oil & gas glossary terms & · pdf fileoil & gas glossary terms & definitions...

Oil & Gas Glossary Terms & Definitions There are numerous terms of general use in the Oil and Gas Industry that have special meanings. Many of these are defined below for your reference.

A Abandoned Well - A well not in use because it was a dry hole originally, or because it has ceased to produce. Statutes and regulations in many states require the plugging of abandoned wells to prevent the seepage of oil, gas, or water from one stratum of underlying rock to another.

Abandonment - The termination of deliveries under a sales contract which is certified under the Natural Gas Policy Act.

Abandonment Period - The period of time prescribed by each jurisdiction after which a particular type of unclaimed property (unclaimed wages, mineral proceeds, etc.) is presumed abandoned or unclaimed by the particular jurisdiction. The abandonment period generally commences from the date the property was payable or distributable.

Abstract of Title - A chronological history of the ownership or important 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.

Accredited Petroleum Accountant (A.P.A) - A designation developed by the Council of Petroleum Accountants Societies (COPAS) to provide an independent source of recognition of achievement for petroleum industry accountants. To earn the A.P.A. designation, a candidate must meet the eligibility requirements as specified by the COPAS Board of Examiners, complete the required course of study and successfully pass the examinations for all eight sections (Operations, Law, Financial Reporting, Revenue, Joint Interest, Managerial, Tax, and Audit) of the program.

Acidizing - A procedure in which acid (hydrochloric acid usually) is pumped into a reservoir to dissolve calcite so that increased flow from the reservoir will occur.

Acknowledgment (Of Documents) - A sworn, notarized statement wherein a person swears that he signed "for the purpose and consideration therein expressed, and in the capacity therein stated." An acknowledgment is a reinforcing statement in which the signer declares that he accepts the terms of the instrument. Acknowledgment is required for legal validity of some documents; on others it is optional.

Acre - A measure of land 43,560 square feet. The primary measurement of land on oil and gas leases.

Acre-Foot - A volume of reservoir rock which is one acre in area and one foot thick.

Ad Valorem Tax - A property tax imposed by various states on recoverable reserves and well equipment.

Administrative Costs - Those costs associated with managing the affairs of another or providing services to another.

Administrator - A person appointed by the court to settle the estate of a person who died without a will. An administrator is not required for every estate, but is necessary if the estate has unpaid debts or taxes or is very large.

Administrator with the Will Annexed - An individual or a trust institution appointed by a court to settle the estate of a deceased person in accordance with the terms of his/her will when no executor has been named in the will or when the one named has failed to qualify.

Advance Royalty - A royalty payment made to the owner of the land or lessor before actual production from the land begins and based on an agreed price. When production

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occurs, actual payments due on the royalty may be credited against this advance royalty payment. Now only commonly found in coal and lignite leases.

AFE - See Authority for Expenditure.

Affidavit - An instrument wherein an individual swears to certain facts; i.e.: marital affidavit, possession affidavit, heirship, and other ownership factors affecting a piece of property. An affidavit does not transfer anything and could be similar to giving a testimony in a courtroom.

Affidavit of Heirship - A sworn statement providing genealogical information that may be used in support of facts but is not, standing alone, legally admissible as evidence. It is used when someone dies without a will and the estate is rather small. An Affidavit of Heirship, made preferably by two disinterested persons acquainted with the decedent, may provide facts about marital history, children's names and ages, payment of debts and taxes, and other estate facts. Frequently, these are required by attorneys when there is some question as to the heirs of a property.

Affidavit of Identity - An affidavit which identifies an individual known by different names as one and the same person. Example: "J. Doe, John Doe, J.B. Doe, John B. Doe, also known as John Baker Doe, are one and the same person who executed that certain oil and gas lease, dated..."

Affidavit of Non-Compliance - An affidavit filed by an owner of land attesting to the failure by a lessee to comply with the provisions of a lease, and the resulting forfeiture of the lease. Used primarily when a lessee has failed to execute and record a release of the lease.

Affidavit of Non-Development - An affidavit stating facts in support of an assertion that an unreleased lease of record has terminated by reason of non-development. This affidavit often contains an additional recitation regarding non-payment of rentals.

Affidavit of Possession - An affidavit given by a knowledgeable person on the use and possession of land for the purpose of establishing possession in the record title owner. Usually prepared and submitted as fulfillment of a title opinion requirement, a Possession Affidavit addresses questions such as who has lived on the property, who has exercised ownership over it, and the incidents of ownership, (i.e., payment of taxes, fences, improvements, growing of crops, etc.)

Agency Clause - (1)Clause in an oil and gas lease which provides for an agent to be named once an interest is assigned to six or more persons; (2) Provision stating that assignment by heirs cannot enlarge a lessee's obligations/or that no change of division of royalties "shall operate to enlarge the obligation or diminish the rights of the lessee."

Agent - A person who acts for another person by the latter's authority. The distinguishing characteristics of an agent are that the agent acts on behalf and subject to the control of the principal, does not have title to the property of the principal, and owes the duty of obedience to the principal's orders.

Aggregate Pay - See Minimum Pay

Aggregate Value - The value under which items of unclaimed property may be reported in total by a holder without reference to a description of the particular owner of their property. As many jurisdictions are not required by law to advertise for unclaimed owners having unclaimed property below a certain aggregate value, such jurisdictions, in turn, do not require the holder to report the owner to them on an individual basis. Some jurisdictions may not require very small amounts of unclaimed property to be reported.

Allocation - Distribution of production from a number of wells in a particular field. Each well is adjusted to produce at its most efficient rate after the total production from the field is determined.

Allocation-Sales - The process by which supply is assigned to purchasers in accordance with a given priority during periods when total sales requests exceed the



seller's total supply.

Allowable - A limit of production placed on a well by state authorities during a given period.

Ancillary Proceedings - Supplemental probate proceedings filed in the estate where the property is located when the person's estate is actually settled in another state.

Anniversary Date - The date, usually one year from the effective date of the lease, by which rentals must be paid to maintain the lease in effect in the absence of drilling or production.

Apparent Owner - The person who, from the books and records of the holder, apparently is entitled to unclaimed property held, issued, or owing by a holder.

API - American Petroleum Institute. A petroleum industry association that is responsible for setting standards for oil field equipment and oil field operations.

API Gravity - A system of classifying crude oil based on its specific gravity, whereby the greater the gravity, the lighter the oil. Specifically:

141.5 Degrees API Gravity = ---------------------------- -131.5

Specific Gravity APO - After payout; a point during the production of an oil or gas well defined by terms of revenue received as set out by contracts and agreements between working interest owners.

Arpent - French unit of measurement, equal to 191.833 feet.

Assignee - The person receiving the assignment.

Assignment - An instrument whereby one party sells or transfers an interest or property to another.

Assignor - The person making or giving the assignment.

Associated Gas - Natural gas naturally occurring in a reservoir with oil. The "associated gas" is in a gas cap or dissolved in the oil.

Attestation - An affirmation or authentication. Wills in Texas can be attested by two or more credible witnesses over he age of fourteen signing their names on the will in the presence of the testator. Corporate attestation is the signing of a document by the officers or others approved by the corporation's board of directors. Corporate attestation may also mean affixing the corporate seal, which is generally performed by the corporate secretary.

Attorney in Fact - The party to whom a power of attorney is granted and who then performs a service or executes an order on behalf of the principal. See Power Of Attorney.

Authority for Expenditure - Commonly called AFE. The estimated costs for drilling and completing a proposed well. It is prepared by a lease operator and sent to each nonoperator with a working interest for approval before work is undertaken. Normally used in connection with well-drilling operations. B Balancing Agreement - A contractual agreement between two or more legal entities to account for differences between measured quantities and the total confirmed nominations at a point. They have been used to keep track of over/under production relative to entitlement between producers and over/under deliveries relative to confirmed nominations between operators of wells, pipelines, and LDCs.

42 U.S. Gallons at 60"F. A net barrel refers to a quantity of oil net of the BS&W content.



Basement - Non-sedimentary rock in which oil is unlikely found and which lies under layers of sedimentary rock.

Basic Lease Provisions - The basic parts of a lease which identify:

• Effective Date • Parties to the Lease (Lessor and Lessee) • Specified Term • Delay Rental or Paid-up provision • Royalty Amount for the Lessor

Basic Sediment and Water (BS&W) - Impurities present in oil as it comes from the well. These impurities include emulsified water, suspended particles from the reservoir formation, etc.

Basin - A large natural depression on the earth's surface in which sediments generally brought by water accumulate.

Beneficiary - One for whose benefit a trust is created.

Bequest - A gift made by a person's will of real or personal property.

Blowout - An uncontrolled flow of oil, gas, water or mud from a wellbore caused when drilling activity penetrates a rock layer with natural pressures greater than the drilling mud in the borehole.

Bonus - The cash consideration paid by a lessee to the owner of the leasing rights, usually upon execution of an oil and gas lease. May take other forms than cash, and some lessors, for tax reasons, may request partial payments the following year(s).

Borehole - The hole created in the earth when a well is drilled or bored.

Bottom-Hole - The deepest part of the borehole.

Bottom-Hole Pressure - The internal well pressure that is measured by an instrument lowered into the borehole.

British Thermal Unit (Btu) - A measure of the heat value of a fuel. One Btu is the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit.

Broker - One who acquires leases and does certain title work for an oil and gas company. A broker is generally acting on behalf of the company and is not an employee. Sometimes interchanged with landman.

BS&W - See Basic Sediment & Water.

Business Association - A corporation, joint-stock company, business trust, partnership, or association for business purposes of two or more individuals. C Carbon Dioxide - A colorless, odorless, gaseous compound of carbon and oxygen that is a product of combustion.

Carried Interest - An agreement between two or more working interests whereby one party (carried party) does not share in lease revenue until a certain amount of money has been recovered by the other party (carrying party). The carrying party pays costs applicable to the carried party's interests in the property and is reimbursed out of the revenue applicable to the carried party's interest.

Carved Out Interest - An interest such as an oil payment or overriding royalty conveyed by the owner of a greater interest. Example: The grant of an overriding royalty out of working interest.

Cash Consideration - The cash money paid in return for a promise or an act such as the execution of an oil and gas lease, also called "bonus."



Casing - Large steel pipe that is placed in the borehole to prevent it from collapsing and to prohibit the flow of drilling fluids into the borehole. Casing pipe is usually 30 feet long and sections are cemented in place by pumping cement into the space between the casing and borehole walls.

Casinghead - A fitting on the top of the casing in a producing oil or gas well that regulates oil or gas flow. It also helps separate oil from gas.

Casinghead Gas - Natural gas produced in conjunction with the production of crude oil.

Casing Point - The time at which the well has reached the objective depth and the decision is made to either complete the well for production or to plug and abandon it.

Certificate of Title - An abbreviated type of abstract wherein the abstractor reports his opinion as to the present owner(s) of the land, unreleased oil and gas leases, mineral or royalty conveyances, and outstanding liens or encumbrances.

Certification of Abstract - A certificate signed by the abstractor reciting that the abstract contains a full and complete abstract of all recorded instruments affecting the title to the described lands for the time periods covered by the abstract.

Certified Copy - A copy of an original document filed with the county clerk or the court clerk which is sworn to by the clerk to be an exact copy of such document. See also Recording.

Certified Professional Landman (CPL) - A landman who has successfully completed the certification exam given by the American Association of Professional Landmen.

Chain of Title - Recorded transfers (links) in title from patent to present.

Christmas Tree - A combination of gauges, valves, controls and pipe connections at the top of the casing on a flowing well that controls well flow and resembles a heavily-decorated Christmas tree.

Circulation - A continuous pumping of drilling mud down through the drill pipe and drill bit and back up to the surface so that rock cuttings are moved away from the drill bit.

Cloud on a Title - A claim or encumbrance that, if upheld by a court, would impair the owner's title to the property.

CNG - Compressed Natural Gas.

Codicil - An amendment or supplement to a will executed with all the formalities of the will itself. When inconsistent with the provisions of the will, a properly executed codicil takes precedence.

Commercial Well - A well capable of making a profit over the cost of drilling, equipping, completing, and operating it. In some instances, the term means merely a well with sufficient production to cover current operating expenses, without regard to original drilling costs.

Commingled Gas - Gas from two or more sources which is combined into a single stream.

Commingling - (1) Combining production from more than one zone in one well or lease in the same storage tank. For accounting purposes, it is often necessary to meter the production from each zone, well, or lease before it enters the tank. (2) Mixing married persons' separate property which then causes the property to become community property.

Commingling Facility - An installation, serving two or more leases, which provides services such as gathering, separating, treating, and storing more economically than could several smaller facilities.

Common Law - A system of law based on court decisions, or judicial precedent, rather than on legislated statutes or executive decrees. Common law began in England and



was later used in English colonies. It is still applied in most of the United States; however, Louisiana operates under the Napoleonic Code. Also called "case" law.

Communitization Agreement - An agreement approved to allow separate tracts to be developed and operated in conformity with an established well-spacing or well development program. This type of agreement is necessary whenever the proposed unit contains any or all Federal leases.

Communitization - The act of unitizing federal leases. Federal leases must be communitized because they contain no pooling authority.

Community Lease - A single lease covering two or more separately owned tracts of land.

Community Property - Property jointly owned by the husband and wife. Unless otherwise set out, all property is considered to be owned jointly in a community property state. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, and Texas all have some type of community property laws. See Estates in Land.

Compensatory Royalty - Payments to royalty owners as compensation for losses in income due to failure to adequately develop a lease.

Completion of a Well - The installation of permanent production equipment in order to begin delivery of crude oil.

Compression - Increasing the pressure of gas by mechanical means.

Compulsory Pooling - The bringing together, as required by law or valid order or regulations, of sufficient separately owned small tracts to qualify for the granting of a well permit. Now available in 31 states.

Compulsory Unitization - The bringing together, as required by law or valid order or regulation, separately owned tracts into a unit constituting all or some portion of a producing reservoir and the joint operation of such unit.

Condensate - Hydrocarbons which are gaseous under the reservoir pressure but become liquid at atmospheric pressure and temperature.

Continuous Drilling Clause - A lease clause which provides that a lease may be kept alive during or after the expiration of the primary term without production by drilling operations (of the type specified in the clause) being continuously pursued. In the case of a farmout, such a clause provides that a farmee has the right to earn acreage under the farmout agreement (sometimes each well must be productive) by the drilling of additional wells and generally under a certain time frame.

Convertible Interest - An interest which is convertible into an interest of another kind. Example: An overriding royalty which may be converted into a working interest.

Convey - To transfer title to property from one party to another, usually by means of a written instrument.

Conveyance - An instrument that transfers title to property. The term includes, but is not limited to, deed, assignments, and gifts.

Co-ownership (co-tenancy) - Simultaneous ownership of realty by two or more persons. Owners may have survivorship (the survivor owns it all) if ajoint tenancy. If owners are tenants in common, there is no survivorship. See Estates in Land.

Corporation - A legally-chartered separate business entity that acts similarly to a person in conducting business and owning property. Corporations are created under state corporation acts and their legal instruments must be executed by the corporate President or Vice-President and attested by the Secretary or Assistant Secretary, or by a duly authorized office or other person under a power of attorney.

Correlative Rights - A mineral owner's rights to capture oil and gas existing under a particular property and also beyond the property line. He has the "correlative" right to drill and produce oil and gas that might flow toward wells on adjacent land that produce from the same accumulation.



Co-tenancy - Ownership under which two or more persons or corporations have joint title to a property. Governed by state laws.

Covenant - A promise to do something. Under the lease, there are two types of covenants: (a) stipulated - set out in the lease, (b) implied - interpreted by good business and the courts to be present in the lease whether written out or not. Implied covenants include fully developing the property, diligence in marketing of the production, etc.

Creek-ology - A somewhat unscientific method of well-site determination based on the gross natural features of the earth' s surface. The bend of a creek is sometimes believed to indicate a fault or structural trap beneath the surface.

Cross-Assignment - A multiple assignment of property interests whereby the assignor also receives an assignment from the assignee. Example: "A" assigns to "B" and "B" in turn, assigns to "A."

Crude Oil - Mixture of hydrocarbons that are liquid under reservoir conditions of high pressure and temperature, and remain liquid at atmosphere pressure and temperature.

Cryogenics - Technique utilizing extremely low temperatures to produce natural gas liquids from a raw gas stream.

Curative - The documents and/or information gathered to make clear the title to a piece of property.

Current Balance - Once any payment in a series of payments generated from an owner' s interest in unclaimed property has been held for the requisite abandonment period, all subsequent payments due to and held for that owner (the so-called current balance funds) are presently reportable as unclaimed property. Some of the payments may not have been held for the full abandonment period.

Cuttings - Chips of rock that are produced when the drillbit grinds through the earth's formations. The cuttings are circulated up to the surface and examined under ultraviolet light for porosity and evidence of hydrocarbons, or "show" of oil. D Decedent - A deceased person. The term refers either to one who dies leaving a will or to one who dies without a will.

Declared Unit - A unit formed by the lessee acting under the provision of a pooling clause in a lease or other instrument.

Dedicated (Contracted) Owner - Any interest owner in an oil and gas well who is a party to a contract for the sale of gas produced from that oil or gas well.

Deed - A written document transferring ownership in a piece of property.

Deed of Trust - A deed conveying title to a trustee made to secure a loan. Deeds of trust are widely used by banks to secure real estate loans. Three parties are involved: (1) Grantor (the land owner-borrower), (2) Trustee(person receiving the Deed of Trust), and (3) the lending institution (beneficiary of the Deed of Trust).

Delay Rental Division Order - A document giving instructions concerning the payment of delay rentals to persons having an interest therein.

Delay Rentals - The payment made to the lessor for the privilege of continuing the lease without drilling on it. This payment is usually made annually if drilling does not take place.

Depletion - The exhaustion of a natural resource by actual extraction of the mineral or gas, etc. The decrease in value (of mineral or gas rights, timberland, etc.) caused by production operations.

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 Limitation - A specification of the depth below the surface of the ground from which production can be taken. Limitations should be shown on division orders and transfer orders. All leases or conveyances should be checked for limitations.

Descent of Property - The order of inheritance established by state law to determine property ownership when a person dies without a will.

Development Well - A well drilled to a known producing formation in a previously discovered field. Devise - That part of a will that leaves real property. Devisee - A person who receives property under the terms of a will.

Dilution of Interest - See Fractionalization.

Direct Sale - Contract sale of natural gas by a producer to an end user or local distribution company, usually for a term of a year or longer. Either the producer or purchaser pays the pipeline company for transportation, depending on the point of title transfer.

Discretionary Gas - Gas that can be produced or shut-in at the discretion of the operator. Generally does not include casinghead gas or gas subject to drainage.

Disinterested Party - One who is free from selfish motive or interest. Unbiased.

Division of Interest (DOI) - An instrument used to indicate the division of various owners' interests in a particular property. The type of interest (royalty, overriding royalty, or working) is included and interest is shown in decimals and/or fractions.

Division Order - A document that directs the purchaser to pay the named interest owners for oil and gas in the proportions specified in a particular well. Division orders must include the name of the property, name of operator, effective date of the dividsion order, legal description, decimal interest and type of interterst, and special clauses, ifnecessary, such as life estate or indemnity.

Division Order Title Opinion - A statement of opinion by a title examiner on the state of the title to land, mineral, royalty, or woking interests in a producing tract of land. This opinion, usually in letter form, is the basis of payment to all affected owners and must recite all the owners' interests. Compare drill site opinion, title opinion.

DOE - U.S. Department of Energy.

Domicile - An individual's permanent home or principal establishment. Residence is not necessarily the same as domicile since a person can have many addresses but has only one legal domicile, or home address to which he intends to return for prolonged periods. A business domicile is the address where the establishment is maintained or where the governing power of the enterprise is exercised. For tax purposes, it is often a principal place of business.

Drilling Operations - Any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges, or duties of the lessee under a lease.

Drilling Permit - In those states that regulate well spacing, the authorization from the regulatory agency to drill a well.

Drill Site Opinion - The written statement of opinion for a title examiner on the status of the title to a drill site, usually in letter form. Compare division order opinion, title opinion.

Dry Gas - Gas that contains a negligible amount of water vapor.

Dual Completion - The completion of a well in two pay zones so that each zone is produced simultaneously.

Due Diligence - Prudent examination and analysis by accountants, engineers, landmen, and attorneys of title, environmental representatives, warranties, and indemnities in acquisitions and sales of oil and gas properties.

Due Diligence (as it relates to Unclaimed Property) - Furnishing written notice to the apparent owner of unclaimed property (held by the holder at the time prescribed by law)



prior to the holder including the name of the apparent owner on an unclaimed property report to a particular jurisdiction. Some jurisdictions have a monetary threshold exempting small amounts from the due diligence requirements. E Easement - A temporary right given to a non-owner of the land for a specific purpose; i.e., an easement to lay a pipeline from a well, cross the land with a road, etc. EFT - See Electronic Funds Transfer.

Electrical Well Log (Electric Log) - An electrical survey of an uncased hole which reflects the resistivity of rock strata to electrical current of the spontaneous potential (S.P.) of the rock.

Electronic Funds Transfer (EFT) - A method of depositing funds electronically to owner's bank or savings account.

Eminent Domain - Right to take privately owned land for public use.

Entirety Clause - A lease clause for the benefit of the lessee to make it clear to lessors, or subsequent transferees of the lessor, that inside property lines created by later divisions of the fee ownership or by royalty conveyances will not affect the lessee's duties of development and operation (i.e., especially will not add additional burdens or obligations).

Entitlement - An interest owner's share of production. This volume (quantity) may not equal actual sales due to contractual or market conditions.

Entitlement vs. Deliveries - The philosophical approach as to the proper way to pay royalty owners when one or more working interest owners are not marketing their share of production. Entitlement - Each royalty owner is paid monthly for their pro rata share of production just as if the working interest owner who holds the lease were marketing his share of production. These are out of pocket payments by the working interest owner because they are paying the full royalty each month while not selling any gas. The working interest owner will get paid back when he begins to market his share of gas, plus make-up at a later date. Deliveries - Each working interest owner pays their royalty owners only when the working interest owner markets their share of production. No out of pocket loss revenue is realized by the working interest owner.

EOR - Enhanced Oil Recovery - The use of certain methods such as water flooding or gas injection into existing wells to increase the recovery from a reservoir.

Equitable Title - A right to the benefits of property recognized by and enforceable only in a court of equity; not to be confused with legal title.

Escheat - Proceeds due to parties, (generally royalty owners in the petroleum business) which are reverted to the state because owner cannot be located or ownership cannot be determined. Each State's escheat guidelines vary.

Estates in Land - The various types of land ownership are known as estates in land, the most common being: ? Fee Simple ? Life Estate ? Co-ownership (co-tenancy) ? Community Property ? Separate Property

Et Al - Latin abbreviation used to mean "and others."

Et Ux - Latin abbreviation used to mean "and wife."

Et Vir - Latin abbreviation used to mean "and husband."

EUR - Expected Ultimate Reserves. The estimated cumulative volume of oil and gas



reserves that will be recovered during the life of a well or field in a particular reservoir.

Excess Gas - The amount of gas that is in excess of the amount of gas that a first purchaser is required to take on a month to month basis. (Example: Operator A dedicates its gas to Pipeline Purchaser B. Pipeline Purchaser B negotiates an agreement with Operator A to release any gas that is unable to purchase on a month to month basis as allowed by the gas allowables which are regulated by state agencies. Operator A can then negotiate to sell the excess gas to another pipeline purchaser).

Excess Royalty - Generally referred to the portion of royalty in excess of a normal (one-eighth) royalty interest (i.e., 3/16 rather than 2/16).

Exclusive Leasing Power (Executive Right) - The power to execute an oil and gas lease on an interest from which the lessor does not usually derive some or all of the usual lease benefits (bonus, rents, royalty). The interest subject to the power is called a "non-participating royalty" if the benefit to accrue under the lease is royalty only; or a "non-executive mineral" if the benefit to accrue under the lease includes bonus or delay rental with or without a further interest in the royalty.

Execute - To complete a legal instrument by the required actions - for example, by signing and delivering the instrument. Execution includes the actual delivery of the signed document to the named grantee, lessee, or assignee.

Executor - A person or entity named in a will to carry out the terms of the will. The function of the executor is to see that all estate debts are paid and to distribute the property as set out in the will.

Executrix - The term for a female executor.

Exemplified Copy - A certified copy of the probate proceedings which is also certified by the judge and the clerk. Also called authenticated. Also see "certified copy."

Expense Bearing Interest - A property interest in oil and gas that is subject to the expense of production, such as a working interest or an unleased mineral interest under a unit.

Expense Free Interest - A property interest in oil and gas that does not share in the burden of drilling or production expense. Royalty, overriding royalties, oil payments, production payments, net profit interests, and carried working interest are ordinarily expense free interests, but are subject to production and ad valorem taxes.

Exploratory Test Well - A well drilled in unprovenor semi-proven territory for the purpose of ascertaining the underground presence of a commercial petroleum deposit. F Farmout Agreement - An agreement between operators whereby the owner (farmer) not wanting to drill a property agrees to assign all or part to the operator (farmee) desiring to drill; farmee assumes the obligation to drill one or more wells on the property to earn the assignment.

Fault - A break in the earth's crust along which a non-porous layer of rock may be next to an oil-bearing reservoir.

Fee Ownership Fee Simple - An estate of inheritance without limitation. This form of estate is not qualified by any other interest and, upon the owner's death, passes unconditionally to the heirs. See Estates in Land. Fee Simple Absolute - An estate limited absolutely to a person and to his or her heirs, and assigns forever, without limitations, as to who may inherit.

Feet of Pay - The thickness of a well's pay zone.

FERC - Federal Energy Regulatory Commission.

Fiduciary - A person who serves, with or without bond, to act for the benefit of another in all matters connected with a specified undertaking. Fiduciary obligations exist, for



example, between trustees and beneficiaries of a trust.

Field - (1) A specified geographic area underlaid by one or more reservoirs. (2) An oil or gas accumulation with commercial production, or the land area associated with the wells in that accumulation. The size of a field varies.

Flooding - A secondary recovery method used to increase production in an existing oil field. Water is injected into oil wells around a field's perimeter so that a pressure front is created that flushes the oil to the center of the field.

Fluid Injection - Pumping fluid into a producing formation to increase or maintain reservoir pressure and, thus, production.

Forced Pooling - The right granted under the state regulatory body for a company to include adjacent tracts in its unit, even if the company owning the lease on that tract does not want to be included or the individual owner of the tract does not want to lease. This is only granted when the regulatory agency deems it is in the best interest of conservation, and certain payments are due the owners of force pooled tracts.

Force Majeure - A lease clause stating the conditions which prevent the lessee from complying with the terms of the lease. It is normally set out as "Acts of God, fire, flood, etc., reasonably beyond the control of the lessee."

Formation - A layer of rock with distinct features such as texture or mineral composition. The thickness of a formation can range from a few feet to several hundred feet.

Frac Oil - Oil injected into a well in a fracturing operation which may then be recovered through subsequent production. Also "load oil."

Fractionalization - The division of mineral interest from one to many owners resulting in a smaller share for each owner. The diluted royalty becomes an administrative burden for marginal wells which often makes it economically impossible for the operator to continue to produce the well. Same as Dilution of Interest

Fracturing - The pumping of crude oil, diesel, water, or chemical into a reservoir with such force that the reservoir rock is broken and results in greater flow of oil or gas from the reservoir.

Full Share of Gas - The amount of an owner' s gas determined in accordance with the provisions of the Operating Agreement's leasehold/billing interest.

Full Well Stream - The production from a well as it emerges from the mouth of the well and prior to any separation of the stream's components.

Futures - An obligation to buy or sell a specific quantity of oil or gas at a specified price in a particular month. Futures contracts for crude oil were introduced in 1985 by the New York Mercantile Exchange (NYMEX), and in 1990 for natural gas. G Gas Contract - An agreement for the sale of gas by working interest owners entitled to the gas to the pipeline or gas plant.

Gas Injection - A secondary recovery method wherein dry natural gas or carbon dioxide is injected into an oil reservoir to increase pressure around the injection well and thus increase flow and oil production from nearby wells.

Gas Processing Plant - A plant which extracts liquefiable hydrocarbons or sulfur from natural gas and/or fractionates a liquid stream.

Gas Reserves - The total original proven recoverable gas in place in a formation, which has been proven by production, underlying a lease or unit well.

Gift Deed - A deed conveying an interest for which the consideration is "love and affection" or similar.

GOR or Gas-Oil Ratio - The volume of gas produced with oil from an oil well. A well



may be classified loosely according to its GOR.

Grant - To give title or ownership by deed or other instrument to another.

Grantee - The person to whom the grant is made.

Granting Clause - Clause in an oil and gas lease that specifies the rights and interests granted by the lessor to the lessee.

Grantor - The person making the grant.

Gravity (Specific Gravity) - The measure of oil density that is used in price determination.

Gross Acres - The total number of acres in a tract or unit for either surface or mineral acres.

Gross Production - As used in connection with gas volumes, the total quantity produced, including reproduced gas lift or injected gas. Often referred to as "total gas produced."

Gross Value - Total value of hydrocarbon prior to deduction for taxes.

Gross Working Interest (GWI) - A working interest owner' s total ownership in production, before deduction of related royalty, overriding royalty, or production payment interests. See Working Interest.

Guaranteed Royalty - The minimum amount of royalty income a royalty owner is to receive under the terms of the lease agreement, regardless of the royalty owner's share of actual proceeds from the sale of production.

Guardian - A person appointed by the court to look after the property interests of another who is either a minor or who has been judged to be unable to rationally handle his/her own affairs. A guardian cannot lease without court approval. H Habendum Clause - The clause in a deed or lease setting forth the duration of the grantee' s or lessee' s interest in the premises.

HBP - Held by Production - An oil and gas property which remains under lease past the primary lease term as long as there is production in "commercial" quantities from the property.

Heirs - Those who take reality by intestacy.

Holder - Any person in possession of property belonging to another subject to an unclaimed property law, or any person indebted to another on any obligation subject to an unclaimed property law.

Holographic Will - A will entirely in the handwriting of the testator. It does not require attesting witnesses as a typewritten will requires.

Horizon - A zone of a particular formation, such as the reservoir horizon, being that portion of a formation of sufficient porosity and permeability to form a petroleum reservoir.

Horizontal Drilling - A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval. Horizontal drilling is widely used in the Austin Chalk formation in South Central Texas.

Horizontal Severance - A document creating a separable ownership of all, or some portion, of an interest above, below, or between specified depths, or in a given stratum or horizon. I Impenetrable Substance - A stratum through which one either cannot drill or has



extreme difficulty in drilling, which difficulty would make continued operations totally impractical.

Indemnification Agreement - A hold harmless agreement. Can be in various forms, such as a letter or a paragraph inserted in a division order to protect a company against possible liability.

Independent Oil Company - A term now used to describe any oil company in the U.S. that is not one of the largest 20 integrated oil companies.

Individual Capacity - For one's self.

Inheritance Tax - A tax on the right to receive property by inheritance, to be distinguished from an estate tax.

Injected Gas - Gas put into a reservoir for purposes of cycling, maintaining reservoir pressure, displacing liquids, or storage.

In-Kind or Delivery In-Kind - When an ownertakes his working and/or royalty interest in gas or oil rather than dollars, he is said to take it "in-kind."

In Lieu Letter - A Letter in Lieu of Transfer and/or Division Orders. Companies having many transfers often request such a letter rather than a separate division order or transfer order for each property.

Integrated Company - A company which produces both oil and gas.

Inter Vivos Trust - Inter vivos: "between living persons." A trust created during the settlor's lifetime and is the same as a living trust. A living personal trust which becomes operative during the maker's lifetime.

Intestate - The condition when a person dies without a will. The property then passes by the laws of descent and distribution.

Inventory - (I) An account made by an executor or administrator of all goods and sometimes of real property of a deceased person. (2) A list of the property of a person or estate. (3) An itemized list of goods or valuables, with their estimated worth.

Irrevocable Trust - A trust which by its terms cannot be revoked by the settlor or can be terminated by settlor only with the consent of everyone who has an adverse interest in the trust.

Issue - All persons who have descended from a common ancestor; a broader term than children. J Joinder - Joining or coupling together, uniting with another person in some legal step or proceeding.

Joint Operating Agreement (JOA) - An agreement governing the operations of most jointly-owned properties/facilities.

JOA Sales - Generally taken to mean that the operator of a property is sharing the revenue received from the sale of production with non-operators, who are not individually marketing their share of production. Often documented only by the division order or transfer order that is in place.

Joint Tenancy - Equal ownership of property by two or more persons in which the property goes to the surviving tenant.

Joint Venture - A partnership for a specificdevelopment, such as a well or a lease. The joint-venture owners do not usually operate the lease, but are responsible for their share of the costs or production. The lessee is usually the operator of the lease, but occasionally one of the other owners handles the operation.

Jurat - Statement where Notary Public has sworn to the truth of the statement made under oath. Usually included on an affidavit.



K Keep Whole - Provision in gas processing agreements that essentially allows the producer to receive at least an amount equal to proceeds the producer would have been entitled to had he sold the gas at the wellhead without processing. L LACT Unit (Lease Automatic Custody Transfer Unit) - Automated metering device that records volume, temperature, gravity, and degree of purity of oil as it moves from the lease gathering system to the pipeline.

Landman - The individual in an oil and gas company or agent who negotiates oil and gas leases with mineral owners, cures title defects, and negotiates with other companies on agreements concerning the lease. See Certified Professional Landman.

Lapse - Where a devise or legacy cannot take effect because the devisee or legatee has predeceased.

Last-Known Address - A description of the location of the apparent owner of unclaimed funds sufficient for the purpose of the delivery of mail.

Lease - (1) A legal instrument executed by a mineral owner granting exclusive right to another to explore, drill, and produce oil and gas from a piece of land; (2) Used in conjunction with the actual location of a well(s) or unit. separator installed to serve a single lease.

Lease Facility - Facility such as a dehydrator, compressor, or separator installed to serve a single lease.

Leasehold Interest - The interest owned by the lessee. When the lessee takes a lease from an owner, he has 100% leasehold interest as to the percentage owned by that owner. Leasehold interest is associated with the "working interest."

Legal Description - An adequate description of land which enables a surveyor to locate a tract of land. A legal description is essential in deeds, land contracts, mortgages, wills and leases. Two systems of land surveys exist in the United States: (1)The metes and bounds system describes the boundaries of parcel of land. (2) The rectangular survey system describes land parcels using equal-sized townships, sections and fractions thereof.

Legacy - That part of a will that leaves personal property.

Legal Subdivision - A quarter-quarter section of land (1/16 of a section or 40 acres).

Legatee - A person mentioned in a will who is to receive real or personal property under its terms.

Lessee - The person who receives the lease, sometimes called the tenant.

Lessor - The person giving the lease, sometimes called grantor or landlord.

Lessor's Royalty - A share of the gross production of minerals free of the costs of production, arising under an oil and gas lease. See Royalty.

Letter Agreement - An agreement between parties to do certain things. As pertains to the lease, it may be an agreement to participate in the acquisition and maintenance ofthe lease and cost of drilling a well on the property. A letter agreement is rarely put on record.

Letters of Administration - A document issued by the Court naming an Administrator to handle the estate of someone who dies without a will.

Letters of Guardiansbip - A document issued by the Court naming a guardian to handle the affairs of a minor or some other person who is incapable of handling his own affairs.

Letters Testamentary - A document issued by the Court authorizing the executor to transfer title to estate assets and to carry out the will of a deceased person.



Lien - Webster's Dictionary defines a lien as "a charge uponreal or personal property for the satisfaction of some debt or duty ordinarily arising by operation of law, or the security interest created by a mortgage." A written Release of Lien evidences the termination of the obligation.

Life Estate - A limited right to receive proceeds from real property during one's lifetime. The person with the lifetime right is known as the life estate tenant. The person who owns the interest after the demise of the life estate tenant is known as the remainderman. See Estates in Land.

Living Trust - A trust that becomes operative during the lifetime of the settlor. Also called an irzter vivos trust.

LNG - Liquified Natural Gas.

Location - The well site.

Location Damages - Compensation paid by an operator to the surface owner for actual and potential damage to the surface and crops in the drilling and operation of a well. M Major - This term has traditionally referred to the "Seven Sisters," British Petroleum, Exxon, Gulf, Mobil, Shell, Chevron, and Texaco. In the 1990's, however, the term may include one of the twenty largest integrated companies.

Makeup Gas - (1) Gas that is taken in succeeding years and has been paid for previously under a take-or-pay clause in a gas purchase contract. The contract will normally specify the number of years after payment in which the purchaser can take delivery of make-up gas without paying a second time. (2) Gas injected into a reservoir to maintain a constant reservoir pressure and thereby prevent retrograde condensation. (3) In gas processing, the gas that makes up for plant losses. During processing there is a reduction in gas volume because of fuel and shrinkage. Some agreements between gas transmission companies and plant owners require plant losses to be made up or to be paid for.

Makeup Gas Period - The time period when an underproduced owner is making up the underproduced volumes of gas accumulated during a previous time period in which no gas was taken by taking his share of the gas, plus a percentage of the overproduced owners' gas, until the overproduced volumes are eliminated.

Marginal Well - A well that is approaching depletion of its natural resource to the extent that any profit from continued production is doubtful.

Marketable Title - Good or clear title to property that is free of significant defects and which a purchaser will accept without objections.

Marketing Costs - Costs incurred in making gas merchantable such as compression, dehydration, treating, and costs of transporting gas to the point of delivery to the purchaser. Sometimes referred to as "handling costs."

Market-out Provision - A provision in a gas contract that gives the purchaser the right to disconnect a well when, in the purchaser' s opinion, the production of gas becomes uneconomical due to well or market conditions.

MCF (mcf) - One thousand cubic feet.

Mechanic's Lien - Created to secure priority of payment for the value of work performed and materials furnished, such as in well drilling and operations.

Memorandum of Lease - A document placed on record with the county clerk acknowledging that a lease has been entered into and the property described. It is signed by the lessor and lessee and is done to avoid putting the entire lease and its terms in the county record for ail to see.

Memorandum of Trust - Document which states pertinent facts about a trust such as truster or settlor, effective date, trustee, and properties conveyed into the trust. This



document when filed is record notice of change of ownership from an individual to a trust.

Metes and Bounds - A type of description which sets out the boundary of a tract beginning at a boundary marker or commonly known marker and tracing around the tract to the place of beginning. Metes and bounds may be in several units of measure such as feet and inches, degrees, minutes and seconds, varas, etc.

Mineral - (1) A naturally occurring inorganic crystalline element or compound with a definite chemical composition and characteristic physical properties such as crystal shape, melting point, color, and hardness. Most minerals found in rocks are not pure. (2) Broadly, a naturally occurring homogeneous substance that is obtained from the ground for human use (e.g., stone,coal, salt, sulfur, sand, petroleum, water, natural gas).

Mineral Acre - The full mineral interest and rights in one acre of land. Example: If mineral owner A had 100 acres and owned all the minerals, he would have 100 mineral acres; if he owned 50% of the minerals, he would have 50 mineral acres. Also see "net acres."

Mineral Deed - A deed conveying only an interest in the minerals.

Mineral Estate - The ownership of minerals lying below the surface of land, and considered to be "real property." The mineral ownership can be tied to surface ownership or can be severed from it. The six rights which encompass the mineral estate are:

1. Right to execute 2. Right to produce minerals 3. Right to receive delay rentals 4. Right to receive bonus 5. Right to receive royalty

Mineral Interest - An ownership of the minerals underlying a tract of land. If the surface ownership and the mineral ownership are different, the minerals are said to be "severed."

Minimum Pay - Legislation allowing oil and gas companies to hold revenues until a certain amount is accrued. It is an effort to reduce high administrative costs to prolong the life of marginally producing wells. Same as Aggregate Pay.

Minimum Royalty - In Federal leases, a payment made on leases within a unit but outside of the participating area. Also, a guarantee of a certain minimum payment to the lessor. For example, if the minimum royalty payment is $3,000 and the lessor only receives $2,800 for production sold that year, the lessee must pay the lessor an additional $1,000.

Minute Earnings - Earnings which are considered small or infintesimal.

MMBtu - One million(1,000,000) British thermal units.

Mortgage - A written agreement describing a debt and stating that there is a lien against the specified property to secure payment of the debt. The lender is the mortgagee; the payor is the mortgagor. Also called a deed of trust.

Mother Hubbard Clause - Lease provision to assure a lease covers all lands that the lessor intended to include in the lease description but which may have been unintentionally omitted from the lease description.

Multiple Contract Gas Wells (One Purchaser) - A term used to describe the separate sales by owners having interests in a well who have negotiated separate gas contracts with one purchaser.



N Natural Gas - A mixture of hydrocarbon gases with varying amounts of impurities.

Natural Gas Liquids (Natural Gas Products) - The separate products derived from natural gas liquids, including butane (iso-butane and normal butane), propane, propane mixtures and natural gasoline, but not ethane (see DOE/ERA Regulations, Section 212.162). Sometimes referred to as plant products.

Negative Report - An unclaimed property report in which the holder states there are no funds or property presumed abandoned under a particular jurisdictions law. Some jurisdictions do not require negative reports.

Net Acre Foot - Volume of unitized formation which contains unitized substances and has an area extent of one acre and an average thickness of one foot. Determinant sometimes used to determine participation in a unit.

Net Acres - The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.

Net Profits Lease - Lease in which the lessor shares in the net proceeds of production after the lessee has recovered his initial investment. The various expenses to be allowed as deductions from gross proceeds are points of negotiation. Also applies to working interest relationships.

Net Revenue Interest (NRI) - The share of revenue, expressed in fractions or decimals, accruing to the working interest after deducting all lease burdens (royalty, overriding royalty, or similar burden).

Net Working Interest - A working interest owner's gross working interest in production, less the related royalty, overriding royalty, production payment, and net profits interests.

Next of Kin - Those who take personal property by intestacy.

Non Compos Mentis (NCM) - A legal term meaning "not of sound mind." A guardian or conservator is named to protect and handle the affairs of such a person.

Non-Dedicated (Non-contracted) Owner - Any interest owner in an oil or gas well who does not have a gas contract for his share of gas production and who has not entered into any other agreement that governs the taking or sharing of gas.

Non-Executive Mineral Interest - A term used to describe an interest in oil and gas which lacks the right to join in the execution of oil and gas leases. It does have a right to a share of the bonus and delay rentals as well as royalty under existing or future leases.

Non-Participating Royalty Owner - A person who owns a severed portion of a royalty interest but who does not execute leases, participate in bonuses or rentals, or have rights of exploration and production.

Non-Recoverable Usage - Production from a well which is burned in support facilities such as generators, boilers, etc.

Notice Publication - The practice whereby most states, after receipt of a holder's unclaimed property report, publish a public notice or notices listing names of apparent owners, in alphabetical order, stating the address of the state official to contact to ascertain the holder of the property, and advising that the property will be turned over to the state if a claim is not submitted to the holder by a prescribed date. O Offset Royalty - A royalty payable under the provision of an occasional lease in lieu of drilling an offset well. Sometimes referred to as "Compensatory Royalty."



Offset Well - A well drilled on one tract of land generally to prevent drainage of oil and/or gas to an adjoining tract of land on which a well is being drilled or is already in production.

Oil Payment (Production Payment) - A share of the oil or gas produced from a described tract of land, free of the costs of production, terminating when a specified sum from the sale of such production has been realized. This payment may be reserved to the lessor, retained by an assignor of a lease, or carved out of a working interest or royalty interest. Usually, this is expressed in a specified amount of dollars or barrels and is of limited duration.

Oklahoma Corporation Commission (OCC) - Governing body that regulates the oil and gas industry in Oklahoma.

Operating Agreement - Document that establishes the basis of cost, production, and ownership of property, and the operator's rights, powers, and limits in a joint venture.

Operating Expenses - Expenses incurred in the operation of a producing property.

Operator - The person or company, either proprietor or lessee, actually operating a well. The operator is a working interest owner and is also responsible for physical maintenance of the well and other responsibilities as covered in the JOA (Joint Operating Agreement).

Overproduced - State of a well that has produced more than its allowable volume.

Overriding Royalty Interest (ORRI) - An interest in production that is created and payable out of the working interest. Usually, the term of an ORRI is for the life of the mineral lease.

Over/Under Deliveries - The extent to which one or more owners of a property have sold or used a volume of gas which is more or less than their gross working interest share (entitlement) of the total gas production.

Owner - Any person having a legal or equitable interest in property subject to a particular unclaimed property law including, but not limited to, a creditor, claimant, or payee.

Owner Number - A unique number assigned to each interest owner by the purchasing company for identification and accounting purposes. It appears on check vouchers and various printouts and forms. P Paid Up Lease - An oil and gas lease for which all delay rentals are paid along with the cash bonus and on which no further action is required during the primary term. Very practical in small tract or town lot leasing.

Parish - The Louisiana equivalent of a county in other states.

Participating Interest - The percentage of costs and benefits generally under an Operating Agreement borne and to be received by the various parties to the agreement.

Partition - To divide into parts by means of a legal instrument or document.

Partnership - Two or more persons joined together as co-owners in a business for profit. A contractual business relationship between two or more persons. All partners should be requested to execute division orders and transfer orders on partnership leases unless one partner is given a power of attorney by the other partner(s).

Patent - A deed or conveyance out of the Sovereignty of the Soil (such as the Republic of Texas) to the first owner. A government grant of public lands.

Payout - A particular point in time that a contractual payment obligation has been achieved.

Per Capita (By the Head) - A term used in the distribution of property; to persons as individuals (per capita) and not as members of a family (per stirpes).



Permeability - The measurable capacity through which a rock formation allows fluid to flow. Permeability and porosity are the two most important characteristics of reservoir rock.

Personal Property - Movable property as opposed to land and fixtures on land. Severed minerals are personal property. Minerals in the ground are real property.

Personal Representative - A party appointed by a court to carry out the terms of a will. This court appointment occurs if no executor is named in the will or the named executor cannot serve.

Per Stirpes (By the Branch) - A term used in the distribution of property to persons as members of a family (per stirpes) and not as individuals (per capita). Two or more children of the same parent take per stirpes when together they take what the parent, if living, would take.

Petrochemical - Chemical derived from petroleum or natural gas.

Plug - A permanent plug, usually either cast iron or cement, set in a borehole to block the flow of fluids to isolate sections of the well or to permanently plug a dry hole or depleted well.

Plugged & Abandoned (P&A) - The setting of plugs in a dry hole or depleted well prior to abandonment.

Pooled Unit - A unit formed by the bringing together of separately owned interests under the provisions of pooling clauses in leases or some special agreement.

Pooling - Frequently used interchangeably with "unitization" but more properly the combining of small or irregular tracts into a unit large enough to meet state spacing regulations for drilling permits. Unitization is a term used to describe the combined operations of all or some portion of a producing reservoir. See Voluntary Pooling.

Porosity - A characteristic of reservoir rock determined by its holes or spaces. Higher porosity rock can contain more hydrocarbons and is, therefore, considered a better quality of reservoir rock.

Power of Attorney - The appointment of one person to act on behalf of another (agent) for all purposes or for very limited purposes. A legal instrument is needed to make this appointment effective. A power of attorney creates an Attorney-in-Fact (the agent). The agent may execute leases if provided in the power of attorney but caution should be taken to make sure the power of attorney is still in effect. A power of attorney ceases when the person granting it dies.

Primary Recovery - The period of production in which oil moves from its reservoir through the wellbore under naturally occurring reservoir pressure.

Primary Term - The period of time during which a lease may be kept alive by a lessee (even though there is no production in paying quantities) by virtue of drilling operations on the leased lands or the timelypayment of rentals.

Probate Proceedings - The collection, filing, and authentication of documents of an estate such as the Will, Order Admitting the Will to Probate, Letters Testamentary, and appraisals. Includes payment of debts and distribution of property to devisees or legatees. In Texas, except for good reason, the settlement of an estate is supposed to be concluded within four years of the Testator' s death.

Processed Gas - Gas handled through a plant for the extraction of liquefiable hydrocarbons.

Producer - Any party owning, controlling, managing, or leasing any gas well and/or any party who produces in any manner natural gas by taking it from the earth or waters.

Production Payment Interest - An interest that will change ownership when a specified production level has been attained or the interest has earned a certain amount of money.



Production Related Costs - Most notably related to FERC Order 94 of the Federal Energy Regulatory Commission, production related costs refer to all costs associated with bringing natural gas or LPG to a marketable point of title transfer. The more common production related costs include, but are not limited to, compression, dehydration, gathering, processing, treating, liquification, conditioning, or transporting of natural gas. Post production costs related to crude oil may include storage, transportation, etc.

Production Tax - See Severance Tax.

Proof of Claim - The verified written explanation which the apparent owner must file with a particular jurisdiction to reclaim unclaimed property which a holder previously has remitted to that jurisdiction.

Property Descriptions - Legal words delineating realty boundaries. May be by metes and hounds, by plat reference, range, township and section subdivision. For division order purposes, property descriptions are frequently abbreviated as their main purpose is to distinguish between various leases. Metes and bounds are the foot-by-foot description of the property.

Proportionate Reduction Clause - A clause providing for the reduction of payments to a lessor if his interest is less than that which he purported to lease. Also referred to as the Lesser Estates Clause or Lesser Interest Clause.

Proration - A system, enforced by a state or federal agency or by agreement between operators, that limits the amount of petroleum that can be produced from a well or a field within a given period.

Pugh Clause - A clause in an oil and gas lease that releases nonproducing acreage (horizontal release) or zones (vertical release) at the end of the primary term or some other specified period. Under the clause, unproductive or untested zones and acreage that are outside a producing pooled unit must be released if drilling or exploration does not occur by the end of the specified time. Also called a Freestone rider.

Purchaser - The party who buys oil or gas from a supplier based on the purchase contract. Q Quiet Title - A legal term for settling a dispute over the ownership of a piece of property; usually results in a suit settled in court.

Quitclaim Deed - A deed that conveys or transfers to another any rights or interests that a person may have in property. The grantor of the quitclaim deed warrants nothing but merely conveys, whatever rights, if any, he may have. In California leases, a quitclaim deed is required of the lessee in lieu of a release. R Railroad Commission of Texas - The government body that regulates the oil and gas industry in Texas.

Ratification - In division order terms, ratification generally refers to the formal approval or confirmation of a previously executed lease.

Real Property - Land surface, fixtures and minerals in place.

Recompletion - After the initial completion of a well, the action and techniques of reentering the well and redoing or repairing the original completion to restore thewell's productivity. Compare to Workover.

Recompletion Gas - Natural gas that is produced from a reservoir using well facilities that previously tapped a different, formerly nonproductive reservoir; the previous operations having commenced before January 1, 1973, and new operations having commenced on or after January 1, 1973, as defined under section 271.402 (b) (4) of the



NGPA.

Record - (n) An authentic official copy of a document deposited with a legally designated officer; (vb) to set down in writing; to deposit an authentic official copy as in a deed.

Recordation Data - References put on documents when they are filed by County Clerks to show where the documents can be located. Usual references are volume or book and page number. Recorded instruments are presumed to be known to every member of the public. In case of disputed ownership of a piece of property, the recordation helps to determine the rightful owner.

Record Title - The ownership of an interest which is determinable from the county records in which the property is located. Record title may be different than actual ownership where there are assignments or letter agreements unrecorded. Under Federal leases, the official chain of title is kept by the Government. Each time lease ownership changes, the changes must be made with the Government and an instrument also filed in the county records to update both.

Recording - The act of placing an instrument in the county or parish records. The recording is required to put all concerned of notice that a transaction has occured. If a document is not recorded, it may be invalid and voided.

Re-entry - Testing a potential zone by using the borehole of a plugged and abandoned well, usually after new drilling and production has occurred in the area.

Release - A document in writing executed and delivered by the lessee indicating that a lease has terminated or expired or has been surrendered or forfeited.

Remaindermen - The person or entity who receives the property after a life estate owner dies. This type ofownership is a future interest in the land and the owner can do nothing to interfere with the rights of the life estate owner.

Remittance Report - A report required by a jurisdiction submitting the unclaimed property held for unclaimed owners who have not been found by the particular jurisdictions publication of names of apparent owners. Some jurisdictions combine the unclaimed property report and remittance report into one report.

Rental Due Date - The date during the primary term on or before which the rental payments are due and payable if the lease is to be kept alive by the payment of such rentals.

Reservation - The portion in a conveyance of the grantors property that he is expecting, (holding back) or not conveying (i.e. "...all my right, title and interest in the above described property save and except 1/16 royalty interest herein reserved to Grantor...").

Reserves - Generally the amount of oil or gas in a particular reservoir that is available for production.

Reservoir - A porous and permeable formation containing significant quantities of hydrocarbons. A reservoir is characterized by a single natural pressure system.

Residue Gas - Gas remaining after processing through a plant for the extraction of liquids.

Retained Interest - A specified fractional interest that is reserved by one owner when he deeds or assigns his interest to another individual or entity.

Revenue Interest - An accounting term describing earnings of a working interest owner. The working interest minus royalties or other interest deductions equals the revenue interest.

Reversionary Interest - A future interest retained by a grantor (or his successor) after present possessory interests expire.

Revocable Trust - A trust in which the settlor reserves the right to end the trust and reclaim the trust property at any time. Royalty - The share of the production or proceeds therefrom reserved to the lessor



under the terms of the mineral lease. Normally, royalty interests are free of all costs of production (as distinguished from costs of marketing) except production taxes, and is established in the lease by reserving a royalty which is usually expressed fractionally.

Royalty Deed - A deed conveying a royalty interest. Note: Many "Royalty Deeds" actually describe and convey mineral interests.

Royalty Estate - Pertaining to the royalty owners (usually 1/8) share.

Royalty Interest (RI). - See Royalty.

Rule of Capture - The theory that oil and gas produced under a particular tract is owned by the royalty owners therein, even though it may be proven to be part of the oil or gas that migrated from adjoining lands.

Rule 37 - The state-wide well spacing regulations of Texas.

Run Statement - A monthly summary of run tickets given by the purchaser or operator of crude oil detailing volume, gravity, price, and value of each run ticket.

Run Ticket - A document evidencing the amount, gravity, temperature, BS&W content, etc., of oil being delivered. This document is the basis of payment for the oil. The term "run" is often used to describe the delivery or sale of oil. S Sand - A geological term for a formation beneath the surface of the earth from which hydrocarbons are produced. Its make-up is sufficiently homogeneous to differentiate it from other formations.

Secondary Recovery - The recovery of oil and gas through the injection of liquids or gases into the reservoir, supplementing its natural energy. Secondary recovery methods are often applied when production slows due to depletion of the natural pressure.

Secondary Term - The period during which an oil and gas lease is extended beyond the primary term due to ongoing production or drilling. Compare primary term.

Section - (1) A unit of land measurement in the rectangular survey system. Each 6-mile square, or township, is divided into 36 sections. A section usually is 1 square mile, or 640 acres. It may be larger or smaller, depending on its position in the township. (2) Vertically arrayed data. Compare map.

Seismograph Survey - A survey of an area by means of an instrument which records the vibrations of the earth. By recording the time interval between the source of the shock wave and the reflected or refracted shock waves from various formations, geophysicists are able to define the underground configurations.

Separate Property - Property in a community property state which is owned by only one spouse. It is the opposite of community property, and can be created by acquisition prior to the marriage, a devise under a will, a gift solely to that spouse, or by inheritance. It must be clearly maintained as separate property or it may become commingled with the couple's community property and then become community property.

Servitude - An easement or other incorporeal interest in land. In Louisiana any severed mineral or royalty interests, whether reserved or granted, including the interest of an oil and gas lessee, is an incorporeal interest called a servitude.

Settlor - One who makes a settlement or creates a trust of property.

Severance 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.

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.

Sheriff's Deed - A deed resulting from default under a Deed of Trust, or as a result of taxes being overdue and the taxing authority ordering a sale of the property to pay for the back taxes.

Shipper - A legal entity who contracts with a transporter to move gas through the transporter's pipeline system.

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.

Shut-In Well - A well which is producing or capable of producing but is not produced. Reasons for wellsbeing shut in may be lack of a pipeline, lack of a market, etc.

Sour Crude - Crude oil contaminated by sulphur compounds, typically hydrogen sulfide. Sour crude has sulphur content above 1%.

Spacing - The distance between wells allowed by the regulatory body. The spacing is based on what is deemed to be the amount of acreage that can be efficiently and economically drainedby a well.

Special Warranty Clause - A covenant of title in a deed, lease, or assignment, the effect of which is to guarantee title against all defects arising out of claims of the grantor, lessor, or assignor, and of persons claiming by, through, or from the grantor, lessor, or assignor.

Split Stream Gas Well - A term used to describe the separate sales of gas by owners having interests in a well to two or more pipeline purchasers where there are two or more pipelines running to the well. (Note: In many cases, the gas sales are split but one pipeline purchaser is tied into the well and another pipeline purchaser negotiates a transportation agreement so that they can also purchase production from a particular well to which their pipeline does not run.

Spot Market - The process of selling natural gas production into a market other than the traditional market of a pipeline company. These arrangements are often only thirty (30) days in length, but will have an evergreen provision - that is, they continue in force and effect until specifically terminated by either party. Arrangements are re-confirmed monthly via new letter agreements.

Spud - To begin the drilling of a well.

Statute of Limitations - A law prescribing limitations to the right of a person or other entity to maintain a suit for certain described causes of action. Such statutes generally declare that no suit may be brought unless it is brought within a specified period of time. Tn unclaimed property parlance, statutes of limitation effectively determine how far back a jurisdiction may reach beyond the effective date of enactment of an unclaimed property law to claim funds held by a holder. Most unclaimed property statutes contain an anti-limitation provision which provides that statutes of limitation do not apply to unclaimed funds on which a statute of limitations has not run at the date the unclaimed property law is effective and for any subsequent period of time.

Stipulation of Interest - An instrument amounting to certification of legal title and authorization for payment on royalty interests in accordance with the terms of an oil or gas purchase contract.

Stripper Well - Production from a property where average daily production per well is less than or equal to ten barrels per day for any twelve month period.

Subordination Agreement - An agreement subordinating a prior lien to an oil and gas lease.

Subrogation - An agreement in which a mortgage company or similar institution agrees to make their lien subject to the lease. If the property is mortgaged prior to the lease



and the mortgage company does not subrogate to the lease, the mortgage company can take the property if it is foreclosed and lessee's rights willend. Also sometimes called a "waiver of priority."

Successor Trustee - A trustee following the original or prior trustee, appointment provided for in the trust instrument.

Surface Lease - A lease on the surface of the land. (Grazing, agricultural, commercial, or homesite purposes.)

Surface Rights - Surface ownership of land andmineral ownership below the surface can be different. Severance sometimes means conveyance of surface and minerals separately.

Survey - A determination and delineation of the form and position of a tract of land. Surveys are often named after the surveyor who makes them. Many carry the railroad company names when railroads used their own survey.

Suspense - The withholding of interest payments by the purchaser. The most common reasons are:

a. Death of an interest owner. b. Pending transfer. c. Clouded title or disputed ownership. d. Operating expense arrears. e. Bad address. f. Overpayments or special adjustments. g. Pending title data, etc., for a new property. h. Extended lapse in production making lease validity questionable. i. Governmental order; e.g., the Texas State

Comptroller for tax reasons, or a severance order from the Railroad Commission on account of rule violation.

Sweet Crude - Crude oil not contaminated by sulphur in excess of 1%. T Take-or-pay Clause - A clause in a Gas Purchase Contract requiring the purchaser to take, or failing to take, to pay for the minimum annual contract volume of gas which the producer-seller has available for delivery. Under such clause the purchaser usually has the right to take the gas paid for (but undelivered) in succeeding years. Such gas is called Makeup Gas.

Tax Identification Number - A unique number assigned to an individual, partnership, company, etc., under which income is reported to the Internal Revenue Service (synonymous with Social Security number).

Tenant's Consent Agreement - The consent of the owner of a possessory interest in land (i.e., a surface lessee) to drilling operations by the oil and gas lessee.

Term Interest - A mineral or royalty interest of less than perpetuity, such as for ten years.

Term of Years - Ownership in land for a specific number of years. See Estates in Land.

Tertiary Recovery - (1) The use of improved recovery methods that not only restore formation pressure but also improve oil displacement or fluid flow in the reservoir. (2) The use of any improved recovery method to remove additional oil after secondary recovery. Compare primary recovery, secondary recovery.

Testamentary Trust - A trust established by the terms of a will.

Testate - Having made and left a valid will; opposed to intestate.



Testator - A person who leaves a will at the time of his death. Such a person is said to have died testate.

Testatrix - A woman who has made and left a valid will at her death.

Test Well - The first well to be drilled on a lease to evaluate a certain horizon. It is commonly referred to as a "wild cat" well.

Tight Formation Gas - Gas produced from a sedimentary layer of rock cemented together in a manner that greatly hinders the flow of any gas through the rock and, therefore, qualifies for (IRS) Section 29 tax credits.

Tight Hole - (1) A well about which information is restricted for security or competitive reasons. (2) A section of the hole that, for some reason, is undergauge. For example, a bit that is worn undergauge will drill a tight hole.

Tight Sand - Sand or sandstone formation with low permeability.

Title Opinion - A statement of opinion by an attorney, often in the form of a letter, as to the state of the title to land, minerals, royalty, or working interests. Requirements, when appropriate, are set forth by the attorney and should be cured or waived prior to drilling. Division Order title opinions are used in the preparation of comprehensive division orders, especially for new production. Compare to Division Order Opinion and Drill Site Opinion.

Title Transfer - Point in time title actually changes hands.

Top Lease - A lease acquired while a mineral lease to the same property is still in effect. The top lease (held by a different company) replaces the existinglease when it expires or is terminated.

Total Depth (TD) - The maximum depth reached in a well.

Township - A division of territory in surveys of U.S. public Land. (1) the north-south lines of the rectangular survey system. (2) The square contains 36 sections, or 36 square miles, 6 miles on each side, that is the major unit of land in the rectangular survey scheme of measurement. Compare range.

Tract - Any specific area of land.

Traditional Gas Sales Contracts - Usually a long-term contract, with numerous provisions such as price, deliverability, take-or-pay, quality of gas, etc. These contracts are usually with a pipeline company.

Transfer Order - A document whereby participants in a Division Order change the disposition of their share of the proceeds.

Transportation Costs - The sum of the fixed costs and variable costs of moving gas or oil.

Transporter - The pipeline company that transports natural gas for a shipper.

Treating - Removal of contaminants from gas by mechanical or chemical means.

Treating Plant - A plant to remove contaminants from natural gas.

Trust - An entity created in which property is conveyed and maintained for the benefit of a person, persons, or company. The trustee(s) supervises and maintains the trust for the beneficiary. See Testamentary Trust and Inter Vivos Trust.

Trustee - A person or corporation to whom title is conveyed for handling and supervision for the benefit of another (the beneficiary); a person who creates a trust; a broad term which includes settlor, testator, grantor, and donor. U Unclaimed - A term which has not been defined in many unclaimed property laws. The term has been interpreted by many jurisdictions to mean any funds held by a holder for a period in excess of the requisite abandonment period, subject to any specific statutory or regulatory exemptions. Defenses to funds being designated as unclaimed, which can



vary from jurisdiction to jurisdiction, could include, but are not limited to, the following: (1) disputes as to ownership, e.g. a situation where more than one person claims the funds; (2) funds held pursuant to litigation; (3) funds held pursuant to liens; and (4) owner-generated activity which indicates an interest in the funds. Each item of property should be reviewed on its own facts and circumstances to arrive at a determination as to its unclaimed status.

Unclaimed Property Report - A report many jurisdictions require a holder of unclaimed property to file. The holder submits a report containing the names and last-known addresses of apparent owners of unclaimed property, and such other information as the particular jurisdiction may require. This report, in turn, is used to generate the notice that the jurisdiction uses to attempt to locate missing owners and to serve as the record of the holder' s compliance with the jurisdiction's law.

Undivided Interest - A fractional interest in surface or minerals that is owned in each and every acre of a particular parcel of land.

Undivided Unit - A Federal unit in which all working interest owners pay costs for all activities within the unit area at percentages fixed when the unit is first formed. Most units are not the divided type of unit.

Unit - The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property interests. Also, the area covered by a Unitization Agreement.

Unitization - Operation of the whole field (or substantially all of it) as an entity, without regard to ownership boundaries. As contrasted to "pooling," unitization involves a group of wells.

Usufruct - A term for life estate in Louisiana. V Vara - A Spanish measurement term that was used in many old Texas deeds, etc. In Texas, a vara equals 33-1/3 inches; 36 varas equal 100 feet.

Venue - State and county where an acknowledgment is taken.

Vest - To confer an immediate, fixed right of immediate, or future possession and enjoyment of property.

Viscosity - The resistance that a fluid has to natural flow. Oil's viscosity is usually greater than an oil and gas mixture.

Voluntary Pooling - Pooling of leased tracts willingly undertaken by all the parties involved, both working interest owners and royalty owners. W Warranty - A guarantee made by the owner of apiece of land as to its ownership. A full warranty entitles a lessee to recover damages if it is later determined the lessor does not own all he warranted he owned. A special warranty is limited; i.e., "by, through and under, but not otherwise" is a special warranty.

Warranty Clause - The clause in an oil and gas lease that assures title to the leased property by an express covenant to that effect.

Warranty Deed - A deed given with a full warranty or guarantee of the ownership of the interest being conveyed.

Wellbore - The hole drilled by the bit that is equipped for oil or gas production on a completed well. Also called Well or Borehole.

Wildcat - An exploration well that is drilled to an unproven reservoir from which no oil or gas has been produced in the nearby area. A "rank" wildcat is drilled in an area distant from previous drilling.



Will - An instrument spelling out the disposition of one's property after his death. (On rare occasions, an oral statement can be considered a will, but most wills are in writing. An oral will cannot pass title to land in Texas.) See Holographic Will.

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. See Gross Working Interest and Net Working Interest.

Workover - The performance of one or more of a variety of remedial operations on a producing oilwell to try to increase production. Examples of workover jobs are deepening, plugging back, pulling resetting liners, and squeeze cementing. Compare to Recompletion. X Xylene - Any of three flammable hydrocarbons, C6H4(CH3)2 similar to benzene. A commerical mixture is used as a solvent when oilfield emulsions are being tested. Y None Z Zone - A layer of rock which has distinct characteristics that differ from nearby rock.

