I have some opinions about the statements that the oil companies are adding to the Pugh Clauses and am curious as to what others think.
The original intent of the Pugh Clause was so that one lease that covered several sections or acres of minerals could not hold down all sections upon expiration of the lease, but only those actually producing or within the spacing unit of the producing wells.
I have old acres that were leased before the Pugh clauses existed and one well is tying up two sections of land even though one of the sections has absolutely no production coming from it. So I am a big fan of the Pugh clause, having "lived" without it for some acres. In fact if/when those acres that are still held by those OLD leases (sans Pugh Clauses) produce with this new "boom" we are stuck with the OLD 1/8th royalty on those acres as well.
What I have seen on leases, however, are added statements to the Pugh clause, or in that section of the lease. Gone is the old Pugh clause which was basically one simple sentence and here are newly revised and amended Pugh clauses.
Some of the leases are including "pooling units" in the Pugh Clause. Can that not mean several wells pooled together for production purposes, that could include your acres even if they are no longer producing, but your neighbors (also in the same pooling unit) are? I believe that to be the case, but am not positive. We were actually presented with a lease that had almost 1 1/2 pages of statements about pooling units and how they could change them as they wanted, etc. Then the Pugh Clause included Pooling Units in the statement. We did not sign this lease although I believe some relatives did.
Another sentence added to a lease after the Pugh Clause statement is a statement that the company has 180 days from the start of one well to begin another, thus defeating the Pugh clause at lease for 180 days.
I'm interested in hearing other experiences in this area and the legalities of some of these add-ons. (sorry this is so long)
I would much prefer to see 90 day grace period between cessation of production or after drilling of a dry hole and the lessees attempt to obtain production again. I had seen so many leases with 90 days that I think it is the standard, and the few cases I’ve heard of 180 days to 1 year are a case of the lessee trying to get something past an inattentive lessee/lawer. It’s possible to have a situation where, your lease would have expired except a catapiller showed up 7 days before the end of the grace period and began “operations” to drill a well by working on a road, pad, digging pits and it would arguably extend your lease the amount of days of the grace period and give the operator yet another 180 days to spud a well. Drilling a nice verticle part of a horozontal well would extend the time yet again. Many people have said this won’t happen this way, that if it did you could sue. I think it would be risky to sue in such a case. Best to keep the grace period short and avoid “having” to decide to sue or not.
We addressed this by requiring a separate lease for each legal. When they balked saying it created more work and would require each one be filled seperately. I simply reminded them that paper is cheap and I would gladly pay the 10 or 15 dollar recording fees for the additional leases if they are that hard up for cash. End of discussion and we had a separate lease for each unit.
I do not know ND rules, but in most states a pooling does hold whatever the spacing unit it. So if the well is spaced on 640 which is one sq. mile, one well will hold all the lease.
I would highly suggest that you talk with an OIL & Gas Attorney regarding your lease, not a general attorney. Sounds like you need more than a pugh clauses.
Most of the Oil Companies today are leasing land hoping to keep it long enough to sell it to larger company and make a big profit. I had a company that would produce a well one month out of the year, tell me that is all it would produce. I later found out another company was planning on water flooding the area and they sold my lease at a big profit, while I lost money.
Virginia in Arlington, TX
Sounds like you got it all figured out Virginia. Best of luck!
I would say lease each section seperately, and give great scrutiny to any mention of pooling. I would limit pooling.
R W,
You mention pooling in a lease. I have several leases that are no pooling leases, yet I was pooled. Seems that Oklahoma Corporation Commission over ruled my lease, so it's is holding 40 acres. Now I have leased the other 120 A, but have been told they can't drill as they don't want to get into the pooled acres. So, it is important to make sure you have a Clause that anything not being held by production will be released. But, also face the fact that may even be over ruled by the government.
Virginia in TX
Ms. Pflum, were you asked to sign a new pooling agreement or is this something they did and you remained silent ?
Virginia Pflum said:
R W,
You mention pooling in a lease. I have several leases that are no pooling leases, yet I was pooled. Seems that Oklahoma Corporation Commission over ruled my lease, so it's is holding 40 acres. Now I have leased the other 120 A, but have been told they can't drill as they don't want to get into the pooled acres. So, it is important to make sure you have a Clause that anything not being held by production will be released. But, also face the fact that may even be over ruled by the government.
Virginia in TX
R. W.
I was not ask to sign a new lease and I didn't remain silent. Each state has a corporation for Oil and Gas rules. According to Oklahoma, OCC, they have the right to over rule anything that is in your lease. Since an oil Company wanted to water flood my area and I had a well that had produced out of that sand ( was plugged), I was pulled into the pooling. It has work out O. K. as I do get nice checks, but not at the 20% that I signed a lease for. So, sometimes it doesn't matter what is in your lease, the government can over rule you.