CPL Oil & Gas Lease Negotiation 2

Question 1

A landowner insists on a 'Pugh clause' in a lease. What does this provision accomplish?

Accepted Answer

It releases depths or acreage not held by production at the end of the primary term

Answer

A Pugh clause (or Freestone rider) releases acreage or depths not associated with a producing well at the end of the primary term, preventing the lessee from holding large tracts by production from a single well.

Question 2

Which type of royalty clause ensures the landowner receives payment based on the market value at the wellhead regardless of downstream costs incurred by the lessee?

Accepted Answer

At-the-wellhead royalty

Answer

An at-the-wellhead royalty bases payment on the value of production at the wellhead, meaning the lessee cannot deduct post-production costs (gathering, compression, transportation) from the royalty.

Question 3

When negotiating a continuous drilling clause, what is the primary benefit to the lessee?

Accepted Answer

It extends the lease beyond the primary term by drilling wells in succession without a Shut-In period

Answer

A continuous drilling clause allows the lessee to extend the lease by commencing successive wells within specified intervals, keeping the lease alive beyond the primary term without relying on established production.

Question 4

A lessor wants to negotiate a 'no-deductions' royalty clause. Which scenario best illustrates why this matters?

Accepted Answer

The lessee sells gas at $3.00/Mcf but deducts $0.50/Mcf for compression, reducing the royalty base

Answer

Without a no-deductions clause, lessees may subtract post-production costs from the royalty base, effectively reducing the lessor's royalty payment below the gross value of production.

Question 5

In lease negotiation, what is the purpose of a 'retained acreage' clause?

Accepted Answer

It defines how much acreage a lessee can hold per productive well after the primary term

Answer

A retained acreage clause specifies the amount of acreage a lessee may hold around each producing well, requiring release of the remaining acreage not needed to maintain production.

(CPL) Certified Professional Landman Practice Test

(CPL) Certified Professional Landman Practice Test

CPL Oil & Gas Lease Negotiation 2