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Comment by king john on August 22, 2009 at 3:42

baron, pbol needs help with pugh. i think you're the man for the job !
kj

Comment by Horseshoe Girl - a1 on July 6, 2009 at 6:07

As a Depth Restriction (to reserve shallow rights), actual measurement will suffice, such as "Reserved and excepted from this lease are all depths from the surface of the earth to a depth of 10,400 feet." A Depth Restriction will reserve the shallow rights effective immediately.

A Vertical Pugh Clause, however, should refer to the formation and state stratigraphic equivalency of a relative well, as others responding to this blog have noted. When worded accordingly, the Pugh Clause will release all depths that are 100 feet below the deepest depth drilled upon the expiration date of the Primary Term of the Lease.

In other words, shallow depths can be reserved from the date of the lease, whereas deeper depths reserved via a Vertical Pugh Clause revert back to the Lessor after the lease expires. You can lease a reserved shallow depth next month, but you cannot lease below HNVL Shale until your current lease has expired. This is generally how it works. As always, there is more than one way to skin a cat, so if your neighbor's wife's cousin's brother-in-law's great uncle signed a lease(s) that worked differently then so be it. (For example if the great uncle executed a "TOP-LEASE" that would change the rules of the conventional rule of thumb -- necessity is not just the mother of invention, for O&G's its the mother of loopholes as well.)

Also, just because a clause is labeled as a "DEPTH RESTRICTION CLAUSE" does not mean that it is NOT a Vertical Pugh Clause. The verbage concerning "100' feet below deepest depth drilled" being released upon the the expiration date of the lease is what makes the clause a Pugh Clause. How the clause is written, NOT how it is labled, is the trump card. Beware of this and read through and understand your clauses and addendum clauses as they are written. I hope this is helpful.

Comment by Skip Peel - Mineral Consultant on July 2, 2009 at 9:54

king john. I think it's not a question of "can the surface be shared by multiple operators to fully develop varying formations?" It's a question of "will they have disputes and how are those disputes handled". In other words, you don't leave that issue up to interpretation. You need specific language in a lease to avoid it. If possible.

Comment by The_Baron on July 2, 2009 at 9:51

Still have a place to put the rig. However, directional drilling is more expensive, it is normally used to drill under water bodies (lakes & rivers). The best way is to place the rig as close to where your target is.

Comment by king john on July 2, 2009 at 9:40

with directional drilling wouldnt the surface issue be somewhat a mute point, im not talking horizontal, but kick out drilling.

Comment by The_Baron on July 2, 2009 at 9:33

Skip, When the smaller operators do leasing they tend to already know what we are going after. A geologist didn't just throw a dart at a map, they have looked at a specific formation and determined where they want to drill. Granted, the more we can lease (verticaly) the better. We were involved in a well about a year ago, the cotton valley tested wet, but they were able to come up and produce out of the Hosston. It wasn't a great well, but it sure beat P&A.

Comment by Skip Peel - Mineral Consultant on July 2, 2009 at 9:06

The example offered by The Baron is regularly used and accepted legal language. It appears in numerous legal documents concerning the exploration and production of gaseous and liquid hydrocarbons. It would accomplish the requirement to accurately define formation and depth. The obvious question to follow is, would O&G companies be willing to enter into leases with the stipulations we are discussing? And is additional language needed in the lease that defines surface use in a way that protects the ability of multiple operators to produce formations at varying depths?

Comment by The_Baron on July 2, 2009 at 7:53

KB,

All the shallower wells in Elm grove hasn't slowed down HK.

I would suggest naming the depths by formation name. You can always refer to the stratigrahic equivlent in a nearby well, but personally I think it is sufficient to simply name the formation.
If really want to cover your bases, I suggest the following example:

Depth Restrictions: It is agreed and understood that this lease is limited to the stratigraphic equivalent of the Bodcaw Sand of the Cotton Valley Formation as defined in Louisiana Office of Conservation Statewide Order #_______ as that gas and condensate bearing zone occurring in the electric log depth in the _________________________#1 well in the _____1/4 of Section____, T___N-R____W Caddo Parish, Louisiana

Comment by king john on July 2, 2009 at 5:44

with the exception of the disabled, that could work in my opinion. what about daycare for all those children while their mammas are out doing public service or picking up trash or what ever else needed doing around town?
getting back to topic, i like the message being sent here. i do believe in reserving rights and leasing only certain zones. pugh clause, i wish i had heard of it before i signed my last lease. i also like the idea of keeping it local (to coin a phrase) it would seem one could have a better relationship with a maw and paw than a big impersonal corp. i do think that more of the money would stay and be dispersed locally. why wouldnt an owner like to have as many irons in the fire as possiable? i would love to have two or three operators working off of my one surface.
money money money monnnney,.......money!!!!!
king john

Comment by The_Baron on July 2, 2009 at 4:13

Pick up litter, volunteer, whatever.....

Imagine if all those unemployed on welfare were pu to good use serving the public who are supporting them, imagine how strong our country would be!!

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