What is the meaning of bonus, royalty, primary term and Pugh clauses?
Bonus payment is the amount of money received at the time you sign the lease. Typically it is based on a per acre or per lot figure. This is a one time payment. Royalty is the amount of production that the homeowner receives from a well. It is usually stated as a percentage figure or a fraction. (i.e. a ΒΌ royalty or a 25% royalty) This payment is paid regularly, usually on a monthly basis. Primary term is the length of the lease. The lease terminates at the end of the primary term unless one of several conditions exist. If the land is included within a producing unit, the lease will typically be extended for however long production occurs from the unit. Pugh clause is a clause which operates to return to the mineral owner any lands which are not included in a producing unit at the end of the primary term. Pugh clauses can be both horizontal and vertical.
