A Pugh clause is sometimes referred to as a continuous drilling clause.
The language can vary greatly but in effect it causes the lessee to continually develop the lands covered by the oil & gas lease until all lands are either included in a producing proration unit, or are released of record and available to be leased again.
Most Pugh clauses provide the lessee with a maximum time period between completion of one well and the actual spud date of the next well after the expiration of the primary term of the lease. Once the lessee has failed to drill a well in the period provided for in the lease, all acreage not then dedicated to a producing proration unit expires.
There are even vertical Pugh clauses that provide for the termination of the lease on nonproducing formations or depths within a producing proration unit
You should have a Pugh clause in any lease that covers more than one proration unit. I feel it is probably the most important clause you can include in a lease above the standard language.
To learn more and make sure you’re getting the most out of your mineral lease, have Western Mineral help you with your lease negotiations. We’ve got your back.