Dorchester Master Ltd. Partnership v. Dorchester Hugoton, Ltd.

• Decision Date: 18 January 1996
• Docket Number: No. 13-94-243-CV,13-94-243-CV
• Parties: 133 Oil & Gas Rep. 115 DORCHESTER MASTER LIMITED PARTNERSHIP, et al., Appellants, v. DORCHESTER HUGOTON, LTD., Appellee.
• Court: Texas Court of Appeals

Page 696

914 S.W.2d 696

133 Oil & Gas Rep. 115

DORCHESTER MASTER LIMITED PARTNERSHIP, et al., Appellants, v. DORCHESTER HUGOTON, LTD., Appellee.

No. 13-94-243-CV.

Court of Appeals of Texas Corpus Christi.

Jan. 18, 1996.

Rehearing Overruled Jan. 18, 1996.

Eugene M. Nettles, Scott, Douglass & Luton, Houston, Ray N. Donley, Scott, Douglass & Luton, Houston, Roy Antley, Scott, Douglass & Luton, Houston, for appellants.

Vincent L. Marable, III, Wharton, Paul Webb, Wharton, James P. Wallace, Soules & Wallace, Austin, Luther H. Soules, III, Soules & Wallace, San Antonio, for appellee.

Before SEERDEN, C.J., and YANEZ and CHAVEZ, JJ.

OPINION

CHAVEZ, Justice.

We overrule appellee's motion for rehearing, withdraw our opinion issued on October 5, 1995, and substitute this opinion in place of the withdrawn opinion.

In the trial court, appellants sought declaratory relief to establish their rights to ownership of a gas-gathering system and processing rights to the gas produced from an oil and gas field situated in the State of Oklahoma. Appellee successfully obtained dismissal of these claims on the grounds that the trial court lacked subject matter jurisdiction by contending that those claims would necessitate adjudication of title to real property in another state. Appellants appeal the dismissal orders in two points of error, which we sustain.

Appellee cross-appeals from orders granting appellants partial summary judgments, reduced to final judgment, which:

1. declared that the adoption of an amendment to a gas purchase contract to be effective January 1, 1993 had the effect of terminating a 1982 gas processing agreement;

2. found that appellants had no liability to appellees for failure to comply with a provision of a 1946 Gas Purchase Contract which limited the quantity of BTU's that could be extracted from the gas stream during processing (the overextraction claim);

3. found that appellees were not entitled to damages on their overextraction and unjust enrichment counter-claims; and,

4. awarded appellants attorney fees incurred in the litigation and on appeal.

We overrule all of appellee's cross-points of error, except the cross-point directed to the award of attorney fees in the event of appeal.

We first address appellants' points of error regarding the dismissal order because such jurisdictional issues can affect the scope of our authority to review an appeal. See, e.g., Brown v. Aetna Casualty & Sur. Co., 135 Tex. 583, 145 S.W.2d 171, 174 (1940). The standard of review for a trial court's dismissal for want of subject matter jurisdiction requires that we look to the pleader's intent and construe the pleadings in favor of the plaintiff. Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440, 446 (Tex.1993); City of McAllen v. Garza, 869 S.W.2d 558, 560 (Tex.App.--Corpus Christi 1993, writ denied). Although the facts are generally not in dispute, the following discussion and analysis of the facts relevant to our review of the dismissal order necessarily reflect this standard of review. Brown, 145 S.W.2d at 174.

The oil and gas field in question was first developed by Harrington & Marsh in the mid 1940s and is recognized as perhaps the most prolific gas field in the United States. The field is known as the Oklahoma/Kansas Hugoton properties, contains over 100 producing wells on some 78,000 acres of land, and is situated in Texas County, Oklahoma. In 1946, Harrington & Marsh agreed to sell, after processing, all the residue gas (dry natural gas) produced from the field to Natural Gas Pipeline Company of America (Natural) and executed a contract for that purpose. The contract is referred to as the 1946 Gas Purchase Contract (the Contract). To carry out the terms of the Contract, Harrington &amp Marsh constructed a gas-gathering system and processing plant in Hooker, Oklahoma. The gathering system is referred to as the Hooker Gas Plant gas-gathering system, and the plant is called the Hooker Gas Processing Plant.

By June 16, 1982, Dorchester Gas Producing Co. (hereafter referred to as D.G.P.C.) had succeeded to all of Harrington & Marsh's ownership of the leasehold interests and obligations under the Contract. On that date, D.G.P.C. owned the following:

1. 100% of the leasehold working interests in the properties, including the 100+ producing gas wells;

2. the gas-gathering system (which included a compression plant);

3. the Hooker Gas Processing Plant;

4. the rights to process all gas attributable to the properties; and,

5. the right to sell the residue gas under the terms of the 1946 Gas Purchase Contract with Natural.

At a board of directors meeting held on June 16, 1982, D.G.P.C.'s parent company, Dorchester Gas Corporation (D.G.C.), approved a plan by which its stockholders could more fully realize the true asset value of the company. Pursuant to the plan, D.G.C. declared a dividend whereby 80% of the company's working interests in the Oklahoma/Kansas Hugoton properties would be conveyed, free and clear of all debt but subject to existing contracts, to an oil and gas limited partnership to be created and entitled Dorchester Hugoton, Ltd. (appellee herein). The interests conveyed, however, did not extend beyond the wellhead and did not include assignment of D.G.P.C.'s rights under a "keep whole" contract to process all gas attributable to the properties. Then at a special board meeting, D.G.P.C., in order for D.G.C. to carry out its plan, declared a dividend to D.G.C. by conveying to it 100% of the leasehold working interests in the properties. D.G.C. subsequently exchanged one unit in appellee for each ten shares of stock held by its stockholders. Appellee, as part owner of the leasehold working interests in the properties, was to continue to sell its share of the residue gas to Natural under the terms of the Contract. In order to accomplish this, however, the plan called for appellee to contemporaneously enter into a gas processing agreement with D.G.P.C.

Accordingly, the 1982 Gas Processing Agreement (the Agreement) was executed by D.G.P.C. as processor and appellee as owner. ¹ The Agreement recognized that:

1. the Owner (appellee) had a contract, the 1946 Gas Purchase Contract, with Natural whereby Owner was required to deliver all gas produced from the properties to Natural as shown by the Contract, to which reference was made;

2. as Owner of the leasehold, appellee had the right to process the gas under the Gas Purchase Contract as amended;

3. the Processor (D.G.P.C.) owned and operated a gasoline extraction plant and appurtenant gas dehydration facilities situated in Texas County, Oklahoma, including gas-gathering pipelines for the delivery of raw gas to the plant; and,

4. Owner desired to have the gas processed to recover demethanized liquids and deliver the remaining residue gas to Natural.

The Agreement provided that D.G.P.C. would process the gas and incur the costs in the operation and maintenance of its plant, gas-gathering pipelines and individual wellhead metering facilities. D.G.P.C. was allowed to extract natural gasoline and other hydrocarbons during the processing, sell them to third parties, and then deliver the residue gas (dry natural gas) to Natural. D.G.P.C. was also required to pay appellee for fuel and shrinkage at the same price Natural paid for the residue gas pursuant to the pricing provisions of the 1946 Gas Purchase Contract. ²

Immediately after the spinoff on June 16, 1982, appellee continued negotiations to increase the price of gas that D.G.P.C. had previously initiated with Natural. Despite these negotiations, the price of gas under the Contract remained subject to Federal Energy Regulatory Commission minimum rate regulations. These rates changed on a monthly basis, and from July 1982 to December 1992, the rates went from 27.4cents/mcf to 40.2cents/mcf. It was understood by the D.G.C. corporate family that the increase in price brought about by the monthly rate changes would have the effect of increasing D.G.P.C.'s payment to appellee for fuel and shrinkage. To offset these anticipated and future increases in cost to D.G.P.C., on October 18, 1982, D.G.C. assigned to D.G.P.C. the remaining undivided 20% leasehold working interest in the properties. In this manner, by virtue of its ownership of a 20% leasehold working interest, D.G.P.C. would be able to benefit from any increase in price Natural paid, and thus it could recoup the corresponding increased price it would be required to pay appellee for fuel and shrinkage.

In 1984, Dorchester Master Limited Partnership (D.M.L.P.), purchased all of D.G.P.C.'s interests and assumed all of its obligations under existing contracts. ³ One of those contracts was an Operating Agreement which provided either party a preferential right to purchase in the event either party desired to sell all or a part of their interests in the properties. D.M.L.P. received an offer from another company in 1986 to purchase the 20% leasehold working interest. D.M.L.P. notified appellee of the offer and appellee then exercised its rights and purchased D.M.L.P.'s 20% leasehold working interest. Thus, appellee became owner of 100% of the leasehold working interests in the properties and D.M.L.P.'s sole role became that of processor.

Then, claiming that the price Natural was paying for the residue gas was very low, appellee sued Natural in 1990 and sought cancellation of the 1946 Gas Purchase Contract. D.M.L.P., appellant herein, intervened in the lawsuit because any cancellation or modifications of the Contract pricing provisions would affect the amount they would have to pay for fuel and shrinkage. In October 1992, after appellee asserted that appellants did not own the processing rights, appellants amended their intervention and sought declaratory relief to establish its claim to the ownership rights to process all gas attributable to the properties. ⁴ In a deposition the following month, appellee's representative testified...