Oil and Gas Law

Study online at quizlet.com/_72mxe

1. 1. Barrels Abbreviated "bbl", one barrel is 42 U.S. gallons of oil at 60 degrees Fahrenheit. A barrel is the most common unit used
for measuring crude oil. Used as a measurement for reserves and the production of oil.
2. 2. British Abbreviated "BTU." Measurement of gas by heating content.
Thermal
Units
3. 3. Cubic Feet Abbreviated "cf." Measurement of gas by volume.

4. 4. MMBtu A million (1,000,000) BTUs.

5. 5. Mcf A thousand (1,000) cf; 1Mcf = 1 MMBTU.

6. 6. Upstream Describes the exploration and production phases of oil and gas - finding and producing oil and gas.

7. 7. Midstream Describes the refining, processing and marketing phases.

8. 8. Describes the retail and consumption phases.

Downstream
9. 9. Igneous Type of rock characterized as either extrusive or intrusive, depending on whether the rock solidified above ground or
below ground. Includes granite, basalt - rocks that form from molten lava.
10. 10. Type of rock formed through erosion and deposition. Wind, water, ice and chemicals break down existing rock into
Sedimentary sediment that is then transported and deposited by wind, water, and glaciers. Oil and gas are generally found in
sedimentary rocks. Includes shale, sandstone, and limestone.
11. 11. Any rock type that has been altered by heat, pressure, and/or the chemical action of fluids and gases. Includes slate and
Metamorphic marble.
12. 12. Porosity Refers to the relative volume of pore spaces in a rock formation.

13. 13. Refers to the relative interconnection of the pore spaces in a rock formation. It is a measurement of the ability of fluids to
Permeability flow through the rock. The higher the permeability, the better for oil and gas production. Permeability is usually
measured in "milidarcies."
14. 14. Spindletop A well at Spindletop struck oil on January 10, 1901. It represented a turning point for oil and gas that generated the
Texas oil boom, which made the U.S. the world's leading oil producer.
15. 15. Ferae "wild animal"; as applied to oil and gas, the basis of early legal theory which assumed that all fluid minerals flow freely
naturae below the surface.
16. 16. Ad coelom The property owner owns everything above and beneath his land (heaven and hell).
rule aka the
Heaven and
Hell Doctrine
17. 18. Rule of Common law rule of non-liability which says that there is no liability for draining oil and gas beneath a neighbor's
Capture land. The owner of a tract of land owns all the oil and gas produced from a well on his land even if it is shown that
some of that oil or gas is being drained from under his neighbor's land. Qualifies the ad coelom rule. Recognized the
migratory nature of oil and gas and encourages exploration.
18. 19. Correlative An owner of oil and gas has the right to a fair opportunity to produce a fair share of the oil and gas in a common
Rights reservoir which underlies his and his neighbor's property. All owners of property overlying the common reservoir have
the right to reduce the minerals in that reservoir to possession and each has the right to a fair chance to recover his fair
share of the minerals in the common reservoir. Each owner also has a corresponding duty not to engage in activity
which would injure the common reservoir such as drilling too many wells or overproducing.
19. 20. Plugging A depleted well or dry hole that has been (typically) filled with cement and marked, with all surface equipment removed.
and State regulations require that, after a well is no longer operational, the operator must seal the drilled hole completely.
Abandonment Many states also require that the operator post a bond in order to ensure that the well will be properly plugged and
abandoned.
20. 21. Casing Steel pipe installed in the drilled hole for various purposes

21. 22. of a well; end of the drilling process, down the target depth / transition from drilling to production (by installing
Completion producing equipment).
22. 23. Dual A well drilled to access formations/reservoirs at two different depths
completion
23. 24. Multiple A well drilled to access formations/reservoirs at multiple depths
completion
24. 25. Allowable The maximum rate at which a well is allowed to produce (on a daily, weekly, monthly timetable, varying from one
jurisdiction or field to another). Established by a state conservation agency.
25. 26. Pooling A term used to denominate the bringing together of small tracts sufficient for the granting of a well permit under
applicable spacing rules. Frequently used interchangeably with "unitization."
26. 27. Wildcat Well An exploratory well being drilled in unproven territory - that is where there is no production in the general area.
Generally operated by small groups and companies and regarded as something of a gamble (mainly because the
operations are not supported by seismic or geological data).
27. 28. Unitization The joint operation of all or some portion of a producing reservoir. Frequently used interchangeably with "pooling."
The combining together of several producing leases and/or several wells over a pool of oil or gas to form one large
"unit" (i.e. a joint operation of all or some of a reservoir that is already producing). Usually done to comply with state
requirements and for secondary recovery efforts.
28. 29. Injection A well employed for the introduction into an underground stratum of water or gas under pressure. A substance is
Wells injected into the well to "push" previously unrecoverable quantities of oil and gas out of the other (recovery) wells in
the unit.
29. 30. Recovery Wells from which the "pushed" production resulting from the use of injection wells is removed from the field.
Wells
30. 31. Requires the mineral interest owner and his lessee to accommodate existing surface uses where reasonable
Accommodation alternatives are available for developing the mineral estate. Under the accommodation doctrine, if the proposed use of
Doctrine the surface by the mineral owner will substantially impair existing surface uses and the mineral owner has
reasonable alternatives available, the mineral owner must accommodate the surface owner.
31. 32. Delay Rental A sum of money payable to the lessor by the lessee for the privilege of deferring the commencement of drilling
Payment operations or the commencement of production during the primary term of the lease. The rule governing holding a
lease by payment of delay rentals is simple. If Lessee is a day late or a dollar short in making payment, the lease
terminates.
32. 33. Paid-Up A lease in which the delay rental is paid along with any bonuses at the time the lease is signed. The advantage for the
Lease Lessee is that they don't have to worry about missing the deadline and losing the lease if production (by whatever
definition the lease provides as "production) has not commenced before the end of the primary term. The
disadvantage for a Lessee is that they may be paying more for a lease than is needed if the area is found to be not
worth undertaking operations.
33. 34. Mineral The mineral interest of an individual or group expressed as the proportion of the total acreage that they hold (e.g. A
Acres owns a mineral interest in 40 acres, and therefore owns 20 mineral acres [1/2 X 40 = 20]).
34. 35. Actual Majority rule for "production in paying quantities" (as opposed to "potential production" satisfying the paying
Production quantities); rule in Texas. Paying quantities is determined under a two-pronged test developed by the courts.
35. 36. Dominant When there is a severance of the mineral and the surface estates, the mineral estate is the so-called dominant estate.
Estate Rule Meaning, the surface estate is burdened with a servitude. The mineral owner (or his Lessee) has a right of ingress
and egress as well as a right to use as much of the surface as is reasonably necessary to explore for and produce
minerals. Because the mineral estate is dominant, the Lessee is not obligated to pay for using the surface, nor is he
obligated to maintain or restore the surface in the absence of a statute or lease provisions requiring such restoration.
36. 37. Granting The granting clause gives the Lessee the right to reasonable use of the surface for purposes of developing the
Clause minerals. It also gives the Lessee the right to explore for minerals, including drilling a well, seismic, geophysical and
other activities related to exploration. The granting clause also indicates what substances are covered by the lease, as
well as describing the property under the lease.
37. 38. Habendum Also called the Term Clause, it fixes the ultimate duration of the lease - the longest possible time the lease may last.
Clause Works with the drilling and delay rental clauses to create a timeline which divides the term of the lease into two
segments: primary term (fixed number of years) and secondary term (as long as oil and gas is produced from the
lease).
38. 39. Pugh A negotiated compromise, often agreed to between the Lessee who wants a pooling clause in the lease and the Lessor
Clause who does not. The pugh clause modifies the pooling clause. It provides that operations or production from the pooled
unit will not preserve the whole lease. Rather, such operations or production will only preserve that portion of the lease
which covers land in the pooled unit. A pugh clause, in effect, severs the unpooled acreage from the pooled acreage
39. 40. Non- A percentage share of production, or the value derived from production, which is free of the costs of drilling and
participating producing, created by the lessor or royalty owner and borne by the lessor or royalty owner out of the lessor royalty. This
Royalty royalty is paid to nonparticipating interest holders who do not share or participate in bonus or rentals, or a right to
explore, or a right to execute oil and gas leases.
40. 41. Net "Net," when used with respect to acres or wells, refers to gross acres of wells multiplied, in each case, by the percentage
Mineral working interest owned by a company, individual, trust, or foundation.
Acres
41. 42. Royalty oil companies saying that they cannot separate out the molecules of gas to individual lands, so they take the weighted (by
Pooling the proportion of the total gas sold at the specific price) average of the various prices that they are selling the products for,
so that each mineral owner covered in the unit/pool receive the same per-unit price for the hydrocarbons.
42. 43. Non- Ownership in a share of production, paid to an owner who does not share in the right to explore or develop a lease, or
Participating receive bonus or rental payments. It is free of the cost of production, and is deducted from the royalty interest. A NPRI can
Royalty be perpetual or it can be limited in time. It is carved out of the Lessor's interest. Since the NPRI does not relate to a
Interest particular lease, it does not end when the lease ends.
43. 44. Provided by the oil and gas lease royalty clause. Typically 1/8 to 1/3, and also typically providing for separate provisions
Landowner's for oil and gas (with oil paid in kind by delivery to the lessor, and gas paid by monetary compensation for value) due to
Royalty the physical differences in the substances. An interest customarily retained under an oil and gas lease by the person who
has the power to grant an oil and gas lease and which bears no part of the cost of drilling or producing the oil and
natural gas. It is an interest in production free of production costs retained by the lessor.
44. 45. A reservation in percentage of production royalty kept by a Lessee (or subsequent Assignee if they assign the lease). A
Overriding royalty interest that may be retained by a third party as payment or investment.This interest normally bears no part of the
Royalty drilling and completion expenses of the well
45. 46. Non- A reservation by a prior landowner of royalties on any oil and gas later discovered; the non-participating royalty does not
Participating give the holder any rights to sign a lease or collect a bonus, simply to receive a portion of the production (limited by the
Royalty terms negotiated by the lessor and the fraction reserved).
46. 47. A share of production, free of cost of production, that terminates when an agreed sum has been paid. Like royalty, an
Production expense-free interest paid out of a specific fraction of the production; however, unlike royalty, the production payment
Payment terminates when a specified total sum has been paid.
47. 48. A clause in some oil and gas leases (usually required by Lessors) that provides for a minimum royalty amount (that must
Minimum at least equal the delay rental) in order for production to hold the lease. It is an obligation of a lessee to periodically pay
Royalty the lessor a fixed sum of money after production occurs, regardless of the amount of production. Such minimum royalty
may or may not be chargeable against the royalty ownership of future production. If the total royalty payments amount to
less than the yearly rental, the minimum royalty payments make up the difference.
48. 49. Net A share of net proceeds from production paid solely from the working interest owners share. It is sometimes granted in
Profits lieu of a royalty interest.
Interest
49. 50. Carried An interest created from an oil and gas lease that is free of some or all of the costs. The term "carried interest" has no
Interest fixed meaning, but varies in accordance with the terms of the agreement involved. In the case of a party "who goes
nonconsent," the term means that the nonconsenting party "will receive none of the proceeds of the production until the
parties who put up the money to 'carry' his interest receive some multiple of the costs thy have expended with respect to
the carried interest." If a party is carried "to the casing point," it is free of the costs of drilling and testing, but is liable for
its share of the costs of completing, equipping, and producing. A party who is carried "to the tanks or pipeline" will be
free of the equipment and completion costs, and liable only for the costs of operation.
50. 51. Partition In Texas, a co-tenant has an absolute right to partition property, regardless of any inequities caused by the partition to
other co-tenants. Partition is a judicial proceeding and partitions can be granted either in kind (divide the property) or by
forced sale (order the property sold and divide the proceeds). This right of partition generally does not extend to non-
possessory interests such as royalties.
51. 52. Open Mine Doctrine Under this doctrine, where the mine was opened prior to creation of the life estate, the Life Tenant is
entitled to all production from the mine, as long as the prior lease remains in effect. In oil and gas
executing the lease is opening the mine. It is not required that first production predate creation of the
life estate. If the lease was executed prior to the creation of the life estate, the Life Tenant is entitled
to all the economic benefits under the lease. However, if a lease in force when the life estate was
created expires, the open mine doctrine does not apply to a new lease or an extension of the existing
lease.
52. 53. Executive Right The right to take or authorize all actions which affect the exploration and development of the
mineral estate, including the right to engage in or authorize geophysical exploration, drilling or
mining, and producing oil, gas, and other minerals. Courts generally don't use this broadest
definition, instead simply equating 'executive right' with the right to execute an oil and gas lease.
53. 54. Nonparticipating Mineral This type of interest differs from a royalty in that its owner is entitled to one-half of all benefits
Interest allocable to the mineral estate under an oil and gas lease, including the bonus and delay rentals. The
right to execute the lease itself, however, is held entirely by the grantor. Where the owner of
Blackacre may convey away an undivided one-half interest in the minerals, retaining the other one-
half interest plus the exclusive executive right, the grantee in such a transaction has received a
nonparticipating mineral interest.
54. 55. Washouts A "washout" is the elimination of an overriding royalty or other share of the working interest by the
surrender of a lease by a sublessee or assignee and subsequent reacquisition of a lease on the same
land free of such interest. An "extension and renewal clause" is a clause included in an instrument
which creates an overriding royalty or oil payment out of the working interest, to protect against a
washout; in effect, the clause provides that the interest shall apply and be a part of all future
renewals or extensions of the lease.
55. 56. Payout (farmout The point in time under the performance of the farmout agreement when the farmee no longer
agreement) recovers all costs of operation out of production. Generally, it is when the well has become profitable,
though this is open to interpretation given the different variables and costs that may be involved with
drilling operations (and the ability that the farmee may have under the terms of the agreement to drill
additional wells and continue expanding operations such that the 'payout' point is delayed).
56. 57. Exculpatory Clause Clause relieving the operator from certain liabilities (depending on the interpretation of the
particular court) relating to production operations. Depending on the jurisdiction and the specific
terms of the clause, the operator can be relieved of liability from anything from negligence in the
course of operations to violations of the other terms of the JOA.
57. 58. Go Non-consent Most JOA agreements include a "nonconsent" provision that any party can invoke with respect to all
operations other than those connected with the initial well. The parties who agree to undertake
additional operations must bear the entire cost of the operation. Depending upon the terms of the
agreement, the party who refuses his consent to such operations may lose all interest in the new or
deeper portion of the well. More commonly, however, the nonconsenting party acquires a carried
interest in the operation, but is not entitled to any share of the production from the well until the
operator and other consenting parties have recouped the nonconsenting party's share of the cost
several times over from the non-consenting party's share of the production.
58. 59. Split stream One cause of imbalance among the producers in a JOA; the producers and/or their purchasers draw
the minerals from the same stream from the well, but at an inconsistent or constantly changing rate
and amount.
59. a. "Surface Casing" casing installed from the surface to below the deepest known fresh or potable water supply; installed
to prevent contamination of the water supply and to prevent the hole from caving in.
60. b. "Flow casing installed to facilitate production and control reservoir pressure
String"/"Tubing"/"Production
Casing"
61. Litmus test, The party urging Accounting or litmus test - Do operating revenues exceed operating costs over a reasonable period of
that the lease terminate, time? Legal or Reasonably Prudent Operator Test - Would a reasonably prudent operator, seeking to
usually the Lessor, must win make a profit and not holding for mere speculation, continue to operate under the circumstances?
both prongs of the test
62. Or clause no automatic termination, but counts as a breach with compensable damages
(delay
rental)
63. Split 1.Nothing says that gas only goes to one company or buyer, you can have as many as you want all connecting to the well.
stream Everyone decides which deal is best for them, can go in different directions. 2.Different pipelines operate under different
conditions conditions, different pipelines, different pressures. Gas doesn't know which direction it should go in. Almost impossible to
get the gas with certainty and exact amounts to go where you want it to go.
64. Unless automatic termination of lease
clause
(delay
rental)