Oil and Gas Terms

ABANDONED WELL: A well not in use because it was a dry hole originally, or because it has ceased to produce.

ABSTRACT OF TITLE: A chronological history of the ownership or significant events affecting a particular piece of property. In formal usage, a document prepared by an abstract or title company and certified by the preparer to contain all pertinent information or copies of all documents affecting title to a given piece of property.

ASSIGNMENT: The legal instrument whereby Oil and Gas Leases or Overriding Royalty interests are assigned or conveyed.

ASSIGNEE: The individual to whom Oil and Gas Leases or Overriding Royalty are assigned.

ASSIGNOR: The individual conveying Oil and Gas Leases or Overriding Royalty in an Assignment.

BONUS: Cash consideration paid to a landowner or mineral owner on the execution of an Oil, Gas and Mineral Lease.

CHECK STUB: Stub attached to a check disclosing well name, month of production, price received and total volumes produced.

DELAY RENTAL: Yearly payments made during primary term to Lessor to delay drilling.

DEPOSITORY BANK: The bank to which payment of delay rental or other sums may be paid to the credit of lessor or his successors in interest.

DIVISION ORDER: A schedule of owners and their decimal share in revenues of the well derived from the sale of oil or gas.

GRANTOR: A person who grants or conveys lands, minerals, etc.

GRANTEE: The person receiving the grant of lands, minerals, etc.

GROSS WORKING INTEREST: See definition for Working Interest.

JOINT OPERATING AGREEMENT: An agreement among working interest owners describing how a well is to be operated.

LANDMAN: The individual who negotiates oil and gas leases with mineral owners, cures title defects and negotiates with other companies on agreements concerning the lease.

LANDOWNER: The person who generally owns all or part of the minerals under his lands and is entitled to lease the same.

LEASE: See Oil, Gas and Mineral Lease.

LESSEE: The person who receives the lease, sometimes called the tenant.

LESSOR: The person giving the lease, sometimes called grantor or landlord.

MINERAL OWNER: Generally one who owns only minerals under a tract of land (but no surface) along with the right to execute a lease on the same.

MINERALS (MINERAL INTEREST): See definition for Participating Royalty.

NET REVENUE INTEREST: An owner's interest in the revenues of a well.

NET WORKING INTEREST: Share in well proceeds attributable to the Working Interest.

NON-OPERATING INTEREST: A working interest owner in a well, but is not Operator.

NON-PARTICIPATING ROYALTY: A royalty interest which "participates" in any oil or gas found but does not "participate" in lease bonuses or rentals.

OIL, GAS & 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.

OIL & GAS LEASE: See definition for Oil, Gas and Mineral Lease.

OPERATING AGREEMENT: See definition for Joint Operating Agreement.

OPERATING EXPENSES: The costs of operating a well

OPERATING INTEREST: A working interest owner who is also the well operator.

OPERATOR: The party designated in the Operating Agreement to conduct the operations of the well.

OVERRIDING ROYALTY: A royalty interest derived from the working interest, in excess of the royalty provided in the Oil Lease. Usually added on during an intervening Assignment.

PAID-UP LEASE: An Oil and Gas Lease where rental payments are paid along with bonus.

PARTICIPATING ROYALTY: A royalty interest giving its owner the right to "participate" in bonuses received in leasing along with the right to "participate" in any oil or gas found.

PRIMARY TERM: The initial period in an Oil and Gas Lease to develop the property.

PUGH CLAUSE: A clause added to an Oil Lease to limit holding non-producing lands or depths beyond primary term of lease. Also called a Freestone rider.

ROYALTY: Funds received from the production of oil or gas, free of costs, except taxes.

ROYALTY DEED: A deed conveying a royalty interest.

ROYALTY ESTATE: Pertaining to the royalty owners share.

SALT WATER DISPOSAL WELL: A well into which oilfield salt water is disposed.

SEVERENCE TAX: A state or municipal tax on oil and gas products levied at the wellhead for the removal of the hydrocarbons. Also called Production Tax.

SEVERED MINERAL INTEREST: An interest in the minerals in, on and under a given tract of land owned by a person other than the surface owner.

SEVERED ROYALTY INTEREST: Nonexpense-bearing interest in minerals produced and saved from a tract owned by someone other than the surface owner. Owner of severed royalty interest gets a share of production from wells, but does not have to share the costs of production. The interest may be set up prior or subsequent to the leasing of the land, granted or reserved for years, for life, in fee simple defeasible or in perpetuity.

SHUT-IN ROYALTY: Payment to royalty owners under the terms of a mineral lease which allows the lessee to defer production from a well capable of producing in paying quantities but shut-in for lack of a market or marketing facilities.

SURFACE OWNER: Usually a landowner who owns no minerals under his land.

UNLEASED MINERAL INTEREST: A mineral interest not subject to an Oil Lease.

WORKING INTEREST: The right granted to the lessee of a property to explore for and to produce and own oil, gas or other minerals. The working interest owners bear the exploration, development, and operating costs on either a cash, penalty or carried basis.