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May v. INEOS USA Oil & Gas
Analysis
Fee Simple Determinable in Farmout Agreements: Business Court Construes Eagle Ford Shale Contracts as Upfront Conveyance, Not Conditional Assignment
In May v. INEOS USA Oil & Gas, the Business Court of Texas Fourth Division addressed whether a 2009 farmout agreement conveyed Eagle Ford Shale leases upfront as a fee simple determinable or merely granted the right to earn property later, and whether earned-acreage provisions operate as special limitations affecting property rights or as covenants creating only breach-of-contract claims. The court's partial grant of summary judgment resolves fundamental ambiguities in farmout structure and reversion mechanics that frequently generate disputes in shale-play development agreements.
Course-of-Performance Evidence Inadmissible to Construe Unambiguous Oil and Gas Farmout Agreement
In May v. INEOS USA Oil & Gas, the Business Court of Texas struck post-execution course-of-performance evidence offered by mineral-interest plaintiffs seeking to prove a well-by-well payout calculation under a farmout agreement, holding that extrinsic evidence is inadmissible when contract language is susceptible to only one reasonable meaning. The ruling follows the court's earlier determination that the contractually defined 'Payout' is triggered only by an Earning Well and calculated based on aggregated cost recovery, not on a well-by-well basis.