Opinion ID: 45960
Heading Depth: 2
Heading Rank: 2

Heading: The Other Three JOAs

Text: The ROFR clauses in the remaining three JOAs read, Before the sale of, and their assignment by any party of all or any part of its interest in Unitized Substances, the other party or parties shall be given the preferential right of the refusal of the purchase of such interest at the minimum sale price placed thereon by the party offering such interest for sale, and any one or more of the parties desiring to purchase such interest shall have the preferential right to purchase at said price.... The parties agree that the unitized substances are defined in each of the three JOAs as all oil, gas, 21 and other hydrocarbons in and which may be produced and saved from the specific unit to which the JOAs apply. In its offer letter, TEPI simply offered the Appellants the opportunity to exercise their preferential rights to the property covered in each of the three similar JOAs for prices stated as follows: (a)Those covered in the May 1969 operating agreement for $10.00; (b)Those covered in the December 1969 operating agreement for $10.00; (c) Those covered in the November 1995 operating agreement for $1,998,821.00. TEPI’s letters stated that it would be necessary for the Appellants to enter into a production handling agreement with EnerVest if it exercised its preferential rights because the tangible assets on premises formerly used for that purpose under all 22 four JOAs were being conveyed in full ownership to EnerVest. TEPI argues that it was only required to offer to the Appellants its interest in the unitized substances, and that the tangible assets were not subject to the Appellants’ right of first refusal. It is true that this language of the three similar JOAs presents a complication because, rather than referring to the “properties affected by this agreement,” these JOAs at first blush appear to restrict the parties’ preferential rights to the acquisition of percentages of interests in the unitized substances. However, when the JOAs are considered in their entirety, it does not necessarily follow that TEPI’s argument presents the most reasonable interpretation of the JOAs. In any event, each of the three JOAs in which the ROFR clause refers to “unitized substances” provides in essence that each party participates in the 23 acquisition of ownership of any tangible property associated with unit drilling and production operations by the same percentage as it enjoys in the minerals produced. For example, Article 3 of the November 14, 1995 JOA, entitled “Percentage of Interest, states: 302. The parties shall also own all wells drilled hereunder, and the property and equipment acquired hereunder, in the above proportions, unless specifically provided otherwise herein. Thus, the parties not only own and participate in the production of the minerals in the wells covered by the JOAs; they also co-own the tangible exploration and production equipment and property in those same proportions. The JOAs merely authorize the leaseholders, under specified circumstances, to appoint or elect a successor operator to use those tangible assets. The JOAs do not authorize anyone to 24 divest any party of its co-owned undivided interest in the tangible assets or to convey that interest to a third party or the operator. Accordingly, TEPI was not authorized to sell the entirety of any tangible asset on the premises covered by the JOAs because all of the working interest owners held an indivisible interest in those tangible assets. Furthermore, as was the case with the August 29, 1962 JOA, each of the other three JOAs sets forth a method by which a successor operator is to be chosen by agreement of the parties to the JOA. As indicated above, TEPI’s purported exclusion of the tangible assets from its offer to the Fordoche group made TEPI’s proposition to that group less attractive than, and unequal to, its sale to EnerVest. This is because the unqualified sale of the entire working interest to EnerVest gave it effective ownership and control of each JOA’s production unit; whereas, TEPI’s ambiguous offer to the Fordoche group would 25 have allowed them to acquire with certainty only additional shares of participation in the production of the unitized substances. 2. The Failure to Specify the Property Being Offered by TEPI in the April 26, 2000 Offer Letter Despite our diligent efforts, we find no documentation in the record showing that TEPI unambiguously specified the particular property interest being offered for sale to appellants. Without such documentation, it is difficult to see how we could determine that, as a matter of law, TEPI complied with the contractual ROFRs in the JOAs. Further, comparison of TEPI’s letters calling on the Fordoche group to exercise or waive its preferential rights with other evidence in the record only leads to the discovery of additional disputed facts that are material. TEPI’s April 26, 2000 offer letter manifests its intent to supplement and clarify its March 1, 2000 26 offer letter that TEPI had discovered was incomplete. The caption of the April 26 letter refers to “PRODUCING PROPERTY SALES/Preferential Right to Purchase/Fordoche Field/ Point Coupee Parish, Louisiana.” The body of the April 26, 2000 letter merely does the following: (1) describes each of the four JOAs; (2) lists the well names and numbers subject to each JOA; (3) states the 30-day election period to exercise the ROFR; and (4) lists the allocated value12 of the unnamed property being offered. Further, the April 26, 2000 excludes the tangible facilities from the offer made to the Fordoche group, as follows: [The following property is] either owned entirely by TEPI, or if jointly owned, not subject to preferential right to purchase. These facilities will be conveyed to EnerVest. Additionally none of the rights of way, pipeline rights of way and surface leases listed on Schedule B to the Agreement are subject to the preferential right to 12 See offer letter, “Allocated value is $1,998,821.00.” 27 purchase. As your preferential right to purchase does not include all facilities or any rights-of-way, should you elect to exercise your preferential right to purchase, you will need to enter into a production handling agreement with EnerVest. The letter then lists tangible property to which the aforementioned paragraph refers. This provision, which itself is the subject of a genuine dispute between the parties, describes property excluded from the offer letter and does not help to clarify the exact property interests offered for sale to the Fordoche group. The April 26, 2000 letter also refers to “an extract of the Agreement” to be sent apparently under separate cover, as follows: With this clarification, we are re-offering the preferential rights to purchase as set out in this letter to you. Additionally we are resending an extract of the Agreement for your review as described below. Please carefully review the Agreement and its attachments to understand the rights and obligations you would assume should you exercise your preferential right to purchase. These obligations include, but not limited to: (1) your assumption of the plugging and 28 abandonment liabilities and obligations; (2) your assumption of environmental obligations as they are defined in the Agreement; (3) the requirement to establish an escrow account; and (4) the requirement to post a Performance and Payment Bond. Should you exercise your preferential right to purchase, you will be required to close the transaction within thirty (30) days of your election. This “extract of the Agreement” has not been included in the record. The April 26, 2000 letter closes with a request that each of the Fordoche group elect to exercise or waive its preferential rights to purchase by signing the bottom of the letter and marking on a check off list. The check off forms are no more helpful than the letter in describing the specific property interest TEPI offered to sell the Fordoche group. For example, the check off list for exercising preferential rights simply provides: [ ] hereby elects to exercise its Preferential Right to Purchase the following interests: 29 _____ 8000 RA SU A _____ Operating Agreement, dated August 29, 1962 []Unit “K” and Upper Dearing Sands _____ Long RA SU A _____ L Sand Unit This list identifies only the JOAs, the production units, and sands from which minerals were being produced. In sum, we see nothing in the April 26, 2000 offer letter from TEPI to the Fordoche group that unambiguously describes the legally recognized property interest offered for sale, such as, for example, “unitized substances,” “working interests,”“leasehold interests,” or “mineral leases.” Furthermore, the record is replete with evidence that Ronnie J. Theriot, after receiving the April 26, 2000 letters, was uncertain as to the property interest offered for sale by TEPI. Mr. Theriot communicated his concerns over the lack of 30 specific information in the letter via his counsel in correspondence to TEPI. Mr. Theriot was particularly concerned by how and by whom the “allocated value for the interest” had been derived. As he explained in his deposition, “I had no idea what was being offered, what was being paid, what the terms or the conditions were or anything.” Further, he stated, “...I said, ‘What is it? What is it that’s being offered? What is it that you’re offering to sell? What is the price? What’s the terms? What’s the conditions?...What is the offer? Show me the offer and I’ll decide whether or not I want to match it.’” “Additionally, [he stated,] and contrary to the sworn affidavit of Pam Bikum, I discussed these matters with her and she could not explain exactly what was being offered pursuant to the preferential rights.” This evidence supports the assertion that Fordoche group was not given specific information regarding the property interests for sale. 31 Note, however, that there is a factual dispute as to the truth or falsity of Mr. Theriot’s testimony. His statements are directly refuted by the affidavit of Ms. Pamela Bikum, Senior Land Representative for Chevron TEPI North America Upstream Division, Deepwater Land Department. She stated, in pertinent parts, that the appellants “were offered the opportunity to exercise their preferential rights, and to thereby purchase, the Unitized Substances subject to” the four JOAs; and that “[t]o the best of my recollection, no one from Fordoche [neither Ronnie Theriot nor Rebecca Theriot] ever called me to ask any questions about the Offer Letters.” These statements indicate factual disputes regarding the clarification of the April 26, 2000 letters; their existence makes summary judgment inappropriate, as well. Without an unambiguous written document in the record showing that TEPI clearly described the 32 particular property interests for sale in its offer to the Fordoche group, we cannot conclude as a matter of law that TEPI complied with the ROFR clauses in the JOAs. Although TEPI might be able to introduce other evidence to overcome this deficiency at trial or in further proceedings in the district court, the vague, general offer letters it sent to the plaintiffs do not give it a solid basis upon which to build. 3.The Failure of TEPI to Offer the “Thing” to Appellants on the Same Terms as It Sold to EnerVest As mentioned above, though it is unclear exactly what type of property interest TEPI offered appellants the right to purchase, it is clear that it was less than the entirety of its working interest in Fordoche Field. Yet, TEPI offered and sold to EnerVest its full interest in the same. As discussed above, this constitutes a breach of the 1962 JOA. Beyond this, however, it may be reasonably inferred 33 that TEPI breached all four JOAs by failing to offer the same thing for the same price to both the Fordoches and EnerVest. It is apparent that under the basic principles of the ROFR, TEPI was obligated to first offer to appellants the same thing it offered to EnerVest at the same price. TEPI sold EnerVest the entirety of its interest in the Fordoche Field portion of the Gulf Coast Package for $2,014,861. This exact price was quoted by TEPI to appellants as the amount they must pay for a property interest that was substantially less valuable than the entirety of TEPI’s working interest. TEPI’s offer of sale to the Fordoche group excluded: (1) tangible facilities purportedly owned by TEPI exclusively or not subject to the preferential right to purchase, i.e., equipment, structures, and other tangible interests related to each unit; 34 (2) rights of way; and (3) pipeline rights of way. Therefore, had appellants exercised their preferential rights, they would have paid for those limited rights the same amount EnerVest paid in acquiring unqualified ownership of TEPI’s entire working interest in the leases subject to the JOAs. The CEO of EnerVest testified that ten to fifteen percent of the price allocated to the four JOAs was attributable to the tangible property associated with the production units. That leaves only 85 to 90 percent of the allocated price attributable to the interests offered to the appellants. Plaintiff Ronnie J. Theriot, echoed this sentiment in his deposition by stating that the tangible facilities themselves are “worth millions of dollars.” Thus, it is undeniable that EnerVest, in its purchase of TEPI’s interest received what the Fordoche group was offered (and then some) for a lesser price. 35