This lease rider form may be used when you are involved in a lease transaction, and have made the decision to utilize the form of Oil and Gas Lease presented to you by the Lessee, and you want to include additional provisions to that Lease form to address specific concerns you may have, or place limitations on the rights granted the Lessee in the “standard” lease form.
The Indiana Pugh Clause is a contractual provision specific to oil and gas leases in the state of Indiana. It addresses the situation when a lessor wants to release a portion of their leased land before the lease expiration date. The purpose of this clause is to allow the lessor to "prune" their leased acreage, keeping only the mineral rights for those areas where production is actively taking place. The Indiana Pugh Clause works by severing the leased premises into two distinct parts — the production area and the non-production area. The production area includes the acreage where actual oil or gas extraction is occurring, while the non-production area refers to the remaining leased land where no production is taking place. The main purpose of the Pugh Clause is to prevent a lessee from holding large amounts of unproductive or non-producing land under a lease indefinitely. It allows the lessor to regain control and potentially enter into new leases for unused portions of their land, providing opportunities for additional income or other developmental purposes. Moreover, it helps incentivize the lessee to maximize production and efficiency on the leased land. There are two main types of Indiana Pugh Clauses commonly utilized: 1. Horizontal Pugh Clause: This type of clause considers the production area to be a horizontal plane, typically determined by the depth or geologic formation at which oil or gas is being extracted. Once such production is established, the Pugh Clause allows the lessor to terminate the lease for the non-producing area while maintaining the rights to receive royalties for the production area. 2. Vertical Pugh Clause: In this variant, the production area is determined by the vertical extent of the producing formation. The lease is severable at a specific depth, and any acreage below that depth is considered the production area, while the acreage above it falls into the non-production area. The lessee may continue to operate and extract oil or gas from the production area, whereas the lessor has the option to release the non-producing area for other purposes. In summary, the Indiana Pugh Clause is a crucial provision in oil and gas leases, allowing the lessor to regain control and potentially develop or lease unused portions of their land. By differentiating the production and non-production areas, it ensures that unproductive acreage can be released, benefiting both parties involved.
