Oil and Gas Royalties Glossary

View a list of commonly used oil & gas royalties terms and their definitions below:

Jump to:   A  |  B  |  C  |  D  |  G  |  H  |  J  |  L  |  M  |  N  |  O  |  P  |  Q  | R  |  S  |  U  |  W

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A

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

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

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

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

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

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B

BASIN:  A large bowl shaped depression in the subsurface under the land that has the potential to contain Oil & Gas.

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

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C

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

CLEAR TITLE:  A clear title is a chain of title without any kind of lien or levy from creditors or other third parties and poses no question as to legal ownership. In other words, you are the rightful owner and there are not any legal judgments tied to the minerals.

COMMODITY PRICES:  The price a mineral owner receives is commonly referred to as the wellhead price, which is net of transportation and other purchaser fees. Wellhead prices are generally calculated using an oil and gas posted pricing index as determined by third party purchasers less the expense to get it from the well to its sales market.

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D

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

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

DEPTH RIGHTS:  Depth Rights refer to the rights a mineral owner owns below the surface. If a mineral owner does not own all rights at all depths, or does not intend to sell all rights, seller needs to disclose what rights and depths are for sale. For example, a mineral owner may have sold all mineral rights from 10,000 feet to the surface. In this case the mineral owner still owns the mineral rights at depths greater than 10,000 feet.

DIVISION ORDERS:  A contract with a crude oil or natural gas purchaser directing the payments of oil and gas revenues to the working, royalty and mineral interest owners of a well.

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G

GENERAL MAPS:  Maps may include aerial photos of the acreage, interpreted seismic maps, oil and gas field or basin maps, well logs and other various visuals that aide the representation of an area of land.

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

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

GROSS MINERAL ACRES:  Gross mineral acres represent the total acreage in a given tract of land. If you own all of the minerals under a 100-acre tract of land your Gross Mineral Acres will be equal to your Net Mineral Acres.

GROSS WORKING INTEREST: See definition for Working Interest.

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H

HELD BY PRODUCTION:  A mineral lease provision that extends the right to operate a lease as long as the property is producing in paying quantities of oil & gas.

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J

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

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L

LAND BROKER:  An individual or company that acts as an agent for others, as in negotiating contracts, purchases, or sales in return for a fee or commission.

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

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

LEASE AGREEMENT:  The agreement outlining the basic terms and conditions for developing lands or minerals such as the royalty to be paid, the length of the term, and the description of the leased lands.

LEASE BONUS:  Cash consideration paid to a landowner or mineral owner following the execution of an Oil, Gas and Mineral Lease in addition to any rental or royalty obligations specified in the lease.

LEASE: See Oil, Gas and Mineral Lease.

LEGAL LOCATION:  Legal description is the geographical description of a property for the purpose of identifying the property for legal transactions. For example, In Texas you will need to anticipate needing some or all of the following: County, Abstract Number, Survey Name, Block Section/Survey No., or Alternate Name. In Oklahoma, and most other states you will need to anticipate needing the following: County, Section, Township and Range. Latitude and Longitude or tax parcel id’s are also helpful.

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

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

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M

MINERAL ACRES:  The full mineral interest as expressed in units of one acre of land

MINERAL DEED:  A signed, written legal document that shows the ownership of oil and gas mineral rights

MINERAL INTEREST:  The ownership of all rights to gas, oil, and other minerals at or below the surface of a tract of land.

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

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

MINERALS:  A mineral is an element or chemical compound that has been formed as a result of geological processes. Minerals as we refer to them on our website are crude oil and natural gas products.

MONTHLY CASH FLOW:  Monthly cash flow is the sum of all net revenue received on a monthly basis from the net minerals owned for the property to be listed, sold or leased. For all royalty listings, seller needs to initially show evidence of the most recent 6 months of net cashflow.

NEIGHBORING OFFSET PRODUCTION:  Neighboring offset production is any known producing oil or gas well in the immediate area surrounding the property (which is to be listed, sold or leased).

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N

NET MINERAL ACRES:  Net mineral acres represent the net acreage owned by mineral owner, of the total gross acres in a given tract of land. For example, if you own one half of the minerals under a 100-acre tract of land, you are said to own 50 net mineral acres out of 100 gross mineral acres.

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

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

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

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

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O

OFFSET DRILLING PERMITS:  An offset drilling permit is any request by an operator to drill a new oil or gas well in the immediate area surrounding the property (which is to be listed, sold or leased).

OFFSET OPERATOR:  An offset operator is any known operator of an oil or gas well in the immediate area surrounding the property (which is to be listed, sold or leased).

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

OIL, GAS & MINERAL LEASE: The agreement outlining the basic terms of developing lands or minerals such as royalty to be paid, length of time, description of lands.

OPERATING AGREEMENT: See definition for Joint Operating Agreement.

OPERATING EXPENSES: The costs of operating a well

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

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

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

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P

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

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

PLAT MAPS:  Plat map is a document drawn to scale, showing the divisions of tracts of land.

PRIMARY LEASE TERM:  The initial period in an Oil and Gas Lease to develop the property for the production of oil and gas. Often the initial period includes an optional extension period for additional bonus consideration.

PRODUCING WELL:  A producing oil and gas well is a well that is actively being produced as a flowing or pumped well to extract oil and gas from below the surface, which is then sold to an oil and gas purchaser.

PRODUCTION DECLINE RATES:  The production decline rate is a measure of how rapidly the production is declining from a well, field or group of fields. It is not to be confused with depletion rate, which is how rapidly the remaining recoverable reserves in a field or region are being produced.

PRODUCTION TYPE:  Each well is classified as either an oil or gas well. In most cases, the division order stub will indicate the type of interest. Additionally a royalty check will indicate the type of production sold.

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

PURCHASE AND SALE AGREEMENT:  This a form of Purchase and Sale Agreement used in a basic sale of Oil & Gas producing properties, for working, royalty or mineral interest.

PURCHASER:  The purchaser is the company authorized by the operator, under a purchase contract, to transport and market the oil or gas from a producing well. In most cases the purchaser pays the mineral owners for the sale of any oil or gas from a well.

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Q

QUALIFIED BUYER:  A Qualified Buyer represents personal income of not less than an annual income of $200,000.00 for any natural person in each of the two most recent years or joint income with the person’s spouse of less than $300,000.00 in each of those years and has a reasonable expectation of reaching the same income level in the current year. OR any natural person whose individual net worth or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000.00. OR Any Business entity, not formed for the specific purpose of acquiring the Property or Properties, with total assets in excess of $5,000,000.00, and that amount must be shown on its most recently prepared financial statements.

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R

RECORDER OF DEEDS:  The Recorder of Deeds is a designation of public officers who record documents that establish ownership of property, mortgages, and other instruments that relate to real property in official record books provided and maintained for such purpose.

RESERVES:  Reserves are the estimate of the amount of crude oil and natural gas located in a particular economic region, basin or field and that must have the potential of being extracted under current technological constraints.

REVENUE CHECK:  A Revenue Check is the check a royalty or mineral owner receives from the net production of an oil or gas well. The Revenue Check will have a Gross Dollar Amount, as well as a Net Dollar Amount, less Taxes (NET).

ROYALTY DEED: A deed conveying a royalty interest.

ROYALTY ESTATE: Pertaining to the royalty owners share.

ROYALTY INTEREST:  Mineral or Royalty owner’s share of production, net of production and transportation expenses, when and if oil and/or gas is produced on the property. Most often expressed in 1/8 units (or some fraction) of the production but can also be expressed as percentage of production.

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

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S

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

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

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

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

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

STATE PERMITS:  State Permits may be an application to drill, recomplete, re-enter or complete a well, filed by the operator. It could also include any other legal document filed with a state agency that lends itself to explain matters related to an oil and gas property for sale.

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

SURFACE RIGHTS:  Surface rights are rights owned by a land owner in a parcel of real estate that are limited only to the surface of the property and do not include ownership of the minerals below the surface. Mineral rights can be severed from surface property ownership.

SURFACE USE AGREEMENT:  A Surface Use Agreement is a legal document that defines notice, location and operational requirements regarding the potential impacts of oil and gas operations or mineral development on a surface owners property.

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U

UNIT:  Pooling is the consolidation and combining of leased land with adjoining leased tracts. The unitized area is called a pool or a unit. Pooling has the benefit to the operator of unitizing multi-landowners’ leases into a common pool, as per state approved regulations, combining one common underground geological reservoir’s limited drainage capability.

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

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W

WELLBORE DIRECTION or ORIENTATION:  Wells are either drilled vertically or horizontally.

WELLBORE ONLY:  Sometimes operators sell “wellbore only” interests wherein the assignment of minerals or interest is for the single well only, to include only that production and reserves, from the spacing unit of the single well that was assigned, and no other mineral or royalty interests beyond the single well spacing unit.

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

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