I just learned that my current lease has what's referred to as a 'Pugh Clause'.
Can anyone shed any more light on this 'clause'???
Reading several explanations on the Web, it appears I still don't know for sure what it means
Any more enlightenment on the subject would be Greatly appreciated.
Thank You in advance for sharing your knowledge...
Pamela F Peterson
This is to your advantage. The term "Pugh clause" refers to a clause which when added to an oil lease will limit the rights of the lessee to hold only particular depths or amounts of the leased property. It is also known as a Freestone rider. There are two kinds of pugh clauses:
1.a vertical pugh clause: it releases all depths above and/or below the deepest producing zone.
2.a horizontal pugh clause:it releases all land not included in unit.
The main purpose of any pugh clause is to protect a lessor from the anomaly of having an entire property held under a lease by production from a very small portion. [Roseberry v. Louisiana Land & Exploration Co., 470 So. 2d 178 (La. Ct. App. 1985)]
I hope this helps. Please feel free to e-mail me at firstname.lastname@example.org if you have any questions or require additional information.
To expand on Curt's explanation, the typical pugh clause or freestone generally begins as follows:
"Should the property described herein be pooled or combined with other property as provided in Paragraph 4 (or whatever the pooling provision paragraph is numbered)"
In both Texas and Louisiana to trigger the pugh clause, the lands must be pooled with other lands, if that is what the lease so provides. The problem is on bigger tracts, pooling may not be needed, so the pugh clause is never triggered and a larger tract can completely be held by one well.
It's to protect the mineral owner for a tract of land so that he or she can maximize the production of his or her minerals, or at least the possibility of doing so. If you have minerals underneath a small tract of land (just a few acres), or a regular city lot size, then it won't matter. But if you have a "large" tract, it is mandatory to protect your interest. I have seen a careless mineral owner lose hundreds of thousands of dollars by not having one in place.