Piney Woods Country Life Sch. v. Shell Oil Co.

• Citation: 539 F. Supp. 957
• Decision Date: 03 May 1982
• Docket Number: Civ. A. No. J74-307(R).
• Parties: The PINEY WOODS COUNTRY LIFE SCHOOL, Ridgway Management, Inc., D'Lo Royalties, Inc., James H. Stewart, Jr., Rubinette Stewart, Diana Stewart Whitehead, Milton Monroe Stewart, Sr., Mrs. Willard Stewart Mitchell, Virginia Hansell Stewart, Individually, and as Trustee for the Benefit of Mrs. Carol Stewart Scott, Milton Monroe Stewart, Jr. and Thomas Hansell Stewart, Mrs. Maggie Fairley Spengler, Thomas L. Spengler, Albert L. Fairley, Jr. and James V. Fairley, Executors of the Estate of Alethe V. Fairley, Individually, and All Others Similarly Situated, Plaintiffs, v. SHELL OIL COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Mississippi

539 F. Supp. 957

The PINEY WOODS COUNTRY LIFE SCHOOL, Ridgway Management, Inc., D'Lo Royalties, Inc., James H. Stewart, Jr., Rubinette Stewart, Diana Stewart Whitehead, Milton Monroe Stewart, Sr., Mrs. Willard Stewart Mitchell, Virginia Hansell Stewart, Individually, and as Trustee for the Benefit of Mrs. Carol Stewart Scott, Milton Monroe Stewart, Jr. and Thomas Hansell Stewart, Mrs. Maggie Fairley Spengler, Thomas L. Spengler, Albert L. Fairley, Jr. and James V. Fairley, Executors of the Estate of Alethe V. Fairley, Individually, and All Others Similarly Situated, Plaintiffs, v. SHELL OIL COMPANY, Defendant.

Civ. A. No. J74-307(R).

United States District Court, S. D. Mississippi, Jackson Division.

May 3, 1982.

COPYRIGHT MATERIAL OMITTED

Ernest G. Taylor, Jr., Watkins, Pyle, Ludlam, Winter & Stennis, Kenneth I. Franks, George F. Woodliff, III, Heidelberg, Woodliff & Franks, L. Arnold Pyle, Barnett, Alagia & Pyle, Jackson, Miss., for plaintiffs.

W. F. Goodman, Jr., Paul Stephenson, Watkins & Eager, Jackson, Miss., Alvin B. Gibson, New Orleans, La., William Simon, Keith E. Pugh, Jr., James Robert Fox, Washington, D. C., for defendant.

OPINION

DAN M. RUSSELL, Jr., Chief Judge.

Piney Woods Country Life School, Ridgway Management, Inc. and other named plaintiffs brought the instant action, individually and on behalf of a putative class¹ designated as all royalty owners in the Thomasville, Piney Woods and Southwest Piney Woods Fields, and other contiguous fields located in Rankin County, Mississippi, whose natural gas is being, has been and/or will be processed through Shell Oil Company's Thomasville Plant Facility. By their complaint, Plaintiffs challenge the propriety of royalty payments made by Defendant, Shell Oil Company (hereinafter referred to as "Shell"), on natural gas produced from five units² in the Thomasville, Piney Woods, and Southwest Piney Woods Fields. Specifically, Plaintiffs allege that: (1) Shell has, and is, improperly charging royalty owners for processing their share of the production from the subject fields at its Thomasville Plant; (2) Shell breached its duty under express and implied covenants to market by its alleged failure to obtain the highest and best price for gas sold to its primary purchaser; and finally, that, (3) Shell's method of calculating royalty payments on the basis of proceeds received from the sale of the natural subject gas rather than its "market value" is in violation of certain of the lease agreements. As relief, Plaintiffs request this Court to order Shell to pay to each of the named plaintiffs and to each class member their respective share of royalty computed on "market value" of the subject gas without deductions for expenses or charges incurred in processing or transporting.

Plaintiffs also allege that Shell violated the Sherman Act, 15 U.S.C. Sections 1 and 2, by an alleged illegal restraint of trade and commerce in the production, processing and sale of sour gas, sweet gas and sulphur, and by an alleged monopolization of the production, processing and sale of sour gas, sweet gas and sulphur in the geographic area consisting of the Thomasville, Piney Woods and Southwest Piney Woods Fields. On Defendant's Motion for Summary Judgment pursuant to F.R.Civ.P. Rule 56(c), this Court previously considered and disposed of Plaintiffs' antitrust claims, excepting from its finding Plaintiffs' claim under Section 1 of the Sherman Act which relates to Shell's alleged restraint of trade in its interstate sales of sulphur. As stated in its Opinion of December 3, 1976, the Court found that a genuine issue of material fact existed regarding the determination of the relevant market for sulphur sales and that further development of proof on this issue was appropriate. At trial, Plaintiffs offered evidence of Shell's allegedly monopolistic practices for the purposes of appeal. However, Plaintiffs declined to go forward with proof on the alleged Section 1 violation. The Court hereby finds and concludes that such claim should be dismissed.

On December 28, 1976, the plaintiff class was tentatively certified under F.R.Civ.P. Rule 23 as including all royalty interest owners in Thomasville, Piney Woods, and Southwest Piney Woods Fields whose share of production is being processed through Shell's Thomasville Plant and whose claims exceed the jurisdictional amount of $10,000.00. Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973); Synder v. Harris, 394 U.S. 332, 89 S.Ct. 1053, 22 L.Ed.2d 319 (1969). The Court ordered that notice be directed to the members of the tentative class informing each of their right to be excluded from this action. Thereafter, a class consisting of seventy-seven (77) members was finally certified by Order dated December 15, 1978.

Trial of this cause was had before the Court without a jury. With apologies to the parties and their attorneys for the inordinate delay in rendering an opinion in this cause, the Court hereby issues and enters the following Findings of Fact and Conclusions of Law pursuant to F.R.Civ.P. Rule 52(a).

FINDINGS OF FACT

As a result of its leasing efforts in the mid-1960's, Shell became the lessee in a substantial number of oil, gas and mineral leases in Rankin and Simpson Counties, Mississippi. After routine geophysical exploration of the area, Shell undertook a drilling program which resulted in the development of the three (3) natural gas fields in Rankin County, Mississippi: Thomasville, Piney Woods and Southwest Piney Woods Fields. It is the production from these fields which is the subject of the instant litigation.

Of thirteen (13) wells drilled in the three (3) fields, the proof indicates that production was being had from the following wells, to wit:

(1) L. D. BURCH # 1, from which production was first had on July 5, 1972, is located in the Thomasville Field on the following described 1280-acre unit:

Section 33, Township 4 North, Range 3 East; and Section 4, Township 3 North, Range 3 East; all in Rankin County, Mississippi.

(2) CRAIN # 1, from which production was first had on August 31, 1972, is located in the Thomasville Field on the following described 1280-acre unit:

Section 32, Township 4 North, Range 3 East; and Section 5, Township 3 North, Range 3 East; all in Rankin County, Mississippi.

(3) GARRETT # 1-R, from which production was first had on March 4, 1978, is located in the Thomasville Field on the drilling unit of the Garrett # 1 well, which was plugged and abandoned after it ceased production on May 11, 1977. The 1280-acre unit for the Garrett # 1-R well is described as follows:

West Half (W ½) of Section 27; Section 28 and East Half (E ½) of Section 27; all in Township 4 North, Range 3 East, Rankin County, Mississippi.

(4) COX-HARPER, from which production was first had on April 9, 1977, is located in the Piney Woods Field as the replacement for the Cox # 2 well. The Cox-Harper is located on the 1280-acre unit originally designated for the Cox # 2:

Sections 21 and 28, Township 3 North, Range 3 East, Rankin County, Mississippi.

(5) RIDGWAY MANAGEMENT # 1-R, from which production was first had on September 1, 1977, is located in the Southwest Piney Woods Field on the 1280-acre unit originally designated for the Ridgway Management # 1 well. Said unit is described as follows:

Sections 34 and 35, Township 3 North, Range 2 East, Rankin County, Mississippi.

The named plaintiffs and the class members own royalty interests in the oil, gas and minerals in, on and under the above-described drilling units. The leases and compensatory royalty agreements under which Plaintiffs are compensated for their respective royalty interests are in evidence as Exhibits P-1(a) through P-1(hhhh) and P-2 through P-5.³ These leases appear on seven (7) different lease forms which are designated in the oil and gas industry as follows:

(1) Paid-up Mississippi Rev. 7/17/45;

(2) Commercial—Form CC-78;

(3) Producers 88-D9803 (Revised 10/1/48) with Pooling Provision;

(4) (Mississippi) Form 0-280 Rev. 3 (8-61) 5M-Producers 88 Rev.;

(5) Producers 88 (9/70)—Paid up with Pooling Provision Mississippi—Alabama —Florida;

(6) Producers 88 (9/70) with Pooling Provision —Mississippi—Alabama—Florida and

(7) Producers 88 Revised—Alabama— Mississippi (11-56).

Among the seven (7) lease forms, there are three (3) different gas royalty clauses. Lease forms (1) and (2) above contain the following gas royalty provision, hereinafter referred to as the "Commercial" provision:

"... (b) on gas, including casinghead gas⁴ or other gaseous substances, produced from said land and sold or used, the market value at the well of one-eighth ( 1/8 ) of the gas so sold or used, provided that on gas sold at the well the royalty shall be one-eighth ( 1/8 ) of the amount realized from such sales...."

Lease forms (3) and (4) above contain the following gas royalty provision, hereinafter referred to as the "Producers 88-D9803" provision:

"... (b) on gas, including casinghead gas or other gaseous substance, produced from said land and sold or used off the premises or in the manufacture of gasoline or other product therefrom, the market value at the well of one-eighth of the gas so sold or used, provided that on gas sold at the wells royalty shall be one-eighth of the amount realized from such sale...."

Lease forms (5), (6) and (7) above contain the following gas royalty provision, hereinafter referred to as the "Producers 88 (9/70)" provision:

"... (b) to pay lessor on gas and casinghead gas produced from said land (1) sold by lessee, one-eighth of the amount realized by lessee, computed at the mouth of the well or (2) when used by lessee off said land or in the manufacture of gasoline or other products, the market value at the mouth of the well, of one-eighth of such gas and casinghead gas..."

The natural gas produced from the Thomasville, Piney Woods and Southwest Piney Woods Fields is "sour gas" which is natural gas that is...