Energy Law

Texas Court Analyzes When Operator "Actually" Commences Operations Under JOA

By Robert Theriot

By Natalie Barletta:

             The principal issue addressed in Valence Operating Company v. Anadarko Petroleum Corporation, 303 S.W.3d 435 (Tex. App.—Texarkana 2010, no pet.h.), is whether Valence actually commenced work on its proposal to drill four wells within the time specified by the parties' joint operating agreement ('JOA'). The JOA contained a provision covering Valence's proposal to drill the wells in the unit. The provision stated that the party desiring to drill 'shall give' notice to the other parties to the agreement 'specifying the work to be performed' and that the parties receiving notice 'shall have thirty days after receipt of the notice' to give notice of their election to participate in the drilling operations. Anadarko did not consent to Valence's proposed drilling operations. 

            Valence, therefore, became operator as to its proposed operations and was required to 'actually commence work' by March 17, 2000. Once operations began, Valence was required to 'complete [operations] with due diligence.' Anadarko, however, filed suit, arguing that Valence failed to commence operations before March 17, 2000. Valence conducted the following activities before the deadline expired: prepared an authorization for expenditures, received topographic map of locations, surveyed and staked locations and took pictures of well sites, obtained preliminary list of title instruments, held meetings to discuss locations and how to build on those locations, prepared detailed cost and facility estimates for the four wells, prepared preliminary run sheets, and obtained permits for the wells from the Texas Railroad Commission. After the deadline had passed, Valence built access roads, signed drilling contracts and began drilling. 

            The court held that Valence's pre-deadline activities were not sufficient as a matter of law to establish actual commencement of work on the proposed operation within the meaning of the JOA. The issue was, therefore, properly submitted to the jury.

Full post as published by The Energy Law Blog on April 06, 2010 (boomark / email).