Pugh Clause Law and Legal Definition
Pugh clause refers to a clause which can be added to an oil lease to limit the rights of the lessee to hold only particular depths or amounts of the leased property. It is also known as a freestone rider. There are two kinds of pugh clauses:
1.A Vertical Pugh Clause releases all depths below the specified producing zone at the end of the primary term. Even if lands are added within a producing unit when the lease expires, all rights below the stated depth will be released under the lease.
2.A Horizontal Pugh Clause provides that all lands which aren't included within a producing unit when the primary term ends will revert to the lessor. A Horizontal Pugh Clause doesn't release lands that are included in a producing unit - it only releases those lands that lie outside of the producing unit.
The main purpose of any pugh clause is to protect a lessor from the anomaly of having an entire property held under a lease by production from a very small portion. [Roseberry v. Louisiana Land & Exploration Co., 470 So. 2d 178 (La. Ct. App. 1985)]
