pjc-oil-and-gas-2022-lib

PJC 305.1

O IL AND G AS I NDUSTRY A GREEMENTS

Valence Operating Co. v. Dorsett , 164 S.W.3d 656 (Tex. 2005) (interpreting modified 1977 AAPL Form 610 Model Form Operating Agreement’s notice requirements affecting nonoperators’ rights to consent to drilling operations). Farmout agreements. A “farmout agreement” is an agreement in which a lease owner agrees to assign a lease or some portion of it to another in exchange for speci fied drilling obligations. See, e.g., Mengden v. Peninsula Production Co. , 544 S.W.2d 643, 645 n.1 (Tex. 1976) (a primary characteristic of a farmout is obligation or right of assignee to drill one or more wells on assigned acreage as prerequisite to completion of transfer). The assignor may retain a share of the interest assigned, for example, an overriding royalty, back-in working interest, or production payment. Martin & Kramer, 2 Williams & Meyers, Oil and Gas Law , at § 432. Preferential right to purchase agreements. A “preferential right to purchase” is a right of one party to buy the interest of another, usually by matching the terms of a good-faith offer made by a third party. A preferential right to purchase may exist as an independent agreement between the parties or as a part of another agreement. In an oil and gas context, the preferential right to purchase is usually included as part of an operating agreement or farmout agreement. Other names for this type of agreement include “preference right,” “preference right to purchase,” “first privilege to pur chase,” “preemption,” “preemptive right,” “first right of refusal,” “first refusal clause,” and “right of first refusal.” Martin & Kramer, 8 Williams & Meyers, Manual of Oil and Gas Terms , at 792. Area of mutual interest agreements. An “area of mutual interest” agreement or “AMI” is an agreement by which the parties attempt to describe a geographical area within which they agree to share certain leases or other interests acquired by any of them in the future. See Westland Oil Development Corp. v. Gulf Oil Corp. , 637 S.W.2d 903, 905 (Tex. 1982). While not contained in the body of any of the AAPL joint oper ating agreement forms, the parties often add an AMI to the JOA. See Martin & Kramer, 8 Williams and Meyers, Manual of Oil and Gas Terms , at 55. This chapter also includes a question and instruction on reformation, which could be relevant for a variety of contract disputes when one party asserts that the document does not reflect the parties’ agreement. Additionally, in recent years, reformation has been an issue in mineral and royalty deed disputes.

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