Legal Definitions - Freestone rider

A Freestone rider is a specific provision, often added to an oil and gas lease, designed to protect the landowner (lessor) from having their entire property held under the lease when only a portion of it is being actively developed for oil or gas production. It is essentially another name for a Pugh Clause.

This clause prevents an oil and gas company (lessee) from maintaining rights to undeveloped parts of the leased land, or to unexploited geological formations beneath the land, solely because they are producing oil or gas from a different part of the property or from a different geological layer. It typically stipulates that if certain portions of the leased land, or specific depths/formations, are not developed within a defined period, those undeveloped parts will automatically be released from the lease. This allows the landowner to lease those undeveloped portions to another company or develop them themselves.

• Example 1: Undeveloped Surface Acreage

  Imagine a rancher who leases 800 acres of their land to an oil and gas company. The company drills a successful well on a 160-acre section in the northern part of the ranch. Without a Freestone rider, the company might be able to hold the entire 800-acre lease indefinitely, even if they never drill on the remaining 640 acres, simply because the one well is producing. A Freestone rider in the lease would specify that if the undeveloped 640 acres are not drilled or included in a production unit within a certain timeframe (e.g., three years), those acres will automatically be released from the lease. This allows the rancher to then lease the undeveloped 640 acres to a different company or use them for other purposes.

• Example 2: Unexploited Geological Depths

  Consider a farmer who leases their land for oil and gas exploration. The initial drilling operations successfully tap into a shallow natural gas reservoir located between 1,500 and 2,500 feet below the surface. The company begins producing gas from this formation. However, geological surveys suggest there might be a much larger, deeper oil reservoir at 8,000 feet. A Freestone rider in the lease could stipulate that if the company only develops the shallow formation and does not commence drilling into the deeper formations (e.g., below 5,000 feet) within a specified period, the lease rights for those deeper formations will terminate. This protects the farmer from having the deeper, potentially more valuable, resources tied up indefinitely without being developed.

• Example 3: Partial Inclusion in a Pooled Unit

  A homeowner owns a 40-acre parcel of land. An oil and gas company decides to create a drilling unit by pooling 10 acres of the homeowner's land with 50 acres from an adjacent property. The company drills a productive well within this 60-acre pooled unit. Without a Freestone rider, the production from this pooled well might be interpreted as holding the *entire* 40-acre parcel under the lease, even though only 10 acres are contributing to the pooled unit. A Freestone rider would ensure that the remaining 30 acres of the homeowner's property, which are not part of the pooled unit, are released from the lease if they are not independently developed or included in another pooled unit within a set timeframe. This prevents the homeowner's undeveloped acreage from being held hostage by production from a small, pooled portion.