Pursue Energy Corp. v. Abernathy
77 So. 3d 1094
| Miss. | 2011Background
- Shell built the Thomasville gas plant for $41 million to process sour gas, calculating costs via a two-part formula: capital investment plus return, and daily operating costs.
- Pursue later acquired Shell’s plant and related facilities for $28,130,000 but continued to use Shell’s $41 million investment figure in the formula.
- Pursue deducted processing costs from royalty payments and charged a pro rata share of the $41 million investment; Shell had recovered its investment by 1990.
- Sykes and others filed suit in 2000 seeking an accounting and damages for unreasonable deductions; bankruptcy stayed and later allowed proceedings.
- Chancellor found Shell investment had been previously recovered, and Pursue’s continuing to deduct the investment portion was unreasonable, leading to damages calculation and other rulings that were reviewed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can an oil company deduct reasonable processing and investment costs from royalty payments? | Pursue: deductions for costs including investment are permissible. | Shell/Plaintiffs: deductions must be reasonable and tied to processing value. | Yes; deductions for reasonable processing and investment costs are allowed. |
| Whether Mississippi Code 53-3-39 applies to damages and prejudgment interest calculations | Pursue: 53-3-39 applies to prejudgment interest. | Piney Woods guidance controls—argues not applicable. | 53-3-39 applies; prejudgment interest must be eight percent simple (not compound) under the statute. |
| Whether the relationship between Pursue and the royalty owners was fiduciary | Sykes: fiduciary duty existed due to lessee-royalty owner relationship. | Relationship is contractual, not fiduciary. | Not fiduciary; relationship is contractual. |
| Whether the Sykes plaintiffs are barred by res judicata | Piney Woods precludes duplicative costs. | Different issues and timeframes, not identical. | Res judicata does not bar the claims. |
| Punitive damages versus attorneys’ fees | Punitive damages warranted by willful, malicious conduct. | Punitive damages not proven; attorneys’ fees may stand in lieu. | Punitive damages proper but awarded as attorneys’ fees in lieu of punitive damages. |
Key Cases Cited
- Piney Woods Country Life School v. Shell Oil Co., 726 F.2d 225 (5th Cir. 1984) (royalty deductions must be reasonable; processing costs may be deducted from values reflecting processing)
- Piney Woods Country Life Sch. v. Shell Oil Co., 218 F.3d 744 (5th Cir. 2000) (damages hearing on whether deductions are excessive; distinction with prior ruling)
- First National Bank of Jackson v. Pursue Energy Corp., 799 F.2d 149 (5th Cir. 1986) (Section 53-3-39 applicable to prejudgment interest on withholdings)
- Nygaard v. Getty Oil Co., 918 So.2d 1237 (Miss. 2005) (oil-and-gas lease relationship is contractual, not fiduciary)
- Aqua-Culture Technologies Ltd. v. Holly, 677 So.2d 171 (Miss. 1996) (attorney fees may substitute for punitive damages in appropriate cases)
- Guardianship of Duckett v. Duckett, 991 So.2d 1165 (Miss. 2008) (prejudgment interest discretion under 75-17-7; discusses simple vs compound)
- Dedeaux Utility Co., Inc. v. City of Gulfport, 938 So.2d 838 (Miss. 2006) (limits on interest calculation; actuarial method vs simple)