Oil and Gas 101: Glossary of Terms

As veterans in the oil and gas industry, we know that learning the terminology is vital to navigating lease acquisitions and interpreting title research. Whether you are a newcomer or well-versed in the business, there is never a shortage of learning opportunities. At Cinco, we enjoy providing community and client education on the varied dimensions of land and title work.  We’ve compiled a selection of terms and brief definitions to conveniently help you refresh your knowledge.

1. Affidavit of Production: Oil and gas leases require production to perpetuate the lease past the first primary term. This is a common document from (usually) the landowner that such production has occurred, and that the lease is most likely still in effect as of the date of the document.

2. Back-in Provision: A provision in an agreement which states that a specified retained non-operating interest (generally an overriding royalty interest) of the grantor may be converted upon certain circumstances into a specified undivided operating interest (generally a working interest).

3. Bonus Payment: The cash payment paid by a lessee to the lessor upon execution of an oil and gas lease, this payment pays for the right NOT immediately to develop the lease during the primary term.

4. Carved Out Interest: An interest (e.g., an overriding royalty interest) conveyed by the owner of the higher interest.

5. Communization: A synonym for pooling, involving federal or state leases.

6. Continuous Drilling Clause: A lease clause that provides the lease will be perpetuated so long as drilling operations for oil and gas continue on the premises, in a manner as described by the lease.

7. Delay Rental: An amount paid (usually annually) for the privilege of deferring development of the property during the primary term, which could have been avoided by the abandonment of the lease or by the commencement of development operations, or by obtaining production. This is usually mutually exclusive to a Bonus Payment, which is a lump sum one-time payment of the Delay Rental for the entirety of the primary term.

8. Division Order: A document given to the landowner that sets out the distribution of the sale of oil and gas produced.

9. Encumbrance: A burden or other obligation on an interest. Royalties and overriding royalties are encumbrances.

10. Gross Acres: The total acres contained in the land described in the lease or other conveyance.

11. Intestate Succession: If there is no will or no will accepted by the court, the estate will pass by the laws of descent and distribution of the state in which the property is located.

12. Net Acre: The gross acres multiplied by the mineral interest.

13. Net Revenue Interest: The owner of the net revenue interest has exclusive right to the recoupment of produced mineral for the amount of net revenue interest he owns. (40% net revenue interest entitles the owner to 40% of the production)

14. Non-Participating Royalty: An expense free interest in oil and gas, if and when produced. The interest does not share or participate in a bonus or rental payments, nor in the right to execute leases.

15. Spacing: State regulations that specify the density of drilling (e.g. 40 acres for oil and 320 acres for gas) and the legal locations (e.g. no closer than 320 feet from the closest least line). Spacing is based on the area believed to be effectively drained by one well.

16. Stipulation of Interest: An instrument often used by joint owners of an oil and gas interest to contractually set out the interest of each, usually applied when a title is in doubt.

17. Tenancy In Common: Ownership of real property by two or more people who each own an undivided interest in the entire property.

18. Title Abstract: A collection of all recorded documents that affect the title to a particular tract of land. Landmen research, collect and organize the documents in chronological order. Title attorneys use abstracts as the basis for drafting a title opinion.

Read More: Advantages of Working with a Land Management Company Like Cinco Energy

19. Undivided Interest: Two or more parties owning fractional interests in a tract.

20. Working Interest: The operating interest under an oil and gas lease. The owner of the working interest has the exclusive right to exploit the minerals on the land. This is only the right to expend money, NOT the right to recoup revenues.

Now that you’re up to speed, don’t forget to bookmark this page to revisit if you need to. If you are looking for further details or help with a specific project, contact us today.