## Facts

- M & T, Inc. and W. C. McBride–Silurian Oil Co. and Fuel Resources Development Co. held working interests in oil and gas leaseholds in the Johnny Moore Area in Jackson County, Colorado.
- The parties operated under a 1973 agreement and a joint operating agreement governing exploration and development, including cost-sharing for drilling operations.
- For the No. 1-25 Unit Well, the operator circulated an Authorization for Expenditure (AFE) stating estimated drilling costs; Fuelco executed the AFE to participate.
- Actual drilling costs exceeded the AFE estimate before the well was completed, and Fuelco notified the operator it would not pay costs beyond the AFE amount.
- M & T and McBride continued operations and incurred additional costs; drilling was later terminated for economic reasons.
- Plaintiffs sought to recover Fuelco’s unpaid share of well costs (about $150,927), plus interest, attorney’s fees, and costs, in a bench trial on stipulated facts.

## Issues

1. Whether a non-operator who elected to participate by executing an AFE under a joint operating agreement could unilaterally “go non-consent” after expenditures reached the AFE estimate and avoid further drilling costs.
2. Whether the AFE estimate functioned as a contractual cap on the signatory’s cost obligation, or instead was an estimate within the operating agreement’s cost-allocation framework.
3. Whether implied contract and equitable estoppel principles required Fuelco to pay its proportionate share of all reasonable costs incurred after its participation election.

## Decision

- Judgment was entered for plaintiffs for Fuelco’s unpaid share of drilling costs (approximately $150,927), with appropriate interest and costs; the court also awarded attorney’s fees to the extent authorized by the governing agreements and applicable law.
- The court held Fuelco remained obligated to pay its proportionate share of the No. 1-25 Unit Well costs, including amounts exceeding the AFE estimate.
- The court rejected Fuelco’s attempt to invoke non-consent mid-operation based solely on the project exceeding the AFE estimate.

## Legal Principles

- A joint operating agreement governs participating parties’ cost obligations; an AFE issued and executed pursuant to that agreement is generally an estimating and election tool, not an independent contract that limits liability absent explicit limiting language.
- A non-consent election must be made when the proposed operation is presented under the operating agreement’s procedures; it cannot be asserted retroactively or mid-operation merely because costs exceed an AFE estimate.
- Where a party elects to participate and others reasonably rely on that election in continuing operations and funding costs, implied contract and equitable estoppel may bar the participating party from repudiating its proportionate cost responsibility.

## Conclusion

The court enforced the operating agreement’s cost-sharing structure and held that signing an AFE to participate did not allow Fuelco to cap its liability at the estimate or withdraw mid-drilling; Fuelco owed its proportionate share of the overruns incurred in the attempted completion of the well.


M & T, Inc. v. Fuel Res. Dev. Co., 518 F. Supp. 285 (D. Colo. 1981)