Terms/Definitions

A

ABANDONED WELL – A well no longer in use; a dry hole that, in most states, must be properly plugged.

ABSTRACT OF TITLE – A collection of true copies of all of the recorded documents that effect the title to a tract of land. A “Complete” abstract will contain full and complete copies of all recorded instruments, and cover the period of time commencing with the sovereignty of the soil down to current date.  A “Bob tailed” abstract will contain summaries of the instruments and may cover designated dates.

ACCRETION – The imperceptible and gradual addition to land by the slow action of water.  The washing up of soil is often called avulsion, although it is a variety  of accretion.

ACIDIZING A WELL A technique for increasing the flow of oil from a well. Hydrochloric acid is pumped into the well under high pressure to reopen and enlarge the pores in the oil-bearing limestone formations.

ACID TREATMENT – A refining process in which unfinished petroleum products such as gasoline, kerosene, diesel fuels, and lubricating stocks are treated with sulfuric acid to improve color, odor, and other properties.

ACKNOWLEDGEMENT – A formal declaration made before a notary public officer (notary, judge) by a person who has executed a document, and stating that it is his/her voluntary act and deed.

ACOUSTIC LOG – A generic term for a well log that displays any of several measurements of acoustic waves in rocks exposed in a borehole, e.g., compressional-wave transmit time over an interval (sonic log) or relative amplitude (cement bond log).

ADVERSE POSSESSION – Obtaining title to land by taking possession of the land and staying in possession for a certain number of years as set by law in each jurisdiction.

AFFIDAVIT – An instrument in writing by a sworn witness that recites certain facts as true.

AFFIDAVIT OF PRODUCTION – An instrument describing a lease that is usually executed by the lease owner and recites that the required contingency to prolong the lease by production or operations has occurred.

AFTER ACQUIRED TITLE – Doctrine by which the title of real estate, previously unsuccessfully transferred because of lack of possession by grantor, automatically passes to the Buyer/Grantee upon acquisition by the Grantor.

AFTER PAYOUT (APO) – The point at which a well has paid out all costs to drill, complete, and produce.

AMINE – Organic base used in refining operations to absorb acidic gases (H2S, COS, CO2) occurring in process streams. Two common amines are monoethanolamine (MEA) and diethanolamine (DEA).

AMINE UNIT – A natural gas treatment unit for removing contaminants (H2S, COS, CO2) by the use of amines. Amine units are often skid-mounted so they can be moved to the site of new gas production. Gas containing H2S and other impurities must be cleaned up before it is acceptable to gas transmission pipelines.

APPRAISAL DRILLING – Wells drilled in the vicinity of a discovery or wildcat well in order to evaluate the extent and the importance of the find.

AREA OF INTEREST – The area immediately surrounding a successful well in which the investors (in the good well) have an implied right to participate in any future wells drilled by the same operator.

ARTIFICIAL LIFT – Pumping an oil well with a rod, tubing, or bottom-hole centrifugal pump may be termed artificially lifting crude oil to the surface or doing so by mechanical means.

ASSIGNEE – The recipient of an interest in property or in a contract, including oil and gas lease.

ASSIGNMENT – In oil and gas usage, assignment is a transfer of a property or an interest in an oil or gas property; most commonly, the transfer of an oil or gas lease. The assignor does the transferring and the assignee receives the interest of property.

ASSIGNMENT CLAUSE – A standard clause in a contract, including a lease, allowing free transfer of an Assignor’s interest.

ASSIGNOR – The person or entity/company that transfers an interest in property or in a contract, including a lease.

ASSOCIATED GAS – Gas that occurs with oil, either as free gas or in solution. Gas occurring alone in a reservoir is unassociated gas.

ATTIC OIL – An unscientific, but descriptive term for the oil above the borehole in horizontal wells; oil in the top few feet of a productive interval which will gravitate or be pressured into the horizontal drain hole.

AUSTRALIAN OFFSET – A humorous reference to a well that is drilled miles away from proven production.

AVULSION – The washing up of soil onto land, usually by a sudden and unexpected change in a river stream by flash flood. A form of Accretion.

B

BACK-IN-PROVISION – A term used to describe a provision in a farmout agreement whereby the person granting the farmout (the farmor) has the option to exchange a retained override for a share of the working interest

BARREL OF OIL – In the U.S. 42 U.S. gallons of oil at 60 degrees Fahrenheit. In Canada, 35 Imperial gallons.

BASKET PRICE – The blanket or average price of crude oil on the world market. For example, the basket price of $18.00/bbl. could mean average price of average gravity. Lower-gravity crude with high-transit cost would bring less than $18.00, and conversely, higher gravity crude with low sulfur and close to market would be a premium – a basket of crude oils of differing gravities, sulfur content, sweet and sour.

BATTERY – Two or more tanks connected together to receive oil production on a lease; tank battery.

BEFORE PAYOUT (BPO) – Point before a well has reached the payment of costs to drill, complete, and produce.

BEHIND THE PIPE – Refers to oil and gas reservoirs penetrated or passed through by wells, but never tapped or produced. Behind the pipe usually refers to tight formations of low permeability that, although recognized, were passed through because they were uneconomical to produce at the time. Today, however, with the growing scarcity of oil and high prices, many of these passed- through formations are getting a second look by producers.

BENEFICIAL INTEREST – The fraction or percentage of production allocated under a unit operating agreement to a particular party in interest. Further, the proportion that the net acreage of a party’s committed working interest (net after deducting royalties, overriding royalties, production payments or other interest burdening the working interest) bears to the total net acreage of all of the committed working interests of all the parties to an agreement.

B.H.T. – Bottom-hole temperature. In deep wells, 15,000 feet and deeper, bottom-hole temperatures are above the boiling point of water, ranging up to 400 degrees Fahrenheit. At these depths and temperatures, water-base drilling muds cannot be used, only oil-based.

BIOGENESIS – Formed by the presence or the actions of living organisms, for example, coral reefs and atolls. Biogenesis is also the theory that all life is derived from previously living organisms.

BIT, ROTARY – The tool attached to the lower end of the drillpipe; a heavy steel head equipped with various types of cutting or grinding teeth. Some are fixed; some turn on bearings. A hole in the bottom of the drill permits the flow of drilling mud being pumped down through the drillpipe to wash the cuttings to the surface and also cool and lubricate the bit.

BIT, SPUDDING – A bit used to start the borehole; a bit that is some variation of the fishtail or drag bit, one used in soft, unconsolidated, near-surface material.

BLINDPOOL – Money put into a drilling fund that is held by the fund managers until likely prospects for drilling are found or come along. The rationale for the blind fund is that with ready money, the fund managers can act quickly when good opportunities for investment arise. Blind fund money usually is kept in an interest-bearing account while waiting for a hot prospect.

BLOWING A WELL – Opening a well to let it blow for a short period to free the well tubing or casing of accumulations of water, sand, or other deposits.

BLOWOUT – Out-of-control gas and/or oil pressure erupting from a well being drilled; a dangerous, uncontrolled eruption of gas and oil from a well; a wild well.

BLOWOUT PREVENTER – A stack or an assembly of heavy-duty valves attached to the top of the casing to control well pressure; a “Christmas tree”.

BONUS – The money paid by the lessee for the execution of an oil and gas lease by the landowner, usually paid by the acre. Another form is called an oil or royalty bonus. This may be in the form of an overriding royalty reserved to the landowner in addition to the usual one-eighth royalty.

BOREHOLE – The hole in the earth made by the drill; the uncased drill hole from the surface to the bottom of the well.

BOTTOM HOLE AGREEMENT – An arrangement whereby one operator promises to pay to another operator a sum of money when the well reaches a specific depth or formation.

B.P.M. – Barrels per minute. The pumping rate of small rotary pumps.

BPO (Before Payout) – Point before a well has reached the payment of costs to drill, complete, and produce.

BRIDGE PLUG – An expandable plug used in a well’s casing to isolate producing zones or to plug back to produce from a shallower formation; also to isolate a section of the borehole to be filled with cement when a well is plugged.

BUTANE – A hydrocarbon fraction; at ordinary atmospheric conditions, butane is a gas but it is easily liquefied; one of the most useful L.P.-gases; widely used household fuel.

BUTANE SPLITTER – A type of fractionator vessel at a gas reformer plant that produces commercial propane as well as normal and isobutanes. Splitters are fired with natural gas to provide heat for the distillation.

C

CARRIED WORKING INTEREST – A fractional interest in an oil and gas property conveyed or assigned to another party by the operator or owner of the working interest. In its simplest form, a carried working interest is exempt from all costs of development and operation of the property. However, the carried interest may specify “to casing point”, “to setting of tanks”, or “through well completion”. If the arrangement specifies through well completion, then the carried interest may assume the equivalent fractional interest of operating costs upon completion of the well. There are many different types of carried interests, the details varying considerably from arrangement to arrangement. One authority has observed, “The numerous forms this interest is given from time to time make it apparent the term ‘carried interest’ does not define any specific form of agreement but serves only as a guide in preparing and interpreting instruments”.

CARVED OUT INTEREST – An interest such as an oil payment or overriding royalty conveyed by the owner of a great interest. For example:  the grant of an overriding royalty out of a working interest.

CONSIDERATION – Value paid in return for a promise or an act. A required element in a contract.

CASING POINT – A term that designates a time when a decision must be made whether casing is to be run and set or the well abandoned and plugged. In a joint operating agreement, casing point refers to the time when a well has been drilled to objective depth, tests made, and the operator notifies the drilling parties of his recommendation with respect to setting casing and a production string and completing the well. On a marginal well, the decision to set pipe is often difficult. To case a well often costs as much as the drilling. On a very good well there is no hesitation; the operators are glad to run casing and complete the well.

CASINGHEAD GAS – Gas produced with oil in oil wells or from wells located in oil reservoirs – not to be confused with gas well gas.

CASINGHEAD GAS CONTRACT – A contract for the sale and purchase of casinghead gas.

CEMENT, TO – (1) To fix the casing firmly in the hole with cement, which is pumped through the drillpipe to the bottom of the casing and up into the annular space between the casing and the walls of the well bore. After the cement sets (hardens), it is drilled out of the casing. The casing is then perforated to allow oil and gas to enter the well. (2) Sedimentary. Mineral material, usually precipitated chemically, that fills the spaces between individual grains of a consolidated (hard) sedimentary rock; the binding material that holds the grains together. The most common binders are silica, carbonates, and certain iron oxides. Other cements are clay minerals, barite, gypsum, anhydrite, and pyrite.

CERTIFICATE OF TITLE – An abbreviated type of abstract wherein the abstracter reports his/her opinion as to the present owner(s) of the land, unreleased oil and gas leases, mineral or royalty conveyances, and outstanding liens or encumbrances.

CERTIFICATION OF ABSTRACT – A certificate signed by the abstracter reciting that the abstract contains a full and complete abstract of all recorded instruments affecting the title to the described lands for the time periods designated.

CHRISTMAS TREE – (1) An assembly of valves mounted on the casinghead through which a well is produced. The Christmas tree also contains valves for testing the well and for shutting it in if necessary. (2) A subsea production system similar to a conventional land tree except it is assembled complete for remote installation on the seafloor with or without diver assistance. The marine tree is installed from the drilling platform; it is lowered into position on guide cables anchored to foundation legs implanted in the ocean floor. The tree is then latched mechanically or hydraulically to the casinghead by remote control.

CIVIL LAW (CIVIL CODE) – Law based in old Roman law that is written into a collection and codified. Provides citizens with an accessible and written collection of the laws which apply to them and which judges must follow. Contrasted with common law, which is determined by judges.

COMMERCIAL WELL – A well capable of making a profit over the costs of drilling, equipping, completing and operating it. In some instances, the term means merely a well with sufficient production to cover current operating expenses, without regard to original drilling costs.

COMMITED WORKING INTEREST – A working interest which is owned by a party to an agreement and which is committed to the arrangement as defined by the agreement.

COMMON LAW – Judge-made law or law that exists by historical practices and precedents. Not codified law.

COMMUNIZATION – A synonym for pooling, generally involves federal and/or state leases.

COMMUNITY LEASE – A single lease covering two or more separately owned tracts of land.

COMMUNITY PROPERTY – A form of marital property that law governing the title to property of married persons. Exists in eight states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington.

COMPLETION (COMPLETED WELL) – To finish a well so that it is ready to produce oil or gas, if not dry. After reaching total depth (T.D.), casing is run and cemented; casing is perforated opposite the producing zone, tubing is run, and control and flow valves are installed at the wellhead. Well completions vary according to the kind of well, depth, and the formation from which the well is to produce.

COMPLETION FUNDS – Completion funds are formed to invest in well completions, to finance the completing and equipping of a potentially productive well. After a well is drilled into a productive formation, there remain the costs of setting pipe, (casing the well); perforating, testing, acidizing, or fracturing the formation; and running production tubing and installing pumping equipment, separators, stock tanks, etc. The operator who drills the well may not have the financial resources to complete the well, so he may sell part or all of his interests to a completion fund. Completion funds are not as risky an investment as drilling funds, but are less certain than income funds and royalty funds.

COMPULSORY POOLING – The bringing together, as required by law, valid order, or regulation of separately owned (small) tracts for the granting of a well permit. Now available in twenty-one states.

COMPULSORY UNITIZATION – The bringing together, as required by law, valid order, or regulation of separately owned tracts into a unit constituting all or some portion of a producing reservoir, and allowing for the joint operation of the unit.

CONSIDERATION – Monies, bonus, and other payments for execution and delivery of a lease or other contract. Required element of a contract.

CONTINUOUS DRILLING CLAUSE – A lease provision to extend the life of a lease beyond its primary term, without production, by drilling operations of the type specified in the clause.

CONTRACT – A binding agreement between two or more persons or parties, usually in writing, and made to evidence the terms and conditions of their agreement.

CONVERTIBLE INTEREST – An interest that is or can be changed to another type of interest, e.g. an overriding royalty that may be converted into a working interest.

CORE SAMPLE – A solid column of rock, usually from 2 – 4 inches in diameter, taken from the bottom of a well bore as a sample of an underground formation. Cores are also taken in geological studies of an area to determine the oil and gas prospects.

CORRELATIVE RIGHTS – Doctrine that each owner or producer in a common pool may produce only in such manner or amount as to not injure the reservoir to the detriment of others or take an undue proportion of the production or cause undue drainage between developed leases.

COVENANT – Any promise, express or implied.  An oil and gas lease contains several covenants, some of which do not appear on the face of the document and are therefore implied.

CROSS-ASSIGNMENT – A dual assignment of property interests whereby the assignor also receives an assignment from the assignee.

CRUDE OIL – Oil as it comes from the well; unrefined petroleum.

CURTSEY – The interest that the husband has in the property of his wife at her death.

D

DAMAGES – Compensation from an operator to land owner for injury to the surface or to growing crops, etc. caused by drilling a well.

DECLARED UNIT – A unit formed by the Lessee acting under the provision of a lease pooling clause.

DEED – The legal document that transfers ownership of an exact tract of land.

DELAY RENTAL – An amount paid for the privilege of deferring development of a property, i.e. drilling operations under a lease, for a specific period of time.

DELAY RENTAL DIVISION ORDER – A document giving instructions concerning the payment of delay rentals to person having an interest therein.

DEPOSIT – An accumulation of oil or gas capable of being produced commercially.

DEPOSITORY BANK – The bank to which payment of delay rentals may be paid to the credit of lessor or his successors in interest.

DESCENT AND DISTRIBUTION – State law that provides for the distribution of property when a person dies without leaving a will.

DESCRIPTION – The part of a lease or other conveyance describing the specific tract or tracts of land in which the specific interest conveyed, leased, excepted, or reserved exists.

DERRICK – A wooden or steel structure built over a wellsite to provide support for drilling equipment and a tall mast for raising and lowering drillpipe and casing; a drilling rig.

DEVELOPMENT WELLS – Wells drilled in an area already proved to be productive.

DEVISEE – Party receiving the gift from a will.

DIVISION ORDER – A directive to the purchaser of oil and gas to make payment for the value of the products taken in the proportions set out in the order. Contains a schedule of owners and their decimal ownership share.

DISCOVERY WELL – An exploratory well that encounters a new and previously untapped petroleum deposit; a successful wildcat well. A discovery well may also open a new horizon in an established field.

DOCTRINE OF AFTER ACQUIRED TITLE – The concept that a conveyance covers all conveyed and all that the seller will ever own in the particular property, unless there is a reservation or limitation in the conveyance.

DOWER – The interest that the wife has in the property of her husband at his death.

DOWNHOLE – A term to describe tools, equipment, and instruments used in the well bore; also conditions or techniques applying to the well bore.

DRILLING PERMIT – In states that regulate well spacing, a drilling permit is the authorization to drill at a specified location; a well permit.

DRY GAS – A natural gas from the well free of liquid hydrocarbons; gas that has been treated to remove all liquids; pipeline gas.

DRY HOLE – A well that is drilled and no production is secured or found.

DRY HOLE AGREEMENT – An agreement creating an obligation to be performed upon the drilling of a dry hole – usually a specific sum of money to be paid, and usually based on a sum per foot drilled.

DUHIG RULE – In the event that a conveyance by warranty deed does not mention prior reservations, the reservation in the warranty deed will be read to include the prior reservations to the extent necessary to make the grantee whole based on the face of the deed.t

E

EFFECTIVE POROSITY – The percent of the total volume of rock that consists of connecting pores or interstices. The part of a rock that is capable of holding a fluid (oil, water, or gas) is the effective porosity.

ELECTRIC LOG – An electrical survey made on uncased holes. A special tool is lowered into the hole, which ejects an electrical current into the rock and records its resistance to the current. The data from the survey is used by the geologist to determine the nature of the rock and its contents.

ENCUMBERANCES – Burdens and other obligations on an interest, such as royalty and overriding royalty.

ENTIRETY CLAUSE – A lease clause designating that inside property lines created by later divisions of the fee ownership or by royalty conveyances will not affect the lessee’s duties of development and operation.

EXECUTIVE RIGHT (EXCLUSIVE LEASING POWER) – The right to execute an oil and gas lease on an interest regardless of derivation of the usual benefits.

EXPENSE BEARING INTEREST – A property interest in oil and gas that is subject to the expense of production, such as a mineral fee interest and a working interest.

EXPENSE FREE INTEREST – A property interest in oil and gas that does not share in the burden of production expense, such as royalty, overriding royalty, oil payments, production payments, net profits interest and carried working interests.

EXPLORATION – A general term referring to all efforts made in the search for new deposits of oil and gas.

F

FARMEE – The person or entity to which a transfer is made under a Farmout Agreement.

FARMOR – The person or entity that has made a transfer under a Farmout Agreement.

FARMOUT AGREEMENT – A contract between operators whereby the owner not wanting to drill a property agrees to assign all or part to the operator wanting to drill, upon his assuming the obligation to drill one or more wells on a certain property.

FEE SIMPLE – Ownership of property without qualification.

FLOWING WELL -A well capable of producing oil or gas by its own energy without the aid of a mechanical pump. Normally a pump is put on the well after the pressure reduction inhibits the rate of production.

FRACKING – The process of pumping fluids into a productive formation at high rates of injection to hydraulically break the rock. The “fractures” which are created in the rock act as flow channels for the oil and gas to the well.

FIELD BUTANES – A raw mix of natural gas liquids; the product of gas processing plants in the field. Raw mix streams are sent to fractionating plants where the various components – butane, propane, hexane, and others – are separated. Some refineries are capable of using field butanes at 10 to 15 percent of charge stock.

FIELD POTENTIAL – The producing capacity of a field during a 24-hour period.

FLARE – (1) To burn unwanted gas through a pipe or stack (Under conservation laws, the flaring of natural gas is illegal.) (2) The flame from a flare; the pipe or the stack itself.

FOSSIL ENERGY – Energy derived from crude oil, natural gas, or coal.

G

GAS – “Any fluid, combustible or noncombustible, which is produced in a natural state from the earth and which maintains a gaseous or rarified state at ordinary temperature and pressure conditions”. Code of Federal Regulations, Title 30, Mineral Resources, Chap. II, Geological Survey, 221.2

GAS CAP – The portion of an oil-producing reservoir occupied by free gas; in a free state above an oil zone.

GAS WELL – A well that produces natural gas, which is not associated with crude oil.

GEOLOGY – The science of the history of the Earth and its life as recorded in rocks.

GAS PURCHASE CONTRACT – An agreement for the sale and purchase of gas entered into by the purchaser and owners of the interest in the production from a property.

GEOLOGIST – An individual who studies faults and structures in order to find oil and gas locations.

GRANTEE – The person or company who buys the land from a prior owner or grantor.

GRANTING CLAUSE – The lease clause containing the required words, in each jurisdiction, of grant in order to create and interest in the lessee.  See also habendum clause.

GRANTOR – The person or company owning the land or mineral interest and transferring to another individual or company grantee.

GROSS ACRES – The total acres contained in the land described in the lease or other conveyance.

GROSS WORKING INTEREST (GWI) – GWI is a decimal equal to the WI (expense) decimal, which is the WI owner’s NRI decimal plus the sum of the revenue decimals of its burden obligations. Contrast with NWI.

H

HABENDUM CLAUSE – The clause in a deed or lease setting forth the duration of the grantee or lessee’s interest in the premises. Qualifies the term.

HORIZON – A zone of a particular formation, with sufficient porosity and permeability to form a petroleum reservoir.

HORIZONTAL SEVERANCE – A method to convey or reserve oil, gas or mineral rights at specific depths or geologic horizons.

HYDROCARBONS – Organic chemical compounds of hydrogen and carbon atoms. There are a vast number of these compounds, and they form the basis of all petroleum products. They may exist as gases, liquids, or solids. An example of each is methane, hexane, and asphalt.

I

IDC – (Intangible Drilling Costs) All cost incurred in drilling a well other than equipment or leasehold. These expenses are 100% tax deductible even if the well is productive.

IMPLIED COVENANTS – Obligations imposed by courts, which are implied by contracting parties, but not specifically spelled out in a lease or other contract.

INTESTATE SUCCESSION – The passing of an estate, without a will, by the laws of decent and distribution.

IP – (Initial Production) Production from a well is generally broken down into three categories: a. Flush or Initial b. Settled c. Stripper. It is important to realize that a well cannot maintain the flow rates it made during the first stages of its life.

J

JOINT OPERATING AGREEMENT – A contract between or among concurrent owners for the drilling operations covering a specific area of mutual interest.

JOINT TENANCY – Property held in such a way that it passes to the survivor(s) outside of a will upon the death of the other tenant.

JURAT – A clause wherein the affiant swears to or affirms a statement. (See also acknowledgement.)

K

No terms.

L

LANDMAN – An individual who researches and abstracts correct title to properties to be drilled and may secure leases in order to drill each prospected location.

LEASEHOLD INTEREST – The interest of the lessee under an oil and gas lease. Includes the right to drill and produce and is subject to the payment to the lessor of a royalty of a stated portion of the production. See also Working Interest.

LESSEE – The company or individual who secures the lease and pays the lease bonus if required.

LESSOR – The person or company who owns the land or mineral interest and leases his property.

LIGHT ENDS – The more volatile products of petroleum refining, e.g., butane, propane, and gasoline.

LMI (LEASED MINERAL INTEREST) – Leased Mineral Interest, or Landowners Mineral Interest, or Lessor’s Mineral Interest.

LOCATION – The well site.

LOCATION DAMAGES – Compensation from an operator to land owner for injury to the surface or to growing crops, etc. caused by drilling a well.

M

METES & BOUNDS DESCRIPTION – Method of describing a tract of land by calls and distances from an established beginning point and following boundary lines.

MINERAL ACRE – The full mineral interest in one acre of land.

MINERAL DEED – A conveyance of an interest in the minerals in, on, or under a described tract of land. Must include other elements required in each jurisdiction.

MINERAL INTEREST – Ownership of a property interest under the surface of the ground, which may or may not be severed from surface ownership.  Carries with it certain implied rights such as the right to drill.

MINERAL RESERVATION – An interest in land that is reserved to the Grantor when the surface and/or other minerals are conveyed.

N

NET ACRES – In a lease, the gross acres multiplied by the mineral interest.

NET PROFITS INTEREST – A share of gross production from a property measured by net profits from operation of the property and carved out of the Working Interest.

NON-COMMERCIAL – A well that is not capable of producing enough oil to pay for the drilling.

NON-EXECUTIVE MINERAL INTEREST – An interest minerals which lacks the right to join in the execution of leases, while having the right to share in bonus, delay rentals, royalty, etc.

NON-PARTICIPATING ROYALTY – An expense free interest in minerals as produced. Does not participate in bonus, rental, or the right to execute leases, explore or develop.

NRI (Net Revenue Interest) – That percent of the production revenue allocated to the working interest after first deducting proceeds allocated to royalty and overriding interest.

O

OFFSET WELL – (1) A well drilled on the next location to the original well. The distance from the first well to the offset well depends upon spacing regulations and whether the original well produces oil or gas. (2) A well drilled on one tract of land to prevent the drainage of oil or gas to an adjoining tract where a well is being drilled or is already producing.

OIL – A liquid hydrocarbon. (See also “Crude Oil”.)

OIL BEHIND THE PIPE – Refers to oil and gas sands or formations knowingly passed through, never produced. Such formations usually were of low permeability (tight formations) that, say 20 years ago, were uneconomical to produce when oil was around $5 or less a barrel. Other times formations would be purposely ignored because the operator was going deeper for bigger game, so the less spectacular, plain-Jane sands were cased off. When the price of crude oil reached $30 per barrel, the bypassed formations looked pretty good and were opened up and produced.

OIL-CUT MUD – Drilling mud with which crude oil has been unintentionally mixed. This may occur when drilling into or through an oil-bearing formation whose pressure is sufficient to overcome the pressure or weight of the column of mud in the hole. Oil also may become mixed with the drilling mud when a drillstem test is taken.

OIL GRAVITY – The most widely used indicator of a crude oil’s worth to the producer is its API gravity. Normally, the price, which a producer receives for his oil, depends on its gravity, the less dense oils (higher API gravity) being the most valuable. This price schedule is based on the premise that the lighter oil contains higher percentages of the more valuable products such as gasoline. API Gravity (degrees) = (141.5/sp.gr.) – 131.5.

OIL IN PLACE – Crude oil estimated to exist in a field or a reservoir; oil in the formation not yet produced

OIL & GAS LEASES – A contract between an oil operator and a landowner that gives the operator the right to drill for oil and gas on his property for a consideration. It is simply a “ticket to hunt”.

OIL PAYMENT (PRODUCTION PAYMENT) – A share of the oil or gas produced from a described tract of land, free of costs of production, and terminating when a specified sum has been reached. This payment may be reserved to the lessor, retained by an assignor of a lease, or carved out by the owner of a working interest or a royalty interest.

ON THE PUMP – An expression that means a well is incapable of flowing and that the oil is being pumped to the surface by a “pumping unit”.

OPEN HOLE – An uncased well bore; the section of the well bore below the casing; a well in which there is no protective string of pipe.

OPEN-HOLE LOGGING – Logging operations in an uncased well bore. The well is logged below the relatively shallow surface pipe.

OPERATING EXPENSE – The expenses incurred through the operation of producing properties.

OPERATOR – An individual or company that operates the wells on a day to day basis in order to insure continuous oil and gas production.  Usually designated in the Joint Operating Agreement, and must be filed with the RRC.

ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC) – Oil producing and exporting countries in the Middle East, Africa, and South America that have organized for the purpose of negotiating with oil companies on matters of oil production, prices, and future concession rights. OPEC was created in 1960.

OVERRIDING ROYALTY (ORRI) – A fractional interest in gross production of minerals carved out of the lessee’s share (the working interest) and is free of all burdens.

P

PACKER – An expanding plug used in a well to seal off certain sections of the tubing or casing when cementing and acidizing or when a production formation is to be isolated. Packers are run on the tubing or the casing and when in position can be expanded mechanically or hydraulically against the pipe wall or the wall of the well bore.

PAID UP LEASE – A lease effective during the primary term without the further payment of delay rentals.

PARAFFIN – A white, odorless, tasteless, chemically inert, waxy substance derived from distilling petroleum; a crystalline, flammable substance composed of saturated hydrocarbons.

PARTICIPATING INTEREST – The proportion of exploration and production costs each party will bear and the proportion of production each party will receive, as set out in an operating agreement.

PAYOUT – When the costs of drilling, producing and operating have been recouped from the sale of products on a well.

PERFORATING GUN – A special tool used downhole for shooting holes in the well’s casing opposite the producing formation. The gun, a steel tube of various lengths, has steel projectiles placed at intervals over its outer circumference, perpendicular to the gun’s long axis. When lowered into the well’s casing on a wireline opposite the formation to be produced, the gun is fired electrically, shooting numerous holes in the casing that permit the oil or gas to flow into the casing.

PERMEABILITY – A measure of the resistance of rock to the movement of fluids. Rocks may have holes or void spaces in them (porosity), but if these holes do not connect, the permeability can be drastically reduced.

PINCHOUT – The disappearance or “wedging out” of a porous, permeable formation between two layers of impervious rock. The gradual, vertical “thinning” of a formation, over a horizontal or near-horizontal distance, until it disappears.

PIPELINE GAS – Gas under sufficient pressure to enter the high-pressure gas lines of a purchaser; gas sufficiently dry so that liquid hydrocarbons – natural gasoline, butane, and other gas liquids usually present in natural gas – will not condense or drop out in the transmission lines.

PLUG – To fill a well’s borehole with cement or other impervious material to prevent the flow of water, gas or oil from one strata to another when a well is abandoned; to screw a metal plug into a pipeline to shut off drainage or to divert the stream of oil to a connecting line to stop the flow of oil or gas.

PLUGGING A WELL – To fill up the borehole of an abandoned well with mud and cement to prevent the flow of water or oil from one strata to another or to the surface. In the industry’s early years, wells were often improperly plugged or left open. Modern practice requires that an abandoned well be properly and securely plugged.

POOLED UNIT – A unit formed by the brining together of separately owned interests under the provisions of lease clauses or special agreement.

POOLING – Combining or consolidating more than one tract in order to fill or make a spacing unit.

POROSITY – A measure of the relative volume of void space in rock to the total rock volume. These spaces or pores are where oil and gas accumulate; therefore, a formation containing a high percentage of porosity can contain more hydrocarbons.

PRIMARY TERM – The period of time during which an oil and gas lease will be in effect, in the absence of production, drilling or other operations specified by the lease. The oil and gas lease can be perpetuated past the primary term by production in paying quantities, drilling, operations and/or the payment of shut-in royalties specified by the lease.

PROBATE – Process of submitting a will to the court to establish that the will is valid, and carrying out the desires of the deceased.

PRODUCER – A well that successfully finds production and produces oil and gas.

PRODUCTION PAYMENT – A share of the oil or gas produced from a described tract of land, free of costs of production, and terminating when a specified sum has been reached. This payment may be reserved to the lessor, retained by an assignor of a lease, or carved out by the owner of a working interest or a royalty interest.

PROPORTIONATE REDUCTION CLAUSE – A clause providing for the reduction of payments to a lessor if his interest is less than that which he purports to own.

PROVEN RESERVES – Oil and gas that has not been produced but has been located and is recoverable.

PUGH CLAUSE – A lease clause named after Lawrence Pugh of Crowley, Louisiana, which provides that drilling or pooled production only maintains the lease as to lands included in the unit.

PUMP, CASING – A sucker-rod pump designed to pump oil up through the casing instead of the more common method of pumping through tubing. A casing pump is run into the well on the sucker rods; a packer on the top or bottom of the pump barrel provides packoff or seal between the pump and the wall of the casing at any desired depth. Oil is discharged from the pump into the casing and out the wellhead.

PUMP, ROD – A class of downhole pumps in which the barrel, plunger, and standing valve are assembled and lowered into the well through the tubing. When lowered to its pumping position, the pump is locked to the tubing to permit relative motion between plunger and barrel. The locking device is a holddown and consists either of cups or a mechanical, metal-to-metal seal.

PUMPING UNIT – A pump connected to a source of power; an oil-well pumping jack; a pipeline pump and engine.

PUMPER – An employee of an operator who is responsible for gauging the oil and gas sold off the leases he has been assigned and who is also responsible for maintaining and reporting the daily production.

Q

QUITCLAIM DEED – A deed that conveys only the grantor’s present interest in the property, if any.

R

RATIFICATION (OF LEASE) – An agreement confirming a lease executed by a concurrent owner other than the original lessor, or conduct indicating ratification and confirmation of a lease.

REAL PROPERTY – All interests, benefits, and rights in the ownership of physical real estate.

REAL ESTATE INVESTMENT TRUSTS (REITs) – A trust or association that invests in a variety of real estate. REITs are managed by one or more trustees, like a mutual fund, and trade like a stock. No federal income tax needs to be paid by the trust if 75% of the income is real estate related and 95% of the income is distributed to investors. Individual investors can be taxed.

RECORDING – The filing of a copy of a legal document in a government office, usually the county, in order to create a record of ownership and date of filing.

REEF RESERVOIR – A type of reservoir trap composed of rocks, usually limestone, made up of the skeletal remains of marine animals. Reef reservoirs are often characterized by high initial production that falls off rapidly, requiring pressure maintenance techniques to sustain production.

RELEASE – A statement in writing indicating that a contract or lease has terminated or expired, and usually filed in the county where the property under the contract is located.

RELINQUISHMENT ACT (MINERAL CLASSIFIED LANDS) – A law governing lands in which the minerals were reserved by the State of Texas when granted, then later relinquished to the private owners.

RENTAL DUE DATE – The date during the primary term, on or before which rental payments are due, if the lease is to be kept alive by the payment, and not by other means such as production.

RESERVOIR – A porous, permeable sedimentary rock formation containing quantities of oil and/or gas enclosed or surrounded by layers of less-permeable or impervious rock; a structural trap; a stratigraphic trap.

REWORK OPERATIONS – Any major operation performed on a well after its completion in an attempt to restore or improve its ability to produce.

RIPARIAN LAND – Land that includes part of the bed of a watercourse, i.e. river, lake, etc.

ROTARY TONGS – The massive, counter-weighted tongs used on the drill floor to screw joints of drillpipe, tubing or casing; the generic term for the heavy wrenches used by the rough necks on the rig floor.

ROYALTY, LESSOR’S – The amount of percentage designated in the lease as payable to the mineral owner.

ROYALTY, LANDOWNER’S – A share of gross production of oil and gas, free of all costs of production. Occasionally, the term is used to describe an interest in production created by the landowner outside the lease and distinguished from the conventional lessor’s royalty. In this case the landowner’s royalty, outside of the lease, may have any specified duration. In general usage, landowner’s and lessor’s royalty are synonymous.

ROYALTY ACRE – A full lease royalty on one acre of land. For example, in a one hundred acre tract leased for 1/8th royalty, ownership in of ½ the royalty interest (1/16th) is the equivalent to owning fifty royalty acres.

ROYALTY DEED – An instrument in writing conveying a royalty interest. The wording is important between 1/8th royalty and 1/8th of royalty, as the later is a diminished interest.

RULE OF CAPTURE – The doctrine wherein the first person to capture a resource owns that resource. For example, an owner of a tract of land acquires title to the oil and gas he produces thereon, although it may be proved that part of such oil or gas migrated from adjoining lands.

S

SALT WATER DISPOSAL WELL – Many wells produce salt water while producing oil. The disposal of this water is a problem to an operator because of pollution. The best solution to the problem is to pump the waste back into a formation that is deep enough not to pollute shallow water sands. Many stripper wells which are no longer commercial are converted for this purpose.

SATURATION – (1) The extent to which the pore space in a formation contains hydrocarbons or connate water. (2) The extent to which gas is dissolved in the liquid hydrocarbons in a formation.

SCOUT TICKETS – A written report of wells drilling in the area. The reports contain all pertinent information – all that can be found out by the enterprising oil scout; operator, location, lease, drilling contractor, depth of well, formations encountered, results of drillstem tests, logs, etc. On tight holes the scout is reduced to surreptitious means to get information. Talks to water hauler, to well- service people who may be talkative or landowner’s brother-in-law. The bird- dogging scout estimates the drillpipe set-backs for approximate depth; he notes the acid trucks or the shooting (perforating) crew; and through his binoculars, he judges the expressions on the operator’s face: happy or disgruntled.

SEISMIC – Shootings that are done on the surface to map images under ground to aid in oil and gas exploration.

SECONDARY RECOVERY – A broad term encompassing any method of extracting oil from a reservoir after a well or field has exhausted its primary production.

SEDIMENTARY ROCKS – Rock is generally classified in one of three categories: a. Sedimentary; b. Igneous; c. Metamorphic.

SEPARATOR GAS – Natural gas separated out of the oil by a separator at the well.

SERVITUDE – An easement or other incorporeal interest in land.

SET CASING – To cement casing in the hole. The cement is pumped downhole to the bottom of the well and is forced up a certain distance into the annular space between casing and the rock wall of the drill hole. It is then allowed to harden, thus sealing off upper formations that may contain water. The small amount of cement in the casing is drilled out in preparation for perforating to permit the oil to enter the casing. The decision to set casing (or pipe) is an indication that the operator believes he has a commercial well.

SETTLED PRODUCTION – The second phase of production in the producing life of a well. (see IP).

SEVERED MINERAL INTEREST – The separation of mineral and/or royalty interest from fee-simple title. Severance of interests is usually accomplished by reservation in a deed or assignment or by conveyance in mineral or royalty deed, assignment or lease.

SHALE – A very fine-grained sedimentary rock formed by the consolidation and compression of clay, silt, or mud. It has a finely laminated or layered structure. Shale breaks easily into thin parallel layers; a thinly laminated siltstone, mudstone, or claystone. Shale is soft, but sufficiently hard packed (indurated), so as not to disintegrate upon becoming wet. However, some shales absorb water and swell considerable, causing problems in well drilling. Most shales are compacted, and consequently, do not contain commercial quantities of oil and gas.

SHOT HOLE – A small-diameter hole, usually drilled with a portable, truck- mounted drill, for “planting” explosive charges in seismic operations.

SHUT IN – To close the valves at the wellhead so that the well stops flowing or producing; also describes a well on which the valves have been closed.

SOUR GAS – Natural gas containing chemical impurities, a notable hydrogen sulfide (H2S) or other sulfur compounds that make it extremely harmful to breathe even small amounts; a gas with disagreeable odor resembling that of rotten eggs.

SPACING – Density and distance between drilling as dictated by the each state, and based on the area believed to be effectively drained by one well.

SPECIAL WARRANTY DEED – A warranty deed warranting the title only against the actions or omissions of the grantor.

SQUEEZING A WELL – A technique to seal off with cement a section of the well bore where a leak or incursion of water or gas occurs; forcing to the bottom of the casing and up the annular space between the casing and the wall of the borehole to seal off a formation or plug a leak in the casing; a squeeze job.

STIPULATION OF INTEREST – An instrument, which may be filed of record to certify legal title and authorize payment on royalty, interests under the terms of a lease or other legal document.

STRATIGRAPHIC TEST – A test well drilled to obtain information on the thickness, lithology, porosity, and permeability of the rock layers drilled through or to locate a key bed. Such wells are often drilled to evaluate a potentially productive pay zone.

STRIPPER WELL – The final state in the life of a producing well.

STRUCTURAL TRAP – A fold or break (or both) in the earth’s crust, which creates an impervious trap for oil and gas. Oil will migrate underground through rock until it is “trapped”.

SUBORDINATION AGREEMENT – A contract allowing priority of an oil and gas lease over a prior lien.

SUCKER ROD – Steel rods that are screwed together to form a “string” that connects the pump inside a well’s tubing downhole to the pumping jack on the surface; pumping rods.

SURFACE LEASE – A lease on the surface of the land, apart from the minerals beneath it.

SURFACE PIPE – Pipe which is set with cement through the shallow water sands to avoid polluting the water and keep the sand from caving in while drilling a well.

SWAB – A tool, which is lowered down the pipe on a wire line. The “swab” is then pulled out of the hole. As it travels up the pipe, rubber elements expand so that the fluid in the pipe is trapped above the swab and pushed to the surface. This operation is necessary when the formation pressure is not high enough to blow the fluids in the pipe to the surface.

SWEET CRUDE – Crude oil containing very little sulfur and having a good odor.

SWEET GAS – Natural gas free of significant amounts of hydrogen sulfide (H2S) when produced.

3-D SEISMIC PROGRAM – Seismic surveys shot from surfaces to map underground stratigraphy; to profile the underlying strata in search of up-dips, down dips, faults, and other promising anomalies.

T

TANK BATTERY – A group of tanks at a well site used to store oil prior to sale to a pipeline company.

TENANCY IN COMMON – Ownership of real property by two or more persons who each own an undivided interest in the entire property.

TERM – The number of years covered by the oil and gas lease.  It is a required element of a contract.

TESTATOR/TESTATRIX – Male/female person making a will.

TESTING – When each new well is completed, a series of tests are run on the well. The various tests are used to estimate the daily deliverability, payout, and reserves.

TIGHT HOLE – A drilling well about which all information – depth, formations encountered, drilling rate, logs – is kept secret by the operator.

TITLE OPINION – A statement of opinion by an attorney, often in the form of a letter, as to the state of the title to land, minerals, royalty and/or working interests.

TOP LEASE – A lease granted by a mineral owner during the existence of a recorded mineral lease that is to become effective if and when the existing lease terminates or expires.

TOTAL DEPTH (T.D.) – The depth of a well when drilling is completed. Total depth of a well is the vertical distance from the rig floor to the bottom of the hole. A 10,000-foot well may take 11,300 feet of casing to complete the well because the well bore has drifted several degrees from vertical, adding 1,300 feet to the depth of the hole, not the depth of the well.

TRAP – A type of geological structure that retards the free migration of oil and concentrates the oil in a limited space. A mass of porous, permeable rock that is sealed on top and down both flanks by nonporous, impermeable rock, thus forming a trap.

TRANSFER ORDER – A direction to the purchaser under a division order to pay another person a share in the oil, gas, or minerals produced.

TUBING – Small diameter pipe which is installed in the casing. Oil is produced through tubing because it increases the viscosity of fluid and a well’s flow capabilities.

TURNKEY CONTRACT – A contract in which an operator or drilling contractor agrees to furnish all labor and materials necessary to drill a well to a certain depth or stage of completion for a specified sum of money. The operator or contractor assumes all of the responsibility and risks involved in completing the operation.

U

UNASSOCIATED GAS – Natural gas occurring alone, not in solution or as free gas with oil or condensate.

UNDIVIDED INTEREST – Title to real property held by two or more persons without specifying the interests of each party by percentage or description of a portion of the real estate. Such interests are typical between joint tenants, tenants in common, tenants by the entirety.

UNIT AGREEMENT – A contractual plan for development and operation for the recovery of minerals without regard to separate ownership.

UNITIZATION – The combining of multiple wells to produce from a specified reservoir.

V

VERTICAL SEVERANCE – A method to convey or reserve oil, gas, or mineral rights in a defined portion of land such as the Northwest Quarter of a tract.

VISCOSITY – The resistance of fluid to flow. A high viscosity fluid will not flow as easily as a low viscosity fluid (Mud will not move as easily as water).

W

WARRANTY – A covenant of title by a grantor, lessor or assignor.

WARRANTY DEED – A conveyance in which the grantor warrants title to the property being conveyed. Such warranty usually formed by the words “warrant and forever defend.”

WATER CONNING – The encroachment of water in a well bore in a water-drive reservoir owing to an excessive rate of production. The water below the oil moves upward to the well bore through channels, fissures, and permeable streaks, leaving the oil sidetracked and bypassed.

WATER FLOODING – A secondary recovery method for the production of oil from a formation. Oil will float on water. When water is injected into some formations, the oil will float or be washed to the surface, thereby, increasing the amount of production from a well or field. Some formations will not react to this type of stimulation.

WELL COMPLETION – The work of preparing a newly drilled well for production. This is a costly procedure and includes setting and cementing the casing, perforating the casing, running production tubing, hanging the control valves (nippling up the production tree, i.e., Christmas tree), connecting the flow lines, and erecting the flow tanks or lease tanks.

WELL COST, AVERAGE – In 1983, the average cost to drill, case, and complete a well was $410,000. Included in this average were many deep, multimillion- dollar wells – the 15,000 to 25,000-foot gas wells – any many thousands of shallower wells costing $250,000 or even less.

WELL LOGGING – Gathering and recording information about the surface formation, the nature and extent of the various downhole rock layers. Also included are records kept by the driller, the record of cuttings, core analysis drillstem tests, and electric, acoustic, and radioactivity logs. Any pertinent information about a well, written and saved, is a log – from sailing ship days.

WHIPSTOCK – A tool used at the bottom of the borehole to change the direction of the drilling bit. The whipstock is, essentially, a wedge that crowds the bit to the side of the hole, causing it to drill at an angle to the vertical.

WHITE OIL – A colloquial term for condensate, gas condensate, casinghead gasoline; liquid hydrocarbons produced with natural gas.

WILDCAT – An exploratory oil well drilled in land not known to be an oil field.

WILL – A document memorializing gifts of property to take effect on the death of the Testator or Testatrix.

WORKING INTEREST – A working interest in an oil or gas property is one that is burdened with the cost of development and operation of the property, such as the responsibility to share expenses of drilling completing or operating an oil and gas property, according to working or operating mineral interest in any tract or parcel of land. Rights to overriding royalties, production payments, and the like do not constitute working interests because they are not burdened with the responsibility to share expenses of drilling, completing, or operating oil and gas property. Likewise, contract rights to extract or share in oil and gas, or in the profits from extraction, without liability to share in the costs of production do not constitute working interests.

WORKING INTEREST, FULL-TERM – A working interest that lasts as long as the well or the lease is productive; as long as oil and gas are produced in quantities that make the well economic to operate.

WORKOVER – Operations on a producing well to restore or increase production. Tubing is pulled and the casing at the bottom of the well is pumped or washed free of sand that may have accumulated.

WRITE-OFFS – That portion of an oil investment, which is deductible for tax purposes. All intangibles are deductible.

X

No terms.

Y

No terms.

Z

No terms.

These are some of the most commonly used oil and gas abbreviations.

Bbl, Barrel – In the oil and gas industry, a barrel is 42 U.S. gallons measured at 60º Fahrenheit.

BCF– The abbreviation for billion cubic feet of gas.

BHP, Bottom Hole Pressure – The abbreviation for bottom-hole pressure

BP, Blowout Preventor – Casinghead equipment that prevents the uncontrolled flow of oil, gas and mud from the well by closing around the drill pipe or sealing the hole.

BS&W, Basic Sediment and Water – Impurities and water contained in the raw fluid produced by an oil well.

BTU, British Thermal Unit – The amount of heat required to raise the temperature of one pound of water one degree Fahrenheit under standard conditions of pressure and temperature.

CO2 – Abbreviation for carbon dioxide.

D&A – Dry and abandoned. Refers to oil and gas wells.

GOR, Gas Oil Ratio – Number of cubic feet of gas produced per barrel of oil.

LACT Unit, Lease Automatic Custody Transfer Unit – A system providing for the automatic measurement, sampling, and transfer of oil from the lease location into a pipeline.

MMBtu – One million British thermal units; a measurement of heating value.

MMcf – One million cubic feet; a measurement of gas volume only.

NGL, Natural Gas Liquids – Gas that is processed through a plant to separate the heavier hydrocarbon liquids from the natural gas stream. These heavier hydrocarbon liquids, NGLs, traditionally have a higher value than the gaseous natural stream.

NRI, Net Revenue Interest – An owner’s interest in the revenues of a well.

OGML, Oil, Gas, and Mineral Lease – The agreement outlining the basic terms of developing lands or minerals such as royalty to be paid, length of time, description of lands.

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

SWD, Salt Water Disposal Well – Well used for disposal of saltwater into an underground formation.

WI, Working Interest– Interest(s) in a well which bears the drilling and operating expenses.

 

OTHER OIL AND GAS ABBREVIATIONS

BOPD: Barrels of Oil Per Day

BOPM: Barrels of Oil Per Month

BWPD: Barrels of Water Per Day

DO: Division Order

DR: Delay Rental

GWI: Gross Working Interest

JOA: Joint Operating Agreement

MCFPD: Thousands of Cubic Feet of Gas Per Day

MI: Mineral Interest

NRI: Net Revenue Interest

NWI: Net Working Interest

OGML: Oil, Gas and Mineral Lease

ORRI: Overriding Royalty Interest

RI: Royalty Interest

SI: Shut In

SWDW: Salt Water Disposal Well

WI: Working Interest

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