Opinion ID: 2165636
Heading Depth: 1
Heading Rank: 3

Heading: joint operating agreement

Text: In 1988, Central and Coral entered into a joint venture agreement to purchase Nebraska oil and gas interests from Marathon Oil Company (Marathon). Coral agreed to furnish engineering and economic data to Central to arrive at a competitive bid, and Central agreed to use its resources to obtain partners and financing for the purchase. In April 1989, Central closed on its purchase from Marathon. On the same day, Central entered into the JOA with Coral and two other corporate parties. The JOA was the 1977 version of the model form 610 operating agreement developed by the American Association of Petroleum Landmen. [1] Form 610 has been used widely in the oil and gas industry since 1956. [2] The JOA designated Central as the operator of the properties with full control of all operations at properties covered by the JOA. Coral and the other two parties were designated as nonoperators. Central held a 30-percent before payout interest, and the other two parties held 45-percent and 25-percent before payout interests. Coral held a 10-percent after payout interest, which percentage was taken from Central's 30-percent interest. An interlineation to the JOA provided that where the interests of the Operator in the joint properties are sold, transferred, merged or consolidated into a non-affiliated third party, then the selection of a successor operator was to be made by two or more nonoperators with a 65-percent interest in the assets covered by the JOA. Article VIII, paragraph G, of the model form provided a preferential purchase right and exceptions to the right: Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract Area, it shall promptly give written notice to the other parties, with full information concerning its proposed sale, which shall include the name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price, and all other terms of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after receipt of the notice, to purchase on the same terms and conditions the interest which the other party proposes to sell. . . . However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage its interests, or to dispose of its interests by merger, reorganization, consolidation, or sale of all or substantially all of its assets to a subsidiary or parent company or to a subsidiary of a parent company, or to any company in which any one party owns a majority of the stock, or substantially all of the assets and/or stock of the selling party is sold to a non-affiliated third party. Refer to Article XV G. for additional provisions. The italicized language is the parties' typewritten interlineation to the model form. The exception to the preferential right to purchase in article XV, paragraph G, is not relevant to the arguments raised by the parties in this appeal. Article I of the model form defines terms, and this portion of the form was not altered. Article I ends with this statement: Unless the context otherwise clearly indicates, words used in the singular include the plural, the plural includes the singular . . . . The model form portion of the JOA also provided that the governing law for any disputes under the JOA would be the law of the state in which the Contract Area is located. However, article XV, paragraph E, of the added provisions provided that Texas law would govern any disputes between the parties. In July 1989, Central and Coral entered into a Purchase and Sale Agreement that was intended to clarify the rights and obligations of both parties. The sale agreement stated facts leading up to the JOA and was retroactive to the date the JOA was executed. The sale agreement provided that Coral had assisted in the acquisition of the Nebraska properties and that Central desired to sell approximately 70 percent of its interests in the Nebraska properties to third parties. Central promised that its remaining 30-percent interest would be divided with Coral under one of two plans. Under Plan A, Coral could pay Central $515,755 for 15 percent of Central's remaining interests. If Coral had not elected plan A by August 15, 1989, then Coral elected, by default, to exercise Plan B. Under plan B, Central would assign 10 percent of its remaining interests to Coral and provide the collateral and security necessary to finance its entire interest until payout. Payout was defined as the date that Central repaid its principal loan obligations and obligations to third parties. Central's assignment to Coral was effective within 120 days of the agreement but was conditioned upon the release of bank loans and the repayment of fees. Central agreed to apply proceeds from the assets to its obligations in accordance with a prioritized list. The parties agreed that Central would be the operator of record and that Coral would be the contract pumper and field supervisor. Central also agreed that if Coral elected plan B, it would make good faith efforts to assist Coral to become the successor operator of specified properties within 60 days of payout and to cast its vote affirmatively for Coral. At least by April 1990, the parties began having disputes. Coral questioned Central's low production and performance of operator duties, while Central questioned Coral's performance of field operations. In October 1990, Central removed Coral as the contract operator.