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Mineral Rights 101

Glossary – Oil & Gas and Mineral Terms

Oil & Gas Terms:

  • API: Refers to the 10-digit unique well identifier provided by the state in which the well is drilled. The first two digits describe the state in which the well resides; the following two digits refer to the county in which the well resides. The final numbers refer to the unique identifier for that well. This 10-digit number is how XXXXX matches your property numbers to the map.
  • Completion: Process by which oil and gas free to flow into the well. Completions today generally consist of pumping large volumes of sand and fluid down hole to fracture rock.
  • Gas: Gas is produced from both oil and gas wells. It is measured in MCF (million cubic feet). Dry gas is referred to gas that has no NGLs present. Wet gas is considered to be gas with NGLs still present. The price of gas depends on its BTU factor which correlates to whether it is dry or wet.
  • Lateral: The distance of the well that is horizontal in an oil and gas well. The lateral is what is completed to allow oil and gas to flow to the surface.
  • NGL: Natural-gas-liquids are stripped from heavy gas. They are worth more than gas but less than a barrel of oil. Another term to describe would be condensate.
  • Oil: Hydrocarbon that is produced from a well. It is measured in units of API gravity, ranging from heavy oil (tar-like) to light oil (almost a gas). The price in which a barrel of oil is sold depends partially on its API gravity.
  • Operator: Company that tends or operates the well.
  • Permit: Regulatory filing to drill a well. Some states require permits to complete, workover, and plug & abandon wells.
  • Proppant: Sand that is used to fracture a well during completion. Sometimes the sand is coated to prevent crushing at deep depths, other times it can be man-made from ceramic.
  • Spud Date: Date in which the rig began drilling the permitted well.
  • True Vertical Depth: The vertical depth in which the well is completed. For a horizontal well it describes the deepest depth, vertically that a well is drilled to before drilling the lateral, horizontal section.

Mineral Terms:

  • Continuous Drilling Clause: Clause within lease that states an Operator must drill a new well per a specific time frame of one another or pay a damage (or release the lessor). This clause is meant to require an Operator keep developing the acreage you have leased them to maximize the mineral owners’ monetary returns.
  • Deductions: Any expense that is taken out of your gross payment. Examples include, transportation, gathering, severance tax, etc.
  • Depth-Severed: Clause within lease that specifies depths, referred to in feet or by formation name, in which an Operator has the right to drill in. Example: Right to drill between the depths of 10,000 to 14,000 feet.
  • Division Order: Document that provides the decimal ownership in a well. In order to start receiving a check a division order must be signed. Division orders are a legally binding document, careful consideration should be taken to ensure all information is correct.
  • Forced Pooling: A legal statute that allows an Operator to “pool” or group multiple leases together in order to drill a well without having all mineral owners consent. In most states the requirement to force pool is over 51% mineral ownership underlying the well.
  • Landman: Professional who leases minerals on behalf or for an Operator. Landman can also help mineral buyers. They verify ownership of the minerals and help owners determine what should be included in their lease.
  • Lease Amendment: Secondary filing of lease generally after primary term expiration. It will reflect any changes to the original lease and new primary term.
  • Lease Extension: An option that is stated within your lease that defines the period of time after the primary term expires that the Operator may extend the lease under certain terms and conditions. Generally, the extension triggers an additional lease bonus. Most extensions go no longer than 3 years after the primary term.
  • Lease: Legal document that governs the terms of what an Operator can and cannot do with a mineral owner’s mineral estate.
  • Mineral Appraisal: Counties & states that charge severance tax are required to provide appraisal on your minerals to verify the taxes to be levied. These appraisals are conducted one per year and should reflect your ownership decimal and value per property you are paid on.
  • Mineral Deed: Deed filed to sell or acquire minerals.
  • Minerals in Suspense: If an Operator or Payor cannot find your information or verify that you own the minerals, they will place your payments in suspense until the issues can be resolved. Many owners do not realize they have funds in suspense for reasons such as change of address and inheritance.
  • Mineral Deed: Deed filed to sell or acquire minerals.
  • Offset Lease Obligation: Clause that states an Operator must drill a well if another Operator drills an offset within a specific footage of lessor’s lease. This clause is meant to reduce the risk of an offset well-draining your hydrocarbons.
  • Owner Decimal: Refers to a royalty owners’ ownership within a property. It is reflected as a decimal.
  • Pooling Order: Legal or Regulatory filing that states which leases are “pooled” or grouped together in a well. The percentage your lease makes up of the total pooled unit will reflect your ownership decimal.
  • Post-Production Charges: Refers to specific deductions which are taken out and reflected within your statement. Many states have statues that limit the post-production charges that can be taken out. A more common approach is to include language within your lease of claiming it to be “free and clear of all deductions”. Basins that produce mostly gas or NGLs such as the Marcellus have notorious post-production charges that have led to many lawsuits.
  • Primary Term: The initial term that the lease is valid for. Many primary terms are no longer than 5 years.
  • Property Name: Refers to the property in which a royalty owner has interest. Generally, it reflects the lease or unit name of the well.
  • Royalty Deed: Deed filed to sell or acquire royalties.
  • Royalty Rate:Rate that defines the percentage of oil & gas you are paid on of your lease. Many leases either state in a percentage or fraction. Example: 1/8 or X%
  • Shut-In Payments: Payments that are paid out to mineral or royalty owners if specific conditions are met when a well is shut in. Generally, it requires a specific time period to be met in order for payments to begin.
  • Statement: Document received every month that specifies the property, sold volumes, deductions, and other pertinent financial information on the wells they have interest in.
  • Transportation and Gathering Expense:Deductions that are taken out of your gross payment to pay for the transportation and gathering of oil & gas to the refinery. Some leases are cost free, meaning they are not subject to these deductions.
  • Wellbore Only: Clause that limits the sale of minerals and royalties to just a specific wellbore(s). This allows mineral owners to retain their minerals and upside and sell just a producing well. You will receive a much lower multiple from a buyer, but you will be able to keep the upside of additional wells being drilled.

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