Short answer: A Pugh clause is a provision in an oil and gas lease that stops production from a pooled unit from holding the entire lease. Without one, a well on a unit that includes only part of your land can keep your whole lease, including acreage outside the unit and every depth, in effect indefinitely. With a Pugh clause, the lease continues only for the land, and sometimes only the depths, actually included in the producing unit. The rest is released when the primary term ends.
For landowners in Washington County and the rest of the Marcellus and Utica shale region, where large horizontal units are common, a Pugh clause can be one of the most valuable terms in a lease.
Where does the name come from?
The clause is named after Lawrence Pugh, a Louisiana attorney who drafted an early version in the 1940s to protect landowners from having unpooled acreage held by unit production.
How a Pugh clause works
Most leases have a primary term, often five years, and a secondary term that continues “as long as” oil or gas is produced. Leases also usually let the company pool your land with neighboring tracts into a drilling unit. Under many leases, production anywhere in the unit counts as production on your entire leased tract.
Example: you lease 200 acres, and the company pools 50 of those acres into a unit with a producing well. Without a Pugh clause, that well can hold all 200 acres. With a horizontal Pugh clause, only the 50 pooled acres stay under lease after the primary term, and the other 150 acres are released, free to lease again, possibly for a new bonus.
Types of Pugh clauses
- Horizontal Pugh clause. Releases land outside the pooled unit at the end of the primary term.
- Vertical (depth) Pugh clause. Releases depths below, and sometimes above, the formations that are actually producing. In shale country, this can matter because the Marcellus, Utica and other formations may be developed separately.
Many landowner-friendly leases include both.
What to look for in the wording
- When it applies. At the end of the primary term, or at the end of any extension or continuous drilling period.
- What counts as held. Only land in a producing unit, or land in any unit, including units that have not yet produced.
- Depth limits. Which formations are held, measured how, and whether “stratigraphic equivalents” are included.
- Release. Whether the company must record a release for the land that is freed.
- Exceptions. Language elsewhere in the lease, such as shut-in or continuous drilling provisions, that can delay or override the Pugh clause.
Do Pennsylvania leases include Pugh clauses?
Not automatically. Many form leases offered by gas companies do not include a meaningful Pugh clause, and older leases often have none. Whether you can get one depends on your acreage, location and negotiating position. Even when a company will not agree to a full Pugh clause, it may accept a more limited version.
What if my lease already has no Pugh clause?
You generally cannot add one after the fact without the company’s agreement. But it is still worth having the lease reviewed, especially before signing any amendment, ratification or extension. Those documents are a chance to negotiate, and they can also unintentionally extend the company’s rights. See our page on oil and gas lease review.
Frequently asked questions
Is a Pugh clause good for landowners?
Usually, yes. It keeps your unpooled land and unused depths from being tied up indefinitely by production elsewhere, so you can lease them again.
Does a Pugh clause affect my royalties?
Not directly. It affects which land and depths stay under lease, not the royalty rate. Estimate payments with our oil and gas royalty calculator.
Can a company refuse to include a Pugh clause?
Yes. It is a negotiated term. Landowners with larger tracts or in high-demand areas generally have more leverage.
What other lease terms protect landowners?
Royalty and post-production cost language, surface protections, shut-in limits and assignment terms are common. Our guide to Marcellus shale gas lease terms covers them, and should I lease my mineral rights helps you weigh the decision.
Reviewing a lease offer or extension? Daniel B. Kostrub reviews oil and gas leases for landowners in Washington County and across southwestern Pennsylvania. Call (304) 982-1586.