Background

Primexx Energy Opportunity Fund, LP and other limited partners challenged a 2021 forced sale of Primexx Energy Corporation to Callon Petroleum, invoking drag-along provisions in the partnership agreement. The limited partners—sophisticated private equity-backed investors—argued that the general partner breached fiduciary duties by failing to conduct an adequate sale process and obtain fair value, despite the partnership agreement's explicit authorization of drag-along rights without additional procedural requirements.

The Dispute

The litigation centered on whether limited partners could impose common law duties of loyalty and care that effectively override contractual drag-along provisions. The limited partners contended that even where drag-along rights exist, the general partner must demonstrate fair dealing through enhanced process requirements. The general partner moved for summary judgment, arguing the partnership agreement's unambiguous terms displaced default fiduciary duties and permitted the forced sale without additional procedural safeguards.

Separately, the parties disputed post-closing mechanics: the proper application of waterfall allocation provisions governing distribution of sale proceeds among equity classes, and the valuation methodology for a sidecar business entity whose value affected final distributions to limited partners.

The Court's Ruling

The Texas Business Court granted partial summary judgment for the general partner on duty of loyalty and duty of care claims related to the sale process itself. The court held that sophisticated limited partners cannot unilaterally impose enhanced process obligations beyond what the partnership agreement expressly mandates. Where drag-along provisions contain clear authorization for forced sales without procedural conditions, the court will enforce those terms as written.

However, the court denied summary judgment on two post-closing issues: the interpretation and application of waterfall allocation provisions, and the proper valuation of the sidecar business entity. These disputes involve questions of contractual interpretation and factual determinations regarding asset valuation that require trial-level development of the record.

Implications for O&G Practitioners

This decision reinforces the enforceability of clearly drafted drag-along provisions in private equity-backed energy transactions. General partners can rely on unambiguous contractual terms to execute forced sales without exposing themselves to common law fiduciary duty claims demanding enhanced procedural requirements. The ruling emphasizes that sophisticated investors will be held to the terms they negotiate, particularly where partnership agreements explicitly address the scope of drag-along rights and do not impose additional process requirements.

The denial of summary judgment on waterfall and valuation issues highlights the importance of precise drafting in distribution provisions. Even where sale process claims fail, ambiguities in allocation mechanics or valuation methodologies can generate costly post-closing disputes requiring full trial proceedings.