Glossary
The language of minerals and royalties.
Plain-language definitions for the terms you will run into, from NMA and NRI to HBP and ORRI. No jargon left undefined.
- 1031 Exchange
- A like-kind exchange under the tax code that can defer capital gains when proceeds are reinvested into other real property. Mineral and royalty interests are generally treated as real property, so they can qualify. Educational only, not tax advice.
- Decimal interest
- Your fractional share of a well's revenue, shown as a decimal on your check detail and division order. It already accounts for your ownership and the lease royalty.
- Decline curve
- The modeled drop in a well's production over time. Unconventional wells decline steeply early, so a large share of a well's reserves is produced in its first couple of years.
- Depletion
- A tax deduction that lets a mineral owner recover the value of the resource as it is produced and used up, conceptually similar to depreciation on equipment.
- Division order
- A document that confirms each owner's decimal interest in a well before revenue is paid. Signing it does not change your ownership; it confirms how proceeds are split.
- Held by productionHBP
- A lease kept in force past its primary term because a well on it (or in its unit) is producing in paying quantities. An HBP lease does not expire while production continues.
- Lease (oil & gas lease)
- The agreement by which a mineral owner grants an operator the right to develop the minerals, typically for an up-front bonus, a royalty on production, and a primary term.
- Lease bonus
- The up-front, per-acre payment a mineral owner receives for signing a lease, separate from any future royalty.
- Mineral interest
- Ownership of the oil, gas, and minerals beneath a tract, including the right to lease and to receive bonus and royalty. It can be owned separately from the surface.
- Net mineral acresNMA
- Your mineral ownership expressed in acres: the gross acreage multiplied by your fractional interest. A common way to size a mineral position.
- Net revenue interestNRI
- Your share of production revenue after the lease royalty and any other burdens. This decimal, more than acreage, is what drives the size of your check.
- Net royalty acresNRA
- Royalty ownership standardized to a one-eighth royalty basis, which makes interests with different royalty rates easier to compare.
- Non-operated working interestNon-op
- A working interest held by a party that does not operate the well. It pays its share of drilling and operating costs and receives the corresponding revenue, without running operations.
- Overriding royalty interestORRI
- A royalty carved out of the working interest rather than the mineral estate. It is free of operating costs and lasts for the term of the lease it is tied to.
- Pooling and unitization
- Combining tracts into a single drilling or spacing unit so that production anywhere in the unit holds the whole unit. Forced pooling is compulsory pooling under state rules.
- Primary term
- The initial period of a lease during which the operator must establish production, or the lease expires. After it, production (or another saving provision) keeps the lease alive.
- Pugh clause
- A lease provision that releases acreage or depths not held by production once the primary term ends, so undeveloped ground returns to the owner rather than staying tied up.
- Reserves (PDP, PUD)
- Estimated recoverable volumes. Proved developed producing (PDP) comes from existing wells; proved undeveloped (PUD) reflects locations expected to be drilled. The mix affects value and certainty.
- Royalty interest
- A share of production, or its revenue, free of the costs of drilling and operating. It is what most mineral owners receive once a well is producing.
- Severance tax
- A state tax on the value or volume of oil and gas produced, usually withheld from your revenue before you are paid.
- Shut-in
- A well that is capable of producing but is temporarily not. Shut-in royalty payments can keep a lease in force during the pause.
- Spacing unit
- The acreage assigned to a well under state rules. Your fractional share of the unit determines how much of that well's production you participate in.
- Stepped-up basis
- The reset of an inherited asset's cost basis to its fair market value at the date of death (IRC Section 1014), which can reduce taxable gain on a later sale. Educational only.
- Title opinion and runsheet
- How mineral title is verified: a runsheet traces the chain of ownership through the records, and an attorney's title opinion sets out who owns what. This is the slow, careful part of any deal.
- Working interestWI
- The operating interest in a lease that bears its share of drilling and operating costs and receives the corresponding revenue. Distinct from a cost-free royalty interest.