Posted on January 30, 2008 by Robert Theriot

OCS Lease Expiration: MMS Denial of Suspension of Operations Upheld

By Jana Grauberger:

A recent Interior Board of Land Appeals (“IBLA”) ruling, ATP Oil & Gas Corp., 173 IBLA 250 (2008), affirms an MMS denial of a Suspension of Operations (“SOO”) where the lessee submitted an revised exploration plan (“EP”) and permit to drill (“APD”) just days before the lease’s 10-year primary term expired, but was unable to conduct lease activities before the expiration date. The lessee, ATP, acquired its interest in the lease located in the Mississippi Canyon Area, Offshore Louisiana a little more than two months before expiration of its primary term, which the IBLA described as a “risky venture.” Due to weather conditions and the limitations of ATP’s contracted drilling rig, ATP was unable to get a well drilled prior to the lease expiration date.

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Posted on January 28, 2008 by Robert Theriot

Preferential Rights Decision From Texas Courts

By Jana Grauberger
and Anna Knull

In Navasota Resources, L.P. v. First Source Texas, Inc., No. 10-06-00236-CV, 2008 WL 90444 (Tex. App.-Waco Jan. 9, 2008), the issue presented was whether the preferential right in a Joint Operating Agreement was triggered when working interests subject to the JOA were to be sold along with other interests not subject to the agreement.  In this case, First Source, a working interest owner under a JOA, sought to sell to Chesapeake Energy Corp. a portion of its working interest under the JOA along with stock and interest in an AMI, both of which were unrelated to the JOA.  First Source notified Navasota, the other working interest owner under the JOA, of its intent to sell a portion of its working interest, and Navasota opted to exercise its preferential right to purchase First Source's working interest that was up for sale.  First Source rejected Navasota's offer on the ground that Navasota had only offered to purchase the working interest, and not the stock or interest in the AMI, reasoning that Navasota was required to accept the exact terms of the deal as offered to Chesapeake.  Navasota sued, claiming breach of contract and requesting specific performance.  The trial court granted Chesapeake's motions for summary judgment, and the appellate court reversed in favor of Navasota, holding: (1) Navasota's preferential right to purchase First Source's working interest was triggered even though the interest was to be sold along with interests not subject to the JOA, (2) Navasota was required only to comply with the terms of the sale relating to the working interest being conveyed, and not the additional terms of the sale relating to the stock and the AMI, (3) a binding contract for sale between Navasota and First Source was created when Navasota notified First Source that is was exercising its preferential right to purchase the working interest under the terms of the sale as offered to Chesapeake, (4) the preferential right provision of the JOA did not place an unreasonable restraint on alienation, and (5) that Navasota had established its right to specific performance of the contract for sale of First Source's working interest under the terms offered to Chesapeake.

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Posted on January 25, 2008 by Jason Johanson

Court Addresses Sufficiency of Demand Letter Under Mineral Code Articles 212.21-23

In CLK Company, L.L.C. v. CXY Energy, Inc., No. 07-834, 2007 WL 4409686 (La. App. 3d Cir. 12/19/07), the court addressed the payment of royalties and penalties under Mineral Code article 212.23(c) and concluded that plaintiff’s letters were insufficient to trigger the provisions of that article.  In CLK Company, the parties entered into a confidentiality agreement whereby the plaintiff agreed to provide services to the defendant.  In exchange, the defendant agreed to transfer an overriding royalty interest in the subject prospect to the plaintiff in the event defendant acquired an interest in the prospect.  When defendant refused to assign the overriding royalty interest to the plaintiff, plaintiff brought action, inter alia, for penalties under Article 212.23(c).  That article provides that a court may award as damages double the amount of royalties due together with attorney’s fees if the recipient of a demand letter fails to pay or otherwise fails to state a reasonable ground for non-payment in response to such notice.

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