Face Challenges Confidently

366 ConocoPhillips Co. v. Dahlberg

Monday, August 31st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

ConocoPhillips Co. v. Dahlberg , No. C-10-285, slip op. (S.D. Tex. Feb. 22, 2011), held that a reference to the “Villarreal #1” in a Participation Letter was an adequate legal description for a conveyance of a lease.  Reichmann was the Lessee of the Villarreal Lease.

On July 11, 2005, Reichmann sent Appellee John Dahlberg a Participation Letter (“Participation Letter”), offering a 3.125% Working Interest in the Villarreal Lease, which the Dahlbergs elected to purchase, and paid Reichmann $82,865 on July 15, 2005 . . . . The working interests, however, were not formally assigned at that time.

Conoco subsequently entered into a Joint Operating Agreement (“JOA”) with Reichmann, which included a Preferential Right of Purchase Provision. Conoco, seeking to acquire Dahlberg’s interest under the Preferential Right of Purchase Provision in its JOA with Reichmann, challenged the Participation Letter as a conveyance or sale under multiple theories, including challenges based on inadequate legal description and no words of grant.

The opinion does not quote the Participation Letter, but apparently the letter and its enclosure described the Villarreal Lease as 710 acres, between “Our Resendez Lease” and the “La Duquesa,” in Zapata County. The court recognized that the letter and its enclosures without more would not be sufficient to identify the land to be conveyed, but concluded that the several references to the “Villarreal #1” in the letter “can be understood to mean the Villarreal Oil and Gas Lease (a separate document), which has more than a sufficient property description.” The opinion is silent as to how, exactly, one could find the lease based on the reference to the “Villarreal #1.” The court had other grounds for refusing to allow Conoco to raise the statute of frauds, so perhaps this is only dictum, but it is also probably unreliable dictum. Other cases appear to require far more precision in the reference to another writing in order to satisfy the statute of frauds.

Similarly, the Participation Letter contained none of the usual words of grant: Here, the only words that could satisfy the “intent to convey” requirement state:

“[a]s a right of first refusal to companies and people like yourself who have helped get us so active in this area you have the election within 15 days to participate in the lease and prospect.     Please execute this letter and attached [Authorization for Expenditure] and return with a check made payable to Reichmann Petroleum Corp. in the amount of $82,865 if you are electing to participate in this lease and first well.”

The court concluded that the question is one of finding the grantor’s intent, that no formal words of grant are required, and that the language in the Participation Letter was sufficient to show the grantor’s intent to convey title to a real property interest to the grantee.

The case is one extreme of the range of cases seeking to construe the reach of the statute of frauds.  It may be of some comfort to the sloppy draftsman, but it increases the risk of an unintended or premature conveyance.