# Pugh Clause

**Source:** Buckhead Energy Oil & Gas Encyclopedia (https://www.buckheadenergy.com/learn) — canonical: https://www.buckheadenergy.com/pugh-clause

A Pugh clause is an oil and gas lease provision that, at the end of the primary term, releases the portions of the leased land — or the depths — that are not held by production or included in a producing unit, instead of letting production on any part hold the entire lease.

## The problem it solves
Without a Pugh clause, the habendum clause of a lease can let a single producing well — or the inclusion of a sliver of your acreage in one pooled unit — hold the entire leased tract past the primary term. A landowner could have 640 acres under lease, one unit producing on 40 of them, and see all 640 tied up indefinitely while most of the acreage sits undeveloped.
A Pugh clause breaks that. Named for the Louisiana attorney Lawrence Pugh who devised it, the clause severs the lease at the end of the primary term so that only the acreage (or depths) actually being produced or pooled stays held by production. The rest is released back to the owner to lease again.

## Horizontal and vertical Pugh clauses
A horizontal Pugh clause works across the surface: it releases the leased acreage lying outside the producing or pooled unit. If only the northern 160 acres of your tract are in a producing unit, a horizontal Pugh returns the southern acreage to you when the primary term ends.
A vertical Pugh clause (or depth-severance clause) works downward: it releases the depths or formations below (and sometimes above) the interval actually being produced. Production from a shallow formation would not hold the deep rights, so a separate operator could lease and develop a deeper target. Many leases include both, cutting the lease down to only what is genuinely being developed.

## Why owners want one
A Pugh clause is squarely a lessor-favorable term. It prevents a lease from going stale on undeveloped acreage and gives the owner the chance to re-lease — and collect a fresh bonus and possibly a better royalty — on the parts an operator chose not to develop. For an owner, negotiating a Pugh clause into a lease is one of the more valuable protections available.
It also matters at valuation. A mineral or royalty interest under a lease with a strong Pugh clause behaves differently from one where a token amount of production holds a large block indefinitely. When Buckhead Energy reviews an interest, the presence and type of Pugh clause is part of reading what the lease actually controls — which affects both future upside and value.

## Frequently asked questions

**What is a Pugh clause?**
A lease provision that, at the end of the primary term, releases the leased acreage or depths not held by production or included in a producing unit — rather than letting production on any part hold the whole lease. It is named after attorney Lawrence Pugh.

**What is the difference between a horizontal and vertical Pugh clause?**
A horizontal Pugh clause releases acreage lying outside the producing or pooled unit. A vertical Pugh clause releases the depths or formations below (and sometimes above) the interval actually being produced, so shallow production does not hold deep rights.

**Why is a Pugh clause good for the mineral owner?**
It stops a lease from tying up undeveloped acreage indefinitely. Acreage or depths the operator does not develop are released back at the end of the primary term, letting the owner re-lease them for a new bonus and potentially better terms.

**Does every lease have a Pugh clause?**
No. A Pugh clause has to be negotiated into the lease; standard forms often do not include one, which is why production on a small part can otherwise hold the entire tract. Owners frequently ask for one during lease negotiations.

## Related terms
- [Oil & gas lease clauses](https://www.buckheadenergy.com/oil-and-gas-clauses)
- [Habendum clause](https://www.buckheadenergy.com/habendum-clause)
- [Held by production](https://www.buckheadenergy.com/held-by-production)
- [Pooling](https://www.buckheadenergy.com/what-is-pooling)

_Educational information only, not legal or tax advice. Buckhead Energy is a direct buyer of oil & gas mineral and royalty interests._