Francis Oil and Gas, Inc. v. Exxon Corp.

Citation687 F.2d 484
Decision Date16 August 1982
Docket NumberNo. 5-73.,5-73.
PartiesFRANCIS OIL AND GAS, INC., Curtis S. Green, Dave R. Sylvan, George D. Daly, George B. Kaiser, and Don H. Nelson, individually, and on behalf of all other persons similarly situated, collectively, and as a class, Plaintiffs-Appellees, v. EXXON CORPORATION and Marathon Oil Company, individually and on behalf of all other persons similarly situated, collectively, and as a class, Defendants-Appellants.
CourtU.S. Temporary Emergency Court of Appeals

David J. Beck, Fulbright & Jaworski, Houston, Tex., with whom David L. Tolin, Houston, Tex., of the same firm; James R. Stevens, Robert J. Pickins, Houston, Tex. and William B. Browder, Jr., Stubbeman, McRae, Sealy, Laughlin & Browder, Midland, Tex., were on the brief, for defendants-appellants.

Frederic Dorwart, Holliman, Langholz, Runnels & Dorwart, Tulsa, Okl., was on the brief, for plaintiffs-appellees.

Before INGRAHAM, ESTES and POINTER, Judges.

Certiorari Denied November 8, 1982. See 103 S.Ct. 365.

INGRAHAM, Judge:

This dispute arises out of the unitized oil and gas operations in the Yates Field in Pecos and Crockett Counties, Texas. Francis Oil & Gas, Inc., and various individuals (hereinafter "appellees") sought a declaratory judgment from the district court that the unit agreements governing the Yates Field Unit "did not effect a reallocation and cross-conveyance of the rights to and benefits of stripper well pricing and therefore left the rights to and benefits of stripper well pricing in the owner of the oil and gas rights in respect of the tract from which the oil is produced." On cross-motions for summary judgment, the district court entered summary judgment granting appellees' request. Exxon Corporation and Marathon Oil Company (hereafter "appellants") appeal. We find that the declaration requested by appellees was, to say the least, inaccurate and misleading, and accordingly the declaratory judgment should have been denied. We therefore reverse and remand with instructions to enter summary judgment on appellants' motion.

I—BACKGROUND

"Stripper" wells are generally defined as wells that produce such a small volume of oil that the income derived provides only a small margin of profit, or none at all. See 8 Williams & Myers, Oil and Gas Law 729 (1981). For federal energy regulatory purposes a stripper well is one that produces ten barrels a day or less. See, e.g., 10 C.F.R. § 212.54 (1977). In 1973, at the outset of petroleum price controls, Congress noted that stripper wells accounted for 71% of the total number of wells in the country but only 13% of the total domestic crude production. Conf.Rep.924, 93d Cong., 2d Sess., reprinted in 1973 U.S.Code Cong. & Ad.News 2417, 2523, 2532 (Joint Statement of the Committee of Conference on the Trans-Alaska Pipeline Authorization Act of 1973, P.L. 93-153).

Congress desired to provide an incentive for producers to maintain these known sources of domestic crude oil and keep them in production longer than would ordinarily be economically feasible. Id. Accordingly, oil produced from stripper well properties enjoyed a preferred status throughout the history of price controls. We have retraced the treatment of stripper well oil in detail in other contexts, see, e.g., Sauder v. Department of Energy, 648 F.2d 1341, 1342-43 (Em.App.1981); Energy Reserves Group, Inc. v. Department of Energy, 589 F.2d 1082, 1087-91 (Em.App.1978). For present purposes it is sufficient to recapitulate that stripper well oil was either entirely exempt from price control, see, e.g., Emergency Petroleum Allocation Act of 1973, § 4(e)(2)(A), Pub.L.93-159, 87 Stat. 627, 632 (1973), or placed in the "upper tier,"1 41 Fed.Reg. 4931, 4940 (Feb. 3, 1976) (codified at 10 C.F.R. § 212.74(a)), from 1973 until the expiration of petroleum price controls in January 1981. Exec.Order No. 12287, 3 C.F.R. 124 (1982).

On February 3, 1976, the Federal Energy Administration (predecessor to the Department of Energy) promulgated Section 212.75(e), 41 Fed.Reg. 4931, 4941 (Feb. 3, 1976), to deal specifically with the problem of inclusion of stripper wells in units such as the Yates Field Unit. Unitization agreements combine the separate tracts in a field so that the field may be operated as a single tract without regard to surface property lines. Unitary operation is particularly appropriate where the reservoir has passed its primary production phase and secondary, "enhanced" recovery operations, for example, converting some wells to injection wells and shutting in others, are required to prolong and increase production. See generally Sauder v. Department of Energy, 648 F.2d 1341, 1342 (Em.App.1981). As the FEA explained, "prior regulations might have discouraged producers of stripper well leases from entering unitization agreements because of the potential loss of the property's uncontrolled (now upper tier) status." 41 Fed.Reg. at 4937. The FEA explained that this loss would occur if the increased production resulting from unitization caused the previously-qualified stripper wells' allocation of crude oil to exceed ten barrels per day. In order to remove this disincentive to unitization, the FEA devised an exemption, subsequently labeled the "imputed stripper well exemption," see 41 Fed.Reg. 48319, 48320 (Nov. 3, 1976) (codified at 10 C.F.R. § 212.75(f)), permitting units to recognize and continue to benefit from the pre-unitization stripper well status of individual tracts. This case requires us to unravel the imputed stripper well exemption for the Yates Field Unit.

Appellees own working interests in Tract 117 in the Yates Field. Prior to July 1, 1976, this property qualified for stripper well treatment and appellees sold forty barrels of crude oil per day from the property at stripper well prices. On July 1, 1976, the Yates Field Unit Agreements became effective and a unit-wide BPCL was calculated. From July 1976 to September 1980, appellees were under contract to sell their share of the Yates Field production to appellant Exxon Corporation. In their certifications2 to Exxon classifying the production as old, new or stripper oil, appellees continued to count forty barrels per day at the higher stripper well prices. Exxon, however, calculated appellees' share of the imputed stripper well exemption based on information provided by the Unit Operator, appellant Marathon Oil Company; specifically, Exxon applied the "tract participation" allocation formula provided in the unit agreements, thus crediting appellees with a share of the unit's imputed stripper well exemption proportional to the size and historic production of their tract. This share of the imputed stripper well exemption was less than forty barrels per day. Exxon's payments to appellees, accordingly, were lower than the certified amounts, at least with respect to stripper oil.

Appellees brought suit in a Texas state court for a declaratory judgment that they were entitled to sell forty barrels of crude oil per day at stripper prices.3 Appellants removed the case to the United States District Court for the Western District of Texas. After discovery, briefing and oral argument the district court entered summary judgment (and shortly thereafter an "amended summary judgment") for appellees. The district court adopted appellees' theory that the unit agreements allocate only production and not proceeds (or "pricing benefits"). The underlying question, the district court stated, was the legal status of the stripper wells after unitization. The court concluded, after examining the regulations, that once an individual property qualified for stripper well status it retained that status despite subsequent unitization, and that the "pricing benefits of stripper oil were not unitized and thus were not imputed to the remainder of the interest owners in the unit." Consequently, the court believed that the imputed stripper exemption "does not indicate . . . that stripper oil is automatically imputed to other interest owners if and when the stripper tract unitizes with non-stripper tracts." Because the appellees had done nothing to voluntarily contribute any of their "pricing benefits" to the unit, according to the court, they were still entitled to claim the full pre-unitization forty barrels per day.

II—APPELLATE JURISDICTION

At the outset appellees argue that this appeal does not fall within the limited statutory jurisdiction of this court. We disagree. Section 211(b)(2) of the Economic Stabilization Act of 1970 granted TECA "exclusive jurisdiction of all appeals from the district courts of the United States in cases and controversies arising under this title or under regulations for orders issued thereunder." 12 U.S.C. § 1904 note (Supp. 1977). This provision was incorporated in section 5(a)(1) of the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. § 754(a)(1) (1976), which extends TECA jurisdiction to appeals "arising under" the petroleum pricing and allocation regulations. While it is true that TECA has no jurisdiction to consider purely private contract law claims, see Atlantic Richfield Co. v. Department of Energy, 655 F.2d 227, 233 (Em.App.1981), a damage claim "in the breach of contract sense" that alleges entitlement to a specific price based upon the federal price regulations clearly falls within TECA's jurisdiction. Mountain Fuel Supply Co. v. Johnson, 586 F.2d 1375, 1381 (10th Cir. 1978), cert. denied, 441 U.S. 952, 99 S.Ct. 2182, 60 L.Ed.2d 1058 (1979). We have articulated two principal inquiries: whether resolution of the litigation in its entirety requires the application or interpretation of the Emergency Petroleum Allocation Act and implementing regulations, Citronelle-Mobile Gathering, Inc. v. Gulf Oil Corp., 591 F.2d 711, 716 (Em.App.), cert. denied, 444 U.S. 879, 100 S.Ct. 168, 62 L.Ed.2d 109 (1979); and whether an EPAA issue has been adjudicated in the court below. Texaco, Inc. v....

To continue reading

Request your trial
12 cases
  • United States v. Exxon Corp.
    • United States
    • U.S. Temporary Emergency Court of Appeals Court of Appeals
    • July 1, 1985
    ...by any agency interpretations, required the adoption of a single BPCL, upon unitization. See also Francis Oil and Gas, Inc. v. Exxon Corp., 687 F.2d 484, at 488 (TECA 1982), cert. denied, 459 U.S. 1010, 103 S.Ct. 365, 74 L.Ed.2d 400 Under these circumstances, we find that Exxon's claim that......
  • Mobil Oil Corp. v. Dept. of Energy, 2-40
    • United States
    • U.S. Temporary Emergency Court of Appeals Court of Appeals
    • December 20, 1983
    ...1979); Coastal States Marketing Inc. v. New England Petroleum Corp., 604 F.2d 179, 187 (2d Cir. 1979); see Francis Oil & Gas Inc. v. Exxon Corp., 687 F.2d 484, 487 (TECA 1982). Naph-Sol seeks recovery for overcharges pursuant to § 210(b) of the ESA, 12 U.S.C. § 1904 note. Thus allegations i......
  • Atlantic Richfield Co. v. U.S. Dept. of Energy
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • August 19, 1985
    ...(2d Cir.1983); Coastal States Mktg. Inc. v. New Eng. Petroleum Corp., 604 F.2d 179, 187 (2d Cir.1979); Francis Oil & Gas, Inc. v. Exxon Corp., 687 F.2d 484, 487 (Temp.Emer.Ct.App.), cert. denied, 459 U.S. 1010, 103 S.Ct. 365, 74 L.Ed.2d 400 (1982); Texaco, Inc. v. Department of Energy, 616 ......
  • US Dept. of Energy v. West Texas Marketing Corp.
    • United States
    • U.S. Temporary Emergency Court of Appeals Court of Appeals
    • March 27, 1985
    ...was adjudicated by the district court.6 Mobil Oil Corp. v. Department of Energy, supra, 728 F.2d at 1497; Francis Oil & Gas, Inc. v. Exxon Corp., 687 F.2d 484, 487 (Em.App.) cert. denied, 459 U.S. 1010, 103 S.Ct. 365, 74 L.Ed.2d 400 (1982); Texaco, Inc. v. Department of Energy, 616 F.2d 119......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT