Oil and Gas Production Terms Explained
A (short) Dictionary Of Oil and Gas Production Measurement Terms and language and slang used in the oil industry.
How many gallons are in a barrel of crude oil? Most Americans don’t have a clue. For landowners leasing their land for oil exploration, knowing the terms used in the industry for oil and gas production can be very helpful.
If you own the mineral rights to a parcel of land and are in an area such as one of the major oil and gas shale plays, chances are an oil and gas landman will be contacting you, either by phone or simply visiting your home. Before you sign anything you should understand that oil and gas leases are complex agreements that can last for generations. You must use a qualified attorney. Even if you plan on using a lawyer for your oil lease agreement you should understand the terms they are using. What is does the term “oil and gas royalty” or “commingling” mean. What is “pooling” in an oilfield and why does it matter to you? Most landowners know little of oil and gas terms. Here are some common terms used in oil production.
Bbl means one barrel of oil or condensate, as traded on world markets, equals 42 U.S. gallons. Barrels that industrial chemicals come in usually contain 55 gallons and many have the misconception this is what a barrel of oil is.
Condensate refers to very high gravity petroleum, similar to gasoline. It will evaporate if spilled.
BOE means Barrel Of Oil Equivalent and is used to show the equivalent natural gas in terms of energy that is produced along with oil. It basically combines oil and gas into one unit.
Here is where many people become confused. The letter “M”, from Roman numerals, refers to 1000. MM refers to one million.
Mbbls means one thousand barrels of oil. (Not one million).
MMBOE refers to one million barrels of oil equivalent, again factoring in natural gas to come up with equivalent oil production for informational purposes.
Mcf refers to one thousand standard cubic feet of natural gas.
MMcf refers to one million standard cubic feet of natural gas.
Mcfe refers to one thousand standard cubic feet of natural gas equivalent and is based on a ratio of six Mcf to one 42 gallon barrel of crude oil. Again this is mostly used for informational purposes about a well.
MMBbls refers to one million barrels of crude oil.
MMcf refers to one million cubic feet of natural gas.
Bcf refers to one billion cubic feet of natural gas.
Royalty and Royalty Percentage refers to the amount of production a landowner is expected to receive as a percentage of the total production. Royalty percentages of from 1/16th to 1/4 are common.
Gravity or API Gravity (American Petroleum Institute). Gravity is often expressed in degrees. This is another one that confuses most people. The higher the API Gravity number the lighter the oil. Oil that has a gravity higher than 10 floats on water. Oil that is heavier that 10 sinks.
Light crude oil has an API gravity of 31.1 or higher. Medium oil has between 22.3 API and 31.1 API gravity. Oil in the Eagle Ford shale for example has an average gravity of 41.5 degrees API. Oil that ranges between 40-45 degrees API gravity commands the highest price on world markets.
Commingling refers to an arrangement for dealing with production in a well that may come from different zones. A well may be perforated at different depths and oil and gas production may come from multiple zones. It can get complicated when “pooling” or sharing production with a neighbor who may own the mineral rights from one zone but not the other.
Pooling refers to an arrangement where tracts of adjoining land are combined into one pool, so that production of a well that may be draining oil and gas from beneath multiple properties can be shared equally. There are several types of pooling including voluntary, which all members agreed to initially, and compulsory pooling which is ordered to be put in place by the state’s regulatory agency if there is not an agreement. If there are owners who cannot be contacted this complicates matters. Pooling can get quite messy at times. Having a good oil and gas attorney to negotiate complex pooling agreements is essential. In the case of multiple tracts being pooled together you should not take it for granted that the oil company has every one’s best interest at heart.
Pugh Clause refers to a clause in your lease that requires an oil and gas company to develop a specified acreage or vertical depth or lose the lease on that acreage. This one can get quite complex when pooling is involved and is yet another reason to have a good oil and gas attorney with years of experience in lease agreements. For example, if you had no Pugh clause in your lease and an oil company placed 20 of the 300 acres it leased from you into a pooling agreement they could technically tie up the other 280 acres for as long as the well was producing. With a Pugh clause you could have the 280 acres not in the pooling agreement freed up to lease to another company when the lease term was up.
An Oil and Gas Landman or Land Man refers to a man or woman who works as a leasing agent for an oil company and who researches deeds and property records at the county courthouse and contacts landowners to offer them a deal to lease their property for oil and gas exploration. Most belong to the American Association Of Professional Landmen.
The book “Money In the Ground” explains these terms in detail. It is a good resource for those leasing their land for oil drilling. Another good book is called “Oil Production In Nontechnical Language”. It is available at The Oilfield Bookstore.
For more oil and gas terms and language see Oilfield Slang Dictionary
