Exxon Corp. v. Crosby-Mississippi Resources, 154 F.3d 202 (5th Cir. [Miss.] 1998), involves an exploration agreement dispute between Crosby-Mississippi Resources, Ltd. (CMR) and Exxon. CMR claimed that Exxon had not timely commenced the drilling of a development well. Exxon had previously proposed and drilled an exploratory well; CMR had elected not to participate. Since CMR had non-consented the exploratory well, under the terms of the agreement, Exxon was entitled to earn CMR's interest in the exploratory well. The dispute arose because Exxon was also entitled to earn CMR's interest in subsequent offset development wells, if Exxon "commenced drilling" the development well within 180 days after the completion of the prior well. CMR contended that the "drilling operations" commenced within 180 days, i.e., the drilling of a hole for casing (for which Exxon utilized a small truck mounted "auger rig" ), were merely preparatory to the actual drilling operations (for which Exxon had to utilize a larger drilling rig). The U. S. Fifth Circuit Court of Appeals, applying Mississippi law, disagreed and found those drilling operations had been timely commenced. The court reasoned that the casing was an "essential" part of the well and that Exxon had no choice but to drill the hole for the casing.
In its review of the facts, the court noted that "almost from the beginning the parties were in disagreement over a number of issues." The court did not elaborate on whether the disagreements were caused by the terms of the agreement, the parties, or other factors. However, this decision provides the opportunity to stress a point about exploration agreements without commenting upon the particular agreement or the parties involved. Landmen and attorneys often rely upon "standard" form agreements (e.g., Bath Oil, Gas and Mineral Lease forms, the AAPL 610-1982, and 1989 Model Form Operating Agreements). However, there are no standard form exploration agreements, because every deal is different. As a result, exploration agreements frequently are incomplete, failing to address likely events, and parties often fail to follow the terms upon which they have agreed. As a practical matter, one cannot (and would not want to) envision and address every possible scenario. However, proper structuring up front, with due consideration for the type of deal involved and the likely scenarios to result, and the proper monitoring of contractual obligations, can go a long way towards avoiding unnecessary and counterproductive disagreements and litigation.