PUGH CLAUSE QUESTION?????

It is my understanding that if you have a Pugh Clause in your lease, the lease is only good to 100 feet below the production depth. My question is: If you have a shale well that has a vertical depth of 13,000 feet and another 4,000 feet horizontal, are you HBP down to 13,100 feet or 17,100 feet?

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Permalink Reply by DrWAVeSport Cd1 on July 22, 2008 at 9:46
JW,

Great Question! Horizontals are a new animal per "Pugh" clauses. I hope you get a definitive answer to this one as the "depth" question per production in an established field/zone seems to be changing down in Baton Rouge!
Permalink Reply by JW on July 22, 2008 at 9:53
I ask this question because there are rumors of deep oil on the south end of the play. This oil is supposedly 18-20,000 feet. The Pugh clause will definitely come in to play if this turns out to be true.
Permalink Reply by JW on July 22, 2008 at 15:41
Doc,
With the Chesapeakes and the Petrohawk's all looking the specific Haynesville Shale, is it possible to lease the deep rights first and still retain the shallow rights to lease later?
Permalink Reply by insomniacnla on July 22, 2008 at 16:04
I have added a depth restriction to my leases, the companies said no but I have not signed yet either. I still think I may get a company to agree to it. Chesapeake and XTO agreed to it in some leases in the Barnette.

Pugh Clause refers to the deepest VERTICAL depth. The the horizontal wells are drilled, they will reach TVD in their status reports, then begin to drill horizontal and reach their MD. TVD stands for total vertical depth, MD for measured depth.
Permalink Reply by Gambler on July 22, 2008 at 16:46
What is the Pugh Clause? And why would you need a depth clause?
Permalink Reply by insomniacnla on July 22, 2008 at 16:59
Here is a Pugh Clause:

It is agreed and understood that upon the expiration of this primary term of this lease, this lease shall expire as to all rights below 100 feet below the deepest depth drilled, or the stratigraphic equivalent of the deepest depth drilled in any well drilled on the leased premises, or on a unit with which al or a part of the leased premises may be pooled or unitized, during the primary term of this lease. Lessee agrees that it will, within sixty (60) days after the primary term of this lease has expired, execute and file of record the appropriate Act of Partial Release which will fully release the Lessee’s rights in the lease as to all zones, depths and horizons lying below 100 feet below the deepest depth drilled, or the stratigraphic equivalent of the deepest depth drilled on any well drilled on the premises, or on a unit with which all or a part of the leased premises may be pooled or unitized during the primary term of this lease.
Permalink Reply by Gambler on July 22, 2008 at 17:03
thanks,but im not sure i understand it
Permalink Reply by insomniacnla on July 22, 2008 at 17:11
It means that if you lease to an o/g company, a well is drilled and producing, that after the primary term of your lease is expired, the company only has rights from the surface of the ground to the lowest producing depth of the well, plus 100 feet.

If a company drills a 4,000 foot producing well in your section, after your lease expires, only 4,100 feet will be "held by production" and you would be free to lease again for everything below 4,100 feet, like the Haynesville.
Permalink Reply by Gambler on July 22, 2008 at 17:20
thanks to both of you that responded. now i understand
Permalink Reply by Whatever on September 22, 2008 at 16:09
Can you tell me about our situation? We have already signed a lease with a 100' clause. Now the landman is coming back and asking us to sign a corrected contract with the depth changed to 300'. What does this mean for us?
Permalink Reply by JW on July 22, 2008 at 17:12
This is the way that it was explained to me. I know of a landowner that was HBP by a shallow oil well that was not a big producer. Let's say the oil well was at 4,000'. He is considered HBP (held by production) for this well. This well has been producing for say 10 years. He had a Pugh Clause in his original lease. This allowed him to lease his mineral rights to a new drilling company to depths of 100' below the producing well. So he signed a new lease for 4,100' and below which allowed him to cash in on the Haynesville Shale. I think that the Pugh Clause is very important in this play simply because there are several other areas that seem to be targets. For example, Cotton Valley, James Lime, Wilcox Sand and Austin Sand. I am in no way an expert. This is only what I have been able to put together from information on this site. Any professionals, please chime in with expertise.
Permalink Reply by insomniacnla on July 22, 2008 at 17:14
JW,

Okay, great minds think alike. LOL LOL

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