Is a Pugh Clause necessary for very small mineral owners?

Oil and Gas Leasing Help
#1

Hello,

I'm trying to amend a Producers 88 lease with Chesapeake in Reeves County TX.We have 11 acres of mineral rights only, out of 200 acres for the whole tract, which will be rolled up into the usual 640 acres.

Following advice on this forum

1. I'm striking the 'warranting the title' clause.

2. Trying to add a depth clause to limit them

3. Add a Pugh Clause? But I'm wondering if this is really necessary when we only have 11 acres of rights out of a possible 200....

thanks for any advice!

Callie

#2

#2 the depth clause would be a verticle pugh clause, it should release zones above and below the producing zones, so yes, I think you want that one. If your 11 acres are all in one spot, you may not care a great deal about a horizontal pugh clause, but I think it’s better to be safe than sorry. If your 11 acres are from an undivided interest in 200 acres the horizontal pugh clause could be very important to you. Hope this helps and good luck.

#3

Thanks for your reply R W Kennedy - appreciate it.

Yes our interest is undivided in the 200 acres, basically 5% of it.

I think Chesapeake would be drilling horizontal wells, to look primarily for oil...since those are the formations they are targeting.

But I'm struggling with how to get the needed language in there...

#4

Do you live on the 11 acres? If yes, I would exclude surface operations. I would require that all of my 11 acres be included in the pool. There are so many things not in the oil companies' leases for your benefit, that it pays to get a qualified oil and gas attorney to assist you with the lease.


CallieTX said:

Thanks for your reply R W Kennedy - appreciate it.

Yes our interest is undivided in the 200 acres, basically 5% of it.

I think Chesapeake would be drilling horizontal wells, to look primarily for oil...since those are the formations they are targeting.

But I'm struggling with how to get the needed language in there...

#5

More importantly, first make sure you have a pooling clause in the lease, which should be a given! Add the horizontal Pugh, if you can, to release the deep rights beneath the producing horizon in the secondary term after production. Often Lessees are reluctant to release above the producing horizon, especially if there is a potential to plug back and produce another formation uphole. Since you have an undivided interest in the 200 acres, it would be favorable to make sure you have a provision to pool the entire tract into a unit, especially for gas. If you can't get this, get the vertical Pugh as it would act to release after the primary term of the lease the portion of the 200 acres, if any, which may not have production or may not have been pooled.

As a note, a vertical Pugh clause acts to "segregate" a parcel or a piece of a parcel, from another or from the whole, on a surface basis. A horizontal Pugh acts to sever depths subsurface from one another - deep zones from shallower formations, for example. This is often misstated in this forum.

Good luck with your lease -

#6

Interesting, horizontal for depth? Under the mineral help tab at the top of the page, selecting oil and gas terms, then selecting “H” and scrolling down to " Horizontal pugh clause" it says, " A clause often added to an oil lease to limit holding non-producing lands beyond the primary term of the lease". Mr. Manning, since you are a landman, could you tell me where to find a definition that agrees with you?

B Scott Manning, CPL said:

More importantly, first make sure you have a pooling clause in the lease, which should be a given! Add the horizontal Pugh, if you can, to release the deep rights beneath the producing horizon in the secondary term after production. Often Lessees are reluctant to release above the producing horizon, especially if there is a potential to plug back and produce another formation uphole. Since you have an undivided interest in the 200 acres, it would be favorable to make sure you have a provision to pool the entire tract into a unit, especially for gas. If you can't get this, get the vertical Pugh as it would act to release after the primary term of the lease the portion of the 200 acres, if any, which may not have production or may not have been pooled.

As a note, a vertical Pugh clause acts to "segregate" a parcel or a piece of a parcel, from another or from the whole, on a surface basis. A horizontal Pugh acts to sever depths subsurface from one another - deep zones from shallower formations, for example. This is often misstated in this forum.

Good luck with your lease -

#7