First Edition
The Latham & Watkins Glossary of
Oil & Gas Terminology
JARGON
Oil & Gas
The
BOOK
of
®
2
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1
The Book of Jargon
®
: Oil & Gas is one of a series of practice
area-specific glossaries published by Latham & Watkins.
The definitions contained in The Book of Jargon
®
are designed to provide
an introduction to the applicable terms often encountered in the oil &
gas industry. These terms raise complex legal issues on which specific
legal advice will be required. The terms are also subject to change as
applicable laws and customary practice evolve.
As a general matter, The Book of Jargon
®
: Oil & Gas is drafted from a US
perspective. The information contained herein should not be construed as
legal advice.
If you have suggestions for additional terms or expanded or clarified
definitions for the current terms, please send an email to
oil.gasglossary@lw.com.
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®
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2
1031 Exchange: another term for Like-Kind Exchange.
8/8ths / 8/8ths Basis: a term used to describe either the full Working
Interest or full Net Revenue Interest with respect to a given Tract.
Pursuant to an Oil and Gas Lease, the Lessor retains the Lessor Royalty.
Historically, the most common Lessor Royalty was 1/8th, meaning the
Lessor was entitled to 1/8th of the gross revenue attributable to the Tract
and the Lessee received 7/8ths of the Net Revenue Interest attributable to
the Tract. Due to the fact that most Lessor Royalties were historically set
at a 1/8th Royalty, the expression 8/8ths or on an 8/8ths Basis has become
commonly used to reflect the complete and undivided Net Revenue
Interest (with respect to entitlement to revenues) and/or Working Interest
(with respect to the obligation to pay costs and expenses), in each case,
prior to any carve-outs or reservations.
AAPL Model Form 610 Joint Operating Agreement (AAPL Form JOA):
a standard form of Operating Agreement published by the AAPL and
designed for use in the joint development of domestic oil and gas
interests. To date, the AAPL has promulgated four versions of the AAPL
Form JOA, and the 1989 form and 1982 form are the most commonly
used. Generally, the AAPL Form JOA governs the relationship between
two or more parties, establishes procedures and obligations for the
operation of a Tract for oil and/or gas Development, specifies the party
to serve as Operator and provides for the sharing of operating expenses
and Proceeds of Production.
The AAPL recently published a modified version of the 1989 form
designed to address matters unique to Horizontal Drilling operations.
CO2 Injection: a method of Enhanced Oil Recovery that increases the
Production of oil from a given Well by injecting the Reservoir in question
with carbon dioxide, thereby reducing the Viscosity of the oil contained
therein.
Form P-4: the Designation of Operator form filed with the RRC with
respect to Oil and Gas Properties located in the State of Texas.
The Form P-4 is entitled “Certificate of Compliance and Transportation
Authority” but is commonly referred to as “the Form P-4,” and must be
filed any time there is a change of Operator with respect to a Well or
Lease located in Texas in order that responsibility and accountability for
the Well or Lease can be properly assigned to the new Operator.
P10 / P50 / P90 / PMean: a probability methodology used to describe
the size of the Reserves in a Field. More specifically, this methodology
is used to define the probability that the actual size of the Reserves in a
Field exceeds a specified amount. For example, if a Field has a P10 of
one million Barrels, there is a 10% probability that the Field’s Reserves
exceed one million Barrels. The P50 number is the median, or estimated
to be the median, as there is a 50% chance that actual Reserves will
exceed that number.
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Producer’s 88: a colloquial term used to refer to the “Standard Producers
88 Oil, Gas, and Mineral Lease,” which is a common form of Oil and Gas
Lease.
PV-10: the SEC-reported value of particular Reserves. PV-10 is a standard
metric utilized in company disclosure filings with the SEC for valuation
of a company’s oil and gas Reserves, defined as the present value of the
estimated future oil and gas revenues, reduced by direct expenses and
discounted at an annual rate of 10%.
See also Reserve Report.
Rule 37 (Texas): the RRC’s Spacing rule applicable to all Oil and Gas
Wells in Texas (to the extent not preempted by special Field Rules), Rule
37 requires that all Wells be located a certain distance away from Lease
lines and other Wells that are drilled to the same Formation. Specifically,
a Well may not be located nearer than 467 feet from “any property line,
Lease line or subdivision line” or 1,200 feet from “any Well Completed in
or Drilling to the same Horizon on the same Tract or farm.” The purpose
of Rule 37 is to prevent waste of natural resources and protect owners’
Correlative Rights regarding common oil and gas Reservoirs. The RRC
may grant exceptions to Rule 37 after an Operator files an exception
application.
Rule 38 (Texas): the RRC’s density rule applicable to all Oil and Gas
Wells in Texas (to the extent not preempted by special Field Rules), Rule
38 specifies that only a certain number of Wells may be drilled within
a certain surface Acreage area. Although Rule 38 is Field specific and
can change based on several factors centered around efficient recovery,
typically, a single Oil Well is allotted 40 surface acres and a single Gas
Well is allotted 640 surface acres (such surface acres allotment being a
Drilling Unit). The purpose of Rule 38 is to prevent clustering of Wells and
overproduction of a common Reservoir. The RRC may grant exceptions
to Rule 38 after an Operator files an exception application.
Seismic Data / 2D Seismic / 3D Seismic / 4D Seismic: a type of technology
used to identify features and characteristics of subsurface Reservoirs by
bouncing sound waves off of subsurface rock Formations. 2D Seismic
results in a cross-section or square of data; 3D Seismic results in a cube
section of data; and 4D Seismic results in a cube section of data that
additionally shows how fluid moves through the applicable Formation.
Seismic testing can be conducted both on land or under water.
Uniform Commercial Code Financing Statement / UCC Financing
Statement / UCC-1 / UCC-3: in connection with a lien, a statement filed
by a creditor with the appropriate Secretary of State of the jurisdiction
where the relevant property is located or the jurisdiction where the
debtor is domiciled in order to perfect such creditor’s security interest
in the debtor’s personal property or in the equity interests of the debtor,
respectively (i.e., the creditor becomes a secured party). Perfection of
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an interest in oil and gas assets (whether such assets are tangible or
intangible or real or personal property) also requires a filing in the office
where a Mortgage on the real property concerned would be filed or
recorded.
A UCC-1 is used to perfect a new lien, and a UCC-3 is used to amend or
terminate an existing UCC Financing Statement.
A&D: abbreviation of Acquisitions & Divestitures.
AAA: acronym for American Arbitration Association.
AAPL: acronym for American Association of Petroleum Landmen.
AAPL Form JOA: abbreviation of AAPL Model Form 610 Joint Operating
Agreement.
AAPL Model Form 610 Joint Operating Agreement (AAPL Form JOA):
a standard form of Operating Agreement published by the AAPL and
designed for use in the joint development of domestic oil and gas
interests. To date, the AAPL has promulgated four versions of the AAPL
Form JOA, and the 1989 form and 1982 form are the most commonly
used. Generally, the AAPL Form JOA governs the relationship between
two or more parties, establishes procedures and obligations for the
operation of a Tract for oil and/or gas Development, specifies the party
to serve as Operator and provides for the sharing of operating expenses
and Proceeds of Production.
The AAPL recently published a modified version of the 1989 form
designed to address matters unique to Horizontal Drilling operations.
Abandon / Abandonment: in the oil and gas context, discontinuing
the use of a Well or other property, oftentimes due to a Well’s or other
property’s failure to yield Production in Paying Quantities. In the case of
a Well, Abandonment may be temporary (i.e., shut-in pending a change
in market conditions) or permanent (i.e., Plugged & Abandoned).
See also Shut-In Well.
Abstract / Abstract of Title: a chronology of the title of a Tract comprised of
all of the recorded instruments affecting the title to the Tract, which may
include complete copies of the recorded instruments or only a summary
of the instruments’ effects. A complete Abstract covers the period from
the land patent (i.e., the original grant issued from a sovereign power
or government) granted for the Tract through to the present day and
tracks all grants, Conveyances, gifts, severances, Encumbrance, liens
and other legal actions taken in relation to the Tract, including both the
Surface Estate and the Mineral Estate related thereto. An Abstract is
most commonly used during a Title Examination.
Accommodation Doctrine: with respect to a Severed Property, the
Accommodation Doctrine provides that, although the Mineral Estate
is the Dominant Estate (and the Surface Estate is the Servient Estate),
5
the owner of the Mineral Estate may nevertheless be required to
accommodate the Surface Estate owner’s use of the surface. The
Accommodation Doctrine applies when: (i) there is an existing use of the
Surface Estate prior to the Development of the Mineral Estate; (ii) the
Development of the Mineral Estate interferes with or impairs the existing
use of the Surface Estate; and (iii) reasonable alternatives are available
to develop the Mineral Estate without interfering with the existing use
of the Surface Estate.
Acidizing: a Production enhancing process that pumps hydrochloric acid
into an oil-bearing rock under high pressure, thereby dissolving the rock
and enlarging the pores in the rock, which allows the oil to flow into the
Wellbore more freely.
Acquisition Agreement: another term for PSA or Purchase Agreement.
Acquisition Costs: the costs a party incurs to secure an Oil and Gas Lease,
which will typically primarily consist of the Lease Bonus, but may also
include broker fees, legal fees, filing and recording fees, title insurance
and examination costs, and transfer taxes.
Acquisitions and Divestitures (A&D): a term used to describe a transaction
wherein an entity or person purchases or sells an asset, as opposed to a
transaction that includes the purchase and/or sale of equity or stock of an
entity or a joint venture arrangement.
Acreage: a general term most commonly used to describe and identify
the Lands subject to an Oil and Gas Lease. Acreage is used as a measure
of the amount of land that is the subject of an agreement or proposed
transaction.
An acre is equal to 43,560 square feet.
See also Producing Acreage and Undeveloped Acreage.
Acreage Exchange / Acreage Swap / Acreage Trade: a type of oil and
gas transaction in which the parties to the transaction exchange lease or
fee Acreage or other interests in oil and gas that the parties deem to be
of substantially similar or equal value. In contrast to a typical purchase
and sale transaction, often the consideration for these transactions does
not include a cash payment, though a cash component may exist in the
form of a true-up in the event that the Acreage or rights exchanged are
not substantially equivalent.
Ad Valorem Taxes: taxes imposed on property owners based on the value
of the property owned. Many counties and other political subdivisions
impose these taxes on owners of Mineral Interests.
Adjusted Purchase Price: a term used to describe the amount paid at the
Closing of a purchase and sale transaction after all adjustments allowed
under the applicable PSA have been made to the original purchase price.
In the oil and gas context, these adjustments may include adjustments to
6
account for Title Defects, Casualty Losses, Environmental Defects, Pref
Rights, Consents, Working Capital adjustments, revenues and expenses
attributable to the applicable assets for the period between signing of the
PSA and Closing, and the exclusion of certain properties.
Advance Royalty: a specified Royalty paid under an Oil and Gas Lease by
the Lessee prior to the date that operations begin. An Advance Royalty is
typically not contingent upon whether any oil or gas is extracted during
the term of the Lease.
See also Shut-in Royalty.
AFE: abbreviation of Authority for Expenditure.
After Payout (APO): the period after Payout has occurred.
In the context of a JOA or similar agreement, APO is often used to
describe the period after the Consenting Parties have recovered the costs
of Production plus the Non-Consent Penalty.
In the context of a PSA, a buyer will often want to know the seller’s
BPO Working Interest and APO Working Interest for Title Defect
purposes and in order to verify certain of the seller’s Representations and
Warranties. A party’s BPO interest and APO interest will often differ due
to the existence of a Back-In Interest, which will cause a reduction in the
amount of the party’s interest once Payout occurs.
Aggregate Defect Deductible: a limitation on the remedies available to a
buyer under a PSA or similar agreement. An Aggregate Defect Deductible
operates to require that a buyer assume the risk and liability associated
with Title Defects and Environmental Defects up to a specified amount
(which is often measured as a percentage of the applicable purchase
price). Once the aggregate amount of Title Defects and Environmental
Defects exceeds the Aggregate Defect Deductible, then the buyer will be
entitled to remedies from the seller for defect amounts over and above
the Aggregate Defect Deductible only.
AIPN: acronym for Association of International Petroleum Negotiators.
AIPN Form JOA: abbreviation of AIPN Model Form International
Operating Agreement.
AIPN Model Form International Operating Agreement (AIPN Form
JOA): a standard form of Operating Agreement published by the AIPN
and designed for use in the joint Development of international oil and
gas interests. Like the AAPL Form JOA, the AIPN Form JOA governs the
relationship between two or more parties, establishes procedures and
obligations for the operation of a Tract or offshore block for oil and/or gas
Development, specifies the party to serve as Operator, and provides for
the sharing of operating expenses and Proceeds of Production.
7
Allocated Value: that portion of the purchase price in a purchase and sale
transaction that is allocated to a specific asset pursuant to the applicable
PSA. The Allocated Values are often set forth on an exhibit to the PSA.
Allocated Values are commonly used in PSA purchase price adjustments,
particularly with respect to title issues.
See also Adjusted Purchase Price.
Allowable: the amount of Crude Oil or Natural Gas that a Well, Lease or
Field is permitted to produce in a set period of time as prescribed by the
applicable governmental authority.
See also Overages and Permitted Overages.
American Arbitration Association (AAA): a non-profit organization
focused on alternative dispute resolution. The AAA administers
arbitration proceedings and mediations, provides administrative services
in the US and abroad, and develops alternative dispute resolution systems
for businesses, government agencies, unions and the courts.
The AAA is the most commonly designated governing arbitration
organization used in US domestic arbitration agreements and provisions.
American Association of Petroleum Landmen (AAPL): a non-profit,
professional association for Landmen and land-related personnel in
the US focused on “landwork ,” including negotiating Mineral Rights,
arranging property-related business agreements, determining ownership
and title to Mineral Rights, and managing the rights and obligations of
pooled or unitized Mineral Interest owners.
The AAPL provides seminars, programs and workshops for oil and gas
industry professionals and promulgates various model form agreements
used in domestic oil and gas operations (e.g., the AAPL Form JOA).
American Petroleum Institute (API): a national trade association that
represents all facets of the US oil and gas industry and has traditionally
been focused on domestic projects. Among its most notable contributions
to the industry is the development of petroleum and petrochemical
equipment as well as operating standards.
See also API Gravity and API Well Number.
American Society for Testing and Materials / ASTM International (ASTM):
an international testing organization that creates standards for various
products, systems and services through research and development.
See also Reid Vapor Pressure and True Vapor Pressure.
AMI: abbreviation of Area of Mutual Interest.
Ancillary Documents: additional agreements, instruments and other
documents that all or some of the parties to a central agreement (e.g.,
a PSA) may execute in connection with the consummation of the
8
transaction(s) contemplated by the central agreement. Examples of
ancillary documents include: Assignments and Bills of Sale, TSAs,
Officer’s Certificates, Secondment Agreements, JOAs, parent guarantees,
Recording Memoranda and Tax Partnership Agreements, among others.
Annulus: a void or gap between two concentric objects such as the piping
or Casing of an Oil Well that allows fluid (e.g., Crude Oil) to circulate in
the gap. We’ll save you from our juvenile humor on this one.
Anticline: in structural geology, an Anticline is an arch-shaped fold
formed because of the compression and thrusting of rock formations due
to the Earth’s tectonic processes. In the context of oil and gas, Anticlines
are a very common type of Trap and often indicate the presence of
Hydrocarbons.
API: acronym for American Petroleum Institute.
API Gravity: a standard which the API has adopted to measure the
density of a liquid. Gravity, which is a liquid’s weight per unit of volume, is
expressed in degrees based on a system which the API has promulgated.
Less dense, lighter oils have a higher API Gravity.
API Well Number: a unique permanent 12-digit identifier that the API
assigns to each Oil Well and Gas Well drilled in the US.
APO: abbreviation of After Payout.
Appalachian Basin: a regional Basin that includes the states of Alabama,
Georgia, Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee,
Virginia and West Virginia, and contains the Marcellus Shale and the
Utica Shale.
Appraisal Well: a Well drilled after the discovery of oil and gas in order
to determine the physical extents, Reserves and likely production rate of
a Field, as well as the characteristics of the Hydrocarbons to be produced
therefrom.
Approved for Development: in connection with Reservoir Engineering
and management, Approved for Development means that all approvals
have been obtained and the necessary capital is committed to the
development project.
See also On Production and Justified for Development.
Aquifer: an underground layer of Permeable and porous rock that either
contains or transmits Groundwater. The amount of Groundwater in an
Aquifer is measured by the Aquifer’s water table and can vary at any
given time depending on the season and the amount of Groundwater
that has passed through the Aquifer at that point in time.
Area of Mutual Interest (AMI): a geographic area generally defined by
a contract (e.g., Farmout, JOA, JDA or similar agreement) within which
two or more persons hold an interest. Under the AMI provision of an
9
agreement, the parties to the agreement agree to offer to share all new
acquisitions of oil and gas interests located in the AMI according to
certain negotiated percentages.
Arms-Length Transaction: a transaction between two unaffiliated
parties or entities acting independently. The phrase is used to describe a
transaction in which both parties are presumed to have equal bargaining
power and equal information regarding the transaction, and that the
agreed upon price or determination of Fair Market Value is fair without
influence from the shared interests of, or relationship between, the
parties (if any).
Artificial Lift: a process used to enhance the production rate of a Well
by increasing the pressure within the Reservoir. Artificial Lift generally
falls into two categories: (i) pumping systems (e.g., Beam Pumping and
electrical submersible pump systems); and (ii) Gas Lifts.
As Is, Where Is: a phrase used in PSAs and related real property
Conveyance instruments pursuant to which the seller states that the
property is being sold in its present condition, with whatever faults or
defects that may exist, and disclaims all Representations and Warranties
as to the applicable property other than those contained in the applicable
documents at the time of the sale.
Also seen as a colloquial term used to describe a transaction in which the
seller gives no title, environmental, or other representations or warranties
with respect to the applicable assets being sold. What you see (or even if
you don’t see it) is what you get.
Asset Taxes: a term often used to describe taxes assessed with respect to
the ownership and/or operation of oil and gas assets or the Production
therefrom, which typically include Ad Valorem, property, excise,
Severance, Production and similar taxes.
Assignment and Bill of Sale: an instrument used to evidence the sale,
transfer or Conveyance of an ownership interest in real property
(including oil and gas rights).
Assignment of Production: the Conveyance or transfer of an interest in
the Hydrocarbons produced from a certain Well, Unit or area based on
a pre-agreed metric. The assignment may be for a set term (e.g., until
a certain amount of Production has been received or for a set period of
time) or may be indefinite.
Associated Gas: Natural Gas produced from a Reservoir in connection
with the Production of Crude Oil. Associated Gas can manifest itself as
either free gas or in a solution with water and/or oil.
In contrast, see Unassociated Gas.
10
Association of International Petroleum Negotiators (AIPN): a non-profit
professional association that supports international energy negotiations.
The AIPN provides seminars, programs and workshops for oil and gas
industry professionals, and promulgates various model form agreement
documents that are recognized as the standard in international energy
transactions (e.g., the AIPN Form JOA).
Assumed Obligations: the specific risks, liabilities and obligations that
a buyer (in an asset or equity transaction) expressly agrees to assume
pursuant to the applicable PSA. Assumed Obligations may be, but are
not always, delineated by the time period (e.g., prior to Closing or the
Effective Time) in which the obligations arose. Assumed Obligations
often serve as the basis for a buyer’s indemnity obligations under a PSA.
See also Our Watch, Your Watch.
ASTM: acronym for American Society for Testing and Materials.
Authority for Expenditure (AFE): a document or invoice detailing
the estimated costs of a particular oil and gas operation. If utilized in
connection with an oil and gas operation, the Operator typically prepares
the AFE and submits the AFE to the non-operating parties for approval
prior to the commencement of the operation.
Back-In / Back-In Interest: a reversionary interest held by a party
(generally pursuant to a Farmout, JOA, JDA, Lease or Assignment and
Bill of Sale) that entitles the party to a specified share of the Working
Interest once Payout occurs.
Bakken Shale: a Shale Play located primarily in North Dakota, Montana
and portions of Southern Canada.
Barnett Shale: a Shale Play located in North Central Texas.
Barrel (Bbl): a standard unit of liquid measurement used in the oil and
gas industry. One Barrel is equal to 42 US gallons.
Barrel of Oil Equivalent (BOE): a metric used to convert volumes of
different Hydrocarbons (e.g., NGLs, Natural Gas and Crude Oil) into
a single, liquid-based, volumetric measure for comparison purposes. A
unit of BOE is based off of the approximate (because different grades of
Crude Oil have different heating values) energy released from burning
one Barrel of Crude Oil, calculated on a Btu basis.
Barrel of Oil Equivalent Per Day (BOE/d): a rate at which BOE is produced
per day.
Barrel of Oil Per Day / Barrel Per Day (Bopd) (Bbl/d): a rate at which
Crude Oil or other liquids are produced per day.
Base Case: a report that a financial institution may prepare as part of
the oil and gas loan underwriting process that analyzes the ability to
11
convert the applicable underlying oil and/or gas assets into cash in order
to repay the loan based on standard assumption scenarios.
Basin: a geologic term used to describe a depression in the crust of the
Earth in which sediments accumulate. Basins that contain Shale or other
Hydrocarbons may be referred to as a Play.
Bbl/d: abbreviation of Barrel Per Day.
Bcf: abbreviation of Billion Cubic Feet.
Bcfe: abbreviation of 1 billion Cubic Feet Equivalent.
Beam Pumping: another term for Sucker-Rod Lift.
Before Payout (BPO): the period before Payout occurs.
In the context of a JOA or similar agreement, BPO is often used to
describe the period before the Consenting Parties have recovered the
costs of Production, plus the Non-Consent Penalty.
In the context of a PSA, a buyer will often want to know the seller’s BPO
Working Interest and APO Working Interest for Title Defect purposes and
in order to verify certain of the seller’s Representations and Warranties. A
difference between a party’s BPO interest and APO interest is often due
to the existence of a Back-In Interest, which may cause a reduction in the
amount of the party’s interest once Payout occurs.
Behind Pipe: Non-producing Reserves that are expected to be recovered
from the productive Zones in existing Wells with additional Completion
or Recompletion work.
Bell Nipple: not nearly as interesting as it sounds. A piece of pipe at the
top of a Casing String used as a guide for inserting the drilling tools into
the top of a Well. A Bell Nipple is often designed with a side outlet that
attaches to Flowline in order to allow the Drilling Mud to Flow Back to
the Drilling Mud tanks.
BIA: acronym for Bureau of Indian Affairs.
BIA Lease: an Oil and Gas Lease that is promulgated and used by the
BIA in connection with the leasing of Indian Lands.
Billion Cubic Feet (Bcf): a unit of measurement for Natural Gas volumes.
Bit: a rotating tool designed to grind, cut, scrape, and crush rock and
other subsurface materials in order to create a Wellbore.
Bitumen: a heavy tar-like substance found in natural Oil Sands Deposits.
The presence of Bitumen leads Oil Sands to be colloquially referred to
as “tar sands.”
Black Oil: the dark, colored oils extracted from petroleum (e.g.,
lubricating oils).
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Bleed Off: not just what happens to the oil and gas industry when
commodity prices hit rock bottom. The process of slowly Venting fluid
from a vessel or system in order to equalize or relieve pressure from the
vessel or system, and make the next phase of the operation possible. This
process is often used at the end of a high-pressure test / treatment.
BLM: acronym for Bureau of Land Management.
BLM Lease: an Oil and Gas Lease covering Lands that the US federal
government owns and the BLM administers.
Blowout: a sudden escape of Hydrocarbons from a Well, often caused by
uncontrolled high pressure (including as the result of mechanical failure
or other error). Blowouts typically occur during the drilling phase of
operations. Like your tire blowing out on a deserted stretch of highway
... Blowouts are bad news.
Blowout Preventer: a piece of equipment installed at the Wellhead to aid
in controlling the pressure in the Well Tubing during Drilling, Completion
and Workover operations.
BOE: abbreviation of Barrel of Oil Equivalent.
BOE/d: abbreviation of Barrel of Oil Equivalent Per Day.
BOEM: acronym for Bureau of Ocean Energy Management.
Bonus: a form of consideration paid to the Lessor in connection with
the execution of an Oil and Gas Lease that is in addition to any Royalty
granted to the Lessor; a Bonus is typically calculated on a dollar per acre
basis.
Bopd: abbreviation of Barrel of Oil Per Day.
Borehole: another term for Wellbore.
Bottomhole Agreement: an agreement wherein one party agrees to
contribute either Acreage or cash in exchange for geological or drilling
information with respect to a Well that is drilled to a specified depth or
Formation.
Bottomhole Assembly: the portion of a Drilling Rig composed of the Drill
Bit and the equipment connecting the Drill Bit to the Drill Pipe.
Bottomhole Contribution: another term for Bottomhole Agreement.
Bottomhole Location: the location of the deepest part of a Well. In a
traditional (i.e., Vertical) Well, the Bottomhole Location and the Surface
Hole Location are essentially the same; however, in Horizontal Wells,
which are intentionally deviated from the vertical, the Bottomhole
Location and Surface Hole Location are different. For Horizontal Wells,
the Bottomhole Location is used as the reference point for certain
identifying metrics (i.e., Well numbering) and to identify the persons
entitled to Royalties on the Well.
13
Bottomhole Pressure: the Reservoir or Formation pressure at the
Bottomhole Location.
Brent Crude: a particular trading classification of light Sweet Crude Oil
extracted from certain Reservoirs underlying the North Sea that serves
as a benchmark price for light Sweet Crude Oil in particular and as a
global benchmark price for Crude Oil in general.
The price of Brent Crude is often referenced alongside the price of WTI
(among others), although Brent Crude is not as light or sweet as WTI.
Brine: the salty water produced in connection with oil Production from
an Oil Well.
British Thermal Unit (Btu): the measure of heat energy content in
Hydrocarbons (i.e., the amount of heat a particle of the Hydrocarbon
generates when burned). One Btu is the amount of heat required to
increase the temperature of 16 ounces of water by one degree Fahrenheit.
Btu: abbreviation of British Thermal Unit.
Buck the Line Pressure: a colloquial phrase used to describe the situation
when Compression is needed to push Natural Gas into a Pipeline because
the pressure of the gas being produced is less than the pressure in the
Pipeline. Just picture the force of a bucking bronco ...
Burden / Burden on Production: those amounts that an Oil and Gas
Lease or other agreement requires to be paid out of or measured by the
Production of Hydrocarbons from the Tract(s) covered by the Lease or
agreement (e.g., Lessor Royalties, ORRIs, NPRIs and NPIs).
Bureau of Indian Affairs (BIA): the US government agency charged with
handling all affairs with regard to Indian Lands, including with respect
to oil, gas and/or other minerals underlying Indian Lands. The BIA is a
bureau within the US Department of the Interior.
Bureau of Land Management (BLM): the US government agency charged
with managing onshore public lands and federally owned Mineral
Estates. The BLM is a bureau within the US Department of the Interior.
Bureau of Ocean Energy Management (BOEM): the US government
agency charged with managing offshore oil and gas and renewable
energy-related resources, specifically those located in the Outer
Continental Shelf. The BOEM is a bureau within the US Department of
the Interior.
Butane: a gaseous hydrocarbon chain consisting of four carbon atoms.
Butane is often a component of unrefined Natural Gas. Butane is a type
of NGL and is sometimes colloquially referred to as “C4.”
CA: abbreviation of Confidentiality Agreement.
CAA: acronym for Clean Air Act.
14
Cap Ex: abbreviation of Capital Expenditures.
Capacity: the size, volume or amount of an applicable substance that a
particular vessel, Pipeline, storage unit or other similar asset can hold,
transport or service.
Capacity Use Agreement: an agreement related to the use of a reserved
amount of Capacity on a Midstream asset system (e.g., a Pipeline system)
and other rights related to the handling of Hydrocarbons on the asset
system.
Capital Expenditures (Cap Ex): the aggregate expenses paid to
purchase, acquire, or upgrade any fixed, physical, non-consumable or
capital asset (e.g., a Well, buildings or Well equipment) that should be
capitalized in accordance with GAAP (exclusive of normal replacements
and maintenance expenditures that are properly charged to current
operations).
Carried Costs / Carry: a disproportionate funding arrangement used
in oil and gas joint development programs whereby one party pays all
or a portion of another party’s Working Interest costs with respect to a
particular Oil and Gas Property, whether for a set period of time or up to
a set amount of Carried Costs.
See also Development Costs.
Carried Interest / Carried Working Interest: the fractional, non-possessory
interest carved out of a Working Interest that is exclusive from all costs
of Development and/or operations for a set period of time (i.e., the Carry
Period). During the Carry Period, the Carrying Party(ies) advance all
or a portion of the Carried Interest owner’s share of development and/
or operating costs. At the expiration of the Carry Period, the Carried
Interest will bear the development and/or operating costs and share
in any subsequent Production according to an agreed sharing ratio,
typically based on Working Interest ownership.
Carry Period: the set period (which may be based off a set period of
time, a total number of wells drilled, a defined set of operations or the
recoupment of a defined dollar amount of Carried Costs) during which
the Carrying Party pays Carried Costs on behalf of a Carried Working
Interest owner.
Carrying Party: in a joint development arrangement involving a Drilling
Carry, the party that is obligated to pay the applicable Carried Costs.
Cash and Carry: a type of transaction in which a portion of the
consideration for the applicable assets is paid in cash at the Closing of
the transaction (and/or in periodic installments), and the remainder of
the consideration is paid in the form of Carried Costs.
Cash Balancing: a true-up mechanism (often seen in hydrocarbon
sales contracts, Midstream Service Agreements and Acreage Trade
15
agreements) that allows parties to an agreement to correct an imbalance
(e.g., a Pipeline Imbalance or Acreage imbalance) by a cash settlement.
In contrast, see In-Kind Balancing.
Cash Call: sadly, it’s not Ed McMahon on the phone from Publisher’s
Clearinghouse (in fact, it’s quite the opposite really). A request an
Operator sends to the Working Interest owners participating in a given
operation for the payment of each such Working Interest owner’s share of
costs related to the operation. Cash Calls may be used to solicit advance
payment of anticipated costs or the reimbursement of previously incurred
costs.
In the context of a joint venture entity, Cash Calls are delivered to
the entity’s members, partners or shareholders, as applicable, for the
advancement or reimbursement of certain costs of the entity.
Casing: a part of the completion process during which a hollow steel
pipe (a setting pipe) is run down the Wellbore and cement is poured into
the Annulus to protect the raw sides of the Wellbore from damage (e.g.,
prevent cave-ins and isolate the Wellbore from the subsurface fluids).
Casing String: another term for Casing.
Casinghead Gas: Natural Gas that is produced together with Crude Oil
from an Oil Well, which generally contains dissolved and/or Associated
Gas.
Casualty Loss: a concept seen in a PSA that affords the buyer certain
protections against certain losses of, damage to, and/or governmental
taking of, the applicable assets being purchased with respect to the time
period between signing and Closing. The scope of what constitutes a
Casualty Loss, and the applicable remedies available to the buyer, will
vary from transaction to transaction and may or may not include a repair
requirement, a monetary make whole payment, the receipt of applicable
insurance proceeds, and/or an ability to terminate the applicable PSA
and the underlying transaction.
Cat Line: a rope or cable used to move small rig components and loosen
or tighten the joint on pipe tongs.
Catwalk: not the type frequented by supermodels, an elongated platform
that runs adjacent to the rig floor which is used as a staging area for pipe
and other Drill String tools prior to lifting them into the Derrick.
CBM: abbreviation of Coalbed Methane.
Cellar: a hole dug at the drillsite before the Derrick is erected, the
purpose of which is to serve as a work space for equipment underneath
the Derrick floor.
CERCLA: acronym for Comprehensive Environmental Response,
Compensation, and Liability Act; commonly pronounced “surk-la.”
16
Certificate of Non-Foreign Status: a certificate, meeting explicit
regulatory requirements, executed by a transferor (i.e., the seller) of US
real property assets and delivered to the transferee (i.e., the buyer) to
protect the transferee from liabilities that may arise from the failure to
withhold taxes that apply to the transfer of US real property by a foreign
transferor pursuant to FIRPTA.
Cessation of Production Clause: a Savings Clause included in many US Oil
and Gas Leases that allows for a temporary pause in Production without
terminating the Lease; provided, that the Lessee begins subsequent
Drilling or Reworking operations that are intended to restore Production
under the Lease within a set period of time.
CFE: abbreviation of Cubic Feet Equivalent.
CFIUS: acronym for Committee on Foreign Investment in the United
States; commonly pronounced “siff-ee-us.”
Chain of Title: with respect to real property interests, the chronological
sequence of title ownership that tracks ownership from the present time
back to a specified point in time (often back to the original grant from the
sovereign entity). A Chain of Title may include deeds, estate distributions,
certificates of death of joint tenants, foreclosures, judgments of quiet title,
assignments and any other instrument made of public record affecting
the ownership of the specific real property interest in question.
Change-in-Control Provisions: a provision in an agreement that creates
a restriction on transfer against a party and gives the other party certain
rights (e.g., Consent, rights of first refusal or termination) in the event
that the first party undergoes (or is planning to undergo) a change in
control (i.e., when the first party ceases to be controlled by the persons or
entities currently controlling the first party).
Christmas Tree: an assembly of valves, spools and fittings connected at
the top of a Well that is used to direct and regulate the flow of fluids from
the Well. The assembly is often triangular in appearance and painted
green, giving rise to the term Christmas Tree, and if your Well has
Production in Paying Quantities, it may feel like Christmas too.
Clean Air Act (CAA): a federal law that regulates the emissions of air
pollutants from stationary and mobile sources, including oil and gas
equipment and operations.
Clean Out Costs: the costs incurred in connection with removing
Wellbore-fill materials (e.g., sand and other debris) that are not otherwise
carried to the surface in the produced fluid in order to maintain or restore
the productive capacity of a Well.
Clean Water Act (CWA): a federal law that establishes standards for
surface water quality and for the discharge of pollutants into regulated
waters. The CWA also includes regulations governing the dredging
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and filling of regulated wetlands and stormwater runoff from certain
industrial, commercial and construction sites.
Close / Closing: yee-haw! The consummation of a transaction. Closing
is typically the point in time when all agreements between the parties
to the transaction are finalized, executed and delivered, when the
applicable consideration is exchanged, and, if applicable, when title to
the applicable oil and gas interests are transferred to the buyer. Closing
is also the point when the parties’ attorneys can finally get some sleep
and remind their families that they exist.
CO2 Injection: a method of Enhanced Oil Recovery that increases the
Production of oil from a given Well by injecting the Reservoir in question
with carbon dioxide, thereby reducing the Viscosity of the oil contained
therein.
Coalbed Methane (CBM) / Coal Seam Gas: the Methane-rich Natural
Gas that occurs in association with coal (as opposed to petroleum).
Coalbed Methane and Coal Seam Gas are also known as Sweet Gas due
to the lack of hydrogen sulfide present in the gases.
Commencement of Drilling Operations / Commencement of Operations:
a Savings Clause often included in a US Oil and Gas Lease that generally
permits a Lease to be preserved after the expiration of its Primary Term
without Production in Paying Quantities if the Lessee has undertaken
modest preparations for Drilling (e.g., obtaining Drilling Permits, moving
tools and equipment to the drill site, arranging for water supply for
Drilling and similar on-site activities) with the good-faith intention to drill
a Well on the applicable Lease. Note, however, that certain jurisdictions
have interpreted the clause to require actual Drilling (i.e., that a Drill Bit
has penetrated the ground) in order for the Lease to be preserved.
Commercial Risk: an economic risk resulting from the operation of a
business, which may include financial risks, production risks and market
risks.
Commercial Well: another term for a Well that has Production in Paying
Quantities or Production in Commercial Quantities.
Commingle: not quite as awkward as your office holiday party. To mix
Hydrocarbons originating from two or more sources in an unsegregated
manner.
Committee on Foreign Investment in the United States (CFIUS): an
inter-agency committee of the US government authorized to review,
investigate, approve, and/or block any transaction or investment that
may result in foreign control of a US business, in each case, in order
to determine the effect, if any, of the transaction or investment on US
national security.
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Communitization: the combining of small Tracts of federal and/or Indian
Lands with other Lands to create Tracts large enough to conform to the
established Well Spacing program and regulations for the applicable
jurisdiction.
See also Pooling and Unitization.
Community Lease: a Lease covering two or more separately owned
Tracts used to effectuate voluntary Pooling Agreements.
Complete a Well / Completion / Completion Services / Completed: the
process and/or operation(s) necessary to bring a Wellbore into Production
after Drilling operations have been completed. Completion may include
installation of all production facilities, installation of Casing, Perforating,
Hydraulic Fracturing, conducting Well simulation and Production
Testing, and commencement of hydrocarbon sales.
In the case of an unsuccessful Well, this term may be used to describe the
temporary or permanent Plugging and Abandonment of the Well.
Completion Report: a certified report or form that many state conservation
regulations require to be filed by a Well Operator with the applicable
conservation entity after a Well has been Completed (or Recompleted).
A Completion Report often includes information related to the Well
location, Lease name, date of first Production, name and depth of
produced Reservoir, Well Logs and test results, and Well construction
details.
Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA): CERCLA, also known as the Superfund Act, is legislation
that provides for the clean-up of contaminated sites. Two of CERCLA’s
most important aspects are that it (i) generally provides for joint and
several liability of all potentially responsible parties, and (ii) is retroactive,
meaning that the EPA has the power to sue any potentially responsible
party at sites that were contaminated before CERCLA was enacted.
Potentially responsible parties under CERCLA include the: (a) current
owner or Operator of the site; (b) owner or Operator of the site at the
time that disposal of the regulated pollutant(s) occurred; (c) person who
arranged for disposal of the regulated pollutant at the site; and (d) person
who transported the regulated pollutant at the site.
Compressor / Compressor Station / Compression: a device or facility
located along a Natural Gas Pipeline that raises the pressure of the
Natural Gas flowing in the Pipeline, which in turn compresses the Natural
Gas, thereby both increasing the effective Capacity of the Pipeline and
allowing the Natural Gas to travel longer distances (and at a higher rate)
to the intended Delivery Point.
Compulsory Pooling / Compulsory Unitization: other terms for Forced
Pooling.
19
Condensate: the heavier liquid hydrocarbon mixture that (i) condenses
out of petroleum Hydrocarbons that exist in a gaseous state in the
underground Reservoir during Production, and (ii) is removed at the
Wellhead without additional Processing. Condensate is most commonly
associated with Gas Fields.
Confidentiality Agreement (CA): an agreement by which the applicable
parties agree to protect the confidentiality of certain information that
will be, or has been, shared between the parties, generally regarding
an underlying transaction. A Confidentiality Agreement restricts each
party’s ability to disclose or share the confidential information, other than
in certain permitted situations (e.g., as may be required by law).
Connate Water: another term for Brine.
Consent: the approval or authorization required from a party (or parties)
before another party can perform certain actions (e.g., transfer a given
asset or contract) or conduct certain operations.
Consenting Party: a party that approves or authorizes the action that is
the subject of the requested Consent. In the context of a JOA, a Working
Interest owner who has Consented to, or otherwise agreed to participate
in, a given operation.
Conservation: the act of preventing the loss and/or waste of natural
resources, which state or federal regulations often accomplish through
imposing limitations on the development of those resources, such as
regulations that maximize utilization of Reservoir energy or encourage
early uses of Secondary Recovery operations.
Contingent Resources: resources that are potentially recoverable
from a particular Formation but that are not currently commercially
recoverable for technological (e.g., lack of necessary equipment) or
business reasons (e.g., lack of required environmental or governmental
approvals). For Contingent Resources to move into the Reserves category,
the technological and/or business hurdles preventing commercial
development must be removed.
Continuation Statement: an amendment to a financing statement that is
filed with the appropriate governmental authorities to extend the period
of perfection of a lien and security interest.
Continuous Drilling Obligation: a Savings Clause in many US Oil and
Gas Leases that allows a Lease to be maintained beyond its Primary
Term without Production in Paying Quantities if the Lessee is actively
engaged in the types of Drilling operations specified in the Lease.
In a Farmout or similar joint development situation, the developing
party’s (e.g., the Farmee’s) agreed obligation to drill a certain number of
Wells (at a certain frequency and to a specified depth) in the prospective
area in order for the developing party to earn its share of the applicable
Acreage.
20
Contract Area: the geographic area designated under an applicable
agreement (e.g., a JOA, JDA or Seismic Data sharing agreement) in
which the participants may share responsibilities, duties, costs and rights
(e.g., development or acquisition rights). A Contract Area is usually
defined in the applicable agreement with a narrative description and a
set of defined coordinate points or a plat.
Contract Depth: the depth designated by an applicable agreement (e.g.,
a Farmout agreement or drilling contract) to which a Well must be drilled
in order to satisfy the agreement’s requirements. The Contract Depth may
be a final depth (i.e., Total Depth) or an intermediate point or milestone.
Contract Operating Agreement: an agreement between an Operator
of record, who is also a Working Interest owner, and a third party non-
Working Interest holder, in which the parties agree that the third party
will act as the Operator of a certain Contract Area, but the other party will
remain the Operator of record for that Contract Area. These agreements
are often similar to a traditional JOA and used in situations where the
Operator of record must be a Working Interest owner but no such owner
is capable of acting as Operator.
Contract Operator: the person a Contract Operating Agreement
designates to act, on behalf of the Operator of record, as the Operator
regarding a given operation and/or Contract Area.
Contribution Agreement: in a joint venture or joint development context,
an agreement under which one party contributes (i.e., transfers) certain
assets, stock and/or cash to the joint venture or joint development entity
(which at the time of the contribution is typically an affiliate of the
contributing party). Typically, immediately following the contribution, a
portion of the equity in the joint venture entity will be sold to the other
joint venture parties. A Contribution Agreement often contains similar
provisions and terms as a PSA.
Conventional Drilling: a drilling method used both onshore and offshore
in which the Operator drills a Well vertically below the surface until a
Reservoir is reached by the Well, after which time the Hydrocarbons in
the Reservoir are brought to the surface through the Wellbore.
Conventional Reservoirs: a Reservoir consisting of sandstone or carbonate
rock that allows Hydrocarbons to migrate and collect naturally. In a
Conventional Reservoir the Hydrocarbons are typically held in place by
a sealing caprock.
Conventional Resources: a term used to describe the oil and gas produced
by Conventional Drilling means and methods.
Convertible Overriding Royalty Interest: an ORRI that, upon a triggering
event, converts into a full Working Interest.
Conveyance: a transfer of property or an interest in property by means of
a written instrument (e.g., an Assignment and Bill of Sale).
21
COPAS: acronym for Council of Petroleum Accountants Societies;
commonly pronounced “co-pus.”
COPAS Accounting Procedure: a form accounting procedure COPAS
promulgates that is attached as an exhibit to the AAPL Form JOA.
The procedure delineates the accounting treatment of the operations
conducted pursuant to the applicable JOA, including how (i) to classify
certain costs incurred under the JOA as Direct Charges or credits to
the Joint Account, (ii) to calculate the Operator’s overhead charges and
how the Operator is to recover the overhead charges, (iii) to manage
materials and inventory relating to JOA operations, and (iv) audits may
be conducted.
Core / Core Sample / Coring: a representative cylindrical section of rock
and/or sediment extracted during the Drilling process, which geologists
use to evaluate the applicable Formation from which the Core was taken.
Correlative Interval: in a Field in which a Horizontal Well has been
Completed, the depth interval that is the producing interval for that Field.
Correlative Rights Doctrine: a doctrine that governs the concurrent
rights of multiple land owners in a common resource (e.g., a Producing
Formation). While the doctrine’s specifics and application to oil and gas
Production will vary by jurisdiction, the Correlative Rights Doctrine
generally has two aspects: (i) a person’s right to produce Hydrocarbons
from his Well (as a corollary to the Rule of Capture); and (ii) a mineral
owner’s right to protect against Drainage of a common oil and gas
Reservoir and his right to his fair share of the Hydrocarbons in the
Reservoir.
Cost Depletion: determined by allocating certain costs of extracting
natural resources over a property’s life, Cost Depletion assesses the total
amount of the natural resource to be extracted, how much of the natural
resource was extracted during the relevant tax year, and the taxpayer’s
tax basis in the property. The percentage used to determine the deduction
in that period is the proportion of (i) the natural resources extracted from
the applicable property, divided by (ii) the total amount of recoverable
natural resources from the applicable property.
In contrast, see Percentage Depletion.
Cost Oil: the share of Production allocated to the Operator pursuant
to a Production Sharing Contract to pay for certain exploration costs,
Production Costs and/or Development Costs.
Co-Tenant / Co-Tenancy: a type of concurrent real property estate
where two or more persons own an undivided interest in the same Tract
through separate titles, but each owner has an equal right to possess
and enjoy the entirety of the applicable Tract. In the oil and gas context,
each Co-Tenant has the right to explore for and produce any oil and gas
attributable to the Tract without any other Co-Tenant’s permission.
22
Council of Petroleum Accountants Societies (COPAS): a non-profit
organization comprised of oil and gas industry accounting professionals
that, among other things, promulgates the COPAS Accounting Procedure.
Cross-Conveyance / Cross-Assignment: a type of Conveyance typically
seen in the context of the joint development of a set of properties where
each party involved owns disparate interests across the properties. A
Cross-Conveyance is used to make the interests of the parties uniform as
to each applicable property. and provides that each party assigns to each
of the other parties certain fractional interests in the applicable properties
such that, after making the Cross-Conveyance, each of the parties then
owns a uniform interest across the applicable properties (which interests,
however, may or may not be the same for each of the parties).
Crude Oil: a mixture of Hydrocarbons that exists in a liquid state in
natural underground Reservoirs and that remains liquid at atmospheric
pressure after passing through surface separating facilities. Crude Oil
is traditionally comprised primarily of unrefined petroleum and a lesser
amount of other organic compounds and various metals, and is typically
Refined to produce products such as gasoline and diesel.
Cubic Feet Equivalent (CFE): a metric used to convert volumes of
different Hydrocarbons (e.g., NGLs, Natural Gas and Crude Oil) into
a single, gaseous-based, volumetric measure for comparison purposes.
CFE are used to compare Crude Oil Production (measured in Barrels) to
Natural Gas Production (measured in cubic feet). CFE are also used to
compare Dry Gas Production and Wet Gas Production, as the Cubic Feet
Equivalent calculation includes the NGL components present in the Wet
Gas stream.
Typically, 6,000 CFE is considered equal to one Barrel of Crude Oil, but
the exact conversion factor is dependent upon the particular composition
of the Natural Gas (i.e., whether the gas is Wet Gas or Dry Gas and the
NGL content of any Wet Gas).
Cumulative Production: the aggregate amount of Hydrocarbons produced
from a Reservoir as of a specific point in time. Cumulative Production
metrics may also be tied to a particular Well, Basin or Field.
Curative Work: actions performed or documents provided to correct
a defect in the Chain of Title (e.g., correcting recorded instruments,
securing affidavits of non-production or stipulations of interest, obtaining
Quitclaim Deeds) in order to perfect title to the property or interest, or
satisfy requirements in a Title Opinion.
Cure Period: a set time period delineated in a contract (e.g., a PSA)
during which a party to the contract may attempt to cure a breach of the
contract or a defect with respect to a property governed by the contract
(e.g., Title Defect Property or Environmental Defect Property).
23
Curtailment: an interruption, suspension, reduction or cessation of
(i) Hydrocarbon Production or (ii) performance under a Gathering,
Processing, marketing or other Midstream agreement.
Cushing Hub / Cushing, Oklahoma: a significant trading hub for Crude
Oil in North America located in Cushing, Oklahoma, and the location
specified for physical delivery of West Texas Intermediate futures
contracts traded on the NYMEX. Relatedly, Cushing, Oklahoma is also
the locus for a considerable amount of Crude Oil storage Capacity. The
Cushing Hub interconnects with multiple interstate and intrastate Crude
Oil Pipelines.
Customary Post-Closing Consents: consents and approvals from
governmental authorities that are customarily obtained after the Closing
of a transaction (e.g., pro-forma filings with government entities and
requests for change of operatorship or ownership of a BLM Lease).
Cuttings: rock chips broken-off from a Formation by the Drill Bit and
analyzed to make geological determinations about the Formation.
CWA: acronym for Clean Water Act.
Day Rate Contract: an agreement between an Operator and a Drilling
Contractor under which the Drilling Contractor is paid a set amount of
money per day until an agreed upon Well depth is reached.
Debtor in Possession (DIP) / DIP Financing: a type of financing granted
to an entity that has filed for bankruptcy while its bankruptcy case is
pending. DIP Financing is typically only provided if the lenders believe
that the applicable entity has a plan for (and credible chance of) turning
the entity around (rather than an instance where the lenders believe the
entity must liquidate all or a portion of its assets to fund operating and
restructuring expenses during the case).
Decline Curve: a tool used in the oil and gas industry to forecast future
production rates and analyze historic production data to determine the
expected ultimate recoverable Reserves of a Well or Reservoir. The most
common technique is to plot production rates versus time or Cumulative
Production.
Decommissioning: in connection with P&A activities, Decommissioning
involves the removal of related production equipment and facilities,
typically in connection with offshore oil and gas development.
Dedicated Area: a geographic area, typically found in a hydrocarbon
Purchase Agreement or Midstream services agreement, that the party
who is the holder of the applicable Hydrocarbons will dedicate to the
applicable agreement. Depending on the context, a Dedicated Area may
be a Dedication to sell all Hydrocarbons produced from that Dedicated
Area to the applicable buyer or deliver all the Hydrocarbons produced
from that Dedicated Area to the applicable Midstream service provider.
24
Dedication: a promise or commitment of a certain amount of Production
from a Dedicated Area to the purchaser in a hydrocarbon Purchase
Agreement or to the service provider in a Midstream services agreement.
Deed of Trust: an instrument used in a Deed of Trust State to secure a lien
on real property interests located in the state and typically recorded in
the county records in which the pledged real property is located.
A Deed of Trust conveys the title to real property collateral pledged to
secure an obligor’s debt or other payment obligation to a third-party
trustee to hold for the benefit of the secured party, with the condition that
the collateral be re-conveyed to the obligor (or conveyed to the secured
party, as applicable) upon the occurrence of certain events. If the debt
or other payment obligation is fully satisfied or discharged, the collateral
will be re-conveyed to the obligor. However, if an event of Default occurs,
the trustee has the right to sell the collateral at auction and distribute the
proceeds to, or convey the collateral to, the secured party (to the extent
of the debt or other payment obligation).
In contrast, see Mortgage.
Deed of Trust State: a state that uses a Deed of Trust to secure a debt
or other payment obligation rather than a Mortgage. All Deed of Trust
States are “title theory” states, meaning the Deed of Trust is viewed as
a Conveyance of title to the collateral rather than only creating a lien on
the collateral. Examples of Deed of Trust States include Texas, California
and Oklahoma.
In contrast, see Mortgage States.
Deepening: the process of Re-entering a Well and Drilling to a deeper
Reservoir to produce Hydrocarbons from another Formation or Zone.
Default: the failure or omission to fulfill or perform a duty or obligation
under an agreement or under applicable law (e.g., failure to pay money
when due, failure to comply with Lease terms, failure to comply with
Implied Covenants).
Defeasible Fee: an interest (i.e., estate) in real property that may be
divested, either automatically or by the Grantor’s affirmative actions, from
the Grantee (the property’s then-current owner) upon the occurrence of
a specified event or point in time. Many states characterize the interest
in real property created by an Oil and Gas Lease to be a Defeasible Fee
interest because the Lease entitles the Lessee to all the rights of a Fee
Simple owner until such time that the Lease expires or terminates, at
which point the interest reverts back to the Lessor.
Defect Claim Date: the date designated in a PSA by which the parties
must submit any Environmental Defects and Title Defects related to the
subject assets that have been discovered during Due Diligence.
Defect Deductible: another term for Aggregate Defect Deductible.
25
Defensible Title: in general, this term denotes title to a real property
interest that, while not perfect Record Title, is possible to defend.
However, there is no legal or commonly accepted meaning of Defensible
Title, and therefore the term is typically defined in each transaction
according to the parties’ business interests and risk.
In a PSA, a seller will typically represent and warrant that it has
Defensible Title (as the term is defined in the applicable PSA) to the
assets in question. Such representation, if made, will typically provide
that the seller (i) holds Record Title to the assets, subject to certain
negotiated Encumbrances and defects, (ii) is entitled to a Net Revenue
Interest of not less than a specified amount from the assets, and (iii) is not
obligated to bear a greater Working Interest than specified with respect
to the assets, in each case, subject to certain exceptions and caveats.
The Defensible Title representation and warranty in a PSA will, if
present, typically form the basis for a Title Defect mechanism in the PSA.
See also Loss of Title.
Dehydration Unit: a system used to remove water from Hydrocarbons in
order to make the Hydrocarbons commercially marketable. Dehydration
Units typically use glycol to absorb the water naturally found in the
produced Hydrocarbons. After the water is removed, the dehydrated
Hydrocarbons are removed (and continues downstream) and the glycol
is recycled (by removing the water from the glycol) and reused.
Delaware Basin: a regional Basin covering portions of West Texas and
Southern New Mexico and part of the larger Permian Basin.
Delay Rental: an amount payable by a Lessee to the Lessors of an Oil and
Gas Lease for the privilege of delaying the Commencement of Drilling
Operations during the Lease’s Primary Term.
Delineation Well: an Exploratory Well Drilled after a Field has been
discovered to appraise the Field’s geographic extent, Reserves and/or
potential production rate.
Delivery Point: the particular physical location under a given contract
where oil or gas will be delivered. In the context of a hydrocarbon
Purchase Agreement, the Delivery Point will also likely serve as both
the custody transfer point and the point where legal title to the oil or gas
is transferred to the purchaser. In the Midstream services context, the
Delivery Point will be the location to which a shipper nominates certain
volumes of Hydrocarbons for re-delivery back to the shipper (i.e., return
of custody to the shipper).
Depletion: an accounting concept and income tax deduction similar to
Depreciation and most often associated with the oil and gas industry.
Depletion represents the using up of natural resources. The Depletion
deduction allows an owner of an Economic Interest to account for the
reduction of a property’s Reserves.
26
For an Oil and Gas Property, there are two ways of computing the
Depletion deduction: Cost Depletion and Percentage Depletion. A
taxpayer generally must use the method that gives him the larger
deduction.
Deposit: in the context of a PSA, a Deposit is an amount (often expressed
as a percentage of the purchase price) paid by the buyer to the seller or
a third-party Escrow Agent at the signing of the PSA. Should the Closing
of the transaction contemplated under the PSA occur, the Deposit is
credited (with or without accrued interest, depending on the agreed
terms) against the final purchase price to be paid at Closing. Should the
Closing not occur, the Deposit is either returned to the buyer or paid to
the seller depending on the reason the Closing did not occur (e.g., due to
a breach of buyer or seller).
In the geologic context, a Deposit is a subsurface accumulation of
Hydrocarbons that are trapped by a layer of Impermeable rock.
Depreciation: an accounting and income tax concept that allows a
taxpayer a deduction to recover the cost or other basis of certain property
over the property’s useful life. Depreciation is an annual allowance for
the property’s wear and tear, deterioration or obsolescence. Property is
depreciable from the point in time that it is placed in service until the
time that its cost or other basis has been fully recovered or the property
is retired from service, whichever occurs first.
Depth Severance: a vertical division of the Mineral Estate that segregates
out certain Zones, Formations or depths for purposes of conveyancing or
Development.
Many Oil and Gas Leases contain a Depth Severance clause that provides
that the Lease will terminate as to all depths below the deepest depths
that the Lessee is producing at a certain point in time (e.g., at the end of
the Primary Term).
Derrick: a support structure for the drilling equipment used to raise and
lower the Drill String in and out of the Wellbore.
Derrickman: a member of a rig crew that works on a platform attached to
a Derrick and assists in the Drilling of the Wells.
Designation of Operator Form (DOO): a form that a Lessee under an Oil
and Gas Lease must submit to the appropriate governmental authorities
in order to designate the Operator of record with respect to the Lease.
The form also serves as authority for the designated Operator to act on
behalf of all of the Lessees under the Lease.
DOOs are often colloquially referred to by their applicable form numbers,
such as the “P-4 Form” that is submitted to the RRC and the “BOEM-
1123 Form” that is submitted to the BOEM.
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Deterministic v. Probabilistic Reserve Calculation Methods: two generally
accepted methods (by the SPE) of determining Reserve quantities. The
Deterministic method uses a single value for each parameter used in the
calculation to obtain a single quantity, while the Probabilistic method
uses a distribution curve for each parameter, thereby producing a range
of probable quantities.
Developed Acreage: a term generally used to describe those acres
allocated to Producing Wells or Wells capable of Production.
Development / Development Phase: the phase in oil and gas Exploration
and Production when steps are taken to bring a proven Oil or Gas Field
into the production phase by drilling Development Wells and installing
the infrastructure necessary for full-scale Production.
Development Costs: the costs and expenses incurred during the
Development Phase (e.g., Drilling, Completion and equipping of a
Well), which may include costs or expenses associated with permitting,
logging, Deepening and Sidetracking, evaluating and testing a Well,
site reclamation, costs of mobilizing and demobilizing Drilling and/
or Workover Rigs to and from the wellsite, sales and similar taxes, title
review costs, and geotechnical, geophysical and seismic costs.
In a Carried Interest scenario, the Carried Costs are generally comprised
of the Carried Interest owners’ share of the Development Costs (though
the parties may agree to modify the definition of Carried Costs as they
deem appropriate).
Development Plan: a detailed outline or proposal that addresses each
step in the Development of an Oil or Gas Field from initial discovery
through Production and Abandonment. A Development Plan often
includes a Drilling plan, a surface use plan, and a description of all Wells,
roads, Pipelines and other infrastructure necessary for the outlined
Development to occur, as well as maps and plats depicting the proposed
development area.
Development Well: a Well drilled into a proved Zone of a Reservoir (as
opposed to, for example, a Test Well) with the intent of producing oil or
gas from the Zone.
Deviated Well: a Wellbore that is intentionally directed away from
vertical in order to reach a particular Formation.
Dip: many of our readers may be thinking about the can in their back
pockets, but in the oil and gas context this is a geologic term used to
describe the degree to which a particular plane in a Formation deviates
from horizontal.
See also Down Dip and Up Dip.
DIP: abbreviation of Debtor in Possession.
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Direct Charge: a non-overhead item incurred by a party to a JOA that
may be charged to the Joint Account (and therefore borne by all parties
to the JOA in proportion to each party’s percentage interest in the
applicable operation) pursuant to the COPAS Accounting Procedures.
Examples of Direct Charges include costs related to rentals, Royalties,
labor, materials, third-party services, legal fees, insurance premiums,
reclamation, and other non-overhead or general and administrative
items.
Directional Drilling: the process of Drilling Directional Wells. Directional
Drilling encompasses both Horizontal Drilling and slant hole drilling.
Directional Well: a non-vertical Well, meaning a Well where the Terminus
is not directly beneath the Surface Location.
Discovered Unrecoverable Resources: Resources that have been
discovered but are not currently recoverable due to commercial or
technical constraints. Discovered Unrecoverable Resources may
become recoverable at a future date under a different commodity price
environment, following technological advances, or following a reduction
in costs associated with exploration, production and development
activities.
Discovery Well: the initial Well drilled into a particular Reservoir,
demonstrating that the Reservoir is capable of Producing in Paying
Quantities.
Disposal Well: another term for Saltwater Disposal Well.
Dissolved Gas: Natural Gas constituent in Crude Oil, which separates
from the Crude Oil as temperature and pressure in the Reservoir
changes. Under certain conditions, this process can increase Production
by propelling Crude Oil to the surface.
Division Order / Division of Interest: a contractual agreement setting out
individual ownership percentages in the Hydrocarbons produced from a
particular Well (based on or pursuant to which the Operator will disburse
the applicable Royalties from the Well).
Dominant Estate: in the case of a Severed Property, a real property
legal term used to describe the relationship of the Mineral Estate to
the Surface Estate, whereby the rights of the Mineral Estate owner are
dominant over the rights of the Surface Estate owner; and, subject to the
Accommodation Doctrine (if applicable), the Mineral Estate owner has
the right to enter and use the Surface Estate as is reasonably necessary
for the Development of the Mineral Estate.
In contrast, see Servient Estate.
DOO: abbreviation of Designation of Operator Form.
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Down Dip: with respect to the Dip in a Reservoir, Down Dip refers to a
section of the Reservoir located at a lower depth.
See also Up Dip.
Downhole: the portion of a Well below the surface.
Downstream: a colloquial term for one of the three major sectors of the oil
and gas industry, Downstream refers to the last phase, which generally
includes Refining, Processing, storage, marketing of Hydrocarbons and
hydrocarbon products, and transportation of hydrocarbon products (e.g.,
LNG export).
In contrast, see Upstream and Midstream.
Drag-Along Rights: a contractual arrangement that provides (i) if multiple
parties own interests in the same or related properties or entity, and (ii) if
one owner elects to sell its interest to a third party, then the selling owner
has the right to compel the other owners to sell all or a pro rata portion
of the other owners’ interests in the applicable properties or entity to the
third party purchaser on the same terms and conditions as the selling
owner’s transaction.
In the corporate context, Drag-Along Rights are typically only granted
to the majority partner, member or shareholder of a given entity, if at all.
In contrast, see Tag-Along Rights.
Drainage / Drained: the Depletion of Hydrocarbons from a Reservoir
through Production.
Drainage is also commonly referenced in connection with the Rule of
Capture; when a Well drilled on one Mineral Interest owner’s Tract
depletes the Hydrocarbons under another Mineral Interest owner’s Tract,
the first Mineral Interest owner is said to have Drained the Hydrocarbons
under the second Mineral Interest owner’s Tract.
Drainage Area: the area within a Reservoir that is Drained by a particular
Well.
Drill Bit: another term for Bit.
Drill Pipe: on a Drilling Rig, tubular steel pipe connecting the Bottomhole
Assembly with the surface equipment that is used to rotate the Drill Bit
and supply the Drill Bit with Drilling Mud. Together with the Bottomhole
Assembly, the Drill Pipe makes up the Drill String.
Drill Ship: a self-propelled vessel containing a Drilling Rig used in
offshore drilling operations. As an alternative to traditional anchoring,
many Drill Ships utilize computerized control systems to maintain their
positions, allowing them to Drill in deepwater areas. This is known as a
“dynamic positioning system.”
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Drill String: the portion of a Drilling Rig composed of the Drill Pipe and
the Bottomhole Assembly (including the Drill Bit).
Drill to Earn: a type of joint development structure in which the owner
of the applicable Acreage contracts with a counterparty to drill a
certain number of Wells in exchange for a certain interest in the Wells
(and oftentimes the surrounding Leases and Acreage as well). Upon
completing stated Drilling milestones, whether by Drilling a number of
Wells to a specified depth or expending a certain amount of Development
Costs, the counterparty earns the applicable interest.
See also Drilling Dollars Structure, Farmout and Net Well Structure.
Drilled and Uncompleted (DUC): a Well that has been Drilled but not yet
Completed for commercial reasons. Because a relatively larger portion
of a Well’s EUR is produced at the beginning of the Well’s life, in a low
commodity-price environment an oil and gas company may choose to
drill a Well, but defer the Well’s Completion (and thus defer Production
of a relatively large portion of its EUR) until commodity prices rise.
Driller: the party operating the Drilling Rig during drilling operations.
Drilling: the process of boring a hole into the surface of the Earth to
explore for and extract Hydrocarbons. Drilling may also be conducted for
the purposes of extracting water or disposing of certain waste byproducts,
in each case, in connection with oil and gas operations.
See also Spud and Turning to the Right.
Drilling Budget: the budget that a company prepares and approves
for Drilling and related hydrocarbon Development activities. In a joint
development context, the applicable Drilling Budget will usually be
based on the then-current Development Plan applicable to the joint
development.
Drilling Carry: another term for Carried Costs.
Drilling Contractor: an oilfield services contractor that owns and operates
Drilling Rigs.
Drilling Dollars Structure / Drilling Dollars Target: a type of Drill to
Earn joint development transaction in which the applicable earning
counterparty’s obligations are measured against a required Development
Cost spending threshold, rather than a particular number of Wells being
Drilled and Completed.
In contrast, see Net Well Structure.
Drilling Engineer: a petroleum engineer specializing in overseeing
the process of Drilling a Well, including engineering the technical
specifications of the Drilling Rig and planning and helping to implement
the actual drilling process.
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Drilling Fluid / Drilling Mud: a mixture of Mud and chemicals that
performs several functions in the process of Drilling a Well, including:
assisting in removal of debris from the Wellbore; preventing solids and
liquids from entering the Wellbore; and cooling the Drill Bit.
Drilling Fluid Engineer: another term for Mud Engineer or Mud Logger.
Drilling Pad: another term for Well Pad.
Drilling Permit: a permit granted by a governmental agency with
jurisdiction over the applicable oil and gas operations that gives a
party the authority to Drill a Well. Drilling Permits typically specify
the following information: the type of Hydrocarbon for which the Well
will be drilled (i.e., Crude Oil or Natural Gas); whether the Well will be
drilled with a vertical, horizontal or slant trajectory; whether the Well at
issue is a new Well or a Recompletion or Reworking of an existing Well;
the Well’s Surface Location and Terminus location; and any applicable
regulations (and/or exceptions) applicable to such Well.
Drilling Program: a strategic program pursuant to which a company
explores for, and develops, Hydrocarbons. A Drilling Program can
apply to the prospective Development of Undeveloped Acreage or the
Development of Producing Acreage through Infill Drilling.
Drilling Report: a report generated to provide detailed information
and statistics on ongoing Drilling operations, typically on a daily basis.
Drilling Reports cover information related to the scope of work performed
and hours logged to individual activities, statistics related to the Drill Bit
and Drilling Mud, and any other noteworthy information related to the
drilling operations.
Drilling Rig: the entire mechanical system used to Drill a Well, primarily
consisting of a Derrick and the drilling equipment on the surface, and the
Drill String and Bottomhole Assembly below the surface.
Drilling Unit: a type of Unit within which Mineral Interests are Pooled
to attain the minimum Acreage the applicable governmental agency
requires to drill a single Well. Production and costs incurred for Drilling
and other operational items are allocated pro rata within the Drilling
Unit. Drilling Units promote Conservation and efficient Production by
nullifying the effects of Drainage (as between multiple Mineral Interest
owners) and the Rule of Capture within the Drilling Unit.
Drillsite Title Opinion: a Title Opinion an oil company requests prior
to Drilling a Well. The specific purpose of the Drilling Title Opinion
is to ensure that the oil company correctly identifies the ownership of
the individual Tracts in the applicable Spacing Unit prior to Spudding
a Well, so that an unleased third party cannot claim an interest in the
Well’s Production after the Well is drilled.
Drillsite Tract: the Tract containing the Surface Location from which a
Well is drilled.
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Dry Gas: a colloquial term for Natural Gas that contains sufficiently
small constituent quantities of liquid or condensable Hydrocarbons to be
considered of marketable quality. Dry Gas typically contains Methane
and Ethane and may be produced directly from a Reservoir or may be the
remaining Natural Gas product following Processing designed to remove
liquid or condensable Hydrocarbons.
Dry Hole: a Well drilled with the intention of producing Hydrocarbons
that does not actually yield Production in Paying Quantities.
Dry Hole Contribution: a contractual arrangement under which a party
that drills a Dry Hole receives a payment from a third party that owns
no interest in the Well (but that likely owns an interest in Acreage that
is adjacent or otherwise nearby the Dry Hole) in exchange for technical
data related to the Dry Hole.
Dry Well: another term for Dry Hole.
Dual Completion: a Wellbore Completed with Take Points in two separate
Zones to produce Hydrocarbons from both Zones (promoting efficiency
in Production by avoiding the need to drill two separate Wells).
DUC: abbreviation of Drilled and Uncompleted; commonly pronounced
“duck.”
Due Diligence: the cross-disciplinary exercise of conducting research and
analysis to determine the feasibility (and profitability) of a prospective
investment. In the oil and gas industry, Due Diligence often involves:
extensive technical analysis (including an analysis of Reserves); financial
analysis; environmental analysis (including determining whether there
are present or past violations of Environmental Laws related to the target
assets or whether Remediation is required with respect to the target
assets); title analysis (including determining whether the represented
title to the target assets is, in fact, as advertised by the seller); and
other legal analysis (including ensuring that appropriate contractual
arrangements are in place to conduct business as contemplated following
the investment). Otherwise known as the bane of young associates’
existence.
Duster: a colloquial term for Dry Hole.
E&P: abbreviation of Exploration and Production.
Eagle Ford Shale: a liquids-rich Shale Formation located primarily in
South Texas with physical characteristics that favor the use of Hydraulic
Fracturing.
Earning Trigger: pursuant to a Drill to Earn arrangement, the stated
milestones (whether a Drilling Dollars Target or Net Well Target) that
determine when (or if) the applicable counterparty earns the Acreage in
question.
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Easement: a non-possessory Encumbrance on real property that (i)
provides a person with a right to use and/or enter onto the burdened
property for a particular purpose, or (ii) restricts a person from using such
person’s property in a particular way.
An Easement that grants specific rights (e.g., the right to use another’s
property to cross from point A to point B) is referred to as an “affirmative”
Easement, while an Easement that restricts certain rights (e.g., prevents
a person from building a structure above a certain height so as not to
block another person’s view) is referred to as a “negative” Easement. An
Easement can also be “appurtenant,” meaning that it benefits and “runs
with the land,” or the Easement can be “in gross,” meaning it benefits a
particular individual or entity.
EBITDA: earnings before interest, taxes, Depreciation and amortization.
A measurement of a company’s operating profit intended to disregard
the effects of the company’s financing, accounting and tax activities.
Commonly pronounced “E-bit-da.”
EBITDAX: earnings before interest, taxes, Depreciation, Depletion,
amortization and exploration expense. A measurement of an E&P
company’s operating profit intended to disregard the effects of the
company’s financing, accounting, tax and exploration activities.
Commonly pronounced “E-bit-dax.”
Economic Interest: for US federal income tax purposes, the ownership in
a Mineral Interest a taxpayer is required to hold in order to secure a tax
deduction for Depletion.
A taxpayer has an Economic Interest when the taxpayer acquires by
investment any interest in a Mineral Interest in place and secures, by
any form of legal relationship, income derived from the extraction of
the Mineral Interest, to which the taxpayer must look for a return of its
capital.
Economically Recoverable Resources: Resources that can be profitably
produced under current market conditions.
Effective Time: the point in time under a PSA at which the economic
benefits, burdens and risks associated with owning the assets (or
entity) being sold are transferred from the seller to the buyer. Typically,
the Effective Time precedes the execution date (and/or Closing, as
applicable) in order to allow the parties to the PSA adequate time to
appropriately settle revenues and expenses, as well as certain other
negotiated items, in order to accurately estimate the final purchase price
as of Closing.
Election Procedures: the procedures prescribed in a JOA for making
operational Elections, including the time period in which parties may
exercise the Elections, the information to be included in a notice of
election, and the consequences of consenting or not consenting to a
particular operation.
34
Elections: a party’s decisions under a JOA on whether or not to participate
in certain operations for purposes of sharing revenues and expenses
related to the operations. Parties Electing not to participate in a particular
operation are deemed Non-Consenting Parties regarding that operation.
Electrical Log: an electrical device used to measure the characteristics
of a Formation undergoing a Drilling operation to determine a Well’s
viability and where to direct the Drill Bit to maximize Hydrocarbon
Production. Electrical Logs commonly test for measurements related to
stratigraphy, Porosity and radioactivity.
Elevator: a mechanical device attached to a Drill String used to raise or
lower the Drill String in the Wellbore.
Encumbrance: in the oil and gas context, a right that attaches to a real
property interest that affects, directly or indirectly, the owner’s title to
the real property interest, including liens, Mortgages and other security
interests, Royalties, options, and other contractual restrictions, such as
an AMI.
Endangered and Threatened Species – Endangered Species Act (ESA),
Marine Mammal Protection Act (MMPA) and Migratory Bird Treaty Act
(MBTA): the ESA, MMPA and MBTA are the primary federal laws that
were established to protect endangered, threatened and certain other
species of flora and fauna. The ESA can impose time and place restrictions
on oil and gas operations. Notably, the ESA, MMPA and MBTA can all
impose civil and criminal liability in the event that a protected species is
harmed or killed.
Engineering, Procurement and Construction (EPC) Contract: a contract
between a project owner and a third party contractor used to implement
the design, engineering and construction of a facility. EPC Contracts
are typically used to build capital-intensive projects requiring special
engineering and construction expertise. EPC Contracts are most
prevalent in the Downstream sector of the oil and gas industry.
Enhanced Oil Recovery (EOR) / Enhanced Recovery: a general term
used to refer to the various artificial drive mechanisms and hydrocarbon
Stimulation techniques that are employed to increase the recovery of
Hydrocarbons after the natural energy in a Reservoir is depleted during
the Primary Recovery phase. EOR techniques often involve heating or
introducing chemicals to the applicable Hydrocarbons in place in the
Reservoir.
See also Secondary Recovery, Tertiary Recovery, CO2 Injection, Thermal
Recovery, Steam Flood and Water Flooding. In contrast, see Primary Oil
Recovery.
Enhanced Recovery Unit: a Unit created to implement a common
Enhanced Oil Recovery plan across unitized Tracts under a single
Operator.
35
Entirety Clause: a clause in an Oil and Gas Lease providing that, in the
event the Mineral Interest covered by the Lease is subsequently divided
among multiple owners, the divided interests will continue to be operated
as a single Mineral Interest under the Lease, and the Lessee will ratably
apportion the Proceeds among the Lessors (rather than the Lessee being
considered to hold a separate Lease with each individual Lessor). An
Entirety Clause promotes efficient Development of the Mineral Interests
by preventing the Lessee from becoming subject to any duty to develop
neighboring Tracts to prevent Drainage following the Mineral Interests’
division.
Environmental Condition / Environmental Defect: a defined term under
a PSA that typically encompasses a condition existing on the target
assets that (i) causes the assets not to be in compliance with applicable
Environmental Laws, or (ii) requires remedial or corrective action under
Environmental Laws. The scope of the term may, in some cases, be
expanded to cover violations of applicable contractual provisions related
to environmental matters or applicable Oil and Gas Leases.
Environmental Defect Deductible: under an Environmental Defect
Mechanism, a negotiated deductible below which the seller has no
liability to the buyer for Environmental Defects. If the aggregate
Remediation Amounts attributable to claimed Environmental Defects
exceed the Environmental Defect Deductible, then the buyer is only
entitled to, and the seller is only responsible for, remedies with respect
to Environmental Defects to the extent that the Remediation Amounts
of such Environmental Defects exceed the Environmental Defect
Deductible.
See also Aggregate Defect Deductible.
Environmental Defect Mechanism: a typical contractual provision in
an oil and gas PSA under which the buyer may seek remedies from
the seller for certain Environmental Defects. Under an Environmental
Defect Mechanism, between signing and Closing the buyer conducts
environmental Due Diligence on the assets to be purchased, and must
assert any claim for Environmental Defects in the manner specified in the
PSA by the applicable Defect Claim Date. Remedies for Environmental
Defects are negotiated for each transaction, but typically include (i) the
seller’s right to cure the Environmental Defect prior to Closing, (ii) the
right to exclude the applicable Environmental Defect Property from the
assets to be sold (with a corresponding adjustment to the purchase price),
(iii) a reduction in the purchase price by the applicable Remediation
Amount, and (iv) entering into an Environmental Indemnity Agreement.
Environmental Defect Notice: under an Environmental Defect
Mechanism, a notice prepared by the buyer (or in many cases its
environmental consultant) in which the buyer describes in detail the
claimed Environmental Defects for which the buyer seeks remedies.
36
Environmental Defect Period: under an Environmental Defect
Mechanism, the negotiated period of time within which the buyer may
conduct environmental Due Diligence and claim Environmental Defects.
Environmental Defect Property: under an Environmental Defect
Mechanism, the specific assets affected by a claimed Environmental
Defect.
Environmental Defect Threshold: under an Environmental Defect
Mechanism, a de minimis threshold that also serves as a limitation on
the seller’s liability for Environmental Defects (in addition to, and not in
substitution of, an Environmental Defect Deductible or Aggregate Defect
Deductible). If a claimed Environmental Defect’s Remediation Amount is
below the applicable Environmental Defect Threshold, then, regardless
of whether the Environmental Defect Deductible or Aggregate Defect
Deductible has been reached, the buyer is not entitled to, and the seller
is not responsible for, any remedies related to the Environmental Defect.
See also Individual Defect Threshold. In contrast, see Environmental
Defect Deductible.
Environmental Indemnity Agreement: an agreement under which the
seller under a PSA indemnifies the buyer for any losses arising out of
a claimed Environmental Defect. Environmental Indemnity Agreements
are commonly used as a remedy for Environmental Defects under
an Environmental Defect Mechanism. In this instance, the seller
would, notwithstanding the claimed Environmental Defect, transfer
the Environmental Defect Property to the buyer at Closing (with no
adjustment to the purchase price) and agree to indemnify the buyer for
all losses arising out of the claimed Environmental Defect. Whether the
applicable Environmental Indemnity Agreement includes a dollar value
cap or expires after a certain period of time is subject to negotiation
between the parties.
Environmental Laws: a catch-all term used in oil and gas industry
agreements to encompass all applicable international, foreign, and US
federal, state, and local laws relating to the protection of public health,
welfare and the environment. The definition of Environmental Laws in
these agreements also often includes applicable occupational health and
safety laws and regulations enacted by OSHA and the states.
Environmental Protection Agency (EPA): the US federal agency charged
with protecting human health and the environment. The EPA promulgates
and administers environmental regulations applicable to air, water, and
soil with which oil and gas companies are required to comply.
EOR: abbreviation of Enhanced Oil Recovery.
EPA: acronym for Environmental Protection Agency.
EPC: abbreviation of Engineering, Procurement and Construction.
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Escrow Agent: the third party financial institution that holds funds (e.g., a
Deposit under a PSA) in escrow pursuant to an Escrow Agreement.
Escrow Agreement: an agreement entered into between the buyer and
seller under a PSA and an Escrow Agent governing the terms upon which
the Escrow Agent will hold (and disburse) the applicable Escrow Fund.
Escrow Fund: the amount placed into escrow, typically including any and
all interest earned thereon while the amount is held in escrow.
Estimated Ultimate Recovery (EUR): the estimated total quantity of the
amount of Hydrocarbons recoverable from a particular Well or Reservoir.
Ethane: a gaseous hydrocarbon chain consisting of two carbon atoms.
Ethane is often a component of unrefined Natural Gas. Ethane is
considered to be Dry Gas and is sometimes colloquially referred to as
“C2.”
Excluded Assets: in a PSA, certain assets that are specifically excluded
from the assets to be transferred to the buyer, which typically consist of
assets related to the seller’s general business, assets arising out of pre-
Effective Time operations, and other specific negotiated assets that the
seller wishes to retain.
Executive Committee: another term for Operating Committee.
Executive Right / Executory Right / Executory Interest: in the oil and gas
context, the exclusive right of a party that owns a Mineral Interest to
enter into an Oil and Gas Lease covering the Mineral Interest.
Upon the execution of a Lease, the Executive Right is typically part of
the Working Interest, but the Executive Right may be severed from the
Working Interest. In the event of this severance, the Working Interest
owner cannot, on its own, lease its Mineral Interest and must rely on
the holder of the Executive Right to develop the applicable Mineral
Interest. A Working Interest that does not contain Executive Rights is
often referred to as a nonparticipating Mineral Interest.
Exploitation: the process of developing a Reservoir to maximize economic
Production of Hydrocarbons therefrom, including drilling and production
operations.
Exploration Agreement: another term for Joint Development Agreement.
Exploration and Production (E&P): the activities generally considered to
constitute the Upstream sector of the oil and gas industry.
“Exploration” generally refers to the prospecting for and Drilling of Oil
and Gas Wells (including researching and analyzing potential Surface
Locations, conducting seismic operations, acquiring Acreage and
conducting drilling activities).
“Production” generally refers to the extraction of Hydrocarbons from the
Oil and Gas Wells that were Drilled during the exploration phase.
38
Exploration Costs: costs incurred in the exploration phase of Upstream
oil and gas activities, including researching and analyzing potential
Surface Locations, conducting seismic operations, acquiring Acreage
and conducting drilling activities.
Exploration Well / Exploratory Well: a Well that is Drilled into an area
in which the Operator has not previously Drilled another Well capable
of Production in Paying Quantities in an effort to locate previously
undiscovered Reservoirs.
Extra-Heavy Oil: a grade of Crude Oil characterized by extreme thickness
and low mobility within a Reservoir, requiring Stimulation activities to
achieve economic Production. The US Geological Survey categorizes
Extra-Heavy Oil as Crude Oil with an API Gravity below 10º.
Fair Market Value (FMV): a measure of the cash value for which a
particular property or service would be purchased in a bona fide, arms’
length transaction between parties of equal bargaining power.
Farmee: pursuant to a Farm-In or Farmout, the party to receive an
assignment of an interest in Oil and Gas Properties in exchange for
conducting (and/or paying for), or a commitment to conduct (and/or pay
for), certain development operations with respect to the properties.
Farm-In: used as a noun, an agreement by which a Farmor agrees to
assign an interest in Oil and Gas Properties to a Farmee in exchange for
the Farmee funding, or committing to fund, all or a portion of the Farmor’s
share of certain development operations with respect to the properties.
A Farm-In transaction is distinguished from a Farmout transaction, in
which the Farmee itself performs the development operations.
Used as a verb, the act of a Farmee acquiring an interest in Oil and Gas
Properties pursuant to a Farm-In or Farmout transaction.
Farmor: pursuant to a Farm-In or Farmout, the party granting an
assignment of an interest in Oil and Gas Properties in exchange for the
Farmee having conducted (and/or paying for), or committing to conduct
(and/or pay for), certain development operations with respect to such
properties.
Farmout: used as a noun, an agreement by which a Farmor agrees to
assign an interest in Oil and Gas Properties to a Farmee in exchange for
the Farmee conducting, or committing to conduct, certain development
operations with respect to the properties.
A Farmout is distinguished from a Farm-In transaction, where the
Farmee only funds the applicable development operations rather than
conducting the operations itself.
Used as a verb, the act of a Farmor granting an interest in Oil and Gas
Properties pursuant to a Farm-In or Farmout transaction.See also Drill to
Earn.
39
Fault: a break in a Formation resulting from a tectonic shift. Faults often
form Traps where producible Deposits of Hydrocarbons are located.
Federal Energy Regulatory Commission (FERC): the US federal agency
charged with regulating the interstate transmission of gas, oil, and
electricity, as well as hydroelectric and certain Natural Gas projects.
Federal Exploratory Unit: a Unit consisting of BLM Leases that the BLM
approves for Unitization upon a demonstration that the Unitization will
promote Conservation of natural resources and be necessary or advisable
in the public interest.
Federal Lease: another term for BLM Lease.
Fee Land: a Tract that is held in Fee Simple.
Fee Owner Royalty: another term for Lessor Royalty.
Fee Simple: a present possessory estate in real property, representing the
most absolute real property right under US law.
A person who holds a Tract in Fee Simple has the right to both the surface
and the subsurface (i.e., the Surface Estate and the Mineral Estate),
with no depth limitations (but not taking into account any limitations
prescribed by governmental authorities).
See also Fee Lands.
Fee Simple Determinable: a present possessory estate in real property
that remains with the Grantee until the occurrence of a specified
condition, upon which the interest reverts to the Grantor. Most Oil and
Gas Leases create a Fee Simple Determinable estate for the Lessee. The
discussion of Fee Simple Determinable estates may have been the point
where your eyes glazed over in your first year property law course.
FERC: acronym for Federal Energy Regulatory Commission; commonly
pronounced “furk.”
Field: a Reservoir containing Deposits of Crude Oil and/or Natural Gas
from which a producer seeks to exploit the Hydrocarbons.
Field Rules: the rules and regulations governing E&P activities in
a particular Oil Field or Gas Field, such as Well depth requirements,
Spacing requirements and Unit sizes. Individual Fields have different
Field Rules based on the applicable regulatory agency and physical
characteristics of the Field.
Final Settlement Statement: a document exchanged between the
parties to a PSA following Closing to reflect the final calculations of the
contractually stipulated purchase price adjustments. Typically delivered
two to four months post-Closing, the Final Settlement Statement allows
additional time post-Closing to account for revenues, expenses and other
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negotiated items related to the period between the applicable Effective
Time and Closing.
In contrast, see Preliminary Settlement Statement.
Firm Service: in the context of Midstream service agreements, Firm
Service provides a customer with a guarantee of Capacity (up to
the applicable portion paid for or reserved by the customer) on the
applicable Midstream assets in question. Firm Service is only subject
to interruption (without compensation from the service provider) in the
event of certain negotiated events, such as Force Majeure, maintenance,
and governmental allocation orders, and volumes entitled to Firm
Service may only be curtailed after all volumes entitled to Interruptible
Service have first been curtailed completely. Typically, in order to receive
Firm Service, the applicable customer will pay a premium to the service
provider.
FIRPTA: acronym for Foreign Investment in Real Property Tax Act;
commonly pronounced “furp-ta.”
FIRPTA Certificate: another term for Certificate of Non-Foreign Status.
First Purchaser: the first person to purchase Hydrocarbon Production
after the Hydrocarbons are produced. Under Texas law, a producer has
an automatically perfected lien against the Hydrocarbons while the
Hydrocarbons are held by the First Purchaser.
Fish: a colloquial term used to refer to obstructions or debris in a Wellbore,
including tools lost Downhole during operations, pieces of damaged Drill
Pipe or naturally occurring obstructions such as rock Cuttings. Like its
counterpart in the water, Fish can be very slippery and hard to catch.
Fishing / Fishing Procedures: the process of removing Fish from a
Wellbore. Fishing Procedures involve inserting a tool into the Wellbore
designed to remove any Fish and attempting to bring the Fish to the
surface. If Fishing Procedures are unsuccessful (which does happen from
time to time), it may be necessary to Sidetrack the Well. Like they say,
“that’s why it’s called fishin’ and not catchin’.”
FL&U: abbreviation of Fuel, Lost and Unaccounted For.
Flaring: the controlled burning of Natural Gas at various stages along the
production and processing cycle. Flaring is often conducted to control
pressure within a particular facility or Pipeline or in the instance when
Associated Gas takeaway capability does not exist for a given Oil Well.
In contrast, see Venting.
Flow Back: a mixture of water, Drilling Mud, Frac Fluid and other
constituents that flow to the surface following Hydraulic Fracturing
activities.
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Flow Meter: a mechanical device measuring the speed at which fluids
flow through a Pipeline or Well.
Flow Rate: the speed at which fluids flow through a Pipeline or Well.
Flowing Well: another term for Naturally Flowing Well.
Flowline: a Pipeline through which Hydrocarbons and other constituents
flow from the Wellhead downstream to other transportation systems,
such as a Gathering System or interstate Pipeline or to tanks located on
the Lease site.
Flowline Trap: another term for Possum Belly.
FMV: abbreviation of Fair Market Value.
Force Majeure: a negotiated concept common in oil and gas industry
agreements that excuses the performance by the parties to the agreement
due to events outside of the parties’ control; provided that the party
claiming Force Majeure was not able to prevent the event through the
exercise of due diligence and uses reasonable efforts to overcome the
event after its occurrence. Typical examples include natural disasters,
acts of God, strikes, weather events, acts of war and terrorism, acts of
governmental authorities (including, in some cases, the enactment of
new or modified laws), and breakage or unavailability of machinery and
equipment.
Forced Pooling: a regulatory requirement imposed by the applicable
oil and gas regulatory agency to Pool or Unitize Tracts from which
Hydrocarbons are produced for purposes of operations and allocation of
Production. Compulsory Pooling and Unitization promote Conservation
and efficient Production by nullifying the effects of Drainage (as between
multiple owners) and the Rule of Capture within the Drilling Unit.
See also Pooling Order.
Foreign Investment in Real Property Tax Act (FIRPTA): a US tax law
that imposes income tax on gains of foreign persons resulting from a
disposition of US real property interests, and requires purchasers of US
real property interests to withhold a portion of the purchase price relating
to the disposition.
See also Certificate of Non-Foreign Status.
Form P-4: the Designation of Operator form filed with the RRC with
respect to Oil and Gas Properties located in the State of Texas.
The Form P-4 is entitled “Certificate of Compliance and Transportation
Authority” but is commonly referred to as “the Form P-4,” and must be
filed any time there is a change of Operator with respect to a Well or
Lease located in Texas in order that responsibility and accountability for
the Well or Lease can be properly assigned to the new Operator.
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Formation: another term for Reservoir.
The terms Formation, Reservoir and Zone, on a highly technical level,
have slightly different meanings, but as a general matter the terms are
often used interchangeably in the oil and gas industry.
Frac Fluid: a mixture of water, Proppant and chemical additives used
in Hydraulic Fracturing to extend fractures, reduce friction and carry
Proppant into the Target Formation. The composition of Frac Fluid will
vary by Target Formation and Operator.
Frac Gun: a string of shaped charges lowered into the Casing of a Well,
and once lowered to the desired depth, detonated to perforate the Casing
and cement.
Frac Job: another term for Hydraulic Fracturing.
Frac Sand: a type of Proppant made of sand (which may be chemically
treated) that is mixed into Frac Fluid and, when shot into a Target
Formation, holds or props open fractures or cracks in the Target
Formation so that Hydrocarbons may pass through the fractures and into
the Wellbore.
Frac Stage: a portion of a Well that is currently undergoing Hydraulic
Fracturing. Frac Stages are Fracked starting at the Terminus of the
Wellbore and working back towards the Penetration Point. The number
of Frac Stages in a Well will vary by Target Formation and Operator.
Fracking / Fracing: other terms for Hydraulic Fracturing.
Fractionation / Fractionation Agreement / Processing and Fractionation
Agreement: the process through which NGLs are separated into separate
components (e.g., Propane, Butane and Pentane) following Processing in
order to meet commercial specifications.
A Fractionation Agreement establishes the terms upon which the
applicable facility Operator will Fractionate a combined NGL stream,
including the fees the applicable customer must pay for the services.
Fractionation and Processing are often handled under the same
agreement.
Free Well Agreement: an agreement whereby one party bears the entire
cost of Drilling a jointly owned Well and, in exchange for bearing all the
costs, receives all or a portion of the other owners’ interests in the Well.
Fuel, Lost, and Unaccounted For (FL&U): a term used in connection with
the Gathering, Processing and transporting of Natural Gas to represent
the volume of Natural Gas used as fuel plus any Natural Gas lost or
unaccounted for (e.g., due to leaks, evaporation or inaccurate gas meters)
through the provision of the applicable Midstream services.
Fugitive Emissions: emissions of Natural Gas that escape into the
atmosphere during the Upstream and Midstream processes.
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Fundamental Representations: Representations and Warranties,
typically seen in a PSA, that relate to a party’s organizational documents,
legal standing and authority to enter into and conduct the applicable
underlying transaction, among other things.
These Representations and Warranties are considered to be
“fundamental” to the party’s ability to participate in the contemplated
transaction, and therefore typically are (i) subject to longer survival
periods than other Representations and Warranties (e.g., the survival
periods are often indefinite), and (ii) often excluded from the application
of any Indemnity De Minimis, Indemnity Deductible and/or Indemnity
Cap.
Future Location: the physical location of a Future Well. This concept
is typically used for purposes of the Title Defect Mechanism and
Environmental Defect Mechanism in a PSA that contains a Future Well
concept.
Future Well: a specific and identifiable Well location that is contemplated
to be drilled in the future. This concept is typically seen in a PSA with
respect to Undeveloped Acreage, or where the seller has highlighted,
and buyer has specifically allocated value to, the ability to Drill additional
Wells on the assets being purchased. The Future Well concept is typically
worked into a PSA alongside the existing Wells for the buyer’s benefit,
including for purposes of representations and covenants, the Title Defect
Mechanism and the Environmental Defect Mechanism.
GAAP: a commonly used acronym for “generally accepted accounting
principles” that have been formulated by policy boards in the accounting
industry and/or have become common practice and are regarded as the
framework for standard financial accounting practices.
Gas Balancing: in connection with Pipelines, Gas Balancing is an
adjustment procedure used, if necessary, to equalize the volume of
Natural Gas tendered into a Pipeline (or other Midstream system) by a
party at the applicable Receipt Points with the volumes of Natural Gas
received by the party from the Pipeline (or other Midstream system) at
the applicable Delivery Points.
In connection with a JOA, Gas Balancing is an adjustment procedure
used, if necessary, to equalize the volume of Natural Gas attributable to a
party’s interest in a Well (or Wells) with the volume of Natural Gas taken
from the Well(s) by such party.
Gas Balancing Agreement: an agreement setting forth the terms and
procedures the applicable parties are to use in connection with the
relevant Gas Balancing efforts. A Gas Balancing Agreement is most
often seen in the JOA context of Gas Balancing.
Gas Cap: an accumulation of Natural Gas found at the top of an oil
Reservoir. As oil is produced from the Reservoir, the Gas Cap expands,
providing additional pressure in the Reservoir for oil Production.
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Gas Field: another term for Field.
Gas Hydrates: methane in solid, crystal-like form. Methane may form
Gas Hydrates under the right temperature (cold) and pressure (high)
conditions. In the context of Gathering Systems and other Midstream
assets, Gas Hydrates may form and impede the flow of Natural Gas. Gas
Hydrates also form in large quantities in certain areas of the ocean floor.
Gas Injection Well: another term for Injection Well.
Gas Lift / Gas Lift Drive: a system that creates Artificial Lift by injecting
Natural Gas into a Well with the intent of increasing the Bottomhole
Pressure and thereby helping to lift or drive the oil into the Wellbore,
increasing the Production of oil from the Well.
The lift or drive may be only intermittent if the Well is periodically shut-
in (to allow pressure to build), if the Formation is in advanced production
stages (causing pressure to be lower), or if the gas injection program calls
for only intermittent injections.
Gas Lift Gas: another term for Injection Gas.
Gas Processing Plant: a set of facilities that takes raw or only lightly
treated Natural Gas from the Field and filters out impurities in order to
separate NGLs and other fluids from the Dry Gas. In some cases a Gas
Processing Plant may have Fractionation capabilities as well.
Gas Well: a Well that is primarily targeting the Production of Natural
Gas.
Gas-Oil Ratio: a ratio comparing the volumes of gas and oil that are either
produced from, or recoverable from, a Well or Formation.
Gathering: the process of collecting, aggregating and transporting
Hydrocarbons after they are brought to the surface. Gathering typically
begins at multiple Receipt Points, with redelivery of the Hydrocarbons
occurring at a typically smaller universe of Delivery Points.
Gathering Agreement: an agreement between a producer of
Hydrocarbons and a gatherer of Hydrocarbons that sets forth the terms
and conditions upon which the gatherer will provide Gathering services
to the current and, in most cases, future hydrocarbon Production of the
producer. Oftentimes a Gathering Agreement (whether servicing Natural
Gas or Crude Oil) will contain a Dedication of the applicable producer’s
Acreage.
Gathering Line: a small to medium-sized Pipeline used to transport
Hydrocarbons over relatively short distances, such as from the Wellhead
or a Lease Tank to a Gas Processing Plant or a Trunk Line.
Gathering System: a network of Midstream and infrastructure assets,
which may include, in addition to Gathering Lines, tanks, compression
facilities, Heater Treaters, and/or other related facilities and equipment,
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and which is used to Gather production to a Trunk Line, a Gas Processing
Plant, Storage Facility, Terminal or other points of sale.
Gauge Report: a well-level report created by a Gauger, specifying the
Flow Rate, pressure and other variables with respect to the applicable
Well for a certain period of time (e.g., 24 hours).
Gauger: an employee of the Operator or applicable service provider
who is responsible for monitoring and maintaining production from a
Producing Well, including measuring the quantity of Hydrocarbons
produced.
General Land Office (GLO): the Texas GLO is a state agency that oversees
and manages Texas state Lands, including state Oil and Gas Leases and
Leases on Permanent School Fund lands.
General Warranty of Title / General Warranty Deed: the highest Warranty
of Title standard, where a seller, among other things, represents to the
buyer that the seller has title to the applicable real property and covenants
to the buyer that the seller will defend the buyer’s right to ownership of
the real property interest against anyone else claiming ownership of the
interest. A General Warranty of Title is the default title warranty given
when real property is sold, unless the seller expressly disclaims such
warranty. As a result, in most sophisticated oil and gas transactions, a
seller will seek to expressly disclaim any General Warranty of Title.
A Conveyance that contains a General Warranty of Title is sometimes
referred to as a General Warranty Deed.
In contrast, see Quitclaim Deed and Special Warranty Deed.
Geographic Information System (GIS) Data: computerized, spatial
geographic data and maps that are utilized in oil and gas exploration,
Production and Development. Uses in the oil and gas industry include
mapping the spatial relationships of Leases, Wells, operations, Pipelines,
and other facilities and otherwise providing the user the ability to
analyze, translate and manipulate the applicable geographic data.
Geological and Geophysical (G&G) Data: certain data regarding the
subsurface geology and geophysics of an area of interest. This data may
include Seismic Data captured through seismographs and Well-Log data
captured through loggings and Corings as a Well is drilled.
Geophysical Survey: surveys used to create maps or models of the
Earth’s geography, stratigraphy and geological structure. In the oil and
gas industry, Geophysical Surveys, including seismic surveys, are used
to find geologic Structures that could contain hydrocarbon Deposits.
Geophysicist: a type of geologist who specializes in the study of the
physics of the Earth, and, in the Oil and Gas Field, is responsible for
interpreting geophysical data and generating maps or models based
upon such data.
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Gone to Water: with respect to an Oil Well or Gas Well, the point in
time when the Production of water has increased and the Production
of Hydrocarbons has decreased, reducing the Well’s profitability to the
point that Production is no longer economically desirable.
Good and Workmanlike Manner: a Standard of Care contained in
contractual arrangements that is not specific to the oil and gas industry.
This standard looks to service providers’ performance in the same
geographic area and in the same industry to delineate what constitutes
negligent performance.
In the oil and gas context, the standard is commonly applied to the
Operator’s obligations under a JOA.
Good Oilfield Practices: a Standard of Care used in contractual
arrangements that is specific to the oil and gas industry. This standard
looks to the oilfield service providers’ performance, generally (and not
necessarily with respect to a particular geographic area), to delineate
what constitutes negligent performance of the services.
Governmental Section: another term for Section.
Grantee: the person who receives a real property interest from a Grantor.
Granting Clause: a clause in Conveyances of real property (including Oil
and Gas Leases and Assignments and Bills of Sale) that contains words
of grant (e.g., grant, transfer, assign and convey) in order to create and/
or convey an interest in real property.
Grantor: the person who grants a real property interest to a Grantee.
Gross Acres: the total number of acres in which a person has any type of
interest in oil and gas (i.e., a Working Interest or a Royalty Interest). Gross
Acres is a measurement of surface area alone and does not include any
component of the particular quantum of interest owned in the applicable
Mineral Estate underlying the Gross Acres in question.
See also Net Acres.
Groundwater: subsurface water that both accumulates and passes
through Aquifers. Groundwater can flow to the surface naturally,
resulting in springs or seeps, or it can be extracted by Drilling water
Wells that target Aquifers.
Gumbo: not quite as tasty as the Cajun favorite, but depending on
the quality of the chef they may look similar. A colloquial term used
to describe the wet clay frequently encountered in certain types of
subsurface Formations.
Gusher: a colloquial term used to describe a prolific Well that will usually
result in a happy Lessor and Lessee.
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Habendum Clause: the clause in an Oil and Gas Lease that sets forth
the specific period of time for which the Lease may be held without
Production in Paying Quantities (i.e., the Primary Term). The Habendum
Clause will typically provide that the Lease will be held for so long as
Hydrocarbons are produced from the Lease in Paying Quantities (i.e.,
the Secondary Term).
Hand: a colloquial term for an oilfield worker (e.g., floorhand, toolhand,
etc.). To our knowledge, there is no similar usage of “Foot.”
Hard Consent: typically, a type of Consent that explicitly provides
that (i) any assignment of any rights under the applicable agreement
is void if the Consent is not obtained prior to the transfer, or (ii) the
applicable agreement itself will, or may be, terminated (either directly
or at the discretion of the party that holds the Consent right) due to a
party’s failure to obtain the applicable Consent prior to any assignment.
What constitutes a Hard Consent will, however, vary among oil and gas
industry participants and their respective counsel. Despite the label, the
name has nothing to do with how difficult it may be to obtain a Consent.
In contrast, see Soft Consent.
Hart Scott Rodino Act (HSR Act): the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is a US anti-trust law that requires
filing a notification with the Federal Trade Commission with respect to
any sale or merger that exceeds a certain dollar threshold (which varies
depending on the types of assets included in the applicable underlying
transaction). With respect to Upstream oil and gas transactions, notably
(i) the applicable dollar threshold is much higher than for most other
asset types, and (ii) Undeveloped Acreage / non-producing properties
are ascribed zero value for purposes of the applicable HSR Act test.
Haynesville Shale: a popular name used for a Shale Formation that is
generally located under parts of East Texas, Northwest Louisiana and
Southwestern Arkansas that generally produces Dry Gas.
Hazardous Substances: a class of substances defined by federal law, the
EPA and OSHA, and/or state law as being hazardous to the environment.
Substances defined as hazardous must be used and handled according
to specific regulatory guidelines. The term Hazardous Substances is
often used in oil and gas industry agreements and may be ascribed a
meaning in the applicable agreement that is different from how the
term is defined under Environmental Laws. In both contexts (i.e., the
EPA regulations and the agreements), Hydrocarbons themselves are not
always considered Hazardous Substances.
HBP: abbreviation of Held by Production.
Heads Up / Heads Up Basis: a colloquial term used to indicate a joint
development scenario in which no party’s Development Costs will be
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paid by another person, and each applicable party will pay its own costs
relative to its interest in the applicable operation. You gotta pay if you
want to play.
Heater Treater: a piece of equipment located downstream of the Wellhead
and often connected to a Tank Battery that processes produced oil by
using heat to separate out water, Natural Gas and other substances from
the oil. It heats, it treats, is there anything it can’t do?
Heavy Crude Oil: Crude Oil that has relatively less “light” components,
such as gasoline, and relatively more “heavy” components, such as
asphalt, than does Light Crude Oil. Heavy Crude Oil is generally harder
to produce (as it is more viscous) and is less valuable than Light Crude
Oil. Heavy Crude Oil is typically understood to be Crude Oil with an API
Gravity that is less than 20°.
Hedge Contract: a derivative contract, with Crude Oil, Natural Gas or
NGLs of certain specifications as the underlying commodity. A Hedge
Contract may settle with physical delivery of the underlying hydrocarbon
or settle financially and may be traded on an exchange or directly
between counterparties. Hedge Contracts are used in the oil and gas
industry to reduce exposure to future commodity price fluctuations.
Held by Production (HBP): the Secondary Term of most Oil and Gas
Leases allows for the Lessee to retain the Lease for so long as there is
Production in Paying Quantities. Leases (and the underlying Lands) that
are in their Secondary Term are commonly referred to as being Held by
Production or HBP.
Henry Hub: a significant trading hub for Natural Gas in North America
located in Erath, Louisiana, and the location specified for physical
delivery of Natural Gas futures contracts traded on the NYMEX. The
Henry Hub interconnects with multiple interstate and intrastate Natural
Gas Pipelines.
High Splits: the IDR tier in which the holder of the IDR receives 50%
of every incremental dollar paid in a cash distribution to the limited
partners.
Holdback Amount: in the context of a PSA, a Holdback Amount is
a portion of the applicable purchase price that is paid into an escrow
account at Closing (instead of directly to the seller) of the transaction to
secure certain post-Closing obligations of the seller.
Holdback Period: the period of time that a Holdback Amount is to be
held in escrow prior to being eligible to be distributed to the seller.
Hookie Dook: in the context of debt financing in the oil and gas industry,
a colloquial term for provisions in an indenture that provide significant
flexibility to borrowers to take on additional debt without violating the
49
covenants of the indenture. Who came up with this name? But at least
it’s fun to say!
Horizon: another term for Stratum.
Horizontal Drainhole Displacement: another term for Lateral Length.
Horizontal Drilling: the process of Drilling one or more Horizontal Wells.
Horizontal Drilling entails Drilling an initial vertical segment, a Kick-
Off Point where Drilling begins to deviate from vertical, and thereafter
Drilling a Lateral that is intended to be within the Target Formation. As
compared to conventional vertical drilling, Horizontal Drilling, coupled
with other techniques such as Hydraulic Fracturing, significantly
increases a Wellbore’s exposure to a Target Formation, which is
particularly helpful in producing Hydrocarbons from low Permeability
Formations, such as Shale.
Horizontal Spacing: spacing describes the number of acres assigned
to a Well by a state regulatory agency. Horizontal Spacing applies to
Horizontal Wells and dictates how far the Wellbore of the Horizontal
Well must be set back from lease lines.
See also Rule 37 and Rule 38. In contrast, see Vertical Spacing.
Horizontal Well: a Well in which the Lateral of the Wellbore exceeds the
vertical component of the Wellbore within the Target Formation. Note
that what constitutes a Horizontal Well may be defined differently by
Field Rules, statutes or applicable transaction documents.
In contrast, see Vertical Well.
Hot Oiler: not just the glistening guy sporting the Speedo on the beach.
A machine, usually attached to or carried on a truck, that creates heat
which is used to cause oil, wax or other clogging constituents in a
Wellbore to become less viscous and therefore increase the flow out of
the Wellbore.
HSR Act: abbreviation of Hart Scott Rodino Act.
Hydraulic Fracturing: a Stimulation operation that increases the
Production of Hydrocarbons from a Well by pumping Frac Fluid into the
Well at high pressure, thereby causing fractures in the Target Formation
to extend out from the Wellbore. These fractures are then held open
by the Proppant contained in the applicable Frac Fluid. Hydraulic
Fracturing is often used in connection with Oil and Gas Wells drilled
in low Permeability Formations to increase the rate of Production.
The evolution of Hydraulic Fracturing technology has allowed for the
economic Production of Hydrocarbons from Formations that were
otherwise historically uneconomic.
See also Multi-Stage Hydraulic Fracturing.
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Hydrocarbons: naturally occurring molecules that contain various
combinations and permutations of at least hydrogen and carbon.
Generally, the spectrum of Hydrocarbons included within the context of
oil and gas runs from Dry Gas to Heavy Crude Oil.
IDC: abbreviation of Intangible Drilling Costs.
IDR: abbreviation of Incentive Distribution Right.
IEA: acronym for International Energy Agency.
Imbalances: a general term used to refer to a Pipeline Imbalance and/or
a Well Imbalance.
Impermeable: in the context of oil and gas Drilling, subsurface Formations
that cannot be drilled through by ordinary means of Drilling.
In the context of geology, Formations through which Hydrocarbons
cannot flow.
Implied Covenant: in the oil and gas context, an obligation implied to
exist in an Oil and Gas Lease under state law that is binding upon the
Lessee unless the covenant is specifically addressed in the Lease.
Implied Covenant of Development: if not expressly waived in an Oil and
Gas Lease, many states will read into an Oil and Gas Lease an Implied
Covenant requiring the Lessee to continue to develop the leased property
even after Production in Paying Quantities has been achieved.
Implied Covenant to Prevent Drainage: if not expressly waived in an
Oil and Gas Lease, many states will read into an Oil and Gas Lease an
Implied Covenant requiring the Lessee to protect the leased property
from Drainage. This Implied Covenant can be met by Drilling additional
Wells, including Offset Wells, or Pooling the leased Acreage with other
adjacent Acreage in order to drill another Well.
Improved Oil Recovery (IOR): another term for Enhanced Oil Recovery
or Enhanced Recovery.
Incentive Distribution Right (IDR): an interest in an MLP that gives
the holder (often times the general partner of the MLP) the right to an
increasing share of cash distributions upon certain cash distribution
thresholds being met.
Increased Density Well: another term for Infill Well.
Indemnity Cap: in the context of a PSA, a dollar ceiling (often expressed
as a percentage of the applicable purchase price) that limits the seller’s
indemnification liability (and sometimes the buyer’s as well). An
indemnifying seller will not be required to indemnify the indemnified
buyer for any amounts the buyer claims that, together with the amounts
of all other indemnity claims made by the buyer against the seller, are in
excess of the applicable Indemnity Cap.
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Indemnity De Minimis / Indemnity Threshold: in the context of a PSA,
a dollar threshold that limits the seller’s indemnification liability (and
sometimes the buyer’s as well). In order for the indemnifying seller to
be liable for any claim for indemnification, the claim must be in excess
of the Indemnity Threshold. All claims that fail to reach the applicable
Indemnity Threshold are, unless otherwise expressly excepted from
the application of the Indemnity Threshold, essentially waived by the
indemnified buyer. The interplay between the Indemnity Threshold and
Indemnity Deductible in any PSA is important, as both benchmarks must
typically be met for the indemnified buyer to be entitled to any recovery.
Unlike the Indemnity Deductible, once reached by a particular claim,
the Indemnity Threshold does not limit the indemnified buyer’s recovery
on such claim to only amounts over and above the Indemnity Threshold.
Indemnity Deductible: in the context of a PSA, a dollar threshold
(often expressed as a percentage of the applicable purchase price) that
limits the seller’s indemnification liability (and sometimes the buyer’s
as well). In order for the indemnifying seller to be liable for any claim
for indemnification that is not otherwise expressly excepted from the
application of the Indemnity Deductible, the total value of all claims
for indemnification made against the seller must exceed the Indemnity
Deductible for the indemnified buyer to be entitled to recovery.
Importantly, in an Indemnity Deductible context, the indemnifying seller
is only liable for amounts over and above the Indemnity Deductible.
Independent Landman: a Landman who does not work for an oil and gas
company.
Independent Producer / Independent Oil Company: an oil and gas
company that focuses exclusively on the Upstream segment of the oil
and gas business, as opposed to an Integrated Oil Company.
In the oil and gas industry, certain tax deductions, such as Percentage
Depletion, are available only to Independent Producers. The IRS defines
an Independent Producer as a taxpayer with less than 75,000 Bbl/d of
refining Capacity and less than US$5 million per year in retail sales.
Indian Lands: federal lands owned by Native American tribes. Indian
Lands generally fall into one of two categories: (i) tribal lands (e.g., lands
owned by a Native American tribe collectively with rights of perpetual
occupancy); and (ii) allocated lands (e.g., lands an individual Native
American holds with specific restrictions on alienation). Leasing of Indian
Lands often involves specific Lease forms and BIA approval.
Individual Defect Threshold: in the context of a PSA, a dollar threshold
that limits the seller’s liability for Title Defects and/or Environmental
Defects. In order for the Title Defect Mechanism or Environmental
Defect Mechanism to apply to any claimed Title Defect or Environmental
Defect, the defect must have a Title Defect Amount or Remediation
Amount in excess of the Individual Defect Threshold. All claimed defects
52
that fail to reach the applicable Individual Defect Threshold are, unless
otherwise expressly excepted from the application of the Individual
Defect Threshold, essentially waived by the buyer.
See also Environmental Defect Threshold and Title Defect Threshold.
Individual Environmental Defect Threshold: another term for Individual
Defect Threshold and/or Environmental Defect Threshold.
Individual Title Defect Threshold: another term for Individual Defect
Threshold and/or Title Defect Threshold.
Industry Player: in the context of oil and gas transactions, a term used to
refer to an oil and gas company or other industry-specific entity that is
a party to a transaction, in contrast to parties to the transaction that are
financial investors or lenders. For example, in a joint venture transaction,
often at least one party to the joint venture will be an Industry Player
with the experience and know-how to operate the joint venture assets,
while the other parties will contribute financially but will participate as
Non-Operators.
Infill Well / Infill Drilling: a Well that is drilled in an already delineated
Formation, typically between Producing Wells, in order to increase the
total recovery of Hydrocarbons from the Formation. Infill Wells are drilled
after Exploratory Wells and Delineation Wells have been drilled. Field
Rules (and any exceptions thereto) will determine the allowed density
of Infill Wells.
Initial Reservoir Pressure: the pressure of a Reservoir before the Production
of Hydrocarbons has depleted the Reservoir. Initial Reservoir Pressure
is determined by shutting in the Discovery Well upon first discovering
Hydrocarbons for a certain period of time to allow the pressure lost from
penetrating the Reservoir to rebuild, and then measuring the pressure of
the subsequent initial Production over a certain period of time (e.g., 24
hours).
Initial Shut-In Period: the period of time when a Discovery Well is first
shut-in after the first discovery of Hydrocarbons in order to determine
the Initial Reservoir Pressure.
Initial Well: in connection with the AAPL Form JOA, the Initial Well is
a Well the parties have agreed and approved at the time the JOA is
executed. Note that under the AAPL Form JOA the parties do not have
to specify an Initial Well, but may choose to do so.
Injection Gas: Natural Gas that is injected through an Injection Well into
an oil Reservoir to increase the pressure of the Reservoir and thereby
increase the recovery of oil.
See also Gas Lift, Gas Lift Gas and Secondary Recovery.
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Injection Well: a Well used to inject Natural Gas or carbon dioxide into a
producing Reservoir in connection with Secondary Recovery or Gas Lift
operations and the maintenance of Reservoir Pressure.
In-Kind Balancing: a true-up mechanism (often seen in hydrocarbon
sales contracts, Midstream service agreements, and Acreage Trade
agreements) that allows parties to an agreement to correct an imbalance
(e.g., a Pipeline Imbalance or Acreage imbalance) by adjusting the
amount of Hydrocarbons or Acreage to be received and/or exchanged
between the parties.
In contrast, see Cash Balancing.
In-Situ Recovery: in the context of extracting hard minerals, an alternative
extraction method to mining the minerals. In-Situ Recovery is also used
for extracting certain Hydrocarbons with physical traits more similar to
hard minerals than to Liquid Hydrocarbons.
In the context of oil Production, In-Situ Recovery is the process of
converting very viscous Heavy Crude Oil / Oil Sands / Bitumen into a less
viscous form, while the Hydrocarbons are “in place” (i.e., still contained
within the hydrocarbon-bearing rock). Most In-Situ Recovery processes
use heat to decrease the Hydrocarbons’ Viscosity (and often upgrade the
gravity). A Steam Flood, Water Drive or similar method then sweeps the
heated, less viscous Hydrocarbons to a Producing Well.
Intangible Drilling and Development Costs (IDCs): costs for certain
intangibles that a Working Interest owner may, for US federal income tax
purposes, elect to deduct in the year incurred rather than recover over
the property’s useful life. These costs must be incident to and necessary
for preparing or Drilling Oil and Gas Wells and must be incurred for items
that themselves have no salvage value, including labor, fuel, repairs
and hauling. Expenditures for coring analyses, cement, Mud and the
erection of drilling platforms, as well as an allocable portion of overhead
expenses clearly related to Drilling and Development activities, are also
considered IDCs.
IDCs generally constitute 65-80% of the total cost of Drilling a Well and
are generally themselves 100% deductible in the year incurred.
In contrast, see Lease Operating Expenses.
Integrated Oil Company: an oil and gas company that has businesses
across the various sectors of the oil and gas industry (e.g., Upstream,
Midstream and Downstream).
Interconnect Agreement: an agreement entered into between the owners
of two (or more) interconnecting facilities (e.g., Pipelines, Terminals). An
Interconnect Agreement will typically set forth, among other things, the
allocation of liabilities with respect to any damages that may occur at the
point of interconnection, access rights to inspect and maintain the point
of interconnection, and procedures regarding modifying or upgrading
the interconnecting facilities.
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Interim Period / Interim Period Covenants: in the context of a PSA
where the signing and Closing of the applicable transaction are not
simultaneous, this term refers to the time period between the signing of
the PSA and the Closing.
During an Interim Period, the Interim Period Covenants typically (i)
require the seller to continue the operation and maintenance of the
applicable assets or entity in the ordinary course of business, and
(ii) restrict the seller from taking certain actions without the buyer’s
permission, in each case, in order to ensure that the buyer receives the
benefit of the bargain as it existed at the PSA’s signing.
Intermediate Crude Oil: Crude Oil with a sulfur content between 0.5%
and 2.5%.
In contrast, see Sour Crude Oil and Sweet Crude Oil.
Intermittent Gas Lift: another term for Gas Lift or Gas Lift Drive.
International Energy Agency (IEA): an international agency (whose
members are comprised of primarily OECD nations) that provides
energy security policy recommendations to its member nations, as well
as widely followed statistics regarding worldwide oil and gas Production,
demand and Development.
Interruptible Service: in the context of Midstream service agreements,
Interruptible Service does not provide a customer with a guarantee of
Capacity on the applicable Midstream assets. The service provider may
typically curtail or interrupt Interruptible Service at any time, and for any
reason. As a result, Interruptible Service rates are typically lower than
those for Firm Service.
Interstate Oil and Gas Compact Commission: a US, multi-state,
governmental body that promotes the safe and efficient Development
of domestic oil and gas resources, and is a leader in oil and gas policy
issues.
Jack-Ups / Jack-Up Rig: an offshore rig that, once on location, is stabilized
by legs that extend to the seafloor and that are adjustable in height. Jack-
Up Rigs are therefore primarily designed for relatively shallow waters.
JDA: abbreviation of Joint Development Agreement.
Jeffersonian Section: another term for Section.
JIB: abbreviation of Joint Interest Billing. Also a term commonly used to
refer to the invoices and other notifications delivered to an applicable
party pursuant to Joint Interest Billing.
JOA: abbreviation of Joint Operating Agreement.
Joint Account: a term often used in connection with JOAs (and the
accompanying COPAS Accounting Procedure) that represents the
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account to which a party incurring expenses (typically the Operator) may
charge certain expenditures attributable to the Participating Parties in
an operation. Charges made for the Joint Account are then billed directly
to the Participating Parties in accordance with their pro rata interests in
the operation.
Joint Development Agreement (JDA): a type of agreement under which
two or more parties agree to jointly explore and/or develop oil and gas
interests within a defined geographic area or based on other specified
criteria. This type of agreement takes different forms depending upon the
parties involved and the commercial terms of the applicable transaction.
Joint Interest Billing (JIB): a type of accounting specific to the oil and
gas industry where more than one party has an ownership interest in
the asset or operation. Joint Interest Billing allocates the revenue and
expenses regarding the asset or operation among the parties that have
an ownership interest in the applicable asset and/or that are participating
in the applicable operation.
Joint Loss Agreement: an agreement between joint owners of the same
interest regarding the treatment and distribution of losses between the
joint owners.
In the context of a JOA, this term means that the JOA provides that
all parties to the JOA share any Loss of Title in accordance with their
Working Interest across the entire Contract Area, instead of just the party
who previously held the lost interest.
Joint Operating Agreement (JOA): an agreement oil and gas industry
participants use to facilitate the joint development of the Tract(s) subject
to the agreement.
See also AAPL Model Form 610 Joint Operating Agreement and AIPN
Model Form International Operating Agreement.
Joint Tenancy: an undivided ownership interest in a single Tract
between two or more persons or entities (each a “joint tenant”). In a Joint
Tenancy, the death of one joint tenant causes the property interest held
by the deceased joint tenant to transfer automatically to the surviving
joint tenant because of the presence of the right of survivorship (a right
not present in a Tenancy in Common). Joint tenants cannot prevent other
joint tenants from developing the applicable Tract, and each joint tenant
has the right to use and occupy the Tract.
In contrast, see Tenancy in Common.
Junk: not to be confused with what may be in your trunk, this is another
term for Fish.
Justified for Development: in connection with Reservoir Engineering and
management, Justified for Development means the development project
is considered justified based upon geologic and economic forecasts, and
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there is a reasonable expectation that the development project will be
approved.
See also Approved for Development and On Production.
Kelly: part of a Drilling Rig that is a square or hexagonal steel tube or
pipe that transfers rotary motion from the swivel to the Rotary Table and
the Drill String.
Kelly Bushing: a device used on a Drilling Rig that helps transmit the
torque of the Rotary Table to the Kelly.
Kick: the force of fluids into the Wellbore caused by penetration of a
Reservoir when there is a sufficiently large pressure differential between
the pressure in the Formation and Wellbore. Kicks can be a classic “good
news” (e.g., there are Hydrocarbons present) / “bad news” (e.g., a Kick
may be a precursor to a Blowout) situation.
Kick-Off Point: the depth or location in the vertical Wellbore in which the
Wellbore is deviated from vertical to a slanted or horizontal orientation.
After the Kick-Off Point, the Wellbore’s orientation becomes increasingly
horizontal until the Lateral segment of the Wellbore levels out.
Kill a Well: the intentional or unintentional action of causing a Well to
temporarily or permanently cease Production of Hydrocarbons. A Well is
killed by the uphole presence of fluids sufficiently heavy to prevent the
Hydrocarbons from continuing uphole, including through injecting high
density Drilling Mud into the Wellbore. RIP Well.
Kill Line: a high pressure pipe that is used in connection with Blowout
Preventers to pump kill fluid Downhole to help Kill a Well in the event
of an emergency.
LACT: abbreviation of Lease Automatic Custody Transfer.
Landman: just might happen to be the club champion at your local
golf course, and also a professional in the oil and gas industry who is
responsible for securing and managing Mineral Rights (e.g., through
signing up an Oil and Gas Lease and Running Title), facilitating the
permitting of Wells, and managing and maintaining oil and gas interests,
including relations with Landowners and Lessors. We would also be
remiss if we didn’t make clear that both females and males can make
excellent Landmen.
Landowner: generally this term is used to refer to someone who owns
either the Surface Estate and/or the Mineral Estate, which (if the Mineral
Estate owner) is often times the Lessor under an Oil and Gas Lease.
Landowner’s Royalty: another term for Lessor Royalty.
Lands: a term used to refer generally to the real property interests
(including both the Surface Estate and the Mineral Estate) that are the
subject of an Oil and Gas Lease or agreement.
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Lateral: the horizontal segment of a Horizontal Well. Once the Well
is Completed, all or a portion of the Lateral is meant to serve as the
drainhole for Hydrocarbons in the Target Formation.
Lateral Length: the length of a Horizontal Well’s Lateral.
Lay Down Pipe: in connection with the Drilling of a Well, this term refers
to the process of pulling Drill Pipe from the Well and placing the pipe
back on the pipe racks or on the ground. In connection with Pipelines,
Lay Down Pipe is also a colloquial term used to refer to the installation
of Pipelines.
Lay-Down Spacing Unit v. Stand-Up Spacing Unit: on a map with a
northerly orientation, a Lay-Down Spacing Unit is shown as a rectangle
that is wider (from east to west) than it is tall (from north to south), and a
Stand-Up Spacing Unit is shown as a rectangle that is taller (from north
to south) than it is wide (from east to west).
Laying Pipe: another term for Lay Down Pipe.
Lease: although ultimately characterized by state law, this term
represents the agreement between a Landowner and a Lessee whereby
the Lessee is granted the right to enter the leased property to conduct
Drilling operations to exploit and remove any Hydrocarbons produced
from the Mineral Estate subject to the Lease.
An Oil and Gas Lease is typically considered a Fee Simple Determinable
interest in real property.
Lease Automatic Custody Transfer (LACT) Unit / LACT Meter: a
LACT Unit is a device used on a Lease site to automatically transfer
Hydrocarbons at a given interconnection point and to record the transfers
by preparing a Run Ticket.
A LACT Meter is used to measure the volume of Hydrocarbons passing
through the LACT Meter at the applicable interconnection point, which
is often the point of entry into a Pipeline or other point at which custody
of the Hydrocarbons will be transferred to another party.
Lease Bonus: another term for Bonus.
Lease Condensate: another term for Condensate.
Lease Exhibit: an exhibit to an oil and gas industry agreement or
instrument that sets forth the Oil and Gas Leases subject to the applicable
agreement or instrument. The Lease Exhibit will describe the applicable
Leases in sufficient detail so that the Leases can be identified and/or
transferred. This information may include a Legal Description, recording
information, Gross Acres, Net Acres, Working Interest and Net Revenue
Interest.
Lease Operating Expenses (LOE): in the context of oil and gas industry
transaction documents, LOE is generally used as a catch-all for certain
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costs and expenses associated with operating and maintaining a Lease
that is already producing Hydrocarbons (as opposed to being developed).
For US federal income tax purposes, LOE are those expenses incurred
to operate and maintain producing Oil and Gas Leases. LOE includes
costs and expenses for labor, equipment repair and maintenance,
utilities, insurance and Overhead. LOE are deductible in the year
incurred. In the case of certain Workover and re-drilling costs, it can
be difficult to distinguish costs that are IDCs from those that are LOE.
While the distinction may appear unimportant as taxpayers generally
elect to deduct, rather than capitalize, IDCs, the distinction is relevant
to the alternative minimum tax, the calculation of a corporate taxpayer’s
earnings and profits, and other tax matters.
In contrast, see Intangible Drilling and Development Costs.
Lease Tank: tanks that are on the producing Lease or Unit to collect
Hydrocarbons as they are produced.
Leasehold Assignment: an assignment or Conveyance of a Leasehold
Interest. A Leasehold Assignment is typically made by an Assignment
and Bill of Sale.
Leasehold Interests: a general term used to refer to the rights that a
Lessee has to enter upon the leased property to conduct E&P operations,
which can also be used to refer to duties owed by the Lessee or retained
by the Lessor.
Legal Description / Legal Property Description: a written description
of real property that is legally sufficient to identify and precisely locate
the subject property. Transactions involving the transfer of real property
universally require a Legal Description of the subject property. Some
of the more common methods of providing a Legal Description include
using Metes and Bounds, Section-Township-Range, reference to another
instrument or document, name designation and Subdivision Lot.
Lessee: the person or entity that receives from the Lessor the rights to
explore for and produce Hydrocarbons from a given property by virtue
of an Oil and Gas Lease.
Lessor: the person or entity which conveys to the Lessee the right to
explore for and produce Hydrocarbons by virtue of an Oil and Gas Lease.
A Lessor owns the minerals that are the subject of the Oil and Gas Lease.
Lessor Royalty: the percentage of gross Production from an Oil and Gas
Lease that is paid or owed to the Lessor as part of the consideration for
the leasing of the applicable Mineral Interest.
Letter of Credit: a letter guaranteeing payment of a certain amount of
money to the recipient of the letter, which a financial institution usually
provides on behalf of a client. Letters of Credit are often used in the
oil and gas industry as a form of security for payments owed under
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agreements, or to provide protection for potential future liabilities such
as environmental liabilities.
Letter of Intent (LOI): a generally non-binding agreement between two
or more parties setting forth the parties’ expressions of intention as to
the basic tenets of a proposed transaction. Typically, very few provisions
of an LOI are binding on the parties. Examples of typically binding
provisions include exclusivity, sharing of costs and expenses, governing
law and confidentiality.
Letters in Lieu of Transfer Orders: a letter that a seller of producing Oil
and Gas Properties sends to purchasers of Production from the properties
in order to direct the purchasers to begin paying the applicable Proceeds
to another party (typically the buyer of the producing Oil and Gas
Properties).
See also Transfer Order.
Lifting Costs: another term for Production Costs.
Light Crude Oil: Crude Oil that has relatively more “light” components,
such as gasoline, and relatively less “heavy” components such as asphalt,
than does Heavy Crude Oil. Light Crude Oil has a lower density and
lower Viscosity than Heavy Crude Oil.
Like-Kind Exchange: property that is either held for investment or held for
use in a trade or business may be exchanged for property of a “like kind”
without recognizing gain or loss for US federal income tax purposes. The
taxpayer’s tax basis in the property the taxpayer receives in a Like-Kind
Exchange is equal to its basis in the property surrendered, as measured
immediately before the exchange. The taxpayer’s recognition of gain
from the property it receives in a Like-Kind Exchange is then deferred
until the received property is disposed of in a taxable transaction.
A Like-Kind Exchange may be structured to allow a taxpayer to
simultaneously exchange like-kind property, or, provided certain
requirements are satisfied, to allow a taxpayer to receive and relinquish
like-kind property in separate transactions.
In general, Fee Simple interests, Working Interests and Royalty Interests
are all of “like-kind.” Like-Kind Exchange treatment is not available for
exchanges of partnership interests (including Mineral Interests treated
as held by a Tax Partnership), exchanges involving property that is stock
in trade (or other property held primarily for sale), and exchanges of
US real property for non-US real property. There are also restrictions on
Like-Kind Exchanges between related parties.
Liquefied Natural Gas (LNG): Natural Gas that is cooled in a liquefaction
facility into liquid form. LNG is produced in order to more easily transport
and store Natural Gas, as LNG can be transported more economically
over long distances and/or stored than can gaseous Natural Gas, as LNG
is more concentrated in volume.
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Liquefied Petroleum Gas (LPG): flammable hydrocarbon gases such as
Butane and Propane that are in a liquid state. LPGs may be derived from
Natural Gas Processing or from Crude Oil Refining.
Liquid Hydrocarbons: a broad term that captures Hydrocarbons in liquid
form, such as Crude Oil, Condensate, NGLs, LNG and LPG.
Liquid-Rich Shales: Shale rock Formations that bear relatively more
Crude Oil and Condensate than Dry Gas. Within a given Basin, certain
areas may be more liquid-prone than others.
Live Oil: Crude Oil infused with a very high concentration of Natural
Gas, causing the Crude Oil to be volatile and more combustible.
LNG: abbreviation of Liquefied Natural Gas.
Location Exception: an exception that must be obtained from the relevant
governmental agency to drill a Well that does not otherwise comport
with the Field Rules or Spacing rules.
LOE: abbreviation of Lease Operating Expenses.
Log: records that are created during the process of Drilling a Well to
its Total Depth. Well Logs are used to analyze the various properties
of the strata and fluids through which a Wellbore passes and are also
used in recording a Well’s depth and the delineation of the Reservoir(s)
penetrated.
LOI: abbreviation of Letter of Intent.
Losing the Hole: good luck finding it again ... a colloquial term used
to refer to the loss of usability of a Wellbore, usually due to a collapse
caused during the Drilling of a Well or from mechanical difficulties.
Loss of Title: in the oil and gas context, the loss of all or a portion of an Oil
and Gas Lease or interest, often due to the failure to properly submit a
payment necessary to maintain the interest (e.g., rentals, Shut-In Royalty
payments, Royalties).
In the context of a Title Defect Mechanism, Loss of Title means failure to
have Defensible Title to a property.
LPG: abbreviation of Liquefied Petroleum Gas.
Lubricant: a liquid or mixture of liquids and solid constituents added to
Drilling Fluid in order to reduce friction in the Wellbore during Drilling
operations.
MAC: abbreviation of Material Adverse Change.
MAE: abbreviation of Material Adverse Effect.
Mailbox Money: a colloquial term for Royalty checks that an owner of a
Royalty Interest receives. Mailbox Money is what allowed the Clampetts
to up and move to Beverly Hills.
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Maintenance of Uniform Interest (MUI): a contractual restriction
applicable to jointly owned properties within a given area that stipulates
that the interests of the parties in the applicable properties are uniform
across the entire area. Practically, an MUI provision commonly requires
that any transfer of property within the applicable area be a transfer
of the transferor’s entire interest, or an undivided percentage of the
transferor’s interest, including as to all applicable depths involved, in
order to maintain the uniformity of ownership.
The AAPL Form JOA contains an MUI provision, although parties using
the AAPL Form JOA often elect to delete such provision to allow the
parties greater freedom in the use of their respective interests in the
covered properties.
Making Hole: biting our tongues here ... but just a colloquial term for the
act of Drilling a Well.
Management Committee: another term for Operating Committee.
Marcellus Shale: a popular name used for a Shale Formation that is
generally located under parts of Ohio, West Virginia, Pennsylvania and
New York.
Marginal Well: generally, a Well that is only slightly profitable or is no
longer profitable to operate due to low Production. A Marginal Well is
generally a Well in which the average Production is less than 15 Bbl/d
or Boe/d.
Marketable Title: a standard of title that generally means title that is free
and clear of liens and is not subject to a claim that would present a real
and substantial likelihood of Loss of Title or litigation that would prevent
the property from being sold at a fair price.
Marketing Agreement: an agreement whereby one party agrees to sell
or market the Hydrocarbons produced by another party for a period of
time, often for a fee based upon the volumes marketed.
Mark-to-Market Accounting: an accounting method whereby an asset
or liability’s value is determined by periodically revaluing the asset or
liability against its market value, as opposed to the traditional Full Cost
Accounting methodology. Mark-To-Market Accounting is often most
appropriate in determining the value of fungible, liquid assets (e.g.,
Hydrocarbons at or near a market) and financial products derivatives
related to such assets. Hedging and trading programs typically value
their books by the Mark-To-Market Accounting methodology.
Master Limited Partnership (MLP): simply put, an MLP is a partnership
that is publicly traded and listed on a national securities exchange. More
specifically, an MLP must meet the following criteria:
First, the MLP must be a state law entity that can be treated as a tax pass-
through entity. Most MLPs are formed as Delaware limited partnerships.
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Alternatively, the MLP may be a state law limited liability company or
even a state law trust, such as a Delaware statutory trust. Although the
governance structure may differ among these entity types, any of these
entities may be treated as partnerships for federal income tax purposes.
Second, the MLP must be publicly traded. Owners of MLP units can
buy and sell interests in the MLP. The publicly traded element of an
MLP simply provides for the same type of liquidity (or float) that a public
corporation enjoys — although for the most part MLPs’ float and trading
volume are relatively small compared to publicly traded corporations.
This is largely because of the nature of MLP unitholders; retail investors
seeking yield hold the majority of MLP units. Moreover, given certain tax
limitations, these investors are typically domestic, rather than foreign.
Institutional ownership of MLPs has been limited (although growing
in recent years), mainly because MLPs generate income that is not
conducive to tax-exempt investors’ ownership.
Third, the MLP must be listed on one of the major exchanges. Today, the
most common securities exchange for MLPs is the NYSE, although quite
a few MLPs are listed on the NASDAQ.
Finally, in order for an MLP to be treated as a pass-through entity for US
federal income tax purposes, rather than a corporation, the MLP must
meet the “qualifying income” test, which requires at least 90% of an
eligible entity’s gross income to be Qualifying Income.
For further discussion of MLPs, see Latham & Watkins’ The Book of
Jargon: MLPs.
Master Services Agreement (MSA): a contract that facilitates an ongoing
relationship between a service provider and a customer by detailing
each party’s ongoing duties and obligations. Usually the parties will
agree upon a simplified work order for each project, with the work order
containing the applicable details of the requested individual service.
Each work order is subject to the general terms and conditions of the
relationship that are set forth in the body of the MSA.
Material Adverse Effect (MAE) / Material Adverse Change (MAC): in
the context of mergers and acquisitions agreements, a Material Adverse
Effect is a change, fact, condition, event and/or circumstance occurring
before the Closing that, individually or in the aggregate, is materially
adverse to (i) the ownership, operation, or value of the asset(s) or
business subject to the agreement, as the asset(s) or business is operated
or expected to be operated as of the agreement’s execution date; or
(ii) the seller’s ability to consummate the transactions or perform its
obligations under the agreement. The term is frequently subject to heavy
negotiation. With respect to mergers and acquisitions in the oil and gas
industry, some events that are commonly excluded from the definition of
MAE are events resulting from: (a) entering into or publicly announcing
the subject agreement; (b) any action taken by the seller in accordance
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with the terms of the agreement or with the buyer’s Consent; (c) changes
in general market conditions; (d) Force Majeure events; (e) matters that
are cured or no longer exist at the Closing; (f) any reclassification or
recalculation of reserves in the ordinary course of business; (g) changes
in the prices of any Hydrocarbons; and (h) natural declines in Well
performance.
Material Contracts: in connection with a PSA, Material Contracts are
typically those contracts specifically identified in a representation and
warranty to be significant or important, due either to the contract’s value
or the types of provisions, obligations and/or restrictions provided in the
contract.
Maturation: the process whereby organic material in a Source Rock
becomes a Hydrocarbon; the type and form of the Hydrocarbon
depending, generally, on the duration, heat and pressure exerted upon
the Source Rock.
Mbbl: abbreviation of large quantities of liquids produced, Mbbl means
one thousand Barrels.
Mbbl/d: abbreviation of the rate at which liquids are produced, Mbbl/d
means one thousand Barrels per day.
Mboe: abbreviation of the quantity of BOE produced, Mboe means one
thousand Barrel of Oil Equivalents.
Mboe/d: abbreviation of the production rate of BOE, Mboe/d means one
thousand Barrel of Oil Equivalents per day.
Mcf: abbreviation of large quantities of Natural Gas, Mcf means 1,000
cubic feet of Natural Gas.
Mcfe: abbreviation of 1,000 Cubic Feet Equivalent.
Measured Depth: the measurement of the Wellbore’s total length, often
measured by using the Drill String in the Wellbore.
In contrast, see True Vertical Depth.
Measuring Tank: a tank equipped to measure volumes of Liquid
Hydrocarbons as they pass through the tank, often in connection with
Well testing.
Mechanic’s and Materialman’s Lien / M&M Lien: a statutorily created
lien which arises when improvements are made to Oil and Gas Properties
(e.g., services and materials provided by a contractor to facilitate the
Production of Hydrocarbons). Since an M&M Lien is created by statute,
the procedures and filing requirements for establishing the lien vary by
jurisdiction.
In Texas, M&M Liens are governed by Chapter 56 of the Texas Property
Code.
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Memorandum of Understanding (MOU): another term for Letter of
Intent, although MOUs often are more comprehensive than LOIs, with
MOUs typically containing greater detail and more provisions that are
binding upon the parties to the MOU.
Meridian: a measurement of longitude passing through specific locations
on the Earth’s surface. Meridians can be used as points of reference in
connection with land Surveys and maps.
Meter: a piece of equipment used to track a specified unit of measurement
(e.g., volume of Natural Gas or Crude Oil) at a particular location,
whether at a particular point in time or for a specific time period. Flow
Meters and LACT Meters are two types of Meters commonly used in the
oil and gas industry.
Meter Station: a station, placed downstream of a Well that measures the
quantity of Hydrocarbons produced from the Well. Pipeline Operators
use these facilities to continuously measure all volumes of Hydrocarbons
entering or leaving the applicable Midstream asset system, to manage
the total amount of Hydrocarbons in the system.
Metes and Bounds: a method of describing real property that relies on
physical geographical features (e.g., an apple tree, the intersection of
two stone walls, artificial monuments, land of adjoining owners) and
distances between them to define and describe the subject property’s
boundaries.
Metes and Bounds descriptions are still used in many of the original 13
colonies as well as Tennessee, Kentucky and Texas.
Methane: a gaseous hydrocarbon chain consisting of one carbon atom.
Methane is often the primary component of unrefined Natural Gas and
is considered to be Dry Gas.
Midland Basin: one of the Basins that makes up the Permian Basin of West
Texas. The Midland Basin can be subdivided into several Formations
that are capable of producing Hydrocarbons (e.g., the Spraberry, Dean
and Wolfcamp, among others).
Midstream: a colloquial term for one of the three major sectors of the
oil and gas industry, Midstream refers to the second phase, which
involves the movement and storage of Hydrocarbons and is comprised
of Gathering, shipping and transporting, Processing and storage of
Hydrocarbons.
In contrast, see Upstream and Downstream.
Migration: the naturally occurring subsurface movement of Hydrocarbons,
including movement from a Source Rock to a Reservoir and movement
within a Reservoir. The Porosity and Permeability of the Source Rock or
Reservoir Rock affects Migration.
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Mineral Deed: a Conveyance of the Mineral Estate as a Fee Simple
interest in real property.
Mineral Estate: an estate in real property comprised of the right of
the owner to explore for, develop and produce the minerals below the
surface of a particular Tract. The Mineral Estate generally includes all
organic and inorganic substances, from all depths, that form part of the
Lands underlying the applicable Tract, but commonly excludes certain
subsurface minerals that are reserved for the Surface Estate.
A Mineral Estate may be “severed” from the Surface Estate and owned
by a person other than the owner of the Surface Estate, in which case the
Mineral Estate will be the Dominant Estate and the Surface Estate will
be the Servient Estate.
Mineral Interest: a legal interest in the ownership of the minerals
underlying a property, which grants the holder the right to enter and
occupy the surface as is reasonably necessary to explore, drill, mine,
remove and market such minerals and the right to assign or convey such
rights to third parties. The Mineral Interest is cost bearing, meaning it
bears the costs associated with exploring, Drilling, mining, removing and
marketing.
In contrast, see Royalty Interest.
Mineral Lien: another term for Mechanic’s and Materialman’s Lien.
Mineral Rights: another term for Mineral Interest.
Minimum Royalty / Minimum Royalty Clause: a provision in some Oil
and Gas Leases that requires the Lessee to pay a stipulated Royalty to
the Lessor over a set time period (usually annually), regardless of the
Production from such Lease (or Well).
Minimum Volume Commitment (MVC): in connection with Midstream
services, an MVC is a contractual commitment from a customer to
provide a minimum amount of volumes of Hydrocarbons to the service
provider over a set time period. Often, a Shortfall Payment will be owed
if the volumes provided to the Midstream service provider are below the
applicable MVC.
Mississippi Lime Shale: a relatively shallow Shale Formation generally
located between the depths of 4,000 to 7,000 feet below the surface in
parts of Northern Oklahoma and Southern Kansas.
MLP: abbreviation of Master Limited Partnership.
Mmbl: abbreviation of large quantities of liquids produced, Mmbl means
one million Barrels.
Mmboe: abbreviation of the quantity of BOE produced, Mmboe means
one million Barrel of Oil Equivalents.
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MMBtu: abbreviation of one million British Thermal Units.
Mmcf: abbreviation of large quantities of Natural Gas, Mmcf means one
million cubic feet.
Mobilization: in the context of a Drilling Rig or other type of rig, the
process of moving such rig from one location to another.
Moonpool: an opening in the center of a Drill Ship or Semi-Submersible
Drilling Rig, which allows for passage of equipment and/or divers into
and from the water. Like you, we thought this definition would be more
exciting than it is. Sorry.
Mortgage: a Mortgage is an instrument used in a Mortgage State
to secure a lien on real property interests located in such state and
is typically recorded in the county records in which the pledged real
property is located.
In Mortgage States that follow the “title theory” of Mortgages, a
Mortgage is an instrument that conveys title to the collateral securing an
obligor’s debt or other payment obligation to the relevant secured party,
with the condition that the secured party will re-convey the collateral
to the obligor upon full satisfaction or discharge of the debt or other
payment obligation. However, if an event of Default occurs, the secured
party has the right to retain the collateral or sell the collateral and retain
the proceeds (to the extent of the debt or other payment obligation).
In Mortgage States that follow the “lien theory” of Mortgages, a Mortgage
is an instrument that creates a security interest in or lien on collateral
securing an obligor’s debt or other payment obligation for the benefit
of the secured party, with the condition that the lien be released upon
full satisfaction or discharge of the debt or other payment obligation.
However, if an event of Default occurs, the secured party has the right
to foreclose on and retain or sell the collateral (to the extent of the debt
or other payment obligation), at which time title transfers to the secured
party.
In contrast, see Deed of Trust.
Mortgage State: a state that uses a Mortgage to secure a debt or other
payment obligation rather than a Deed of Trust. Some Mortgage States
are “title theory” states, meaning that the Mortgage is viewed as a
Conveyance of title to the collateral, while other Mortgage States are
“lien theory” states, meaning that the Mortgage is viewed as creating a
lien on the collateral, with the obligor retaining title.
Examples of “title theory” Mortgage States include Alabama and
Massachusetts. Examples of “lien theory” Mortgage States include
Florida and New York.
In contrast, see Deed of Trust State.
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Mother Hubbard Clause: sadly no cupboards or rhymes involved here.
A common clause included in Oil and Gas Leases providing that the
Lease covers, in addition to the real property specifically described in the
Lease, any adjacent or contiguous properties the Lessor owns that may
have been inadvertently left out of the applicable property description.
MOU: abbreviation of Memorandum of Understanding.
Mousehole: a hole in the floor of a Drilling Rig in which a joint of pipe
can be held in anticipation of connecting that pipe to the Drill String.
Won’t find any cheese in here.
MSA: abbreviation of Master Services Agreement.
Mud: another term for Drilling Fluid or Drilling Mud.
Mud Engineer / Mud Logger: the person responsible for maintaining
adequate Mud weight to maintain the correct hydrostatic pressure in
the Wellbore and sufficient Viscosity to carry the Cuttings out of the
Wellbore. Mud Engineers also log cutting samples from the Wellbore for
the geologists and other engineers.
Mud Gas Separator: another term for Poor Boy.
MUI: abbreviation of Maintenance of Uniform Interest.
Multilateral Well: a Horizontal Well that has multiple Laterals drilled
from the same vertical Wellbore, whether in the same Target Formation
or in different Zones.
Multiple Completions: a single Wellbore designed to produce from two
or more producing Zones.
Multi-Stage Hydraulic Fracturing: a method of Hydraulic Fracturing
whereby portions of the Lateral are isolated and fractured at various
times; the entire Lateral is fractured in stages.
MVC: abbreviation of Minimum Volume Commitment.
NASDAQ: acronym for National Association of Securities Dealers
Automated Quotations.
National Association of Securities Dealers Automated Quotations
(NASDAQ): a large global securities exchange that trades in both large
and emerging growth companies, including many energy companies.
National Environmental Policy Act (NEPA): a federal environmental law
that governs the approval of major projects that receive federal funding or
require federal permits. The law contains no substantive environmental
regulations, but rather outlines a process by which federal agencies may
approve major projects, including the requirement that the relevant
federal agency (often with the project sponsor’s support) prepare various
impact reports on how the project will affect the environment.
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National Oil Company (NOC): an oil company that is owned, completely
or in the majority, by a national government, as opposed to an oil
company that is independently owned. Examples of NOCs include
Pemex (Mexico), Eni (Italy) and Saudi Aramco (Saudi Arabia).
Native Gas: in the context of Underground Gas Storage, Native Gas is
the Natural Gas that was already present in the applicable Formation
being utilized for storage, as opposed to the Natural Gas that is injected
into the storage Formation.
Natural Gas: a mixture of gaseous Hydrocarbons, traditionally comprised
primarily of Methane, but which may also contain lighter hydrocarbon
chains such as Ethane, Propane, Butane and/or Pentane, as well as other
gaseous impurities such as carbon dioxide and hydrogen sulfide.
See also Dry Gas and Wet Gas.
Natural Gas Liquid (NGL): hydrocarbons typically found in unrefined
Natural Gas that are liquid or condensable under certain temperature
and pressure conditions. Some NGLs, such as Propane, Butane and
Pentane, are gaseous at standard temperature and pressure conditions,
but may become liquid during Production or other operations. Other
NGLs, such as Natural Gasoline, are liquid at standard temperature and
pressure conditions.
Such Hydrocarbons are typically referred to as liquid or condensable
hydrocarbon components when present in unrefined Natural Gas, and
as NGLs after Processing and/or Fractionation.
See also Wet Gas.
Natural Gas Policy Act (NGPA): enacted in November 1978 as part of the
National Energy Act, the NGPA expanded FERC’s authority over Natural
Gas Production to cover both intrastate and interstate Production. The
NGPA introduced a complex system of price ceilings for first sales from
the Wellhead based on the category of the gas sold, in order to create a
single Natural Gas market, equalize supply and demand, and establish a
system in which market forces drive the price of Natural Gas.
Natural Gasoline: an NGL made of longer hydrocarbon chains than other
types of NGLs (generally more than five Hydrocarbons). Unlike NGLs
with shorter hydrocarbon chains, Natural Gasoline is liquid at standard
temperature and pressure conditions. Natural Gasoline is typically
classified based upon its molecular composition and vapor pressure.
Natural Gasoline can be combined with other Hydrocarbons to produce
commercial gasoline.
Naturally Flowing Well: a Well in which the natural Reservoir Pressure
is sufficient to lift Hydrocarbons to the surface without the need for any
external pumping enhancement (e.g., a Pump Jack or Artificial Lift
drive).
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Naturally Occurring Radioactive Material (NORM): radioactive material
that is naturally present in various mediums. NORM is often exposed (or
potentially exposed) in connection with oil and gas E&P activities.
NDA: abbreviation of Non-Disclosure Agreement.
NEPA: acronym for National Environmental Policy Act.
Net Acres: the amount of Acreage in a given Tract to which a Working
Interest owner is entitled after taking into account other Working Interest
owners and other shared Mineral Interest owners in the Tract.
The Net Acres present in a leased Tract are computed by multiplying (i)
the Gross Acres covered by such Tract, by (ii) the percentage Mineral
Interest owned by the applicable Lessor in the Tract, by (iii) the Lessee’s
Working Interest in the Tract.
Net Profits Interest (NPI): a non-cost bearing interest that is carved out
of a Working Interest. An NPI is, depending on the jurisdiction, regarded
as a Conveyance of real property (often only for a limited time period),
and the NPI owner shares in the net profits, if any, with respect to the
properties from which the NPI was created.
Net Revenue Interest (NRI): a type of interest in an Oil and Gas Property
that entitles the holder thereof to a percentage of all hydrocarbon
Production attributable to the property, after giving effect to all Burdens
applicable to such property.
Net Well: the portion of a Well held by a certain Working Interest owner
after accounting for the fractional ownership of other Working Interest
owners in the same Well. For instance, a Well in which a Working Interest
owner holds a 50% Working Interest would constitute 0.50 Net Wells.
Net Well Structure / Net Well Target: a type of Drill to Earn joint
development transaction where the applicable “earning” counterparty’s
obligations are measured against the Drilling and Completion of a
certain number of Net Wells, rather than by expending a certain amount
of capital.
In contrast, see Drilling Dollars Structure.
New York Mercantile Exchange (NYMEX): a commodity futures
exchange headquartered in New York, New York. The NYMEX is the
largest commodity exchange in the world and primarily trades in energy
products.
The prices of Crude Oil and Natural Gas futures traded on NYMEX are
commonly used in the oil and gas industry as reference points for certain
Spot Prices and Strip Prices.
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New York Stock Exchange (NYSE): the largest global securities
marketplace in the world. NYSE is the most common securities exchange
for MLPs.
NGL: abbreviation of Natural Gas Liquid.
NGPA: acronym for Natural Gas Policy Act.
Niobrara Shale: a Shale Formation located under Northeast Colorado,
Northwest Kansas, Southwest Nebraska and Southeast Wyoming.
Nipple Down: the process of disassembling a Drilling Rig and its related
equipment, typically to prepare the Drilling Rig to be moved from one
drilling location to another.
Nipple Up: the process of assembling a Drilling Rig and its related
equipment for use at a Drilling location. If you’ve learned anything by
now, it’s that “nipple” is always a popular term.
NOC: abbreviation of National Oil Company; commonly pronounced
“knock.”
Nodding Donkey: something you would never see Eeyore do and a
colloquial term for Pump Jack.
Nomination: most commonly seen in the context of Midstream services
agreements, a Nomination is a customer’s notification (or request, as
applicable) of the volumes to be delivered into (and/or redelivered from)
the applicable asset system with respect to a given time period.
Nonassociated Gas: another term for Unassociated Gas.
Non-Commercial: a Well, Formation or Play that is not capable of, or not
currently capable of Production in Paying Quantities (whether due to
insufficient reserve quantities, high Development Costs or technological
hurdles).
Non-Conforming Hydrocarbons: in connection with Midstream services
agreements or Marketing Agreements, Non-Conforming Hydrocarbons
are those Hydrocarbons that do not meet the applicable Quality
specifications for such Hydrocarbons contained in such agreement.
Non-Consent / Non-Consenting Party: a party’s Election not to participate
in or proceed with a proposed operation under the terms and provisions
of an oil and gas joint development arrangement (typically a JOA). Such
party is said to have gone “Non-Consent” and is referred to as a “Non-
Consenting Party.”
Depending on the applicable agreement’s terms, a Non-Consenting
Party’s interest in the asset underlying such operation may thereafter be
subject to a Non-Consent Penalty.
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Non-Consent Operation / Non-Consent Well: an operation conducted
(which may be the Drilling of a Well) under an oil and gas joint
development arrangement (typically a JOA) in which less than all parties
to the arrangement elect to participate.
Non-Consent Penalty: a penalty assessed against a Non-Consenting
Party in favor of the Participating Parties in order to compensate the
Participating Parties for the risk(s) they take in conducting a Non-
Consent Operation. A Non-Consent Penalty is traditionally expressed
as a percentage of the total costs the Participating Parties incur for such
Non-Consent Operation, and is typically between 200% and 500% of
such costs. Note that a Non-Consent Penalty is in addition to the right
of the Participating Parties to recover 100% of their respective costs for
such Non-Consent Operation. After the Participating Parties recover the
applicable Non-Consent Penalty, the Non-Consent Party is thereafter
entitled to its share of revenue from the applicable operation.
See also Payout.
Non-Disclosure Agreement (NDA): another term for Confidentiality
Agreement.
Non-Operating Working Interests / Non-Operating Interest / Non-
Operator / Non-Op: working Interest owners of a Well(s) who are not
the Well’s Operator, whether under a JOA, Unit agreement, Contract
Operating Agreement or other similar contractual arrangement.
Non-Participating Royalty Interest (NPRI): an expense-free Royalty
Interest carved out of the Mineral Estate that does not share in the Lease
Bonus and Lease rentals and does not have Executive Rights to the
Mineral Estate.
NORM: abbreviation of Naturally Occurring Radioactive Material.
Not to be Unreasonably Withheld: a limitation or condition commonly
placed on a party’s right to Consent or approve certain actions under
an agreement. Such limitation allows a party to withhold the requested
Consent or approval only if there are reasonable grounds for doing so.
See also Soft Consent.
NPI: abbreviation of Net Profits Interest.
NPRI: abbreviation of Non-Participating Royalty Interest.
NRI: abbreviation of Net Revenue Interest.
NYMEX: acronym for New York Mercantile Exchange; commonly
pronounced “ny-mex.”
NYSE: acronym for New York Stock Exchange.
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Obligation Well / Obligatory Well: an Obligation Well is a specific Well
or Wells that the parties to an agreement commit to Drilling through the
execution of such agreement. Oftentimes a party’s rights to earn interests
in a joint development arrangement (or a Lessee’s rights to continue
Development) will be contingent upon the Drilling and Completion of
the applicable Obligation Well(s).
This concept is typically seen in the context of a JOA or other joint
development arrangement, but may also be seen in the context of an Oil
and Gas Lease where the Lessor has a high level of bargaining power.
Occupational Safety & Health Act: the primary federal law that governs
occupational health and safety in the private sector and federal
government.
Occupational Safety & Health Administration (OSHA): the US government
agency charged with ensuring that workers are provided safe and
healthful working conditions. OSHA promulgates and administers health
and safety regulations with which oil and gas companies are required to
comply.
OCS: abbreviation of Outer Continental Shelf.
OCSLA: acronym for Outer Continental Shelf Lands Act.
OECD: acronym for Organization for Economic Co-operation and
Development.
Officer’s Certificate: a certificate an officer of a party to a PSA executes,
and delivers at Closing. An Officer’s Certificate typically attests to the
party’s compliance with the party’s Representations and Warranties and
Interim Period Covenants under the PSA as of the Closing date.
Off-Ramp: in the context of a joint development arrangement, Off-Ramp
is a colloquial term used to describe a contractual provision that provides
one or more parties an opportunity, under specified conditions (e.g.,
commodity prices falling below a certain threshold or a party realizing
a certain rate of return), to suspend or terminate the parties’ obligations
under the applicable contractual arrangement.
Offset Well: a Well drilled on one Tract to prevent Drainage by an
existing Well on an adjacent or nearby Tract. Oil and Gas Leases will
often contain an express or Implied Covenant requiring the Lessee to
drill an Offset Well to protect against Drainage if certain requirements
are met.
See also Implied Covenant to Prevent Drainage.
Off-Spec Hydrocarbons: another term for Non-Conforming Hydrocarbons.
Oil and Gas Lease: another term for Lease.
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Oil and Gas Properties: a general term meant to capture a broad group
of oil and gas real property interests, such as Leases, Wells, units, fee
interests, Royalties and other Burdens. In the context of a PSA, this term
may be defined to mean a certain set of specific interests in oil and gas
that are the subject of the applicable PSA.
Oil and Gas Separator: a mechanical device, typically located at the
Wellhead of a Producing Well, which separates Crude Oil from Natural
Gas after a combined production stream reaches the surface.
See also Heater Treater.
Oil Bank: in the context of EOR operations, that portion of the Reservoir
containing an increased amount of recoverable oil due to such EOR
operations.
Oil Field: another term for Field.
Oil Pollution Act (OPA): a federal law that provides a civil liability regime
for oil spills and imposes obligations on the owners and Operators of oil
storage facilities and vessels that seek to prevent oil spills and mitigate
any damage to regulated waters.
Oil Pool: another term for Oil Zone.
Oil Prone: a geological term used to describe a Formation or Source Rock
that tends to produce relatively more oil, as opposed to Natural Gas, than
do comparable Formations or Source Rocks.
Oil Sands: a Bitumen bearing sand that must be mined and heated
to produce usable oil, typically Heavy Crude Oil. The processes used
to develop Oil Sand Deposits are different than for Conventional or
Unconventional Drilling, and, as a result, Oil Sands Deposits are typically
more expensive to produce.
Oil Well: a Well that primarily produces Crude Oil. The determination
of whether a Well is an Oil Well or a Gas Well can affect the amount of
Acreage the Well can hold under the pertinent Oil and Gas Lease, and
the Well’s treatment under state regulatory schemes (e.g., Well Spacing
rules, production allocation).
Oil Zone: the Formation or Reservoir, or portion thereof, that contains oil.
Depending upon the Formation, the Oil Zone might be located between
a Zone of water (below) and gas (above).
Oil, Gas and Mineral Lease: another term for Lease.
Oil-in-Place (OIP): a petroleum geology term referring to the estimate of
the total amount of oil contained in an applicable Reservoir.
See also Petroleum Initially in Place.
OIP: abbreviation of Oil-in-Place.
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Oklahoma Corporation Commission: the state agency that regulates
the oil and gas industry, utility companies and telecommunications
companies in the State of Oklahoma.
On Production: in connection with Reservoir Engineering and
management, On Production refers to a project that is receiving
revenue (i.e., the project is currently producing Hydrocarbons and the
Hydrocarbons produced are being marketed).
See also Approved for Development and Justified for Development.
On the Pump: a phrase used in the oil and gas industry to describe when
a Well is not, or is no longer, a Flowing Well, and a Pump Jack is being
used to drive the Hydrocarbons to the surface.
OPA: not just a Greek toast, an acronym for Oil Pollution Act; commonly
pronounced “oh-pa.”
Open Flow Potential: this term refers to the rate of flow of Production
from a Well, at a given point in time, if the Well were allowed to flow
without artificial restriction.
Open Formation: a Formation or Reservoir in which Hydrocarbons are
able to migrate due to good Porosity and Permeability.
Open Hole / Open Hole Completion: an Open Hole is when the targeted
Zone / Formation is open to the Wellbore. An Open Hole Completion
refers to a Completion in which Casing is not run in the targeted Zone /
Formation.
Operating Agreement: an agreement between two or more parties
regarding the operation (and often the maintenance) of a given asset
or set of properties. Operating Agreements will typically also include
provisions regarding allocation of liabilities and payment of costs and
expenses with respect to such asset or properties.
Operating Agreement is also often used as a general term for Joint
Operating Agreement.
Operating Committee: a committee formed in order to allow each party
the right to participate in the planning and analysis of operational and
Development plans. Such committees are typically provided for in joint
development arrangements. The committee may have binding authority
over the parties’ actions and the joint development operations, or they
may only serve in an advisory or informational role, with such distinction
oftentimes being tied to the size of each party’s contractual interest in the
joint development arrangement.
Operating Interest / Operating Rights Interest: this term typically refers
to the Working Interest an Operator holds under a JOA or other similar
operating arrangement.
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However, in the context of a BLM or BOEM Oil and Gas Lease, this term
may refer to a right that is severable from such Oil and Gas Lease in
which the recipient of the Operating Rights Interest receives the right to
conduct drilling operations, but only with respect to certain depths.
See also Non-Operating Interest and Record Title.
Operational Flow Order: notices Pipeline Operators issue to transporters
on the applicable Pipeline in order to protect the integrity of the
Pipeline system and related facilities. An Operational Flow Order may
be delivered as a result of pressure concerns, Off-Spec Hydrocarbon
concerns or inclement weather, among other events.
Operator: the entity designated as being responsible for conducting the
operations under an Operating Agreement.
Operator’s Lien: a lien arising from an Operating Agreement in favor of
the applicable Operator. The Operator’s Lien covers the Non-Operators’
interests in the subject oil and gas interests and related equipment
subject to the Operating Agreement, and secures the Non-Operators’
obligations under the Operating Agreement, including the payment or
reimbursement of applicable costs. An Operator’s Lien is conceptually
similar to an M&M Lien.
Or Lease: an Oil and Gas Lease under which the Lessee promises to
commence Drilling operations or undertake some other action (e.g.,
pay Delay Rentals) by a specified date. If the Lessee fails to act by the
specified date, the Lessor has a cause of action against the Lessee for
breach of contract; however, such failure to act does not automatically
terminate the Lease.
Both Unless Leases and Or Leases are designed to ensure the Lessor
a periodic return during the Primary Term in the event there is no
Production, and to allow the Lessee to postpone Drilling operations by
paying Delay Rentals.
The Or Lease structure is common in West Coast states.
Organization for Economic Co-operation and Development (OECD):
an international organization that provides economic policy
recommendations to its member nations. The OECD also publishes
statistical, economic and social data related to international economic
developments.
ORRI: abbreviation of Overriding Royalty Interest; commonly pronounced
“O-R-R-I.”
OSHA: acronym for Occupational Safety & Health Administration;
commonly pronounced “oh-sha.” Like its pronunciation, a violation of
OSHA can be a true “oh sh*t” moment.
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Our Watch, Your Watch: a phrase used to describe a type of indemnity
structure that allocates risks and liabilities between the buyer and
seller under a PSA based on a certain point in time (e.g., the Effective
Time or the Closing date). For example: seller retains responsibility for
all liabilities arising from actions occurring prior to Closing, and buyer
assumes responsibility for all liabilities arising from actions occurring on
and after Closing.
See also Assumed Obligations.
Outer Continental Shelf (OCS): a term used to describe those
internationally recognized underwater landmasses that extend from
certain portions of the US and that have been deemed by the US to lie
beyond the jurisdictions of individual states. The OCS is comprised of
four regions: Gulf of Mexico; Atlantic; Pacific; and Alaska.
Outer Continental Shelf Lands Act (OCSLA): a federal law that defines
the area of the OCS that is subject to federal jurisdiction for purposes of
offshore oil and gas Development. The OCSLA grants the Secretary of
the Interior the responsibility to administer mineral Development and
exploration from the OCS.
Overage: the quantity of Hydrocarbons produced from a given Unit in
excess of the Unit’s Allowable.
See also Permitted Overages.
Overburden: this term may refer to either a rock that is above a targeted
Formation or Reservoir, or, to a Working Interest that is burdened with
sizable Royalty Interests (or other Burdens on revenue), meaning that
the remaining NRI held by the Working Interest owner is marginally
economic.
Over-Delivered: a term used to describe a Pipeline Imbalance at a certain
point on a Pipeline, typically an interconnection point, due to the fact
that the amount of Hydrocarbons a party has delivered to such point at a
particular point in time exceeds the amount of Hydrocarbons Nominated
by or allocated to such party at such interconnection.
In contrast, see Under-Delivered.
Overhead: an accounting term used to quantify the amount of costs and
expenses incurred in connection with supporting operations. Overhead
is typically accounted for in JOAs, TSAs and other joint development
arrangements to compensate the applicable Operator for its Overhead
costs related to the Operator’s work on behalf of the other parties to
the contractual arrangement. For example, in the context of a JOA, the
COPAS Accounting Procedure is typically used to outline the agreement
of the parties to the JOA regarding the Operator’s Overhead costs.
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Over-Produced: a term used to describe a Well Imbalance due to the fact
that the amount of Hydrocarbons produced from an applicable Well and
allocated to a party exceeds the share of Production from such Well to
which the party is entitled.
In contrast, see Under-Produced.
Overriding Royalty Interest (ORRI) / Override: a non-cost bearing and
Non-Operating Interest carved out of a Working Interest that entitles the
ORRI holder to a Royalty from the applicable Production. An ORRI can
be carved out of the Mineral Estate or could be carved out of an Oil and
Gas Lease (in which case the ORRI terminates upon the termination of
the underlying Lease). ORRIs are sometimes only granted for a specified
term, and in this format are sometimes used in financing transactions
such as VPPs.
P&A: abbreviation of Plugging and Abandonment.
P10 / P50 / P90 / PMean: a probability methodology used to describe
the size of the Reserves in a Field. More specifically, this methodology
is used to define the probability that the actual size of the Reserves in a
Field exceeds a specified amount. For example, if a Field has a P10 of
one million Barrels, there is a 10% probability that the Field’s Reserves
exceed one million Barrels. The P50 number is the median, or estimated
to be the median, as there is a 50% chance that actual Reserves will
exceed that number.
Packer: a device placed into a Wellbore during Completion of a Well that
seals the space between the outside of the Production Tubing and the
Annulus.
Paid-Up Lease: an Oil and Gas Lease that contains a Delay Rental clause,
but where such Delay Rental payments, for the Lease’s entire Primary
Term, are paid at Lease signing (along with the Bonus). Paid-Up Leases
avoid the risk of violating the Delay Rental clause, which in most cases
would cause the automatic termination of the Lease.
Partial Release: a term used to describe a Release in which only a portion
of the applicable Encumbrance is cleared from the relevant property
and/or assets.
Participating Interest: in joint development arrangements (typically
a JOA), that portion (measured on an 8/8ths Basis) of the applicable
operation and related costs that each Participating Party holds and will
bear after taking into account any Non-Consenting Parties and their
interests in the operation (and Carried Costs / Carried Interests).
Participating Parties: the parties electing to participate in or proceed with
a proposed operation under a joint development arrangement (typically
a JOA).
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Participation Agreement / Participation and Development Agreement:
other terms for Joint Development Agreement.
Partition / Partition Rights: a property law concept that allows for two
or more undivided interest owners in the same real property interest
to divide the interest between themselves, with each interest owner
receiving a portion of the interest outright. Partitioning is often used to
separate Co-Tenants’ real property interests into separate individual
Tracts of land.
Pay Zone: a Zone, Formation or strata in which oil and gas are found, or
expected to be found, in Paying Quantities.
Paying Quantities: another term for Production in Paying Quantities.
Payout: the point in time when all applicable costs of a project or
operation have been recouped, along with any Non-Consent Penalty or
rate of return hurdle, in each case, as may be applicable to the underlying
transaction.
Oftentimes, achieving Payout will trigger a change in the Working
Interest and Net Revenue Interest (e.g., a reversion) of the parties in the
underlying properties subject to the applicable Payout hurdle.
PDNP: abbreviation of Proved Developed Non-Producing Reserves.
PDP: abbreviation of Proved Developed Producing Reserves.
Penetration Point: in certain states, state law defines this term, but
generally this term means the point in which the Well being drilled
encounters the applicable target interval, Formation or Zone. Sorry, we
weren’t allowed to make any jokes about this one.
Pentane: a gaseous hydrocarbon chain consisting of five carbon atoms.
Pentane is often a component of unrefined Natural Gas. Pentane is a
type of NGL and is sometimes colloquially referred to as “C5.”
Percentage Depletion: a deduction determined by multiplying (i) a
pre-set percentage, specified for each natural resource for which a
Percentage Depletion deduction is available, by (ii) the gross income
from the applicable property during a particular tax year. Percentage
Depletion deductions are subject to numerous limitations, including
those based on overall Production, gross income from the property, and
the taxpayer’s status.
In contrast, see Cost Depletion.
Perforating Gun: another term for Frac Gun.
Perforation / Perforating: an opening created in the cement Casing of the
Wellbore, usually by a Frac Gun or other explosive charge. Perforation
occurs at targeted points in the Wellbore, typically that portion of the
Wellbore running through the Target Formation.
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Performance Bond: a debt instrument used as security for an obligation
or potential obligation, such as Plugging and Abandoning a Well,
decommissioning costs, or potential environmental damages. State and
Federal agencies often have bonding requirements, including some
specific bonding requirement for Operators, particularly in the offshore
context.
Permanent School Fund: a perpetual endowment the State Board of
Education and the Land Commissioner’s office manages for the benefit
of public education in Texas. The Permanent School Fund receives the
revenue state-owned Lands generate (including revenues oil and gas
leasing activities generate) in certain Lands in West Texas, and all of the
submerged Lands in Texas coastal waters.
Permeability: a measure of the capacity of a Source Rock or Formation to
transmit Hydrocarbons (in the oil and gas context) within itself. Hydraulic
Fracturing is used to artificially increase the Permeability of a Source
Rock or Formation.
Permitted Encumbrances / Permitted Liens: in the context of oil and gas
transactions (e.g., PSAs, joint development arrangements or financing
documents), they are specified Encumbrances that the applicable parties
to the transaction have agreed are allowed to encumber the subject assets
and, therefore, will not form the basis of a breach of covenant, breach
of representation, Title Defect claim or other similar contractual claim.
Typically, the scope of Permitted Encumbrances will only pick up those
Encumbrances that are considered to exist in the ordinary course of the
applicable business, though the scope can vary widely from transaction
to transaction based on the leverage of the parties and/or the assets /
business in question.
Permitted Overages: a Permitted Overage is an Overage the applicable
state agency responsible for setting the applicable Allowables consents
to, or otherwise allows. The treatment of Allowables and related
Overages varies from state to state.
Petroleum Initially in Place (PIIP): an estimate of the total quantity
of petroleum in a Formation before Production begins, including
discovered and undiscovered Reserves. PIIP is determined based on
initial Production, Decline Curves and pressure, among other things, and
is continually updated as Production continues.
See also Oil-In-Place.
Phase I: abbreviation of Phase I Environmental Site Assessment.
Phase I Environmental Site Assessment (Phase I): a non-invasive
environmental site assessment that is performed pursuant to the American
Society for Testing and Materials ASTME-13 (as amended from time to
time). A Phase I may include a site visit, review of public records and/
or interviews with the property owner’s employees. A potential buyer
80
of Oil and Gas Properties (particularly producing properties) typically
performs Phase Is as part of environmental Due Diligence, usually
through retaining third party environmental consultants.
Sometimes other types of environmental assessments are characterized
as Phase Is that are limited to, for example, a compliance evaluation of
the target property.
Phase II: abbreviation of Phase II Environmental Site Assessment.
Phase II Environmental Site Assessment (Phase II): an invasive
environmental site assessment typically undertaken after a Phase I has
been performed that indicates a certain likelihood of site contamination.
A Phase II typically includes soil and water sampling to test contamination
levels.
Pig: lipstick wouldn’t make it any prettier. A mobile device that is placed
within a Pipeline, and moves through the Pipeline, that can accomplish
a number of tasks, including checking for any structural deficiencies or
leaks in the Pipeline, cleaning the Pipeline, and/or acting as a flushing
tool to move certain NGLs and other Hydrocarbons through the Pipeline.
PIIP: abbreviation of Petroleum Initially in Place.
Pill: a small volume of Drilling Fluid that is specially tailored to handle a
specific Downhole problem that is encountered while Drilling and that
regular Drilling Fluid alone cannot handle.
Pilot Hole: in the context of Drilling a Horizontal Well, a Pilot Hole is an
initial Borehole that may be drilled to determine the depth of the top of
the target interval, so that the Kick-Off Point and Drilling deviation for
the planned Horizontal Well may be properly determined.
Pipeline: a broad term used for a single pipe or tube (or a system or
network of pipes and/or tubes) used to transport liquids and/or gaseous
substances. Pipelines come in a variety of sizes and specifications,
depending on the distance the applicable substance is to be transported
and the properties (e.g., corrosiveness) of the specific type of substance
to be transported.
In the oil and gas context, Pipelines are typically used to transport
Hydrocarbons or water from a Wellhead to a storage tank or to another
Pipeline for purposes of accessing the Midstream and Downstream
sectors.
Pipeline Imbalance: a discrepancy between the quantity of Hydrocarbons
required or Nominated to be delivered under any contract relating to
the purchase and sale, Gathering, transportation, storage, Processing or
marketing of Hydrocarbons and the quantity of Hydrocarbons actually
delivered pursuant to the contract.
Platform: a broad term typically used for offshore oil and gas Drilling
Rigs and production facilities.
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Play: not the artistic or childish kind, a general term used to refer
to a certain Basin, Reservoir, Formation or Horizon that is ripe for
Development, or a drilling concept related thereto (e.g., a Shale Play or
Resource Play).
See also Prospect.
PLSS: acronym for Public Land Survey System.
Plug Back: a Downhole operation where a deeper Zone or Formation is
Abandoned (or plugged) in order to target a shallower Zone or Formation
for Development.
Plugging and Abandonment (P&A) / P&A Liabilities: to P&A a Well is
the process of permanently closing and relinquishing a Well by using
cement to create plugs at specific intervals within a Wellbore to prevent
the Migration of Hydrocarbons inside (and up) the Wellbore. The desire
to P&A a Well may be due to a Well (i) being a Dry Hole, (ii) no longer
being considered capable of Production in Paying Quantities, or (iii)
being Junked or running into Impermeable subsurface strata in the
drilling process. State regulatory bodies typically establish requirements
for how and when a Well must be P&A’d.
Poorly or improperly P&A’d Wells could result in later contamination,
injury or other hazards (or violations of applicable regulations) that could
result in liabilities, which are termed P&A Liabilities.
Pooled Acreage / Pooled Unit: Mineral Interests that are Pooled together
in a Drilling Unit or Spacing Unit, often to satisfy regulatory requirements
in order to obtain a Drilling Permit.
Pooling: no, this has nothing to do with swimming. The process of
bringing together small Tracts of land and related Mineral Interests to
create a Pooled Unit for purposes of Drilling a Well. Pooling can be done
voluntarily under a Pooling Agreement or by force under a Pooling Order.
See also Communitization and Unitization.
Pooling Agreement: an agreement among applicable interest owners to
Pool together Acreage in order to form a Pooled Unit. Often Oil and Gas
Leases will specifically address what rights the Lessee has to Pool the
leased Acreage.
Pooling Amendment: an amendment or revision to a Pooling Agreement,
typically to change the amount of Pooled Acreage.
Pooling Interval: in the context of a Pooled Unit that is depth or interval
specific, the depth or interval that is so Pooled.
Pooling Order: an order a governmental agency issues to the owners of
adjacent Mineral Interests, typically upon an owner’s petition, to bring
the interests together into a Pooled Unit.
See also Forced Pooling.
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Poor Boy: a safety device for controlling unexpected pressure differentials
between the Wellbore and the Producing Formation by separating free
gas from Drilling Mud after the Mud is brought to the surface.
Porosity: a relative measure of the physical property of a rock with respect
to the amount of open space (i.e., pores) in the rock. A rock’s Porosity is
a fundamental indicator in petroleum engineering of the amount of open
space in an applicable Formation that could contain Hydrocarbons.
Possible Reserves: generally speaking, an estimate of the Hydrocarbons
that may be extracted from a Formation or Reservoir under the current
economic and technological conditions. Possible Reserves are the least
likely to be recovered of all Hydrocarbons officially classified as Reserves,
meaning they are less likely to be recovered than Proved Reserves and
Probable Reserves. There is a 10% chance that the ultimate recovery
from such Formation or Reservoir will meet or exceed the total quantity
of Proved Reserves, Probable Reserves and Possible Reserves for such
Formation or Reservoir.
Possum Belly: a container attached to a Drilling Rig that receives Drilling
Fluid and Drilling Mud as it enters into the Shale Shaker.
Pour Point: the lowest temperature at which a fluid is still transferable as
a fluid (i.e., “pourable”). Different types of Hydrocarbons have different
Pour Points (e.g., Natural Gas has a lower Pour Point than Crude Oil).
PPQ: abbreviation of Production in Paying Quantities.
Preferential Right to Purchase / Pref Right: a transfer restriction that
grants the Pref Right holder the right to acquire the property burdened
by such Pref Right if and when the property owner desires to sell, transfer
or otherwise convey such property. Typically, a Pref Right requires the
owner of the burdened property to offer the property to the Pref Right
holder upon the same terms and conditions the owner would receive
from the applicable third-party purchaser.
Pref Rights are common in the oil and gas industry, and are often found
in JOAs and other joint development arrangements, particularly in the
offshore context.
See also Right of First Refusal.
Preliminary Settlement Statement: a statement or accounting delivered
under a PSA prior to the applicable Closing that estimates the adjustments
and calculations to be made to determine the Adjusted Purchase Price.
Because this statement is preliminary, the PSA will typically provide
for the parties to true up the applicable estimated adjustments and
calculations following the Closing, using actual numbers.
In contrast, see Final Settlement Statement.
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Primary Recovery / Primary Production: the initial recovery of
Hydrocarbons from a Reservoir using only the natural energy found in
the Reservoir.
In contrast, see Enhanced Oil Recovery, Secondary Recovery and Tertiary
Recovery.
Primary Term: the specified period of time that an Oil and Gas Lease will
remain in effect without Production in Paying Quantities.
See also Habendum Clause and Secondary Term.
Priority of Operations: in the context of a JOA or other joint development
arrangement, a provision setting forth the hierarchy of different categories
of Proposed Operations if two or more proposals that conflict with each
other are submitted for the same subject Lands.
Probable Reserves: generally, an estimate of the oil or gas that may be
extracted from the applicable Formation or Reservoir under the current
economic and technological conditions. Probable Reserves are less likely
to be recovered than Proved Reserves but more likely than Possible
Reserves. There is a 50% chance that the ultimate recovery from such
Formation or Reservoir will meet or exceed the total quantity of Proved
Reserves and Probable Reserves for the Formation or Reservoir.
Proceeds of Production / Proceeds: the consideration received from
the sale of hydrocarbon Production, calculated prior to accounting for
Royalties and other Burdens to be paid out of such Proceeds.
Processing / Processing Agreement / Processing and Fractionation
Agreement: processing consists of separating the Dry Gas from the
NGLs (as well as other substances and impurities) contained in a Wet
Gas stream received at the applicable Processing facility.
A Processing Agreement establishes the terms upon which the applicable
facility Operator will Process the Wet Gas stream, including the fees
the applicable customer will pay for such services. Processing and
Fractionation are often handled under the same agreement.
Produced Water: naturally occurring saltwater produced with the
Hydrocarbons that are produced from a Well.
Producer’s 88: a colloquial term used to refer to the “Standard Producers
88 Oil, Gas, and Mineral Lease,” which is a common form of Oil and Gas
Lease.
Producer’s Lien: another term for Operator’s Lien.
Producing Acreage / Productive Acreage: acreage subject to an Oil and
Gas Lease that is Producing in Paying Quantities and thereby holding an
underlying Oil and Gas Lease beyond the Lease’s Primary Term.
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Producing Formation: the Formation from which Hydrocarbons are being
produced. Producing Formation can also refer to only those Formations
that are producing Hydrocarbons in Paying Quantities.
Producing Well: a Well currently producing Hydrocarbons. Producing
Well can also refer to only those Wells that are producing Hydrocarbons
in Paying Quantities.
Production: a term used to refer to the volume of Hydrocarbons produced
(or extracted) by E&P activities, typically over a specified time period
(e.g., a daily basis).
Production Costs: the costs and expenses incurred with Production
and marketing of Hydrocarbons, which often include operating and
maintenance costs after Drilling is complete.
Production in Paying Quantities (PPQ) / Production in Commercial
Quantities: a term used to describe whether the Production from a Well
and its underlying Leases (and the related Proceeds) is sufficient to pay
the ongoing costs of operating and maintaining the Well and Leases,
but specifically excluding drilling costs and Development Costs, over a
reasonable amount of time. During the Secondary Term of an Oil and
Gas Lease, there must be Production in Paying Quantities from such
Lease in order for the Secondary Term (and therefore the Lease itself) to
remain in effect.
Production Payment: a right to a fractional share of the Hydrocarbons
produced for a certain period of time or until a specified revenue amount
(or production volume) is received, typically conveyed as a term ORRI. A
Production Payment is typically granted in consideration for an upfront
cash payment. If properly structured, a Production Payment (other than
a Production Payment in which the related Proceeds are pledged for
E&P purposes) will be treated as a financing for US federal income tax
purposes.
See also Volumetric Production Payment.
Production Sharing Contract (PSC): an agreement between an investor
(e.g., an oil company or the parties to a Well) and a host government under
which the government grants the investor an exclusive right to develop
the Hydrocarbons (i.e., control of the Field), and the investor commits to
develop such Hydrocarbons at the investor’s sole cost, expense and risk.
The investor and the host government or such country’s NOC typically
share any Production from the area covered by the PSC.
Production Taxes: Production Taxes are state taxes imposed upon the
value or quantity of oil and gas produced.
Production Testing: a broad term used for the types of tests that can be
conducted on a Well to determine the Well’s productivity, flow, pressure
and other characteristics.
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Production Tubing: a pipe inserted into a Well during Completion that
runs inside the Casing and through which the produced Hydrocarbons
flow to the surface.
Profits à Prendre: a non-possessory interest in land that gives the holder
the right to take from another’s land something that is part of the soil
and is otherwise considered the landowner’s property (e.g., minerals or
timber).
Propane: a gaseous hydrocarbon chain consisting of three carbon atoms.
Propane is often a component of unrefined Natural Gas. Propane is a
type of NGL and is sometimes colloquially referred to as “C3.”
Property Taxes: another term for Ad Valorem Taxes.
Proposed Operations: pursuant to a JOA, additional operations that
a party to the JOA proposes to conduct beyond the initial operations
expressly prescribed in the JOA. Upon receiving notice of a Proposed
Operation, the other Working Interest holders under the JOA generally
have the right to elect whether to participate in such Proposed Operation.
Proppant / Propping Agent: a type of solid material used to “prop
open” a fracture in a Formation, typically through Hydraulic Fracturing
operations. Propping Agents are typically low density and resistant
to crushing or corrosion, and the formulas for specific Proppants are
heavily guarded intellectual property. Types of Proppants include silica
sand, resin-coated sand, gravel and ceramic beads, which are typically
suspended in Frac Fluid and pumped into the Target Formation.
See also Frac Sand.
Proration Unit: the Acreage assigned to a Producing Well for purposes
of determining the Well’s Production Allowable in accordance with state
regulatory allocation rules. Proration Units can be based on either a Well
or productive surface acre basis.
Prospect: a colloquial term used to refer to a specific hydrocarbon
Reservoir, Basin, Formation or any portion thereof.
See also Play and Resource Play.
Prospective Resources: a Resource classification for certain quantities
of petroleum that are estimated to be potentially recoverable from
unknown accumulations identified on the basis of indirect evidence, but
which have not yet been drilled. This classification represents a higher
risk than Contingent Resources since the risk of discovery is also added.
Proved Developed Non-Producing Reserves (PDNP): a Reserve
classification for Proved Reserves that can be expected to be recovered
through existing Wells with existing equipment and operating methods,
but that are not currently being produced for reasons such as being Behind
Pipe, lack of necessary Pipeline connections, mechanical problems with
a Well, or market conditions.
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Proved Developed Producing Reserves (PDP): a Reserve classification for
Proved Reserves that can be expected to be recovered through existing
Wells with existing equipment and operating methods and that are
currently being produced.
Proved Reserves: a classification used for oil and gas Reserves that have
been determined to have a reasonable certainty of recoverability based
on technologies available at the time of such determination. The precise
definition of Proved Reserves will vary depending on the definition’s
intended use.
An example of a commonly used definition of Proved Reserves is the SEC
definition, which public companies use in providing reserves data in their
Form 10-K reports: “Proved oil and gas reserves are those quantities of
oil and gas, which, by analysis of geoscience and engineering data, can
be estimated with reasonable certainty to be economically producible–
from a given date forward, from known Reservoirs, and under existing
economic conditions, operating methods, and government regulations.”
Note that the SEC definition is more conservative. The term “reasonable
certainty” is generally accepted to mean a 90% or higher probability,
meaning that estimates are only for areas with solid data from existing
Wells and production history. The definition also excludes any projection
of future technology improvements, and implies that producing the
resource must be economic under current market conditions. Proved
Reserves can be further classified into three different categories: (i)
Proved Developed Producing Reserves, (ii) Proved Developed Non-
Producing Reserves and (iii) Proved Undeveloped Reserves.
In contrast, see Unproved Reserves.
Proved Undeveloped Reserves (PUD): a Reserve classification for Proved
Reserves that are expected to be recovered from new Wells on undrilled
Acreage or from existing Wells where a relatively major expenditure is
required for Completion.
PSA: abbreviation of Purchase and Sale Agreement.
PSC: abbreviation of Production Sharing Contract.
Public Land Survey System (PLSS): a method of describing certain real
property that relies on a rectangular system of Surveys regulated by
the BLM. PLSS generally divides land into six-mile-square Townships,
each of which are subdivided into one-mile-square Sections, which may
be further subdivided to Quarter Sections, quarter-quarter Sections or
irregular lots.
Thomas Jefferson originally proposed the PLSS, which is sometimes
referred to as the “Jeffersonian Method.”
Publicly Traded Partnership: another term for Master Limited Partnership.
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PUD: abbreviation of Proved Undeveloped Reserves.
Pugh Clause: a Lessor-friendly Oil and Gas Lease clause that, once
triggered, operates to release Acreage that is not then-producing as part
of a Pooled Unit from the Lease. Pugh Clauses encourage the Lessee to
fully develop the Acreage under the Lease (rather than seeking to hold
the entire Lease by developing only a small portion), by preventing the
Lessee from Pooling only a small portion of the leased Acreage in order
to perpetuate the remainder of the leased Acreage.
See also Retained Acreage Clause.
Pumper: another term for Gauger.
Pumping Unit / Pump Jack / Pump: a piece of equipment used to
mechanically pump Hydrocarbons out of the ground when natural
Bottomhole Pressure dissipates.
Purchase and Sale Agreement (PSA) / Purchase Agreement:
An agreement entered into between a buyer and a seller, whereby the
buyer divests certain assets (which may be in the form of equity interests)
to the seller for an agreed consideration.
PV-10: the SEC-reported value of particular Reserves. PV-10 is a standard
metric utilized in company disclosure filings with the SEC for valuation
of a company’s oil and gas Reserves, defined as the present value of the
estimated future oil and gas revenues, reduced by direct expenses and
discounted at an annual rate of 10%.
See also Reserve Report.
Qualifying Income: Qualifying Income includes, among other things,
income and gains derived from the exploration, Development, mining
or Production, Processing, Refining, transportation (including Pipelines
transporting gas, oil or products thereof), or the marketing of any mineral
or natural resource, as well as certain passive-type income, including
interest, dividends and real property rents. An MLP must generate at
least 90% Qualifying Income in each taxable year in which the MLP is
publicly traded in order to maintain its status as a partnership for federal
income tax purposes. If the MLP fails this test in any year, the MLP will
be treated as a corporation for federal income tax purposes and, thereby,
lose its status as a pass-through entity.
Quality: with respect to any Production, Gathering, Processing or
transportation of Hydrocarbons, Quality refers to the particular
composition of such Hydrocarbons. The applicable governing document
regarding any of the above services will typically include specific Quality
requirements for the Hydrocarbons handled under such agreement,
which, if not met, may entitle a contractual counterparty, among other
things, to refuse to accept the Hydrocarbons for service. For example,
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Quality specifications under a gas Gathering Agreement may include
limitations on the total volume of sulfur or carbon dioxide present in the
gas, or may require the gas to be delivered within a specific temperature
range.
Quarter: under the PLSS Legal Descriptions of geographical areas, a
Quarter denotes one-fourth of a Section, typically described as either the
NW/4, NE/4, SE/4 or SW/4 and comprising 160 acres or a one-quarter
square mile.
Quitclaim / Quitclaim Deed: a type of deed by which the Grantor conveys
any and all of the Grantor’s interest in the applicable asset (if any) to the
Grantee, but without any Warranty of Title from the Grantor.
In contrast, see General Warranty Deed and Special Warranty Deed.
Rail Car: in the oil and gas industry, a rolling car attached to a train
used to transport and market Hydrocarbons, chemicals, sand or other
related products to and from refiners, processors, wholesalers, Terminals
and plants, among others. Rail Cars vary in type, including freight, auto
carrier, box, gondola, hopper, intermodal, specialty and Tank Cars.
Range: a land Survey measure used in the PLSS system to identify a
specific Township, the Range is a measure of the distance east or west
from a referenced principal Meridian.
Rate of Penetration: measurement of the speed at which a Drill Bit
deepens a Wellbore.
Rathole: a colloquial term for a hole in the floor of a Drilling Rig used
to store certain equipment. Maybe a little bit bigger than a Mousehole?
RCRA: acronym for Resource Conservation and Recovery Act; commonly
pronounced “rick-ra.”
Reasonable and Prudent Operator (RPO): an industry Standard of Care
used to determine the appropriateness of an Operator’s conduct by
assessing such conduct against the common industry practices other
similar Operators employ.
Reassignment Clause: a clause in an Oil and Gas Lease that requires a
Lessee to reassign its rights under the Lease back to the Lessor under
certain circumstances; for example, if the Lessee is not Producing in
Paying Quantities or the Lessee has not drilled a Well within a certain
time period prior to expiration of the Primary Term.
Recapture: the process of recovering Hydrocarbons that have previously
been produced and reinjecting them into an existing Reservoir for
storage purposes.
Receipt Point: with respect to Midstream services, an agreed upon
interconnection point with the applicable Midstream asset system where
a customer delivers the applicable Hydrocarbons to the service provider.
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Recompleting / Recompletion: the process of completing a Well in a
different productive Formation by moving either uphole or Downhole
in an existing Wellbore from the Formation in which the Well was
previously Completed.
Record Title: a term that denotes ownership of real property interests
(including oil and gas interests) as set forth in the public records of the
applicable governmental entity.
Recording: the process of publicly filing a particular document relating
to real property interests (including oil and gas interests) in the county
courthouse where the applicable real property is located, or in such other
public records as applicable law may require. Documents are recorded in
order to establish Record Title, evidence the existence of a Burden and/
or Encumbrance, or to document a transfer relating to such real property
and provide notice to the public.
Recording Memorandum / Recording Supplement: a shortened form of
an oil and gas transaction document (e.g., an Oil and Gas Lease or JOA)
that is Recorded in the appropriate county courthouse index in order to
evidence the existence of Burdens and/or Encumbrances on real property
created by such transaction document, without publicly disclosing the
majority of the document’s material terms.
Recoupment: as a general matter, Recoupment is a contractual risk-
mitigation principle under which obligations multiple parties owe may
be netted out. In the oil and gas context, the right of Recoupment can
refer to an Operator’s right under a Lease to withhold future Royalty
Payments if the Operator has previously overpaid Royalties, or the
right of an Operator under an Operating Agreement to recover costs
from production revenues in order to recoup amounts a Non-Operator
owes. Notably, in bankruptcy proceedings, because Recoupment does
not involve an action against the property of a bankruptcy estate,
Recoupment is not subject to the automatic stay and may even take
priority over a Mortgage held by a financial institution encumbering the
debtor’s interest.
Recovery Factor / Recovery Efficiency: measurement of the estimated
percentage of Hydrocarbons that will likely be produced from a Reservoir,
compared to the total amount of Hydrocarbons originally in place.
Recycled Gas: gas produced from a Well that is then injected back into
the Reservoir after the gas is produced in order to maintain Reservoir
Pressure.
Recycled Gas can also refer to Natural Gas produced from landfills.
Re-enter: the process of entering a non-Producing Well that has not been
Plugged and Abandoned to restore Production from the Well.
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Refining: a component of the Downstream sector of the oil and gas
industry, Refining consists of the processing of Crude Oil into various
byproducts such as kerosene, gasoline and diesel fuel.
Reid Vapor Pressure (RVP): an ASTM test method for measuring the
vapor pressure of Crude Oil and refined petroleum products (e.g.,
gasoline). RVP testing is used in various quality control and research
and development applications. RVP testing, and vapor pressure testing
in general, is an important safety check in the transport, storage and
blending of Crude Oil and refined petroleum products.
See also True Vapor Pressure.
Release: a legal document evidencing a party’s relinquishment of all
or certain assets, rights or interests that were previously subject to
a contractual arrangement. Releases are commonly utilized to clear
Encumbrances from properties and to document the termination of a
Lease, among other uses.
In the oil and gas context, Release can also refer to a release of
Hydrocarbons, which occurs when Hydrocarbons, free radicals and/
or other petrochemical compounds are discharged into the outside
environment during oil and gas-related activities.
Relief Well: a method of controlling a Blowout by Drilling an adjacent
Well in order to (i) intersect the damaged Wellbore and allow water, Mud
or cement to be pumped into the damaged Wellbore, or (ii) divert the
flow of Hydrocarbons from the damaged Well to the adjacent Well (i.e.,
the Relief Well). Pumping cement or Mud into the damaged Wellbore
will control the Blowout because such materials are denser than oil.
Relinquishment Act Lands: Lands located in Texas that are subject to the
Relinquishment Act of 1919, under which the State came to own minerals
underlying certain parcels of land while the surface of the parcels are
privately owned. On Relinquishment Act Lands, the surface owner acts
as agent for the State for purposes of oil and gas Development, and is
entitled to half of all Royalties, Lease Bonuses and other benefits accruing
from any Oil and Gas Lease covering such Lands.
Relinquishment Provision: a Relinquishment Provision is typically found
in an Oil and Gas Lease or an Operating Agreement. Under an Oil and
Gas Lease (typically a State Lease or Federal Lease) the Relinquishment
Provision sets forth the steps required for the Lessee to relinquish its
interests in the Lease, which typically includes a filing in the appropriate
land office. A Lease Relinquishment Provision typically releases the
Lessee’s obligation to drill, but not from any other liability under the
Lease. Under an Operating Agreement, the Relinquishment Provision
describes a Non-Consenting Party’s relinquishment of its interest in or
share of the applicable operation that was Non-Consent.
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Remediation: the process of restoring a property to a specified condition
(typically to the condition the property was in prior to oil and gas
Development) by reversing or stopping any damage caused as a result
of such Development, particularly with respect to Environmental Defects
and other environmental matters.
Remediation Amount: the dollar amount required to Remediate a
property to the desired condition, which may or may not be prescribed
by law. A provision regarding Remediation Amounts is often included in
Environmental Defect Mechanisms, whereby the purchase price may be
adjusted downwards by an amount equal to the expected dollar amount
that would be necessary to cure the Environmental Defect(s) at issue
using appropriate Remediation methods.
Removal of Operator: under a JOA or other Operating Agreement, Non-
Operators are often afforded the option to remove the Operator under
certain conditions, typically including the Operator’s gross negligence or
willful misconduct.
Representations and Warranties: express or implied statements,
guarantees, agreements and/or promises a party to a transaction
document makes regarding a past, existing or future fact about such
party and/or the assets that are subject to the transaction, in an effort to
induce the other party(ies) into the contractual relationship. In the context
of a PSA, the seller’s Representations and Warranties will typically be
more fulsome than the buyer’s because the seller (and typically not the
buyer) will be making Representations and Warranties regarding the
assets being conveyed. A PSA often provides that a breach of a party’s
Representations and Warranties can lead to liability for indemnification
or trigger the other party’s ability to terminate the transaction prior to the
Closing.
See also Fundamental Representations.
Reserve Report: a report of a company’s estimated remaining quantities
of oil and gas Reserves, including details regarding the Reserves’ specific
characteristics and forward-looking projections, which is commonly
used as a valuation tool. A Reserve Report is typically prepared by an
outside independent petroleum engineering firm, and the methodology
and underlying reasoning used to value Reserves can vary. The SEC
requires public oil and gas companies to file Reserve Reports periodically
in order to publicly estimate remaining Reserves and help establish the
company’s valuation.
Reserves: an estimate of the amount of Hydrocarbons from an oil and
gas Resource that are determined to be “recoverable.” There is some
ambiguity and disagreement as to what is considered to be recoverable,
thus the precise definition of Reserves can vary. For example, Reserves
can be based on Hydrocarbons that have been discovered or projections
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of undiscovered Hydrocarbons; or can be based on what Hydrocarbons
are technologically or commercially recoverable; or what Hydrocarbons
have the potential to be recoverable at some point in time. The precise
definition used for Reserves will depend on the intended use.
In comparison to Resources, engineers generally produce a Reserve
estimate, which is based on a near-term conservative view of the Oil and
Gas Properties’ potential.
Note that the distinction between Reserves and Resources can be
important in financing transactions, as financial institutions are typically
more willing to provide financing on Reserves than Resources.
See also Proved Reserves and Unproved Reserves for further Reserve
classifications.
Reserves Adjustment Factors: a range of factors used to calculate Reserve
amounts (typically in a Reserve Report) by discounting the Reserves’
value to account for the relative risks and uncertainties of different
categories of Reserves (e.g., Proved Reserves and Unproved Reserves).
There is no standard set of Reserves Adjustment Factors, and the
particular adjustment factors applied in analyzing Reserves will depend
on the purpose of the analysis. For example, a lender will typically use
more conservative calculations (as a means of reducing risk) than an
acquiring company.
Reserves Growth: the increase in the amount of recoverable Reserves in
a particular oil and gas Reservoir, typically caused by the availability of
new technology or enhanced data.
Reservoir: a subsurface accumulation of Hydrocarbons.
Reservoir Drive: the natural energy mechanisms existing in a Reservoir
that cause Hydrocarbons to flow out of a Reservoir and into a Wellbore
without artificial pressures or forces.
Reservoir Engineer / Reservoir Engineering: an engineering discipline
focusing on hydrocarbon recovery and Reservoir characteristics. A
Reservoir Engineer is a specific type of petroleum engineer who focuses
on Reservoir behaviors and characteristics.
Reservoir Pressure: the fluid pressure in an oil and gas Reservoir.
Reservoir Rock: a type of subsurface rock with sufficient Porosity and
Permeability to store and transmit Hydrocarbons relatively easily, often
overlain by a caprock that serves to trap the Hydrocarbons from further
Migration. The physical characteristics of Reservoir Rock render the
Hydrocarbons easily accessible using classic recovery techniques.
In contrast, see Source Rock.
Reservoir Stimulation: another term for Stimulation.
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Residual Oil: incremental amounts of oil that are produced from a Gas
Well.
Resource Conservation and Recovery Act (RCRA): a federal law governing
the management (generation, storage, treatment and disposal) of non-
hazardous and hazardous solid waste.
Resource Play: a colloquial term used to refer to a specific hydrocarbon
Reservoir, Basin, Formation or any portion thereof.
See also Play and Prospect.
Resources: a general term used to refer to all prospective oil and gas
estimated or speculated to be present in a particular area.
Resources can be further classified into four categories: (i) Contingent
Resources; (ii) Prospective Resources; (iii) Technically Recoverable
Resources; and (iv) Economically Recoverable Resources.
In comparison to Reserves, geologists generally estimate Resources, based
on a long-term estimate of the potential of the Oil and Gas Properties.
Note that the distinction can be important in financing transactions, as
financial institutions are typically less willing to provide financing on
Resources than Reserves.
Retained Acreage Clause: a Retained Acreage Clause of an Oil and Gas
Lease operates to release from the Lease any portions of the leased Tract
that are not included in a Drilling Unit at the end of the Primary Term.
Under a Retained Acreage Clause, at the expiration of the Primary Term,
the Lease will continue only with respect to that portion of the leased
Tract that is included in a Drilling Unit for a Producing Well.
Pugh Clauses are similar in concept, but only apply if the Lessee exercises
its authority to Pool the applicable Lease.
Retained Liabilities: existing liabilities associated with a property that
a seller retains under the applicable PSA after divestment, whether
for a set time period or indefinitely, through an indemnity mechanism.
Typically, allocation of liabilities (and the scope of the applicable
Retained Liabilities) in a PSA are heavily negotiated due to the potential
risks associated with such liabilities.
Retrograde Condensate: a type of liquid hydrocarbon formed in a
Reservoir that contains Condensate when such Condensate, due to
certain temperature and pressure conditions, separates into a gas and
a liquid. The term “retrograde” refers to the fact that the Condensate
is compressed beyond the point of condensation, causing the liquid to
evaporate again (essentially reversing the condensation process).
Reworking: efforts to restore a Well’s Production through additional
operations, including Stimulation and Recompletion.
Rig: another term for Drilling Rig.
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Rig Down: the process of dismantling and shutting down a Drilling Rig
down after a Well has been drilled.
Rig Hand: another term for Roughneck.
Rig Up: the process of moving a Drilling Rig on location and commencing
the Drilling of a Well.
Right of First Offer (ROFO): a contractual right entitling the holder of
such right to enter into negotiations with, and make the first offer to, a
counterparty who desires to transfer a particular interest that is subject to
the applicable ROFO provision, with such right vesting prior to the time
the counterparty may enter into negotiations regarding such interest
with third parties. Typically, the owner of the right, interests or assets
burdened by a ROFO may not subsequently proceed with a transfer of
the interest to a third party if the transaction is performed at a lower
price than the holder of the ROFO’s original offer (if any). It is important
to note, however, that unlike with a Right of First Refusal, a ROFO does
not grant the right holder the right to match an offer, only the right to
make an offer.
Right of First Refusal (ROFR): a contractual right granting the holder of
such right a priority right to purchase interests from a counterparty who
desires to transfer a particular interest that is subject to the applicable
ROFR provision, with such right only vesting upon such time as a third
party has made a bona fide offer for the interest. Typically, the ROFR
holder need only match the highest offer made by a third party in order
to acquire the subject interests burdened by the ROFR.
See also Preferential Right to Purchase.
Right-of-Way (ROW): a type of Easement granted (or reserved) by an
owner of a Tract that provides the Grantee with the right to travel across
or pass through the Tract (whether the surface or the shallow subsurface
depths). ROWs are typically granted for transportation purposes, such
as for highway or railway line construction, or in the case of oil and gas
operations, for laying Pipelines.
ROFO: abbreviation of Right of First Offer; commonly pronounced “row-
fo.”
ROFR: abbreviation of Right of First Refusal; commonly pronounced
“row-fir.”
Rotary Table: a piece of equipment located on the drill floor used to turn
the Kelly by using clockwise rotational force.
Roughneck: a colloquial term for a member of the drilling crew that
assists with daily operations and maintenance on the Drilling Rig. Also
the frontrunner name submission in the event Midland, Texas ever gets
an NFL team.
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Round Trip: a colloquial term used to refer to the process of removing
and replacing the entire Drill String in a Wellbore.
Roustabout: another term for Roughneck.
ROW: abbreviation of Right-of-Way.
Royalty / Royalty Payment: a fraction of the gross revenue generated
from oil and gas produced under a Lease or license or other similar
arrangement, free and clear of any production or marketing costs, that
is paid to a party (typically the Lessor under an Oil and Gas Lease) in
connection with the applicable oil and gas operations. The Royalty, along
with the Bonus, are the primary sources of consideration paid to the
Lessor under an Oil and Gas Lease.
Royalty Clause: the clause in an Oil and Gas Lease specifying the amount
of the Lessor Royalty, how and when such Royalty must be paid, and
sometimes setting forth what expenses, if any, the Lessor will bear (and,
therefore, effectively subtract from the applicable Royalty).
Royalty Interest: a non-participating interest in the minerals produced
from a particular Tract, which interest is free and clean of all costs
associated with exploring for, Drilling, mining, removing and marketing
such minerals. A Royalty Interest owner does not have the right to
explore, mine or otherwise remove the minerals and does not have the
right to use the surface overlying the minerals to which the Royalty
Interest relates.
In contrast, see Mineral Interest.
RPO: abbreviation of Reasonable and Prudent Operator.
RRC: abbreviation of Texas Railroad Commission.
Rule 37 (Texas): the RRC’s Spacing rule applicable to all Oil and Gas
Wells in Texas (to the extent not preempted by special Field Rules), Rule
37 requires that all Wells be located a certain distance away from Lease
lines and other Wells that are drilled to the same Formation. Specifically,
a Well may not be located nearer than 467 feet from “any property line,
Lease line or subdivision line” or 1,200 feet from “any Well Completed in
or Drilling to the same Horizon on the same Tract or farm.” The purpose
of Rule 37 is to prevent waste of natural resources and protect owners’
Correlative Rights regarding common oil and gas Reservoirs. The RRC
may grant exceptions to Rule 37 after an Operator files an exception
application.
Rule 38 (Texas): the RRC’s density rule applicable to all Oil and Gas
Wells in Texas (to the extent not preempted by special Field Rules), Rule
38 specifies that only a certain number of Wells may be drilled within
a certain surface Acreage area. Although Rule 38 is Field specific and
can change based on several factors centered around efficient recovery,
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typically, a single Oil Well is allotted 40 surface acres and a single Gas
Well is allotted 640 surface acres (such surface acres allotment being a
Drilling Unit). The purpose of Rule 38 is to prevent clustering of Wells and
overproduction of a common Reservoir. The RRC may grant exceptions
to Rule 38 after an Operator files an exception application.
Rule of Capture: a common law rule of law that provides if a producer
extracts or “captures” oil and gas from a Well that bottoms within the
subsurface of his land, such producer acquires absolute ownership of
the oil and gas and is not liable for subsurface trespass, regardless of
whether the oil and gas migrated from a different part of the Reservoir
that is located on another person’s land.
See also Drainage.
Run Sheet: a document which a Landman typically generates using
county courthouse records (specifically the Grantor / Grantee index), to
track a particular interest a certain Grantor or Grantee owns. A Run Sheet
is a faster method of checking records than updating a Title Opinion. For
example, after a Title Opinion is drafted, a Landman may generate a Run
Sheet to check if a certain Grantor or Grantee transferred its interest to
a third party.
Run Ticket: a receipt or ticket a purchaser of Crude Oil issues to the seller
indicating the quantity of oil that was sold and the oil’s basic sediment
and water content. The Run Ticket is used to determine the amount of
payment for such Crude Oil.
Running Title: the process whereby a Landman or attorney determines
the ownership of a Tract by reviewing the Chain of Title as filed in the
public records. While there may be a race to the courthouse in some
states, it doesn’t have anything to do with Running Title.
RVP: abbreviation of Reid Vapor Pressure.
Safe Drinking Water Act: a federal law that was established to protect
drinking water, and includes the regulation of the underground injection
of a variety of fluids and materials. Hydraulic Fracturing (other than in
cases using diesel fuel) is exempt from regulation under the Act.
Salt Dome: a geological feature commonly associated with trapped
Hydrocarbons and therefore considered to be an indicator of the presence
of Hydrocarbons within such feature.
Saltwater Disposal Well (SWD): a Well drilled to dispose of salt water
produced as a byproduct of oil and gas Production, a SWD is utilized by
injecting the salt water into a non-producing Formation.
Salvable Equipment: a petroleum accounting term for equipment
that continues to have a useful life and can be reused in oil and gas
operations (as opposed to discarded and having no salvage value).
Salvable Equipment can be depreciated and such Depreciation can be
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deducted as an operating expense in producing oil and gas. Note that
this calculation is relevant to determining whether a Well is Producing in
Paying Quantities.
Savings Clause: a type of clause in an Oil and Gas Lease that protects the
Lease from expiration after the end of the Primary Term due to failure
to achieve Production in Paying Quantities or loss of Production. For
example, if Production from a Well is holding a Lease past its Primary
Term and the Production ceases, a Temporary Cessation of Production
Clause is triggered allowing the Lessee a certain number of days to
restore Production before the Lease terminates, thus “saving” the
Lease. Clauses that may serve as a Savings Clause include a continuous
operations clause, a Temporary Cessation of Production Clause, or a Dry
Hole clause.
Scf: the base unit of measurement for Natural Gas volumes, meaning
a single “standard cubic foot” and commonly pronounced as “scuff.”
The “standard” element of the definition denotes a certain constant
atmospheric pressure and temperature, which may vary slightly by
geographical area.
See also Mcf, Mmcf, Bcf and Tcf, as volumes of Natural Gas are typically
expressed in larger quantities of Scfs.
SEC: acronym for Securities Exchange Commission.
Secondary Recovery: a type of Enhanced Oil Recovery method specifically
utilized after Primary Recovery. The purpose of Secondary Recovery is to
maintain Reservoir Pressure that was depleted during Primary Recovery
by injecting gas or water into the Reservoir to drive Hydrocarbons into
Producing Wells.
See also Water Flooding.
Secondary Term: in an Oil and Gas Lease, the Secondary Term begins at
the expiration of the Primary Term. The most common way to perpetuate
an Oil and Gas Lease past the Primary Term is by establishing Production
in Paying Quantities or conducting operations in an effort to establish
Production. Generally, the Secondary Term will continue for so long as
there is Production in Paying Quantities and for a limited time period
(typically from 30 to 90 days) in the absence of Production in Paying
Quantities if the Oil and Gas Lease includes a Savings Clause.
Secondment Agreement: an agreement governing an employment
arrangement under which a company’s employee (or group of employees)
is assigned on a temporary basis to work for another company.
Section: under the PLSS Legal Descriptions of geographical areas, an
approximately one square mile block of land (i.e., 640 acres). There are
36 Sections in a Township.
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Section-Township-Range (S-T-R): the PLSS designation of a particular
geographical area (e.g., a Tract) according to a predetermined grid, which
is located by identifying the specific Section, Township, and Range of the
PLSS in which the Tract is located.
Seismic Data / 2D Seismic / 3D Seismic / 4D Seismic: a type of technology
used to identify features and characteristics of subsurface Reservoirs by
bouncing sound waves off of subsurface rock Formations. 2D Seismic
results in a cross-section or square of data; 3D Seismic results in a cube
section of data; and 4D Seismic results in a cube section of data that
additionally shows how fluid moves through the applicable Formation.
Seismic testing can be conducted both on land or under water.
Seismic Data License: an agreement whereby an owner of certain
Seismic Data (i.e., the licensor) grants permission to a third party (i.e.,
the licensee) to use Seismic Data for the licensee’s benefit. Typically, a
Seismic Data License is very licensor-friendly and the licensee cannot
assign the Seismic Data Licensee without paying a fee to the licensor
(which may be up to 100% of the cost of obtaining the original Seismic
Data License).
Semi-Submersible Rig: a specialized type of offshore oil rig with a
floating drilling unit, columns and pontoons that will submerge to a
predetermined depth when filled with water. The submerged lower hull
of a Semi-Submersible Rig provides increased stability and enables deep
water Drilling.
Send-or-Pay: in a transportation agreement, an obligation of a shipper of
Hydrocarbons to pay for certain volumes of transportation Capacity on
a Pipeline, independent of whether or not the shipper actually uses the
Capacity.
Separator: another term for Oil and Gas Separator.
Service Agreement: an agreement governing services one party
provides to another party, typically for a set fee. Service Agreements are
often used in the oil and gas context where a third-party contractor is
performing specialized management and/or operational services with
respect to a particular set of oil and gas assets on behalf of the assets’
owner or Operator.
Servient Estate: in the case of a Severed Property, a real property legal
term used to describe the relationship of the Surface Estate to the
Mineral Estate, whereby the rights of the Surface Estate owner are
subservient to the rights of the Mineral Estate owner, and, subject to
the Accommodation Doctrine (if applicable), the owner of the Mineral
Estate has the right to enter and use the Surface Estate as is reasonably
necessary for developing the Mineral Estate.
See also Dominant Estate.
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Servitude: a limitation (or Burden) placed on real property for the benefit
of the general public or a specific person. In the oil and gas context, a
reference to a Servitude typically refers to a mineral Servitude, which is
a Servitude granted for the benefit of a mineral owner that burdens the
Surface Estate by allowing the mineral owner to enter upon the surface
owner’s property to explore and extract the underlying minerals.
Set Back: a regulatory requirement imposed on Operators to locate
Wellbores a minimum distance from certain relevant sites, Leases or
property lines. For example, a Set Back requirement may specify that a
Wellbore must be a minimum of 100 feet from any surface property line
and a minimum of 3,000 feet from any gas storage Reservoir. Precise Set
Back requirements vary by jurisdiction and exceptions may be granted.
Severance of Surface and Mineral Estates: the division of the Mineral
Estate from the Surface Estate with respect to a particular Tract, creating
two separate and independent real property estates.
Severance Tax: a tax levied by certain states upon the removal or
severance of oil and gas from the ground (i.e., Production).
Severed Property: a Tract wherein the Mineral Estate and Surface Estate
have been severed.
Shale: a tight Source Rock, meaning it has very low Permeability and
Porosity. Shale is an example of an Unconventional Resource Play that
was not economically recoverable until recent technological innovations
(e.g., Hydraulic Fracturing) made extracting oil and gas therefrom
commercially viable. Development of Shale in recent years in the US
(commonly referred to as the “shale boom” or “shale revolution”) has
significantly shifted the position of the US in the global energy market
due to the increased domestic energy supply Reserves found in US Shale
Plays.
Shale Gas / Shale Oil: Crude Oil or Natural Gas obtained from Shale.
Shale Shaker: an oilfield tool used to remove solid Deposits from Drilling
Mud.
Shared Use Agreement: an agreement governing the rights and
obligations of multiple parties that desire to share in the use of a particular
asset or property.
Ship-or-Pay: another term for Send-or-Pay.
Shoot a Well: a colloquial term used to refer to an antiquated Secondary
Recovery process that involved filling a container with explosives
(referred to as a “torpedo”), sending it down a Wellbore and detonating
the explosives. This technique originated in the 1860s and has long since
been replaced by the modern day Hydraulic Fracturing techniques.
In contrast, see Well Shoot.
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Shooting Rights: the right to conduct seismic operations with respect
to a particular area, including both the applicable surface area and
subsurface depths.
Short Trip: a colloquial term used to refer to the process of recovering
a piece of Drill Pipe from a Well that is being drilled and replacing it
back into the Wellbore. The piece of pipe that is recovered is normally
limited to 10 to 20 Stands of Pipe, rather than the entire Drill String, and
is therefore referred to as a Short Trip rather than a Round Trip in which
the entire Drill String is recovered. A Short Trip is often used to gauge
whether to proceed with a full Tripping Out of the Wellbore.
See also Tripping Out.
Shortfall Credit: under a Midstream services agreement that contains a
Minimum Volume Commitment, a Shortfall Credit allows the customer
to offset any throughput volumes that exceed the Minimum Volume
Commitment in one period against future volume shortfalls and Shortfall
Fees in subsequent periods.
Shortfall Fee / Shortfall Payment: under a Midstream services agreement
that contains a Minimum Volume Commitment, a Shortfall Fee is a fee
that the customer is required to pay if the Minimum Volume Commitment
is not met for an applicable period.
Shrinkage: not what George Costanza claimed as an excuse, instead a
negligible amount of Production that is lost during the transportation of
Hydrocarbons from a Receipt Point to a Delivery Point. Shrinkage can
also refer to the loss of Btu content in a gas stream due to the Processing
of such gas to produce NGLs.
Shut-In Royalty: a Royalty paid to a Lessor under an Oil and Gas Lease
for a Shut-In Well. The Shut-In Royalty payment allows the Lessee to
perpetuate the Lease despite the absence of Production in Paying
Quantities.
Shut-In Well: a Well capable of Production that has been shut-in due to
lack of market, take-away Capacity or other adverse condition.
Side Letter: a contractually binding agreement, typically in letter
agreement form, that provides for additional and/or ancillary agreements,
terms and/or conditions (or a modification of the existing terms and
conditions) of a related underlying transaction. A Side Letter is an
alternative approach to executing a formal amendment to an agreement,
but typically has a similar effect.
Sidetracking / Sidetrack Operations: a Drilling operation that uses a
portion of an existing Wellbore to create a new Wellbore for the same
Well. Sidetracking is typically utilized to bypass a portion of the existing
Wellbore that is unable to be Re-entered because of Junk in the original
Wellbore or impenetrable subsurface obstacles in the original Wellbore’s
path that cannot be drilled through.
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Sidewall Coring: the process of taking a sample of a drilled Formation to
gauge the Formation’s Porosity and Permeability.
Sign and Close: a transaction that is simultaneously signed and
consummated, with no Interim Period to perform Due Diligence, clear
applicable transfer restrictions, or perform or satisfy other specified
covenants.
Sit-Down Title Opinion: a type of Title Opinion a title attorney drafts
based on examination of verbatim Abstracts furnished by an abstract
company. A Sit-Down Title Opinion is more accurate than a Stand-Up
Title Opinion, but takes more time to prepare (and certainly sounds like
a more relaxing process). In contrast, see Stand-Up Title Opinion.
Society of Petroleum Engineers (SPE): a professional organization founded
in 1957 focused on the Upstream sector of the oil and gas industry. The
purpose of the SPE is to provide a platform for disseminating technical
expertise about the exploration, Development and production of oil and
gas and provide opportunities for industry professionals to increase their
technical and professional competence.
Soft Consent: a type of Consent that, while required for the transfer of
an asset under the terms of the applicable agreement, is of a type under
which failure to obtain such Consent will not result in the transfer being
void or trigger the ability to terminate the applicable agreement.
Additionally, in many situations, a Consent that, by its terms, is Not to be
Unreasonably Withheld, will be considered a Soft Consent, regardless of
the implications set forth in the underlying agreement for the failure to
obtain such Consent.
In contrast, see Hard Consent.
Sour Crude Oil: Crude Oil with sulfur content over 0.5%. Sour Crude Oil
requires more processing than Sweet Crude Oil due to Sour Crude Oil’s
higher sulfur content. As a result, Sour Crude Oil is typically more costly
and less valuable than Sweet Crude Oil. Would’ve hated to be the person
who came up with this name ... talk about a sour taste in your mouth.
In contrast, see Intermediate Crude Oil.
Sour Gas: in addition to being what your elderly uncle may accidentally
(or not) contribute to family gatherings, this is Gas with a high hydrogen
sulfide and carbon dioxide content. Sour Gas is less valuable than Sweet
Gas because Sour Gas requires purification to remove such contaminants.
Due to its corrosive nature, Sour Gas requires specialized valves and
Pipelines for transportation purposes.
In contrast, see Sweet Gas.
Source Rock: a type of rock rich in organic matter and with low Permeability
and Porosity from which Hydrocarbons have been generated or are
capable of being generated only with Enhanced Recovery techniques
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(typically Hydraulic Fracturing). Examples of Source Rocks are Shales
and limestones. In contrast, see Reservoir Rock.
Spacing / Spacing Area / Spacing Unit / Spacing Order: a regulatory
mechanism established by state regulatory agencies to control the
number of Wells located in a given surface area and Completed to a
given Formation by designating how many acres a Well can efficiently
Drain. Spacing was established to prevent both economic waste (Drilling
an unnecessary amount Wells) and environmental waste (Drilling too
aggressively can reduce overall recovery).
A Spacing Unit is the regulatory proscribed number of acres given to a
Well, which can vary for each jurisdiction. Typical Spacing Units are 40
acres for one Oil Well per Formation and 640 acres for one Gas Well per
Formation, but this can vary greatly based on Reservoir characteristics
and jurisdiction.
SPE: acronym for Society of Petroleum Engineers.
Special Warranty of Title / Special Warranty Deed: a limited Warranty
of Title in a Conveyance instrument a Grantor gives to a Grantee,
warranting title “by, through, or under” the Grantor but not otherwise.
As a result, the practical effect of a Special Warranty of Title is that it will
only protect against actions by the Grantor itself and not third parties.
A Special Warranty of Title is more beneficial to a Grantee than a
Quitclaim, but despite the name a Special Warranty isn’t too special and
is a lot less beneficial than a General Warranty of Title.
A Conveyance that contains a Special Warranty of Title is sometimes
referred to as a Special Warranty Deed.
Spot Price: in the context of Natural Gas or Crude Oil futures contracts,
the price that a person would pay for immediate purchase of the relevant
commodity at the production site, also known as the “cash price.”
In contrast, see Strip Price.
Spud / Spud-In: a colloquial term for the initial Drilling of a new Well,
specifically referencing when the Drill Bit breaks the surface.
Squeeze Job: the act of pumping cement into a Casing in order to get
an accurate pressure test on the applicable Well. Not as exciting as you
thought it would be, huh?
Stack a Rig: a colloquial term used to refer to the act of preparing a
Drilling Rig for long-term storage (i.e., the rig will be withdrawn from
operations for a material period of time).
Stand of Pipe / Stand: a set of two or three pieces of Drill Pipe that
remain connected to each other when removed from the Wellbore during
Tripping. Stands of Pipe are stored on the Derrick during Tripping in
order to reduce downtime and the need to unscrew every individual
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piece of Drill Pipe for what is normally a short shutdown of operations
(e.g., changing the Drill Bit).
See also Short Trip, Tripping In and Tripping Out.
Standard of Care: a degree of prudence and caution that a party
performing obligations under an applicable contractual arrangement
is required to exercise. The level of the Standard of Care required will
depend on the circumstances of the underlying transaction and is often
the subject of negotiation between the parties. Transaction documents
will generally allocate liability for certain breaches of the Standard of
Care, typically in the form of an indemnity from the obligated party
breaching the applicable standard.
Stand-By Costs: the costs associated with having a Drilling Rig waiting
on location to conduct operations. For example, if a pipe shipment is
delayed, then Stand-By Costs may be incurred if the Drilling Rig is
already on location and the pipe is needed for drilling operations to
commence.
Stand-Up Title Opinion: a type of Title Opinion a Landman or title
attorney drafts based directly on an examination of the county records
where the subject land is located. A Stand-Up Title Opinion is generally
less accurate, but available sooner than a Sit-Down Title Opinion.
In contrast, see Sit-Down Title Opinion (and together with Sit-Down Title
Opinion, see Hokey-Pokey).
State Leases: a colloquial term for Oil and Gas Leases granted by a State
covering State-owned minerals (i.e., the State or some other state-level
governmental agency is the Lessor).
Steam Flood: a type of Thermal Recovery method used specifically for
Heavy Crude Oil. Injection Wells are used to inject steam into a particular
Formation in order to force the Heavy Crude Oil upward. Steam Flood
operations also heat the oil on the oil’s way into the applicable Wellbore
in order to lower the Viscosity of the oil so the oil flows more efficiently.
Stimulation: a general reference to various operations or techniques
employed to “stimulate” or increase Production of a Well by improving
the flow of Hydrocarbons from the applicable Reservoir, such as through
the use of Hydraulic Fracturing to extend the perforation tunnels and
fractures or Acidizing to remove any blockage.
Storage Facility: a facility, whether in the form of a tanker, storage vessel,
cavern or other underground Formation, constructed or utilized in order
to store Hydrocarbons after they have been produced.
S-T-R: abbreviation of Section-Township-Range.
Strategic Player: a term used to refer to leaders in the energy industry.
Strategic Players are typically fully-integrated oil and gas companies,
meaning companies that are engaged in all aspects of the oil and gas
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industry, from Upstream to Midstream to Downstream (e.g., ExxonMobil,
BP, Chevron, ConocoPhillips and Shell). Strategic Players can also
include the leading Independent Producers, refiners and marketers,
Pipeline companies, service companies, and NOCs, among others.
Stratigraphic Equivalent: in the context of Drilling a Well, the Stratigraphic
Equivalent refers to a comparable target depth for such Well based off of
the actual depth of the same Target Formation measured in an existing
Well. This comparative concept is used because the depth of a single
Formation will vary over a wide geographic area. In the context of a
Lease, the Stratigraphic Equivalent is often used as the standard in Pugh
Clauses for releases of Leasehold Interests based on the deepest depth
drilled.
Stratum: a subsurface geological Formation.
Strip Price: not just what used to commonly be charged to expense
accounts in the 80s. In the context of Natural Gas or Crude Oil futures
contracts, an average of the daily settlement prices of the next 12 months’
futures contracts for the relevant commodity.
In contrast, see Spot Price.
Stripper Well / Strippers: a colloquial term used to reference a marginally-
producing Well or an old Well beyond its economically useful life. Despite
their low production rates, Strippers collectively generate a significant
percentage of oil and gas Production in the US.
Structure: folding and faulting in rock Formations.
Subdivision Lot: a Legal Description of real property that references a plat,
Survey, deed or similar instrument that the local government approved
and recorded in the applicable real property records, that contains a full
Legal Description of the Tract and that shows the individual recorded lot
numbers.
Sublease: a concept that is not limited to the oil and gas industry that
involves leasing certain rights and obligations arising under a given
lease (not just an Oil and Gas Lease) from the applicable lessee to a
third party that is not in privity of contract with the original lessor. In
a Sublease, the original lessee will remain liable to the original lessor
under the underlying primary lease for the actions of the sublessee.
Subrogation Clause: a mechanism that provides a third party with the
right to “step into the shoes” of a party to a contract and directly pursue
rights and remedies to which the party is entitled under the contract.
Common examples of these rights are warranties and insurance claims.
A variation of a Subrogation Clause can also be included in an Oil and
Gas Lease, whereby the clause protects the Lessee if the Lessor fails to
pay the costs covered by a Mortgage burdening the property or taxes
due on the property. In this context, a Lessee may directly pay the taxes,
Mortgage obligation or any other lien that has been assessed on the
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property and then recover such payments from future Proceeds under
the Lease.
Subsequent Operations: any operation conducted under a JOA after
the Initial Well operations. A JOA typically sets forth a mechanism for
proposing and participating in such operations. A Subsequent Operation
may require the Consent of the other parties or may be undertaken solely
by the Operator, depending on the circumstances.
Subsequently Created Interest: an interest a Lessee creates under an Oil
and Gas Lease after the initial Conveyance of the oil and gas interests
from the Lessor to the Lessee, such as an ORRI created for the benefit of
a third party. The Subsequently Created Interest will affect the Lessee’s
interest in the Lease, but will cause no modification of the Lessor’s
interest in the leased Acreage or underlying Mineral Estate.
Substitute Acreage: a concept sometimes seen in a PSA or exchange
agreement to remedy Title Defects discovered during the Title Diligence
process. A Substitute Acreage provision in a PSA will typically allow the
seller (and more rarely the buyer) to exclude all or a portion of the Acreage
affected by a claimed Title Defect and replace such Acreage with other,
non-defected Acreage not previously subject to the transaction and that
is otherwise substantially similar to the excluded defected Acreage. This
outcome is used rather than adjusting the applicable consideration by
the applicable Title Defect Amount or any other common Title Defect
remedy.
The mechanics of the Substitute Acreage provision works similarly under
an exchange agreement, except that both parties, in their respective
capacities as a seller under the exchange agreement, will typically have
the option to offer Substitute Acreage.
Substitute Well: a Well drilled to replace a previously drilled Well that was
unsuccessful for one reason or another. This concept is often included in
Farmout Agreements, so that if the Farmee encounters an impenetrable
Formation or other conditions that render further Drilling in the original
Well impractical, the Farmee can still earn Acreage under the Farmout
with a Substitute Well.
Successful Efforts Accounting v. Full Cost Accounting: companies
involved in the exploration, Development and production of oil and gas
may utilize one of two accounting approaches: the Successful Efforts
method or the Full Cost method. The distinction between the two
methods is in the treatment of specific operating expenses relating to the
exploration of new Reserves, and the method chosen will affect how a
company reports its net income and cash flow.
Under Successful Efforts Accounting, a company will capitalize only
those operating expenses associated with successfully locating new oil
and gas Reserves, and operating expenses associated with Dry Holes are
counted against revenues for that period.
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Under Full Cost Accounting, a company may capitalize all operating
expenses associated with locating new Reserves (regardless of success).
The two alternative accounting methods are a result of differing views on
which accounting method provides the greatest transparency regarding
a company’s earnings and cash flows.
Successor Operator: typically refers to an Operator that takes over (i.e.,
succeeds) after the removal or resignation of the prior Operator, whether
under a JOA or otherwise. Generally, the term can be used to refer to any
scenario in which a new Operator succeeds a prior Operator.
Sucker-Rod Lift: yes, this is a real thing. An Artificial Lift technique that
utilizes a surface-pumping Unit, which is linked by steel rods (referred
to as “sucker rods”) to, and drives, an underground Pump, causing the
applicable components located in the Wellbore to move up and down,
creating suction.
Superfund Act: another term for CERCLA.
Surface Damages: money a Lessee pays to a surface owner under an
Oil and Gas Lease or Surface Use Agreement for disturbances to the
surface owner’s property; the amount of the Surface Damages will vary
depending on the terms of the underlying agreements and the damage
sustained.
Surface Damages Clause: a clause in a Lease or Surface Use Agreement
that typically obligates the Lessee to pay for all, or certain specified,
damages to roads, fences, improvements, crops and similar property the
Lessee’s operations cause in connection with the Lease or agreement
and to repair, remediate and restore the surface to its original condition
within a reasonable time period after the cessation of operations. A
party’s specific obligations under a Surface Damages Clause will vary
depending on the terms of the agreement.
Surface Estate: an estate in real property that provides the Surface Estate
owner with the right to use and develop the surface of the land above the
Mineral Estate and the right to certain subsurface minerals, specifically,
caliche, coal, gravel, iron, lignite (near surface), limestone, sand, surface
shale and water. A Surface Estate may be “severed” from the Mineral
Estate and owned by a person other than the owner of the Mineral
Estate, in which case the Surface Estate will be the Servient Estate and
the Mineral Estate will be the Dominant Estate.
Surface Location / Surface Hole Location: the location on the surface
where a Well is Spud, usually consisting of a Well Pad and associated
facilities.
Surface Rights / Surface Interests: the rights attributable to the owner
of the Surface Estate. With respect to oil and gas operations, Surface
Rights are a consideration when the Mineral Estate and Surface Estate
are severed, resulting in split ownership of the same Tract. Although
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the Mineral Estate is the Dominant Estate, the Mineral Estate owner is
nevertheless required to reasonably accommodate the surface owner’s
existing use and Development of the Surface Estate.
See also Accommodation Doctrine.
Surface Use Agreement: an agreement between a surface owner and a
counterparty that desires to use such surface for a certain purpose (e.g.,
oil and gas operations) that delineates the rights and obligations of each
party with respect to the use of the surface.
Surrender Clause: a clause in an Oil and Gas Lease that allows a Lessee
to relinquish the Lease, meaning the Lessee releases its interest in the
Lease to the Lessor prior to the expiration of the Lease by its own terms.
Survey: a Metes and Bounds description of a particular geographical
area that is used to determine legal property boundaries.
Suspense Funds: an accounting tool oil and gas companies use whereby
Royalty Payments and other unclaimed funds that do not necessarily
belong to the company (e.g., unclaimed Royalty Payments or payments
that relate to a Title Dispute, clouded title or pending litigation) are
held in suspense and not paid-out to an interest holder until a certain
time (typically, the resolution of such dispute, litigation, etc.). In certain
jurisdictions, Suspense Funds that are unclaimed after a specified period
of time escheat to the applicable governmental authority.
SWD: Abbreviation of Salt Water Disposal Well.
Sweet Crude Oil: Crude Oil with a sulfur content of less than 0.5%. Sweet
Crude Oil is more valuable than Sour Crude Oil because it requires less
processing. Despite the name, you don’t want to taste it ... trust us. Wait,
what?
In contrast, see Intermediate Crude Oil.
Sweet Gas: contrary to what your spouse may try to tell you, this exists
only in the oil and gas world. Natural Gas with a low sulfur content that
requires little purification.
In contrast, see Sour Gas.
Sweet Spot: you’ll know when you hit it! A colloquial term used to
designate the most productive portion of an oil and gas Reservoir.
Tag-Along Rights: a contractual arrangement where, if (i) multiple parties
own interests in the same or related properties or entity, and (ii) one owner
elects to sell its interest to a third party, then the other owners have the
right to compel the selling owner to require that all or a pro rata portion
of the other non-selling owners’ interests in the applicable properties or
entity are included in the sale to the third-party purchaser on the same
terms and conditions as the selling owner’s proposed transaction.
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In the corporate context, Tag-Along Rights are typically only granted to
the minority partner, member or shareholder of a given entity, if at all.
See also Drag-Along Rights.
Take or Pay: a provision of a contract between a company seeking to sell
its oil or gas Production and a party seeking to buy the Production, under
which the receiving party is obligated to either take a specified amount
of such Production from the seller (typically subject to certain limitations)
or pay the seller a pre-determined penalty.
Take Point: in a Horizontal Well, any point along the Wellbore where
Hydrocarbons can be produced from the applicable Reservoir.
Take-in-Kind: a Working Interest holder’s right to take its pro rata portion
of the physical Hydrocarbons Production under the applicable agreement
(i.e., “in-kind”) rather than receiving its share of the monetary Proceeds
thereof.
Tangible Drilling Costs: a term used to classify certain costs incurred in
Drilling or developing Wells for purposes of determining the tax treatment
for such costs. Generally, Tangible Drilling Costs are costs incurred to
acquire equipment (or other items) that has a salvage value and that is
used in Drilling or developing Wells, such as Casings, well fittings, land
and tankage. Tangible Drilling Costs are generally recovered through
Depreciation of the applicable assets to which they apply, typically over
a period of seven years.
In contrast, see Intangible Drilling Costs.
Tank Battery: the location of central processing, storage and measurement
facilities on a Drillsite Tract. Production from Wells on such Tract will
travel from the Wellbore(s) and into Flowlines and then into a central
point, known as the Tank Battery, in order to minimize inefficiencies
caused by the different locations of wells spread across such Tract.
Tank Car: another term for Rail Car.
Tank Farm: an area comprised of several hydrocarbon storage tanks and
related facilities.
Target Formation: in the drilling context, the subsurface Formation that a
given operation is targeting as the productive Zone to be penetrated and
tested, and if successful, produced.
Tax Partnership: a term used to describe any joint venture or other joint
development arrangement that is treated as a partnership for US federal
income tax purposes, but for which no state law entity exists (e.g., the
economic arrangement created by a JDA).
Under certain specific circumstances, parties to an arrangement that is
otherwise treated as a Tax Partnership under the relevant US federal
income tax rules may nevertheless “elect out.” Following an election out,
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parties meeting the applicable requirements will be treated as separately
owning their Mineral Interests that would otherwise be subject to the
applicable Tax Partnership for US federal income tax purposes.
Tax Partnership Agreement: an agreement used to define the rights and
obligations of parties to a Tax Partnership. Typically a Tax Partnership
Agreement is an Ancillary Document to a larger transaction.
Tcf: a unit of measurement for Natural Gas volumes. One Tcf means one
trillion cubic feet.
Technically Recoverable Resources: a classification for Resources that
are recoverable with current technology, regardless of oil and gas prices
or Production Costs. As a general matter, Technically Recoverable
Resources will typically not be produced, despite technological ability to
do so, if Production is commercially not favorable.
Temporary Cessation of Production Clause: a Savings Clause in an
Oil and Gas Lease that allows parties to perpetuate the Lease past the
Primary Term if Production ceases but is restored within a set period of
time.
Tenancy in Common: an undivided ownership interest in a single Tract
between two or more persons or entities (each, a Co-Tenant). In a Tenancy
in Common, the property interest is devisable and becomes part of the
deceased’s estate and may be transferred by will or intestacy (unlike
in a Joint Tenancy, where the property interest transfers automatically
on death due to the right of survivorship). Co-Tenants cannot prevent
Development by other Co-Tenants of the applicable Tract and each Co-
Tenant has the right to use and occupy the Tract.
In contrast, see Joint Tenancy.
Tender: in Midstream operations, the act of making Hydrocarbons
available to a recipient upon delivery at a specified location, such as a
Receipt Point.
Terminal: in the oil and gas context, a term used to refer to any facility that
provides loading, offloading, and other similar services and that provides
points of interconnection to other Midstream and Downstream facilities,
such as Pipelines, processing facilities, Storage Facilities, refineries, etc.
Terminus: the end point of a horizontal Wellbore.
Tertiary Recovery: a type of Enhanced Oil Recovery method specifically
used after Secondary Recovery. During Tertiary Recovery, steam or
chemicals are injected into the Reservoir for the purpose of increasing the
recovery of Hydrocarbons after both Primary Recovery and Secondary
Recovery have been exhausted.
Test Well / Testing Operations: a Well that is used to determine the
recoverability of Hydrocarbons from a given Reservoir or Formation.
Testing Operations are operations typically conducted after Drilling,
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but before Completion, to gather Reservoir and Production information
using Well Logs and formation fluids.
Texas Mineral Interest Pooling Act: a Texas Compulsory Pooling statute
enacted in 1968, under which a Lease Operator can force unleased
Mineral Interest owners into a Pooled Unit. Under the statute, the
Operator seeking to form the Pooled Unit must first make a good faith
offer to the unleased Mineral Interest owners before filing an application
with the RRC to Force Pool such unleased Mineral Interests into the Unit.
The intent of the statute is to prevent waste and Drainage and protect
Correlative Rights. The Act applies only to Oil and Gas Fields discovered
after March 8, 1961.
Texas Railroad Commission (RRC): the Texas agency tasked with
regulating oil and gas operations.
Texas Two-Step: not just the most popular dance down at the honky-
tonk. A colloquial term used to refer to an approach to avoid both
Consent restrictions and Pref Rights with respect to a particular interest
that would be triggered by the transfer of the interest to a third party. A
Texas Two-Step consists of structuring a transaction so that the interest
at issue is first transferred to a wholly-owned subsidiary of the owner of
the interest and then the owner sells the stock of the subsidiary to the
third-party buyer.
Thermal Recovery: the process of injecting heat into a Reservoir to lower
the Viscosity of the Hydrocarbons in the Reservoir and thereby enhance
the recovery of Hydrocarbons.
See also Steam Flood.
Third-for-a-Quarter: a colloquial term used to describe a joint development
arrangement in which the party providing the investment opportunity to
the other parties sells a quarter of its Working Interest in return for an
obligation to pay a third of the applicable costs. Oftentimes the owner
of a property may enter into three Third-for-a-Quarter transactions for
the property, resulting in the owner retaining a quarter of its original
Working Interest but having all applicable costs Carried for the remaining
Working Interest. And you thought you wouldn’t have to do any math ...
Tight Formation: an oil and gas Reservoir with low Permeability and
Porosity, making the Hydrocarbons located in the Reservoir difficult to
recover without Enhanced Recovery methods.
Tight Gas: Natural Gas locked in Reservoirs with a very low Permeability
which impedes the flow of the gas and requires additional efforts
to develop such Natural Gas (e.g., Hydraulic Fracturing to increase
Formation Permeability and Horizontal Drilling and/or multiple Wells
for increased recovery).
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Title Arbitrator: an arbitrator utilized to settle Title Disputes between two
parties that arise in the course of a transaction.
Title Benefit / Title Benefit Mechanism: a typical contractual provision in
an oil and gas PSA under which the seller may claim credit (in various
forms) for any discoveries that are made in the course of buyer’s Title
Diligence review that increase the quantum of the seller’s interest in
the applicable Oil and Gas Properties above the quantum the seller
represented at the time of PSA execution. Title Benefits typically result
in an increased number of Net Acres or an increase in the applicable
NRI that the seller originally purported to own. The amount of any Title
Benefits the seller and buyer agree upon is usually accounted for as an
upwards purchase price adjustment or as an offset against any Title
Defects.
Title Benefit Notice: a notice delivered under a PSA from one party
(typically the seller) to the other, notifying the other party of the existence
of a claimed Title Benefit.
Title Curative: another term for Curative Work.
Title Defect: a defined term under a PSA that typically encompasses a
condition existing on the target assets (e.g., a lien, charge, Encumbrance,
obligation, or other similar defect) that (i) causes the seller not to have
Defensible Title, or (ii) causes a decrease in the number of Net Acres or
the Net Revenue Interest the seller purports to own at the time of PSA
execution, in each case, that is discovered in the course of buyer’s Title
Diligence.
Title Defect Amount: with respect to a Title Defect that a seller is unable
to or elects not to cure under a PSA, pursuant to the applicable Title
Defect Mechanism, the Title Defect Amount is the dollar value assessed
for the Title Defect, which is determined based on a range of variable
factors. The Title Defect Amount for a particular Title Defect is often
capped at the Allocated Value of the applicable property affected by the
Title Defect and is typically used to reduce the purchase price to account
for the loss of value to the buyer which the Title Defect causes.
Title Defect Deductible: pursuant to a Title Defect Mechanism, a
negotiated deductible below which the seller has no liability to the buyer
for Title Defects. If the aggregate Title Defect Amounts attributable to
claimed Title Defects exceed the Title Defect Deductible, then the buyer
is only entitled to, and the seller is only responsible for, liabilities with
respect to Title Defects to the extent that the Title Defect Amounts exceed
the Title Defect Deductible.
In contrast, see Title Defect Threshold.
Title Defect Mechanism: a typical contractual provision in an oil and gas
PSA under which the buyer may seek remedies from the seller for certain
Title Defects. Under a Title Defect Mechanism, between signing and
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Closing the buyer conducts Title Diligence on the assets to be purchased,
and must assert any claim for Title Defects in the manner specified in
the PSA by the applicable Defect Claim Date. Remedies for Title Defects
are negotiated for each transaction, but typically include (i) the seller’s
right to cure the Title Defect prior to Closing, (ii) the right to exclude
the applicable Title Defect Property from the assets to be sold (with a
corresponding adjustment to the purchase price), (iii) a reduction in the
purchase price by the applicable Title Defect Amount, and (iv) entering
into an Title Indemnity Agreement.
Title Defect Notice: pursuant to a Title Defect Mechanism, a notice
prepared by the buyer in which the buyer describes in detail the claimed
Title Defect for which it seeks remedies.
Title Defect Period: pursuant to a Title Defect Mechanism, the negotiated
period of time within which the buyer may conduct Title Diligence and
claim Title Defects.
Title Defect Property: under a Title Defect Mechanism, the specific assets
affected by a claimed Title Defect.
Title Defect Threshold: pursuant to a Title Defect Mechanism, a de
minimis threshold that also serves as a limitation on the seller’s liability
for Title Defects (in addition to, and not in substitution of, a Title Defect
Deductible or Aggregate Defect Deductible). If the Title Defect Amount
of a claimed Title Defect is below the applicable Title Defect Threshold,
then, regardless whether the Title Defect Deductible or Aggregate Defect
Deductible has been reached, the buyer is not entitled to, and the seller
is not responsible for, any liabilities with respect to such Title Defect.
A Title Defect Threshold is also commonly referred to as a “tipping
basket,” because if the Title Defects meet or exceed the threshold, all
Title Defects in the basket are tipped over and the purchase price is
adjusted by the entire amount.
See also Individual Defect Threshold.
Title Diligence: the process of researching and examining title information
regarding a particular property in order to verify the purported ownership
thereof and any potential title issues through reviewing, among other
things, courthouse records, Title Opinions, internal owner files and
public databases. Title Diligence can be performed by both a Landman
(compiling the Abstract) and/or a title attorney (drafting a Title Opinion)
and is undertaken to understand and accurately depict the property’s
current ownership and Chain of Title.
Title Dispute: a disagreement between a buyer and a seller under a PSA
as to the validity of a claimed Title Defect.
Title Examination: another term for Title Diligence.
Title Failure / Title Loss: other terms for Loss of Title.
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Title Indemnity Agreement: an agreement pursuant to which the seller
under a PSA indemnifies the buyer for certain losses or liabilities arising
out of a claimed Title Defect. Title Indemnity Agreements are commonly
used as a remedy for Title Defects pursuant to a Title Defect Mechanism.
In such instance, the seller would, notwithstanding the claimed Title
Defect, transfer the Title Defect Property to the buyer at Closing (with
no adjustment to the purchase price) and agree to indemnify the buyer
for certain losses or liabilities arising out of the claimed Title Defect.
Whether or not the agreement includes a dollar value cap or expires after
a certain period of time is subject to negotiation between the parties.
Title Opinion: a tabulation of the ownership in a Tract which a title
attorney typically prepares that is based on record ownership and subject
to the fulfillment of certain requirements.
See also Drillsite Title Opinion, Sit-Down Title Opinion and Stand-Up
Title Opinion.
Tool Pusher: a colloquial term for an applicable Operator’s (or more likely
their applicable service provider’s) employee in charge of a Drilling Rig.
Must’ve sounded catchier than the other options of “Wrench Turner”
and “Hammer Swinger.”
Top Lease: a Lease taken on certain Mineral Interests that are still
burdened by an existing Lease. The Top Lease will become effective
if and when the existing Lease expires. Typically, Top Leases are taken
when an existing Lease is at risk of termination (for example, if a single,
marginally producing Well is holding a Lease). Other situations where
Top Leases are taken include (i) when an existing Lessee seeks a Top
Lease to secure the Lessee’s interest in the underlying property, or (ii)
when area competitors seek Top Leases in an attempt to secure leasehold
rights in anticipation of the existing Lease soon terminating.
Total Depth: another term for Measured Depth.
Total Vertical Depth: another term for True Vertical Depth.
Township: the largest subdivision of land used in the PLSS system, a
Township is identified by reference lines, an East-West base line (i.e.,
township lines) and a North-South principal Meridian (i.e., Range lines),
to create a six-mile-square area. A Township is identified by specifying
how many Townships it is North or South from a referenced principal
line of longitude and how many Ranges it is East or West of the principal
Meridian.
Tract: in the real property context, a Tract is a general term to describe
a certain lot, plot or parcel of land that is intended to be owned or
controlled. In the oil and gas context, a Tract generally refers to a parcel
of land comprising a portion of the surface area covered by an Oil and
Gas Lease.
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Transfer Order: a standard notification issued to a remitter of oil and
gas Production following the consummation of a sale of oil and gas
assets notifying the remitter that a transfer of ownership of an applicable
property has occurred. Parties to such a sale transaction will often execute
and deliver Letters in Lieu of Transfer Orders.
Transition Services Agreement (TSA): in the oil and gas context, typically
an Ancillary Document to a PSA, whereby the seller agrees to provide
certain services to the buyer during a defined transition period following
Closing in order to allow the buyer and/or new Operator time to prepare
to assume responsibility for the applicable service(s) and/or operatorship.
Trap: a type of rock or geological Structure with low Permeability and
Porosity that prevents hydrocarbon Migration, effectively “trapping” the
Hydrocarbons in place.
Treater: a vessel used to separate fluids that are not miscible (e.g., water-
oil emulsions), which can utilize several different mechanisms, including
Heater Treaters and electrostatic Treaters.
Treatment Facility: a facility that removes impurities from water (i)
produced with oil and gas, or (ii) contaminated during certain operations,
such as Hydraulic Fracturing. The treated water can be sold to other
Operators or reused in later Drilling, Stimulation or Workover operations.
Trip: the process of inserting or removing the Drill String in a Wellbore.
Trip In / Tripping In: the process of running the Drill String into the
Wellbore joint-by-joint of Drill Pipe or Stand-by-Stand until reaching the
desired depth.
Trip Out / Tripping Out: the process of pulling the Drill String out of
the Wellbore joint-by-joint of Drill Pipe or Stand-by-Stand. Not to be
confused with the popular pastime for many a hippie in the 70s.
True Vapor Pressure (TVP): an ASTM test method for measuring the
vapor pressure of Crude Oil and refined petroleum products (e.g.,
gasoline). RVP testing is used in various quality control and research and
development applications. RVP testing specifically, and vapor pressure
testing in general, is an important safety check in the transportation,
storage, and blending of Crude Oil and refined petroleum products.
True Vertical Depth: the measurement made from the surface to a point
in the Wellbore (often the deepest subsurface depth drilled), by utilizing
a straight line perpendicular to the surface.
In contrast, see Measured Depth.
Trunk Line: a large Pipeline that carries Hydrocarbons over long
distances. Smaller Pipelines (e.g., Gathering Lines) feed into a Trunk
Line.
TSA: abbreviation of Transition Services Agreement.
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Tubing: the inner lining of a Well, located inside the Casing, that is used
as a conduit for Hydrocarbons to come to the surface.
Turning to the Right: a colloquial term used to refer to the act of Drilling
a Well, derived from the fact that the Drill String and Drill Bit actually
rotate clockwise during drilling operations and proof that NASCAR
drivers would not make good drilling contractors.
Turnkey Contract / Turnkey Well: a type of construction contract (or in
the case of a Turnkey Well, a drilling contract) whereby the contractor
is paid a fixed sum to complete construction of a particular facility and
place it into service (or drill a Well to Completion) based on certain
specifications. When the contractor completes the facility or Well, and
meets all specifications in the contract, the facility or Well is then turned
back to the party that commissioned the services.
TVP: abbreviation of True Vapor Pressure.
Type Curve: a Production profile for a Play (based on a pre-plotted
solution to a flow equation) used to analyze pressure drawdown and
buildup tests related to such Play. A Type Curve is used to set a standard
of comparison for new Wells drilled in the applicable Type Curve Area.
Actual field data is plotted on the same coordinates as the Type Curve
to help determine the qualitative and quantitative properties of the
underlying Formation.
Type Curve Area: the geographical area that the Production profile for a
Type Curve is based upon.
Unassociated Gas: Natural Gas that is produced from a Well other than an
Oil Well (i.e., a Gas Well) or that is found in a non-oil bearing Formation.
In contrast, see Associated Gas.
Unconventional Drilling: drilling in Unconventional Resource Plays,
such as Shale. Unconventional Drilling typically includes Horizontal
Drilling and will often require Hydraulic Fracturing or other Stimulation
techniques in order to effectuate Production from the applicable Well, as
the Reserves in such Unconventional Resource Plays typically cannot be
economically developed with Conventional Drilling methods alone.
Unconventional Resource: reservoirs that are difficult to produce
with traditional techniques because of low Porosity and Permeability
characteristics, thus requiring an Enhanced Recovery method. Includes
Reservoirs composed of Bitumen, Shale, Coalbed Methane and Gas
Hydrates.
Under-Delivered: a term used to describe a Pipeline Imbalance at a
certain point on a Pipeline, typically a certain interconnection point, due
to the fact that the amount of Hydrocarbons delivered by a party to the
point by a particular time falls short of the amount of Hydrocarbons the
party has Nominated or allocated to the interconnection.
In contrast, see Over-Delivered.
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Underground Gas Storage: typically, a depleted cavern or subsurface
Formation where Natural Gas that has previously been extracted from
another Formation is reinjected and stored until a market is secured.
See also Storage Facility.
Under-Produced: a term used to describe a Well Imbalance due to the
fact that the amount of Hydrocarbons produced from an applicable Well
and allocated to a party falls short of the share of Production from the
Well to which the party is entitled.
In contrast, see Over-Produced.
Undeveloped Acreage: acreage that does not have any Oil Wells or Gas
Wells located thereon and that has not been otherwise developed through
oil and gas operations, for whatever reason, regardless of whether the
Acreage contains underlying Reserves.
Uniform Commercial Code Financing Statement / UCC Financing
Statement / UCC-1 / UCC-3: in connection with a lien, a statement filed
by a creditor with the appropriate Secretary of State of the jurisdiction
where the relevant property is located or the jurisdiction where the
debtor is domiciled in order to perfect such creditor’s security interest
in the debtor’s personal property or in the equity interests of the debtor,
respectively (i.e., the creditor becomes a secured party). Perfection of
an interest in oil and gas assets (whether such assets are tangible or
intangible or real or personal property) also requires a filing in the office
where a Mortgage on the real property concerned would be filed or
recorded.
A UCC-1 is used to perfect a new lien, and a UCC-3 is used to amend or
terminate an existing UCC Financing Statement.
Unit / Unitization: a large amount of Acreage joined together via contract
or statute in order to develop a single Reservoir in the most efficient and
cost effective manner.
Unit Operator: the Operator of a Unit. The Unit Operator is responsible
for all operations within the Unit and invoices the Non-Op Working
Interest owners for their proportionate share of the costs of operations.
The rights and obligations of the Unit Operator and Non-Operators are
typically set forth in an Operating Agreement for the Unit.
United States Geological Survey (USGS): a government agency
tasked with providing impartial scientific information for increased
understanding of the Earth’s energy, mineral and biological resources.
The USGS is a public information source, focusing its oil and gas
research efforts on the location, Quality and quantity of Hydrocarbons so
it can evaluate Reserve growth, Unconventional Resources and energy
economics in the United States.
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Unitization Agreement: an agreement among Working Interest and
Royalty owners to develop a Unit. A Unitization Agreement typically
allows for all owners to proportionately share in costs and Production for
Development operations within the Unit boundaries, regardless of the
Surface Hole Location, the Bottomhole Location or the location of the
Well’s Terminus.
Unless Lease: an Oil and Gas Lease under which the Lessee promises
to commence drilling operations by a specified date, and if the Lessee
does not commence drilling operations by the specified date, the Lease
automatically terminates, unless the Lessee pays Delay Rentals.
Both Unless Leases and Or Leases are designed to ensure the Lessor
a periodic return during the Primary Term in the event there is no
Production and to allow the Lessee to postpone drilling operations by
paying Delay Rentals.
The Unless Lease structure is common in Texas.
Unplugged Well: a Well that is no longer capable of producing oil and
gas but has not yet undergone P&A operations.
Unproved Reserves: a classification for Oil and Gas Properties that have
been evaluated based on geologic and/or engineering data that is similar
to the data used to determine Proved Reserves, but technical, economic
or regulatory uncertainties make it unfeasible to classify the Reserves as
Proved Reserves.
Unproved Reserves can be further classified into two different categories:
Probable Reserves and Possible Reserves.
Up Dip: in the context of structural geology, the portion of an Anticline
that rests above the Formation it cuts across. Hydrocarbons tend to
accumulate in Up Dips, making them an important indicator of the
presence of Hydrocarbons.
See also Dip and Down Dip.
Upstream: a colloquial term for one of the three major sectors of the
oil and gas industry, Upstream refers to the first phase, which involves
finding and Drilling for Hydrocarbons to extract Hydrocarbons from the
earth, also known as E&P operations. In contrast, see Midstream and
Downstream
USGS: acronym for United States Geological Survey.
Utica Shale: a Shale Formation located in the Mid-Atlantic / Northeastern
regions of the US, typically thought to be centered in West Virginia, Ohio,
Pennsylvania and New York. The Utica Shale underlies the Marcellus
Shale in many locations.
Vee-Door: an opening in the side of a Derrick that allows long Drill Pipes
and large tools to pass through easily.
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Venting: the controlled Release of gases into the atmosphere during oil
and gas operations.
See also Flaring.
Vertical Spacing: Vertical Spacing applies to Vertical Wells and dictates
a Wellbore location (minimum distance from other Lease lines) as well
as the number of Wells allowed in a geographic area. Although Vertical
Spacing varies greatly from state to state and Field to Field, typically it is
40 acres for an Oil Well and 640 acres for a Gas Well.
See also Rule 37 and Rule 38. In contrast, see Horizontal Spacing.
Vertical Well: a traditional Oil Well or Gas Well, drilled vertically from
the surface directly to the Target Formation.
In contrast, see Horizontal Well.
Viscosity: the measurement of a liquid’s ability to flow.
Volatile Oil: oil that contains a higher gas content and typically has a
higher Flow Rate than heavier Crude Oil types.
Volumetric Production Payment (VPP): a right to a fractional share of the
Hydrocarbons produced for a certain period of time or until a specified
amount of revenue (or volume of Production) is received, typically
conveyed as a term ORRI. VPPs are used as a means of financing oil
and gas operations and are intended to be classified as real property
interests, with the classification codified in the Bankruptcy Code. If
properly structured, a VPP (other than a VPP in which the Proceeds
therefrom are pledged for E&P purposes) will be treated as a financing
for US federal income tax purposes.
See also Production Payment.
Voting Provisions: in a JOA, the mechanisms which the Working Interest
owners use to vote on operational and development decisions.
VPP: abbreviation of Volumetric Production Payment.
Warranty Deed: a type of document used to legally transfer property
from a Grantor to a Grantee. A Warranty Deed usually includes a Legal
Description of the property, the named Grantor/Grantee and language
conveying the ownership from Grantor to Grantee. A Warranty Deed
also typically includes a Warranty of Title, either a Special Warranty or a
General Warranty.
Warranty of Title: a warranty which a Grantor gives to a Grantee regarding
a Conveyance of property, typically contained within a Warranty Deed
legally transferring the property. A Warranty of Title will typically include
a warranty that the Grantor has the right to transfer ownership of the
property and that the property is Conveyed free and clear of any other
claims, liens or other Encumbrances on title to the property (other than
any Permitted Encumbrances). The scope of a Warranty of Title can vary.
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Typically, a General Warranty provides the highest level of protection to
a Grantee, while a Special Warranty provides less protection. In contrast,
a property Conveyed under a Quitclaim Deed provides no warranties to
the Grantee.
Water Drive: a type of Reservoir Drive mechanism, where water naturally
located in the Reservoir is under enough natural pressure to push
Hydrocarbons into the Wellbore during the Primary Recovery phase
of a Well. As the Well is produced, the volume of Hydrocarbons in the
Reservoir will eventually become lower than the volume of water in the
Reservoir, and the Well will begin producing mostly water as a result. At
such time, a Secondary Recovery method or Workover operation will be
employed on the Well to increase Production.
Water Flooding: an EOR method whereby water is injected into the
ground through Injection Wells in order to drive oil up through the
various Wells Completed in such Reservoir Field-wide.
Water Rights Agreement: an agreement entered into between an owner
of water rights and a counterparty under which the counterparty obtains
the right to use a certain amount of water for its operations, subject to
certain terms and conditions. Water Rights Agreements are often used
in the context of Unconventional Resource Plays and in Hydraulic
Fracturing operations.
Water-Oil Ratio: in produced oil, the ratio of water to oil.
Weighting Up: the process of adding Drilling Mud to a Wellbore to
stabilize pressure and enhance Well Control.
Well: a hole drilled into the ground in order to bring Hydrocarbons to the
surface.
Well Casing: another term for Casing.
Well Control: while Drilling a Well, the efforts made to control Kicks and
prevent Blowouts.
Well Data: Information about a Well gathered during its Drilling and
Completion, such as Formation fluids (e.g., Crude Oil, Natural Gas or
water), Permeability characteristics and initial pressure.
Well Exhibit: an exhibit to an oil and gas industry agreement or
instrument that sets forth the Wells subject to the applicable agreement
of instrument. The Well Exhibit will describe the Wells in sufficient detail
so that the Wells can be identified and/or transferred, as applicable. A
Well Exhibit may include the Working Interest, Net Revenue Interest,
county and API Well Number.
Well Imbalances: a discrepancy between the amount of Hydrocarbons
produced from a Well and allocated to the Well’s various interest owners
and the shares of Production from the relevant Well to which each such
interest owner is entitled.
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Well Log: another term for Log.
Well Pad: the Surface Location from which several Horizontal Drilling or
slant drilling Wells are drilled. The use of Well Pads in Horizontal and
slant Drilling represents a significant advancement from conventional
vertical drilling where only a single Well could be drilled from a given
Surface Location, allowing for more efficient Production of Hydrocarbons.
Well Shoot: a colloquial term used to refer to a type of Wellbore seismic
operation designed to measure the seismic travel time from the surface
to a known depth.
In contrast, see Shoot a Well.
Well Spacing: another term for Spacing.
Wellbore: the actual hole drilled for a Well, together with its different
components, such as Casing and Tubing.
Wellbore Assignment: a Conveyance limited to the Wellbore of a Well
that only includes the rights in the underlying Leases insofar as is
necessary to produce Hydrocarbons from such Wellbore, rather than a
Conveyance of an undivided interest across an entire Lease.
Wellhead: the surface access point where the Casing and Tubing are
found for a Wellbore.
West Texas Intermediate (WTI): a particular trading classification of light
Sweet Crude Oil extracted from certain Reservoirs underlying Texas
that serves as a benchmark price for light Sweet Crude Oil in particular
and as a global benchmark price for Crude Oil in general. WTI is the
underlying commodity of all Crude Oil futures contracts traded on the
NYMEX.
The price of WTI is often referenced alongside the price of Brent Crude
(among others), although WTI is lighter and sweeter than Brent Crude.
Wet Gas: a colloquial term for Natural Gas that contains liquid or
condensable Hydrocarbons when produced. Wet Gas typically contains
Methane, Ethane, Butane, Pentane and Propane, among other types of
Hydrocarbons, which can be separated through Processing the Wet Gas
into NGLs and Dry Gas.
Wildcat / Wildcatter: a colloquial term for a person who drills Wildcat
Wells. The term originated in the late 1800s during the early days of
the oil industry when there was little technology available to explore
for Hydrocarbons and commonly speculators simply tried their luck at
Drilling in an unproven area. Like their namesake, Wildcatters are seen
in ever-decreasing numbers.
Wildcat Well: a Well drilled in an area with no established oil and gas
Production (i.e., an unproven area). Wildcat Wells are inherently riskier
than Drilling new wells in established Oil and Gas Fields because of the
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lack of Well Data and subsurface information available in a completely
undeveloped area.
Williston Basin: a Play located in North Dakota, South Dakota, Montana
and Southern Canada. Increased industry activity in the Williston Basin
has centered recently around the success of Production from the Bakken
Shale because of Horizontal Drilling.
Wiper Trip: a colloquial term for the process of recovery and replacement
of part of the Drill String in a Wellbore.
Wireline: a type of logging procedure in which a measuring device is
lowered into a Wellbore to gather Well information.
Woodford Shale: a Shale Formation located in Oklahoma. The Woodford
Shale experienced a large increase in Production in the late 2000s due to
the success of Horizontal Drilling and Hydraulic Fracturing.
Working Capital: a measure of a company’s short term liquidity, which is
determined by subtracting a company’s current liabilities from its current
assets. In the context of an equity sale PSA, the Working Capital of the
target entity is a metric often used to adjust the purchase price at Closing.
Working Interest (WI): a type of interest in an Oil and Gas Property
that obligates the holder thereof to bear and pay a portion of all of
the property’s maintenance, Development, and operational costs and
expenses, without giving effect to any Burdens applicable to the property.
Workover: operations conducted on a Well that has previously been
drilled to restore or increase Production from such Well.
Workover Rig: a Workover Rig is a Rig that is smaller in stature than a
Drilling Rig and only performs Workovers.
Write-Offs: a colloquial term for tax deductions in the oil and gas industry,
including Tangible Drilling Costs, IDCs and Depletion allowances.
WTI: abbreviation of West Texas Intermediate.
Zone: another term for Reservoir.
The terms Formation, Reservoir and Zone, on a highly technical level,
have slightly different meanings, but as a general matter, the terms are
often used interchangeably in the oil and gas industry.
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