goes home to his most important

job: being an involved and dedi-

cated father and husband. He and his wife, Margaret, have

three children. He has been very active in coaching soccer and

football and working with kids in

YMCA programs. Outside of his love for reading, Bryan’s hobbies

are mostly outdoor activities

such as hunting and skiing.

He will speak on reaching your full potential with your family and

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method on how top producers and effective leaders keep on the

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Bryan Dodge holds the record as the busiest speaker in the US.

He has been a keynote and ses-sion speaker for both NADOA and

NALTA. He is a best–selling

author, an industry leading speaker, a renowned radio per-

sonality, an experienced busi-

ness consultant, and a highly

sought after executive coach.

At all of his events, he stresses

the importance of keeping pro-

fessional life and personal life in balance. Bryan practices what he

teaches when he says that he

Bryan touches audiences of all

ages through his gift of love and

encouragement while making learning fun and memorable.

You do not want to miss this free

event.

When: Thursday, October 15,

2015

Where: Denver Athletic Club

1325 Glenarm Place, Denver

Colorado 80204

What Time: 3 p.m. – 5 p.m.

Cost: Free of charge

Space is limited. Register early

to guarantee you have a seat.

Registration opens September 1,

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Attendees are encouraged to get

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DADOA and DALTA are Proud to Sponsor a Motivating and

Inspiring Presentation By Bryan Dodge

Denver Association of

Division Order Analysts

DADOA Newsletter

Inside this issue:

The Pugh Clause: His-

torical Development

and Variations

1—4

Analyst Spotlight 5

NADOA Scholarship

Winner

6

NADOA 2015 Board

Members

6

NADOA Institute Photos 7—8

September 22, 2015 Volume VIII, Issue III

partial release of the oil and gas

lease as to all areas of the lease

not included in a producing unit after the primary term of the

lease has ended.

As mentioned here, it is the land

professional's responsibility to understand pugh clauses. This is

a responsibility that is not shift-ed to the title opinion lawyer.

Title opinions examine mineral

and leasehold ownership history - not production history - and

The Pugh Clause:

Historical Develop-

ment and Variations

Jul 9, 2014

By: Roger Gingell, Attorney & In-House

Landman

As most or all oil and gas land

professionals are aware, the pugh clause is a term in an oil

and gas lease that is negotiated

for by the mineral owner (the “lessor”), generally to allow for a

thus generally do not cover the

application of pugh clauses,

except to warn about their exist-

ence.

This writing is to shed light on

the development of the pugh

clause over time. The infor-mation contained is not exhaus-

tive, but rather is based largely on my own experience working

with in-house leasehold title on

producing properties.

continued

Page 2 Volume VIII, Issue III

The Pugh Clause:

Historical Development and Variations continued

Early Development

As mineral owners in the first half of the 20th century began to

discover that boilerplate oil and

gas leases enabled the oil and gas company (the "lessee") to

hold portions of leases not in-cluded in producing units, some

lessors with large undeveloped

acreage positions that were nonetheless held-by-production

sued for acreage releases under the implied duty of reasonable

development.

This undeveloped acreage repre-

sented lost income to mineral

owners who were prevented from obtaining additional bonus

payments and royalty payments on production when their miner-

als went undeveloped but were

still under lease and could not be

leased to a new party.

Avoiding time consuming and

costly litigation and a desire for

the ability to quickly lease unde-veloped acreage in a producing

lease whose primary term has

expired - free of a cloud on title - were certainly the main driving

factors which led to the develop-

ment of the pugh clause.

Generally, only large mineral owners in historically high pro-

duction areas had the practical or inherited experience to nego-

tiate for pugh clauses in the

early years of the clause's devel-

opment.

The Original Pugh Clause

Early pugh clauses typically

contained language stating that after the expiration of the prima-

ry term or any extensions

earned by operations under the

terms of the lease, the lease

would expire as to all acreage

not included in a drilling unit.

However, the original pugh

clause - that released acreage

based on surface area outside of

producing units - did not take into account that production in

one zone could still hold other formations that were possibly

productive and not being devel-

oped. Many mineral owners - while sophisticated for their era

- would discover that they still could not lease out acreage in un

-produced formations because

the lease covering the surface area was held-by-production by

a well producing in a different

formation.

This led to the development of the depth pugh clause. Before

continuing, though, it would be a

good moment to address the

next issue:

Confusion as to Industry Ac-

cepted Names of Surface and

Depth Pugh Clauses

No writing concerning pugh clauses would be complete with-

out referencing the ongoing

confusion as to the names of the

two main types of pugh clauses.

The depth pugh clause has been referred to in case law (i.e.,

written opinions given by appel-late courts) such as this case as

a “horizontal” pugh clause be-

cause the severance it creates is based on the producing for-

mation or subsurface horizon. In

the case linked to, the Second Circuit of the Court of Appeals of

Louisiana referred to the lease in

question as including a “Pugh Clause, [and] a depth restriction

after primary term clause (also called a ‘horizontal Pugh’

clause).”

However, other sources like this

one have taken the opposite approach and referred to sur-

face area pugh clauses as being

“horizontal” and a depth pugh clause as being called a

“vertical" pugh clause.

Some sources have additionally

been referring to surface area pugh clauses as "vertical." This

approach has gained traction in

recent years with an explanation that the surface is being cut

vertically like a pie and thus the proper terminology for a surface

area pugh clause is "vertical

pugh clause." A U.S. 5th Circuit

Court of Appeals case as early as 1992 referred to surface area

severances as "vertical pugh

clauses."

However, the Supreme Court of Louisiana in 2013 used the term

"horizontal pugh clause" to refer to surface area pugh clauses

and "vertical pugh clauses" to

refer to depth pugh clauses.

These terms have been used without any fixed meaning in the

legal system, furthering the

confusion in the oil and gas land

industry.

It should be noted that courts have not often addressed issues

surrounding pugh clauses and the industry naming practice

was not a substantive issue in

the few available cases discuss-ing pugh clauses, so the confu-

sion in case law is merely an issue to be aware of. The focus

for the land professional should

be on the substantive language

of the lease clause encountered.

This writing will not seek to ad-vocate for any particular naming

convention, but for continued

simplicity purposes will refer to

“surface” (or just plain "pugh

clause") and “depth” pugh claus-

es.

The Depth Pugh Clause

As mentioned, lessors began to

negotiate for depth pugh clauses in order to ensure that potential-

ly productive zones would not

come to be held by production in a different zone. The depth pugh

clause is an attempt to protect lessors from leaving money on

the table with potentially lost

bonus and royalty payments in zones not produced from under

the oil and gas lease.

The earliest depth pugh clauses

typically allowed lessors to re-tain all depths from the surface

to the stratigraphic equivalent of

the deepest depth drilled, or sometimes to the total feet

drilled which would occasionally leave a title chain ambiguity as

to actual formations under lease.

The problem with the early depth

pugh clause - from a mineral

owner perspective - was that it still allowed for un-produced

shallower formations to be held by production in a different,

deeper zone. However, from a

lessee perspective, the possibil-ity of re-completions at differ-

ent, shallower depths in a well that has already been drilled is a

valuable part of the lease that a

lessee should seek to retain even if it cannot retain past the deep-

est formation drilled to.

In some cases where the target

formation is anticipated to be profitable enough or the area

has known multiple formations,

lessors have been able to negoti-

ate for depth pugh clauses that

release all formations not pro-duced from, above and below. Or,

they simply include this depth restriction in the lease itself,

preferably near the legal de-

scription for easy identification. Oklahoma is one state which has

a strong history of production in many zones and has a sophisti-

cated lessor base negotiating

with lessees.

The Pooling Clause

The pooling clause in the oil and gas lease typically determines

unit size for the purpose of the

surface pugh clause.

However, not always.

Spacing Unit Surface Pugh

Clause

There have rare been instances identified by the author where it

has been specified in a surface pugh clause that the surface unit

referenced is the spacing unit or

the minimal spacing unit allowed

under field rules.

References to the spacing unit

appear to be done by lessors to

address the issue of an entire pooled unit being held by one

well when multiple wells could be

drilled under field rules.

This is a somewhat clumsy ap-proach from the lessor perspec-

tive as allowing the spacing unit

to be held still gives the lessee acreage in the drilling unit and a

working interest stake in any

future wells in the drilling unit.

Spacing unit references are rare in the author's experience. The

issue is better addressed with

the wellbore only pugh clause.

Update (8-11-15): While rare, the

importance of identifying when a pugh clause references the

much smaller spacing require-

ments in state field rules as opposed to the larger pooled unit

is very well illustrated here.

Wellbore Only Pugh Clause

The wellbore only pugh clause

releases all acreage outside the wellbore after the primary term

and extensions expire. This type of pugh clause has been a more

recent development and it is

typically coupled with a depth

pugh clause, as well.

Lessees are still protected from

third party drainage under state

spacing rules, but they do not retain acreage in the spacing

unit.

The wellbore only pugh clause is

typically seen only on leases that reflect a large acreage position

in a lucrative field which gave

the landowner significant negoti-ation power in lease negotia-

tions. For smaller mineral prop-erties, it may not make sense for

lessors and lessees to undergo

the added negotiation and draft-ing expenses associated with

wellbore only pugh clauses which require a high degree of custom-

ization to fit the needs of lessor

and lessee.

Additionally, inclusion of the

onerous wellbore only pugh clause may significantly reduce

the pool of interested lessees and reduce the lessor's negotiat-

ing power on other points in the

Page 3 DADOA Newsletter

The Pugh Clause:

Historical Development and Variations continued

oil and gas lease.

Horizontal Wells

With the advent of horizontal

shale wells, pugh clauses have

continued to be negotiated for by lessors, but have been modified

to accommodate horizontal drilling to varying degrees of

customization to the horizontal

drilling process.

Many mineral owners have at-

tempted to obtain pugh clauses that release all acreage outside

of the horizontal strip drained by the hydraulic fracturing process,

conceptually akin to a wellbore

only pugh clause for a vertical well. The actual language used

for these clauses can vary greatly with some clauses creat-

ing complex formulas including

length of the lateral line to de-termine acreage allocation for

each horizontal well. Other clauses simply establish a stated

amount of acres to be allocated

around each horizontal well's

lateral line.

Depth pugh clauses may also be added to restrict acreage to the

target zone or zones. When a shale play acreage includes

possible vertical well drill sites

as well, the issue of pugh clauses

becomes further complicated.

The way that pugh clauses have

been drafted by mineral owner

attorneys to make traditional vertical well concepts custom-

ized to horizontal drilling has led to many variations that require

close reading to fully understand

each time a new variation is

encountered. continued

Page 4 Volume VIII, Issue III

The Pugh Clause:

Historical Development and Variations continued

Activation of Pugh Clause

Depending on the wording of the pugh clause, a pugh clause may

be triggered either only once at

the end of the primary term or may be triggered on an ongoing

basis when production ends in producing units containing por-

tions of the lease.

Some leases contain language

stating that the lease must be

examined every X amount of years for releases owed or that

releases are owed any time and every time a unit stops produc-

ing. Due to their wording, many

leases containing early pugh clauses may have acreage held

even though one of the original producing units is no longer

active.

Release Owed

The partial release owed when a

pugh clause is activated is a

practical issue that some les-

sors have negotiated provisions

to specifically address.

Lessors may negotiate for a release to be owed after some

amount of days that a unit ceas-

es production or becomes inac-tive under the terms of the

lease. In these cases, lessees - with large administrative re-

sponsibilities already - would be

wise to ask for language stating that there is no penalty for fail-

ing to provide a partial release

unless the lessor specifically

asks for one.

When there is no clause govern-

ing the execution of and timing of

the partial release of lease owed when a pugh clause is triggered,

the danger for lessors is that there would remain a cloud on

title when a pugh clause has

unusual wording or there is room for interpretation in a

complex situation.

As pugh clauses have become more complex, some lessors in

lucrative areas have negotiated for a clause in the lease that

defines a process by which the

lessor reviews and approves the partial release prior to it being

issued.

Statutory Pugh Clause

Additionally, some state legisla-

tures have determined that lessors need to be protected

from a failure to negotiate for a pugh clause. These states have

enacted statutes that essentially

add a pugh clause to oil and gas leases taken after the effective

date of the statute.

Concluding Thoughts

There are possibly many addi-tional variations not covered

here. The above writing is not

meant to be an exhaustive listing

of all possible pugh clause per-

mutations.

There are potentially an infinite amount of variations to the pugh

clause as variations are limited

only by 1) the ability of mineral owner lawyers to draft new

twists and turns and terms and conditions to try to protect their

clients' interests, and 2) the

negotiating power of oil compa-nies and their representatives -

often with cash up-front bonus

payments in hand - to reject terms that are too onerous and

that go against company inter-ests in developing the lease by

limiting the potential upside to

successful development.

https://www.linkedin.com/pulse/20140709012517-48992161-

development-of-and-variations-to-the-pugh-clause?trk=hp-feed-article-title-

comment

Kaitlin grew up in Highlands Ranch, CO. She is an only child,

and she is very close to her

parents, who have always been loving and supportive. In 2013,

Kaitlin graduated from the Uni-

versity of Colorado at Boulder with a degree in Finance and

certificates in International

Business, as well as Operations

and Information Management.

In her free time, Kaitlin enjoys going to musicals, speed walking,

yoga, traveling, gardening, tend-

ing to her many plants, cooking, reading, and doing genealogy

research.

Kaitlin has been in the Oil & Gas

Industry for 3 years and 4 months, and has been a Division

Order Analyst for 9 months. She

got into the industry during the summer before her senior year

at CU, when she became a Land Analyst Intern at Encana Oil &

Gas. As an intern, she spent 3

months learning about the indus-try, the various roles and re-

sponsibilities in the Land Admin-

istration department, and work-

ing on her internship project.

Her internship project, which was her first real introduction

into Division Orders, involved researching owners whose funds

had reached the dormancy peri-

od, and she had to determine whether to release those funds,

move them into an escrow ac-count, or whether to escheat

them to the state. After her

internship, she was fortunate enough to continue working part

time at Encana throughout her senior year at CU. She worked

on various projects in Division

Orders and Lease records until she graduated in May of 2013.

Kaitlin spent a year and a half in

Lease Records learning about the importance of maintaining

Page 5 DADOA Newsletter

Analyst Spotlight

lease acreage, making timely

lease payments, and fulfilling

leasehold obligations. Kaitlin became a Division Order Analyst

in December 2014 and feels like she learns something new every

day.

The best advice she has received

is to not be afraid to ask ques-tions, and to build up strong

working relationships with as

many people as you can through-out the industry. There are so

many people in this industry who

have such an incredible knowledge base, and many of

them are very willing to share more information and tips that

you could possibly hope to know

– all you have to do is ask, and

then sit back and listen!

Kaitlin LaFlamme – Division Order Analyst – Encana Oil & Gas

Brandon was born and raised in

Eau Claire Wisconsin. He is the middle child of three kids; an

older sister and a younger brother. At the age of 21 he

saved some money and moved to

Fort Collins, Colorado with no immediate plan other than to ski

and explore life outside of Wis-

consin. He immediately fell in love with Colorado and has lived

here ever since. Brandon cur-

rently resides in Parker with his

wife Kimberly and their 10 month

old daughter Isabel.

Brandon enjoys music and film.

In his spare time he writes music

and plays guitar, bass guitar, and a handful of other assorted

instruments in his collection. He is also actively involved in Oil &

Gas industry advocacy and

awareness, and often volunteers at a variety of industry and com-

munity events.

In 2010, Brandon graduated from

Colorado State University with a B.A. in Economics and Business

Administration. While in college

Brandon applied for an intern-ship with Anadarko and was

hired as a Land Administration

intern in the summer of 2009,

and received a full time job offer

upon graduation in 2010. Bran-don is a proud and passionate

member of the Oil & Gas indus-try, and is very grateful to work

among the outstanding employ-

ees and companies in the Denver area. Brandon welcomes the

variety of challenges that Divi-sion Orders presents, and

thrives on the feeling of accom-

plishment when solving complex issues. Brandon highly values

teamwork and firmly believes that collective effort, creativity,

and genuine collaboration will

guarantee outstanding results.

Brandon is currently a member

of DADOA, DALTA, DAPL, and the Douglas County Energy Steering

Committee, which raises aware-

ness for the Oil & Gas industry

among the community in Douglas

County, CO.

Brandon’s advice to others in the

industry is to never stop learning

new things; always be open to explore the many facets of the

industry and your job. This will increase your knowledge sub-

stantially, keep your perspective

fresh and inevitably broaden

your horizons.

Favorite Quote: “No matter what happens, never stop doing your

best – it will come back tenfold

in unexpected ways”.

Brandon Wathke – Division Order Analyst II – Anadarko Petroleum

Page 6 Volume VIII, Issue III

Thar’s Treasure In Those Wa-

ters!!

If you ever get the chance to

attend an Annual Institute hosted by NADOA, I promise you will not

be disappointed. This year’s

pirate themed 42nd Annual event was held on Amelia Island off

Florida’s northernmost coast at the luxurious Ritz Carlton Hotel

and Resort. I was one of the

lucky recipients of the DADOA

Scholarship and feel both hon-

ored and blessed to have been

able to attend what will surely be a highlight of my career as a

division order analyst. Not only were we treated to every ameni-

ty the Ritz has to offer but we

were also immersed in the expe-rience and expertise of some of

our industries leading profes-sionals. The subjects that were

covered ranged from title and

unclaimed property issues to

better communication and Excel

Pivot Tables. After our classes concluded for the day we were

invited to attend the fun and festivities which included a Pi-

rate Costume Contest, live band,

and treasure hunt. There cer-tainly was plenty booty, loot and

spoils to be had. I want to thank DADOA for giving me this incredi-

ble opportunity.

NADOA Scholarship Winner

Tom Carrasco – Division Order Analyst at Encana Oil & Gas

NADOA 2015 Board Members

Page 7 DADOA Newsletter

NADOA 42nd Annual Institute Photos—Amelia Is land, Florida

Page 8 DADOA Newsletter

NADOA 42nd Annual Institute Photos—Amelia Is land, Florida

Our Purpose

- To further the education, knowledge, and interests of the professional Division

Order Analyst through the exchange of ideas and experiences in the problems and

opportunities that confront the Analyst in exploration, production, and marketing

of crude oil, gas, or other minerals and their associated by-products.

- To promote more effective communication between industry firms, personnel, and

the public with whom the Division Order Analyst is involved.

- To advance division order work as a profession.

- To foster friendly relations among the members of the Association through regu-

lar meetings and social functions.

- To sustain the integrity of the Division Order Analyst profession in the oil, gas,

and other minerals industry.

- To abide by and uphold the Code of Ethics of the Association.

Secretary

Julie Willis

Treasurer

Allison Blancett

President

Adam Sinclair

Vice President

Cori Peth

Director

Ilya Nudelman

Director

Wendy Hopkins

2015 Board of Directors

Have an article, photo, or other

ideas for the newsletter?

Denver Association of

Division Order Analysts

Dedicated.

Analytical.

Detailed.

Original.

Accomplished.

We’re on the Web!

dadoa.memberlodge.org/

Director

Lauren Dauer

Board Advisor

Linda Osminer

Adam Sinclair

720-876-3947

Adam.Sinclair@encana.com

Katie Tate

303-831-9320

Katie.Tate@pdce.com

Kimberly Flores

303-640-4207

Kimberly.Flores@qepres.com

Online News Team