Mapco Inc. v. Pioneer Corp.

• Decision Date: 10 April 1980
• Docket Number: No. 78-1382,78-1382
• Citation: 615 F.2d 297
• Parties: MAPCO INC., Plaintiff-Appellant, v. PIONEER CORPORATION and Amarillo Oil Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 297

615 F.2d 297

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

No. 78-1382.

United States Court of Appeals, Fifth Circuit.

April 10, 1980.

Robert D. Lemon, Robert D. McCutcheon, Perryton, Tex., Holliman, Langholz, Runnels & Dorwart, Frederic Dorwart, J. Michael Medina, Thomas M. Davidson, Gen. Counsel, Rucker, Tabor, McBride & Hopkins, Paul P. McBride, Tulsa, Okl., for plaintiff-appellant.

Locke, Purnell, Boren, Laney & Neely, John L. Estes, Nathan L. Hecht, Dallas, Tex., for Pioneer Corp. and Amarillo Oil Co.

Appeal from the United States District Court for the Northern District of Texas.

Before TUTTLE, FAY and THOMAS A. CLARK, Circuit Judges.

TUTTLE, Circuit Judge:

This appeal challenges the correctness of the trial court's interpretation of a contract between Mapco's predecessor, Canadian, and the appellee, Amarillo (AOC) which allows Amarillo to continue requiring Mapco to deliver at cost raw natural gas to it in an amount necessary to supply named customers, in the City of Amarillo and its environs, from which stream of gas Amarillo first extracts and markets certain liquid hydrocarbons which it then sells to others than its named customers.

The trial court reached its conclusion by construing the contract between the parties as unambiguously authorizing Amarillo to require delivery of all the gas it needed to supply its customers after it extracted the liquid hydrocarbons from the raw gas, and, alternatively, concluded that if the contract was ambiguous, the course of conduct of the parties over a period of 12 years demonstrated their understanding of the provisions of the contract to be that reached by the court and, moreover, the court found that such conduct by the appellant estopped it from changing its long acceptance of AOC's interpretation of the contract to an inconsistent position.

The appeal is from a non-jury trial as a result of which the trial court made 93 numbered findings of fact which are all accepted without contest by the appellant except for findings numbers 13, 87 and 89. The facts as recited in this opinion will not include those to which Mapco takes exception.

The contract at issue is what is known as the "B" contract, so called because in a 1928 agreement between other parties it was referred to as "Exhibit B." On June 5, 1928 AOC conveyed all of its gas interests in the West Panhandle field of Texas to Canadian and as a part of the same transaction Canadian and AOC executed the "B" contract to sell AOC natural gas from the West Panhandle field. The purpose of the "B" contract was to permit AOC to continue to carry out obligations it had already undertaken with Panhandle Pipeline Company to supply the customers of Panhandle in the City of Amarillo, Texas; and with United States Zinc Company to supply all the natural gas which AOC by contract was required to supply to the company for its smelter at Amarillo; and all the natural gas 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 record discloses without dispute that prior to this transaction AOC had been extracting gasoline and some butane from the natural gas as it flowed from the well and it delivered the gas to the Amarillo customers in a less enriched state. In fact, the contract referring to the United States Zinc Company's smelter indicated that AOC was to supply "dry gas" to it.

Continuing after the execution of the 1928 contract, AOC or its assignees extracted such liquid hydrocarbons as the technology at the time made valuable for sale separate from the gas subsequently to be used for the Amarillo customers. This state of affairs continued until September 10, 1963 when Mapco acquired the rights previously held by Canadian, which were burdened by the AOC contract of 1928 discussed above. These rights were acquired by what is known as the "Westpan" deed. Mapco's claims here depends solely on the Westpan deed which conveyed to Mapco only what Westpan had obtained from its grantor Canadian. This grant was expressed in a 1959 deed as follows:

. . . Canadian River Gas Company . . . does hereby grant, bargain, sell, transfer, assign, convey and set over unto Grantee all hydrocarbons having a boiling point as high and higher than ethane, including without limitation, all ethane, propane, butanes, pentanes and all heavier hydrocarbons contained in the natural gas in place (all hereinafter referred to as "hydrocarbon constituents"), in and under the lands and leaseholds hereinafter described, less, however, only such hydrocarbon constituents required in good faith

(a) to be delivered by Grantor to Amarillo Oil Company (hereinafter called "Amarillo") its successors and assigns, under and pursuant to, and in order to comply with, the terms, as such terms exist at this date, or that certain contract entered into between Grantor and Amarillo, the same being commonly known as the "B" contract, which bears date of January 3, 1928, said "B" contract having been last amended on July 11, 1949. . . .

(Emphasis added.)

In 1965, AOC spent a million and a half dollars rebuilding the extracting plant by which it was withdrawing the liquid hydrocarbons from the gas which it obtained from Mapco to supply its Amarillo customers.

The trial court found that from 1963 onward Mapco knew that AOC was extracting the liquid hydrocarbons from the gas it purchased for Amarillo customers and was shipping them outside of the Amarillo area. The court also found that no protest or contention was made that this course of conduct was not authorized under the 1928 "B" contract until this suit was filed in 1975.

There is one further fact that we must consider in construing this contract. It is undisputed that the raw gas as delivered by Mapco at the well head could not safely be supplied by AOC under its contract to its customers in Amarillo. Some of the liquids had to be removed from the gas for safe transportation and use. Significantly, there is the unchallenged finding of fact by the trial court, # 93: "There is no evidence of the specific amount or level of liquid hydrocarbons which must be removed from "B" gas to render the gas safely transportable by pipeline."

Since we are interpreting the written "B" contract, it is necessary to set out its text here. The seller in the contract is the predecessor of Mapco and the buyer is AOC:

I. Seller agrees to sell and deliver to Buyer and Buyer agrees to purchase and take from Seller and pay for:

(a) All the natural gas in excess of that purchased by Buyer from other producers required by Buyer for sale under and pursuant to the contract hereto annexed and marked Exhibit "E" to the Panhandle Pipe Line to supply the customers of the Panhandle Pipe Line Company in the City of Amarillo and its environs in the State of Texas;

(b) All the natural gas in excess of that purchased by Buyer from other producers required by Buyer for sale under and pursuant to the contract hereto annexed and marked Exhibit "F" to the United States Zinc Company to supply the United States Zinc Company's smelter located at Amarillo, Texas;

(c) All the natural gas in excess of that purchased by Buyer from other producers required by Buyer to supply any customers located in the City of Amarillo or its environs in the State of Texas which Buyer, Panhandle Pipe Line Company or the Amarillo Gas Company now has or may hereafter acquire.

VII. The natural gas delivered hereunder at the gate valves of Seller's wells shall be natural gas as produced...