Western Gas Processors, Ltd. v. Woods Petroleum Corp.
| Citation | 15 F.3d 981 |
| Decision Date | 04 February 1994 |
| Docket Number | No. 92-1332,92-1332 |
| Parties | WESTERN GAS PROCESSORS, LTD., Plaintiff-Appellant, v. WOODS PETROLEUM CORPORATION, W.A. Moncrief, Jr., doing business as Moncrief Oil Company, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Gary C. Davenport (Eric A. Beltzer, also of McGloin, Davenport, Severson and Snow, with him on the briefs), Denver, CO, for plaintiff-appellant.
David W. Gratton (Thomas B. Humphrey, also of Evans, Keane, Koontz & Gibler, with him on the brief), Boise, ID, for defendants-appellees.
Before SEYMOUR, Chief Judge, and LOGAN and MOORE, Circuit Judges.
This diversity action originated in a dispute over payment under gas purchase and sales contracts between the purchaser, Western Gas Processors, Ltd. 1 (plaintiff) and the sellers, Woods Petroleum Corporation (Woods) and W.A. Moncrief, Jr. (Moncrief) (collectively, defendants). Plaintiff filed this declaratory judgment action seeking a determination that "Plaintiff has properly and correctly paid all amounts due by Plaintiff to Defendants pursuant to the subject Contracts." I Appellant's App. 4.
Defendants counterclaimed, asserting, inter alia, breach of contract in calculating payment for gas. 2 The parties filed cross-motions for partial summary judgment. The district court determined that the contracts were ambiguous and denied the motions. At trial the jury returned a special verdict in favor of defendants on the issue of calculation of payments for gas.
Plaintiff appeals, asserting that the district court erred in finding (1) the contracts ambiguous and therefore denying summary judgment, (2) sufficient evidence to support the jury verdict that plaintiff improperly calculated payments to defendants for residue gas, and (3) sufficient evidence to support the jury verdict that the nonoperating working interest owners were entitled to recovery under the same terms as defendants Woods and Moncrief. We consider each of these issues in turn.
In 1981, plaintiff entered into gas purchase and sales contracts with Woods and Moncrief. Plaintiff drafted the contracts. The contracts provided that plaintiff would purchase natural gas from defendants' wells in a Wyoming oil and gas field known as the Pine Tree Unit. Both contracts were later amended to include natural gas from additional wells. In addition, Woods, pursuant to a joint operating agreement with Moncrief and others who had ownership interests in gas and oil wells in the area (working interest owners), delivered and sold to plaintiff these working interest owners' gas. Whether that gas was purchased under the same terms and conditions as set forth in the Woods contract was disputed by the parties.
A dispute arose in 1986 concerning the price term of the contracts between plaintiff and defendants. The contracts contain several provisions that bear on determination of the price of residue gas. These provisions are as follow:
DEFINITIONS
....
3) "Gas plant" or "plant" means any facilities necessary for or pertaining to the extraction of liquefiable hydrocarbons which may include but is not limited to tanks, machinery, equipment, fixtures, appliances, pipe, valves, fittings and material of any nature or kind whatsoever, including appropriate storage, shipping, dehydration, gas treating, and delivery facilities for plant products; all buildings and structures of any kind whatsoever located, or to ....
be located, on the site or sites at which the compressing and processing facilities of Processor are located, all easements pertaining to such site or sites and operation of the plant, and any and all other facilities and appurtenances located, or to be located, on or away from such site or sites deemed by Processor to be necessary for the successful operation of the plant, and any related gas gathering and compression systems, or return fuel systems 3 are also included in this definition.
5) "Residue Gas" means that portion of the gas which remains after shrinkage due to any and all of following 1) recovery of plant products, 2) plant fuel requirements, and 3) normal losses in plant operations and 4) acid gas removal.
....
All gas volumes delivered hereunder shall be measured by an orifice meter or meters of standard make....
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Representative determinations for hydrocarbon content shall be determined by gas chromatography....
BTU values per cubic foot for components of the gas stream shall be calculated from analysis and using component heats of combustion specified in GPA Publication 2145-77.
Said tests and measurements shall be the basis for determining the price for gas purchased and sold.
ALLOCATION OF PRODUCTS AND RESIDUE GAS
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That portion of residue Gas Heating Value at Processor's plant which is attributable to each Producer meter location shall be determined by multiplying the total Gas Heating Value of residue gas delivered by Processor at the outlet of Processor's plant by a fraction, the numerator of which shall be the Gas Heating Value delivered to Processor's gathering system at each meter location less such meter location's share of the Product Heating Value of plant products allocated to the meter location, Gas Heating Value of the line losses attributable to the meter location, plant fuel gas heating value, and field compression fuel gas heating value, and the denominator of which shall be the total of all Gas Heating Value delivered at all meter locations less the total Product Heating Value of all plant products, Gas Heating Value of all line losses, plant fuel gas heating value and field compression fuel gas heating value attributable to all meter locations.
....
The price paid to Producer at the point of delivery ... [shall be] an amount equal to seventy percent (70%) 4 of the net sales proceeds ... received for residue gas attributable to Producer's gas purchased hereunder....
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Processor shall not enter into any Residue Gas Sales Contract, which provides for a Residue Gas sales price less than the maximum price allowed under the NGPA of 1978 and modified from time to time by the Federal Energy Regulatory Commission or any successor governmental body
having jurisdiction of such sale, without prior approval of Producer.
.... It will be Processor's intent to expand its plant to accommodate larger rates within economic limits as deemed feasible in Processor's sole judgment.
During the first several years after the contracts were executed, all of the raw gas defendants sold to plaintiff was processed at plaintiff's only processing facility in the area, Hartzog Draw. During that time, plaintiff sold all of the residue gas to Panhandle Eastern Pipe Line Company (Panhandle) under a ten-year contract between plaintiff and Panhandle. 5 Thus, the calculation of the price allocated to defendants for residue gas was relatively straightforward: Panhandle paid plaintiff for the total heating value of residue gas delivered, and then each defendant received its share of the amount paid by Panhandle, based on the contract formula for determining each producer's portion of the total heating value of residue gas delivered at the outlet of plaintiff's plant.
Between 1982 and 1984, the contracts were amended to add additional Woods' wells. Plaintiff added pipelines to its gathering system in order to accommodate this additional gas. Production in the area continued to grow, and plaintiff expanded its processing capacity in response. Because of the expense of adding pipeline and compression facilities, plaintiff asked its producers for additional commitments. Defendant Woods and plaintiff executed Amendment No. 4 in July 1984, dedicating more wells to plaintiff, and arguably providing that Woods would receive "first call" if plaintiff could not process all of the gas provided to it by all of its producers. See II Appellant's App. 234-36. As the area gas fields developed, Woods negotiated more contract amendments with plaintiff, adding additional acreage to the original contract, and plaintiff added a second delivery point for its Panhandle contract. In November 1985, plaintiff purchased the Hilight gas processing facility. Plaintiff processed some of defendants' and other producers' gas at Hilight, and sold the residue gas in excess of its Panhandle contract on the spot market for less than the Panhandle contract price. Defendants did not complain about receiving a lower price for the gas sold from Hilight on the spot market.
In March 1986, plaintiff purchased the Spearhead Ranch processing facility. Plaintiff sent gas from producers other than defendants to Spearhead, which increased its capacity to take defendants' gas at the other facilities. None of defendants' gas, however, flowed to Spearhead Ranch during the time in question. In October 1986, plaintiff began computing the price it paid to defendants for residue gas by pooling the revenue from residue gas produced at Hartzog and the physically connected facilities with the revenue from residue gas produced at Spearhead. Plaintiff received a significantly lower price for residue gas at Spearhead, and thus as a result of pooling proceeds from Spearhead with the proceeds from Hartzog and its physically connected facilities, defendants were allocated less money for residue gas. Defendants audited plaintiff's accounting records, and objected to the method of payment calculation and other aspects of the accounting. As the district court stated, "[t]he result [of pooling] was that defendants received a significantly smaller percentage of the higher price paid by [Panhandle]." I Appellant's App. 85.
II
Plaintiff first asserts that the district court erred in finding the...
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