Make Sure That Your Texas Oil and Gas Agreement Complies With the Texas Statute of Frauds
Any good Texas oil and gas attorney must be fully versed in the Texas Statute of Frauds. The Statute of Frauds is an old concept, requiring that certain contracts have to be in writing and signed to be valid. The Statute of Frauds dates back to at least seventeenth century England, and was exported to the United States as part of common law. It now exists in the Texas Uniform Commercial Code and in the Texas Business and Commerce Code. The Texas Statute of Frauds requires that all conveyances of real property and transfers of mineral interests (including oil and gas leases) be in a writing, signed by both parties.
For an agreement to comply with the Statute of Frauds, it has to include all of the essential elements of the agreement. Basic elements include the time of performance and a description of the property. This may sound fairly straight forward, but time and again, disputes have arisen over oil and gas agreements and conveyances that failed to accurately describe the interest being conveyed -- or in which the conveyance was not in writing at all.
For example, in Quigley v. Bennett (2007), geologist Robert Bennett charged Michael Quigley, an oil and gas operator, with fraudulently inducing him to perform services related to an oil and gas lease. Bennett claimed that he was entitled to an overriding royalty interest that Quigley had conveyed to him orally in return for certain services that Bennett performed. The Texas Supreme Court disagreed. Because Bennett and Quigley never put the conveyance in writing, Bennett had no interest. He therefore was not entitled to the $1 million award that the jury had given him.
More recently, in Preston Exploration Co. v. Chesapeake Energy Co. (2010), the Court reviewed a disagreement over the legal descriptions in Purchase and Sale Agreements for oil leases. Preston argued that the Purchase and Sale Agreements and exhibits complied with the Statute of Frauds because the description identified the property being conveyed with “reasonable certainty.” However, the District Court of the Southern District of Texas found that since neither the Agreements nor the exhibits included specific information about the location of the leases, they failed to comply with the Statute of Frauds.
So if you want to transfer an oil and gas interest, how can you make sure that your agreement complies with the Statute of Frauds? This is one of those situations where you really might want to consider enlisting the assistance of an attorney to make sure it's done right. As mentioned above, the agreement should identify the property with reasonable certainty, which means “the contract must, at least, furnish the property description within itself or by reference to other identified writing then in existence.” Multiple writings can accomplish this purpose as long as the second document refers to the first -- something the agreement in Preston failed to do. In identifying land with reasonable certainty, an agreement should identify characteristics such as the amount of land; the specific tract the land is on; the city, county, or state where the land is located; the specific street address (if any), etc. There should be no doubt about where the land is located. Maps and plats can be used to identify the tract of land, but they must be very specific. Ideally, they should provide information such as the names of the owners in the chain of title, General Land Office Abstract numbers, survey lines of each tract, the amount of acreage in each tract, etc. As the Preston case illustrates, you can’t just refer to a “lease” and expect that to be enough.
In summary, if you are involved in the transfer of an oil and gas interest, you not only need a written document, but also clear and specific language in the document identifying the terms of the agreement and the land involved, namely its size and location. If your agreement complies with the Statute of Frauds, and you hopefully won’t be one of the unfortunate few who have to defend their interests in court.