Moncrief v. Williston Basin Interstate Pipeline Co.

Decision Date10 March 1995
Docket NumberNo. 93-CV-1045-B.,93-CV-1045-B.
Citation880 F. Supp. 1495
PartiesW.A. MONCRIEF, Jr., individually, as independent executor of the Estate of W.A. Moncrief, deceased, as Trustee for the Lee Wiley Moncrief Trust, as Trustee for the Tom O. Moncrief 1967 Trust, as Trustee for the William Alvin Moncrief, III, Trust; Charles B. Moncrief, individually and as independent executor and personal representative of the Estate of W.A. Moncrief, deceased; Richard W. Moncrief, as independent executor and personal representative of the Estate of W.A. Moncrief, deceased, and as Trustee for the RWM 1988 Trust; Michael J. Moncrief, individually and as Trustee for the Michael T. Moncrief Grantor's Trust; Richard Barto Moncrief, individually, and Wade W. Wiley, Jr., as Trustee for the Richard Barto Moncrief 1988 Trust, Plaintiffs, v. WILLISTON BASIN INTERSTATE PIPELINE COMPANY, and MDU Resources Group, Inc., Defendants.
CourtU.S. District Court — District of Wyoming

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Craig Newman, Casper, WY, and William Pannill, Roy L. Barnes, Houston, TX, for plaintiffs W.A. Moncrief, Jr., individually, as independent executor of the estate of W.A. Moncrief, deceased, as Trustee for the Lee Wiley Moncrief Trust, as Trustee for the Tom O. Moncrief 1967 Trust, and as Trustee for the William Alvin Moncrief, III, Trust, Charles B. Moncrief, individually and as independent executor and personal representative of the Estate of W.A. Moncrief, deceased, and Richard W. Moncrief, as independent executor and personal representative of the Estate of W.A. Moncrief, deceased, and as Trustee for the RWM 1988 Trust.

Terry W. Mackey, Cheyenne, WY, for plaintiffs Michael J. Moncrief, individually and as Trustee for the Michael J. Moncrief Grantor's Trust, Richard Barto Moncrief, individually, and Wade Wiley, Jr., as Trustee for the Richard Barto Moncrief 1988 Trust.

John Suder, appeared as guardian ad litem, for Lee Wiley Moncrief.

James S. Hill, Daniel S. Kuntz, Zuger, Kirmis & Smith, Bismarck, ND, and Frank D. Neville, Casper, WY, for defendants Williston Basin Interstate Pipeline Co. and MDU Resources Group, Inc.

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

BRIMMER, District Judge.

The above-entitled matter having come before the Court upon the parties' motions for summary judgment and briefs in support of and in opposition thereto, and the Court having reviewed the materials on file herein, having heard argument from the parties, and being fully advised in the premises, FINDS and ORDERS as follows:

Background

This case arises out of a dispute regarding the terms of a contract between the plaintiff's father, W.A. Moncrief, and the defendants, Williston Basin Interstate Pipeline Company (WBIPC) and Montana Dakota Utilities Resources Group (MDU), in which the defendants agreed to purchase natural gas from the Powell II Unit, an operating unit in Converse County, Wyoming.

On July 7, 1976, MDU signed separate contracts with Woods Petroleum Company (Woods) and W.A. Moncrief, who had a working interest in the unit, and several other interest owners, to purchase gas produced from the Powell II Unit. Under the contract with Moncrief, MDU agreed to purchase from Moncrief "the daily quantity of gas which is physically available to Buyer at the delivery point on each day of the term hereof' for a term of 20 years, until July of 1996. MDU wanted all the gas that Moncrief and Woods produced, but the contract capped MDU's obligation to purchase from Powell II Unit at 12,000 Mcf (million cubic feet) per day, which was the capacity of the separation plant and pipeline from the unit. MDU did have the right to take volumes in excess of 12,000 Mcf daily by constructing facilities necessary to accept such volumes.

The contract set a base price of $1.00 per MMBTU (million British Thermal Units) from the date of initial delivery until January 1, 1978. The price provision set escalations of 1.5 cents per MMBTU every year beginning January 1, 1978. In addition, the price provision of the contract contained three indefinite escalator clauses: (1) an area-rate clause providing that the contract price would automatically increase to a "higher just and reasonable area rate including all adjustments for the same type of gas as committed hereunder" prescribed or permitted for the pricing area in which the properties are located by the Federal Power Commission or a successor; (2) a favored-nations clause covering lands located East of the Continental Divide in Wyoming;1 and (3) a clause providing for a price redetermination in the event that deregulation of interstate gas should occur. This final clause prohibited any redetermination resulting in a price lower than the price otherwise applicable under the contract.

During the term of the contract, the parties amended it to include additional lands outside the Powell II Unit upon which Woods and W.A. Moncrief had production. In 1983, the owners of the Powell II Unit started a repressurization program for secondary recovery of oil and natural gas from the unit. The reinjection plan called for a 14 year period of recycling followed by six or seven years of "blow down" production of the injected gas. All of the natural gas produced from the unit was processed to remove liquid hydrocarbons and then injected or "recycled" back into the unit to maintain the reservoir pressure. In addition to this recycled native gas, the unit owners were encouraged by MDU to purchase natural gas rather than nitrogen (which was less costly) from outside sources ("makeup gas") because the nitrogen would have to be removed by processing upon production. All the natural gas from the unit was used for recycling and no gas was delivered to MDU during that time. Defendant MDU did, however, continue to purchase gas produced from Moncrief and others from lands located outside the pressure maintenance unit dedicated in the contract.

The enactment of the Natural Gas Policy Act (NGPA) on November 9, 1978, for the first time extended price regulations to the intrastate market. The Powell II Unit gas sold under the contract was classified as § 105 gas by the Federal Energy Regulatory Commission (FERC).2 Section 105 gas is "old gas" which was sold under an existing contract on November 8, 1978, but which was not committed or dedicated to interstate commerce. The Act established a maximum lawful price for § 105 gas which was the lower of the contract price or the maximum price for § 102 gas, new natural gas. Pursuant to the area rate clause of the Moncrief contract, MDU paid the § 102 price for gas delivered under the contract until January 1, 1985. The highest regulated price that MDU matched under the contract was the § 102 rate for December 1984 of $3.845. Additionally, MDU reimbursed Moncrief for severance taxes under Section 110 of the NGPA. Effective January 1, 1985, some categories of §§ 102 and 103 gas prices were deregulated. The parties, however, dispute whether the deregulation covered the price of § 105 gas.

Anticipating this deregulation, MDU sent a letter to its natural gas sellers, including W.A. Moncrief, proposing a price of $2.25 per MMBTU effective January 1, 1985. This proposed price was less than the previous regulated price. At about the same time, MDU formed a subsidiary, the Williston Basin Interstate Pipeline Company (WBIPC), and assigned its gas contracts to WBIPC, effective January 1, 1985. Williston Basin Interstate Pipeline Company offered to pay an additional fifty cents per MMBTU for gas produced in 1985, if the seller agreed to execute a contract amendment releasing MDU and WBIPC from any past claims under the contract, which Moncrief never did.

Representatives from MDU and WBIPC met with W.A. Moncrief and W.A. Moncrief, Jr. ("Tex" Moncrief) in August of 1984 and February 28, 1985, to discuss these proposals. There is some dispute as to the outcome of those discussions: Ronald Tipton, the new vice-president in charge of gas supply at MDU, recalls that the Moncriefs would not agree to amend their contract, but he concluded that they would not sue WBIPC even if it reduced the price to $2.25 per MMBtu for the gas. Tex Moncrief does not recall the substance of these discussions, but notes taken by one of his employees indicate that Tex Moncrief never signed the amendment and that he did orally agree to the $2.25 per MMBTU price. Williston Basin Interstate Pipeline Company paid Woods the $2.25 per MMBTU price for what it understood was Moncrief's interest in the gas purchased under the contract during 1985 and 1986 and those payments were cashed by Moncrief.

W.A. Moncrief died on May 21, 1986, at the age of 92, and Tex Moncrief became one of the co-executors of his father's estate. He has since qualified as an independent executor in an ancillary probate proceeding commenced in Wyoming, since the working interests in the Powell II Unit are interests in rem and the Wyoming probate court therefore has exclusive jurisdiction thereof. See In re Ray's Estate, 287 P.2d 629, 634 (Wyo. 1955) (adopting doctrine of lex loci rei sitae, the law of the place where the subject matter is located governs) and Wyo.Stat. Section 22-101 (Wyoming probate courts issuing letters testamentary have exclusive jurisdiction over all matters touching on the settlement and distribution of estates).

On October 3, 1986, WBIPC notified Tex Moncrief of its intent to reduce the price it paid for natural gas effective January 1, 1987, and Williston Basin Interstate Pipeline Company subsequently paid Woods $1.75 per MMBTU for W.A. Moncrief's gas from January 1, 1987, through October 31, 1993. Those payments were made to Woods, as Moncrief's agent, accompanied by statements reflecting the purchase price for the gas. Woods then provided monthly settlement statements and checks to Moncrief3 which reflected the amounts received for the gas. These payments were accepted without reservation...

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