Mapco, Inc. v. Pioneer Corp., Civ. A. No. CA-2-75-170.

• Decision Date: 13 January 1978
• Docket Number: Civ. A. No. CA-2-75-170.
• Citation: 447 F. Supp. 143
• Parties: MAPCO, INC., Plaintiff, v. PIONEER CORPORATION and Amarillo Oil Company, Defendants.
• Court: U.S. District Court — Northern District of Texas

447 F. Supp. 143

MAPCO, INC., Plaintiff, v. PIONEER CORPORATION and Amarillo Oil Company, Defendants.

Civ. A. No. CA-2-75-170.

United States District Court, N. D. Texas, Amarillo Division.

January 13, 1978.

R. D. Lemon, Lemon, Close, Atkinson & Shearer, Perryton, Tex., Royse M. Parr, Mapco Inc., Tulsa, Okl., for plaintiff.

John L. Estes, Locke, Purnell, Boren, Laney & Neely, Maurice E. Purnell, John R. Guittard, Dallas, Tex., for defendants.

MEMORANDUM OPINION

WOODWARD, Chief Judge.

The above case was heard before the court without a jury and after hearing and considering the evidence, pleadings, and the argument and briefs of counsel the court files this memorandum opinion which shall constitute the court's findings of fact and conclusions of law.

The court finds that there is complete diversity of the parties and the amount in controversy exceeds $10,000.00 exclusive of interest and costs and jurisdiction exists under 28 U.S.C. § 1332.

This litigation involves a controversy over the right to produce and market liquid hydrocarbons derived from natural gas originating from the West Panhandle Gas field located in the northern panhandle region of the State of Texas.

In 1927 defendant, Amarillo Oil Company, (AOC) owned a large area of gas leaseholds, gas wells and other gas property located in various counties in the West Panhandle Field. On June 5, 1928 a transaction was consummated whereby AOC would sell its West Panhandle Field interests and in return have the right to purchase natural gas from that field.

Pursuant to the June 5, 1928 transaction AOC conveyed all its gas interests in the West Panhandle Field to Canadian River Gas Company (Canadian). AOC and Canadian also entered into a contract whereby Canadian would sell to AOC natural gas from the West Panhandle Field. This contract will hereinafter be referred to as the "B" contract and it is from this instrument that the basic facts leading to this litigation arise.

In relevant part the "B" contract provided that the seller, Canadian, would sell and deliver to buyer, AOC, and buyer would purchase and take from seller (a) all natural gas in excess of that purchased by AOC from other producers required by AOC for sale under and pursuant to a contract between AOC and Panhandle Pipe Line Company (Panhandle) to supply the customers of Panhandle in the City of Amarillo and its environs; and (b) all the natural gas in excess of that purchased by AOC from other producers required by AOC for sale under and pursuant to a contract between AOC and United States Zinc Company to supply that company's zinc smelter located at Amarillo, Texas; and (c) all the natural gas in excess of that purchased by AOC from other producers required by AOC to supply any customers located in the City of Amarillo or its environs which AOC, Panhandle or Amarillo Gas Company had then or might thereafter acquire.

The "B" contract further provided that AOC's right to buy natural gas would have first preference and call over any other gas sales by Canadian from the West Panhandle Field "in the nature of covenants running with the lands."

Prior to the execution of the "B" contract in 1928, AOC contracted in 1918 to sell to Perry A. Little the gas at any and all wells owned by AOC in Potter and adjoining counties (in the West Panhandle Field) "sufficient to supply all needs of Amarillo and vicinity" but expressly reserved to itself "the right to the gasoline which may be derived from such natural gas." Little subsequently assigned his rights under this contract to Panhandle. This same contract as amended in 1922 was attached to the "B" contract and was referred to therein where the "B" contract granted AOC the right to purchase all natural gas required by it under and pursuant to its contract with Panhandle.

Additionally, on July 31, 1922, AOC prior to conveying its gas interests in the West Panhandle Field to Canadian, sold to J. J. Hastings the privilege of extracting natural gasoline from natural gas delivered pursuant to its contract with Little (later Panhandle) and from any other natural gas sold for use in Amarillo. AOC was to receive on a sliding scale, 25% to 45% of all natural gasoline so extracted. J. J. Hastings later conveyed his rights under this 1922 contract to Cannon Gasoline Co.

Thus, subsequent to the execution of the 1928 "B" contract Canadian owned the various gas related interests in the West Panhandle Field previously owned by AOC, subject to AOC's right to purchase natural gas under the "B" contract provisions discussed above, and Hastings (later Cannon) had the right to extract natural gasoline from gas being supplied pursuant to the "B" contract until this right was reconveyed by Cannon to AOC in 1951.

In 1951 AOC's parent, Southwestern Development Co., entered into an agreement with Canadian and Colorado Interstate Gas Co. (CIG) whereby Canadian would be merged with CIG. As a part of this agreement Canadian deeded to Westpan Hydrocarbon Company on December 26, 1951 "all hydrocarbons having a boiling point as high and higher than ethane, including without limitation, all ethane, propanes, lentanes, pentanes and all heavier hydrocarbons contained in the natural gas in place" in and under the West Panhandle Field lands and leaseholds then owned by Canadian, "less, however, only such hydrocarbon constituents required in good faith" to be delivered to AOC by Canadian under and pursuant to the "B" contract.

On September 10, 1963, Mapco Inc., plaintiff herein, acquired all rights conveyed by Canadian to Westpan under the December 26, 1951 deed (Westpan Deed) referred to above, that is, all the hydrocarbons contained in the natural gas in place under the leaseholds owned by Canadian prior to Canadian's merger with CIG in 1951.

As noted, on November 26, 1951, AOC repurchased Cannon's right to extract natural gasoline from natural gas sold for use in Amarillo and vicinity and also purchased the Cannon gasoline plant in use at that time. AOC operated the old Cannon plant until its new extraction plant was completed at Fain, in 1952, and since that time AOC or its assignee has extracted liquid hydrocarbons from gas delivered pursuant to the "B" contract. It is the extraction and marketing of these liquid hydrocarbons by AOC that forms the basis of this action.

The plaintiff seeks a declaratory judgment that it owns all liquid hydrocarbons in place under the relevant leaseholds in the West Panhandle Fields, and that all liquid hydrocarbons extracted by defendant at its Fain plant must be sold for consumption by customers in the City of Amarillo, Texas or its environs. Additionally plaintiff claims that it is entitled to reimbursement for certain butanes and propanes which have been extracted from gas purchased by defendants under the "B" contract and marketed outside the City of Amarillo and its environs.

The plaintiff also claimed at the time of trial, although not included in the pleadings or pretrial order of this case, that it was entitled to 45% of the net proceeds received by defendants from the sale of natural gasoline extracted from gas delivered under the "B" contract. Defendants duly objected to the inclusion of evidence on this issue at trial, and the court is of the opinion that the failure of plaintiff to include a claim for this item in any of the pleadings or pretrial order submitted to the court mandates a denial of this claim. Marble v. Batten & Co., 36 F.R.D. 693 (D.C.Dist. Ct.1964). However, even had the plaintiff properly pleaded and asserted its claim to 45% of the net proceeds from the sale of natural gasoline extracted from the gas in question, a recovery on this claim would be denied to plaintiff on the basis of the facts as found and the conclusions reached by the court in this respect.

Mapco's claim to 45% of the natural gasoline extracted from natural gas supplied pursuant to the "B" contract is necessarily based upon the 1928 conveyance from AOC to Canadian whereby AOC "granted, sold, conveyed, transferred and assigned . . unto Canadian all gas, gas rights and gas privileges of every kind and character whatsoever . . ." owned by AOC in the West Panhandle Field. Mapco's theory is that this conveyance included AOC's right to 45% of natural gasoline extracted from natural gas supplied to the City of Amarillo, such right existing in AOC by virtue of its 1922 contract with Hastings. Then, under Mapco's reasoning, this right passed to its predecessors and thus to it under the Westpan deed wherein Mapco's predecessors acquired from Canadian the liquid hydrocarbons in place in the West Panhandle Field.

Assuming, but not so finding, that the 1928 AOC to Canadian conveyance was sufficient to convey the right to 45% of extracted natural gasoline to Canadian, this court finds that such right was reconveyed to AOC under the "B" contract and thus Mapco is entitled to no recovery pursuant to this claim.

The "B" contract purports to convey to AOC from Canadian "all natural gas" required by AOC to supply its customers in Amarillo and its environs as well as the gas required by AOC to fulfill its contracts with Panhandle and the zinc smelter. Under Texas law a conveyance of "all natural gas" conveys to the grantee natural gasoline contained within that gas. Lone Star Gas Co. v. Stine, 41 S.W.2d 48 (Tex. Com.App.1931). Therefore, even assuming that the 1928 conveyance by AOC of its gas interests in the West Panhandle Field to Canadian was sufficient to include therein AOC's right to 45% of the natural gasoline extracted from gas supplied to the City of Amarillo, the "B" contract reconveyed such right back to AOC by virtue of the fact that the "B" contract conveyed to AOC title to all natural gasoline contained within the gas supplied for Amarillo and its environs.

Secondly, Mapco claims that it owns and is entitled to recover the value of liquid hydrocarbons previously extracted and which may be extracted in the future from natural gas...