A Pugh clause limits the acreage or depths a lessee can hold by production, releasing nonproducing lands or strata back to the landowner once the primary term ends. For landowners and leaseholders, this means a lease on a large acreage cannot stay alive indefinitely just because one well produces on a small corner of it. If your lease has no Pugh language, the entire tract and every depth beneath it may stay locked up as long as a single well keeps pumping, so reviewing this clause before signing (or renewing) matters.
TL;DR:
- Without a Pugh clause, one producing well can indefinitely hold thousands of acres, even if only a small part of the lease is active.
- Horizontal Pugh clauses release surface acreage outside the pooled or spacing unit once the primary term ends, while vertical clauses release unproduced depths.
- Retained-acreage clauses restrict the amount of land kept after the primary term, often to a defined number of acres per well, preventing leasing of the rest.
- State laws and field-specific rules can alter the actual release, with examples in Oklahoma and Texas showing how unit formation and timing affect what gets released.
- Courts interpret Pugh clauses strictly by their wording, and ambiguous or vague language can nullify the protections owners believe they have.
Table of Contents
- What a Pugh clause does to pooling and held-by-production rights
- Horizontal, vertical, and wellbore-only Pugh clauses explained
- Worked examples: what gets released, acre by acre
- Drafting checklist for reviewing or negotiating your lease
- How state law changes what a Pugh clause actually releases
- Where Pugh clauses go wrong: pitfalls and court interpretations
- Why Pugh protections matter more with large modern leases
- An alternative path: investing in vetted energy projects through Fieldvest
- FAQ
- Sources
What a Pugh clause does to pooling and held-by-production rights
Without a Pugh clause, a lessee can “hold” an entire leased tract through production from just one well, no matter how large the lease or how small the producing unit. This is the held-by-production (HBP) problem landowners run into most often. A Pugh clause modifies the lease’s habendum and pooling language so that production from a pooled unit only keeps that unit, not the whole lease, in force past the primary term.
- Without Pugh language, one producing well can lock up thousands of acres indefinitely.
- A Pugh clause ties continued validity to specific acreage or depths actually producing.
- Many clauses use if/then phrasing: if the tract is pooled and production occurs, then only the pooled portion survives.
- Retained-acreage variants spell out a fixed number of acres kept around each well.
Continuous development clauses often interact with Pugh language, letting a lessee keep drilling new wells on a set timeline to hold more acreage. At the end of the primary term, the practical effect is straightforward: acreage or depths outside producing units revert to the landowner, free to lease again. According to the Daughtrey Law firm’s analysis, a Pugh clause is defensive by design. It does not raise royalties directly, but it frees up leasing opportunities the landowner would otherwise lose.
Horizontal, vertical, and wellbore-only Pugh clauses explained
Pugh clauses come in a few standard shapes, and knowing which one sits in your lease tells you exactly what gets released and when.
- Horizontal (surface) Pugh clause: releases surface acreage that falls outside a pooled or spacing unit, so only the acres in the producing unit stay held.
- Vertical (depth) Pugh clause: releases formations or depths below (or above) the producing zone that are not actually in production.
- Wellbore-only or retained-acreage clause: keeps only a defined number of acres around each producing well, often a figure like 40 or 80 acres per well, rather than the full unit.
Lessees sometimes combine horizontal and vertical language in a single lease, which can be an advantage or a trap depending on how precisely the terms are defined. According to the Energy Law Group’s retained-acreage analysis, retained acreage clauses are designed specifically to stop a lessee from holding a whole lease on production from a small portion of it, and courts read these clauses strictly by their actual wording rather than by what either side assumed the label meant.
Worked examples: what gets released, acre by acre
Numbers make these clauses easier to picture. A few common scenarios show how the math plays out in practice.
- Surface-acreage example: a landowner leases several thousand acres, and a state’s spacing rules form a typical-sized unit around the producing well. A horizontal Pugh clause releases the acreage outside that unit, leaving significant acreage free to re-lease, a concept illustrated in Montana State University Extension’s leasing guide.
- Depth example: a well is drilled to 12,000 feet but only produces from a perforation at 9,500 feet. A vertical Pugh clause can release everything below the deepest producing perforation, though disputes often turn on whether the lease measures depth as true vertical depth or measured depth.
- Retained-acreage example: a lease sets an 80-acre retained tract per well inside a 640-acre spacing unit. Only those 80 acres stay held; the remaining 560 acres in the unit become available for release once the primary term ends, unless additional wells are drilled under a continuous development clause.
- Timing effect: if a lessee pools additional acreage into a unit during the primary term, before the release trigger date, that pooled acreage can be preserved even though it would otherwise have fallen outside the Pugh clause’s scope.
These examples show why the clause’s wording, not its label, decides the outcome. Two leases can both say “Pugh clause” in the margin notes and produce very different results depending on whether the release is calculated at the moment the primary term ends (a snapshot) or continuously as units form and dissolve (a rolling calculation).
Drafting checklist for reviewing or negotiating your lease
Before signing or renewing, run your lease through a short set of checks. These are the points landowners and their counsel raise most often during negotiation.
- Confirm the clause uses explicit acreage or depth measures rather than vague references to “nonproductive lands.”
- Require a clear definition of “producing in paying quantities” tied to an objective standard, not the lessee’s discretion.
- Decide whether you want a snapshot release (measured once at primary term end) or a rolling release (recalculated as units change), and make sure the lease says which.
- Cross-check the pooling authority clause, the retained-acreage clause, and any continuous development or rework/recompletion language so none of them quietly undo the Pugh release.
- Push for a firm timeline on continuous development (a fixed number of days between wells) instead of open-ended “reasonable time” language, a point practitioners at the Energy Law Group flag as a frequent source of disputes.
Pro Tip: When depth language appears, insist on a defined tolerance and an explicit measurement method, true vertical depth or measured depth, since this single phrase decides how much of your mineral column actually comes back to you.
How state law changes what a Pugh clause actually releases
State rules and field-specific spacing orders can override or reshape what a Pugh clause does on paper, so the same lease language can produce different outcomes depending on where the land sits.
- Oklahoma has a statutory Pugh-like rule that can require release of acreage outside a spacing unit roughly 90 days after the primary term ends, for spacing units of 160 acres or more, according to the Energy Law Group.
- Texas relies heavily on Railroad Commission spacing and proration rules to set unit sizes, and the Railroad Commission of Texas publishes the field rules that determine how large a held unit can be.
- Pooling formed during the primary term, before a Pugh clause’s release date, can preserve acreage that otherwise would have reverted, a timing issue covered in GT Law’s leasing analysis.
- Landowners in Arkansas and North Dakota should check their own state’s spacing orders, since unit size assumptions from Texas or Oklahoma do not transfer automatically.
Where Pugh clauses go wrong: pitfalls and court interpretations
Courts read Pugh clauses by their literal text, and ambiguous drafting is the single biggest reason landowners lose protections they thought they had.
- Undefined terms like “lands” or “depths” invite disputes over exactly what gets released.
- Depth disputes often hinge on whether “deepest drilled depth” or “deepest producing depth” controls, and whether that depth is measured as true vertical depth or measured depth.
- A pooling agreement or a ratification signed later in the lease’s life can override or nullify an otherwise solid Pugh clause.
- Vague continuous development language (“reasonable diligence”) gives lessees room to argue acreage should stay held.
Courts interpret Pugh clauses strictly by the clause’s written terms, and ambiguous drafting often defeats the lessor’s expected protection.
Coats Rose CLE materials on Pugh clause interpretation
Any lease using unmeasured, discretionary language around release triggers is a red flag worth a focused legal review before signing.
Why Pugh protections matter more with large modern leases
Horizontal drilling and multi-thousand-acre leases have made Pugh clauses more consequential than they were decades ago, since a single lateral well can now justify holding acreage that would have required a dozen vertical wells in the past. If you hold mineral or leasehold interests and have not checked your lease’s Pugh language in the last few years, request a lease audit that focuses specifically on Pugh and retained-acreage wording from Oil & Gas | Sentient Concepts. For readers who hold interests but want direct exposure to vetted U.S. oil and gas projects without negotiating lease terms themselves, Fieldvest’s educational resources are worth a look, separate from any legal advice about your existing lease.
— Sharif
An alternative path: investing in vetted energy projects through Fieldvest
If you are a landowner weighing whether to keep negotiating lease terms or put capital directly into producing energy projects, Fieldvest connects accredited investors with vetted U.S. oil and gas operators rather than handling lease disputes. The platform screens operators and organizes due-diligence materials so investors can compare projects side by side, with access to private deals and large first-year tax deductions that are not tied to any single mineral lease.
- The platform is designed for accredited investors seeking direct ownership in producing assets, development projects, or energy infrastructure, not for lease negotiation.
- It works alongside, not instead of, getting your lease reviewed, since Pugh clause language and investment decisions solve different problems.
- Readers evaluating deal terms before committing capital can also read our guide to oil deal terms for a plain-language breakdown of what shows up in a project agreement.
Talk to your own counsel about your lease’s Pugh clause first, then visit Fieldvest to see current vetted energy projects open to accredited investors.
FAQ
What does a Pugh clause do?
A Pugh clause stops a lessee from holding an entire leased tract, or every depth beneath it, through production from just one small producing unit. It releases the nonproducing acreage or depths back to the landowner once the primary term ends, so that land becomes available to re-lease.
What is the purpose of the Pugh clause in Oklahoma?
In Oklahoma, Pugh protections can work through statute as well as lease language, with a rule that releases acreage outside a spacing unit roughly 90 days after the primary term for units of 160 acres or more, according to the Energy Law Group. The purpose is the same as any Pugh clause: prevent one producing well from holding land the lessee never developed.
How much do landowners get paid for oil wells?
Payment to landowners typically comes through royalties set in the lease, and the amount depends on the royalty rate negotiated, the well’s production, and current commodity prices, none of which a Pugh clause controls directly. A Pugh clause affects which acreage stays under lease, not the royalty rate itself.
What is a Pugh clause in Texas?
In Texas, a Pugh clause works alongside Railroad Commission spacing and proration rules, which set the size of the unit a producing well can hold. According to Daughtrey Law, a vertical Pugh clause releases depths below a producing zone if they remain undeveloped, while a horizontal version releases acreage outside the defined unit.
Can a continuous development clause cancel out a Pugh clause?
A continuous development clause can effectively extend how much acreage a lessee holds by letting them keep drilling new wells on a set schedule, which can offset some of a Pugh clause’s release effect. Checking the exact timeline language, and whether it sets firm deadlines rather than vague terms like “reasonable diligence”, determines how much protection actually survives in practice.
Sources
- Texas Pugh Clause: Protecting Your Property Rights — Daughtrey Law (2025)
- PUGH CLAUSE/RETAINED ACREAGE — The Energy Law Group (pdf)
Recommended
Get the Fieldvest Energy Brief
and AI-driven demand shifts — curated for accredited investors. Smart. Strategic. Tax-advantaged.
