Pugh Clauses

General Mineral Rights Discussion
1

Are Pugh Clauses generally accepted as SOP by companies in this area?

2

What area? You posted on the general discussion board.

In Texas, yes.

3

As Wade said, yes in Texas, but also yes in Oklahoma. I am less sure about Montana, but a knowledgeable mineral owner should demand it regardless of location.

4

Thanks Wade

5

Thanks Matthew. My offer on 95 nmas in Pittsburg Co. is for $300 per. Is that fair? My lawyer sent an addendum with a Pugh in it to BP, but it's taking forever to get a reply.

6

Looking at the Piitsburg Co owners discussion I see others mentioning $300 as recently as August and one offer of $1500 from back in June. Doesn’t look like there is a ton of activity yet, but folks seem to be building up positions. Unless you signed exclusivity with BP, you can try to shop around. Echo Energy is notes as making some offers but it might just be to infill existing holdings. Good luck!

7

I think the $1500 was to purchase, not lease.

8

You are likely correct, I just took a quick glance at their discussion.

9

In any event, you should not accept a lease without a Pugh clause unless it’s a no pooling lease.

10

With respect, if your lease has no pooling then there is nothing to trigger a Pugh Clause. If your tract is large enough to not need pooling, then there are other ways to limit the acreage being held by a single well -- such as a Retained Acreage provision.

Best

Buddy Cotten
11

True. Just because you hold 95 nma doesn’t mean its not a larger tract. In my experience leases not big enough to support a lease will almost always benefit from a Pugh clause. I have dealt with too many landowners whose 100-200 acre leases are held indefinitely by shallow production for which less than 10 acres has been pooled. There are of course other options, including retained acreage clauses, minimum acreage pooling and hybrids that require additional authorizations or consideration of less than a certain percentage of acreage is included in the pool.

12

*leases not big enough to support a lease well…

13

Not sure if the last few comments are intended to be general in nature or specific to Mr. Long's situation. As Mr. Long's tract is in Oklahoma, the well will be almost guaranteed to be in an OCC drilling and spacing unit; therefore, the pooling clause, whether in or out, or limited, is irrelevant.

14

Thanks to all for your input. I guess another question...how long generally do these lease projects take? I realize that everything has to go through numerous legal channels before the broker can send the final lease. He sent the addendum to BP three weeks ago.

15

Mine are intended merely as general. I do not practice in Oklahoma, but the original question was posted in the general pugh clause discussion.

16

gotcha.

17

Tim,

Mine was general in nature, but I do have a question about Oklahoma. Let's say that you own fee in 10 sections and they were all leased on one lease form in 1977. There is production in one section. Does your statement mean that only that one section is held and the other 9 sections are not HBP?

As a followup, does the OCC drilling and spacing unit create a horizontal pugh clause?

18

A comment about the discussion. The comment was not to sign a lease that doesn't have a Pugh clause or retained acreage clause. So, this is about executing a lease in 2015. In other words, current advice. Since state law and OCC administrative action trumps the contract/lease, then it really doesn't matter about the Pugh clause. Because, in all likelihood, a company will drill in a 640, and most leases don't cover more than a section, if that.

Now, as to your question. One, you picked the magic year. The statutory Pugh Clause was enacted on May 25, 1977.

Prior to 5/25/77, if Mineral Owner executes an ogl covering sections 1 through 10. Then company drills a commercially producing well during the primary term. Then all sections will be held.

After 5/25/1977, the statutory Pugh clause is in effect and if a) the land is spaced on 160 acres or greater spacing, then b) the lease will expire 90 days after the primary term as to all land outside the spacing unit, as a matter of law.

19

1977 was a total accident! That was the year I broke into the business. Thanks for clearing up my question on the statutory pugh clause. I am still going to have a horizontal and vertical or layer cake pugh clause.

Thanks again, Tim.

Best,

Buddy Cotten