Under US law, the ownership of land includes 'surface rights' and 'mineral rights' for any minerals which may be below ground. Mineral rights may be severed from the surface rights. As a result, the owner of a piece of land might have the surface rights but not own the right to the minerals below ground (minerals ownership).
The owner of the mineral rights has the right to explore for, and to produce (remove) oil and/or gas, or other minerals from their property even though they don't own the surface rights. They also have the right to access the surface of the land in order to explore and produce the minerals.
Once an area has been selected, the right to drill must be secured by the producer. The right to drill usually involves leasing the mineral rights of the desired property.
A lease agreement creates two specific interests: a 'royalty interest' and a 'working interest'.
The 'royalty interest' is the right to receive a certain portion of the proceeds without sharing in the costs incurred in producing oil, such as drilling, completion, operating or production costs. The royalty interest is the interest of the mineral rights owner. The costs incurred in producing oil and gas are borne by the holder of the lease, which is referred to as the 'working interest'.
After the leases are secured then drilling can begin. One of the most common methods of drilling is the rotary method. With rotary drilling, a hole is drilled by the continuous turning of a drill bit.
The most common bit looks like a cluster of gears. The bit, which is hollow, is attached to the drill stem. The drill stem is hollow pipe which is lowered down the well by adding lengths of pipe.
The drilling fluid is called 'mud'. Mud is circulated down the center of the pipe, through the bit and goes back up towards the surface. The mud removes cuttings from the hole, lubricates and cools the bit and prevents a blow out if a high pressure area is punctured.
Evaluating The Formation
After or during drilling, the well can be evaluated to determine if oil and gas is present using one of the following techniques (1) well logging, (2) examining the cuttings, or (3) coring.
1) A common technique is well logging. Using this approach, a device is run down the hole which is able to measure the formations that they pass. This creates a record of the formation similar to an electrocardiogram or EKG in the medical industry, which can be examined by a geologist to determine the presence of oil and/or gas.
2) Another technique is to examine the cuttings which flow back up the well pipe using a variety of devices.
3) Coring entails obtaining core samples from the well and examining the presence of oil.
Completing The Well
After carefully examining all the data, the producer makes a decision to complete the well or abandon the well. If the operator decides to proceed, he will set casing. A string of casing is run down the well beyond the pay zone towards the bottom of the well. At this point the payzone is sealed off - but only temporarily.After the casing string is run, the casing is cemented into place.
Since the payzone is sealed off by the production string and cement, perforations must be made in order for oil or gas to flow into the wellbore. This is accomplished by a perforating gun which is lowered down the well to the zone of interest. The gun is detonated from the surface which shoots a few dozen holes that penetrate the casing and the surrounding cement.
Fracturing or Fracing a Well
When the oil and gas is contained in sandstone and shale, a process called fracturing may be used to increase permeability of the formation. To fracture a formation, a specially blended fluid is run down the well and into the formation under great pressure. Pumping continues until the formation literally cracks open. Meanwhile sand or other small beads ("proppant") are mixed into the fracturing fluid. The proppants enter the fractures in the formation, and, when pumping is stopped and the pressure drops, the proppants remain in the fractures. The proppants hold the fractures open.
Getting natural gas from a well can be a fairly straightforward operation - just like letting air out of a balloon. Gas which is compressed in the formation expands as it flows to the surface.
Getting oil from a well is usually more involved as oil is heavier than gas. Greater pressure is usually needed to force the oil to the surface using a variety of techniques or it can be lifted to the surface, using the same principles as old fashioned waterwells. The equipment at the surface which is lifting the oil from the well is called a 'pump jack'. Pump jacks are what most people think of as an oil well.
Selling Oil And Gas
Oil is usually accompanied by water which is separated at the surface. The oil is pumped into collection tanks where it is picked up periodically and then sold in the market.