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

Court of Appeals of Mississippi

April 8, 2014

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

COURT FROM WHICH APPEALED: JEFFERSON DAVIS COUNTY CHANCERY COURT. DATE OF JUDGMENT: 01/31/2012. TRIAL JUDGE: HON. DAVID SHOEMAKE. TRIAL COURT DISPOSITION: REVERSED DECISION OF THE MISSISSIPPI STATE OIL AND GAS BOARD. DISPOSITION: AFFIRMED - 09/17/2013. MOTION FOR REHEARING FILED: 10/15/2013 - GRANTED.

REVERSED AND RENDERED.

FOR APPELLANT: GLENN GATES TAYLOR, CHRISTY MICHELLE SPARKS.

FOR APPELLEE: MALCOLM T. ROGERS.

CARLTON, J. LEE, C.J., IRVING AND GRIFFIS, P.JJ., BARNES, ISHEE, ROBERTS, MAXWELL, FAIR AND JAMES, JJ., CONCUR.

OPINION

Page 334

EN BANC

CARLTON, J.

¶1. The motion for rehearing is granted. This Court's original opinion is withdrawn, and this opinion is substituted in lieu thereof. This case involves our appellate judicial review [1] of an administrative executive board decision to determine if the Mississippi State Oil and Gas Board (Board) decision is supported by substantial evidence.[2]

¶2. Maxwell Energy Inc. (Maxwell) filed an appeal in the Jefferson Davis County Chancery Court of an order of the Board that allowed the operator of a proposed oil and gas well, Tellus Operating Group LLC (Tellus),[3] to charge statutory " alternate charges" to each " nonconsenting owner" of drilling rights, Maxwell included, who did not timely agree in writing to

Page 335

exercise one of its statutory options to participate in drilling a proposed unit well in search of oil and gas.[4] The chancery court reversed the Board's order, finding that the Board's decision that Tellus offered Maxwell reasonable terms was unsupported by substantial evidence, and that Maxwell had in fact agreed in writing to participate in the drilling of the well.

¶3. The current procedural posture before this Court reflects that Tellus then appealed, 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.[5]

¶4. We acknowledge that the procedural history of this matter before the Board reflects that in September 2006, Tellus filed a petition with the Board to form a drilling unit to drill a new well, the Chianti Well No. 1 (Chianti Well), in Jefferson Davis County, Mississippi. Maxwell owned drilling rights involved with the drilling and operation of the well and drilling unit at issue, but Maxwell gave no consent to Tellus to drill or operate a well involving its interests and drilling rights. Tellus then asked the Board to form the drilling unit pursuant to Mississippi's force-integration statute, Mississippi Code Annotated section 53-3-7 (Rev. 2003).[6] Tellus also requested the Board to authorize Tellus to charge each nonconsenting owner the alternate charges that are allowed by subsection (2) of section 53-3-7.[7] At the time Tellus filed its petition, the record reflects that the owners of approximately ninety-six percent of the drilling rights in the proposed drilling unit had agreed in writing to lease, to farm out, or to participate in the Chianti Well. However, Maxwell constituted a working-interest owner who had not agreed.[8]

Page 336

¶5. The Board found that Tellus offered Maxwell reasonable terms. However, upon Maxwell's appeal of the Board's decision, the chancellor disagreed, finding the terms unreasonable and reversing the decision of the Board. Upon finding that the chancellor applied an erroneous standard of review, thereby resulting in an arbitrary decision, we find error in the chancery court's judgment, and we reverse and render. See Tex. Pac. Oil Co. v. Petro Grande Inc., 328 ...


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