landman.trainingWorkbook · Units 5 & 6 Supplement
Oil & Gas Lease Clauses & Pooling Workbook.
How a lease stays alive at the end of its primary term, how surface and depth Pugh clauses sever held-by-production (HBP) acreage, and how voluntary Texas lease pooling differs from Oklahoma OCC forced pooling.
- Topic
- Habendum, savings clauses, Pugh releases, and forced pooling
- Sources cited
- Clifton v. Koontz (Tex. 1959); 52 O.S. § 87.1
- Cost
- Free self-study
HBP Audit Checklist
- Check whether operations or production existed on the last day of the primary term.
- Check for any gap in production exceeding the cessation-of-production clause window (often 60 or 90 days).
- Read the Exhibit A Pugh rider to see whether outside acreage or deeper depths terminated automatically.
Lease AuditPrimary term, savings clauses & Pugh
Key rules
- An oil and gas lease in Texas is a fee simple determinable.
- Savings clauses must be satisfied strictly according to their wording.
- Read the exact depth reference (feet vs. stratigraphic base) in a depth Pugh clause.
In Texas, an oil and gas lease conveys a fee simple determinable in the minerals. If the primary term expires without production in paying quantities, the lease terminates automatically unless a specific savings clause bridges the gap:
- Continuous operations
- Allows a well spudded before the end of the primary term to hold the lease past the expiration date so long as drilling or completion operations continue with no cessation longer than the stated grace period (commonly 60 or 90 days).
- Continuous development
- Used on large multi-section leases to allow the lessee to hold the entire lease after the primary term by spudding a new well every 120 or 180 days; when the drilling rig stops, the Pugh clause snaps into effect.
- Shut-in royalty
- Allows a gas (or oil and gas, depending on the form) well capable of producing in paying quantities to hold the lease while shut in for lack of a pipeline or market, provided the shut-in payment is tendered on time and to the right party.
- Acreage & Depth Pugh
- Releases acreage outside a producing pooled or proration unit, and releases depths below (or sometimes above) a stated threshold such as "100 feet below the deepest producing perforation" or "the stratigraphic equivalent of the base of the Wolfcamp formation."
Sources. Clifton v. Koontz, 160 Tex. 82, 325 S.W.2d 684 (1959); Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., 554 S.W.3d 586 (Tex. 2018).
ComparisonTexas lease pooling vs. Oklahoma OCC pooling
Other workbooks
- Texas (Contractual Authority First): A lessee cannot pool a lessor's mineral interest without express authority in the lease (or a separate ratification), and the recorded Designation of Pooled Unit (DPU) must comply with the lease's maximum unit acreage and tolerance limits. Unleased cotenants are not pooled by a lessee's unilateral DPU.
- Oklahoma (Statutory Spacing & Forced Pooling): Once the Oklahoma Corporation Commission (OCC) establishes a drilling and spacing unit under 52 O.S. § 87.1, an applicant who has made a bona fide effort to reach agreement can petition the OCC to pool unleased mineral owners and non-consenting working interest owners. Respondents receive a fixed window (typically 20 days from the order) to elect in writing between participating with working interest costs or taking one of the cash-bonus/royalty combinations set in the order.
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