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

Supreme Court of Mississippi, En Banc

January 22, 2015

TELLUS OPERATING GROUP, LLC
v.
MAXWELL ENERGY, INC

Page 256

COURT FROM WHICH APPEALED: JEFFERSON DAVIS COUNTY CHANCERY COURT. DATE OF JUDGMENT: 01/31/2012. TRIAL JUDGE: HON. DAVID SHOEMAKE.

FOR APPELLANT: GLENN GATES TAYLOR, CHRISTY M. SPARKS.

FOR APPELLEE: HEATHER WHITE MARTIN, MALCOLM T. ROGERS.

CHANDLER, JUSTICE. DICKINSON AND RANDOLPH, P.JJ., LAMAR, KITCHENS, PIERCE, KING AND COLEMAN, JJ., CONCUR. WALLER, C.J., NOT PARTICIPATING.

Page 257

ON WRIT OF CERTIORARI

CHANDLER, JUSTICE.

¶1. In this case, we review a challenge to a Mississippi Oil and Gas Board pooling order force-integrating various owners' interests in a proposed drilling unit. See Miss. Code Ann. § 53-3-7 (Rev. 2003). We hold that the Board's order was supported by substantial evidence. We also find that one owner's attempt to voluntarily integrate his interest within twenty days of the Board's pooling order did not satisfy Section 53-3-7(2)(g)(iii).

FACTS AND PROCEEDINGS BELOW

¶2. In 2006, Tellus Operating Group, LLC, sought to integrate the interests of various owners for the purpose of drilling a well unit in Jefferson Davis County. In accordance with its statutory duty to make a good-faith effort to negotiate the voluntary integration of the owners' interests on reasonable terms, Tellus mailed option forms to the owners in June and July of 2006. The three options for voluntary integration were to lease the interest, farm out the interest, or participate as a working interest owner in the costs and risks of drilling, developing, and operating the well by agreeing in writing to pay the owner's share of the actual costs of drilling, testing, completing, equipping, and operating the well. For the third option of participation, the letter accompanying the option form indicated that the agreement in writing must be evidenced by execution of an Authorization for Expenditure (" AFE" ) and Operating Agreement (" JOA" ). It further included a summary of some of the terms of the JOA. Upon election of that option, the AFE and JOA would be prepared and sent to the owner for execution.[1]

¶3. D. E. Maxwell, owner and president of interest owner Maxwell Energy, Inc., checked the third option to participate in the costs of developing the unit. However, he struck through the language on the option form which stated that owner would participate " in accordance with the terms

Page 258

and conditions set out in paragraph (3) of the offer in the attached letter," and wrote in by hand that he would participate " as to Maxwell Energy, Inc.'s proportionate share of .00971714 [%] in accordance with applicable law set out in Miss. Code 53-3-7." He did not execute the AFE and JOA.

¶4. After allowing for the statutorily required ninety days to pass after submitting the options to the owners, Tellus petitioned the Mississippi Oil and Gas Board to integrate the interests of the owners, including a force-integration of Maxwell Energy's interest as a nonconsenting owner subject to alternate-risk penalties.[2] Twenty-one owners had elected participation and signed off on the terms of the AFE and JOA. With ninety-six percent of the owners' interests voluntarily integrated, Maxwell Energy challenged the pooling petition, seeking recognition that it had consented to be a participating owner, that it wanted more time to negotiate a more favorable JOA, and that it was willing ...


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