Annual Institute on Mineral Law


When establishing joint ventures or operations for the exploration and/or production of oil and gas, parties typically enter into written agreements, known as joint operating agreements, designed to direct and manage the myriad of issues raised in these ventures. The joint operating agreement designates an operator, who is authorized to act on the behalf of the nonoperators, and specifies each working interest owner's rights and obligations in the joint operation. Issues addressed by the operating agreement include the potential for future acquisitions of mineral interests in the area and the ability to have some continued control over the parties involved in the development and operation of the property. In an attempt to accomplish these goals, parties have included provisions in joint operating agreements which govern the ability to alienate and purchase property under the purview of the instant agreement. When drafting these provisions, the parties sometimes use all-purpose language found in sample agreements, which may not address their specific needs and goals in this joint operation. Careful understanding and drafting of these restrictive provisions is necessary to avoid future problems regarding their interpretation and application. This paper will examine three primary categories of restrictions on acquisition and alienation found in oil and gas joint operating agreements: areas of mutual interest, preferential rights to purchase, and maintenance of uniform interests. A general explanation of the principles and theories behind these provisions and their inclusion in joint operating agreements will first be discussed. Then the pros and cons of including these restrictions in joint operating agreements will be explored. Next, this paper will analyze the potential dangers parties face if they blindly incorporate standard joint operating agreement provisions. The paper will conclude with a discussion of the practical and legal problems concerning these restrictive provisions addressed by the courts in both Texas and Louisiana, as well as selected case law from other states.