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.

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