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Caveat Emptor: Texas Supreme Court Puts Greater Due Diligence Burden on the Backs of Oil & Gas Asset Buyers

Buyer Beware in purchase of oil and gas assetsThe Permian is a hotbed of deal activity, with the Dallas Morning News declaring that an “arms race” is breaking out to acquire the best acreage positions.

But what are purchasers really buying? Does the due diligence process move too fast (or not at all, making it an empty exercise)? Do purchasers really know that their title is good? Are they unknowingly wasting their money, only to discover that they have done so decades after the investment is made and the profits are owed to the true owner?

The Texas Supreme Court has now strongly moved to put the risk of title loss on the oil and gas interest purchaser or lessee, holding that a purchaser/lessee was not even entitled to a trial on the question of whether it had reasonably relied on the lessor’s own admitted misrepresentations about its title.

In an opinion delivered March 23, the court upheld the dismissal as a matter of law of the purchaser’s claims arising from title failure. In so doing, the court upended the rule that a seller always remains liable for its own fraudulent statements, instead placing the risk on sophisticated buyers. Read more

Former Texas Supreme Court Justice Craig Enoch’s New Trial Tip – plus more!

I was honored to have had the opportunity to work with former Texas Supreme Court Justice Craig Enoch recently on the Mesa Petroleum Partners case, which resulted in a $117 million judgment plus interest for our client, T. Boone Pickens.

I sat down with Justice Enoch to ask about his insights into trial and appellate practice based on his decades of experience as a trial judge, court of appeals chief justice, and Supreme Court justice – as well as an advocate at his own law firm. Not only did he share inside knowledge about how judges view cases, he gave me a tip about new trial motions that not many trial lawyers know.  Read more

Litigation Issues in Area of Mutual Interest (AMI) Agreements

AMI AgreementsAn Area of Mutual Interest (AMI) Agreement is a contract between people or companies who want to jointly explore for oil and gas in a specific area during a given time. It is a common tool for sharing risks of development, along with the associated ownership and profits.

Unlike the standardized Joint Operating Agreement, though, AMI contracts tend to be handcrafted by the parties promoting the deal, and often have unintended flaws and consequences. If you’re an investor or operator who wants to put together an AMI Agreement, what do you watch out for? And what about buying an interest or properties that might be encumbered by an AMI Agreement? Will your due diligence reveal the significant issues associated with AMI obligations? Read more