McCombs v. Federal Power Commission, 75-1829
| Decision Date | 18 October 1976 |
| Docket Number | No. 75-1829,75-1829 |
| Citation | 542 F.2d 1144 |
| Parties | Billy J. McCOMBS et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, United Gas Pipe Line Company, Intervenor. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Stanley L. Cunningham of McAfee, Taft, Mark, Bond, Rucks & Woodruff, Oklahoma City, Okl. (Philip D. Hart and Terry R. Barrett, Oklahoma City, Okl., with him on the brief), for petitioners, Billy J. McCombs et al.
Jerome Ackerman of Covington & Burling, Washington, D.C. (Nicholas W. Fels, Washington, D.C., with him on the brief), for petitioner, E. I. du Pont de Nemours & Co.
Thomas M. Walsh, Atty., Federal Power Commission, Washington, D.C. (Drexel D. Journey, Gen. Counsel, Robert W. Perdue, Deputy Gen. Counsel, Allan Abbot Tuttle, Sol., Federal Power Commission, Washington, D.C., with him on the brief), for respondent.
Platt W. Davis III, of Vinson, Elkins, Searls, Connally & Smith, Washington, D.C. (Barbara S. Blaine, Washington, D.C.; J. Evans Attwell of Vinson, Elkins, Searls, Connally & Smith, William B. Cassin and Larry J. Gunn, Houston, Tex., and Knox Bemis of Sharon, Pierson, Semmes, Crolius & Finley, Washington, D.C., of counsel, with him on the brief), for intervenor, United Gas Pipe Line Co.
Before HILL and SETH, Circuit Judges, and TEMPLAR, Senior District Judge. *
This is a proceeding to review Opinions Nos. 740, 740-A, and 740-B of the Federal Power Commission entered in its docket No. CP74-94. The orders were stayed by this court on December 9, 1975.
The issues on this review concern two sections of the Natural Gas Act, Sections 7(b) and 7(c) (15 U.S.C. §§ 717f(f) and 717f(c)). The Commission found that the petitioners had violated the Act by failing to deliver gas to United Gas Pipe Line Company. The petitioners' contention that there was an abandonment under Section 7(b) was thus found to be without merit by the Commission.
The factual background must be described at some length. In May 1948, B. C. Butler, Sr. et al. executed an oil and gas lease to W. R. Quin (the Butler B lease) covering approximately 163 acres (the Butler B tract) in Karnes County, Texas.
Under a Gas Purchase Contract dated April 29, 1953 (the 1953 Gas Purchase Contract), the leaseholders agreed to sell and deliver to United Gas Pipe Line Company "merchantable natural gas . . . produced from all wells now or hereafter drilled" on the Butler B tract plus "seller's proportionate part of all merchantable natural gas produced from any well or wells located on any unit or units" which include any portion of the Butler B tract.
Following the Phillips decision, Quin filed application with the Federal Power Commission for producer certificates. On December 8, 1954, the Commission issued certificates to Quin authorizing the sale, and continued sale, of the natural gas in interstate commerce. The lease was transferred several times.
The Butler B lease was eventually assigned to H. A. Pagenkopf. On June 19, 1963, the Commission ordered termination of the 1954 certificates and issued a new certificate in Docket No. G-12694 authorizing Pagenkopf to continue the service which had been initiated by Quin.
In 1966, Pagenkopf assigned the lease to L. H. Haring, Jr., who, in turn, engaged Bay Rock Corporation as operator. Haring notified United of the assignment, stating that he would make appropriate filings with the Commission reflecting the change in ownership. He never made such filings. At the time of the Pagenkopf-Haring assignment, there was one well on the Butler B tract, the Butler No. 7 Gas Well, which was completed at approximately 2,900 feet, but was not then producing. Haring unsuccessfully attempted to establish production from the well, but all production ceased on May 28, 1966. On December 5, 1966, Haring and Bay Rock notified United that the well was depleted and no more gas was available "at this time." United acknowledged the depletion and removed its equipment but advised that it would reinstall its equipment whenever Bay Rock might have further gas to deliver under the contract. Bay Rock did not seek or obtain Commission authorization to abandon its sale to United.
Nothing further occurred with the Butler B tract until 1971 when Haring transferred his working interest rights in certain deep reservoirs in the acreage to National Exploration Company and the McCombs Group. On November 1, 1971, Haring assigned a working interest in the west 50 acres of the 163-acre Butler B tract from a depth of 4,115 feet to 8,700 feet to National Exploration pursuant to a prior agreement under which the 50-acre interest was unitized by National Exploration with its interest in 302 adjoining acres. National Exploration was unaware at the time of the assignment of United's interest in the Butler B tract. On October 22, 1971, the McCombs Group acquired a working interest in the remaining 113 acres of the Butler B tract between 6,500 feet and 8,653 feet. On November 1, 1971, the McCombs Group designated as the McCombs-Butler Gas Unit No. 1 their interests embracing the east 113 acres of the Butler B tract and the adjoining 150 acres of the Butler A tract at the levels noted. On April 1, 1972, the McCombs Group acquired from Haring a working interest in the entire 163-acre Butler B tract between the depths of 8,700 feet and 9,700 feet. On April 3, 1972, the Group designated as the McCombs-Butler Gas Unit No. 2 their interests embracing the 163-acre Butler B tract and the adjoining 150-acre Butler A tract at the levels noted.
The McCombs Group thereupon began drilling. Relying on a 1967 title opinion which failed to show United's possible interest in the Butler B lease, the Group in September 1971 drilled Butler No. 1 Well in the Butler A tract which produced gas from the McCombs-Butler Gas Unit No. 1. McCombs then contacted United, among others, to negotiate a sale of the gas. By letter dated November 19, 1971, United inquired into the source of the Group's leases. While the record evidence is in conflict as to the details of these negotiations, they were ultimately discontinued. As noted above, the McCombs-Butler Gas Unit No. 1 was designated effective November 1, 1971, and a new title opinion dated December 7, 1971, disclosed United's interest in the Butler B lease.
In February 1972, the Group drilled the Butler No. 2 Well on the Butler A tract which produced gas at depths embraced by the McCombs-Butler Gas Units Nos. 1 and 2. Gas Unit No. 2 was designated on April 3, 1972, but a title opinion dated May 31, 1972, failed to disclose United's possible interest in the Butler B tract.
The McCombs Group had been continuing negotiations for sale of the production and in June 1972 E. I. du Pont de Nemours & Company agreed to purchase all of the gas underlying the Butler A and B tracts for industrial consumption in the intrastate market.
The Group continued drilling operations. In September 1972, the Butler No. 3 Well on the Butler B tract began producing gas at depths embraced by the McCombs-Butler Gas Unit No. 1. At the same time, the Butler Well No. 4 on the Butler A tract produced gas at levels embraced by the McCombs-Butler Gas Units Nos. 1 and 2.
In the meantime, early in 1972, National Exploration drilled two gas producing wells within its allocated depths on the west 50 acres of the Butler B tract. United sought to purchase the gas in April 1972. In the course of preparing the sale, National Exploration notified United that they believed the company's working interest in the 50 acres of the Butler B tract might be subject to United's 1953 Gas Purchase Contract. United thereupon undertook a title search relative to the Butler B tract and in late May 1973, learned of its interest. On June 6, 1973, United notified the McCombs Group of its claim under the 1953 contract.
The Group responded by filing a lawsuit in the District Court of Karnes County, Texas, seeking a declaratory judgment that the Quin-United contract did not entitle United to Butler B gas. The proceeding was removed to the United States District Court for the Western District of Texas where it is being held pending the outcome of these proceedings.
By subsequent agreement, National Exploration agreed to sell its portion of Butler B gas to United and it is no longer a party to the proceedings.
On October 9, 1973, United filed a complaint with the Federal Power Commission alleging that the McCombs Group was violating the Natural Gas Act and requesting the Commission to issue an order requiring the Group to show cause why they were not in violation of the Act. United also asked the Commission to order the Group to deliver to United volumes equivalent to those which had been diverted from the interstate market to du Pont. McCombs filed its Answer and a Motion to Dismiss or Defer the Action, in which it denied violating the Act and moved to dismiss the petitions, or to defer the proceedings pending the outcome of the court litigation which challenged the validity of the Quin-United contract.
On November 27, 1973, the Commission issued a show cause order (JA at 89-92) requiring the Group to appear at hearings and to show cause why they should not be held in violation of Section 7 of the Natural Gas Act; why they should not be required to file applications for certificates of public convenience and necessity as successors in interest; why they should not be required to deliver to United in compliance with the contract provisions volumes equivalent to those withheld from the interstate market; and why they should not be required to cease and desist from the sales then being made in the intrastate market.
On December 12, 1973, the Commission denied McCombs' motions to dismiss or defer the proceedings (JA at 93-95), noting that the validity of the Quin- United contract was irrelevant to the Commission's determination of obligations under the Natural Gas Act.
Hearings commenced...
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