pjc-oil-and-gas-2022-lib

O IL AND G AS I NDUSTRY A GREEMENTS

PJC 305.1

PJC 305.1 Oil and Gas Industry Contracts (Comment) Contracts in the oil and gas industry are typically governed by general contract prin ciples. Contracts specific to the oil and gas industry, other than the oil and gas lease, are described below and include joint operating agreements, farmout agreements, pref erential right to purchase agreements, and areas of mutual interest agreements. Disputes involving the agreements discussed below may be resolved with general contract principles. As such, the applicable questions and instructions provided in the current edition of State Bar of Texas, Texas Pattern Jury Charges—Business, Con sumer, Insurance & Employment chapter 101 have been included in this chapter in their entirety. The corresponding defense questions have also been included in chapter 312 of this volume, and the corresponding damages questions have been included in chapter 313. However, the express terms of an exculpatory clause in a joint operating agreement often require a finding of gross negligence or willful misconduct in order to impose liability for a breach. The terms and application of exculpatory clauses in joint operat ing agreements have been frequently litigated. For that reason, in addition to the ques tions generally applicable in contracts disputes, this chapter provides questions and instructions specific to the joint operating agreement that reflect case law requirements unique to joint operating agreement exculpatory clauses. In all circumstances, these questions and instructions must be modified as appropriate to fit the facts of each indi vidual case. Joint operating agreements. An “operating agreement” or “joint operating agreement” (often referred to as a “JOA”) is an agreement for the exploration and development of a described area of land commonly defined as the “contract area.” Under the JOA, a party is designated as the operator with the authority to conduct all operations in the contract area. The other parties to the JOA are designated as nonoper ators, joint interest owners, or working interest owners. The agreement generally con tains detailed provisions concerning drilling and production operations and responsibilities regarding expenses and accounting, for example, the accounting pro cedures of the Council of Petroleum Accountants Societies (COPAS). The JOA describes the authority of and restrictions placed on the operator. See Patrick H. Martin & Bruce M. Kramer, 8 Williams and Meyers, Manual of Oil and Gas Terms 528 (2014). The JOA generally sets forth the standard of care required of the operator. There is no standard JOA; however, the American Association of Professional Landmen (AAPL) has published several versions of its standard form beginning in 1956, with revisions in 1977, 1982, and 1989. These AAPL forms are commonly used for Texas onshore oil and gas joint operations but often contain various modifications. Each of these forms is distinct, and legal precedent under one form may not apply to all the forms. See, e.g., Reeder v. Wood County Energy, L.L.C. , 395 S.W.3d 789 (Tex. 2012) (comparing exculpatory clauses under 1977 JOA, 1982 JOA, and 1989 JOA);

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