© 2018 The Texas Lawbook.
By Natalie Posgate
(June 28) – A Texarkana appeals court has issued an opinion that favors a Dallas E&P company in a mineral rights dispute in East Texas and provides clarity on right of first refusal clauses in oil and gas leases.
In a 22-page ruling that reversed and remanded a Longview trial court’s summary judgment, Texarkana’s Sixth Court of Appeals ruled that MJR Oil & Gas 2001’s right of first refusal agreement for oil and gas leases in Gregg and Rusk counties was a covenant running with the land. It further ruled that the agreement was binding on the original parties’ successors.
The case started because some of the successors of Energy 2000 Inc., the original party MJR had an agreement with, did not comply with MJR’s first refusal rights. At the trial court, the successors – AriesOne LP, GFP Texas, Miken Oil and SND Energy Company – argued that they were not bound to the original agreement because the right of first refusal was not a covenant running with the land.
“The ruling was important because the court clarified that a right of first refusal in an oil and gas lease can be a covenant running with the land, even if it is not described with those words,” said John B. Thomas of Hicks Thomas, which represented MJR on appeal.
“We’re very pleased for our client,” said J. Stephen Barrick, a Houston-based partner at Hicks Thomas who led the appeal for MJR. “There is a considerable amount at stake, since the ruling affects our client’s rights in numerous oil and gas leases.”
The right of first refusal agreement surfaced out of a 2002 settlement that was reached from a lawsuit filed in Dallas County involving MJR, Energy 2000 and Ascend Oil & Gas.
In Friday’s appellate opinion, which was written by Justice Bailey C. Mosely, the court said just because an agreement does not include the phrase “covenant running with the land” does not mean the parties that drafted the contract did not intend for it to be of that nature.
“We have previously held that while the use of such terminology ‘is helpful in determining intent,’ it is not dispositive, ‘and an obligation intended to run with the land can be created without such language,’” the opinion says.
The court also rejected the appellees’ arguments that the right of first refusal is void because “it is an unreasonable restraint on alienation” and “it violates the statute of frauds.”
“There is no evidence of the circumstances of the ROFR’s (right of first refusal’s) creation, or the purposes intended, except the recitals contained in the settlement agreement,” Justice Mosely wrote. “These recitations are insufficient to establish that the duration of the ROFR is unreasonable as a matter of law. Therefore, we find that this ground does not support the summary judgment in favor of AriesOne.”
Also, in its brief, “AriesOne cites no case authority, and we have found no Texas cases that support this argument,” the court said in reference to AriesOne’s argument that the absence of an allocation between burdened and non-burdened leases in a package sale violates the statute of frauds. “On this record we cannot say that AriesOne established as a matter of law that the ROFR violates the statute of frauds.”
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