Eric R. King. University of Oklahoma "Oil and Gas Practice" Fall UPDATED Glossary of Oil and Gas Terms

Transcription

1 Eric R. King University of Oklahoma "Oil and Gas Practice" Fall 2015 UPDATED Glossary of Oil and Gas Terms 1. 3D Seismic Reflection seismic methods are used to create a picture of the subsurface that should enhance the ability of the oil and gas company to successfully select future well locations. 3D seismic has become a common exploration and production tool. Reflection seismic is a method that allows us to image changes in the subsurface geology by inducing an acoustic wave from near the surface of the earth and listening for the echoes from deeper stratigraphic boundaries. 2. Abandoned Well A well not in use because it was a dry hole originally, or because it has ceased to produce. 3. Acid Frac The process of opening cracks in hard carbonate productive formations by using a combination of oil and acid under high pressure. 4. Allowable This is the quantum of oil or gas that a well will be allowed to produce under the rules and regulations of the Oklahoma Corporation Commission. 5. Annual One-Point Test 6. Area of Mutual Interest Test which measures the open flow capacity of a gas well after the well has been shut-in for a minimum of 24 hours. In Oklahoma, this test is required once a year to determine the maximum allowable for the well averaged over a year. The test result is required to be filed at the OCC. An agreement between parties that covers a legally described area in which the parties agree to share on an agreed to basis, additionally acquired oil and gas leases or other interests acquired after the execution of the agreement. 7. Bbl One stock tank barrel, of 42 U.S. gallons liquid volume, used in reference to crude oil, condensate or natural gas liquids. 8. Bcf One billion cubic feet of natural gas. {S318276;} 1

2 9. Bcfe One billion cubic feet of natural gas equivalent using the ratio of one barrel of crude oil, condensate or natural gas liquids to 6 Mcf of natural gas. 10. Btu British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit. 11. Basin A large natural depression on the earth s surface in which sediments generally brought by water accumulate. 12. Borehole A hole in the earth made by a drilling rig. 13. Buck the Line Pressure A slang term used to reflect the gas being produced is less than the pressure in the pipeline, hence the gas will not be able to get into the pipeline without some type of compression (to increase the pressure). 14. Cash Balancing A mechanism where cash is paid by a leasehold owner who is "over balanced to an owner who is "under balanced" at the end of the economic life of the well. 15. Carried Working Interest This is where a working interest owner (often the Operator), Party "A" has an agreement where Party "A" assigns working interest to Party "B" and has Party "B" pay part of Party "A s" working interest share of the costs of drilling, testing, and completing a well. Typically, this is done to a specific point (i.e. to casing point; to the tanks). i.e. Party "B" receives a 1/4 working interest and pays for a 1/3 of the working interest The "carried" working interest is %.( % - 25%). 16. Casing Thick walled steel pipe placed in wells to isolate formation fluids (such as fresh water) and to prevent borehole collapse. 17. Casinghead Gas Gas produced with oil in oil wells, being the gas being taken from the well through the casinghead at the top of the well, as distinguished from gas produced from a gas well. 18. Certified Gas Storage Area 19. Commercial Salt Water Disposal Well An area certified by the Oklahoma Corporation Commission which marks the boundaries of the gas storage area into which the gas will be injected, typically a depleted common source of supply. An authorized disposal well where produced salt water produced out of oil and/or gas wells outside of the unit is properly disposed of into an existing wellbore. 20. Commission En Banc The three Oklahoma Corporation Commissioners sitting together, hearing a case or appeal, and rendering a decision. 21. Completed Well Costs The cost of drilling, testing equipping and producing a new well, which includes the dry hole costs. {S318276;} 2

3 22. Compressor An installation in which the pressure of gas is raised for transmission through the pipeline while the gas is cooled, scrubbed and dehydrated. 23. Condemnation The statutory process by which land is taken through a judicial proceeding called eminent domain to determine the "value" of the land "taken" and subsequently made available for pipelines and underground storage. 24. Conservation The prevention of the loss of natural resources without economic or beneficial use: the prevention of waste. 25. Conservation Docket (CD) The docket at the OCC where the "general" oil and gas cases are filed and set for hearing before an Administrative Law Judge. 26. Correlative Rights Each owner of land in a common source of supply of oil and gas has privileges as against other owners of land therein to take oil and gas there from by lawful operations conducted on his own land, limited, however, by duties to other owners not to injure the common source of supply and by duties not to take an undue proportion of oil and gas. 27. Cross-Section The process of "hanging" well logs side by side on a common datum point to compare the "signature" (readings) of the porosity of the same common source of supply or the same lens within a common source of supply. Used to correlate common sources of supply across multiple units and can be used to show continuity across multiple units to show the likelihood of drainage or no possible drainage. 28. Dehydration ("DHi" Unit) A unit typically on location used to remove water from fluid produced from oil wells. 29. Delay Rental A sum of money payable to the lessor for the privilege of delaying the commencement of drilling operations during the primary term of the oil and gas lease, paid on or before the first year anniversary of primary term of the oil and gas lease. 30. Deleterious Substances A deleterious substance is any substance that, if added to any water, would degrade or alter the quality of that water so that it becomes toxic or harmful. Also described as salt water, silt, sediment or sediment-laden water, raw concrete or concrete leachate, or any other substances that may cause damage to the surface or any underground water supply or formation. 31. Developed Acreage The number of acres that are allocated or assignable to productive wells or wells capable of production. 32. Development Well A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. {S318276;} 3

4 33. Directional Well The drilling of a well that departs materially from the vertical. In Oklahoma a Bottom Hole Survey (BHS) is required to be submitted to the Oklahoma Corporation Commission before an allowable is assigned to the well. 34. Disposal Well A well employed for the re-injection of salt water produced with oil into an underground formation or common source of supply within the Unit. 35. Division Order A contract of sale to the purchaser of the oil or gas executed by all owners in the well. The order directs the purchaser to make payment for the value of the products taken in the proportions set out in the division order. This includes all owners in the well. 36. Drilling and Spacing Unit The area of land identified by size (i.e 640 acre drilling and spacing unit) determined by the Oklahoma Corporation Commission, whereby one well will economically and efficiently drain the recoverable hydrocarbons underlying the unit. 37. Drill to Earn A term used in an oil and gas agreement. This is a situation where one party (Party "A") owns leasehold and agrees to convey to another party (Party "B") Party A s leasehold interest in the wellbore on the condition that Party "B" drills a well to a specified depth. If Party "B" drills to the specified depth, Party "B" thereby "earns" the leasehold acreage of Party "A" in the wellbore and gets an assignment. 38. Dry Gas Natural gas without liquid constituents. 39. Dry Hole A well incapable of economically producing saleable hydrocarbons in sufficient quantities to justify commercial exploitation. 40. Dry Hole Costs The cost to drill a well to Total Depth or Casing Point, without completion costs added in. 41. Easement Incorporeal rights of user of the surface. Upon the severance of minerals by lease or deed, so much of the surface as may be reasonably necessary for exploration for and the development of the minerals by the operator or lessee, absent express language in the creating instrument limiting the easements of the lessee or mineral owners. Also, permission of the surface owner in an instrument for pipelines, underground gas storage, power lines or the like. 42. Economic Waste (Prevent) Requisite provision of 52 O.S which is part of what the Oklahoma Corporation Commission is charged with doing preventing economic waste. (not leaving gas or oil in the ground)(authorizing drilling to "capture" oil and gas). {S318276;} 4

5 43. Enforcement Docket (EN) The docket at the OCC where either the Commission staff, or in rare instances an individual or company, file to enforce some rule or regulation of the OCC or violation of some rule or regulation of the OCC. 44. Enhanced Recovery Another name for secondary recovery. This is where the initial phase of production is winding down and the Operator chooses to "water flood" or inject CO2 into a common source of supply in a larger area ( a secondary recovery unit) to increase the ultimate withdrawal of the oil and or gas. 45. Exploratory Well A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. 46. Farm-In The acquisition of part or all of an oil, natural gas or mineral interest from a third party. 47. Farm-Out ("F/O") A contractual agreement with an owner who holds a working interest in an oil and gas lease to assign all or part of that interest to another party in exchange for fulfilling contractually specified conditions, typically drilling a well to a specific depth or common source of supply. 48. Field An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations. 49. Flaring The burning of natural gas for safety reasons or when there is no way to transport the gas to market or use the gas for other beneficial purposes (such as EOR or reservoir pressure maintenance). The practice of flaring is being steadily reduced as pipelines are completed and in response to environmental concerns. 50. Formation A rock layer which has distinct characteristics (e.g. rock type, geologic age). 51. Frac A term used to refer to the method used to increase the deliverability of a production by pumping a liquid or other substance into a well under pressure to crack or fracture and prop open the hydrocarbon bearing formation. 52. Gas Natural gas, which sometimes includes gas condensate (liquid). Can on occasion mean casinghead gas produced from an oil well. 53. Gas Balancing Various owners in a gas well set forth their agreement on how the production will be balanced in the event one or more of the parties take more or less of its allocable share of production. {S318276;} 5

6 54. Gas Condensate Associated oil called distillate, typically produced with natural gas from a well classified as a gas well. This condensate is liquid in form. 55. Gas Gathering Docket (GC) 56. Gas Gathering System A limited docket at the OCC where a producer can file a grievance against a gas gatherer (purchaser) if a producer believes it is being discriminated against. A series of gas pipelines that collect gas from various wells to be delivered and connect to a larger pipeline system. 57. Gross Isopach Map A geological mapping of a common source of supply using the gross feet of sand measurement from the porosity logs run in wells. 58. Habendum Clause The clause in a deed or lease setting forth the duration of the grantee s or lessee s interest in the premises, subject to other provisions contained in the lease which may provide for an earlier or later termination under prescribed circumstances or upon the happening of certain events. 59. Heater-Treater A tall, cylindrically shaped upright unit placed on the surface of the land connected to a tank battery (a series of oil tanks and water tanks) serving producing wells, commonly used in oilfield production processes in order to separate water and other foreign substances from the crude oil. 60. Henry Hub Spot Price 61. Horizontal Well/ Horizontal Spacing 62. Hydraulic Fracturing 63. Hydraulic Fracturing Fluids (Hydra Frac) The price of natural gas, in dollars per MMbtu, being traded at the Henry Hub in Louisiana in transactions for next-day delivery, measured downstream from the wellhead after the natural gas liquids have been removed and a transportation cost has been incurred. A wellbore drilled laterally at an angle of at least eighty (80) degrees to the vertical and with a horizontal projection exceeding one hundred (100) feet measured from the initial point of penetration into the productive formation through the terminus of the lateral in the same common source of supply. Hydraulic fracturing (also referred to as frac ing or fracking) is an essential completion technique in use since the 1940s that facilitates production of oil and natural gas trapped in lowpermeability reservoir rocks. The process involves pumping fluid at high pressure into the target formation, thereby creating small fractures in the rock that enable hydrocarbons to flow to the wellbore. Mixture of water and proppant along with minor amounts of chemical additives used to hydraulically fracture low permeability formations. Water and sand typically comprise up to 99.5 percent of the mixture. {S318276;} 6

7 64. Increased Density A regulatory order permitting an exception to the normally applicable spacing rules to authorize the drilling of an additional well or wells in a single drilling and spacing unit. 65. Infill Wells Wells drilled into the same reservoir as known producing wells so that oil or natural gas does not have to travel as far through the formation, thereby helping to improve or accelerate recovery. 66. Injection Well A well employed for the introduction into an underground stratum of water, gas, other fluid under pressure, or "void pore space." Typically involves the disposal of salt water produced with oil or other waste, pressure maintenance, cycling, secondary recovery and tertiary recovery. Can also indicate the location where gas is delivered into underground storage. 67. Initial Hearing Docket 68. Initial One-Point Test 69. Initial Report of the Administrative Law Judge 70. Irregular Spacing Unit 71. Inverse Condemnation 72. Joint Operating Agreement ("JOA") All cases filed at the OCC are placed on the Initial Hearing Docket. This docket is where a case first comes on for hearing before an Administrative Law Judge, if unprotested. Flow test required by the OCC upon completion of a gas well. The Calculated Absolute Open Flow ("CAOF") is reported to the OCC. After an Administrative Law Judge has heard a protested case (a trial) at the OCC, the ALJ issues a report which summarizes the facts of the case and issues his/her recommendation to the Commissioners. A spacing unit created at the OCC which is irregular in size or shape based on specific geological testimony to support such irregular size or shape, and which is requested when the application is filed. An action against a party which has not exercised its power of eminent domain, but whose activities are alleged to constitute a taking of property for which no compensation has been paid. The taking may be either permanent or temporary. An agreement among working interest owners describing how a well is to be operated and the many conditions and monetary arrangements for developing a unit or area. 73. Lateral This is the horizontal portion or "leg" of a horizontal well that emanates from the terminus out to the bottom hole location (end of the lateral). 74. Laydown Spacing Unit A term used to denote a spacing unit which length east and west is greater than the length north and south, ie S/2 and N/2 of a section or S/2 NE/4 and N/2 NE/4 of a quarter section. {S318276;} 7

8 75. Life Estate Language usually reserved in an instrument of conveyance whereby the Assignor reserves certain rights for their lifetime. The language creating the life estate is extremely important as to what is actually been reserved. As to a mineral interest, it is most commonly the right to receive the income from the mineral estate, as well as any bonus, delay rental, or shut-in gas royalty during an individual s life. Many times is seen as a reservation by a parent or parents in their later years in deeds to their children. 76. Liquefied Natural Gas (LNG) Natural gas that has been converted to a liquid by refrigerating it to -260 F. Liquefying natural gas reduces the fuel s volume by 600 times, enabling it to be shipped economically from distant producing areas to markets. 77. Location Exception The location of a well which is "off pattern" or outside the boundary of a proper location determined by the spacing rules. A well location authorized as an exception to the rules. 78. Logs A systematic recording of data, such as a driller s log, mud log, electric well log, dual induction log or radioactivity log. Many different logs are run in wells to discern various characteristics of down-hole formations. 79. Look Back (Delayed Election) An agreement typically between an Operator and a working interest owner, Party "B" where for some reason the Party "B" did not commit to participate in a well (failure to receive notice/later acquired interest/did not receive proper notice in a pooling etc). The Operator, after drilling the well, allows Party "B", the working interest owner to get the well information (logs etc.) before deciding whether or not to participate in the well. 80. MBbl One thousand barrels of crude oil, condensate or natural gas liquids. 81. Mcf One thousand cubic feet of natural gas. 82. Mechanical Integrity Test A test where the wellbore of a disposal well is checked for leaks, perforations, holes or casing splits. 83. Mineral Interest The property interest in Oklahoma that allows for the right to explore for oil and gas and to reduce the oil and gas to possession. Many times this interest is created in oil and gas after a severance by mineral deed or oil and gas lease. Its duration is like that of common law estates, namely, in fee simple, in fee simple determinable, for life or for a fixed term of years. The prime characteristic is the right to enter the land to explore. drill, produce and otherwise carry on mining activities. 84. MMBtu One million British thermal units. {S318276;} 8

9 85. MMcf One million cubic feet of natural gas. 86. MMcfe One million cubic feet of natural gas equivalents using the ratio of one barrel of crude oil, condensate or natural gas liquids to 6 Mcf of natural gas. 87. Monitor Well There are two types of monitor wells. One is a well that monitors for the influx of salt water near a city water supply. The second is a well used by an underground gas storage operator to measure the pressure of the gas within the storage facility. 88. Natural Gas Naturally occurring hydrocarbon gases found in porous rock formations. Its principal component is usually methane. Nonhydrocarbon gases such as carbon dioxide and hydrogen sulfide can sometimes be present in natural gas. 89. Natural Gas Liquids (NGLs) A general term for highly volatile liquid products separated from natural gas in a gas processing plant. NGLs include ethane, propane, butane and condensate. 90. 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. 91. Net Isopach Map A geological mapping of a common source of supply using the net feet of sand measurement from the density logs run in wells, using a porosity cut-off (which typically is chosen to identify the hydrocarbons that will contribute production to the wellbore). 92. Net Revenue Interest ("NRI") A term used to describe the remaining share of a working interest owner s interest in a lease or leases after deducts (i.e. royalty, excess royalty and ORRI) expressed as a percentage e.g. 100% less 18.75%. (Royalty) less 1.25% (ORRI) = 80% NRI. 93. 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. 94. "Nodding Donkey" The slang term employed to describe the pump jack on top of an oil well. 95. Non-Consent An affirmative election by a working interest owner not to participate with his/her working interest in the drilling of a well. Under a JOA, the working interest owner will have 100% of his/her interest returned/re-instated/come back in after 400% Payout on the well (4 times). 96. Non-Participating Royalty Interests A royalty interest which shares in any oil or gas found but does not share in lease bonuses or rentals. 97. NYMEX The New York Mercantile Exchange. {S318276;} 9

10 98. Oil Crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the wellhead in liquid form and distillate or condensate recovered or extracted from gas, other than gas produced in association with oil and commonly known as casinghead gas. 99. Operator The company responsible for the drilling of wells for oil and gas. In Oklahoma, many times referred to as the Unit Operator. ( A working interest owner) Operator s Lien A charge, security or encumbrance placed by the operator on an individual or company s interest for the failure to pay for well expenses incurred by the Operator on a well in which the nonoperator agreed or elected to participate Oral Argument before the Commission en banc Not a matter or right, but may be requested within the appeal to the Initial Report of the Administrative Law Judge or by separate motion, by OCC rule Over-Produced A condition where an owner in a well has produced more than his/her "fair share" of the production. Can occur when some parties fail to nominate their gas for sale and another owner sells the gas as his/her own by "picking up the non-nominated party s gas." 103. Overriding Royalty Interest ("ORRI") A royalty interest carved out of the working interest, in excess of the royalty provided in the Oil and Gas Lease. A non cost bearing interest usually assigned during an intervening Assignment, or rarely by the original Lessee Paid-Up Lease An Oil and Gas Lease where rental payments are paid along with bonus upon execution of the Oil and Gas Lease Part of Total Unit Production Usually a nine (9) decimal calculation that provides a party s share of every dollar produced out of the well Permiability A measure of the resistance offered by rock to the movement of fluids or gas through it. Measured in millidarcies Pig Launcher Pigging in the maintenance of pipelines refers to the practice of using pipeline inspection gauges or 'pigs' to perform various operations on a pipeline without stopping the flow of the product in the pipeline. Pigs get their name from the squealing sound they make while traveling through a pipeline. These operations include but are not limited to cleaning and inspection of the pipeline. This is accomplished by inserting the pig into a Pig Launcher - a funnel shaped Y section in the pipeline. The launcher is then closed and the pressure of the product in the pipeline is used to push it along down the pipe until it reaches the receiving trap - the 'pig catcher' Pipeline A tube or system (usually steel) used for the transportation of oil or gas. {S318276;} 10

11 109. Planimeter An exercise taken by an engineer where he/she measures along contour lines of geological mapping (net Isopach maps) with a planimeter to determine the gas in place through volumetrics Plugging Bond Required by all operators of wells in Oklahoma through the Oklahoma Corporation Commission. It is a "surety" to cover the cost of plugging in the event the Operator fails to or is unable to have a well plugged Pollution Docket (PD) 112. Pooling (Compulsory or Forced) The docket at the OCC where the pollution cases are filed in which pollution is alleged to have occurred. An action filed at the Oklahoma Corporation Commission whereby non-committed parties (mineral interest and working interest owners) are brought into the action before an Administrative Law Judge where the Fair Market Value of leasing is determined and the parties being force pooled are given options as to their participation or bonuses and royalty. This action promotes the development of the drilling and spacing unit(s). This action also names a unit operator and establishes the rights and obligations of the parties Porosity The relative volume of the pore spaces between mineral grains as compared to the total rock volume Post-Production Cost An expense associated with making the gas marketable after the gas is severed or removed from the formation Pounds per Square Inch ("PSI") 116. Prehearing Conference Agreement (PHCA) The pressure in a pipeline reflected or measured in pounds per square inch. An agreement at the OCC that is executed by all parties to a protested case and which sets out the "issues" to be tried, the date of the trial, and the date of the exhibit/witness list exchange by counsel Primary Recovery The period of production in which oil moves from its reservoir through the wellbore under naturally occurring reservoir pressure Primary Term The initial period of time typically expressed in years in an Oil and Gas Lease in which the Lessee may explore for and develop the minerals Produce to Earn A term used in oil and gas agreement. This is a situation where one party (Party "A") owns leasehold and agrees to convey to another party (Party "B") Party A s leasehold interest in the wellbore if Party "B" drills a well and the well is productive (not a dry hole). Party "B" thereby "earns" the leasehold acreage of Party "A" who will then and only then assign Party A s interest in the wellbore to Party "B." 120. Produced Water Water produced in connection with oil and natural gas exploration and development activities. {S318276;} 11

12 Production Payment Another name for an oil or gas payment to be paid out of a well or wells revenue stream. Production payment is a broader term. A payment reserved typically in an assignment of working interest that will be paid out of production from the granting party s working interest Production Plat A Plat prepared that shows all of the wells drilled in a specified area (typically a nine section plat) whether drilled to completion as a producing well or as a dry hole. Most wells shown as productive on a Production Plat are color coded to indicate which common source of supply the well is producing from Proppant Sand or man-made, sand-sized particles pumped into a formation during a hydraulic fracturing treatment to keep fractures open so that oil and natural gas can flow through the fractures to the wellbore "Protest" A term used to denote a respondent/party s objection to the relief requested at the OCC on the Initial Hearing Docket. May also denote a contested hearing at the OCC Proved Developed Reserves Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods Proved Reserves The estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions Proved Undeveloped Reserves Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion Pugh Clause A clause added to an Oil Lease to limit holding non-producing lands or depths beyond the primary term of lease in specified acreage. Oklahoma has a statutory Pugh clause Quit Claim Deed ("QCD") A Deed where the grantor conveys all the interest he or she owns, but makes no warranty as to what is being conveyed. A buyer beware situation (caveat emptor) Remediation A process or application whereby perceived of or complained of violations of OCC Rules or environmental issues are dealt with, to clean up or eliminate the "problem." {S318276;} 12

13 132. Report of the Appellate Referee 133. Reservation of Minerals The Report issued after oral argument before the Appellate Referee by counsel and after an appeal is filed to the Initial Report of the Administrative Law Judge based on the hearing on the merits. Typically seen in a conveyance (Warranty Deed/QCD) where the minerals are retained/remain with the party making the conveyance. Many times occurs when the surface rights are sold and the minerals are reserved and excepted from the conveyance. Sometimes seen in a mineral conveyance when only part of the ownership of the minerals is transferred Reserves Estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in production, installed means of delivering oil and gas or related substances to market and all permits and financing required to implement the project Reservoir A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs Right Of Way ("ROW") 137. Royalty Interest ("RI") A form of an easement granted by the property owner that gives the right to travel over his/her land; to place a pipeline over/across/under his/her land, or to have ingress and egress across the property. These principles had their origin in traditional common law which governed, for example, the free flow of water or allowed neighboring landowners to travel over another s property (an informal "road system"). The mineral owner s share of revenue received from the production of oil or gas, many times free of costs, except taxes Sand geological term for a formation beneath the surface of the earth from which hydrocarbons are produced. Its make-up is sufficiently homogenous to differentiate it from other formations Salt Water Disposal Well A well where produced salt water, produced out of an oil and/or gas well is properly disposed of into an existing wellbore on the "lease." 140. Schematic (Well) This is a diagram that shows the configuration of the wellbore as to the wellhead, surface casing, casing, tubing etc Secondary Recovery Broadly defined, this term includes all methods of oil extraction in which energy sources extrinsic to the reservoir are utilized in the extraction. {S318276;} 13

14 142. Seismic Line A geophysical company lays out geophones across the surface of land to measure the reflections from the vibrosise (used to be dynamite) Set Back A distance typically prescribed by statute whereby a well cannot be drilled closer than 300 from a structure (home) or where no building can be built closer than 50 from a pipeline. The set back is the distance between the two objects. Can also refer to the distance from the drilling and spacing unit boundaries that a well may not be drilled closer to without a location exception Shut In Gas 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 is shut-in for lack of a market or marketing facilities Sour Gas Sour gas is natural gas or any other gas containing significant amounts of hydrogen sulfide (H2S) Spacing A uniform size and shape of an area created at the OCC where it is determined one well will economically and efficiently drain the unit sought to be spaced, whether oil or gas Stand-up Spacing Unit A term used to denote a spacing unit which length north and south is greater than the length east and west, i.e. E/2 and W/2 of a section and E/2 NE/4 and W/2 NE/4 of a quarter section Structure Map A plat showing the structure contour lines in an area of interest (typically a nine section plat) as to a common source of supply Subordination Agreement An agreement from a lender (Bank/Savings and Loan) subordinating their prior lien to an oil and gas lease Surface Damages Damages that may result from oil and gas operations and specifically addressed by the Oklahoma legislature in the Oklahoma Surface Damage Act. This governs a procedure by which if the surface owner and the Operator are unable to come to agreement voluntarily, then the statute specifies how the Operator may proceed while at the same time the surface owner will be protected Survey A land survey which determines the location of well or can set out the different legal descriptions. A survey can be particularly useful with metes and bounds descriptions Sweet Gas Natural gas that contains little or no hydrogen sulfide Tank Battery A collection of tanks for oil and sometimes water on the surface associated with one or more wellbores in a unit Tertiary Recovery Enhanced recovery methods for the production of crude oil or natural gas, typically using chemicals or energy injection including carbon dioxide. {S318276;} 14

15 155. Tight Gas Natural gas produced from relatively impermeable rock. Getting tight gas out usually requires enhanced technology applications like hydraulic fracturing. The term is generally used for reservoirs other than shale Top Lease A lease granted by a landowner during the primary term of a recorded oil and gas lease which is to become effective, if and when the existing lease expires or is terminated. The top lease must refer to the oil and gas lease currently in its primary term or the top lease may create a "slander of title" situation where the law provides for treble damages Transportation Cost A cost to "carry" or transport gas through a pipeline or gathering system usually as a dollar amount per mcf Unconventional Reservoirs 159. Underground Gas Storage Reservoirs with permeability so low (generally less than 0.1 millidarcy) that horizontal hydraulically fractured stimulated wells or other advanced completion techniques must be utilized to extract hydrocarbons at commercial rates. Shale reservoirs such as the Eagle Ford and Barnett, as well as tight reservoirs like the Bakken and Three Forks, both are examples of unconventional reservoirs. Storage of gas in a subsurface stratum or formation of the earth in the void pore spaces of a depleted reservoir or in a salt cavern Under-Produced A condition where an owner in a well has produced less than his/her fair share of the production. Can occur when a party fails to nominate his/her gas for a month and another owner in the well sells the non-nominating party s gas Undeveloped Acreage Acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether or not the acreage contains proved reserves Unit The joining of interests in a reservoir or field to provide for development and operations without regard to separate property interests. Also, the area covered by a unitization agreement Unit Boundary The legal description of a drilling and spacing unit. i.e. the Section lines in a 640 acre unit; the quarter section lines in a 160 acre unit (e.g. the boundaries of the NE/4) Unit Operator The Operator named in a Pooling at the Oklahoma Corporation Commission or designated as the party authorized to drill a location exception or increased density well at the OCC as to the Unit (the size of the drilling and spacing unit for the common sources of supply). Under a JOA, the party named to be responsible for drilling all wells drilled in an agreed to area as reflected in the JOA. {S318276;} 15

16 165. Vertical Severance An assignment of working interest from one depth to another, which is less than all of a working interest owner s interest as to all depths Vertical Spacing The spacing unit for the drilling of a vertical well as opposed to a horizontal well Vertical Well A well drilled vertically as opposed to horizontally. This is how most wells are drilled in Oklahoma, outside of the "Woodford Shale" wells currently being drilled in southern Oklahoma and some NW of Oklahoma City Warranty Deed ("WD") A deed of conveyance where the grantor (seller) guarantees that he/she holds clear title to a piece of real estate and has a right to sell it to the grantee (buyer). The guarantee is not limited to the time the grantor owned the property it extends back to the property s origins that contains a warranty clause from the Grantor. This means the Grantor warrants his/her title to the land being conveyed and agrees to defend that title should the grantee s title ever be questioned Waterflood An improved oil recovery technique that involves injecting water into a producing reservoir to enhance movement of oil to producing wells Wellbore The hole drilled by a drilling rig to explore for or develop oil and/or natural gas. Also referred to as a well or borehole Wet Gas Liquids Natural gas containing liquid hydrocarbons in solution which may be removed by a reduction of temperature and pressure or by a relatively simply extraction process Working Interest ("WI") 173. WTI Cushing Spot Price 174. YTD Year-to-date. The right granted to the lessee of a mineral interest to explore for and to produce and reduce to possession oil, gas or other minerals. The working interest owners bear the cost of exploration, development, and operating. The price of West Texas Intermediate grade crude oil, in dollars per barrel, in transactions for immediate delivery at Cushing, Oklahoma Zone A layer of rock which has distinct characteristics that differ from nearby rock. {S318276;} 16