What is a Pugh Clause? A Comprehensive Guide to Its Legal Definition
Definition & Meaning
A Pugh clause is a provision that can be included in an oil lease to restrict the lessee's rights to specific depths or portions of the leased property. This clause is also referred to as a freestone rider. The main objective of a Pugh clause is to protect the lessor from the situation where a small area of the property is producing oil, yet the entire property remains under lease, potentially limiting the lessor's ability to lease other parts of the land.
Legal Use & context
Pugh clauses are primarily used in the context of oil and gas leasing. They are relevant in real estate law and contract law. These clauses are particularly important for lessors who want to ensure that they retain rights to unproduced depths or areas of their property after the primary lease term ends. Users can manage these issues with the right legal templates available through US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: If a lessor includes a Vertical Pugh Clause in their lease, and oil production occurs only at a depth of 5,000 feet, all rights to depths below 5,000 feet will revert to the lessor once the primary term expires.
Example 2: In a scenario where a Horizontal Pugh Clause is applied, if a producing unit only covers a portion of the leased land, the non-producing portions will return to the lessor after the lease term ends. (hypothetical example)