Sun Oil Company v. Federal Power Commission, 16020

• Citation: 256 F.2d 233
• Decision Date: 11 June 1958
• Docket Number: 16213,16021,16410,16548.,16321,No. 16020,16020
• Parties: SUN OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

256 F.2d 233 (1958)

SUN OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Nos. 16020, 16021, 16213, 16321, 16410, 16548.

United States Court of Appeals Fifth Circuit.

May 9, 1958.

Rehearing Denied June 11, 1958.

Joiner Cartwright, Herf M. Weinert, Beaumont, Tex., Martin A. Row, J. W. Timmins and Leo J. Hoffman, Dallas, Tex., Robert E. May, May, Shannon & Morley, Omar L. Crook, Charles M. Soller, Washington, D. C., for petitioner.

Willard W. Gatchell, Gen. Counsel, Howard E. Wahrenbrock, Sol., William W. Ross, Atty., Federal Power Commission, Washington, D. C., for respondent.

Before TUTTLE, JONES and WISDOM, Circuit Judges.

JONES, Circuit Judge.

These six cases arise from similar fact situations and present substantially the same issues of law. They were argued together and one opinion will dispose of all of the cases. The problems presented are among those following the decision in Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, 3 P.U.R.3d 129. There it was held that sales made in interstate commerce of natural gas of independent producers are subject to regulation by the Federal Power Commission under the Natural Gas Act. 52 Stat. 821, 15 U.S.C.A. § 717 et seq. The methods followed and the steps taken by the Commission in fashioning procedures for this extension of its regulatory activities are outlined in Magnolia Petroleum Co. v. Federal Power Commission, 5 Cir., 1956, 236 F.2d 785, 15 P.U.R.3d 364, certiorari denied 352 U.S. 968, 77 S.Ct. 356, 1 L.Ed.2d 322.

By the Natural Gas Act it is provided that, under such rules and regulations as the Commission may prescribe, every natural-gas company shall file schedules showing its rates and charges with related data and all contracts affecting or relating to the rates, charges, classifications and services, 15 U.S.C.A. § 717c (c). Every natural-gas company subject to regulation is required to procure from the Commission a certificate of public convenience and necessity before doing business. Those engaged in transportation or sale of natural gas on February 7, 1942, the effective date of an amendment to the Act, were entitled to certificates, upon application, as to the routes of transportation or within the area of sales existing on that date. 52 Stat. 825, as amended by 56 Stat. 83, 15 U.S. C.A. § 717f(c). The rules and regulations of the Commission for the administration of the Act were designed primarily to cover pipe line transportation of natural gas. They were neither designed for nor adapted to the regulation of independent producers. To provide procedures applicable in the field of regulating independent producers the Commission issued its so-called No. 174 series of orders. See Magnolia Petroleum Co. v. Federal Power Commission, supra.

Involved in Case No. 16020 is the pooled gas unit of 659.44 acres in the Carthage Field, Panola County, Texas, and known as Carthage Unit No. 16. Sun Oil Company, the petitioner, hereafter referred to as Sun, owned a 12.89% interest. Stanolind Oil and Gas Company owed a 42.72% interest and two other oil companies owned the remaining interests. On October 5, 1946, these four companies executed an operating agreement under which Stanolind was designated as the operator and as such was given charge of the drilling, development and producing operations for the production of gas in the unit area. Each party was given the right to take its share of production in kind. If any party did not exercise the right to take its share of the gas in kind, or of separately disposing of such gas, the operator was given "charge and control of the marketing of such production."¹ Stanolind and other oil and gas companies made an amended contract on July 1, 1952, for the sale to Texas Gas Transmission Corporation of gas from eleven units in the Carthage Field, including Carthage Unit No. 16. Sun was not a party to this sales contract and did not sign it. Sun was not referred to in the body of the contract but was designated as the owner of its 12.89% of Unit 16 in an exhibit referred to in and forming a part of the contract.

In Case No. 16021 Sun was the owner of a 40.068% interest in the Sun-Sallie J. Neal "A" Unit of 467.93 acres in Panola County, Texas. Sun is designated as the operator under the operating agreement. Sun authorized The Chicago Corporation to sell the gas from the well on the Unit to Tennessee Gas Transmission Company under a contract to which Sun is not a party and which Sun did not sign.

Case No. 16213 involves the Richardson Unit in Panola County, Texas. It includes 662.52 acres. Sun owns 17.7142% of the Unit. The operating agreement designated R. Lacy, Inc. as the operator and provided that the sales of gas should be made to Lone Star Gas Company under a prior contract to which reference was made. Sun was not a party to nor a signer of the contract with Lone Star Gas Company.

In case 16410 the questions arise by reason of the so-called Miami "C" Lease on 640 acres in the South Pecan Lake Field in Cameron Parish, Louisiana. Sun had a 12.5% interest in the lease. Pan American Production Company, owning 50% of the lease, was the operator under an agreement of the holders of the lessee interests. Pan American had a contract to sell and deliver gas to United Fuel Gas Company. Pan American had committed its share of gas from the Miami "C" Lease to this contract. Sun, by letter agreement of October 1, 1954, authorized Pan American to dedicate Sun's gas to the United Fuel Gas contract, to deliver its gas and include it under the billings under the sales contract and to receive and remit to Sun its share of the proceeds.² Under this authorization sales were made.

The Commission's Order 174 required, among other things, that independent producers file their existing rate schedules and make no rate changes until after filing proposed changes (which the Commission might suspend pending a hearing), and required independent producers to apply for and obtain certificates of public convenience and necessity covering their sales of gas which were subject to regulation by the Commission. The Commission's Order 174 was superseded by its Order 174-A. Stanolind made rate schedule filings with respect to the sales of gas from Carthage Unit No. 16; Chicago Corporation filed rate schedules as to the Neal "A" Unit; R. Lacy, Inc. made a rate schedule filing covering the sales of gas from the Richardson Unit; and Pan American filed schedules covering the rates on the Miami "C" Lease gas sales. Sun also made rate schedule filings covering its interests in the several sales transactions, and also filed rate increase schedules. The Commission accepted these filings made by Sun. Sun applied for certificates of public convenience and necessity covering the sales of gas from each of the units or leases here involved. Certificates were granted on December 15, 1954, October 20, 1955, and May 28, 1956.

The practices herein outlined of effecting sales to pipeline companies of natural gas produced under unitized and pooled operations were common and prevailed generally throughout the industry. A single contract for the sale of gas might produce several, perhaps many, rate schedule filings. This condition not only added substantially to the increased burden of handling and processing by the Commission and its staff, but caused confusion and complications which the Commission regarded as impairing its efficiency and as unnecessary in carrying out the duties imposed upon it by the Act. On December 16, 1954, the Commission issued its Order 174-B. By this order the Commission provided that rate filings and applications for certificates of public convenience and necessity "may be made" by the unit operator where one or more wells are under co-ownership or where a group of producers are unitized for production or sale. It was also provided by Order 174-B that where filings were made by the operator the other parties to the operating arrangement "need not file hereunder." This did not seem wholly to solve the problem so far as the Commission was concerned for on May 5, 1955, it issued its order in a proceeding involving Midstates Oil Corporation and other gas producers who had not signed the contracts pursuant to which gas in which they had an interest was being sold. These producers, as well as the "operators" filed supplemental rate schedules. The Commission found that the public interest did not require and there was no substantial basis or justification for duplicate filings and the supplemental rate schedule filings of the non-operating producers were rejected.³ A prior order of similar import had been issued by the Commission on March 10, 1955, in a case involving Humble Oil & Refining Co.

On September 27, 1956, the Commission issued its Order 190, 18 C.F.R. §§ 154.91, 157.23(c), which amended and supplemented Order 174-B. Among other things Order 190 provided that operators who had signed contracts for the sale of gas produced or processed should make rate schedule filings with respect to such sales and should make applications for certificates, that co-owners of the gas produced who had signed the sales contract may, but need not, make filings, and that co-owners who had not signed the sales contract may not file rate schedules.

On November 30, 1955, the Commission wrote a letter to Sun. In it reference was made to the Midstates order and the conclusions there reached. By the letter the rate schedule filings previously made by Sun which related to Carthage Unit 16 were rescinded and supplemental rate schedules were rejected. Sun made an application for a rehearing. The Commission, on January 27, 1956, denied the application by an order stating that the application presented no question of fact or principle of law not considered by the Commission when it issued its letter. In Case No. 16020 we are asked to review the Commission's actions of November 3, 1955, and January 27, 1956....