Mineral Rights Glossary

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1031 Exchange

A tax-deferral strategy that allows mineral owners to defer capital gains taxes when selling mineral rights by reinvesting the proceeds into similar "like-kind" property within specified timeframes. Consult a tax professional to determine if this applies to your situation.

Abandoned Well

A well that is no longer in use or being maintained by the operator. State regulations require abandoned wells to be properly plugged to protect groundwater and the environment.

Acreage

The total land area, measured in acres, that is subject to a mineral lease or ownership interest.

Ad Valorem Tax

A property tax levied by counties based on the assessed value of mineral interests. These taxes are typically calculated as a percentage of the estimated market value of annual production.

Assignment

The legal transfer of rights, title, or interest in a mineral lease or mineral ownership from one party to another. When you sell your mineral rights, you execute an assignment to transfer ownership to the buyer.

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Barrel (BBL)

The standard unit of measurement for crude oil, equal to 42 U.S. gallons. Production and royalty statements report oil volumes in barrels.

Basin

A large geological depression containing thick accumulations of sedimentary rock that may contain oil and gas deposits. Examples include the Permian Basin, Williston Basin, and Anadarko Basin. Basin location significantly affects mineral rights value.

BOE (Barrel of Oil Equivalent)

A unit of measurement that converts natural gas volumes to their energy equivalent in barrels of oil. Typically calculated as: BOE = Barrels of Oil + (MCF of Gas / 6). Useful for comparing properties that produce both oil and gas.

Bonus Payment

An upfront, one-time payment made by an oil and gas company to a mineral owner in exchange for signing a mineral lease. This is separate from royalty payments and is typically paid per net mineral acre.

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Check Stub (Revenue Statement)

The monthly or periodic statement that accompanies royalty payments, detailing production volumes, prices, deductions, taxes, and net payment calculations for each well. Important for understanding your income and evaluating offers.

Clear Title

Mineral ownership that is free from defects, liens, encumbrances, or questions about the legitimacy of ownership. Clear title is essential for selling mineral rights and affects how quickly a transaction can close.

Conveyance

A legal document that transfers ownership of mineral rights from one party to another, such as a mineral deed. When you sell your minerals, you sign a conveyance document.

Cost Depletion

A tax deduction that allows mineral owners to recover the cost of their investment in mineral properties as the minerals are extracted. Consult a tax professional for guidance on your specific situation.

Curative

The process of correcting title defects or errors in the chain of ownership for mineral rights. Common curative documents include affidavits, ratifications, and corrective deeds. Title issues may need to be resolved before a sale can close.

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Decimal Interest

A mineral owner's share of production expressed as a decimal. For example, a 1/8 royalty equals 0.125 decimal interest. This determines what portion of production revenue you receive.

Decline Curve

A graphical representation of how a well's production decreases over time. Decline curves are used to forecast future production and estimate the remaining value of mineral interests.

Defects in Title

Problems or errors in the chain of ownership that create uncertainty about who legally owns the mineral rights. Common defects include missing signatures, incorrect legal descriptions, or gaps in the title chain.

Delay Rental

Periodic payments made by a lessee to a mineral owner to maintain a lease in force during the primary term when no drilling operations have commenced. Less common today as most leases are "paid-up."

Division Order

A document that specifies each owner's decimal share of production from a well. Mineral owners sign division orders to authorize the operator to distribute royalty payments.

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Executive Rights

The right to negotiate and sign oil and gas leases on behalf of the mineral estate. This right can be severed from the mineral ownership itself, which is important to understand when evaluating what you own.

Escheated Property

Mineral interests or royalty payments that revert to state ownership when the rightful owner cannot be located after a specified period. States have unclaimed property laws governing escheatment.

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Force Pooling

A legal process by which a state regulatory agency combines mineral interests into a drilling unit when voluntary pooling agreements cannot be reached. Also called compulsory pooling. Rules vary significantly by state.

Formation

A distinct layer of rock with consistent characteristics that can be mapped across an area. Oil and gas are typically found in specific formations, such as the Wolfcamp, Eagle Ford, or Bakken. The formation(s) underlying your property affects value.

Fractional Interest

A partial ownership share in mineral rights, often resulting from inheritance or division among multiple owners. Common fractions include 1/2, 1/4, 1/8, etc. Fractional interests can be bought and sold.

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Grantee

The party receiving ownership rights in a deed or conveyance. In mineral transactions, the grantee is the person or entity acquiring (buying) the mineral rights.

Grantor

The party transferring ownership rights in a deed or conveyance. In mineral transactions, the grantor is the person or entity selling or gifting mineral rights.

Gross Acres

The total number of acres in a lease or tract, regardless of the owner's fractional interest in those acres. Compare to Net Mineral Acres (NMA).

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HBP (Held by Production)

A lease status indicating that the lease has extended beyond its primary term and is being maintained by ongoing production from a well. HBP status is important for understanding the current state of leases on your property.

Horizontal Drilling

A drilling technique where the wellbore is turned from vertical to horizontal to follow a productive formation over a greater distance, increasing the well's exposure to oil or gas deposits. This technology has revolutionized production in shale formations.

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Infill Drilling

Drilling additional wells between existing wells in a proven field to increase production and recover more oil or gas from the reservoir. Infill drilling potential can increase mineral rights value.

In-Pay

Status of a mineral interest that is currently receiving royalty payments from producing wells. "In-pay" minerals are typically more valuable than non-producing minerals.

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Landman

A professional who researches mineral ownership, negotiates leases, and manages land-related aspects of oil and gas operations. Landmen often contact mineral owners about leasing opportunities.

Lease

A legal contract between a mineral owner (lessor) and an oil company (lessee) granting the right to explore for and produce oil and gas from specified lands in exchange for bonus payments and royalties.

Leasehold Interest

The interest held by a lessee (typically an oil company) under an oil and gas lease, giving them the right to drill and produce. This is different from the mineral owner's underlying ownership.

Legal Description

The precise description of a property's location using a standardized system, typically the Public Land Survey System (PLSS) with section, township, and range, or metes and bounds descriptions. Essential for identifying mineral ownership.

Lessor

The mineral owner who grants the right to explore for and produce minerals to a lessee under an oil and gas lease.

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MCF

Thousand cubic feet - a common unit of measurement for natural gas volume. Royalty statements often report gas production in MCF.

Mineral Deed

A legal document that transfers ownership of mineral rights from one party to another. This is the primary document used when selling mineral rights.

Mineral Estate

The ownership interest in the minerals beneath the surface of a property. This can be owned separately from the surface estate (the land itself).

Mineral Rights

The legal rights to explore, extract, and sell minerals found beneath the surface of a property. These rights can be sold, leased, or transferred separately from surface rights.

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Net Mineral Acres (NMA)

The actual mineral acreage owned by an individual, calculated by multiplying gross acres by the owner's fractional mineral interest. For example, owning 50% of the minerals under 100 acres equals 50 NMA. This is a key metric for valuation.

Net Revenue Interest (NRI)

The share of production revenue that a mineral or royalty owner is entitled to receive after all burdens (such as royalties and overriding royalties) are deducted. Your NRI determines your actual income from production.

Net Royalty Acres (NRA)

A measure of royalty ownership that accounts for both the acreage and the royalty rate. Calculated by multiplying net mineral acres by the royalty rate (e.g., 50 NMA x 1/8 royalty = 6.25 NRA).

Non-Participating Royalty Interest (NPRI)

A royalty interest that entitles the owner to a share of production but does not include the right to lease the minerals, receive bonus payments, or delay rentals. Learn more about NPRIs.

Non-Producing Mineral Rights

Mineral interests that are not currently generating royalty income because no wells are producing on the property. Also called "non-pay" minerals. These can still have significant value based on development potential.

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Operator

The company or individual responsible for the day-to-day operations of drilling and producing oil and gas wells. The operator may or may not own a working interest in the well.

Overriding Royalty Interest (ORRI)

A royalty interest carved out of the working interest (not the mineral interest) that entitles the owner to a share of production free of operating costs. ORRIs expire when the underlying lease expires. Learn more about ORRIs.

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Paid-Up Lease

An oil and gas lease where the bonus payment covers the entire primary term, eliminating the need for annual delay rental payments. Most modern leases are paid-up leases.

Percentage Depletion

A tax deduction that allows mineral owners to deduct a percentage (typically 15%) of gross income from mineral production, regardless of the actual cost basis in the property. Consult a tax professional for guidance.

Pooling

The combining of multiple mineral tracts or leases into a single drilling unit for the purpose of drilling a well. Pooling ensures all mineral owners within the unit share in production proportionally.

Post-Production Costs

Expenses incurred after oil or gas is extracted, including gathering, transportation, processing, and marketing costs. Whether these costs can be deducted from royalty payments depends on lease language.

Primary Term

The initial fixed period of an oil and gas lease (typically 3-5 years) during which the lessee must begin drilling operations or the lease expires.

Producing Mineral Rights

Mineral interests that are currently generating royalty income from producing wells. Also called "in-pay" minerals. Producing minerals are typically valued based on their income stream.

Pugh Clause

A lease provision that releases non-producing acreage from the lease at the end of the primary term, even if other portions of the lease are held by production. Important for protecting unleased acreage.

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Ratification

A document signed by a mineral owner to confirm or validate a previously executed lease, often used when there are title issues or when a new owner acquires minerals already under lease.

Royalty Interest

A share of production (or the value of production) from an oil and gas lease that is paid to the mineral owner free of the costs of drilling, completing, and operating the well. Common royalty rates range from 1/8 (12.5%) to 1/4 (25%).

Royalty Statement

See "Check Stub" - the periodic statement showing production, prices, deductions, and payments for your mineral interest.

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Section

A unit of land in the Public Land Survey System (PLSS) measuring one square mile (640 acres). Sections are identified by number (1-36) within a township. Many drilling units are based on section boundaries.

Severance

The legal separation of mineral rights from surface rights, creating two distinct ownership interests in the same property. This is why you can own minerals without owning the land above them.

Severance Tax

A state tax imposed on the extraction of natural resources, including oil and gas. The tax is typically calculated as a percentage of production value and is often deducted from royalty payments.

Shut-In Royalty

A payment made by an operator to a mineral owner when a well capable of producing is temporarily shut in (not producing). Shut-in royalty payments can maintain a lease during periods when the well is not actively producing.

Spacing Unit

The area of land designated by state regulations for the drilling of one well. Spacing requirements help prevent waste and protect correlative rights of all mineral owners.

Surface Rights

The ownership rights to the surface of a property, which can be owned separately from the mineral rights beneath. Surface owners and mineral owners may be different people.

Suspense (Suspended Funds)

Royalty payments held by an operator when there are questions about ownership, title defects, or missing documentation. Funds remain in suspense until the issues are resolved and proper ownership is established.

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Title Opinion

A legal document prepared by an attorney that examines the chain of ownership for mineral rights and identifies any title defects or requirements. Buyers typically obtain title opinions before purchasing mineral rights.

Township

A unit of land in the Public Land Survey System (PLSS) measuring six miles by six miles (36 square miles). Each township is divided into 36 sections of one square mile each.

Tract

A specific parcel of land that can be identified by its legal description. May refer to the surface, minerals, or both depending on context.

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Undivided Interest

A fractional ownership share in minerals that is not physically divided or located in a specific portion of a tract. All owners of undivided interests share proportionally in any production from the entire tract. Common when minerals pass to multiple heirs.

Unitization

The consolidation of mineral interests covering a reservoir or field into a single unit for more efficient development and operation. Different from pooling, which typically applies to individual wells.

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Wellbore

The hole drilled into the earth to reach oil and gas deposits. Modern horizontal wells can extend thousands of feet horizontally through the target formation.

Working Interest (WI)

An ownership interest in an oil and gas lease that bears the costs of drilling, completing, and operating a well. Working interest owners are entitled to a share of production after royalties are paid. Most mineral owners hold royalty interests, not working interests.

WTI (West Texas Intermediate)

A grade of crude oil used as a benchmark for pricing oil in North America. WTI prices are frequently referenced in royalty calculations and are quoted on the New York Mercantile Exchange.

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