Energy Law

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.  On cross motions for summary judgment, the court ruled 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.

Full post as published by The Energy Law Blog on January 28, 2008 (boomark / email).