Oil & Gas Glossary

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ABANDONED WELL: A well that is no longer in use because it was either a dry hole or it has ceased to be economically productive. Abandoned wells should be permanently plugged.

ABSOLUTE OWNERSHIP: The theory that minerals such as oil and gas are fully owned in place before they are extracted and reduced to possession. Title to oil and gas may be lost by legitimate drainage and by the rule of capture.

ABSTRACT COMPANY: A private company in the business of preparing abstracts of title and performing related services.

ABSTRACT OF TITLE: A chronological history of the ownership of a piece of property. It may consist of all recorded legal documents affecting the title of ownership of a piece of property, from one owner to another, dating back to when the property was originally homesteaded or granted by the government, although it may be abbreviated to some degree. 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.

ACRE: The most common unit of land measure in the United States. It is defined as the area of 1 chain (66 feet) by 1 furlong (660 feet), which is exactly equal to 1640 of a square mile, 43,560 square feet, approximately 4,047 m2, or about 40% of a hectare. There are 640 acres in one square mile.

ACREAGE CONTRIBUTION: Acreage owned in the vicinity of a test being drilled by another party and contributed to the driller of the well in return for information obtained by drilling.

ADVERSE POSSESSION: A method of asserting and gaining title to property against other claimants, including the record owner. The claim through adverse possession must include certain acts, as required by statute, over an uninterrupted interval of time. It is also open, notorious, and hostile.

ALLOCATION WELL: A term used by the Texas Railroad Commission and the oil and gas industry to refer to a horizontal well that is drilled across lease lines without pooling the tracts on which the well is located. With an allocation well, the operator (the lessee) has not been granted the right to pool a leased tract (usually for lack of a pooling clause in the lease) or signed a production sharing agreement (PSA) with the royalty owners (the lessors). The well operator will allocate the production from the well (and thus royalty payments) based on the percentage of the productive lateral (the horizontal portion) of the well located on each tract of property. Allocation wells are controversial given some attorneys and mineral owners contend they violate the typical oil and gas lease unless the lease expressly grants such authority. In addition, some have questioned whether the Texas Railroad Commission has the authority to issue permits for allocation wells. Also known as production allocation wells.

AMI: Area of Mutual Interest. An area outlined on a map, that may accompany an exploration, drilling, or farm-out agreement. It provides each party to the agreement, the right of first refusal on leases acquired by another party to the agreement. It may also provide for the sharing of interests that may be obtained by a party to the agreement.

ASSIGNMENT: Legal instrument that transfers an interest in a property from one party to another. The receiving party is the ‘assignee’ while the transferring party is the ‘assignor’.

ASSIGNMENT CLAUSE: A clause in any legal instrument that allows either party to the contract to assign all or part of his/her interest to others.

ASSOCIATED GAS: Natural gas produced along with crude oil from oil wells (as opposed to gas produced from gas wells). Also known as casinghead gas.

AUTHORIZATION FOR EXPENDITURE (AFE): An estimate of the costs of drilling and completing a proposed well. The operator of the lease provides an AFE to each non-operated working interest owner (if any) for their approval before work on a well begins.

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BACK-IN: A type of interest in a well or property that becomes effective at a specified time in the future, or on the occurrence of a specified future event. Also known as a reversionary interest.

BARREL (BBL): The standard unit for measuring crude oil. One barrel is equal to 42 U.S. gallons.

BCF: Billion Cubic Feet, a measure of natural gas production. In the United States, natural gas production is measured in thousand cubic feet (MCF). One BCF is the equivalent of one million MCF.

BLOWOUT: A sudden uncontrolled flow (of oil, natural gas, water, or mud) from a well into the atmosphere. Contrary to popular belief, blowouts do not always result in an explosion or fire.

BLOWOUT PREVENTER: Heavy-duty equipment installed at the wellhead during drilling and completion operations that contains special gates or rams that can be closed around the drill pipe or choke off the flow from a well.

BONUS: Cash paid to the mineral owner by an oil and gas producer or leasing agent to secure or extend an oil and gas lease. The bonus is usually quoted in dollars per acre and is normally not listed in an oil and gas lease document. Also known as bonus consideration or signing bonus.

BOREHOLE: The hole created by the drilling (boring) of a well.

BTU: British Thermal Unit, a generalized measure of heating value from the burning of fuels such as crude oil and natural gas. It is also used to compare the energy potential of different types of fuels. Heating values for oil and gas are usually expressed in millions of British thermal units, or MMBtu.

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