Lone Mountain Prod. v. Natural Gas Pipeline Co.
| Decision Date | 05 April 1989 |
| Docket Number | Civ. No. 87-C-0187 A. |
| Citation | 710 F. Supp. 305 |
| Parties | LONE MOUNTAIN PRODUCTION COMPANY, a Montana Corporation, Plaintiff, v. NATURAL GAS PIPELINE COMPANY OF AMERICA, a Delaware Corporation, Defendant. |
| Court | U.S. District Court — District of Utah |
Edward W. Clyde, John W. Anderson, Anneli R. Smith, Salt Lake City, Utah, for plaintiff.
Stewart Hanson, Jr., Francis Carney, and Charles P. Sampson, Salt Lake City, Utah, for defendant.
(In Lieu of Findings of Fact and Conclusions of Law — FRCP 52(a))
The plaintiff, Lone Mountain Production Company ("Lone Mountain"), brought this action to enforce the terms of a ten-year "take or pay" gas purchase contract under which its alleged predecessor in interest, GEO Oil and Gas Company of Houston ("GEO"), agreed to sell gas to the defendant, Natural Gas Pipeline Company of America ("Natural").
Trial was bifurcated, with a non-jury trial being held on September 12-13, 1988 to determine Natural's liability under the contract. At the conclusion of the trial, the court took the matter under advisement and invited the parties to submit post-trial briefs.
For reasons discussed below, the court finds that Lone Mountain is entitled to enforce the contract against Natural.
On June 8, 1971, the State of Utah issued Mineral Lease 27564 covering a 600-acre tract located in Section 32, T16S, R26E, SLB & M to the Anschutz Corporation, Inc. (Plaintiff's Exhibit "1"). By April 1980, the lease had been divided into two parcels of 280 and 320 acres each. The lease had also been segregated vertically into upper and lower strata at a level 4,338 feet deep.
On April 18, 1980, Natural signed three contracts to purchase gas from the owners of interests in the upper stratum of the 280-acre parcel. (See Plaintiff's Exhibits "3-5".) The three contracts have identical terms.1 They differ only in the identity of the sellers and the identity of the leasehold interests each seller committed to performance of the contract. The contracts enabled Natural to obtain the exclusive right to purchase all gas produced from the segregated parcel, regardless of who might ultimately become its owner.2
The contracts require Natural either to take the gas at the contract price and in the contract quantities or to pay for the gas and take it at a later date. These "take or pay" contracts, common in oil and gas transactions, give the seller access to a delivery system and market for its gas, while assuring the buyer of a gas supply at the bargained-for contract price. See 4 H. Williams, Oil and Gas Law § 724.5 (1988).
The first gas purchase contract was with GEO, which owned 100% of the operating rights (the working interest minus the royalty interest), subject to a 6¼% overriding royalty and a reversionary interest. The second contract was with Texoma Company ("Texoma"), which owned 50% of both the overriding royalty and the reversionary interest. The third contract was with Nicor Exploration Company ("Nicor"), which owned the remaining 50% of the overriding royalty and the reversionary interest.
The reversionary interest gave Texoma and Nicor the option to convert their overriding royalty into a 50% working interest upon payout.
Quinoco Oil & Gas Programs ("Quinoco") succeeded to GEO's interest, and MidCon Central Exploration Company ("MidCon") succeeded to Texoma's interest. The options to convert the overriding royalty into a working interest were exercised. Thus, Natural recognizes that the succession and/or titles to the operating rights were as follows: Quinoco 50%, Nicor 25% and MidCon 25% (Pretrial Order, at 20.).
Lone Mountain then entered into farmout agreements with Quinoco, Nicor and MidCon (Plaintiff's Exhibits "14-16"). Under the farmout agreements, Lone Mountain would receive all of Quinoco's and Nicor's operating rights and most of MidCon's operating rights in exchange for drilling a producing well.
MidCon assigned its operating rights to Apache Corporation ("Apache") (Plaintiff's Exhibit "21").
Lone Mountain succeeded in drilling a producing well and received the promised assignments of operating rights from Quinoco, Nicor and Apache (Plaintiff's Exhibits "18-20" & "22").
Before beginning to drill on the contract acreage, Lone Mountain notified Natural that Quinoco had designated it as operator, that it intended to drill a well, that the well location was committed under the GEO contract,3 and that the drilling operations would commence by May 15, 1986 (Plaintiff's Exhibit "17"). Natural did not respond to this notification.
Upon completion of the well, Lone Mountain provided Natural with state completion notices and a drilling and completion history (Plaintiff's Exhibit "23"). Pursuant to the GEO contract, Lone Mountain then made demand upon Natural to connect the well to its gathering system.
On July 22, 1986, Natural acknowledged that the well had been submitted for contract consideration and demanded that its delivery agent, Northwest Pipeline Company, establish a point of delivery (Plaintiff's Exhibit "36"). However, on September 9, 1986, Natural declined to connect Lone Mountain's well to its gathering facilities, invoking the force majeure clause of the GEO contract (Plaintiff's Exhibits "24" & "30"). Natural requested copies of the assignments of interest and farmout agreements and offered to release Lone Mountain from its obligations under the GEO contract (Plaintiff's Exhibit "26").
On September 30, 1986, Lone Mountain advised Natural of its intent to exercise the option of proceeding on its own to connect the well to the gathering facilities (Plaintiff's Exhibit "25"). Natural then directed Lone Mountain to coordinate the pipeline connection. Lone Mountain made the connection at a mutually acceptable point on October 15, 1986, at a cost of $25,000.00.
On December 2, 1986, Lone Mountain furnished Natural with copies of its assignments of interest and farmout agreements (Plaintiff's Exhibit "31"). By letter dated December 9, 1986, Natural replied that it would recognize Lone Mountain's interest in the gas "with the understanding that a succession letter agreement substantially in the form of the attached will be executed. ..." (Plaintiff's Exhibit "32"). On February 17, 1987, Lone Mountain sent Natural the executed succession agreements in the requested form (Plaintiff's Exhibits "33" & "34").
Lone Mountain commenced this action to enforce the GEO contract on March 6, 1987.
On January 14, 1988, nearly two years after the well connection was made, Natural began arguing that a formal contractual assignment was needed, in addition to the succession agreements.
Before this action was commenced, Natural sought to justify its failure to perform on the basis of force majeure. During the course of the litigation, Natural argued that its failure to perform was justified because of impossibility of performance, commercial impracticability, frustration of purpose, and because the "take or pay" provision is contrary to public policy and the original intent of the parties. At trial, Natural dropped these defenses and instead asserted that the farmout and succession agreements did not constitute a proper assignment of the original contract. Natural also argued that its duty to "take or pay" had not yet matured because certain conditions precedent to the contract had not been satisfied.
Lone Mountain maintains that it is entitled to enforce the contract against Natural because: (1) all conditions precedent had been satisfied as of February 12, 1987; (2) the provision that the contractual covenants would "run" with the lease obviates the need for any formal assignment; (3) the succession agreements constitute a valid assignment; and (4) Natural has waived, or should be estopped from demanding, strict compliance with the original contract.
Natural claimed a failure of conditions precedent because Lone Mountain failed to connect the well to Northwest Pipeline's gas transmission facilities and failed to provide the requisite succession agreements. Lone Mountain connected the well on October 15, 1986 (Plaintiff's Exhibits "26" & "27"). On February 12, 1987, Lone Mountain sent a letter to Natural, indicating that the requested succession agreements were enclosed (Plaintiff's Exhibit "34"). Apparently, the originals were not enclosed in that letter but were forwarded with a follow-up letter dated February 17, 1987 (Plaintiff's Exhibit "33"). Thus, Natural's duty to "take or pay" for the gas matured by February 17, 1987 if the succession agreements satisfy the requirements of the GEO contract.
The law favors the assignability of contract rights, unless the assignment would add to or materially alter the obligor's duty of risk. Clark v. Shelton, 584 P.2d 875, 877 (Utah 1978). An assignment is subject to the same requisites for validity as are other contracts; i.e., mutuality of assent, proper parties with the capacity to make a contract, consideration and legal subject matter. Certified Collectors, Inc. v. Lesnick, 116 Ariz. 601, 570 P.2d 769, 771 (1977). However, no particular form is necessary to effect a valid assignment. Commodore v. Armour & Company, 201 Kan. 412, 441 P.2d 815, 820 (1968). Furthermore, the language may be informal as long as the assignment shows an intention by the owner to transfer his right or interest in property. Seasons, Inc. v. Atwell, 86 N.M. 751, 527 P.2d 792, 795 (1974). Once a valid assignment is made, the assignee stands in the shoes of the assignor; the assignee gains nothing more than his assignor had. AIRD Ins. Agency v. Zion's First Nat. Bank, 612 P.2d 341, 344 (Utah 1980).
Natural insists that the succession agreements, which otherwise might be valid, do not comply with the assignment provision of the original GEO contract. Natural argues that it...
To continue reading
Request your trial
-
Boston Helicopter Charter v. Agusta Aviation
...can be express, or it can be inferred from a party's conduct and the surrounding circumstances. Lone Mountain Prod. Co. v. Natural Gas Pipeline Co., 710 F.Supp. 305, 311 (D.Utah 1989). A waiver implied by a person's conduct, however, must be unequivocal and must allow room for no other expl......
-
Salt Lake Tribune Pub. Co., LLC v. At & T Corp.
...inconsistent with an intent to enforce that right" and "may not thereafter seek judicial enforcement." Lone Mt. Prod. Co. v. Natural Gas Pipeline Co., 710 F.Supp. 305, 311 (D.Utah 1989). But Deseret News has taken no action that would suggest it lacks the intent to enforce the transfer rest......
-
Hopkins v. Genesis FS Card Servs.
...must show "an intention by the owner to transfer his right or interest [in the contract]." Lone Mountain Prod. Co. v. Nat. Gas Pipeline Co. of Am., 710 F. Supp. 305, 309 (D. Utah 1989), aff'd, 984 F.2d 1551 (10th Cir. 1992). Once a valid assignment is made, the "assignee stands in the shoes......
-
Woodland Investor Member, L.L.C. v. Soldier Creek, L.L.C.
...case from the District of Utah in support of their implied-waiver argument. See Lone Mountain Prod. Co. v. Nat. Gas Pipeline Co. of Am., 710 F. Supp. 305 (D. Utah 1989). Defendants cite two sentences in that case: "The principles of waiver and estoppel support the notion that one party to a......
-
CHAPTER 10 THE TAKE-OR-PAY WARS: A CAUTIONARY ANALYSIS FOR THE FUTURE
...notice clause enforced), app. pending No. 90-CA-1987 (Colo. App.); but see, Lone Mountain Production Co. v. Natural Gas Pipeline Co. 710 F. Supp. 305 (D. Utah 1989) (failure to strictly comply with formalities of assignment provision not fatal as pipeline barred by waiver and estoppel to as......