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Barrel - The unit of measurement for oil used in the industry.
One barrel equals 42 gallons.
Delay rental - An annual payment made to the lessor usually on
a per acre basis prior to a well being drilled.
Drill Lease - This is a lease that has to be acquired from the
landowner that the well unit will be located.
Free gas - An annual allocation of gas to the lessor for domestic
heating purposes. This is commonly 200,000 cubic feet or more per year and goes
to the person upon whose land the well is located.
MCF - One thousand cubic feet; the unit of measurement for natural
gas used in the industry.
Non-drill Lease - This is a type of lease that is acquired from
any landowner that is part of the unit, but does not have the actual well located
on their property.
Pooling or unitization - A provision that allows the lessor’s land
to be combined with adjoining lands to form a drilling unit.
Primary or initial term - The length of the lease in years, typically
2 years or more. The longer the term, the less likely a well will be drilled shortly
after signing a lease. Royalty – The amount of production received by the lessor,
usually one-eighth (12.5%) of the sales of oil and gas from the well. If there is
more than one landowner in the drilling unit, the royalty is shared according to
the amount of land each lessor has in the unit.
Secondary term - The length of the lease after a well is drilled,
usually for as long as the well produces in commercial quantity.
Shut-in royalty - Payment that is received in lieu of production
royalty when the well cannot be produced due to production problems or other factors.
Signing bonus or cash bonus - a one-time payment paid to the landowner
upon signing of the lease agreement, typically a large drill-lease. Non-drill leases
do not normally receive bonuses in addition to the royalties.
Spud fee - A one-time payment paid upon signing the drill
lease or prior to commencement of drilling the well.
Termination - End of the lease due to expiration of the primary
term or when commercial production ceases and the well is plugged.
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