Pugh Clause

A Pugh clause is a provision in an oil and gas lease that limits how much acreage production can hold after the primary term. It answers the question of whether production from a unit that includes only part of a lease keeps the rest of the lease alive. Under the clause, the lease ends at the end of the primary term as to the land outside the producing or pooled unit.

No statute defines the term

None of the federal or state statutes read for this entry defines "Pugh clause."

An example: the Utah SITLA lease form

The Utah School and Institutional Trust Lands Administration (SITLA) oil and gas lease form includes a clause headed "Pugh Clause," which reads: "As to any acreage of the Leased Premises which is not within a producing area in accordance with UDOGM rules and regulations, including, without limitation R649-3-2 and R649-3-3, or any SITLA approved production or spacing unit, at the expiration of the primary term, this Lease will automatically terminate, expire, and be of no further force or effect insofar, and only insofar, as to any lands comprising the Leased Premises that are not within such producing area or included in one or more of the said SITLA approved pools or units (unless the lands are otherwise maintained by the provisions of this Lease)." The form adds that on request the lessee "shall execute a release of this Lease as to such acreage released under this pugh clause."

That clause shows the working parts to look for in any Pugh clause:

• the triggering date (here, "the expiration of the primary term");
• what counts as held (here, a producing area under state rules or an approved production or spacing unit);
• whether the clause is horizontal (by acreage) or also vertical (by depth). This one speaks only of acreage;
• what the lessee must record afterward (here, a release on request).

Oklahoma addresses the question by statute

Oklahoma reaches a related result by statute rather than lease clause: "In case of a spacing unit of one hundred sixty (160) acres or more, no oil and/or gas leasehold interest outside the spacing unit involved may be held by production from the spacing unit more than ninety (90) days beyond expiration of the primary term of the lease" (52 O.S. 87.1(b)).

Why it matters in mineral title research

• A lease called held by production may be partly expired under its Pugh clause. The clause, the unit boundaries, and the primary term end date together decide what remains.
• Released acreage may be open to a new lease, so the unit plats and any recorded partial releases have to be matched to the lease description.
• If the lessee never recorded a release, the expired acreage still appears leased of record (see Curative).