A standard oil and gas lease is written by the operator's attorneys and, unsurprisingly, favors the operator. But most lease terms are negotiable, and there are specific clauses that mineral owners can add or modify to protect their interests. These don't get as much attention as the royalty rate, but they can be just as important over the life of the lease.

Pugh Clause (Freestone Rider)

A Pugh clause is one of the most valuable protections a mineral owner can negotiate. Named after Lawrence Pugh, a Louisiana attorney who first drafted the clause in 1947 (and sometimes called a "Freestone Rider" in Texas, after Freestone County where similar language first appeared), it prevents the operator from holding your entire lease by production on just a portion of the leased acreage.

Without a Pugh clause, if you lease 640 acres and the operator drills one well on a 40-acre tract, the entire 640 acres is held by production for as long as that well produces. The operator has no incentive to drill on the rest of your acreage, and you can't lease the unused acres to someone else.

With a Pugh clause, the lease releases any acreage not included in a producing unit at the end of the primary term. The operator keeps the acres around the producing well, and the rest reverts to you.

Horizontal Pugh clause. Releases all lands not included in a producing unit when the primary term ends. The operator keeps the acres around the producing well, and the rest reverts to you.

Vertical (depth) Pugh clause. Releases all depths below the producing zone at the end of the primary term. Without this, an operator producing from a shallow formation holds the rights to deeper formations too, preventing you from leasing those depths to another operator who might want to drill deeper.

No-Deduction Clause

This clause prohibits the operator from deducting post-production costs (gathering, transportation, processing, marketing) from your royalty. Instead, you receive a royalty calculated on the gross value of production at the wellhead or at the point of sale, free of all costs.

Without this clause, deductions can take a significant share of your gross royalty in some areas. A no-deduction clause protects the value of your royalty rate. See our post on understanding deductions for what's typically deducted.

Depth Clause

Similar to a vertical Pugh clause, a depth clause limits the lease to specific formations or depths. If the operator leases for a shallow formation, the deeper formations are excluded and available for separate leasing.

This is especially valuable in areas with stacked plays (like the Permian Basin) where different formations at different depths may be commercially productive.

Surface Damage Clause

If you own both the surface and the minerals, a surface damage clause requires the operator to compensate you for damage to the surface during drilling, construction, and operations. It may specify payment amounts, restoration requirements, and limitations on where the operator can place equipment.

Continuous Drilling Clause

Some leases contain a continuous drilling obligation that requires the operator to drill additional wells within a specified timeframe or release the lease. This prevents the operator from drilling one well and sitting on your acreage.

Anti-Washout Clause

If your lease expires and the operator immediately re-leases from you on worse terms, you lose the protections you originally negotiated. An anti-washout clause prevents this by requiring any new lease to carry forward the same terms.

Assignment Clause

The standard lease allows the operator to assign (transfer) the lease to anyone. You can modify this to require notification of assignment, or to require your consent for assignment to certain types of companies.

Getting These Clauses

These protections don't appear in standard lease forms. You have to ask for them. When a landman presents a lease, respond with your requested modifications. The landman may not have authority to accept them on the spot, but the operator's land department can review and negotiate.

For significant acreage or high-value areas, a mineral rights attorney can draft the specific language. The cost of legal review is small compared to the value of a well-negotiated lease that protects your interests for decades. Also make sure to understand the force majeure clause and whether your lease is paid-up or requires delay rentals.