Invoking Pugh Clause?

Is there any downside to invoking (IDK if that is the right word) the Pugh clause in a lease? I guess I’m just afraid that if the additional minerals are used, I would have to renegotiate a lease and I don’t want to do that since I have a pretty good lease now. Minerals are located in Greene County, PA

Hey Sam I have some experience with leases, but just want to understand your question here a bit. Are you currently negotiating with the landman on a lease OR are you only included with some of your acreage in a unit and you want all of it to be included by “invoking” the Pugh clause?

Just want to make sure I understand your question

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Hi Khaled! No, these leases were negotiated over 5 years ago. Some of the acreage is in a unit but a large part of the acreage is not.

From your response, I may not understand the Pugh clause. My assumption was if I sent them a letter and asked to have the minerals not included in the unit released, they would release them so I could potentially re-lease in the future. Is that not correct?

Thank you in advance for any insight you are able to provide.

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Hi Sam,

The Pugh clause is added to the lease as an “addendum” or modified when your negotiating the lease with the E&P company. Did you have that put into the lease? If it hasn’t been added at the time of the signing, the company can pool whatever acreage into the unit to use and the other acreage left out will be held with the unit, just not being paid on.

Companies will not break lease contracts to satisfy.

I hope this helps answer your question?

Good Morning Nick. Thank you for your reply. Yes, the Pugh clause was added as an addendum at the time of signing. I just wasn’t sure if there was a “downside” to releasing the minerals not being used. Such as, would I have to sign a new lease or what happens if they did release the other minerals and I refused to sign a new lease if new lease terms were offered.

Nick’s right. Ideally, you want all the acreage to be included in the existing unit BUT if they aren’t doing that, then you do want the acreage released. This released acreage may be included in a future unit BUT to be honest it probably will be sitting idle.

Nick (or anyone else) is that correct in your experience? Have you seen others get “extra” unused acreage included in new units or is it generally orphaned?

BTW Sam if you dont mind sharing your unit b/c I’m currently negotiating in Greene county on a lease with EQT and I’m curious if we are in the same area (maybe it might help you)

Hi Khaled, thank you for your reply. The unit is in Richhill Township.

Oh ok. I’m in Perry Township - worth a shot

Or, since my lease will be up, would the O&G company need to pay me a bonus again to keep those unused minerals, not in the unit. I’m very unclear on all the ins and outs of this.

Sam, usually the unused acreage will be released after lease will expire as to any part of the land that is not being used by the oil & gas company.

But remember that the lease is still in effect on the producing acreage held in the unit.

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