Kingsley v. Western Natural Gas Co.

• Decision Date: 24 June 1965
• Docket Number: No. 14498,14498
• Citation: 393 S.W.2d 345
• Parties: F. G. KINGSLEY et al., Appellants, v. WESTERN NATURAL GAS COMPANY et al., Appellees.
• Court: Texas Court of Appeals

Page 345

393 S.W.2d 345

F. G. KINGSLEY et al., Appellants, v. WESTERN NATURAL GAS COMPANY et al., Appellees.

No. 14498.

Court of Civil Appeals of Texas, Houston.

June 24, 1965.

Rehearing Denied Sept. 9, 1965.

Childress, Port & Crady, Virgil Childress, Houston, Wood, Boykin & Wolter, Ralph R. Wood and Marshall Boykin, III, Corpus Christi, for appellants.

Liddell, Austin, Dawson & Sapp, Dwight H. Austin and Willis Witt, Houston, for Western Natural Gas Co.

George Wear, Fort Worth, for Continental Oil Co.

WERLEIN, Justice.

This suit was brought by appellants, F. G. Kingsley and Roger Milliken, for damages allegedly resulting from breach of an implied covenant by appellees, Western Natural Gas Company and Continental Oil Company, hereinafter sometimes called 'Western' and 'Continental', to take gas from the well and leases of appellants and their co-owner, ratably with the quantities of gas taken from the wells and leases of Reynolds Metal Company, and Reynolds Mining Corporation, hereinafter referred to jointly as 'Reynolds', all such gas being produced from the Common A-2 Reservoir in the Lamar Field area in Aransas County, Texas. Appellants' gas was purchased and/or taken by Western and Continental during the period August 1, 1957 to June 1, 1960 under a written contract dated March 13, 1953 between Burdette Graham and H. C. Heldenfels, appellants' predecessors in title, et al, as 'Seller' and Western and Continental as 'Buyer.'

At the conclusion of the evidence the trial court on appellees' motion withdrew the case from the jury and entered judgment that appellants take nothing. From such judgment appellants have perfected their appeal.

In their first group of points appellants contend in substance that the trial court erred in holding that under said Burdette Graham contract, by the terms of which Buyer agreed to purchase or take the gas from all of appellants' properties in the Lamar Field in Aransas County, appellees as a matter of law, did not impliedly covenant and were not impliedly obligated to take gas ratably upon a reasonable allocation formula from appellants' well and leases with the quantities of gas produced and/or take from the wells of Reynolds produced from the same common reservoir; and in holding that, as a matter of law, appellees had not breached such implied covenant by taking during said period of time from the wells and leases of Reynolds with a total of allocated productive acreage, as located by Reynolds, of only 51.5341 acres with actual productive acreage of only 29,9268 acres, 3,938,610,000 cubic feet of gas while taking during the same period from said common reservoir only 1,145,058,000 cubic feet of gas produced from said common reservoir from appellants' Coloma Heard Unit No. 1-c Well with productive acreage of 143 acres allocated to it by appellants' operator, Coloma Well & Gas Corporation, sometimes called herein 'Coloma', which corporation appellants wholly owned, with actual productive acreage of 175.51 acres, to appellants' damage in the sum of $287,314.58.

In their Fourth Amended Original Petition, the trial petition, appellants alleged that they were the owners of an undivided 2/3rds interest in certain oil, gas and mineral leases covering 253.2 acres of land, which they described, and a corresponding interest in all gas, including condensate produced from or underlying said leases; that their interest in said leases and wells were operated for them and their co-owner of the remaining 1/3rd interest by Coloma, and that said leases were located partly in the Lamar Field and Partly in the Fulton Beach Field as the limits of such fields are defined respectively by the Railroad Commission of Texas. Appellants further alleged that their interest in such leases and all production therefrom was acquired on August 1, 1957, subject to that certain gas sales contract dated March 13, 1953 by and between Burdette Graham, H. C. Heldenfels, trustee, and Pratt-Hewitt Oil Corporation, as 'Seller' and appellees as 'Buyer', and that appellants acquired as of August 1, 1957 all of the Seller's rights under said gas sales contract. They also alleged that under such contract Seller agreed to sell and deliver to Buyer and Buyer agreed to purchase, take and receive from Seller the gas produced from Seller's leases for the term March 13, 1953 to September 12, 1972, a period of more than 19 years.

The contract in question, referred to herein as Graham or Burdette Graham contract, executed on March 13, 1953, by appellants' predecessors in title and under which appellants acquired all rights on August 1, 1957, contains the following pertinent provisions which must be considered in determining whether or not there was an implied covenant inherent in such contract to take gas ratably as contended by appellants.

Article I Sec. 1 of said contract provides that the Seller agrees to sell and deliver to Buyer and Buyer agrees to purchase and receive from Seller the gas produced from all the the Seller's properties in the Lamar Field in Aransas County, Texas. Section 2 of such Article provides in substance that during each billing period during the term of the contract the Seller shall sell and deliver to Buyer and Buyer shall purchase and receive from Seller a quantity of gas at least equal to 1,000,000 cubic feet per day multiplied by the number of wells covered by the agreement on the first day of the billing period; 'provided, however, that Buyer shall not be obligated to pay for any gas which is not tendered to Buyer by Seller.' Buyer shall have the right, at its option, to purchase and receive additional quantities of gas up to but not exceeding that quantity each day which the wells then covered by the agreement can lawfully produce, less 1,000,000 cubic feet per well. Seller's delivery obligations shall be subject to the ability of Seller's wells to lawfully produce when operated in accordance with sound field practice.

Article II, Section 5, provides in substance that the gas covered by the agreement shall be delivered by Seller to Buyer or for Buyer's account into the pipeline owned and operated by St. Charles Pipeline Company, which pipeline runs from the St. Charles Field in Aransas County, Texas, to the aluminum plant owned and operated by Reynolds in San Patricio County,Texas. The points of delivery on said pipeline shall be determined by agreement among Buyer, Seller and St. Charles Pipeline Company.

Article III, Sec. 1, provides in part that the Seller shall, at its sole cost and expense, construct, own, operate and maintain all gatherin lines, pipelines, meter stations and other equipment necessary in order to deliver to the delivery points the gas covered by the agreement and to measure the quantities thereof for billing purposes.

Article VI, Sec. 1, of said contract provides in substance for a minimum take based upon a restudy of reserves at the option of either party not oftener than once every five years during the term of the contract. The provisions of this Section were never invoked by appellants or by appellees. For this reason appellants allege that such provisions are immaterial to the issues involved in this suit. Appellees, on the other hand, contend that such provisions are quite material in determining the intention of the parties and whether any implied covenant to take ratably exists by virtue of the provisions of the contract.

Article VII, Sec. (c), provides:

'The control, management and operation of the properties subject to this contract shall be and remain the exclusive right of Seller. Seller may, in its sole uncontrolled discretion and as it deems advisable, drill new wells, repair or rework old wells, renew or extend in whole or in part any lease or unit, and abandon any well or surrender, terminate or release all or any part of any lease not deemed by Seller capable under normal production methods of producing gas in paying or commercial quantities.'

Article X, Sec. 2, reads as follows:

'It is understood that Buyer has made arrangements for the gas to be purchased by Buyer from Seller under the provisions of this agreement to be delivered and sold to Reynolds Metals Company under the provisions of a certain contract between Buyer and Reynolds Metals Company, dated January 13, 1951, and that Buyer presently has no other market for said gas. Accordingly, any provision of this agreement to the contrary notwithstanding, the quantities of gas to be purchased by Buyer from Seller from time to time under the provisions of this agreement shall not, without Buyer's consent, exceed the quantities of gas actually delivered from time to time under Buyer's said contract with Reynolds Metals Company, less the quantities of gas heretofore contracted to be purchased by Buyer from time to time from other ___ for delivery under the said contract with Reynolds Metals Company and so delivered.'

Appellees assert, and the court impliedly found and concluded, that the provisions of the contract in question defined the obligations of Buyer with respect to the taking of gas, and that therefore there was no implied covenant on the part of the Buyer to take ratably gas from the wells and leases of appellants and gas from the wells of Reynolds produced from the same common reservoir.

The principal question for determination is whether under the provisions of the Graham contract there was an implied covenant on the part of the Buyer to take gas ratably from appellants' wells and Reynolds' wells, produced from the same common reservoir, even though the contract expressly obligated Buyer to purchase only one million cubic feet of gas per day per well, with the option to take in excess of such quantity. The parties stipulated that 'During the period from August 1, 1957 to June 1, 1960, Western-Continental fully performed and fully complied with all obligations imposed upon them by the express (written) terms of the Burdette Graham contract, including, without...