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Tellus Operating Group, LLC v. Maxwell Energy, Inc.

Court of Appeals of Mississippi

September 17, 2013

TELLUS OPERATING GROUP, LLC APPELLANT
v.
MAXWELL ENERGY, INC. APPELLEE

DATE OF JUDGMENT: 01/31/2012

JEFFERSON DAVIS COUNTY CHANCERY COURT HON. DAVID SHOEMAKE

GLENN GATES TAYLOR CHRISTY MICHELLE SPARKS ATTORNEYS FOR APPELLANT

MALCOLM T. ROGERS ATTORNEY FOR APPELLEE

BEFORE IRVING, P.J., CARLTON AND JAMES, JJ.

CARLTON, J.

¶1. Maxwell Energy Inc. (Maxwell) appealed to the Jefferson Davis County Chancery Court an order of the Mississippi State Oil and Gas Board (Board) that allowed the operator of a proposed oil and gas well, Tellus Operating Group LLC (Tellus), to charge statutory "alternate charges" to each "nonconsenting owner" of drilling rights, Maxwell included, who did not timely agree in writing to exercise one of its statutory options to participate in drilling a proposed unit well in search of oil and gas. The chancery court reversed the Board's order. The chancery court found the decision of the Board that Tellus offered Maxwell reasonable terms unsupported by substantial evidence, and that Maxwell had in fact agreed in writing to participate in the drilling of the well.

¶2. Tellus appeals, raising the following issues: (1) whether the Board's finding that Tellus satisfied the statutory requirements for the "force integration" of Maxwell's interest with alternate charges by offering reasonable terms is supported by substantial evidence, and (2) whether the Board correctly rejected Maxwell's argument that Maxwell could avoid alternate charges by simply sending Tellus a check for its share of the costs to drill the well, rather than agreeing in writing to the reasonable terms that are required by statute. Tellus alleges that because substantial evidence existed to support the Board's order, this Court should reverse the decision of the chancery court and reinstate the Board's order.

¶3. Finding no error in the chancery court's judgment, we affirm.

FACTS

¶4. On September 15, 2006, Tellus filed a petition with the Board to "force integrate, with alternate charges, a drilling unit for a proposed gas well, approve an exception well and an exception location, and grant related relief[.]" Tellus asked the Board to form the unit by force integrating all owners and interests and charge each nonconsenting owner of drilling rights in the unit the "alternate charges" allowed for by Mississippi Code Annotated section 53-3-7(2) (Rev. 2003). On October 10, 2006, Maxwell filed a notice of contest of Tellus's petition with the Board, alleging that Tellus failed to negotiate with Maxwell in good faith and asking the Board to remove Maxwell's interest from any alternate charges.

¶5. The Board heard Tellus's petition at its October 2006 meeting. Following the hearing, the Board entered an order on November 1, 2006, which granted Tellus's petition and determined that the evidence presented at the hearing established that Tellus satisfied all of the statutory requirements of section 53-3-7(2) to force integrate the unit and to allow Tellus to charge Maxwell and any other nonconsenting owners with statutory alternate charges.[1] The order concluded by stating:

Each non-consenting owner shall be afforded the opportunity to participate in the development and operation of the [w]ell in the pooled unit as to all or any part of said owner's interest on the same cost basis as the consenting owners by agreeing in writing to pay that part of the costs of such development and operation chargeable to said non-consenting owner's interest, or to enter into such other written agreement with the operator as the parties may contract, provided such ...

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