Pugh Clause/Post production class

Re: Pugh Clause. Does anyone include this clause when leasing?

Yes, but a Pugh clause and a post production clause are two entirely different things. There is a horizontal Pugh clause and also a vertical Pugh clause. It is very wise to get an oil and gas attorney to help with reviewing any lease documents. One wrong word can cost you quite a bit of royalties down the road.

Robbie, what state are your interests in?

Oklahoma! Home of the brave! :notes:

Don Bray I noticed you commented on the Pugh clause but it’s gone now. I can’t find you now. I hardly get on here because the previous site spoiled me rotten. I generally go in circles. Anyway, I’m wondering if you include it in your leases?

@Robbie_Johnson I don’t recall a previous comment, but yes, you want it in any leases. Also, in my opinion a good oil and gas attorney to help with reviewing any lease documents is the only way to go.

I have quite a few small to very small mineral interests in Oklahoma (and other states). Do you still advise an attorney for a lease? I generally use the sample lease that I got at the NARO Convention about 8 years ago.

I still advise getting a standard “family” lease for Oklahoma. An eight year old lease probably needs some edits after this long. Language is needed to keep up with changing legislation, court cases, etc. Some attorneys recommend that the lease contain all language versus using an Addendum or Exhibit A which could muddy the waters.

As to the original question, a Pugh clause is not something to worry about in Oklahoma. If you negotiate for one, great, but if you don’t, for 99.99999% of the time in Oklahoma, it doesn’t matter.

Why is that, Tim? Because almost all wells in Oklahoma are drilled in a 640-acre drilling and spacing unit. Almost all leases are for tracts contained in the 640-acre section. . Very few multi-section leases in Oklahoma in 2022. . And if there was a multi-section lease, the non-drilled tract would become unleased by virtue of the Statutory Pugh Clause, which allows that all acreage outside a 160-acre spacing unit or greater will be released 90 days after the primary term. So, for the pugh clause included in a lease to have any effect, the lessor would have to lease multiple tracts in an area where the drilling and spacing unit may not be 160 acres, 320 or 640 acres. So, we’re down to about 1% of 1%.

can someone in OK give me a link to a “family lease” that I can user as a reference?

I don’t understand this post. There has been a great deal of discussion about the Pugh clause on this site. It is my understanding that without the Pugh clause old leases can be held forever if production continues and there is no clause limiting the formations being drilled. Can someone enlighten me? Thanks.

Very old leases hold to the center of the earth as long as the terms of the lease regarding production are still in effect. Pugh clauses came in later and provided for depth limits or areal limits depending upon their wording.

Martha, I understand about the Pugh clauses. The previous post stated Pugh clauses are not something to worry about in OK, suggesting we don’t need them. That I don’t understand.

Tim was replying that since most wells are 640 acres these days, the Pugh clause is not needed as much anymore. We have chosen to leave the clause in our new leases as a backup to any shallow drilling that has a smaller spacing. We occasionally get some.

After 1977, state law allows for a statutory Pugh clause wherein all acreage outside 160-acre drilling and spacing units become unleased 90 days after the primary term.

  1. The Pugh clause won’t help with the old leases, only new leases. You can’t go back and retroactively fix or revise an old lease.
  2. Almost all leases executed in 2022 or 2023 are going to be 160 acre or 640 acre spacing, so the statutory Pugh clause would kick in, in any event.
  3. the only time the Pugh clause will help you in a lease in 2022 is if the well is drilled on a lease basis (haven’t seen one of those for awhile, or a 80-acre of less spacing unit (not common at all.).
  4. Martha is correct that sometimes it does matter. But, I will suggest its pretty uncomnon.