Pierce v. Texas Pac. Oil Co., Inc., 75-1759
| Decision Date | 30 December 1976 |
| Docket Number | No. 75-1759,75-1759 |
| Citation | 547 F.2d 519 |
| Parties | Sharon Kay PIERCE, Sole Trustee of the Earl Ray West Family Trust, Appellee, v. TEXAS PACIFIC OIL COMPANY, INC., a corporation, Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
F. Lovell McMillin, Fischl, Culp, McMillin, Kern & Cawley, Ardmore, Okl. (Thomas W. Lynch, Dallas, Tex., of counsel, with him on the brief), for appellant.
Charles E. Malson, Oklahoma City, Okl., for appellee.
Before HILL, SETH and McWILLIAMS, Circuit Judges.
This is a diversity suit brought by or on behalf of the successor to the lessors of an oil and gas lease against the lessee. The question concerns the payment of royalty on gas under the lease provisions after the land had been included with other lands in a spacing unit established by the Oklahoma Corporation Commission.
Both parties filed motions for summary judgment. The trial court granted plaintiff's motion.
Some background facts should be recited. Thus, the record shows that Ray West and Donna F. West, husband and wife, as lessors, executed an oil and gas lease to Texas Pacific Oil Company, Inc., covering the SW/4 of Section 4, Township 10 North, Range 9 West, Caddo County, Oklahoma. The lease was a form apparently commonly used in Oklahoma and somewhat imprecisely identified as: "Form 88 Prod. (pooling) (Okla.) (640 Shut In) (Revised 1963)." In any event, the pertinent language of the lease for our purposes is found in clause 2, which reads in part: "To pay lessor . . . one-eighth (1/8) at the market price at the well for gas sold." Subsequent to the execution of the oil and gas lease, the Wests assigned their interest to plaintiff. Thereafter, the Oklahoma Corporation Commission ordered 640-acre drilling and spacing units for the Morrow and Springer Sands as a common source of supply underlying all of Section 4, Township 10 North, Range 9 West, Caddo County, Oklahoma. The Oklahoma Corporation Commission's order stated, in part:
"That all royalty interest within any spacing unit shall be communitized and each royalty owner within any unit shall participate in the royalty from the well drilled thereon in relation that the acreage owned by him bears to the total acreage in the unit."
The defendant-lessee joined with other working interest owners in the section in drilling a well on Section 4, known as the Lange Well.
Gas was found in the Lange Well, and was produced and marketed. Defendant sold its Lange Well gas under a gas purchase contract to Oklahoma Natural Gas Company. The other working interest owners in the Lange Well sold their gas either to the same company or to Oklahoma Gas and Electric Company. Under the contracts, Oklahoma Natural Gas Company received 25.77458% of the Lange Well gas and Oklahoma Gas and Electric Company received 74.22542%. The problem arises because the prices for gas received in sale by defendant to Oklahoma Natural Gas were higher than the prices for gas sold by others to Oklahoma Gas and Electric. Thus appellee received her percentage of sales to Oklahoma Natural Gas at the higher price, and received her percentage of sales to Oklahoma Gas and Electric at the lower price. Appellee was, of course, paid her royalty out of all production from the Lange Well unit in the proportion that her acreage bore to the acreage in the unit. Thus she received .015625% of sales to Oklahoma Gas and Electric and the same percentage of sales to Oklahoma Natural Gas.
There is no issue as to the shares, and plaintiff's cause of action is based on the theory that defendant should pay her also, or in addition, the difference between the low gas price and the higher gas price, and this should be paid out of defendant's working interest. The lease provides for the usual one-eighth of the "market price at the well," as quoted above. But the contention of appellee is based upon this "market price" provision, on several Oklahoma statutory provisions, and on a construction of Shell Oil Co. v. Corporation Comm'n, 389 P.2d 951 (Okl.), a case referred to as the "Blanchard Case."
The relevant statute in Oklahoma regarding communitization is 52 O.S.A., 1969, § 87.1(d), which states in part:
"In the event a producing well, or wells, are completed upon a unit where there are, or may thereafter be, two (2) or more separately owned tracts, any royalty owner or group of royalty owners holding the royalty interest under a separately owned tract included in such spacing unit shall share in the one-eighth (1/8) of all...
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