Co-author Travis Nadalini
The negotiators and scriveners of the purchase and sale agreement in Matter of PetroQuest Energy, Incorporated would have been well served to consider all the potential ramifications, however remote, flowing from the definitions in their agreement. (Potential reply: “Who woulda thunk THAT would happen?”)
The Fifth Circuit, applying Louisiana law, held that in a federal offshore Gulf of Mexico lease trade, if a purchaser assumes liabilities for “Assets” under a purchase and sale agreement that does not require the Assets to actually transfer between the parties, then a lack of consent from the Bureau of Ocean Energy Management (or other agencies) does not invalidate the purchaser’s assumption of the liabilities. The case turned on the specific language of the agreement.
Sanare Energy Partners purchased a mineral lease and related contracts from PetroQuest and assumed liabilities for the “Assets”. PetroQuest filed for bankruptcy. Sanare, trying to avoid responsibility for the Assets, filed an adversary proceeding in the bankruptcy on the theory that the wells and lease in connection with the sale were not “Assets” for which all obligations and liabilities were assumed by Sanare.
Sanare: The interests are not “Assets”
Sanare argued that PetroQuest failed to obtain third-party consent from the BOEM, whose consent is required for mineral lease transfers on federal lands.
Sanara also argued that “absurd results” would follow if the PSA’s definition assigned liabilities to Sanara for Assets that still belonged to PetroQuest.
The Court: Yes they are
The Fifth Circuit denied the first argument, concluding that the definition of “Assets” unambiguously included the wells and lease, and the definition was not changed by the BOEM’s failure to consent. Furthermore, the court found that the consent requirement did not extend to “customary post-closing consents,” such as BOEM’s. Even so, the “Bureau’s withheld consent may prevent a post-closing transfer from occurring, but it does not change the PSA’s definitions.”
The Court also denied the absurd result argument, noting that “these absurdities do not arise from the purchase agreement’s internal definition of Asset.” Rather, they arise only if the purchase agreement requires title to an Asset to actually transfer between the parties even without the necessary consents. There was no such requirement.
Words have meaning! The properties were “Assets” under the PSA, even if the Bureau’s failure to grant consent prevented record title for the Properties from transferring to Sanare.
More on how the climatistas resort to personal destruction of serious, mainstream scientists who dare fail to conform to the orthodoxy. In this case its Steven Koonin, former Obama undersecretary of energy and author of Unsettled: What Climate Science Tells Us, What it Doesn’t, and Why it Matters”. The Powerline post is worth a read.