Background and Parties

Slant Operating, LLC sought to drill a new oil and gas well with a penetration point located off its own leasehold, requiring the wellbore to penetrate subsurface formations underlying property leased by Octane Energy Operating, LLC. The parties entered into a letter agreement that included reciprocal waivers of objections to each other's drilling applications for directional wells crossing lease boundaries. When Octane allegedly refused to waive its right to object to Slant's drilling application despite the letter agreement, Slant filed suit in the Business Court of Texas alleging breach of contract.

The Jurisdictional Challenge

Octane filed a plea to the jurisdiction, challenging whether the Business Court had subject-matter jurisdiction under Texas Government Code sections 25A.001(14) and 25A.004(d)(1), which require a "qualified transaction" with an aggregate value of at least $10 million. Octane argued that the letter agreement failed to meet this threshold because it contained no recital of consideration, constituted an unenforceable agreement to agree regarding future waivers, and was divisible such that each waiver should be valued separately. The court noted that "[t]he amount in controversy requirement for the Business Court to be able to exercise jurisdiction is not the same as consideration; consequently, not every commercial dispute with an amount in controversy of over $10 million will arise under a qualified transaction and confer jurisdiction on the Business Court."

The Court's Analysis

Judge Jerry D. Bullard held that Slant adequately pleaded jurisdictional facts at the plea stage. The court emphasized that Slant alleged "the value of companies' reciprocal waivers at time of letter agreement were each over $10 million based on expected production of additional resources and that agreement's value was not contingent on future events of chance." Applying the principle that courts must "construe the pleadings liberally in favor of the plaintiff" when a plea attacks the pleadings, the court found Slant's allegations sufficient. The court rejected Octane's divisibility argument, holding that the letter agreement was an entire contract requiring "examination of the whole contract to harmonize and effectuate every provision and avoid rendering any provision meaningless."

Critically, the court distinguished the agreement from an aleatory insurance contract, noting that "[a]n insurance agreement is an aleatory contact, a contract in which a promise is conditioned on the happening of a fortuitous event, an event of chance." Here, the reciprocal waivers were not contingent on events of chance but rather represented present commitments with calculable value based on drilling economics. The court further held that "[t]he aggregate value of the consideration used to support a qualified transaction, as required for the Business Court to exercise jurisdiction, is determined at the time of contracting," not through post-hoc calculations or discovery responses.

Implications for Oil and Gas Practitioners

This decision provides important guidance on Business Court jurisdiction in the oil and gas context, particularly for agreements involving directional drilling rights and cross-lease operations. The ruling confirms that reciprocal waiver agreements can constitute qualified transactions where the parties plead that the value of drilling rights and expected production exceeds $10 million at the time of contracting. Practitioners should note that the absence of a consideration recital does not defeat jurisdiction, as "[r]ecital of consideration is not required to be included in written contract." The court's rejection of the divisibility argument also suggests that integrated agreements governing multiple directional drilling operations will be valued as a whole for jurisdictional purposes.

For operators negotiating cross-lease drilling arrangements, this case underscores the importance of documenting the economic value of waiver rights, particularly where Business Court jurisdiction may be advantageous. The decision also clarifies that post-agreement expert declarations and discovery responses challenging valuation do not automatically defeat jurisdiction at the pleading stage, as "[a]n attempt to create a detailed calculation of the value of consideration after the fact does not refute that that value met the jurisdictional threshold." Companies facing similar jurisdictional challenges should ensure their pleadings specifically allege the value of contractual rights at the time of agreement formation, tied to concrete economic factors such as expected production and resource development.