I think I was under the impression that "pugh clauses" referred primarily to issues of depth restrictions in a oil and gas lease. Is it also used to identify and limit how much acreage may be included in a drilling unit? If so, I guess it relates to depths and surface area (acreage).  I found an old lease which stated that that the lease covered those depths and areas, "from the Heavens' to the center of the Earth" that's a pretty good depth clause.

Shelby

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That is a good depth clause if you are the operator not the mineral owner.

Jay

Jay,

You bet, sometimes the old language said it all. Unfortunately, I believe we still have some old mineral interests tied up in that one. As far as surface acreage, and Pugh clauses, any thoughts?

Shelby

There are two types of "Pugh" clauses, vertical and horizontal.  The vertical Pugh has a number of variations but basically reads, lessee will retain the development rights to the deepest depth drilled at the end of the primary term of the lease plus 100'.  I always like to change "drilled" to "produced" where possible.  The horizontal Pugh releases the rights to any portion of the leased lands not included in a producing unit at the end of the primary term of the lease.  Before the advent of this clause production anywhere on the leased tract would hold the rights to all even though only a portion was being produced and paying royalties.  This is how individuals and groups, think Kassi Fitzgerald's Rambin Farm Homeowners Group, had no royalty payments though they owned the minerals under their lots.  The subdivision was carved out of a large, old farm that had a producing well far away from the subdivision that held an old lease in force that covered the entire farm footprint.  The homeowners were bound by the old lease even though they received no benefit from it until Exxon assigned the lease to Chesapeake and Haynesville Shale wells were drilled.  Of course the old lease had a one eighth royalty and no protection for the land/mineral owners.

Thanks Skip for the explanation. I did not connect the horizontal Pugh clause to define
"area" or portions of land not included in a producing unit. I thought it may have related to the actual drilling distances reached by horizontal bore. Just picked up recently it's import, and you have explained it clearly; helpful information.

Shelby

You're welcome. "Pugh" is the surname of the attorney, here in Shreveport, that authored the first lease clauses to address both situations I mention above. 

https://en.wikipedia.org/wiki/Robert_G._Pugh

Skip, thanks for the bio on Robert Pugh. I've seen the term "Pugh clause" for many years and yet never connected it with a particular person. Good explaination of what it is and does too.

I should stop by more often and get my education updated!

I'm still Hopeful About Natural Gas ... HANG

Hang in there, HANG.  I am too.

Skip:

So, a couple of things on this...

Though Bob Pugh was a distinguished attorney in his own right, the now ubiquitous clause bearing a common surname is not connected to Bob Pugh - The origination of this clause (at least as far as LA) lies with the legacy of Lawrence G. Pugh, Sr., an attorney who practiced in Crowley.  A reference to this is made here, attached to a case being attached to his son, incidentally enough.  The provision originates in the late 1940's - well within the legal career of Lawrence Pugh; Bob Pugh would have basically had to have drafted it within the first year or so removed from law school.

Incidentally, a similar provision began showing up in leases in Freestone County, TX in and around the same time - hence the origin of the term "Freestone Rider".  In essence, the variants accomplish the same purpose: termination of the lease as to those lands (and/or horizons) lying outside of producing units (and/or zones) at the end of the primary term, or some agreeable point thereafter.

The original provisions did not generally consider depths - this innovation came later (debatable, but generally accepted to be between the mid-60s and early 70s).  Initially, "strata leases" filled this void, which leases only encompassed certain depths or horizons from the outset.  Because lessees wanted to have the opportunity to acquire rights in multiple zones and land and mineral owners (lessors) wished to limit their encumbrance of them if such deeper rights had not been explored, the "Depth Pugh", "Horizontal Pugh", or "Stratigraphic Pugh" was born.  The industry has more or less settled upon the notion that "Horizontal Pugh" terminates the lease as to undeveloped horizons (or strata), or "horizontally", though much confusion still exists.  I still prefer the term "Stratigraphic Pugh", but what do I know.

The other issue which arises from the Rambin Farms commentary, besides the lack of a Pugh clause in the subject lease, is the fact that the lease also embraces several non-contiguous tracts of land, all of which were owned by the original lessor at the time of the lease (as memory serves).  Therefore, although mineral prescription had occurred on most of the tracts by the time that Kassi et al had acquired interest in those properties, they still acquired title to lands subject to that pre-existing lease (which had been held by the discovery well in Stonewall Field, now located in Caspiana Field).  The mere act of leasing does not suspend prescription of the mineral right.  Owners of rights in severed minerals can only burden those rights to the extent and term that they own such rights; in this case, however, as to the case in Rambin Farms, the lessors owned the land, surface and minerals, at the time that the lease was executed and recorded.  Prescription is a function applicable to the mineral right, and not to the leasehold (which are rights derived from contract).

Incidentally, "Heavens to Hades" language does exist, but such language is not required - in practice, the oil, gas and mineral lease is applicable to all zones not otherwise encumbered by any other such lease.  Should lessor or lessee wish to limit or restrict such application, it is incumbent upon the parties to include such language that would limit or restrict the lease to such zone(s) or strata as is intended.

Dion,

Enjoyed your comments and history lesson. "Heavens to Hades" is a new one to

me, and like you say, is probably not technically applicable to undefined zones;

anyway, some say that term just relates to "states of mind".

Thanks,

Shelby

Dion, I stand corrected as to the proper Mr. Pugh.  Thanks.  You have been absent too long.

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