Just Curious - Has anyone had any luck w/a vertical Pugh Clause ??

Landowners in Butler Co. are really in my opinion sitting on a real hot spot long term. 

As Rex calls them in their Corp. Presentations "Butler Operated Stacked Pays". Ya pays, not  plays, may have been a typo, hmmmm? (pg 24) If I am smart enough to do it I think I have it on my other laptop and will attach it tomorrow if I am not completely computer incompetent

My point is- we are sitting on 4 "plays". The Rhinestreet, the Burkett, the Marcellus, and the Utica.

All 4 of these plays are pretty much "proven" - there is gas there - how much, how rich, maybe a question, but no "dry holes".

In one of my discussions with a landman I inquired about the vertical. "This is just the Marcellus, right? "

He grabbed his heart and said " No, No, from here to the center of the Earth" I LOL .

That was obliviously a deal breaker so I went no further on that.

On the Marcellus Rex says " Drilling efforts focused in this zone given economics and ability to also hold shallow acreage".

Smart, hold the acreage. There is no way that they can drill all 4 and hold em in 5 years. Just ain't there yet.

But they will get to em, may take a while but they will, just too much there.

So as a landowner, in 5 years if I have not given rights to anything but the Marcellus - we need to talk again, don't we? 

Ok, I am done rambling, my question is, if anyone is willing to share - Has anyone been able to get any type of vertical clause in a lease with anyone ????


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  We did back at the end of 2009. I was told just before deal closed in mid 2010 that no longer allowed depth severance clauses. So we lucked out there. Let them know you want a depth severance and when they say no; Try to get them to up signing bonus and/or royalities.

  Now it seems they dont want to pay much for anything. Putting almost all of budgets into drilling, necessary infrastructure and filling in units. If your willing to wait for a few years will probably get much better deal. $5 nat gas price would help speed things up.

One other option (after they say no to higher bonus and royalty saying the Marcellus is not commercial at those payouts- yeah, right!) is to have a higher royalty for any further formations that produce after the Marcellus. Increase the royalty by 2%, even 5%, for all additional formations. Of course they will say no, but by doing this, they are avoiding the Pugh clause and another bonus payment. Then, if they say they cannot do so because the price of gas may be too low, say you will also tie it to the price of gas. For example, any additional formations that are put into production in a year in which the average price of gas is $4.00/mcf will be 20%; if $5.00/mcf, royalty will be 22%, if $6.00/mcf, royalty will be 24%, etc.

Be calm, be polite, but have an answer for every excuse they give for why that is not reasonable. The biggest problem you have is that too many people take whatever is offered with a boilerplate lease, leaving the companies to think they have no needed to share the bounty of your resource. Of course, this will be most effective if you have significant acreage or a group of neighbors with contiguous acreage that is significantworking together.

no luck for vertical pugh or upping royalty on my part, 15% with no clause, have not signed yet.  Any advice?


Ha, you have already been here.LOL   So I will not repeat.

rfnmk   Sounds like you have talked to a lot of Landmen!!!   LOL

You have a very good point - I had not really thought about using the Pugh as a strong negotiating point. 1 more piece of ammo - Thanks.

You are absolutely correct that too many people take the "Boilerplate" lease. But most people really don't know any better and just see $$$ and the Landmen know that.  

Better informed - better decisions.

this is in my lease......not sure how effective it really is, but it seems to say that anything below the formation that is drilled and HBP, would be released.

Pugh Clause

(a) As to any acreage of the Leased Premises which is not included within any

production unit at the expiration of the Primary Term, including any extension of the Primary

Term in accordance with Article II, Section 2 and/or Section 3 of this lease, this lease shall

automatically terminate and be of no further force or effect as to any acreage not within such

designated units.

(b) In addition, at the end of the Primary Term or extension thereof, this Lease

shall terminate as to all depths and horizons under each production unit below two hundred (200)

feet below the stratigraphic equivalent of the base (bottom) of the deepest formation from which

production of oil or gas in paying quantities is being maintained (or, in the case of a shut-in gas

well, can be maintained) in the well on such production unit. Lessee shall, as long as this Lease

is in effect, have the right of first refusal subsequent to such termination in the event any

subsequent lease is offered by Lessor for the depths and horizons released in accordance with

this paragraph.



Lots of legal mumbo-jumbo in there but sounds like to me you are correct.

If they drill the Marcellus and don't do the Utica in 5 yrs you would be free to re-lease to anyone you chose.  Anything above they would still control.  I Think. LOL

Sound good, the Utica is probably  a good one to still hold.

The more I read and the more I learn about the "stacked plays" or "pays" as Rex calls them I am absolutely sure there is a huge amount of value there.Perhaps not short term but 5-10 years for sure. The Marcellus is the smart economic play at this time. Drill it, get some infrastructure set, hold by production the acreage, and the rest is gravy.

The problem is - How to unlock that value for the landowner?

Mention a vertical Pugh to a land man and it is like throwing "holy water" at the devil.

It's like "Don't dare open that Pandora's box". "If all the land owners start to realize how much potential value is there........ Oh noooooooo......."

rfmkmk has a good idea in his post above.  I am going to throw that one out to the landman next time he is around and see what happens.

I am also thinking about offering a 10 year lease on the other plays contingent on sweetening the upfront bonus money. Good idea/bad ? Any thoughts?

I am not too concerned about the 10 years, maybe even let em have 10 years on everything .The accountants may like that. Stretch the cost out and all.

I am fairly certain given my particular situation, location, etc. that I will be in a unit in a year or 2, 3 tops. So the 10 yr may be a moot point. They keep coming back - so I believe they do really want my acreage. How badly is the question.

I may be spitting into the wind, but I would like to squeeze another 500/ac out. May not be possible but I am going to give it a shot. 

Problem is - too many people just sign the standard boilerplate as noted above.

Anybody have any other ideas, I would love to hear them.


We signed a lease limiting the vertical strata to "the base of the Elk formation to a depth of 500 feet below the base of the Marcellus Shale." This is defined as a "Deep Well" in the lease.  This was in Armstrong County, PA - signed the lease in late 2012.  This allows the Gas Co. to develop the Upper Devonian and Marcellus with this lease.

If they want to develop the Utica or deeper, that would require a separate lease.  Same with any shallow wells.  Language in the lease also does not allow them to hold our property by simply drilling a shallow well in our unit - has to be a "Deep Well."

So, we didn't have any clause discussing how other strata would be handled, but we did limit the strata.  I'm not sure when or if the Utica will be developed in our area, and I'm not sure if anyone will ever be interested in drilling shallow wells, again, but at least we have some some vertical limits.  By the way, the Gas Co. did not fight this very hard, so I think that is all they wanted, for now.

Anyway, you might try limiting the strata to Upper Devonian and Marcellus.  Happy negotiating ;)

Thanks for the input Brad.

Nice to hear that you got some vertical separation. As you note "I think that is all they wanted, for now." Hmmmm.....

Just curious, aw heck I am really being nosy, but how did you even negotiate the vertical?

Sharp lawyer, or you really did your homework ???

As far as "Happy Negotiating" - I love it. Every day I learn a bit more. I may not beat em at their own game but I love throwing the "curves" at the landman and watching the little stutter steps he does.

Thanks again for sharing,  The more landowners know about the process the better.

My lease "evolved" over a few years.  Local gas companies were trying to get everyone leased and packaged into a large lease that could be marketed to a large buyer.  That lease was to be marketed as just the Marcellus.  Instead of one buyer purchasing all the leases, one buyer purchased the leases only in my area. That buyer wanted everything below the Elk Formation.  I told them that when I was negotiating with the local company, I was only leasing the Marcellus.  They agreed to limit the lease to "the base of the Elk formation to 500 feet below the Marcellus."

I have been reading this forum for a long time - there's a lot of valuable information, here, from some knowledgeable people from different backgrounds.  I do not consider myself an expert, so I hesitate to give any advice that can be truly relied upon.  I believe that one needs to be careful to understand how strong their position is (How much property do they have, is there more than one gas company interested in the area?  Are their neighbors leased, already?  With whom and with what terms?)  I have a property under 50 acres, and everyone around me was already leased with one of the local gas companies who packaged their leases to the larger firm.  So, based on my situation, I agreed to lease with the one firm who owned all the leases around me.  Although I wanted to keep the lease restricted to the Marcellus, I agreed to include the Upper Devonian in the lease because I did not believe that another firm was going to be interested in my property, at least not for a long time, and I felt that if I did not sign a lease with them, the Gas Co. could arrange their units in such a way that they did not need to lease me at all.  So, although I sort of negotiated "backwards" from where I started, I am comfortable with the lease I signed.

Advice that I received when negotiating my lease was to make sure that the Gas Co. knows that you are sincere about reaching an agreement, and make sure that the Gas Co. is willing to negotiate and work with you.  I understand that waiting and playing "hard ball" has it's place when you are in a position of strength, and I hope that you are in that position. I would rather have a "small part of something" than to hold out and risk not having a lease, or having it so late in life that it loses it's intended benefit.  Now, I did have a family friend who owns another gas company helping me figure out what to include in my lease, and I did have an oil & gas attorney provide me with items for my lease, and he reviewed the final lease and was satisfied.  So, I negotiated based on my perceived position, and I included: terms that I learned from this forum, terms suggested by my attorney, terms suggested by my industry friend, and terms important to me (such as a "no surface disturbance" clause).  Watch out for the "blanket statements" that some give on this forum, which may or may not apply to your situation.  They can be helpful if they apply to you, but they can hurt you if not appropriate to your situation. 

As I said earlier, "Happy Negotiating."  I hope that you do well, and I hope that you can look back and be satisfied. 



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