MCA Chapter 58

in effect

Miss. Code Ann. § 75-58-1 Short title.

This chapter shall be known as “The Mississippi Natural Gas Marketing Act.”

Miss. Code Ann. § 75-58-3 Legislative intent and purpose.

It is the intent and purpose of this chapter to protect the rights of all owners of natural gas wells and wells producing casinghead gas; to afford all such owners an opportunity to extract their fair share of gas; to provide that the operator of a well producing natural gas and a well producing casinghead gas shall market the gas of all owners thereof except the gas owned by an owner electing that the operator shall not market his gas; to hold operators acting in compliance with the provisions of this chapter harmless from any suit at law or in equity related hereto, and to provide that an operator shall be entitled to recover marketing expenses and transportation costs associated with the sale or transportation of an owner’s gas. It is not the intent or purpose of this chapter to create and this chapter shall not be construed to create a partnership or association for state or federal taxation purposes.

Miss. Code Ann. § 75-58-5 Applicability of chapter; safe harbor provision.

Applicability. — This chapter shall apply to all natural gas wells and wells producing casinghead gas in Mississippi which are permitted on and after July 1, 1991. This chapter shall also apply to wells in a pool unitized pursuant to Section 53-3-7 or Section 53-3-101 et seq., Mississippi Code of 1972, after July 1, 1991, and shall not be applicable to natural gas wells or wells producing casinghead gas in a pool unitized prior to July 1, 1991, unless the operator desires to comply with the chapter pursuant to Section 75-58-5(b). Nothing contained in this chapter shall prohibit or inhibit the unitization of a field or pool. Safe Harbor Provision. — The operator of a well permitted prior to July 1, 1991, or the operator of a field or pool unitized prior to July 1, 1991, pursuant to Section 53-3-7 or Section 53-3-101 et seq., Mississippi Code of 1972, who desires to comply with the provisions of this chapter may bring such well or unitized field or pool within the provisions of this chapter by giving all non-operators notice of his intent to comply with the provisions of this chapter. Unless a non-operator so notified delivers to the operator’s office a written notification rejecting such an offer to have the provisions of this chapter held applicable to his proportionate interest within thirty (30) days after the operator has placed such notice in the United States mail postage prepaid, the provisions of this chapter and all benefits accruing to an operator hereunder shall be deemed applicable to such non-operator’s proportionate interest. Only the operator or successor operator of a well permitted prior to July 1, 1991, or field or pool unitized prior to July 1, 1991, may initiate such action as is necessary to bring such well or unitized field or pool within the provisions of this chapter. In no event shall this provision be deemed to affect any existing contract between the owners of a well or unitized field or pool.

Miss. Code Ann. § 75-58-7 Definitions.

For purposes of this chapter, the following terms shall have the meanings ascribed to them herein: “Board” shall mean the State Oil and Gas Board as created by Section 53-1-5 et seq., Mississippi Code of 1972. “Person” shall mean any individual, corporation, partnership, association, or any state, municipality, political subdivision of any state, or any agency department, or instrumentality of the United States, or any other entity, or any officer, agent, or employee of any of the above. “Oil” shall mean crude petroleum oil and all other hydrocarbons, regardless of gravity, which are produced at the well in liquid form by ordinary production methods and which are not the result of condensation of gas. “Gas” shall mean all natural gas, whether hydrocarbon or nonhydrocarbon or any combination or mixture thereof, including hydrocarbons, hydrogen sulphide, helium, carbon-dioxide, nitrogen, hydrogen, casinghead gas, occluded natural gas from coal seams, and all other hydrocarbons not defined as oil in Section 75-58-7(c) above. For the purposes of this chapter only, the term gas shall not include gas which is consumed in operations on a well or which is vented or lost. “Operator” is defined as the party designated by the Board as the operator of the well. “Non-operator” shall mean an owner, as defined by Section 53-1-3, Mississippi Code of 1972, who is not designated as the operator. “Consenting non-operator” is defined as a non-operator who has affirmatively elected to have the operator market such non-operator’s share of gas or is deemed to have consented to have the operator market such non-operator’s share of gas. “Nonconsenting non-operator” is defined as a non-operator who has affirmatively elected to market his share of gas and not have the operator market his share of gas. “Net proceeds” is defined as the total amount of money received from the sale of gas, less (i) costs incident to marketing and transportation of gas incurred by the operator to third parties and (ii) severance, privilege, maintenance or other taxes measured on or by production. “Direct cost” is defined as a cost actually incurred by the operator in the marketing of gas from a well. “Balancing party” shall include operators and non-operators as defined in this chapter as well as other interest owners who have exercised a right to take production in kind. “Underproduction” shall mean the volumetric amount by which the volume of gas taken by a balancing party in any month is less than such party’s entitlement for such month. “Overproduction” shall mean the volumetric amount by which the volume of gas taken by a balancing party in any month is greater than such party’s entitlement for such month. “Cumulative underproduction” shall mean the total underproduction attributable to a balancing party, as adjusted so as to reflect any cash balancing as provided by Section 75-58-13(c), and any makeup gas taken for volumetric balancing. “Cumulative overproduction” shall mean the total overproduction attributable to a balancing party, as adjusted so as to reflect any cash balancing as provided by Section 75-58-13(c), and any makeup gas taken for volumetric balancing. “Underproduced party” shall mean a balancing party credited with cumulative underproduction. “Overproduced party” shall mean a balancing party charged with cumulative overproduction. “Makeup gas” shall mean the volume of gas an underproduced party is entitled to take for volumetric balancing, in addition to its entitlement. “Entitlement” shall mean a balancing party’s percentage interest in the well multiplied by the well’s actual production of gas. “Long-term contract” is a gas purchase agreement which contractually commits gas for a term greater than one (1) year from the date of initial deliveries of gas thereunder; “Short-term contract” is a gas purchase agreement other than a long-term contract; “Qualifying long-term contract” is an offer by a buyer of gas to enter into a long-term contract with consenting non-operators which contains the same (i) pricing conditions, (ii) buyer purchase obligations and (iii) expiration date as the long-term contract executed by the operator.

Miss. Code Ann. § 75-58-9 Duties and responsibilities of operators marketing gas of non-operators; payments.

On or before ten (10) days after the filing with the board of the initial test results for a gas well or oil well capable of producing gas in commercial quantities, the operator shall furnish, by United States mail, postage prepaid, a copy of the initial test results for the well filed with the board to all non-operators owning a record title interest in the production unit for such well as of a date not more than ninety (90) days prior to the filing with the board of the application to drill. Upon furnishing the initial test results to all non-operators, the operator shall file with the board a list of all non-operators. Should the address of any non-operator be unknown to the operator after diligent search and inquiry, the operator shall so notify the Board, and any such non-operator shall be deemed for all purposes of this chapter as a consenting non-operator. The operator shall market the gas of all non-operators in a well subject to this chapter except as follows: (1) any non-operator (a “nonconsenting non-operator”) who delivers a written notification to operator’s office within thirty (30) days after the mailing to such non-operator the test results required by subsection (a) of this section that such non-operator will be responsible for and will market its share of gas and (2) as otherwise provided herein. After the thirty (30) day notice period has expired, operator shall send a notice to the board identifying which non-operators have elected to be or have been deemed to be consenting non-operators and which non-operators have elected to be nonconsenting non-operators. The operator shall have no obligation to market the gas attributable to any nonconsenting non-operator. In fulfilling operator’s responsibility to market consenting non-operator’s gas pursuant to subsection (b) of this section, operator has the continuing option of marketing consenting non-operator’s share of gas pursuant to a short-term contract or submitting a qualifying long-term contract to the consenting non-operators. Should operator desire to market consenting non-operators’ share of gas under a long-term contract in a well which is subject to this chapter on or after the date upon which the application to drill the well is filed with the board, operator shall submit by United States mail, postage prepaid, to the consenting non-operators a qualifying long-term contract. Should a consenting non-operator not accept such offer by executing and delivering to the operator at operator’s office the qualifying long-term contract within thirty (30) days after the date that operator placed the qualifying long-term contract in the United States mail, then and in such event, the offer to purchase shall be deemed to have expired and such consenting non-operator shall be deemed to have become a non-consenting non-operator at the expiration of such thirty (30) day period, and operator shall thereafter have no further obligation to market the gas owned by that consenting non-operator. The operator shall furnish to the buyer the qualifying long-term contract executed by the consenting non-operators, and shall furnish to the Board a notice designating those consenting non-operators which have become nonconsenting non-operators. Save and except where the buyer of gas is contractually obligated to operator to offer a qualifying long-term contract to the consenting non-operators, nothing herein contained shall be deemed to constitute an obligation on the part of any buyer of gas to offer a qualifying long-term contract. This chapter shall not be construed to enlarge or alter in any way any purchaser’s obligations under any gas purchase contract. In marketing consenting non-operator’s share of gas under a short-term contract, operator shall market the gas of the consenting non-operators upon such terms and conditions as a reasonably prudent operator would market such gas; provided, however, that in fulfilling such obligation, operator shall incur no liability to the consenting non-operator save and except as to acts of willful misconduct or gross negligence. In the event operator intends to market consenting non-operator’s share of gas under a short-term contract with an affiliate or subsidiary of operator, operator shall so notify the consenting non-operators. Any consenting non-operator shall have the right to become a nonconsenting non-operator by delivering to operator a written notice thereof at least sixty (60) days prior to any yearly anniversary of the date that the operator filed the initial test results with the Board. Such an election shall become effective on the later to occur of: (i) the next anniversary of the date that the operator filed the initial test results with the Board, or (ii) the expiration date of the gas purchase agreement then covering the consenting non-operator’s share of gas. Operator shall thereafter have no further obligation to market the gas owned by any consenting non-operator electing to become a nonconsenting non-operator. Operator shall furnish to the Board a notice identifying any consenting non-operator who has elected to become a nonconsenting non-operator. Should a change of operator occur with respect to a well which is subject to this chapter, the successor operator shall furnish to all consenting non-operators within thirty (30) days after assuming operations of such well a notice of change of operator. Any consenting non-operator shall have the right to become a nonconsenting non-operator by furnishing to the successor operator a written notice advising the successor operator of same within thirty (30) days after the operator places in the United States mail, postage prepaid, the notice required by this subsection (e), with such consenting non-operator to become a nonconsenting non-operator effective on the later to occur of (i) the expiration date of the gas purchase agreement then covering such consenting non-operator’s share of gas, or (ii) the first day of the second month after the date of the consenting non-operator’s written notice to the successor operator. Operator shall send a notice to the Board identifying any consenting non-operators who have elected to become nonconsenting non-operators. As to the remaining consenting non-operators, the successor operator shall market the gas of such consenting non-operators in accordance with the terms and provisions of this chapter. The net proceeds from the sale of the consenting non-operator’s share of gas production shall be paid by the buyer to the operator. The operator shall not be responsible for the payment of any taxes or encumbrances with respect to the net proceeds except as specifically provided herein. The operator shall pay, for and on behalf of itself and the consenting non-operators, any severance, privilege and/or maintenance taxes due on the production of gas marketed by the operator. Save and except as otherwise provided in this chapter, or by law, the net proceeds derived from the first sale of the consenting non-operator’s share of gas shall be paid by the operator to the consenting non-operators within one hundred twenty (120) days after the date of receipt by the operator of the net proceeds derived for such first sale of production, and thereafter no later than sixty (60) days after the date of receipt by the operator of the net proceeds for subsequent production of the consenting non-operator’s share of gas. Save and except as provided by Section 53-3-7, Mississippi Code of 1972, the consenting non-operators shall be and shall remain responsible for the payment of any proceeds due any royalty, overriding royalty and/or production payment which burden and/or encumber the interest of such consenting non-operators, and the operator shall have no liability to any owner of royalty, overriding royalty and/or production payment which burdens and/or encumbers the interest of the non-operators where the operator pays the net proceeds derived from the sale of the consenting non-operator’s share of gas as herein provided. The operator and the consenting non-operators shall have no liability to any owner of royalty, overriding royalty and/or production payment which burdens and/or encumbers the interest of the nonconsenting non-operators. A non-operator’s rights under this chapter shall not be affected by his status as a consenting or nonconsenting owner under Section 53-3-7, Mississippi Code of 1972; provided, however, during any period of the recovery of cost or alternate charges, the share of production from the pooled unit well attributable to the nonconsenting owner’s nonconsenting interests therein shall be delivered to his purchaser or market, if any, with the proceeds received therefrom to be paid by the purchaser to the operator for the account of the operator and the appropriate consenting owners; if, however, the nonconsenting owner does not have a purchaser or market which is taking the production, then such share of production shall be sold by the operator to the operator’s purchaser or market, with the proceeds received therefrom to be paid by the purchaser to the operator for the account of the operator and the appropriate consenting owners.

Miss. Code Ann. § 75-58-11 Duties, responsibilities, etc. of operators and non-operators; relationship between operators and non-operators.

Each consenting non-operator shall be responsible for and shall pay to the operator that consenting non-operator’s share of direct and actual marketing expenses relating to the marketing of consenting non-operator’s gas, including, but not limited to, capital expenses, third-party transportation costs, pipeline penalties, fines, refunds, reimbursements, adjustments, direct costs, and contractual liabilities to third parties. Consenting non-operators shall not be liable for damages resulting from operator’s gross negligence or willful misconduct in fulfilling operator’s obligations under this chapter. Nothing in this chapter shall be construed so as to impose any liability upon consenting non-operators except as provided by this chapter. In addition, each consenting non-operator shall pay to operator a marketing fee in an amount equal to two and one-half percent (2-1/2%) of consenting non-operator’s monthly net proceeds; provided, however, the sum of all marketing fees received by operator from all consenting non-operators in a well shall not exceed Five Hundred Dollars ($500.00) per month, per well, as adjusted for inflation as herein provided. If the sum of the marketing fee, when based upon the above percentage of net proceeds, would exceed the limitation herein provided, as adjusted for inflation, then each consenting non-operator’s marketing fee shall be determined by dividing its percentage ownership in the well by the total percentage ownership of all consenting non-operators in that well, and multiplying the resultant number by the currently effective well limitation. The well limitation of Five Hundred Dollars ($500.00) per month, per well shall be effective through January 31, 1993. On February 1, 1993, and each February 1 thereafter, the well limitation shall be adjusted for inflation by dividing the Consumer Price Index for All Urban Consumers (as published by the United States Department of Labor) for the prior calendar year by the same Consumer Price Index for calendar year 1991, and multiplying the resultant number by Five Hundred Dollars ($500.00). This calculation shall be performed and results published by the Mississippi Oil and Gas Board. At the election of operator, operator may deduct the marketing fees prior to paying the net proceeds to the consenting non-operators, or operator may submit invoices to the consenting non-operators for the marketing fees. If the operator has obtained a transportation contract with a third party prior to the date on which the application to drill is filed with the board and said contract contains a capacity or volume limitation, then the operator has the option of (1) having the consenting non-operator participate in this preexisting transportation contract (however, if the preexisting transportation contract contains a discount to the operator which is not generally available, then the operator may charge the consenting non-operator the undiscounted transportation tariff applicable to the transaction) or (2) make a good faith effort to secure a separate transportation contract for consenting non-operator’s share of gas. If the operator has obtained a transportation contract with a third party prior to the date on which the application to drill is filed and said contract contains a provision which prevents operator from shipping consenting non-operator’s gas under that transportation contract, then operator shall make a good faith effort to secure a separate transportation contract for consenting non-operator’s share of gas. If the operator secures a separate transportation contract for consenting non-operator’s share of gas, then consenting non-operator shall be liable to the operator for the actual cost of securing the separate transportation contract. This chapter shall not be construed as imposing fiduciary duties upon an operator marketing the gas of a consenting non-operator or creating a fiduciary relationship between the operator and a consenting non-operator. An operator shall in no event be held liable to any non-operator for any liability, damage, loss, cost or expense relating to the marketing of gas resulting from or arising out of any act or omission of the operator when the operator is acting in compliance with the terms and conditions of this chapter, except in the case of fraud, gross negligence or willful misconduct on the part of operator. Any sums due under this chapter from consenting non-operators to operator shall be paid to operator within thirty (30) days after receipt of demand from operator. In addition to the rights of the operator to collect all sums due, the operator has the right to deduct from the net proceeds received for any consenting non-operator’s share of gas produced from a well, any amount owed with respect to that well by that consenting non-operator by virtue of this chapter.

Miss. Code Ann. § 75-58-13 Gas imbalances; operator statements; cash balancing; oil and other minerals; costs and expenses; deliverability tests.

Gas Imbalances. — Notwithstanding anything to the contrary in this section, if any balancing party takes and disposes of less than its entitlement during any calendar month, then the volume not taken by such party may be taken by any other party or parties as allocated by the operator. Operator Statements. — Not less frequently than quarterly, the operator shall furnish the balancing parties a written statement showing (a) the total volume of gas taken by each party during the month or months being reported; (b) the makeup gas taken by each party during the month or months; (c) the cumulative volume of gas taken by each party as of the end of that month or months; and (d) the cumulative overproduction or cumulative underproduction, if any, of each party for the time period being reported, as adjusted by any cash balancing as provided by Section 75-58-13(c). The operator statement shall be current as of the production month which falls two (2) months prior to the time the operator statement is issued. Makeup gas taken by an underproduced party shall be credited to the account of the underproduced party in the order of accrual of underproduction. Cash Balancing. — Any overproduced party has the right, but not the obligation, exercisable not more frequently than once a year, to cash balance its cumulative overproduction with underproduced parties. After permanent cessation of production, each overproduced party shall be required to cash balance with underproduced parties. In order to cash balance, the overproduced party shall first furnish a statement to the underproduced parties and to the operator showing the volume and value of the cumulative overproduction, based upon the net proceeds actually received by the overproduced party for the cumulative overproduction, less (i) two and one-half percent (2-1/2%) of the net proceeds received by the overproduced party for the cumulative overproduction, and (ii) the direct and actual marketing expenses and transportation costs attributable to the cumulative overproduction. Within sixty (60) days after issuance of the statement as described above, the overproduced party shall pay each underproduced party in accordance with the statement and without interest. To the extent any values used to calculate a cash settlement hereunder are subject to a refund by the overproduced party pursuant to law, regulation or governmental order, the underproduced party receiving such cash settlement shall, prior to payment thereof, agree in writing to indemnify the overproduced party against the underproduced party’s proportionate part of any refund, including interest which the overproduced party shall be required to make. Volumetric Balancing. — Each underproduced party shall have the right to take makeup gas during a month after first giving the operator and all other non-operators written notice at least fifteen (15) days before the beginning of a calendar month. The right of all underproduced parties to take makeup gas shall be limited to the lesser of (1) ten percent (10%) of the overproduced party’s entitlement of gas or (2) fifty percent (50%) of the underproduced party’s interest in the well. If two or more underproduced parties desire to take makeup gas during the same month and the combined volume they desire to take exceeds the volume available as makeup gas, then the underproduced parties shall share the makeup gas in proportion to their cumulative underproduction. In no event shall any overproduced party be allocated less than ninety percent (90%) of that overproduced party’s entitlement. Makeup gas taken by an underproduced party shall be credited to the account of the underproduced party in the order of accrual of underproduction. Oil and Other Minerals. — Regardless of the volume of gas actually taken by any balancing party, such party shall share in the production of oil, condensates and other minerals separated in the facilities operated for the production of oil and gas from the well. Operator and non-operators shall share in and own the production of all oil as produced and saved, notwithstanding such party’s status as an overproduced party or underproduced party. Costs and Expenses. — Regardless of the volume of gas actually taken by any balancing party, such party shall bear costs and expenses as otherwise provided in agreements between the parties or as provided by law. Deliverability Tests. — At the request of any balancing party, operator shall, subject to operational constraints, produce the entire well stream for a deliverability test not to exceed seventy-two (72) hours in duration if required under such requesting party’s gas purchase agreement. The gas produced and delivered during such deliverability test shall be allocated to the balancing parties on the basis of their entitlement, provided, however, that should any purchaser of gas owned by the balancing parties not requesting such deliverability test fail or refuse to accept such gas or any part thereof, then and in such event, the gas not so taken shall be allocated as overproduction to the balancing party requesting the deliverability test.

Miss. Code Ann. § 75-58-15 Interest of payments; interpleader actions; jurisdiction over disputes.

Interest. — Should any person fail to make any payment required under this chapter when the same is due, interest shall accrue at the rate of twelve percent (12%) per annum from the date due until paid, provided, however, should operator fail to remit payment of net proceeds to any consenting non-operator within the time herein provided because the title of such consenting non-operator is not marketable, the rate of interest as to the net proceeds attributable to such consenting non-operator shall be five percent (5%) accruing from the date when due until the title is rendered marketable. Marketability of title shall be determined in accordance with the then current legally recognized real property law governing title to oil and gas interests. Where the title to a balancing party’s interest is not marketable, and where all the claimants to such interest are not consenting non-operators, operator may refuse to produce and deliver any gas attributable to such interest until such time as the title is rendered marketable. Gas attributable to such interest shall be allocated as underproduction. Interpleader. — An operator shall have the right to initiate an action of interpleader where the operator may be exposed to double or multiple liability in the payment of net proceeds. Upon deposit with the court of the net proceeds plus accrued interest thereon as of the date of such deposit as provided by this chapter, operator shall thereafter be relieved of all liability relating to the net proceeds and accrued interest so deposited with the court. Operator shall be entitled to deduct and/or receive from the net proceeds and accrued interest all reasonable costs incurred by operator in such action of interpleader. An overproduced party desiring to cash balance shall also have the right to initiate an action of interpleader where such overproduced party may be exposed to double or multiple liability in the payment of proceeds for cash balancing. Upon deposit with the court of the proceeds for cash balancing, such overproduced party shall thereafter be relieved of all liability relating to such proceeds so deposited with the court. The overproduced party shall be entitled to deduct and/or receive from the proceeds for cash balancing all reasonable costs incurred by such overproduced party in such action of interpleader. Jurisdiction Over Disputes. — Jurisdiction and venue for any proceeding brought pursuant to this chapter shall be in the Chancery Court of the First Judicial District for Hinds County, Mississippi, or in the chancery court of any county in which all or part of the unit for the well is situated.

Miss. Code Ann. § 75-58-17 Right of operators and non-operators to enter into private agreements; effect of agreements.

Nothing in this chapter shall be construed to limit the right of operators and non-operators to enter into agreements providing for marketing of gas, marketing fees, balancing or any other matter addressed by this chapter. Any such valid agreement shall supersede the provisions of this chapter to the extent said agreement addresses matters covered in this chapter.

Miss. Code Ann. § 75-58-19 Disclosure to third parties by non-operators of documents or information received from operators.

All non-operators who receive information relating to a gas purchase agreement from an operator in connection with or as required by this chapter shall hold and treat each document as confidential and shall not disclose such documents or the terms thereof to third parties, except those persons required to see said documents in order to decide whether a non-operator should become a consenting non-operator or nonconsenting non-operator. The provisions of this Section 75-58-19 shall have no application to any gas purchase agreement executed by the non-operator.

Miss. Code Ann. § 75-58-21 Effect of chapter upon pre-existing contractual rights and duties.

This chapter does not affect contractual rights and duties existing before July 1, 1991.