Terms Used In The Oil & Gas Industry

Listed below are definitions and/or brief explanations for some of the more common abbreviations and/or terminology used in the oil and gas business. If you don’t find what you’re looking for or desire further explanation, please call us or send us an e-mail with your question(s)/request(s); we will usually reply within 24 hours.

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API: Abbreviation for American Petroleum Institute.

API gravity: A specific gravity scale developed by the American Petroleum Institute (API) for measuring the relative density of various petroleum liquids. API gravity is gradated in degrees on a hydrometer and was designed so that most values would fall between 10° and 70° API gravity. The arbitrary formula used to obtain this effect is: API gravity = (141.5/SG at 60°F) – 131.5, where SG is the specific gravity of the fluid.

Assignee: The recipient of another person’s or entity’s ownership interest or rights in real estate or other similar property upon the sale, transfer or conveyance of same. Generally, this term is used in relation to the sale, transfer or conveyance of a specific ownership interest or right in real estate or other similar property that does not include the land itself (surface and/or minerals); but rather some other ownership interest or right in or to the land such as a mortgage lien, an oil, gas and mineral lease, a royalty or an overriding royalty.

Assignment: The act of selling, transferring or conveying all or a portion of one’s ownership interest or rights in real estate or other similar property. Typically, this term is used in relation to the sale, transfer or conveyance of a specific ownership interest or right in real estate or other similar property that does not include the land itself (surface and/or minerals); but rather some other ownership interest or right in or to the land such as a mortgage lien, an oil, gas and mineral lease, a royalty or an overriding royalty.

Assignor: The person or entity selling, transferring or conveying their ownership interest or rights in real estate or other similar property. Commonly, this term is used in relation to the sale, transfer or conveyance of a specific ownership interest or right in real estate or other similar property that does not include the land itself (surface and/or minerals); but rather some other ownership interest or right in or to the land such as a mortgage lien, an oil, gas and mineral lease, a royalty or an overriding royalty.

Bonus: The consideration paid by the lessee (either an individual or company) to the lessor (mineral owner) upon execution or ratification of an oil, gas and mineral lease. The bonus is generally calculated by multiplying a pre-negotiated dollar amount by the number of acres being leased.

BOPD: Abbreviation for barrels of oil per day.

British Thermal Unit: The English system unit used to measure the heat content of natural gas. It takes one British thermal unit (Btu) to raise the temperature of one pound of water by one degree Fahrenheit. One Btu is equal to about one kilojoule.

Btu: Abbreviation for British thermal unit.

BWPD: Abbreviation for barrels of water per day.

Check Stub: See Run Stub.

Deed: A written instrument by which land (surface and/or minerals) is conveyed.

Degree API: A unit of measurement established by the American Petroleum Institute (API) that indicates the density or weight of petroleum liquids.

Delay Rental: Consideration paid on an annual basis to the lessor by the lessee during the primary term of an oil, gas and mineral lease to delay commencement of drilling operations.

Depository Bank: A bank specified in an oil, gas and mineral lease that receives and distributes bonus and/or delay rental payments made by the lessee for the benefit of the lessor.

Division Order: A schedule of well owners and their decimal share in revenues and expenses from the sale of oil and/or gas.

DO: Abbreviation for division order(s).

DR: Abbreviation for delay rental.

Fee-simple Title: Ownership of the entire and absolute right or title to use or exploit a tract of land from the center of the earth to the stars, including the air, surface and minerals.

Grantee: The recipient of another person’s or entity’s ownership interest or rights in land (surface and/or minerals) upon the sale, transfer or conveyance of same.

Grantor: The person or entity selling, transferring or conveying their ownership interest or rights in land (surface and/or minerals).

Gross Working Interest: See Working Interest.

GWI: Abbreviation for gross working interest.

JOA: Abbreviation for joint operating agreement.

Joint Operating Agreement: An agreement between two or more working interest owners that describes how a well is to be operated and defines the allocation of costs and revenues.

Landman: An individual who identifies mineral and/or royalty owners, negotiates leases for oil and gas companies, and satisfies title issues.

Landowner: The person who owns the surface real estate, all or part of the minerals beneath it and has the right to execute an oil, gas and mineral lease.

Lease: An abbreviated term for oil, gas and mineral lease.

Lessee: The person or entity that leases another person’s or entity’s minerals for drilling purposes. For example, an oil and gas company would be considered the lessee; the landowner would be considered the lessor.

Lessor: The person or entity that leases their minerals to another person or entity for drilling purposes. For example, the landowner would be considered the lessor; the oil and gas company would be considered the lessee.

MCFPD: Abbreviation for thousand(s) of cubic feet of gas per day.

MI: Abbreviation for mineral interest.

Mineral Owner: The person or entity who owns the minerals under a tract of land and has the right to execute an oil, gas and mineral lease. Typically, if this term is used, it implies that the person or entity owns the minerals beneath a tract of land, but not the surface.

Mineral Rights: The ownership of the minerals and/or hydrocarbons beneath a tract of land and the right to lease those minerals and/or hydrocarbons to another person or entity for drilling and production purposes.

Minerals: A crystalline substance such as diamond or quartz that is of inorganic origin. It can also mean a naturally occurring substance of organic or inorganic origin such as coal or salt.

Net Revenue Interest: The share of production attributable to the working interest owner(s) after all royalties and/or overriding royalties have been paid.

Net Working Interest: Share of working interest attributable to each separate owner of a well.

Non-operating Interest: An individual or entity owning a portion of the working interest in a well, but not being responsible for its operations.

Non-participating Royalty: A type of royalty that entitles its owner to a share of production, but does not permit the owner to participate in (receive) bonus payments, delay rental payments or allow the owner to execute an oil, gas and mineral lease. This type of royalty generally originates from a reservation made in a deed by a previous grantee of the land in anticipation that the land will, at some point in the future, become subject to an oil, gas and mineral lease.

NORM: Abbreviation for normally occurring radioactive material.

NRI: Abbreviation for net revenue interest.

NWI: Abbreviation for net working interest.

OGML: Abbreviation for oil, gas and mineral lease.

Oil & Gas Lease: See Oil, Gas and Mineral Lease.

Oil, Gas & Mineral Lease: A contract between the mineral owner (lessor) and another individual or company (lessee) whereby the lessor allows the lessee to explore for and produce oil, gas and other minerals for a specified period of time known as the primary term and so long thereafter assuming oil, gas and/or other minerals are being produced in paying quantities. The lessee agrees to pay the lessor a signing bonus and future royalties on any producing oil, gas and/or other minerals in exchange for the right to develop the minerals.

Operating Agreement: See Joint Operating Agreement.

Operating Expenses: The costs associated with maintaining a well in working order.

Operating Interest: A working interest owner that is responsible for operating the well and is usually the lessee.

Operator: An individual or entity responsible for ongoing well operations.

ORRI: Abbreviation for overriding royalty interest.

Overriding Royalty: An interest in production that is free and clear of any costs. It is carved out of the working interest portion of a lease for the benefit of a previous lessee subsequent to an assignment.

Paid-up Lease: A type of oil, gas and mineral lease that does not require delay rental payments to maintain the lease during the primary term.

Participating Royalty: A type of royalty that entitles its owner to participate in bonus and/or delay rental payments received from the execution of an oil, gas and mineral lease.

Primary Term: The initial period of time during which an oil, gas and mineral lease will be in effect absent drilling, production or other operations as specified in the oil, gas and mineral lease.

Pugh Clause: A type of clause added to an oil, gas and mineral lease that limits the holdings of non-producing lands or depths beyond the primary term of an oil, gas and mineral lease.

RI: Abbreviation for royalty interest.

Royalty: A percentage of the revenue from oil and/or gas production that is paid to the mineral and/or royalty owner(s). Royalty revenues are free and clear of the costs associated with drilling and production.

Run Stub: A stub attached to a check which discloses periodic production information such as the well name, price received and total volume produced.

Salt Water Disposal Well: A well into which oilfield saltwater is disposed of.

Severance Tax: A tax due the state on the oil and/or gas produced or severed from the earth.

Severed Minerals: Minerals that have been separated from fee-simple title. Separation is usually accomplished by reservation in a deed.

Shut-in: An oil and/or gas well that has been temporarily inactivated due to lack of a suitable market, a lack of facilities to produce the product or other cases as defined in the shut-in provisions of an oil, gas and mineral lease.

SI: Abbreviation for shut in.

Surface Owner: The person or entity who owns the surface of a tract of land. Typically, if this term is used, it implies that the person or entity owns the surface of the land, but not the minerals beneath.

SWDW: Abbreviation for salt water disposal well.

Un-leased Minerals: Minerals not currently subject to an oil, gas and mineral lease.

WI: Abbreviation for working interest.

Working Interest: The interest under an oil, gas and mineral lease which embodies operating rights and/or the right to share in production or revenues from the producing venture. The working interest ownership bears 100% of the costs of production, and the working interest owners receive their share of production revenue after the royalty owners have taken their share and after all operating expenses have been deducted.

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