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The Use of Warranties in Oil and Gas Property Purchase and Sale Agreements

The handshake deal was once common in the oil and gas industry. Buyers and sellers of oil and gas properties worked out the terms of their transactions and were bound by their word. But the handshake deal has all but gone away; and most deals are now consummated in a purchase and sale agreement, replete with a multitude of provisions, caveats, and boilerplate language. And although the warranty section of the purchase and sale agreement is an important part of the transaction, many parties remain unaware of the terms of the warranties provided or disclaimed in their agreements. However, a knowledgeable practitioner can protect himself and his client, whether as a purchaser or a seller. This article discusses common warranties in purchase and sale agreement regarding oil and gas properties (“PSA”) and suggests considerations in the negotiations between purchasers and sellers about warranties to provide or disclaim. It is not, nor is it intended to be comprehensive of all issues. It is limited to common warranties and disclaimers that apply to the purchase and sale of onshore oil and gas properties in Texas. It does not discuss warranties and representations in oil and gas leases. The article begins by focusing on the nature and classes of PSA warranties in Section II. It then covers common warranties in PSAs for the sale of oil and gas real properties in Section III. Section IV discusses express and implied warranties in PSAs for the sale of personalty. Section V discusses the difference between warranties and representations. Section VI covers negotiation of PSAs between sellers and purchasers. And Section VII offers the authors’ thoughts and conclusions. Finally, Appendix A includes examples of warranty language, while Appendix B provides a list of common representations and warranties included in PSAs.