"Held by Production" in North Dakota?

My brother has some minerals in North Dakota. The legal description is T161N R82W Section 7: S2

He signed a lease in the early 90's for the S2 of section 7. He did not include a Pugh Clause on his lease. The SE4 of this section is part of a unitized area called the "Renville Madison Unit"

It is my understanding that this unit is quite different from a typical spacing unit seen in North Dakota. It is not a typical 1280 acre spacing unit comprising adjacent units, i.e. 1 and 12 for a Bakken well, but rather an outline of a productive area. The NDIC map shows this unit being made of the following parts

7: E2, 8: All, 9:SW4, 16: NW4, and 17:N2

Is his lease HBP by virtue of all of the production with this "unitized" area, because a portion of his lands are included within it? I caught word of some sort of statutory Pugh Clause in North Dakota that appears to pertain to this. However, I do not understand the legalese of North Dakota's Century Code.

If someone could explain how production affects the secondary term of a lease by virtue of a unitized area as opposed to a spacing unit?

Thank you

The Pugh Clause is the language used in an oil & gas lease to spell out what happens to the portion of the acreage you leased that does not either contain a well or is not included within a producing petroleum pool or unit. The typical Pugh Clause reads as follows:

"If at the end of the primary term, a part but not all of the land covered by this lease, on a surface acreage basis, is not included within a unit or units in accordance with the other provisions hereof, this lease shall terminate as to such part, or parts, of the land lying outside such unit or units, unless this lease is perpetuated as to such land outside such unit or units by operations conducted thereon or by the production of oil, gas or other minerals, or by such operations and such production in accordance with the provisions hereof."

While the clause may seem complicated at first, its meaning is quite simple: at the end of the primary term, the lease will expire as to any part of the land that is not being used by the petroleum company. Without the Pugh Clause, if your lease covered 600 acres and the petroleum company only put 20 acres in a pooled unit for a producing well, the lease would remain in effect as to the 580 acres not being used as well as the 20 acres in the unit. Even though you are receiving no production (and thus no profit) from the 580 acres, they would remain tied-up by the lease indefinitely. With the Pugh Clause, the 580 acres would be released from the lease at the end of the primary term. You would continue to receive royalties from the production from the 20 acres, and the 580 acres would be available to lease to another company when one comes along.

Depending on the additional language in the lease, you must keep in mind that the petroleum company may be able to hold on to the 580 acres in our example through methods other than actual production of oil or gas. Some of the typical ways that land can be maintained absent production is through seismic work, continued drilling operations, or additional rental payments. As with all provisions of the lease, the Pugh Clause and any additional language must be worded very carefully to provide maximum opportunity for the petroleum company while also providing maximum protection for the landowner.

I understand what a Pugh Clause serves to do. My question was whether or not North Dakota law had a Statutory Pugh Clause for leases within a unitized area, not to be confused with a spacing unit. Through looking around online I found something about leases after July 1, 1983, that sounded as if all lands outside of a unitized area, not a spacing unit are released after a certain period of time, I believe two years after pooling was declared, or at the end of the expiration of the lease.

There are certain areas in North Dakota that have been “unitized” that include dozens of sections, and therefore many thousands of acres. It is my belief that these unitized areas differ from a typical single well spacing unit

I realize that things boil down to the language involved in the lease but am interested if anyone well versed in the North Dakota Oil and Gas Industry is familiar with what I am referring to.

Thank you for your response