Replies to This Discussion

Permalink Reply by evan on February 15, 2014 at 1:53pm

Check out some of our conversations a few days ago. I think it's titled drilling units vs production unit.  The last ten or so responses makes you think otherwise. But it sounds like we 're in the same situation almost. Who knows. I tend to believe what your saying until I'm convinced otherwise

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Permalink Reply by Mike Murphy on February 15, 2014 at 2:02pm

I am in 2 different drilling units one having a well drilled on it the other having a permit and pad built on it  I was told by cheaspeak that my acreage  was not part of either well unit and i would

not be receiving royalties from either well 

if the well involves 160 acres that well will only pay the 160 acres used to drill that well the remaining 480 acres in the unit will not be payed 

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Permalink Reply by evan on February 15, 2014 at 2:06pm

That sounds right to me. I looked at odnrs website at the permit for the well that was drilled, it lists landowners who will receive royalties from that well and those people are all in the direction that the lateral went under ..

Permalink Reply by Mike Murphy on February 15, 2014 at 2:28pm

he Pugh Clause (sometimes misspelled “pew  clause”) is named after Lawrence Pugh, a Crowley Louisiana attorney who developed the clause in 1947, apparently in response to the Hunter v. Shell Oil Co., 211 La. 893 (1947). In this case the Louisiana Supreme Court held that production from a unit including a portion of a leased tract will maintain the lease in force as to all lands covered by the lease even if they are not contiguous.

Absent a Pugh Clause, a Lessor could be exposed to the entirety of the lands under an oil or gas lease being held by the production from a small portion of the lands covered by the lease being pooled or combined with other lands. If this scenario in fact developed, a Lessors’ only alternative was to attempt to find remedy through the implied obligation that the Lessee failed to develop and operate the property as a reasonably prudent operator.  Forcing an implied obligation generally occurs through a lawsuit and is difficult to prove.

Therefore, the Pugh Clause made its appearance. The Pugh Clause has no “standard language” and there are as many forms as there are drafters to the form. The clause will only have the effects that are specifically provided for in the language itself.

Pugh Clause Protection

“If I have a Pugh Clause, am I protected?”, is a question we often hear. Maybe, is the answer. For example a Pugh Clause that begins: “If, at the end of the Primary Term, a portion or portions of the leased premises is pooled or unitized with lands as provided for in Paragraph 4 hereof, that are not a portion of the leased premises, so as to form a pooled unit or units, operations on, completion of a well upon, or production from such unit or units will not maintain this lease in force as to that portion of the leased premises not included in such pooled unit or units.”  Note that the triggering event is the language “…pooled or unitized with lands as provided for in paragraph 4…”. Paragraph 4 provides that: “Lessee, at its option, is hereby given the right and power to pool or combine the acreage covered by this lease or any portion thereof as to oil and gas, or either of them, with any other land covered by this lease, and/or with any other land, lease or leases in the immediate vicinity thereof to the extent hereinafter stipulated…” The problem with this type of Pugh Clause is that theremust be voluntary pooling for the Pugh Clause to have effect. What if you owned 2,000 acres and there was never any voluntary pooling performed on your tract? You would have no triggering event and thus one well would maintain your entire 2,000 acres as held by production.

Vertical Pugh Clause

Many times a Declaration of Pooling will stipulate the depth range being pooled. An example would be the following language: “…pool or combine lands from the surface of the earth to 7654 feet beneath the surface of the earth…” Does this mean that the normal Pugh Clause would require the release of deeper rights? Actually, there is case law on the subject and the answer is no. If you desire a release of the deep rights after discovery, that needs to be addressed as a separate issue in the lease form.

To be adequately protected, you need language providing for triggering by all types of unit establishment possibilities, even proration units, and should also include depth limitation language.

Pugh Clause Alternatives

An alternative to the Pugh clause where you never desire pooling on the oil and gas lease would be a retained acreage provision. We’ll address this in a forthcoming article.

Getting the Pugh Clause That’s Best for You

As mentioned earlier, there is no standard Pugh Clause that will address every situation adequately. Your specific situation should be considered by a professional.

Additional Reading

• Oil & Gas Leasing: 10 Things To Make Sure You Do – Discover valuable tips for negotiating an oil and gas lease.  Avoid costly mistakes when negotiating your oil and gas lease.
• Oil & Gas Leases: 10 Common Mistakes During Mineral Lease Negot... – 10 common mistakes to avoid when negotiating an oil & gas lease.  A sister article, 10 Things To Make Sure You Do, is also availablei........if i read this right the pugh clause is dealing with HBP not royalties

Permalink Reply by Kathleen on February 16, 2014 at 8:43am

Incorrect and I hope others that have been long time members speak up again. I know this issue comes around and it gets old but let's keep informing others.
I will link two well info by dinner time today to show everyone using CHK and ODNR the truth.
Here is how it works (again proof will be shown in a bit)
Mineral owner has 100 leased acres
Full production unit is 640 acres
One well leg is drilled, fracked and placed into production and shown on the ODNR website. Minerals owners are shown only for that leg. Ask ODNR why.
Mineral owner has 2 acres of 100 in the full production unit but not under the well leg.
Mineral owner was smart enough to have a Pugh clause drawn up stating only the minerals included in a declared production UNIT are held by that one wel or any wells in THAT production UNIT. The rest are not held.
Mineral owner then receives royalities on only these 2 acres in the declared pooled unit!
Just because I have too, I'm going to point out the obvious right now. Why would CHK want to amend so many leases from 160 to 640-1280? Why would any gas co., want to amend a lease that states a 640 acre unit to 1280 if these legs ONLY HELD 150 acres.
Its the unit, not the leg that gives thes oil co., large tracts of HBP leases.

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Permalink Reply by evan on February 16, 2014 at 8:58am

Theres my knowledgable gal..  thanks Kathleen for posting this I had a dicussion on here yesterday and he knocked the wind out of my sails again,  glad your back

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Permalink Reply by Kathleen on February 16, 2014 at 9:02am

Here is the ODNR permit page for the Andrullis well by CHK.
You will see only the names of the mineral owners under the leg.
http://www.dnr.state.oh.us/mineral/oil/MRMImages/1/5/224302.PDF
Below, Third reply from the bottom is a link to the document from the courthouse that is on everyone's deed that is in the unit (not nessasarily under the leg) and will receive royalities off that one leg shown on ODNR. You will see how 150+ acres just turned into 500+
I decided to only scan the copy with landowner parcel numbers not their names.
http://gomarcellusshale.com/forum/topics/andrulis-well-update?group...

That page is apart of a large filing from CHK. It is placed on every deed in that unit and that can be seen by accessing the columbiana website using parcel numbers or names. That paperwork is also sent to every landowner in the Andrullis unit, not just the well leg.
I have another well to show you all. Coming up soon.

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Permalink Reply by Kathleen on February 16, 2014 at 9:20am

http://gomarcellusshale.com/forum/topics/trebilcock-well-update?gro...
This is link to the page where links will be found to another local well by CHK.
Again you will see the larger unit plat of two units off the same pad. One is is Sout and the other is north. Again no names just property ID numbers. At two bucks a page I decided to respect privacy :0).
I hate the ODNR site. Feel free to look up the tribilcock pad in columbiana county ohio, and you will see just legs and the mineral owners under this legs NOT THE FULL POOLED UNIT.
Again, my info came straight from the deeds of the people that are in the "declared POOLED unit" and who will be receiving royalties from the one leg drilled to hold each unit.
On this pad, at this time, and to my knowledge, there is only two drilled holding a ton of land.
To be fair we know of small units in carrol, the size of just legs. IMO and the timing is right, these were test wells (honestly right now they all are) and the full pooled units are only the legs shown on ODNR. Even for these very small units you will not see ODNR call them a pooled unit.
That is not the case anymore. These oil co., HAVE to hold as much acreage as possible with just one leg, otherwise they will lose thousands and thousands of acres real soon.
These documents showing the units, are in your courthouses not on the ODNR site.
Here is the link to the columbiana county site where you can put in a aname or parcel number to see if that parcel has a declared unit now attached to the deed.
http://www.ccclerk.org/external/LandRecords/protected/SrchQuickName...

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Permalink Reply by TM on February 16, 2014 at 12:34pm

Very true Kathleen. Also the lateral does not have to go under your land to be paid from a unit either. If your acreage was pooled into the unit you will get paid. I know people that are in units and this is how it works. The pooling declaration at the courthouse are the official unit size and who will ultimately get sent division orders in the mail and then be paid royalties.

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Permalink Reply by INVICTUS on February 18, 2014 at 1:08am

Would you kindly clarify the recording of the Pooled Production Unit documentation:

Only the local County recorder will have the PPU in sufficient detail to fully document the decimal interests of landowners?

Or will ODNR ALSO have identical PPU detail in order to clarify/fully define leaseholder decimal interests?

The reason I am asking is that I am watching for unilateral changes by CHK in the PPU's, which in turn, monkey around with landowner/Leasholder fractional interests, then royalty payments!

CHK's drilling program has 7-9 NOMAC rigs in the "Core of the Core for 2014.

Even at 10-14 days of drilling per well, they cannot mathematically hope to grab much of the soon to expire primary terms.

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Permalink Reply by Kathleen on February 18, 2014 at 2:05am

So far I can only find the full PPU at the courthouse or in the hands of the people in the PPU. Lets not forget the driller also has it.
I have seen many PPU adjustments recorded on deeds.
Again in my county you can see there was a change online, but to see the change you have to pull the document at the courthouse.

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Permalink Reply by INVICTUS on February 18, 2014 at 2:20am

Unfortunately, you are confirming what I think I've discovered. The ODNR is still overwhelmed by the flurry of paperwork coming from the O/G folks.

I've spoken to several administrators and some geologists down there in Columbus who, though quite patient with me, clearly have no time to delve into proper investigation of what many would consider as contractual disputes/issues between leaseholder and the O/G folks. in fact, they are under orders to avoid talking about anything that could end up in civil litigation.

Why this matters is, do not depend on ODNR DMRM to have current documentation concerning production units as they are relying solely on O/G companies to submit this info.

Further, I have been advised that all current documentation provided to them is immediately scanned (digitized) and that I should not expect to find any hardcopy original "Master" documents in a filing cabinet somewhere.

I see, in my case, CHK as the SOLE arbiter of determining what the Production is and who it includes with SOME input provided within Ohio's Revised Code.

Bottom line: They can monkey with HBP in Veerryyy creative ways.

Why should anyone care?

Leaseholders with a reasonable expectation of six or seven figure incomes from royalties need to understand this process and how it correlates to what amounts to a lifetime business arrangement between O/G and a Leaseholder.

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