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What Is a Choice of Law Provision in A Texas Oil or Gas Contract?

The Law Office of C. William Smalling, P.C. Feb. 5, 2019

Texas courts will generally enforce oil and gas contracts as they are written unless a violation of statutory law or public policy is present. This enforceability principle applies to choice of law provisions that are common in oil and gas contracts. Below is an overview of choice of law provisions in Texas oil and gas contracts.

Choice of Law Principles 

As noted above, choice of law provisions are common in Texas oil and gas contracts. Such provisions are included because, depending on the circumstances of a specific case, the laws of more than one state could potentially apply to a dispute. In order for two or more parties to understand their rights and obligations at the beginning of a contractual relationship, particularly one involving parties from different states, it is important to decide up front which state’s laws will apply in the event of a dispute. 

Court Examination of Choice of Law Provisions

When analyzing a choice of law provision, Texas courts determine whether a given state has a substantial or significant relationship to the incident or transaction and whether one state has a materially greater interest in having its laws applied than some other state. Specifically, when evaluating choice of law provisions, Texas courts examine the following three issues: 

  1. Would applying the chosen law contravene a fundamental policy of the state?

  2. Which state has a materially greater interest in the determination of the issue at hand?

  3. Which state has the more significant relationship to the transaction? In order to make this determination, Texas courts examine an additional five factors. These factors are: 

    a) The place where the contract was formed,
    b) The place where negotiations took place,
    c) The place where the contract was performed,
    d) The location of the subject matter of the contract, and
    e) The domicile and place of business of each of the parties to the contract 

Texas Oil and Gas Attorney

Oil and gas laws are always changing. Therefore, it’s imperative that those involved in the oil and gas industries have a reliable, knowledgeable, and experienced Texas oil and gas attorney to help guide them through the ever-changing Texas energy landscape. In the areas of oil and gas, it’s particularly important to ensure that all contracts are properly drafted, including choice of law provisions. Oil and gas contracts are sophisticated legal documents, and it’s important that they be drafted in a manner that ensures the rights and responsibilities of all parties involved. At the Law Office of C. William Smalling, P.C., we are highly experienced in the drafting and review of such contracts, including joint operating agreements, farmout agreements, master service agreements, drilling contracts, licensing agreements for use of seismic or technical data, and nondisclosure agreements. If you are in need of expert oil and gas legal representation in Texas, contact us today for a consultation.