Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2012 at 6:37

A horizontal Pugh releases any leased lands not included in a lease or unit well production at the expiration of the primary lease term. The lessee records a release for the tract or tracts to provide public notice in the parish/county records.  Example you own three tracts, two in one section and one in an adjoining section.  I lease all three but only establish a unit and drill a well in the section containing your two tracts.  At the end of the primary term or any extension if applicable, the one tract is released from the lease while it remains in effect for the other two.

If your mineral estate is small and contained fully in one section, you probably don't need a horizontal Pugh.  All mineral estates need a vertical Pugh.

Permalink Reply by Land Rat on March 2, 2012 at 9:48

Re: Vertical Pugh - I think that was more of a problem in the old days with a lease being held for years and years with a low producing well, as was seen in the Haynesville.  The operator would then farm out the lease for the other depths and would only have to pay the originally agreed to royalty.    My experience has been that if a horizontal well isn't producing significantly it will be taken off line and the lease will terminate for lack of production. If the company is holding it with a good well, why not let them have a go deeper or at another depth?  Yes, they are nice to have and you'd get more bonus money, but companies I have worked for, especially in a developing play, hate them.  It might be better to argue for another provision and leave this one be in a negotiation. I'd argue more for the necessity of a horizontal pugh, especially with small tracts in different areas.  Just my take on it.

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