Also called "capital expenditure" (hence CAPEX) and "capital investment". Any expenditure incurred for the performance of the operating services provided they are included in the approved budget as capital costs by the native company. These are the disbursements made for items that usually have a useful life beyond the year they are incurred. CAPEX is the sum of exploration-development and production investment totals. The capital costs may include: Drilling of wells - every tangible and intangible costs for drilling of wells, including drilling of test, delineation, injection wells, as well as the initial construction of access roads, bridges leading to the wells, Rehabilitation of wells - all the tangible and intangible costs for the rehabilitation of wells, including re-drilling or re-completion of wells, initial installation of artificial lifting equipment, changes of producing intervals, initial gravel packing, stimulations and fractures, Construction of utilities - workshops, energy and water facilities, warehouses and field roads; cost of oil piers and anchorages, treatment plants and equipment, systems of secondary and/or enhanced recovery, gas plants and steam systems, Production facilities, including the costs for fuel, hauling and supplies for construction outside the Agreement area and installation in the Agreement area and other construction costs incurred for the erection of platforms and installation of piping, wellhead equipment, subsurface lifting equipment, tubing, sucker rods, surface pumps, flow lines, gathering equipment, delivery lines and storage facilities, excluding personnel costs, Equipment - surface and subsurface production and drilling tools, equipment and instruments, barges, floating equipment, automotive equipment, aircraft, construction equipment, furniture and office equipment and miscellaneous equipment, Personnel, material and services used in aerial, geological, topographical, geophysical and seismic surveys, core drilling and other unusual surveys related to production maintenance, Certain annual costs including insurance costs, import duties related to capital items, any state, local or municipal taxes other than the corporate income tax, certificate of occupancy and rights of way, land or property rentals and the costs of any geological or geophysical information acquired, independent technical studies and independent reserve estimates reports and training of local labor and staff outside the scope of normal operations, Reasonable amount of spare parts and material inventory for capital projects, Every tangible and intangible costs above the Limit Horizon. Those tangible and intangible costs below the Limit Horizon shall not be considered CAPEX unless the production is below the Limit Horizon.

Total tax subtracted from the sum of gross revenue and tangible investment credit:
Cash Recovery = (Gross Revenue) + (Tangible Investment Credit) – (Total Tax)

Until very recently, the PSA’s in Azerbaijan included 2 important items:
Local Market Oil, LMO: the production in the field before the PSA was signed. International Market Oil, IMO: the amount of production on top of the earlier production that the new operating company achieved after the PSA was signed. LMO should be sold to SOCAR for a very reduced amount of money to be used for local consumption. IMO could be sold to international markets at international prices. This was a matter of very hard discussions during PSA negotiations, starting with plotting the above diagram indicating the decline ratio for the current production to define the LMO over the coming years. SOCAR wanted to keep LMO as high as possible, whereas the investing party wanted to keep it at a minimum.

SOCAR devised a new idea to replace the LMO and IMO concepts and called it the “Compensatory Petroleum”. Now the investing side has to agree with SOCAR on an amount of petroleum that it has to hand over to SOCAR during a time interval starting with the commence of operations in the field. It usually takes such a form: The new operating company will have to hand the compensatory petroleum over to SOCAR from 100% of its first year’s production. If that does not cover the whole amount, the rest will be taken from 50% of the following years’ productions. The first PSA including such a compensatory peroleum concept was signed between SOCAR and an international group of companies in May 2009.

The ratio of condensate in gas.

Product of corporate tax ratio and income before tax: Corporate Tax = (Income Before Tax) * (Corporate Tax Ratio)

The investor's recovery of the capital and non-capital costs the investor has undertaken from the starting day of operations, inclusive of interest at the rate of Libor plus (usually) 1%. This can be done in various ways: 1. The investor can be compensated on the basis of the volume of hydrocarbons every quarter, from and including the production date. If the investor is at the same time the operator, bonus limits can be set forth for certain oil production limits which upon reaching, the investor receives a bonus per barrel of oil produced. The following example will help clarify the matter: If Field Production: 500 - 750 Bbls/Day, then Bonus: 1.0 US$/Bbl If Field Production: 751 - 1,250 Bbls/Day, then Bonus: 2.0 US $/Bbl If Field Production: 1,250 Bbls/Day, then Bonus: 2.5 US$/Bbl 2. The investor can be compensated directly by receiving a certain percentage of the non-investing party's oil revenue until all the investment is paid back. A typical example which is a common practice in Kazakstan is the investor receiving 65% of the oil produced until the cost is recovered in a 50-50% JV Agreement.

The oil or any other hydrocarbon produced in a liquid state at environmental conditions, free of sand, natural gas and water after primary wellsite separations and including all organic or inorganic constituents, which can not be separated unless treated in a refinery.