Good, Bad, Better Best Pugh Clauses???

Anyone have success wording a Lease Agreement so that the Lessee MUST include a pre-set percentage of your acreage in any royalty producing drilling unit?  In other words - they lease your 100 acres then only claim they are incorporating 20 acres into a drilling unit, and your reduced royalties are based on the 20 acres  not 100...so what if they later have to release the other non-used 80 acres - IF they control the ingress/egress/ best access points AND who the hell knows what they're are doing under there  ESPECIALLY with all the changing technologies! - what legal assurance can be lease protected to make certain they have to use a higher percentage of the 100 acres, or at least pay royalties on it - and/or that ANYTHING they do won't adversely affect the re-leasing value of the remaining lease-freed (due to non-production) 80 acres???

Anybody have a great PUGH CLAUSE you care to share?

Thanks all!

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Permalink Reply by Puzzled on August 26, 2014 at 7:57am

All I can tell you is that a landman representing Eclipse told me they don't usually do Pugh Clauses and I was lucky to get the 60 percent pugh clause they offered.

I did not sign by the way.

I have the same concern about making a big chunk of my land useless .even 40 percent of what I have is too much for me to let go unused unless I have no choice

Permalink Reply by Dexter Green on August 26, 2014 at 8:36am

So it's better to have 100% go unused out of principal than to have 40% left unused because of geography?  That's...interesting?

Permalink Reply by al raptoria on August 26, 2014 at 8:53am

Time is on the Land's side, not always the Land OWNER's side. Protecting your land from a less than optimal lease now likely sets it up for a better deal in the future - but how far into the future?  - as the technology will continue to advance - as a landowner, you may have to stay alive longer than your genetic predisposition may support to benefit from it! I would use money a lot differently now (including investing for the future) than I'd be willing/able to use it a decade or more from now. But I also don't want to "waste" a large percentage of our land by tying it up in an overly greedy Lessee's snares.

No easy answers...but I'd like to hear opinions and experiences....Thanks.

By the way, The White Law Office in Millersburg, OH has one of the better Pugh Clauses in their LandOwner focused Lease Agreements, and Lessees DO sign it! But you're still potentially "stuck" with only a small portion of the acreage being included in a producing unit. Not good enough. Not if their activities adversely impact leasing the released acreage to another developer! But HOW do we know the full impact???

Permalink Reply by Utica Watcher on August 26, 2014 at 12:35pm

Puzzled:

From what I've heard, not even that large Batesville area group that came together was able to negotiate the 60% Pugh.  So from the sounds of it, if you were offered the 60% Pugh Clause, you did a good job of negotiating.  Are you tied to an old Oxford lease like that group was?

Good luck to you, by the way!

Permalink Reply by Puzzled on August 28, 2014 at 4:39am

No I am tied to any lease group.

I guess I feel a little better after what Yall say concerning percentage.

And for the record it is not principal that keeps me from signing the 60 percent it is  knowing that I can change my mind if I cant find a better deal.

Permalink Reply by searcherone on August 27, 2014 at 3:06pm

Would one of you explain how a 60% pugh clause works?  My brain just doesn't get it.

Permalink Reply by Jimmy Wilson on August 27, 2014 at 10:26pm

Utica watcher.... Can you tell us a little more about the Batesville Group ?

Did they settle ? Do you know the terms ?

Do you know who put the group together ?

Thanks

 

Permalink Reply by al raptoria on August 29, 2014 at 5:16am

This is what I have been told by counsel:

By definition, unless otherwise specified in the Agreement,  60% Pugh Clause is not a pure Pugh clause. 

A Pugh clause, in its strictest legal  form, releases all non-productive strata (vertical) and acreage (horizontal).
Again, a 60% Pugh clause is directed at only the horizontal portion and does not include the vertical..
If the producer includes 60% or more of your property in a production unit then they are permitted to retain the entire property.
This allows them to tie up the entire property without producing the entire property.
There isn’t anything good I can say about  that!
In my opinion, a lessee should get to keep what they produce, otherwise it needs to come back to the mineral rights holder (landowner).
Now, back to  my original topic here - does ANYONE have or know of a lease agreement in which a percentage of the acreage used in a unit COMMANDS the producer pay royalties on the entire acreage or at least an agreed upon percentage of the unit. My question is ENTIRELY different that the aforementioned "60% Pugh Clause!" Thanks.
Permalink Reply by Tom on August 29, 2014 at 6:02am
I highly doubt you will EVER find a driller to give you a deal like you want. They are not going to sign a lease that requires them to pay royalties on 100 acres if only a small portion is included in a drilling unit. They will pay royalties ONLY on the portion of the land that is included in the pool.

You could demand something along the lines of all or nothing. Where they would be required to use all of your land or none of it. But I think you would have a hard time finding a company to agree to something like that. And you might very well be shooting yourself squarely in the foot by demanding such a thing. They need the ability to form pools as the leased acerage permits.
Permalink Reply by al raptoria on August 29, 2014 at 6:10am

Understood - but what keeps them from ruining the so-called unused subterranean assets - especially in light of the experimental technologies they are bound to be using over the next say 100+ years????

Permalink Reply by Tom on August 29, 2014 at 12:38pm

Well, that's the $64,000.00 question isn't it?  I'm not a geologist nor do I pretend to be, even though I stayed at a Holiday Inn Express last night (Inject laugh track here).

Seriously, I couldn't even begin to answer that for you.  Except to say that the oil and gas companies make money be extracting minerals from your property.  I would think that sheer greed would prevent them from ruining the other strata and making it non productive.  I think that if they had even the slightest hint they were doing something like that they would pause to think about loss of future revenues from those potentially ruined layers.

Permalink Reply by al raptoria on August 29, 2014 at 1:11pm

(Laugh track appreciated)

I am not confident they even know they are ruining anything until after the fact. And few people in the field, or in the boardroom for that matter, look beyond their own generation's greed.

Sigh...it's hard to trust a corporation and all its representatives for beyond one's own lifetime.....

Thanks Tom,. hope you got a complimentary breakfast.

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