Glossary of Terms
Ad Valorem Taxes: A tax based on the assessed value of real estate or personal property. Ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenue for state and municipal governments.
Assignment: The sale, transfer or conveyance of all or a fraction of ownership interest or rights owned in real estate or other such property. The term is commonly used in the oil and gas business to convey working interest, leases, royalty, overriding royalty interests and net profit interests.
BBL: A barrel of liquid, usually oil or water. Equivalent to 42 U.S. gallons.
BCF: A billion cubic feet of natural gas.
BCFE: A billion cubic feet equivalent. Used to describe hydrocarbons in terms of cubic feet. Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil. This ratio is derived from the energy output (Btu’s) obtained from each source, however it is usually not accurate on an economic basis and therefore alternative ratios can be used. For example $6/Mcf of gas to $60/bbl of oil.
BOE: Barrels of oil equivalent. Used to describe hydrocarbons in terms of a barrel of oil. See Bcfe for conversion factors.
Bonus: A monetary incentive given by the company to the mineral owner for executing or ratifying an oil, gas and or mineral lease.
Condensate: A low-density mixture of hydrocarbon liquids that are present as gaseous components of natural gas produced from many natural gas reservoirs. It condenses out of the gas if the temperature is reduced to below the dew point temperature.
Completion: The process of preparing a well for testing and production. This often includes running and cementing production casing, perforating and stimulating.
Conveyance: A written contract between a grantor and grantee, used to transfer title or rights to real estate or property. Typical conveyances include oil, gas and mineral leases; assignments; deeds and rights of way.
Delay Rental: Consideration paid to the lessor by a lessee to extend the terms of an oil and gas lease in the absence of operations or production that is contractually required to hold the lease. This consideration is usually required to be paid on or before the anniversary date of the oil and gas lease during its primary term, and typically extends the lease for an additional year. Nonpayment of the delay rental in the absence of production or commencement of operations will generally result in abandonment of the lease after its primary term has expired.
Development Well: A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
Distillate: Liquid condensed from a gas during distillation.
Enhanced Oil Recovery (EOR): Techniques used to increase the amount of oil that can be extracted from an oil reservoir.
Exploratory Well: A well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir.
Horizontal Drilling: A drilling technique used by an operator in order to produce a larger portion of the target formation than conventional (vertical) drilling. This process can result in both increased production rates and greater ultimate recoveries of hydrocarbons; the cost of the well however tends to be more expensive.
Hydrocarbon: An organic compound that contains only carbon and hydrogen. These compounds can exist in a gaseous, liquid, or solid state depending on the pressure and temperature they are exposed to. Methane, propane, and octane are examples of these.
Lease: A contract between mineral owner, otherwise known as the lessor and a company or working interest owner, otherwise known as the lessee in which the lessor grants the lessee the right to explore, drill and produce oil, gas and other minerals for a specified primary term and as long thereafter as oil, gas or other minerals are being produced in paying quantities. This lease gives the lessee a working interest. The oil and gas lease is granted in exchange for royalty payments to the lessor.
MBBLS: One thousand barrels.
MBO: One thousand barrels of oil.
MBW: One thousand barrels of water.
MCF: A thousand cubic feet.
MCFE: A thousand cubic feet equivalent.
MMBBLS: One million barrels.
MMBO: One million barrels of oil.
MMBOE: One million barrels of oil equivalent.
MMCF: One million cubic feet.
MMCFE: One Million cubic feet equivalent.
Paid Up Leases: An oil and gas lease in which delay rentals for the entire primary term are paid in advance with the bonus consideration.
Perforations: Holes shot in an interval of casing in order to allow formation fluids to flow into the wellbore.
Pooling: The consolidation and combining of leased land with adjoining leased tracts. The area is called a pool or a unit.
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.
Gross Production Tax: A state tax imposed primarily on mining companies for each unit mined.
Pugh Clause: A clause, which is calculated to prevent the holding of non-pooled acreage in a lease while certain portions of the lease acreage are being held under pooled arrangements. The main purpose of a Pugh clause is to protect the landowner from having their entire property held under a lease by production from a very small portion.
Recompletion: The completion for production of an existing well in another formation from that in which the well has been previously completed.
Royalty: A percentage share of production, or the value derived from production, paid from a producing well. It is important to specify how royalties are to be calculated and paid as well as insuring that you are given the right to have a third party auditor verify the records of the production from your wells. Your royalty should be free of the costs of drilling and producing.
Secondary Term: The term of an oil and gas lease in which the lease is held in force after expiration of the primary term. Production, operations, continuous drilling and/or shut-in royalty payments are often used to extend an oil and gas lease into its secondary term.
Severance: Mineral rights may be severed or separated from surface rights by mineral deed or by mineral reservation. Severance by mineral deed occurs when a party owning both surface rights and mineral rights sells or grants by deed all or a portion of the mineral rights underlying his/ her property. This deed, known as a mineral deed, is registered with the county register of deeds and will become a part of the abstract of title to the land involved.
Severance Tax: A tax imposed on the removal of nonrenewable resources such as crude oil, condensate and natural gas, coal bed methane and carbon dioxide. Severance tax is charged to producers, or anyone with a working or royalty interest, in oil or gas operations in the imposing states. You may be charged severance tax even if you do not realize a net profit on your investment.
Shut In Royalty: A payment stipulated in the oil and gas lease, which royalty owners receive in lieu of actual production, when a gas well is shut-in due to lack of a suitable market, a lack of facilities to produce the product, or other cases defined within the shut-in provisions contained in the oil and gas lease. It is the responsibility of the landowner to clearly establish the allowable time limits for a well to be shut in by way of an addendum.
Stimulation: A process used by the operator in order to increase the conductivity between the formation and the wellbore. Acidizing and frac’ing are both forms of stimutation.
Term Lease: An oil and gas lease that expires after a specified period of time, regardless of whether oil, gas and/or other minerals are being produced.
Top Lease: An oil and gas lease wherein the bonus consideration is paid at the signing of the lease. However, this lease becomes effective only after the expiration or termination of an existing lease on the tract of land.
Unitization: The combining of multiple wells to produce from a specified reservoir.
Vertical Drilling: A drilling technique that bores a single well shaft vertically into the desired formation.
Work Over: Operations on a producing well to restore or increase production.