Tx O & G

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CONFISCATION

Back 1

Most common usage- the term appears to refer to depriving the owner or lessee of a fair chance to recover the oil and gas in or under his land; in this sense the term refers principally to drainage

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Rules of Construction

Back 2

Discretionary rules applied by courts to asset in the interpretation of instruments
court results are not always consistent and may not always result in ascertaining the true intentions of the parties in using particular language

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Conservation

Back 3

prevention of loss of natural resources without economic or beneficial use prevention of waste

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Continuous Drilling Operations Clause

Back 4

a lease clause providing that a lease be kept alive after the expiration of the primary term and w/o production by drilling operations of the type specified in the clause

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Conversion

Back 5

an unauthorized and wrongful exercise of dominion and control over property of another inconsistent with the rights of the owner, as in taking o & g from beneath land owned by someone else and w/o authority

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Corporeal Estate

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a possessory interest in the land; minerals are capable of corporeal ownership separate from ownership of the surface (i.e. severable)

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Core

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a solid column of rock, usually two to six inches in diameter, taken, usually in the process of drilling a well, as part of the geological study of the under ground formations being drilled

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Correlative Rights Doctrine

Back 8

doctrine adopted by the ct.'s that all land owners wholes tracts overlay a producing formation have correlative rights in the formation (common reservoir) Doctrine can vary state to state but 2 aspects in general" (1) as a corollary of the rule of capture, each person has a right to produce oil or gas from the land and capture such oil or gas as may be produced from his well (2) a right of the land owner to be protected against damage to the common reservoir and right to produce a fair share

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Cover-all/Mother Hubbard Clause

Back 9

a clause commonly included in contemporary leases to meet the problem of adequately describing strips of land owned by a lessor contiguous to the land specifically described by the lease and intended to be covered by the lease.

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Accommodation Doctrine

Back 10

requires the mineral interest owner and the lessee to accommodate existing surface uses where reasonable alternatives are available

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Allowable

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amount of oil or gas which a well, leasehold, field, or state is permitted to produce under proration orders of the state regulatory commission; usually in terms of barrels per day for state number of days per month

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Alternative date

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Ct. decree in an implied covenant case that orders cancellation of the lease for breach of covenant, if, after a stated period of time (not more than 6 months usually 30 to 60 days) the obligation imposed by the covenant have not been met

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Anniversary date

Back 13

the date on which the payment of delay rental or shut-in gas royalty must be paid as a condition of keeping the lease effective under the respective clause

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Anticline

Back 14

a subsurface, geological structure in the form of a sine cure; formation rises to a round peak

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Apportionment

Back 15

division of royalties among the owners of interest in the land subject to the lease

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Assignee

Back 16

generally in law, a transferee; a recipient in an interest in property or a K
O&G– commonly means, but not limited to, the transferee of an OGL

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Assignment clause

Back 17

a standard clause in the OGL, allowing for free transfer of lessor's or lessee's interest, in whole or in part (fraction)

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Automatic termination of lease

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ending the lessee's interest by operation of law by virtue of a general or special limitation n the lease; at the expiration of the primary term of a lease if there is no production (or in some cases, if drilling or reworking operations are not being pursued) the lessee's interest automatically terminates by operation go the clause of a general limitation in the habendum clause

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Bad Faith trespasser

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operator who enters upon the land of another without authority and in bad faith; if such person drills and secures production, he s liable to the true owner for the value of the production at the surface, without credit for drilling and operating expenses

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Barrel of oil

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42 U.S. gallons at 60 degrees F. most common unit of measuring crude oil

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Block

Back 21

an area, composed of separate contiguous leaseholds, appropriate in size for drilling

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Blow out

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sudden, violent explosion of oil, gas, and mud from a drilling well, followed by an uncontrollable flow from the well. occurs when him pressure gas is encountered in the hole and sufficient precautions (like increasing the weight of the mud) have not been taken

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Bonus

Back 23

the cash consideration paid to the lessee for the execution of an OGL by the landowner; can take other forms than cash like oil bonus or royalty bonus

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Bottom Hole letter

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agreement by which the operator contemplating the drilling of a well on his own land secures promise of another contribute to the cost of the well; usually in return for an assignment of part of the payee's lease to the payor upon the completion os the well

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Bottom water

Back 25

free water in a permeable reservoir rock just h=below the space n the reservoir trap which is filed with oil and gas

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Cancellation decree

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an equitable decree of a court nullifying a lease

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Rule of Capture

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doctrine that landowner acquires title to the oil and gas which he produces from wells drilled on his land although part of such oil migrated from adjoining lands. Under the rule w/o state regulation of drilling , a landowner, however small his tract or wherever he is located a producing structure, could drill as many wells on his land and wherever he pleased bc not liable to adjacent owners whose land are drained as a result

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Carried interest

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fractional interest in oil and gas property, the holder of which has no personal obligation for operating costs, which are paid by the owner(s) of the remaining fraction, who reimburse themselves for out of production

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Carved out Interest

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an interest conveyed by the owner of a greater interest
ex: grant overriding royalty out of a working interest

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Cash Consideration

Back 30

in oil and gar transactions, the cash money paid in return for promise or an act of another (also called a bonus)

Front 31

Casinghead gasoline

Back 31

Liquid hydrocarbons separate from casing head gas by reduction of pressure at the well head or by separator, absorption plant, or manufacturing process

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Casinghead gas royalty

Back 32

the royalty payable on casing head gas produced and saved from oil well

Front 33

Century Doctrine

Back 33

If separate tract has been voluntarily subdivided so that none of the subdivisions, individually, are eligible for an exception drilling permit, the parent tract, as a whole, may nonetheless receive a permit upon proof of damage or waste

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Change of Ownership Clause

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typical lease will provide that all the rights of either party may be assigned, in whole or in part

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Checker Boarding

Back 35

acquisition of mineral rights upon a checkerboard fashion

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Christmas Tree

Back 36

assembly of valves, pipes and fittings used to control the flow of oil and gas from the casing head

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Commercial Well

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well capable of producing in paying quantities; aka make a profit over costs of drilling, equipping, completing, and operating it

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Common reservoir

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any oil and or gas field or part thereof tat comprises and includes any area which is underlain by a common pool of oil and/or gas

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Community lease

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A single lease covering two or more separately owned tracts of land; in TX these are pooled as a matter of law

Front 40

Compulsory Pooling

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the bridging together, as required by law or valid order or regulation, of separately owned small tracts sufficient for granting of a well permit under applicable spacing rules; important in preventing the drilling of unnecessary an uneconomic wells, resulting in waste

Front 41

Deferred bonus

Back 41

Landowners bonus payment made in installments over a number of years rather than the usual lump sim on execution of the lease

Front 42

Delay rental

Back 42

sum of money payable to the lessor by the lessee for the privilege of deferring the commencement of drilling operations or the commencement of production during the primary term of the lease

Front 43

Depletion

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Physical depletion– exhaustion of a mine or a petroleum reservoir by extracting minerals
Economic depletion– reduction in the value of wasting asset by removing minerals
Depletion for tax purposes– removal and sale of minerals from mineral deposit

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Development

Back 44

the drilling of wells in addition to the discovery well on a lease

Front 45

Directional Drilling

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the drilling of a well that departs materially from vertial

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Discovery Well

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exploratory well that encounters a new previously untapped mineral deposit

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Division order

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a contract for sale to the purchaser of oil and gas. The order directs the purchaser of production to make payment for the value of the products to the persons entitled to payment n the proportions wet out in the division order

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Dominant Estate Rule

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in oil and gas, the mineral owner or lessee under the OGL is viewed as owning the dominant estate and the surface owner or lessor is viewed as owning a servient estate; means the surface estate in burdened w/ a servitude or easement in favor of the mineral estate

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Drainage

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Migration of oil and gas in a reservoir due to a pressure reduction casted by production from wells bottomed in the reservoir

Front 50

Drilling-delay rental clause

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clause in OGL that gives the lessee the right to maintain the lease during the primary term wither by commencing operations for drilling or paying delay rentals

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Drilling permit

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authorization issued by the TX RRC allowing the named applicant to drill a well

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Drilling unit

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area prescribed by applicable well spacing regulations for granting of a permit by regulatory agency for drilling of a well

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Dry Hole

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well determined to be incapable of commercially producing either oil or gas

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Dry Hole clause

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lease clause specifying the means by which the lessee may keep a lease alive after the drilling of a dry hole

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Duhig Rule

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rule developed by TX ct.'s to deal with the problem of over conveyancing of fractional interest which is based on breach of warranty and estoppel by deed

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Easement

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incorporeal rights of user of the surface; in this case, so much of the surface as may reasonably be necessary for expiration for and the development of minerals may be used by the operator or lessee, absent express language limiting the easement

Front 57

"Eighty-eight" lease

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"unless-type" lease

Front 58

Encroachment

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entry of water or gas by gradual steps into an oil bearing formation as the oil is withdrawn

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End use control

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prohibition or regulation of the use of natural gas or oil for particular purposes

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Entirety clause

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a lease clause inserted primarily for the benefit of the lessee to make it clear to lessors or subsequent transferees of the lessor(s) that inside property lines created by later divisions of the fee ownership or by royalty conveyances shall not affect the lessee's duties of development and operation

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Exception

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that which is excepted from a grant

Front 62

Exclusive leasing Power

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the power to execute an OGL on an interest in and from which the lessor will not derive some or all of the usual lease benefits

Front 63

Executive right

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power to make decisions regarding the mineral estate, including the power to lease; can be severed from the other incidents of the mineral estate

Front 64

Expense-free Interest

Back 64

property interest in oil and gas that does not share the burden of production expense. ex: royalty, overriding royalty, oil payments, and net profits interests are expense free

Front 65

Farmout Agreement

Back 65

common form of agreement b/w operators, whereby the owner of a lease not desirous of drilling at the time (farmor) agree to assign the lease, or a portion of it, to another operator who is desirous of drilling the tract (farmee); essentially a farm out is earning for drilling

Front 66

Field drainage

Back 66

Regional migration of oil or gas; field wide movement in one direction results from removal of petroleum at any point in the reservoir

Front 67

Force Majore Clause

Back 67

a Lease clause providing that failure of production shall not cause automatic termination of the leasehold setae and that the performance of the lessee's covenants shall be excused when such failure of production or performance of covenants is due to causes specified in such clause

Front 68

Forfeiture Clause

Back 68

clause in an OGL framed as condition subsequent, giving the lessor a right to reentry for breach of the condition

Front 69

Fractional Mineral or Royalty interest

Back 69

a deed conveying a fractional or undivided interest in the mineral or royalties rather than the entire interest

Front 70

Further Exploration Covenant

Back 70

duty implied (in some state) by an OGL, which requires the lessee to conduct further exploration operations on the leasehold after production is initially secured

Front 71

General warranty

Back 71

deed the grantor warrants that they have good title

Front 72

Quitclaim Deed

Back 72

deed the grantor does not warrant anything, he merely conveys whatever interest he has

Front 73

Geophysical Trespass

Back 73

wrongful entry on land for the purpose of acquiring geological information

Front 74

Habendum Clause

Back 74

lease clause setting forth the duration of the lessee's interest in the premises

Front 75

Horizontal Severance

Back 75

Conveyance of all, or portion, of the minerals above or below or b/w a specified depth, or given status or horizon

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Implied Covenants

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unwritten promises generally imposed on the Lessee to protect the lessor; most ct.'s recognize:
(1) protect the leasehold from drainage
(2) reasonably develop the land
(3) produce and market the product
(4) conduct operations with due care
some also recognize:
(5) Drill an initial exploratory well; can be negated by delay rental clause
(6) explore further; not recognized in TX

Front 77

Implied easements

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Easements created by implication rather than express terms of an instrument; a grant or reservation of minerals will carry with it the implication of ingress and egress

Front 78

Injection well

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a well employed for the introduction into an underground stratum of water or gas under pressure

Front 79

Joint Operating Agreement

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agreement b/w or among concurrent owners for the operation f a concurrently owned tracts r leaseholds for oil, gas, or other minerals; typically the agreement provides for the development of the premises by one of the parties, who is designated as unit operator, for the joint account

Front 80

Landman

Back 80

person in the oil and gas industry whose responsibilities include acquiring oil and gas lease, examining and curing land titles and otherwise manning an oil company's leases

Front 81

Landowners/Lessor's royalty

Back 81

share of the gross production of the minerals free from the costs of production granted to the mineral owners under the OGL as partial consideration of granting the lease

Front 82

Lessee

Back 82

person entitled under OGL to drill and operate wells, paying the lessor a royalty and retaining the remainder called a "working interest" (7/8ths); pays all production costs out of this fraction

Front 83

Marketable Product Rule

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rule that "production" for the purpose of computing lease royalty on gas s not complete until a lessee has both captured and made the natural gas marketable product

Front 84

Market Value at the Well Rule

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production is complete when the gas is captured and thereafter the lessor must bear his proportionate share of the costs of handling the gas

Front 85

MCF

Back 85

abbreviation of one thousand feet of bass, the most common unit used for measuring natural gas

Front 86

Mineral deed

Back 86

conveyance of an interest in the mineral in, on, or under a described tract of land; grantee is given operating rights on the land

Front 87

Mineral interest

Back 87

property interest creates in oil and gas after a severance of the mineral deed or OGL

Front 88

Mining Partnership

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partnership arising from express agreement or by implication from conduct of concurrent owners of an operating interest in minerals. Both joint interest in the property and joint operation are essential to the creation of a mining partnership

Front 89

Non-executive mineral interest

Back 89

term used to describe an interest in oil and gas that lacks the right to join in the execution of OGL and right to develop

Front 90

Non-ownership theory

Back 90

theory that no person owns oil and gas until it is produces, but the right to produce is limited to those persons who own the land upon which a well may be drilled; bc no right to possession of the oil and gas in place, the interest in a non-ownership state is profit a prendre; theory used in LA, OKL, and CAL

Front 91

Notice and Demand clause

Back 91

provision in a OGL requiring the giving of notice of breach of an express or implied duty under the lease and making of demand for performance as a prerequisite to any legal action for the breach

Front 92

Offset clause

Back 92

an express provision in an OGL requiring the lessee to drill an offset well under certain circumstances, usually trigger involves drainage and/or situations where RPO would drill; absent such clause, its implied

Front 93

Offset well

Back 93

well drilled on one tract of land to prevent the drainage of oil to an adjoining tract of land, on which a well in being drilled or is already in production

Front 94

OIl payment

Back 94

share of the oil produced from describes tract of land, free of the costs of production at the surface, terminating when a specified sum from sale of such oil has been realized

Front 95

Oil Royalty

Back 95

royalty paid by an operator to royalty owners on oil produced and saved

Front 96

Open mine doctrine

Back 96

doctrine which developed at CL and which permits a life tenant to continue to sever and appropriate minerals from a mine which was operand before the creation of the life estate. Life tenant normally may not sever the minerals without the concurrence of the owner of future interest in the land

Front 97

Overriding royalty

Back 97

interest in oil and gas produced at the surface, free of the expense of production

Front 98

Ownership in Place theory

Back 98

theory that a landowner owns the oil and gas which was originally in place beneath the surface. the landowner may create by grant or reservation a corporeal or possessory interest in the minerals, separate form the estate in the surface

Front 99

Partition

Back 99

conversion of a concurrent estate – in joint tenancy or tenancy in common – by partition in sale or partition is kind. TX partition is available as a matter of right

Front 100

Payout

Back 100

Recovery from the sale of production of the costs spent to drill and equip a well

Front 101

Pooling

Back 101

a term frequently interchangeable with "unitization" but more properly used to denominate the bringing together of small tracts sufficient for granting of a well permit under applicable spacing rules

Front 102

Pooling Clause and Pugh Clause

Back 102

a lease clause authorizing a lessee to "pool" or join the particular leased presses with other leases for purpose of aggregating a tract sufficient for a well permit under applicable spacing regulations. Clause typically provides for: (1) maximum size of the unit to be formed (2) notification to lessor of the formation of the unit (3) provision for apportionment of royalties (4) the effect of production or other operations within the unit upon the lease

Front 103

Pugh Clause– effect

Back 103

to avoid excuse of payment of delay rentals (and keeping the lease alive) by lessee on substantial portion of leasehold by receipt of nominal payment from a smaller portion of the leasehold. Pugh clause severs the unpooled average from the pooled average, in order to keep the lease in force on unpooled average, the lessee must wither pay delay rentals or drill a well pursuant to the terms of the lease

Front 104

Porosity and Permeability

Back 104

Porosity refers to the relative volume of pores spaces
Permeability refers to the relative interconnection of the pore spaces in a rock formation

Front 105

Primary Term

Back 105

period of time, typically 5 to 10 years, durning 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 land or payments of lease rentals

Front 106

Profit a prendre

Back 106

an incorporeal interest in land which authorizes the removal of part of the corpus of the land

Front 107

Production and Marketing Covenant

Back 107

duty implied in OGL that the lessee, after discovery of minerals, shall use diligence in operating the wells and marketing the product

Front 108

Production payment

Back 108

a share of production, free of cost of production, that terminates when agreed sum has been paid

Front 109

Proportionate reduction clause

Back 109

clause commonly included in contemporary leases providing for the reduction of the payments to a lessor if his interest is less that that which he purported to lease

Front 110

Prorating

Back 110

restriction of production by a state regulatory commission

Front 111

REasonable Development Covenant

Back 111

duty implied in OGL obligating lessee to use due diligence in drilling wells on the leasehold after discovery of oil or gas

Front 112

Reasonable Prudent Operator (RPO)

Back 112

objective standard generally applied to determine whether a lessee complied with the implied covenants under the OGL; standard refers to the scope of the operators duties to act in good faith

Front 113

Release of Record Clause

Back 113

lease clause designed to facilitate the quieting f the lessor's title after the expiration, forfeiture or termination of a lease by requiring that the lessee execute and record an instrument evidencing the discharge of the lease

Front 114

Relinquishment Act Lands

Back 114

Lands in which the minerals were reserved by the State of TX on grant to private owners and in which a share of the proceeds of leasing were released to the private owners by the Relinquishment Act

Front 115

Reservoir

Back 115

a porous and permeable underground formation containing an accumulation of producible hydrocarbons (oil and/or gas) which is confined by impermeable rock or water

Front 116

Royalty

Back 116

Landowner's share of production, free of expenses of production

Front 117

Rule 37

Back 117

state-wide spacing rule of the TX RRC

Front 118

Rule 38

Back 118

state wide density rule TX RRC

Front 119

Rule 86

Back 119

the state-wide rule of the TX RRC that governs the drilling and completion of horizontal wells

Front 120

Saving Clause

Back 120

Clause in OGL that will hold the lease in the absence of production

Front 121

Secondary Term

Back 121

term of the OGL after Primary term, typically "as long thereafter as production in paying quantities"

Front 122

Secondary Recovery

Back 122

Broadly defined the term includes all methods by which substances extrinsic to reservoir or injected into the reservoir to aid in the extraction of oil gas

Front 123

Shut-in gas well clause

Back 123

lease clause which authorized a lessee to pay a shut-in gas well royalty and thereby keep a lease alive without actual production when and if a well has been drilled which is capable of producing gas in paying qualities but huh is shut-in, usually by reason of lack of market

Front 124

Shut-in Royalty Clause

Back 124

a payment made when gas well, capable of producing in paying quantities, is shut-in for lack of a market for gas, under the shut-in gas well clause

Front 125

Spud

Back 125

piercing the ground with drill but

Front 126

Subject-to clause

Back 126

clause commonly included in a mineral and royalty conveyance made subsequent to a lease, providing that the conveyance in "subject to" the mineral lease

Front 127

Subrogation Clause

Back 127

a lease clause surrogating the lessee to any lien upon the leased premises which the lessee elects to discharge in whole or in part

Front 128

Surface Damage Clause

Back 128

a provision, sometimes found in oil and gas leases, requiring the lessee to pay compensation for damages done to the surface of the leased property by drilling and operating thereon

Front 129

Take-or-pay provision

Back 129

Provision in gas purchase contract which obligates gas purchaser to either take certain quantity of gas from the producer's well or pay for gas even if it's not taken

Front 130

Thereafter clause

Back 130

the lease clause providing for continued validity of the lessee interest subsequent to the expiration of primary term "so long as" a specified state of affairs continues

Front 131

Transfer Order

Back 131

A direction to the purchaser under a division order to pay another person a share in oil or or gas produced

Front 132

Unitization

Back 132

term frequently used interchangeably with "pooling" but more probably used to denominate the joint operation of all or some portion of a producing reservoir

Front 133

Unless lease/Or lease

Back 133

principal form of modern oil and gas lease "Unless lease" Unless form of lease is the form in TX. "Or lease," which is widely used in Cal.
Both granted for primary term and "so long thereafter" as oil is produced.
differ in their provision concerning drilling: Unless leases make no promise to drill or to pay or tender royalties but the delay rental clause

Front 134

Upstream Activity

Back 134

exploration and production— finding and producing oil and gas

Front 135

Downstream activity

Back 135

which includes refining, transportation and marketing

Front 136

Duty of Utmost good faith

Back 136

obligation imposed on the executive with regard to exercise of the power to lease, where the exclusive leasing power in land is separated from an interest in the oil and gas, as in the case of nonparticipating royalty and non-excutive mineral interests

Front 137

Voluntary Subdivision Rule

Back 137

Rule of law stating that a small tract owner is not eligible for a Rule 37 Exception if his small tract was subdivided after oil and gas was discovered in the near vicinity

Front 138

Warranty clause

Back 138

a clause in oil lease that permits the lessee to recover damages from the lessor if there is failure of title with regard to the described mineral average

Front 139

Wildcat

Back 139

an exploratory well being drilled in unproven territory — that is where there is no production in the general area

Front 140

Working Interest

Back 140

cost bearing interested owned by lessee which gives the lessee the exclusive right develop the property for oil and gas at its sole risk and expense