One of the most important—and most overlooked—provisions in a Pennsylvania oil and gas lease is the PUGH clause.
Without it, a gas company can drill a single well on a small portion of your property and use that well to hold your entire acreage under lease indefinitely, even if the vast majority of your land is never developed.
For Pennsylvania landowners, this can result in:
- Lost leasing opportunities
- Reduced negotiating power
- Long-term restrictions on property use
Understanding and negotiating a proper PUGH clause is essential to protecting both your property rights and long-term financial interests.
1. What Is a PUGH Clause?
A PUGH clause is a lease provision designed to prevent a company from holding all of your acreage based on production from only a portion of the property.
Without a PUGH clause:
- A small unit (for example, 5–10 acres) can be included in a producing well
- That production can hold 100% of your leased acreage, even if the remainder is undeveloped
2. The Problem Without a PUGH Clause
In practice, this means:
- You may be unable to lease the rest of your property to another operator
- You lose leverage to renegotiate better terms
- Large portions of your land may sit unused for years—or decades
Real-World Impact:
Gas companies often strategically include only a small portion of a property in a unit specifically to hold the entire lease.
3. The Two Types of PUGH Clauses You Need
A properly negotiated lease should include both:
A. Horizontal PUGH Clause (Acreage Release)
This requires the company to release:
- Any acreage not included in a producing unit
- At the end of the primary term
B. Vertical PUGH Clause (Depth Severance)
This requires the company to release:
- All formations below the deepest producing formation
Why This Matters:
Without vertical severance, a company producing from the Marcellus Shale could:
- Hold rights to deeper formations (e.g., Utica)
- Without ever developing them
4. Timing Is Critical: End of Primary Term
The PUGH clause should be triggered at:
- The end of the primary term, not years later
Some leases attempt to:
- Delay release
- Tie release to additional conditions
- Or avoid release entirely
These provisions should be carefully reviewed and negotiated.
5. Common Company Tactics to Watch For
Pipeline and gas companies often attempt to weaken PUGH protections by:
- Using vague or undefined unit descriptions
- Allowing overly large units
- Including language that permits “continuous development” exceptions
- Structuring clauses that appear protective but have limited real effect
These provisions can significantly undermine the purpose of the PUGH clause.
6. Why PUGH Clauses Are Especially Important in Pennsylvania
With the development of the Marcellus and Utica formations, Pennsylvania landowners face:
- Multi-layer drilling opportunities
- Long-term lease structures
- Increasing use of unitization
Without proper PUGH protections, landowners may unknowingly give up:
- Future leasing opportunities
- Control over deeper formations
- Significant long-term value
A PUGH clause is not a minor technical provision—it is a critical protection that determines whether you retain control over your property.
Without it, a company may be able to:
- Hold your entire acreage indefinitely
- Limit your future options
- Reduce your long-term financial return
Before signing any oil and gas lease, Pennsylvania landowners should ensure that their lease includes strong, clearly defined PUGH protections.
If you are negotiating an oil and gas lease in Pennsylvania, or if you have questions about whether your current lease adequately protects your property, you should have it reviewed before signing.
Douglas A. Clark, Esq. represents Pennsylvania landowners exclusively in oil and gas matters.
- Over 18 years of experience
- No representation of gas companies—ever
- Extensive experience negotiating PUGH clauses and lease protections
Contact The Clark Law Firm, PC today to protect your property and maximize your long-term value.
