How this lease provision protects mineral owners from excessive hold.
Get Your Free Mineral ValuationNamed after Louisiana legislator Lawrence Pugh, a Pugh clause is a lease provision that prevents an operator from holding large amounts of acreage with minimal production. It's one of the most important protective provisions a mineral owner can have in their lease.
Without a Pugh clause, a single producing well can hold hundreds or thousands of acres indefinitely—even if most of that acreage will never be developed.
You sign a lease covering 640 acres. The operator drills one well on 40 acres. That single well holds your entire 640 acres "by production" indefinitely—potentially for decades. The remaining 600 acres sit idle, and you can't lease them to anyone else.
You sign a lease covering 640 acres with a Pugh clause. At the end of the primary term, only the acreage in the producing unit (perhaps 40-320 acres) remains leased. The rest is released, and you're free to lease it to another operator or sell it.
Releases acreage outside of producing drilling units. If your 640-acre lease has a well on a 320-acre unit, the other 320 acres are released at the end of the primary term.
Also called: Surface Pugh, Acreage Release, or Pooling Pugh
Releases formations above or below the producing zone. If a well produces from the Wolfcamp formation, a depth Pugh releases deeper formations (like the Bone Spring) that you could lease to another operator.
Also called: Vertical Severance or Deep Rights Clause
Requires the operator to continue drilling at specified intervals or release acreage. This prevents operators from holding leases with minimal activity.
Re-leasing opportunity: Released acreage can be leased at current market rates
New bonus payments: You can receive a new bonus on released acreage
Better operator: You might find a more active operator for released acreage
Higher royalty: New leases may have better royalty terms
Sale flexibility: Unleased minerals often sell for higher values
Look for Pugh clause language in your lease. It may appear under various headings:
"Pugh Clause" or "Freestone Rider"
"Release of Undeveloped Acreage"
"Retained Acreage" or "Acreage Retention"
"Continuous Development"
"Depth Severance" or "Deep Rights"
Note: If you can't find Pugh clause language, your lease may not have one. Consider having an attorney review your lease to confirm.
Get a free valuation to understand your options.
Request Your Free ValuationA Pugh clause is a lease provision that releases unleased or non-producing acreage from the lease at the end of the primary term. Without a Pugh clause, production from one well can hold the entire leased acreage indefinitely. With a Pugh clause, only the acreage actually being produced remains leased.
A depth Pugh clause (also called a vertical Pugh clause) releases formations below or above the producing zone at the end of the primary term. This allows the mineral owner to lease deeper or shallower formations to another operator, rather than having all depths tied up by production in a single zone.
A horizontal Pugh clause releases acreage outside of producing units at the end of the primary term. If a lease covers 640 acres but only 320 acres are included in a drilling unit, the remaining 320 acres are released and can be leased separately.
Pugh clauses prevent operators from holding large amounts of acreage with minimal production. They give mineral owners the opportunity to re-lease released acreage at potentially better terms, lease to a more active operator, or sell unleased minerals at higher values.
Generally, you cannot add a Pugh clause to an existing lease without the operator's agreement. Pugh clauses must be negotiated when the lease is signed. If your lease doesn't have one, the operator has no obligation to release any acreage as long as production continues.
Disclaimer: This information is for educational purposes only and should not be considered legal advice. Consult with a qualified attorney for specific questions about lease provisions.