NORTHERN NATURAL GAS COMPANY v. Grounds, Civ. A. No. KC-1969

• Decision Date: 12 November 1974
• Docket Number: Civ. A. No. KC-1969,KC-1945?€”KC-1948 and KC-1980.
• Parties: NORTHERN NATURAL GAS COMPANY et al., Plaintiffs, v. Ralph GROUNDS and Henry Hitch, Jr. et al., Defendants. CITIES SERVICE GAS COMPANY et al., Plaintiffs, v. MOBIL OIL CORPORATION et al., Defendants. CITIES SERVICE GAS COMPANY et al., Plaintiffs, v. ASHLAND OIL AND REFINING COMPANY et al., Plaintiffs. CITIES SERVICE GAS COMPANY, et al., Plaintiffs, v. COLUMBIAN FUEL CORPORATION et al., Defendants. CITIES SERVICE GAS COMPANY et al., Plaintiffs, v. PAN AMERICAN PETROLEUM CORPORATION et al., Defendants. NATIONAL HELIUM CORPORATION, Plaintiff, v. PANHANDLE EASTERN PIPE LINE COMPANY et al., Defendants.
• Court: U.S. District Court — District of Kansas

393 F. Supp. 949

NORTHERN NATURAL GAS COMPANY et al., Plaintiffs, v. Ralph GROUNDS and Henry Hitch, Jr. et al., Defendants.

CITIES SERVICE GAS COMPANY et al., Plaintiffs, v. MOBIL OIL CORPORATION et al., Defendants.

CITIES SERVICE GAS COMPANY et al., Plaintiffs, v. ASHLAND OIL AND REFINING COMPANY et al., Plaintiffs.

CITIES SERVICE GAS COMPANY, et al., Plaintiffs, v. COLUMBIAN FUEL CORPORATION et al., Defendants.

CITIES SERVICE GAS COMPANY et al., Plaintiffs, v. PAN AMERICAN PETROLEUM CORPORATION et al., Defendants.

NATIONAL HELIUM CORPORATION, Plaintiff, v. PANHANDLE EASTERN PIPE LINE COMPANY et al., Defendants.

Civ. A. Nos. KC-1969, KC-1945?€”KC-1948 and KC-1980.

United States District Court, D. Kansas.

November 12, 1974.

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Dale M. Stucky and Wayne Coulson, of Fleeson Gooing Coulson & Kitch, Wichita, Kan., Kramer Nordling Nordling & Fay, Hugoton, Kan., for Landowners.

Mark H. Adams, of Adams, Jones, Robinson & Malone, Wichita, Kan., for Northern Natural Gas Co., Northern Helex Co., Northern Gas Products Co., Cities Service Cryogenics, Inc., Cities Service Helex, Inc. and Cities Service Gas Co.

Emmet A. Blaes, of Jochems Sargent & Blaes, Wichita, Kan., for National Helium Corp. and Panhandle Eastern Pipe Line Co.

Richard Jones, of Hershberger, Patterson & Jones, Wichita, Kan., for Mapco Production Co., Mobil Oil Corp. and Superior Oil Co.

Gerald Sawatzky, of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for Cabot Corp., Ashland Oil & Refining Co., Dorchester Gas Producing Co., Helmerich & Payne, Inc. and Texaco, Inc.

Robert J. Roth, U. S. Atty., Wichita, Kan., Wallace H. Johnson, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., David W. Miller, Land & Natural Resources Div., Dept. of Justice, Washington, D. C., for United States.

Donald I. Mitchell, Wichita, Kan., for Federal Land Bank.

Glenn D. Young, Jr., of Gott, Hope, Gott & Young, Wichita, Kan., for Amoco Production Co.

Stanford J. Smith, of McMaster & Smith, Wichita, Kan., for Cities Service Oil Co.

Joseph Kennedy, of Morris, Laing, Evans, Brock & Kennedy, Wichita, Kan., for Phillips Petroleum Co.

Daniel R. Hopkins and Wm. J. Sears, Oklahoma City, Okl., for Cities Service Cryogenics, Inc., Cities Service Helex, Inc. and Cities Service Gas Co.

George B. Collins, of Collins & Collins, Wichita, Kan., for Diamond Shamrock Corp.

Wm. F. Pielsticker, Wichita, Kan., James B. Diggs, Oklahoma City, Okl., for Gulf Oil Corp.

H. O. Hickman and R. H. Landt, Denver, Colo., for Amoco Production Co.

Don Jemison, Bartlesville, Okl., for Phillips Petroleum Co.

Wendell J. Doggett and A. H. John LaForce, II, Houston, Tex., for National Helium Corp. and Panhandle Eastern Pipe Line Co.

Arloe W. Mayne and G. Fred Charles, Ashland, Ky., for Ashland Oil & Refining Co.

Leo Winters, Oklahoma City, Okl., Gene Stipe and Richard L. Gossett, McAlester, Okl., for Landowners.

William H. Tabb and Donald G. Canuteson, Dallas, Tex., for Mobil Oil Corp.

W. M. Sutton and H. A. Berry, of Underwood, Wilson, Sutton, Heare & Berry, Amarillo, Tex., for Diamond Shamrock Corp.

Philip R. Wimbish and Elmer W. Adams, Tulsa, Okl., for Texaco, Inc.

E. L. Creasey and Sam Riggs, Jr., Tulsa, Okl., for Cities Service Oil Co.

Eugene G. Bell, Tulsa, Okl., for Mapco Production Co.

Richard B. McDermott, of Boesche, McDermott & Eskridge, Tulsa, Okl., for Phillips Petroleum Co.

William R. Horkey and Leon C. Gavras, Tulsa, Okl., for Helmerich & Payne, Inc.

F. Vinson Roach and Patrick J. McCarthy, Omaha, Neb., for Northern Natural Gas Co., Northern Helex Co. and Northern Gas Products Co.

W. A. McWilliams, Oklahoma City, Okl., for Landowners.

W. E. Notestine, Amarillo, Tex., for Diamond Shamrock.

Homer D. Johnson, Roy Schaeffer, William C. Charlton, Pampa, Tex., for Cabot Corp R. T. Robberson, Houston, Tex., for Superior Oil Co.

C. A. Conoley, Kansas City, Mo., for National Helium Corp., Panhandle Eastern Pipe Line Co.

J. M. O'Loughlin, Houston, Tex., for Ashland Oil & Refining Co.

James R. Coffee and William J. Bonner, Dallas, Tex., for Atlantic Richfield.

MEMORANDUM OF OPINION

FINDINGS OF FACT AND CONCLUSIONS OF LAW UPON REMAND

WESLEY E. BROWN, Chief Judge.

A. Statement of the Case.

This is a continuation of six consolidated interpleader actions filed in 1963, involving title to, and rights in the commodity or element known as "helium," which are reported as Northern Natural Gas Company v. Grounds, D.C., 292 F. Supp. 619, and Northern Natural Gas Company, et al. v. Grounds, 10 Cir., 441 F.2d 704 (1971), cert. den., 404 U.S. 951, 92 S.Ct. 268, 30 L.Ed.2d 267; 404 U.S. 1063, 92 S.Ct. 732, 30 L.Ed.2d 751; 404 U.S. 1065, 92 S.Ct. 732, 30 L.Ed.2d 754. The first trial of these actions, had in October 23, 1967 ?€” January 5, 1968, involved the ownership of helium contained in or extracted from natural gas produced from wells drilled in the Hugoton gas areas of Kansas, Oklahoma, and Texas. Further description of issues involved in these interpleader actions may be found in the reported decisions, supra, and will not be repeated except insofar as it may be necessary for discussion of issues which remain after remand to this court.

At the first trial, it was found that the Landowners did convey to their lessees all rights and title to helium contained in the natural gas stream, except those rights specifically reserved. It was further found that the Lessee-Producers, who sold and delivered gas to pipeline company purchasers, pursuant to gas purchase contracts, had likewise conveyed title to the helium component of the natural gas stream, and that the plaintiffs in interpleader, the helium extracting companies, or "Helex group" had title to the helium component of the natural gas stream. Northern Natural Gas Company v. Grounds, 292 F.Supp. 619, at 686-687.

On appeal, the Court of Appeals sustained these findings, ruling that, absent specific reservations, the grant of "gas" by the Landowners in their leases effectively conveyed all components of the natural gas stream, including helium, and that the gas sales contracts between the Lessee-Producers and the pipeline companies, likewise conveyed all components of the natural gas stream, including helium.¹

On appeal from this court's determination that ? 11 of the Helium Act Amendments, 50 U.S.C. ? 167i, did not alter the scope of the gas purchase contracts, so as to allow the Lessee-Producers to share in revenues derived by the Helex companies from their sales of helium to the government, the Lessee-Producers successfully persuaded the Court of Appeals that they were entitled to compensation for the reasonable value of helium contained in the natural gas stream. The appellate court felt that the producers fell into a "void" between FPC regulated gas purchase contracts and the helium legislation regulated by the Bureau of Mines: (441 F.2d at 722-723):

Neither the FPC nor the Bureau of Mines has jurisdiction over the helium value of the natural gas. Although the gas purchase contracts have not been abrogated, the price provisions thereof have been superseded by FPC rate regulation. The regulated lessee-producers must continue to sell the dedicated gas and have no statutory or contractual method of obtaining any benefit for the increased value. Two results are possible. The first is that the lessee-producers must deliver the gas at the FPC service rate, based on fuel value, and receive nothing for the helium value. This produces a windfall for the pipelines and their Helex subsidiaries. The second is that the lessee-producers are entitled to the reasonable value of the contained helium. This means that the landowners will receive royalties on the value of the helium produced from their lands and the lessee-producers will receive value for the helium content of the natural gas which has been produced by their efforts. We believe that satisfactory utility regulation requires the second result. Otherwise a utility rate may be used to obtain a commodity or service which is not within the contemplation of that rate. (Emphasis supplied.)

* * * * * *

In our opinion the reconciliation of the Natural Gas Act and of the 1960 amendments to the Helium Act to attain a symmetrical whole requires the conclusion that the FPC service rates do not apply to deny recovery for the contained helium which is processed in the separation plants. Hence, the lessee-producers recover from the fund the reasonable value of the helium content of the processed gas and they in turn must pay royalty thereon to the landowners. We believe that this result is a valid reconciliation of the statutes and a proper determination of the rights of the parties.

The Court of Appeals remanded the interpleader cases, with instructions that this court determine the reasonable value of the helium in question, which determination would be subject to review by the Court of Appeals.

B. Proceedings on Remand.

After remand, the motion of the United States for leave to intervene as party plaintiff was sustained. Dkt. 1410, 1429. The United States is not a party defendant in any respect, and appears in these proceedings on remand solely for the purpose of attempting to prove that the reasonable value of the helium content of the natural gas processed in the helex plants is nominal. Dkt. 1446, Complaint in Intervention.²

Atlantic Richfield Company, a lessee-producer, was also granted leave to intervene in these interpleader actions for the purpose of establishing its claim to a portion of the interpleaded funds. This claim is based upon alleged delivery of helium bearing natural gas which was ultimately processed for extraction by Northern Helex Company. The claim of Atlantic Richfield is designed to determine the status of those lessee-producers whose helium bearing natural gas was sold to others, but ultimately found its way into the conservation extracting plants by means of certain...