In the context of farmout agreements, consent-to-assign provisions do not impose an implicit obligation on the consent holder to have a reasonable basis for exercising its rights, and a party may not rely on prior oral statements that directly contradict the unambiguous terms of the agreement to support a fraud claim.
In Barrow-Shaver Resources Company v. Carrizo Oil & Gas, Inc.,1 Barrow-Shaver Resources Company (BSR) and Carrizo Oil & Gas, Inc. (Carrizo) entered into a farmout agreement (the Farmout). BSR prepared the initial draft of the Farmout, which did not address BSR’s ability to assign its rights in the future. Thereafter, Carrizo submitted a revised draft that contained a consent-to-assign clause providing that the rights of BSR under the Farmout could not be assigned without Carrizo’s express written consent, “which consent shall not be unreasonably withheld.” In a subsequent draft, Carrizo deleted the “which consent shall not be unreasonably withheld” language. Though BSR insisted on reinserting the language, the parties ultimately executed the Farmout without doing so.2 During the course of negotiations, however, Carrizo assured BSR that Carrizo would consent if BSR chose to assign its rights in the future. Sometime after execution of the Farmout, Raptor Petroleum II, LLC (Raptor) approached BSR about receiving an assignment of BSR’s rights under the Farmout in exchange for $27 million. Initially, Carrizo declined to grant its consent but later offered to consent on the condition that BSR pay Carrizo $5 million, which BSR refused. Ultimately, Carrizo refused to consent to the proposed assignment, and Raptor’s offer fell through. BSR subsequently sued Carrizo for breach of contract and fraud.3