The Pugh Clause

Christopher M. Harrell — Wed, 05 May 2010 17:11:10 +0000

In Hunter v. Shell Oil Co., 211 La. 893 (1947) the Louisiana Supreme Court held that production from a unit which includes only a portion of a leased tract will maintain the lease in force as to all lands covered by the lease even if they are not contiguous. In response, Lawrence Pugh, an attorney from Crowley, Louisiana, developed what is now generally known as the “Pugh Clause.” The Pugh Clause is essentially a severance provision which provides that production will only hold acreage which falls within a pooled unit. This allows the landowner to lease that acreage which falls outside of the producing unit. In Texas, this type of provision is typically referred to as a “Freestone” rider, and is commonly included in oil and gas leases.

In Texas, pooling is generally voluntary (with few exceptions), and the right to pool is granted in an oil and gas lease. A typical Pugh Clause in an oil and gas lease which allows for pooling might state:

If, at the end of the Primary Term, a portion or portions of the leased premises is pooled or unitized with lands that are not a portion of the leased premises, so as to form a pooled unit or units, operations on, completion of a well upon, or production from such unit or units will not maintain this lease in force as to that portion of the leased premises not included in such pooled unit or units.

However, this type of Pugh Clause is only triggered if an oil and gas lease allows for voluntary pooling. If pooling is not allowed under an oil and gas lease, then this language would not preclude a lessee from holding the entire leased premises.

There is no standard Pugh Clause and there are many variations which are used. One common variation is the “Vertical Pugh Clause.” The Vertical Pugh Clause releases all depths below the producing interval after the primary term. Often times the provision states “that after the primary term, all rights 100 ft. below the producing interval will be released.”

A Pugh Clause is an important lease provision, and is particularly important to those landowners leasing large tracts of land.

Drilling and Division Order Title Opinions

Christopher M. Harrell — Wed, 26 Aug 2009 02:48:06 +0000

My office prepares drilling and division order title opinions throughout the State of Texas. Before an oil and gas well is drilled, an oil company will obtain a drilling title opinion which identifies the ownership of oil, gas and other minerals in the lands upon which a well is to be drilled. In the event that there is production, a division order title opinion will be prepared. The division order opinion is based on the prior title opinion, includes an updated record check, and identifies those entitled to proceeds from the sale of production from the well.

I also prepare stand-up title opinions, which involves examining records in the courthouse. We also can assist with due diligence, lease negotiation, as well as the the preparation of Joint Operating Agreements, Purchase and Sale Agreements, and Joint Venture Agreements. Contact my office at (817) 718-5858

THE HARRELL LAW FIRM

The Pugh Clause

Drilling and Division Order Title Opinions