House Co-Sponsorship Memoranda
House of Representatives
Session of 2013 - 2014
Regular Session
MEMORANDUM
| Posted: | April 24, 2013 12:56 PM |
|---|---|
| From: | Representative Jesse White |
| To: | All House members |
| Subject: | Requirement of a Mandatory Pugh Clause to Protect Marcellus/Utica Shale Leaseholders |
| In the near future, I plan to legislation requiring a Pugh Clause for natural gas development in formations including the Marcellus and Utica Shale. The Pugh Clause essentially defines what happens to the portion of the acreage a person leased that does not either contain a well or is not included within a producing petroleum pool or unit; it is incredibly valuable for any landowner who signs a lease. A Pugh Clause is language used in an oil & gas lease to describe what happens to the portion of the acreage you leased that does not either contain a well or is not included within a producing petroleum pool or unit. A typical Pugh Clause reads as follows: "If at the end of the primary term, a part but not all of the land covered by this lease, on a surface acreage basis, is not included within a unit or units in accordance with the other provisions hereof, this lease shall terminate as to such part, or parts, of the land lying outside such unit or units, unless this lease is perpetuated as to such land outside such unit or units by operations conducted thereon or by the production of oil, gas or other minerals, or by such operations and such production in accordance with the provisions hereof."
In simple English, this means at the end of the primary term, the lease will expire as to any part of the land that is not being used by the oil or gas company. Without the Pugh Clause, if your lease covered 500 acres and the petroleum company only put 20 acres in a pooled unit for a producing well, the lease would remain in effect as to the 480 acres not being used as well as the 20 acres in the unit. Even though you are receiving no production (and thus no profit) from the 480 acres, they would remain tied-up by the lease indefinitely. With the Pugh Clause, the 480 acres would be released from the lease at the end of the primary term. You would continue to receive royalties from the production from the 20 acres, and the 480 acres would be available to lease to another company when one comes along. |
Introduced as HB1443