Oil and Gas Terms

Oil and Gas Terms

Question Answer
Bonus The amount per acre the mineral owner is paid for leasing materials
Delay Rantal A type of lease payment that is paid on or before the anniversary date of the lease's effective date
Division Order A document that sets forth what the purchaser of the production will pay a mineral owner and/or a working interest owner for their proportionate share of production from an oil or gas well
Effective Date The date the oil and gas lease is in effect
Gross Mineral Acres The overall number of acres covering a tract of land
Net Mineral Acres The number of acres a mineral owner owns under the gross number of acres in a tract.
Net Revenue Interest A percentage share of production after all burdens, royalties, expenses, and overriding royalties have been deducted from the gross revenue of a well
Paid Up Lease Includes all annual delayed rentals in the lease bonus.
Primary Term the original time frame of the lease
Leased Premises The land under which the minerals described in the legal description of the lease exists
Royalty The amount of revenue paid to the mineral owner, which is generally not subject to any expenses or charges
Top Lease Lease that is placed 'on top' of an existing lease that is getting ready to expire
Option To Extend A provision that allows the lease to be extended beyond the Primary Term such as a 'continuous drilling clause'
Option To Renew A provision that allows the Lessee the option to pay a predetermined amount to extend the primary term of the lease for a certain amount of years
Overriding Royalty A fractional, undivided interest in the proceeds from the sale of oil or gas that is limited in duration to the terms of an existing lease and generally not subject to any expense of drilling, maintenance, and/or operation
Non-participating Royalty Interest in the gross production of oil or gas generated from the mineral fee estate, which does not carry with it the right to participate in the execution of the oil and gas lease. Mineral fee owner does not have 'executive right'
Pugh Clause Unless an operator is continuing to develop a property pursuant to the terms of the lease, portions of the lease not currently lying within a producing unit will expire; horizontal and vertical
Mother Hubbard Clause Designed to protect the lessee against errors in the legal description of the property by providing that the lease covers all of the land owned by the lessor in the area where the minerals are located
Shut-in Royalty Designed to take care of the situation in which the only well on the lease is drilled and completed as a gas well, but there is no immediate market for the gas due to the fact that no gas pipelines have yet been constructed in the area
Royalty Burden The amount of royalty taken out of the gross production of an oil or gas well payable to the mineral owner`
Working Interest A percentage of ownership in an oil and gas lease that is obligated to pay a corresponding percentage of the cost of leasing, drilling, producing and operating a well
Preferential Right 'first right of refusal'
Gross Proceeds This clause provides the lessor a way to receive revenue without any deductions associated with the processing or treatment of the production from an oil or gas well
Net Proceeds The amount of money received by the working interest owner from sale of production, after subtracting all operational costs
Saving Clauses Clauses in an oil and gas lease which allow the lessee to conduct certain operations that will extend the life and validity of the lease beyond its primary term
Force Majeure 'saving clause' in an oil and gas lease and is designed to protect the parties in the event that a segment of the contract cannot be performed due to causes that could not be evaded; Act of God
Continuous Development Clause If primary term has expired, working interest owners are given a time frame in which wells must be drilled in order to keep the lease alive
Continuous Operations Lessee should have a reasonable amount of time to fully develop the leased premises
Executive Rights Can be separated; mineral owner that the executive right to lease
Favored Nations Ensures that the lessor receives the highest lease bonus, and in some cases the highest royalty, that has been paid in a defined area around their lease for a certain period of time
Indemnification Lessee agrees to indemnify lessor against all claims, suits, costs, losses, and expenses that may result from operations conducted on the leased premises by the lessee
Pooling Clause Empowers the lessee to combine all or parts of separate leases with the oil and gas lease to make a single one-well unit
Unitization Clause Authorizes the lessee to commit all or part of the lease to what is commonly called a "water-flood unit" created for the purpose of secondary recovery or similar operations.
Habendum Clause Specifies the duration of lessee's rights; can be modified by other lease provisions, such as Cessation of Production/Continuous Drilling.
Purchaser/Gatherer Third party who buys the minerals and sometimes is responsible for distributing the revenue proceeds to all the interest owners.
Warranty Deed Grantor promises that they own full rights to what they are conveying, and if they don't then the grantor is responsible
Special Warranty Deed No fault on my own but can't guarantee before my ownership
Quitclaim Deed Grantee receives only what the grantor might own. No liability on grantor
Mineral Deed Conveys only a mineral interest and no surface rights. The language "in, on, and under" will always convey the minerals
Royalty Deed Conveys the royalty associated with the mineral interest. Language states "produced and saved from.."
Term Mineral Deed Conveyance of a mineral interest for a specific period of time as long as gas and oil is produced
Assignment of Leases Assignor is conveying all ownership held in the leases
Assignment of Interest in Leases Assignor is conveying a particular interest owned in a lease, not all ownership. An ORRI is an ownership interest in a lease
Wellbore Assignments Assignment of a lease in a particular group of wells or an exemption of certain wells
Overriding Royalty Interest (ORRI) Usually paid to parties who put together deals or sell leases, and does not have to share in the cost of production or development
Farmout Farmor (owner of lease) agrees to assign to another (farmee) an interest in a lease in return for drilling and testing operations on a lease
Joint Operating Agreement (JOA) Agreement between owners of the Working Interest who wish to jointly develop property
Payouts When the costs of drilling a well and operating lease are recouped by the Working Interest owners
Compensatory Royalty If anyone drills within ___ yards of lessors land, lessee must drill immediately or pay compensatory royalty

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