Do you receive royalties from an oil or gas well? You’ll notice a term on the agreement and stubs very frequently. It’s called production type.
This term may seem like a technical detail, but it has important implications for all parties with interest in oil or gas production and sale. It can even determine how much royalties you may receive if you have leased the mineral interests to a company.
So it’s important to acquaint yourself with the term and what it really means to ensure that you’re familiar with everything in the contract.
In the oil and gas industry, the production type on documents usually indicates what kind of mineral is being produced and what kind of well is being used to produce that mineral. As such, production type indicates either crude oil or natural gas (simply oil or gas).
Every well is first classified as an oil well or a gas well. Then, there are further subtypes for each. The stubs and checks for royalties always indicate the production type, which illustrates exactly which mineral is being extracted. This can ensure there’s no dispute about the nature of the mineral and its prices.
Production is the last stage of oil and gas well development when the well starts producing minerals. It takes a long time, and many different stages before a well can start producing the mineral it has in reserve.
Before production begins, a well has to be developed, which also determines what type of well it will be. The development process involves drilling, casing, and tubing, all expensive and time-consuming tasks. The well is then ‘completed’ and this process is called completion.
The type of well and the type of completion can have a direct impact on the production capacity of the well.
Type of Well
Production type also differs by the type of well in question. Now, there are several types of oil wells and gas wells. In fact, wells can be classified into different types through different categories.
Type of Well By Mineral
First and foremost, a well is identified and classified by the mineral it’s producing. In most cases, it’s either oil or natural gas. However, there are wells that have a mix of both oil and natural gas. These wells contain associate natural gas.
Now, associate natural gas can help with the extraction of oil, or it can be extracted along with oil if there are large quantities of it.
However, in oil wells, unwanted natural gas is usually burned off as it’s not desirable enough to transport. This is called production flaring, and it has dramatically reduced over the years because of environmental concerns.
Furthermore, gas wells may contain natural gas or gas condensate. The latter is a mix of natural gas and a liquid condensate that serves as a by-product of gas.
Type of Well By Location
We can also classify wells based on where they are located. Both oil and gas wells can be on land or under the sea. Technically, those wells are also underneath the land, but that land happens to be a sea bed.
The oil and gas wells on land are, well, called on land wells, whereas those in the sea are called offshore wells.
Offshore wells may have the wellbore under the sea or over the surface.
This doesn’t affect the actual well production type so much, as the mineral offshore is the same that is underneath the land. However, offshore wells are more difficult and expensive to drill and complete.
Type of Well By Direction
Oil and gas wells can also differ in the direction of their drilling or overall completion. Most wells are dug vertically, so they are called vertical wells. This is because they go straight into the reservoir, which is parallel to the wellbore.
Another type is horizontal wells or directional wells, which are oil and gas wells that are not vertical. Thanks to better technology, horizontal and directional wells have a horizontal or slanted digging. This essentially allows access to a greater formation area and even bypass obstacles in vertical drilling.
Type of Well By Purpose
Other than the above types, oil and gas wells also differ by their purpose or condition. For instance, an exploration well is just for exploration purposes, it doesn’t yet produce any minerals.
For the most part, your interest lies in production well, which is a well that is actively producing. Royalties typically come from producing wells.
Other such types of wells include wildcat wells, developing wells, and abandoned wells.
How Much Oil Can a Well Produce?
It’s hard to say how much oil a well can produce because different types of oils wells exist, which have varying production capacities. Then, there are so many other factors at play, such as the equipment in use, method of extraction, transportation of oil, etc.
Generally speaking, an shallow oil well can produce at least half a barrel per day. On the other hand, a new oil well can produce as many as 10,000 barrels a day.
According to US Energy Information Administration (EIA), most of the oil and natural gas in the US comes from wells that produce on average between 100 and 3,200 barrels per day (or its natural gas equivalent).
The wells that produce the most barrels per day in the world are located in Saudi Arabia. The Ghawar oil field in the eastern part of the country in Al-Hasa province is the biggest oil field in the world, both in terms of oil reserves and daily oil production.
Production type indicates which mineral is the well in question is producing. In most documents, it mentions oil or gas as the production type. But as you can see, it’s not as simple. There are a lot of things that impact and determine the production type of a well.
However, for the most part, as far as royalty checks and agreements go, production type would mention either oil or natural gas.