Strata Production Co. v. Mercury Exploration Co.

Strata Production Company (plaintiff) assembled a multi-tract drilling prospect and signed a farmout agreement with Mercury Exploration Company (defendant) on August 28, 1991, under which Mercury represented it owned 100 percent of the working interest in its lease and would assign that interest to Strata once Strata drilled a test well within 120 days, an option Strata paid no consideration for. In furtherance of the broader prospect, Strata drilled a well on a different tract on October 29, 1991; shortly after, on November 10, Strata discovered Mercury didn't actually own 100 percent of the working interest in its own lease. Strata nonetheless began drilling on the Mercury tract on January 10, 1992, thereby performing under the agreement, and then sued Mercury for breach when it couldn't deliver the full working interest. The trial court found for Strata, and Mercury appealed, arguing the agreement was a freely revocable unilateral contract that Strata's discovery of the title problem effectively modified.