Because the Marcellus Shale geologic formation is located above the Onondaga layer the Pennsylvania Oil and Gas Law does not apply to dictate the size of a unit of production.

This gives the gas company substantial power and discretion in setting unit size and boundaries. The cynical may argue that this authority by the companies may be used to "gerrymander" unit boundaries to hold large parcels under production or similar lease terms even though only a small portion of a large parcel is included in a unit.

Landowners who have property included in a unit receive a pro-rated share of the royalty based on the acreage they have within the production unit. Accordingly, a landowner with 10 acres in a unit will receive potentially twice the royalties of a landowner who owns 100 acres, but only has 5 acres in a unit. This example illustrates the tremendous importance of a "Pugh Provision," especially for larger landowners.

A Pugh Provision in its purest form requires the gas company to include all the landowner's property in a unit by the expiration of the primary term of the lease. If not, the remaining property not included in a unit will revert back to you, the landowner. You may then re-lease the property for additional bonus consideration and potentially improved leasing terms. Of course, the landowner is free to keep the property free of an oil and gas lease.

Unfortunately, Pugh Provisions are often difficult, or even impossible, to obtain by the landowner. This is especially true for smaller tract landowners. Clever negotiating and experience and skill in crafting contract terms can sometimes result in a "modified" Pugh Provisions that will strongly benefit the landowner, but not have the optimal effect of a "pure" Pugh Provision. The Clark Law Firm consistently fights for Pugh Provisions for all our clients contracts, and our vast experience in negotiating contract terms that allowed us to secure modified Pugh Provisions to the great benefit to our clients where "pure" Pugh Provisions were unavailable.

It is critical to understand that all Pugh Provisions are NOT created equal!!! Attorney Douglas Clark has seen countless addendum labeled "Pugh Provisions" that have little, and in many cases, no impact whatsoever to the benefit of the landowner. Attorney Doug Clark understands the "tricks" of the trade and how to craft complex Pugh Provisions when available to the benefit of the landowner. This is not an area for the unexperienced negotiator. A mistake in this area of a gas lease could cost a landowner Thousands and potentially millions of dollars in bonus money and future royalties.

Generally, when people refer to Pugh Provisions, they are referring to "Horizontal Pugh Provisions." A Horizontal Pugh Provision generally requires that any land not included in a producing unit will be released at the end of the primary term of the lease.

A Vertical Pugh Provision is not as well known and understood. A Vertical Pugh Provision generally allows the lease to continue beyond the primary term for all depths to the deepest producing formation. In other words, an extremely favorable Vertical Pugh Provision will provide that all areas below the deepest producing formation, most likely the Marcellus Shale layer, will revert back to the owner at the end of the primary term of the lease. A Vertical Pugh Provision is generally very rare and difficult to obtain at the present time in Pennsylvania. Gas companies have recently shown a stronger desire to explore for gas at depths even deeper than the Marcellus Shale layer.