Pugh Clause

What is a "Pugh Clause" and how does that affect a lease contract?

The simple version is, if you have a 100 acre tract and you lease it, and the company drills a horizontal well utilizing 20 acres of your 100 acres, without something in your lease to the contrary, they can hold the entire 100 acres in the lease by producing one well, for many years, and the other 80 acres are not able to be leased by another company for another well to be drilled and pay you royalties.

A Pugh clause states something like, if you have acreage not included in a unit, at the end of the primary term of the lease (for example, a 5 year lease, at the end of the 5 years), the part in the producing unit is held by the lease but the remaining acreage is free to be leased by someone else, or by the original company, but you benefit by the additional bonus money and possibly a chance to renegotiate the lease terms.

There is a different kind of Pugh clause saying that depths below the deepest producing layer (in the Wetzel area, probably the Marcellus), if not drilled by the end of the primary term, are not held by that lease, and that company, or another, needs to come negotiate with you again to drill a deeper layer, for example the Utica.

Hope that makes sense. If anybody has a better explanation, please help out here.