Abbreviated "bbl", one barrel is 42 U.S. gallons of oil at 60 degrees Fahrenheit. A barrel is the most common unit used for measuring crude oil. Used as a measurement for reserves and the production of oil.
2. British Thermal Units
Abbreviated "BTU." Measurement of gas by heating content.
3. Cubic Feet
Abbreviated "cf." Measurement of gas by volume.
A million (1,000,000) BTUs.
A thousand (1,000) cf; 1Mcf = 1 MMBTU.
Describes the exploration and production phases of oil and gas - finding and producing oil and gas.
Describes the refining, processing and marketing phases.
Describes the retail and consumption phases.
Type of rock characterized as either extrusive or intrusive, depending on whether the rock solidified above ground or below ground. Includes granite, basalt - rocks that form from molten lava.
Type of rock formed through erosion and deposition. Wind, water, ice and chemicals break down existing rock into sediment that is then transported and deposited by wind, water, and glaciers. Oil and gas are generally found in sedimentary rocks. Includes shale, sandstone, and limestone.
Any rock type that has been altered by heat, pressure, and/or the chemical action of fluids and gases. Includes slate and marble.
Refers to the relative volume of pore spaces in a rock formation.
Refers to the relative interconnection of the pore spaces in a rock formation. It is a measurement of the ability of fluids to flow through the rock. The higher the permeability, the better for oil and gas production. Permeability is usually measured in "milidarcies."
A well at Spindletop struck oil on January 10, 1901. It represented a turning point for oil and gas that generated the Texas oil boom, which made the U.S. the world's leading oil producer.
15. Ferae naturae
"wild animal"; as applied to oil and gas, the basis of early legal theory which assumed that all fluid minerals flow freely below the surface.
16. Ad coelom rule aka the Heaven and Hell Doctrine
The property owner owns everything above and beneath his land (heaven and hell).
18. Rule of Capture
Common law rule of non-liability which says that there is no liability for draining oil and gas beneath a neighbor's land. The owner of a tract of land owns all the oil and gas produced from a well on his land even if it is shown that some of that oil or gas is being drained from under his neighbor's land. Qualifies the ad coelom rule. Recognized the migratory nature of oil and gas and encourages exploration.
19. Correlative Rights
An owner of oil and gas has the right to a fair opportunity to produce a fair share of the oil and gas in a common reservoir which underlies his and his neighbor's property. All owners of property overlying the common reservoir have the right to reduce the minerals in that reservoir to possession and each has the right to a fair chance to recover his fair share of the minerals in the common reservoir. Each owner also has a corresponding duty not to engage in activity which would injure the common reservoir such as drilling too many wells or overproducing.
20. Plugging and Abandonment
A depleted well or dry hole that has been (typically) filled with cement and marked, with all surface equipment removed. State regulations require that, after a well is no longer operational, the operator must seal the drilled hole completely. Many states also require that the operator post a bond in order to ensure that the well will be properly plugged and abandoned.
Steel pipe installed in the drilled hole for various purposes
a. "Surface Casing"
casing installed from the surface to below the deepest known fresh or potable water supply; installed to prevent contamination of the water supply and to prevent the hole from caving in.
b. "Flow String"/"Tubing"/"Production Casing"
casing installed to facilitate production and control reservoir pressure
of a well; end of the drilling process, down the target depth / transition from drilling to production (by installing producing equipment).
23. Dual completion
A well drilled to access formations/reservoirs at two different depths
24. Multiple completion
A well drilled to access formations/reservoirs at multiple depths
The maximum rate at which a well is allowed to produce (on a daily, weekly, monthly timetable, varying from one jurisdiction or field to another). Established by a state conservation agency.
A term used to denominate the bringing together of small tracts sufficient for the granting of a well permit under applicable spacing rules. Frequently used interchangeably with "unitization."
27. Wildcat Well
An exploratory well being drilled in unproven territory - that is where there is no production in the general area. Generally operated by small groups and companies and regarded as something of a gamble (mainly because the operations are not supported by seismic or geological data).
The joint operation of all or some portion of a producing reservoir. Frequently used interchangeably with "pooling." The combining together of several producing leases and/or several wells over a pool of oil or gas to form one large "unit" (i.e. a joint operation of all or some of a reservoir that is already producing). Usually done to comply with state requirements and for secondary recovery efforts.
29. Injection Wells
A well employed for the introduction into an underground stratum of water or gas under pressure. A substance is injected into the well to "push" previously unrecoverable quantities of oil and gas out of the other (recovery) wells in the unit.
30. Recovery Wells
Wells from which the "pushed" production resulting from the use of injection wells is removed from the field.
31. Accommodation Doctrine
Requires the mineral interest owner and his lessee to accommodate existing surface uses where reasonable alternatives are available for developing the mineral estate. Under the accommodation doctrine, if the proposed use of the surface by the mineral owner will substantially impair existing surface uses and the mineral owner has reasonable alternatives available, the mineral owner must accommodate the surface owner.
32. Delay Rental Payment
A sum of money payable to the lessor by the lessee for the privilege of deferring the commencement of drilling operations or the commencement of production during the primary term of the lease. The rule governing holding a lease by payment of delay rentals is simple. If Lessee is a day late or a dollar short in making payment, the lease terminates.
Unless clause (delay rental)
automatic termination of lease
Or clause (delay rental)
no automatic termination, but counts as a breach with compensable damages
33. Paid-Up Lease
A lease in which the delay rental is paid along with any bonuses at the time the lease is signed. The advantage for the Lessee is that they don't have to worry about missing the deadline and losing the lease if production (by whatever definition the lease provides as "production) has not commenced before the end of the primary term. The disadvantage for a Lessee is that they may be paying more for a lease than is needed if the area is found to be not worth undertaking operations.
34. Mineral Acres
The mineral interest of an individual or group expressed as the proportion of the total acreage that they hold (e.g. A owns a ½ mineral interest in 40 acres, and therefore owns 20 mineral acres [1/2 X 40 = 20]).
35. Actual Production
Majority rule for "production in paying quantities" (as opposed to "potential production" satisfying the paying quantities); rule in Texas. Paying quantities is determined under a two-pronged test developed by the courts.
Litmus test, The party urging that the lease terminate, usually the Lessor, must win both prongs of the test
Accounting or litmus test - Do operating revenues exceed operating costs over a reasonable period of time? Legal or Reasonably Prudent Operator Test - Would a reasonably prudent operator, seeking to make a profit and not holding for mere speculation, continue to operate under the circumstances?
36. Dominant Estate Rule
When there is a severance of the mineral and the surface estates, the mineral estate is the so-called dominant estate. Meaning, the surface estate is burdened with a servitude. The mineral owner (or his Lessee) has a right of ingress and egress as well as a right to use as much of the surface as is reasonably necessary to explore for and produce minerals. Because the mineral estate is dominant, the Lessee is not obligated to pay for using the surface, nor is he obligated to maintain or restore the surface in the absence of a statute or lease provisions requiring such restoration.
37. Granting Clause
The granting clause gives the Lessee the right to reasonable use of the surface for purposes of developing the minerals. It also gives the Lessee the right to explore for minerals, including drilling a well, seismic, geophysical and other activities related to exploration. The granting clause also indicates what substances are covered by the lease, as well as describing the property under the lease.
38. Habendum Clause
Also called the Term Clause, it fixes the ultimate duration of the lease - the longest possible time the lease may last. Works with the drilling and delay rental clauses to create a timeline which divides the term of the lease into two segments: primary term (fixed number of years) and secondary term (as long as oil and gas is produced from the lease).
39. Pugh Clause
A negotiated compromise, often agreed to between the Lessee who wants a pooling clause in the lease and the Lessor who does not. The pugh clause modifies the pooling clause. It provides that operations or production from the pooled unit will not preserve the whole lease. Rather, such operations or production will only preserve that portion of the lease which covers land in the pooled unit. A pugh clause, in effect, severs the unpooled acreage from the pooled acreage
40. Non-participating Royalty
A percentage share of production, or the value derived from production, which is free of the costs of drilling and producing, created by the lessor or royalty owner and borne by the lessor or royalty owner out of the lessor royalty. This royalty is paid to nonparticipating interest holders who do not share or participate in bonus or rentals, or a right to explore, or a right to execute oil and gas leases.
41. Net Mineral Acres
"Net," when used with respect to acres or wells, refers to gross acres of wells multiplied, in each case, by the percentage working interest owned by a company, individual, trust, or foundation.
42. Royalty Pooling
oil companies saying that they cannot separate out the molecules of gas to individual lands, so they take the weighted (by the proportion of the total gas sold at the specific price) average of the various prices that they are selling the products for, so that each mineral owner covered in the unit/pool receive the same per-unit price for the hydrocarbons.
43. Non-Participating Royalty Interest
Ownership in a share of production, paid to an owner who does not share in the right to explore or develop a lease, or receive bonus or rental payments. It is free of the cost of production, and is deducted from the royalty interest. A NPRI can be perpetual or it can be limited in time. It is carved out of the Lessor's interest. Since the NPRI does not relate to a particular lease, it does not end when the lease ends.
44. Landowner's Royalty
Provided by the oil and gas lease royalty clause. Typically 1/8 to 1/3, and also typically providing for separate provisions for oil and gas (with oil paid in kind by delivery to the lessor, and gas paid by monetary compensation for value) due to the physical differences in the substances. An interest customarily retained under an oil and gas lease by the person who has the power to grant an oil and gas lease and which bears no part of the cost of drilling or producing the oil and natural gas. It is an interest in production free of production costs retained by the lessor.
45. Overriding Royalty
A reservation in percentage of production royalty kept by a Lessee (or subsequent Assignee if they assign the lease). A royalty interest that may be retained by a third party as payment or investment.This interest normally bears no part of the drilling and completion expenses of the well
46. Non-Participating Royalty
A reservation by a prior landowner of royalties on any oil and gas later discovered; the non-participating royalty does not give the holder any rights to sign a lease or collect a bonus, simply to receive a portion of the production (limited by the terms negotiated by the lessor and the fraction reserved).
47. Production Payment
A share of production, free of cost of production, that terminates when an agreed sum has been paid. Like royalty, an expense-free interest paid out of a specific fraction of the production; however, unlike royalty, the production payment terminates when a specified total sum has been paid.
48. Minimum Royalty
A clause in some oil and gas leases (usually required by Lessors) that provides for a minimum royalty amount (that must at least equal the delay rental) in order for production to hold the lease. It is an obligation of a lessee to periodically pay the lessor a fixed sum of money after production occurs, regardless of the amount of production. Such minimum royalty may or may not be chargeable against the royalty ownership of future production. If the total royalty payments amount to less than the yearly rental, the minimum royalty payments make up the difference.
49. Net Profits Interest
A share of net proceeds from production paid solely from the working interest owners share. It is sometimes granted in lieu of a royalty interest.
50. Carried Interest
An interest created from an oil and gas lease that is free of some or all of the costs. The term "carried interest" has no fixed meaning, but varies in accordance with the terms of the agreement involved. In the case of a party "who goes nonconsent," the term means that the nonconsenting party "will receive none of the proceeds of the production until the parties who put up the money to 'carry' his interest receive some multiple of the costs thy have expended with respect to the carried interest." If a party is carried "to the casing point," it is free of the costs of drilling and testing, but is liable for its share of the costs of completing, equipping, and producing. A party who is carried "to the tanks or pipeline" will be free of the equipment and completion costs, and liable only for the costs of operation.
In Texas, a co-tenant has an absolute right to partition property, regardless of any inequities caused by the partition to other co-tenants. Partition is a judicial proceeding and partitions can be granted either in kind (divide the property) or by forced sale (order the property sold and divide the proceeds). This right of partition generally does not extend to non-possessory interests such as royalties.
52. Open Mine Doctrine
Under this doctrine, where the mine was opened prior to creation of the life estate, the Life Tenant is entitled to all production from the mine, as long as the prior lease remains in effect. In oil and gas executing the lease is opening the mine. It is not required that first production predate creation of the life estate. If the lease was executed prior to the creation of the life estate, the Life Tenant is entitled to all the economic benefits under the lease. However, if a lease in force when the life estate was created expires, the open mine doctrine does not apply to a new lease or an extension of the existing lease.
53. Executive Right
The right to take or authorize all actions which affect the exploration and development of the mineral estate, including the right to engage in or authorize geophysical exploration, drilling or mining, and producing oil, gas, and other minerals. Courts generally don't use this broadest definition, instead simply equating 'executive right' with the right to execute an oil and gas lease.
54. Nonparticipating Mineral Interest
This type of interest differs from a royalty in that its owner is entitled to one-half of all benefits allocable to the mineral estate under an oil and gas lease, including the bonus and delay rentals. The right to execute the lease itself, however, is held entirely by the grantor. Where the owner of Blackacre may convey away an undivided one-half interest in the minerals, retaining the other one-half interest plus the exclusive executive right, the grantee in such a transaction has received a nonparticipating mineral interest.
A "washout" is the elimination of an overriding royalty or other share of the working interest by the surrender of a lease by a sublessee or assignee and subsequent reacquisition of a lease on the same land free of such interest. An "extension and renewal clause" is a clause included in an instrument which creates an overriding royalty or oil payment out of the working interest, to protect against a washout; in effect, the clause provides that the interest shall apply and be a part of all future renewals or extensions of the lease.
56. Payout (farmout agreement)
The point in time under the performance of the farmout agreement when the farmee no longer recovers all costs of operation out of production. Generally, it is when the well has become profitable, though this is open to interpretation given the different variables and costs that may be involved with drilling operations (and the ability that the farmee may have under the terms of the agreement to drill additional wells and continue expanding operations such that the 'payout' point is delayed).
57. Exculpatory Clause
Clause relieving the operator from certain liabilities (depending on the interpretation of the particular court) relating to production operations. Depending on the jurisdiction and the specific terms of the clause, the operator can be relieved of liability from anything from negligence in the course of operations to violations of the other terms of the JOA.
58. Go Non-consent
Most JOA agreements include a "nonconsent" provision that any party can invoke with respect to all operations other than those connected with the initial well. The parties who agree to undertake additional operations must bear the entire cost of the operation. Depending upon the terms of the agreement, the party who refuses his consent to such operations may lose all interest in the new or deeper portion of the well. More commonly, however, the nonconsenting party acquires a carried interest in the operation, but is not entitled to any share of the production from the well until the operator and other consenting parties have recouped the nonconsenting party's share of the cost several times over from the non-consenting party's share of the production.
59. Split stream
One cause of imbalance among the producers in a JOA; the producers and/or their purchasers draw the minerals from the same stream from the well, but at an inconsistent or constantly changing rate and amount.
Split stream conditions
1.Nothing says that gas only goes to one company or buyer, you can have as many as you want all connecting to the well. Everyone decides which deal is best for them, can go in different directions. 2.Different pipelines operate under different conditions, different pipelines, different pressures. Gas doesn't know which direction it should go in. Almost impossible to get the gas with certainty and exact amounts to go where you want it to go.