I have some mineral rights and have been approached to lease them. A cousin mentioned something called a pew clause. What is that and should i ask for one?
Here’s a good article explaining the Pugh Clause. I’m not an expert on this matter, so it might be best to hire a lawyer if it’s something your cousin thinks you need.
Remember, it’s Pugh clause, not Pew Clause. It’s named after an attorney from South Louisiana back in the late forties. There are no “form” Pugh clauses. You might learn a little about your landman that you are working with by asking him to explain the concept to you. The concept is quite simple (the drafting a bit more complex). The landman should have no problem explaining it to you, if they are a reasonable and reuputable party.
Pugh clauses force a lease holder to release all acreage not included in a regulatory unit, or force release of zones uphole or downhole of zones that are producing. Most leases do or should include a pugh clause.
NOT LEGAL ADVICE
Dear Mr. Glen,
A Pugh clause requires the operator to release back to you at the expiration of the primary term (or secondary term if allowed) any acreage from the leased premises that they choose NOT to include in a drilling unit. You get paid royalties only on your acreage that the operator incorporates into the drilling unit. So you want the Pugh clause in the lease so that you can take whatever acreage was not put into the drilling unit and try to lease them to another operator. That way, you can get another bonus payment on THOSE acres and hopefully get royalties paid on those acres as well.
However, if you have a city lot don’t bother insisting on the Pugh clause because they’re going to either put the whole lot in the unit or not. Similarly, if you have a small amount of acres, say less than five, don’t lose the lease over this request either because they are probably going to put all or none of your acreage in the unit. For a larger tract, a Pugh clause is mandatory for the mineral owner’s protection. And if you have a large tract and the operator refuses to include a Pugh clause in the lease, that is a huge red flag. Be very wary at that point.