325 Beckham Res., Inc. v. Mantle Res

CASE NOTE

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Beckham Resources, Inc. v. Mantle Resources, L.L.C., No. 13-09-00083-CV, 2010 WL 672880 (Tex. App.—Corpus Christi Feb. 25, 2010, pet. Denied )held that an area of mutual interest clause (“AMI”) in an exploration agreement which required notice of “all pertinent terms” of any acquisition did not require notice in the form of a liquidated sum as to the entire cost of the acquisition, but only the terms of the participation. Mantle acquired a new lease within the AMI which included a drilling commitment for a deep well as consideration for the lease. Mantle’s notice of the acquisition to Beckham included “specific discussions of the consideration for the lease being the agreement to drill a deep well, copies of the October 2005 lease, [authorities for expenditure] for the estimated drilling costs, and diagrams showing the proposed well location.” Beckham had twenty days to respond, Beckham failed to respond, and a failure to respond was, under the terms of the AMI, deemed an election not to participate. Mantle drilled the well. Beckham contended that “Mantle breached the AMI provision because it did not send notice or an offer to participate to Beckham once the acquisition costs became known and ascertainable when the well reached 9,000 feet in February 2006.”
 
The court concluded that the AMI required only that Beckham be informed of the terms for its participation, i.e. “that Beckham would be responsible for its share of the up-front costs of the consideration well, which was the acquisition cost of the October 2005 lease.” The holding is consistent with the trend in recently decided cases involving a right of first refusal (“ROFR”), although none were cited in the opinion. The trend may be summarized as holding that the party with the ROFR must unequivocally exercise it or lose it. Claims as to the sufficiency of the notice are generally given little consideration, and even valuation disputes may be postponed for resolution until sometime after the right is exercised. Similarly, in this case, the exact cost would not be known until the well was drilled, but the pertinent term was that the consideration was to drill the commitment well.