Oil and Gas 103: Glossary of Terms

We are back for part three of our glossary of oil and gas terms. In part one and part two we highlighted commonly used words in the industry such as "Affidavit of Production" and "Non-Participating Royalty". Continue reading  part three as we focus on key terms related to Reserve-Based Lending.

1. 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.

2. Cubic Feet Equivalent (CFE): A metric used to convert volumes of different Hydrocarbons into a single, gaseous-based, volumetric measure for comparison purposes. 

3. Developed Acreage: A term generally used to describe those acres allocated to producing wells or wells capable of production. 

4. Division Order / Division of Interest: A contractual agreement setting out individual ownership percentages in the Hydrocarbons produced from a particular well.

5. Drilled and Uncompleted (DUC): A well that has been drilled but not yet completed for commercial reasons. 

6. Drillsite Tract: The tract containing the surface location from which a well is drilled.

7. 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. 

Read More: Oil and Gas Land Management Can Make or Break Your ROI

8. 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.

9. 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). 

10. 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. 

11. 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. 

12. 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. 

13. MMBTU: Abbreviation of one million British Thermal Units. 

14. MMCF: Abbreviation of large quantities of Natural Gas, meaning one million cubic feet. 

15. 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.

16. Operating Interest / Operating Rights Interest: Typically refers to the Working Interest an Operator holds under a JOA or other similar operating arrangement; however, in the context of a BLM 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.

17. 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. 

18. Producing 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.

19. 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. 

20. Proved Reserves: A Reserve 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. 

21. Proved Undeveloped Reserves (PUD): A classification for Proved Reserves that are expected to be recovered from new wells on undrilled acreage. 

22. PV-10: The SEC-reported value of particular 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%. 

23. Reserve Report: A report of a company’s estimated remaining quantities of oil and gas.

24. Unproved Reserves: A reserve 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.