’s published price list. Using a percentage allows the published price list to stay intact without having to republish hundreds of pages every month. Buyers and purchasing agents and procurement specialists assist in placing large orders. Procurement must require a strategic system in place with internal controls to protect the oil and gas company so employees cannot order anything at random since there are too many potential problems that can be easily avoided. A short list of problems are: abuse, bribes, conflicts of interest, kickbacks, falsified transactions, purchase of items already in stock purchased at a discount rate, replacing an item that can be repaired, incurring additional and unnecessary expenses and waste. An authorized approval system must have segregation of duties for requesting, ordering, receiving, approving invoices and making payment. There must be verification and supporting documentation at key control points to support the internal controls. It should establish who has dollar limits on: authority to make purchases and invoice approval authority. The larger the amount, the higher the person must be in the organization. If an employee wants to buy an item, a purchase requisition must be submitted which has all the necessary information. It must be signed by a manager. If the item is expensive, competitive bids must be obtained which limits vendor partiality. A request for proposal (RFP) must be issued to buyers. The best choice is awarded. A purchase order or service order is then submitted to the vendor for confirmation. The vendor is required to note the purchase or service order number on their invoice so the invoice can be compared to the purchase or service order by the accounts payable department for price and quantity. If there is a difference, research and a potentially higher approval is required.
This function controls the receipt, stocking and distribution of the materials and equipment. An inventory of key items must be maintained and warehoused for field use in strategic locations. Maintenance repair and operations (MRO) supplies are required and stocked in order to make sure they keep operations running. Many items are ones that have to be ordered in advance or items they have to buy in large quantities. Spare parts are stocked and items that can be re-used, like pumping units and casing, are re-stocked. The system lets you know what is in stock and what needs to be ordered to avoid running out of stock and having to do an emergency order. The cost of the items are also tracked in the system and charged to the receiving location.
This function is responsible for the efficient movement of materials to the receiving location and to the oil and gas field. When supplies and materials are delivered to the receiving locations, they have to be inspected for damage and shortages. The delivery ticket, with the purchase order number, has to match both what was delivered and the purchase order. This information is entered into the system so it can be referenced by any of the other internal control point personnel.
Reservoir Engineers determine how much oil and gas is in a reservoir’s rock pores in a target area; and how much and how quickly the oil and gas can be recovered. They develop reservoir models which include seismic data, well logs and production history. This helps them determine where, how many and what types of wells will have to be drilled to economically remove the oil and gas. They prepare estimates of the remaining oil and gas reserves remaining in the formation for reporting purposes to management and investors.
Drilling Engineers prepare the AFE’s which will be approved by management and working interest owners. They will arrange for the necessary location preparation. They design the necessary procedures that will be required and well bore width and depth using various casing strings and tubing. They will coordinate and oversee the drilling of oil and gas wells which requires drilling downhole for miles, hitting a target and remaining in that target horizontally. This requires drilling through formations that can easily cause problems, e.g., high pressure zones that can blow out and destroy the rig. Each section of casing will require a smaller diameter of pipe as the well is deepened. They arrange for the equipment (blowout preventer, cattle guards, Christmas tree and rig), materials (bits, cement, diesel fuel, drilling fluid mud and water) and services (BOP testing, casing running, coring, deviation surveys, cuttings, electric logging, mud logging, salt water disposal and saltwater disposal well) and rentals (BOP’s, drilling tools, mobile homes and tanks). All of this activity requires the drilling engineer efficiently coordinate and run the operation on a tight schedule so that vendors are not standing around or charging for down time. During the drilling activity on location, the rig company prepares a tour report and the company man prepares a daily drilling report. Cement is pressured between the outside of the casing and the borehole. The casing provides structural integrity to the newly drilled wellbore.
Completion Engineers complete the well after the well has been drilled so it can be produced. They determine what type of Christmas tree the well will require. They have to determine where to perforate the bottom-hole casing string so the oil and gas can flow up-hole from the reservoir. They design and arrange for the necessary stimulation, e.g., acidizing and fracturing the reservoir rock to cause and accelerate the flow of oil and gas from the reservoir. In many wells, the natural pressure of the subsurface reservoir is high enough for the oil or gas to naturally flow to the surface.
Facilities Engineers design and oversee the installation of the production processing facilities after each well has been completed by the completion engineer. They design the flow line layout to collect and separate the production into oil, gas and water. They design and arrange for: control systems, meters, separators, tank storage facilities, pipeline connections, test facilities, utilities and water disposal facilities for multiple wells.
Operations and Production Engineers receive the well after the facilities engineer has installed the necessary equipment to handle the flow of the well. Afterwards, the engineer will analyze well performance, while maintaining and increasing production flow. They recommend modifications, maintenance and repairs to existing wells and production facilities. Once a well stops flowing on its own, he will have to arrange to have a pumping unit installed on the well for artificial lift. The size of the pumping unit will depend on the depth of the well. The deeper the well, the more sucker rods are required and the greater the weight that has to be lifted. If a well has to be repaired it usually requires a workover rig (also known as pulling unit, completion rig or service rig) which is a much smaller rig and a lot more economical than a large drilling rig. Many times a rod might break in the rod string or the bottom-hole pump might stop working. This requires removing the rods from the well to do the work
Petrophysicists conduct well logging supervision, log analysis and interpretation, integration of log data with lab data, computer analysis of logs, seismic modeling, synthetic seismograms which requires the reconciliations of log data with geological, geophysical and exploration prospects, field studies and simulations, reserves estimates.
Accounts payable accountants pay the vendor invoices after making sure the vendors are on the approved vendor list and they have a matching purchase or service order and receipt of goods. If the invoices are not coded in the field by the engineers, they are responsible to code the invoices to the right cost center based on the accounting code and to the right well. Obviously you don’t want to charge one well’s expense to the wrong well which has different working interest owners. You don’t want to charge casing to lease operating expense.
Joint interest accountants invoice monthly the Non-Operator, working interest owners for their share of costs incurred on the oil and gas properties and wells operated by the Operator for their mutual benefit with joint interest billings. This is based on a joint operating agreement which allows the Operator to invoice accordingly. This function can also review joint interest billings from other operators.
Financial accountants consolidate the accounting results from all the operations and then prepare quarterly and annual financial reports that go to the investors. One of the products in an annual report that is audited by the outside auditors. Annual reports have: management discussion, financial statements and supplemental disclosures. Quarterly 10-Q reports and Annual 10-K reports are filed with governmental regulatory agencies.
General accountants handle monthly journal entries and the month closing for financial statements.
Fixed asset accountants handle the oil and gas company’s property, plant and equipment to capitalize the cost as capital expenditures so that it can be partially expensed annually as depreciation for tax purposes. If a well is a dry hole, it is all expensed during the year drilled. If the well is a producer, the costs are capitalized. The alternate accounting method is full cost accounting.
Tax accountants calculate the amount of taxes the oil and gas company report in the financials and the amount due the government for the reporting period. There are many rules that must learned and applied.
Revenue accountants are responsible for reporting both production volumes and net revenue dollars to the revenue and mineral-rights, royalty owners on a monthly basis. Monthly production volumes have to be reported to the state regulatory agencies and production taxes on sales. There can be multiple wells that produce and commingle production through one meter into a central processing facility; so, production by well will be based on theoretical-production, calculation estimates based on periodic, production tests on the individual wells.
They make sure the company’s processes and procedures are set up to protect company assets. They evaluate all departments and test for compliance which they prepare a report findings to management and to audit committee on the board of directors. Many companies use is as a training ground since the new employee gets to see all aspects of a company’s infrastructure. The biggest mistake is the ignorance of using them for joint venture auditing of other operators where millions of dollars can be proudly missed and lost. You want only a seasoned oil and gas auditor.
Oil And Gas Auditor / Joint Venture Auditor / Joint Interest Auditor / Copas Auditor / Joint Operating Agreement Auditor / Revenue Auditor / Royalty Auditor / Minerals Interest Auditor
All of these important titles have mostly the same function which is an attempt to make sure the operator has followed the agreements that they usually themselves have authored. However, the agreements can have changes, addendums, additions and/or supplements which make it basically impossible for many deviations to be loaded into the computer to comply with the contractual intent. Also, when millions of dollars are involved, it is an intelligent and prudent policy to at least have someone audit the expenditures. Malone Petroleum Consulting has an alphabetical list of over 5,000 ways the investor can lose money in the oil and gas industry. "Let the buyer beware."
0347 AD Is the earliest known time when oil wells that were drilled in China.
1264 AD Marco Polo visited the shores of the Caspian Sea and saw oil being collected from seeps.
Cable tools were use in the past to drill by dropping the tool repeatedly into the hole to break the rock.
Rotary drilling replaced cable tools by using the drill pipe to turn a bit that is cooled by mud.
Enhanced recovery uses water flooding (with injection wells), steam flooding and CO flooding to increase the reservoir pressure which provides a sweep effect to push oil from the reservoir to the well bore. There are both secondary and tertiary recovery methods depending on the best available method to extract the oil.
An abandoned well can be converted to a water injection well, but old wells are many times not mechanically stable, and therefore, not cost effective or environmentally safe.