The Ties That Bind-Preemptive Rights and Restraints On Alienation That Burden Oil and Gas Properties

March 01, 1999

This paper will address four contractual provisions that often come into play in the acquisition and disposition of oil and gas properties:

  • Preferential rights to purchase
  • Maintenance of uniform interest
  • Areas of mutual interest
  • Consents required for assignment

These provisions each address valid commercial purposes, and when consciously and deliberately implemented, can reflect a negotiated allocation of value and risk among the parties to the various agreements where they are found.  However, they are all long-lived, if not perpetual, and at some point when performance of, or compliance with them is at issue, it will be in the interest of one party or a successor in interest that the provisions either not apply or not be enforced.  Thus, there is a constant testing of the boundaries in the commercial arena and frequently legal challenges in the courts.
Each of these four provisions share certain elements with others, so that common legal principles and bodies of law are relevant in establishing the boundaries and evaluating the inevitable challenges.  Preferential rights to purchase and areas of mutual interest contemplate future vesting, which implicates the Rule Against Perpetuities.  Preferential rights, the maintenance of uniform interest provision and consents as conditions to assignment are restraints on alienation which involve the common law Rule Against Unreasonable Restraints on Alienation.  All of these provisions purport to burden real property, so that the Statute of Frauds and the law regarding gcovenants running with the landh are relevant.  This paper will not cover all of these issues in depth, but will attempt to identify relevant Texas cases that directly bear on the current status of these provisions.

Email Disclaimer