Superior Oil Co. v. El Paso Natural Gas Co.

• Citation: 54 P.U.R.3d 244,377 S.W.2d 691
• Decision Date: 18 March 1964
• Docket Number: No. 5592,5592
• Parties: The SUPERIOR OIL COMPANY, Appellant, v. EL PASO NATURAL GAS COMPANY, Appellee.
• Court: Court of Appeals of Texas. Court of Civil Appeals of Texas

Page 691

377 S.W.2d 691

54 P.U.R.3d 244

The SUPERIOR OIL COMPANY, Appellant, v. EL PASO NATURAL GAS COMPANY, Appellee.

No. 5592.

Court of Civil Appeals of Texas, El Paso.

March 18, 1964.

Rehearing Denied April 15, 1964.

Stubbeman, McRae, Sealy & Laughlin, W. B. Browder, Jr., Midland, H. W. Varner, Roland B. Voight, Houston, for appellant.

A. R. Grambling, Hardie, Grambling, Sims & Galatzan, El Paso, George D. Horning, Jr., Hogan & Hartson, Washington, D. C., for appellee.

CLAYTON, Justice.

This is a suit for declaratory judgment filed by appellant, Superior Oil Company (Superior) against appellee, El Paso Natural Gas Company (El Paso), seeking the construction and interpretation of two gas sales contracts entered into between the parties which involved the sale of gas in interstate commerce. The first contract (dated April 13, 1953), involved the sale by Superior and the purchase by El Paso of casinghead gas produced in certain counties within the Permian Basin area of Texas. This contract, known as the 'Spraberry' contract, contains a so-called 'favored nation' clause providing as follows:

'If, at any time during the term of this agreement there shall be in effect any agreement between Buyer and any other party or parties providing for the purchase of Residue Gas by Buyer at a point located within the Permian Basin area at a price per one thousand (1,000) cubic feet higher than the price at the same time payable by Buyer to Seller for Residue Gas hereunder, Buyer shall forthwith notify Seller of such fact and of the amount of such higher price, and thereupon the price at the time payable to Seller for Residue Gas hereunder shall be immediately increased so that it will equal the highest price payable at the same time under any such other agreement, and such higher price hereunder shall continue in effect so long as, but only so long as, any such higher price is payable for Residue Gas by Buyer under any such other agreement. In determining whether the price payable under any such other agreement is higher than the price payable to Seller hereunder, due consideration shall be given to the provisions of this agreement as to quantity and quality of Residue Gas, delivery pressure, gathering and compressing arrangements, provisions, regarding measurement of gas, including deviation from Boyle's law, texes payable on or in respect of the Residue Gas delivered, and all other pertinent factors.' (Emphasis supplied).

The Federal Power Commission, in an opinion hereinafter referred to, describes the 'favored nation' clauses, such as the foregoing, in the following language:

'Typically, as here, a most-favored-nation contract clause provides that if a purchaser of gas from a certain producer pays another producer in the same area a higher rate, the first producer may raise or escalate his rate to that purchaser correspondingly. The clause is said to be activated or 'triggered' by the purchaser's paying the other producer a higher rate. But in order for 'triggering' to occur, where (as here) the contract so provides, the producer filing the most-favored-nation rate increase must show that the other producer is the type of seller comtemplated and produces in the area indicated in the contract, that the gas being purchased from the other producer is comparable gas, and that the rate being paid for it is 'higher' in fact as well as in appearance.'

Superior claims that El Paso had a residue gas contract with Shell Oil Company (Shell), dated May 21, 1948, with delivery within the Permian Basin area, under which, on and after October 9, 1959, El Paso was paying Shell 16 cents (plus tax reimbursement) per Mcf for gas at the same time El Paso was paying Superior only 12.712 cents (plus tax reimbursement) for such gas. Superior claimed that a controversy had arisen between the latter parties as to the meaning, effect and interpretation of the favored nation clause in the 'Spraberry' contract between Superior and El Paso; that Superior maintains that El Paso was under obligation to take the gas from Superior at the higher 16-cent price, while (according to Superior) El Paso 'maintains that notwithstanding said facts and particularly the contract between the parties', Superior was not entitled to the higher price or to receive any amount greater than was at that time actually being paid to Superior.

The latter claims that a further controversy existed between the parties to the suit: that under date of March 8, 1955 the parties entered into a contract whereby El Paso was to purchase from Superior gas produced from the Eumont field in Lea County, New Mexico. This contract, known as the 'Eumont' contract, also contained a favored nation clause, somewhat differently worded than the clause set out above:

'Section 5. If at any time or times after the date of this agreement Buyer shall purchase from any other seller gas from dry gas or gas-distillate wells within Lea or Eddy Counties, New Mexico, or Cochran, Hockley, Yoakum, Gaines, Andrews, Ector, Winkler, Crane or Ward Counties, Texas, at a price per one thousand (1,000) cubic feet higher than the price at the time payable hereunder, the price payable to Seller for gas hereunder shall be immediately increased to equal such higher price paid to such other seller, and such higher price hereunder shall continue in effect so long as, but only so long as, any such higher price is paid to such other seller. In determining whether the price payable under such other contract or agreement is 'higher' than the price payable for gas under this agreement, due consideration shall be given to the provisions of this agreement as compared with such other contract or agreement as to quantity and quality of gas, delivery pressures, gathering and compressing arrangements, provisions regarding measurement of gas, taxes payable on or with respect to such gas, and all other pertinent factors.' (Emphasis supplied).

Superior alleged that El Paso had a gas purchase contract with West Texas Gathering Company (West Texas) covering gas produced from dry gas and gas-distillate wells produced and delivered to El Paso within Winkler County, Texas, and that on and after May 27, 1959 El Paso was paying 18 cents per Mcf to West Texas for such gas, while at the same time El Paso was paying only 10.5 cents per Mcf for the gas well gas under its 'Eumont' contract with Superior.

The further controversy arose, Superior alleges, over the validity, meaning, effect and interpretation of the latter contract between the parties, Superior claiming that El Paso is under obligation to take said gas under all provisions of said contract, while El Paso maintains that notwithstanding the facts and contract, Superior was not entitled to receive a higher price by reason of the fact that El Paso was paying West Texas 18 cents per Mcf because (1) West Texas was not a 'seller' within the meaning of the language of the favored nation clause, and (2) the price of 18 cent per Mcf was not higher than the 10.5 cents then being paid to Superior by El Paso.

The prayer of Superior's petition asked that the trial court construe the contracts with El Paso and declare that the quoted provisions of said contracts are plain, unambiguous, valid, legal and binding and that the rights of the parties are fixed and governed by the express terms and provisions of the contracts as written and as they may be affected by written agreements as exist between El Paso and any other party or parties providing for the purchase of residue gas or gas from dry gas or gas-distillate wells, as the case may be. El Paso filed special exceptions to the petition, and Superior filed a motion for summary judgment. On February 27, 1962 the trial court entered a judgment denying the motion for summary judgment, sustaining El Paso's special exceptions and dismissint the suit 'for the reason that this court does not have jurisdiction to entertain this suit or to enter any judgment herein except to dismiss this suit from the docket of this court.' From such judgment Superior brought this appeal based upon the sole point of error that the trial court had erred in dismissing the cause of action for want or jurisdiction. El Paso brought forward in three counter-points the exceptions directed to the petition of Superior and asserted that the trial court's ruling dismissing the suit was not error because (1) primary jurisdiction over the matters involved rested with the Federal Power Commission (F.P.C.); (2) Superior had failed to exhaust its administrative remedies; and (3) Superior's petition failed to state a claim cognizable under the Declaratory Judgment Act of Texas.

There seems to be no dispute here that the two gas sales contracts of Superior involved in this cause embody the sale in interstate commerce of gas for resale, that Superior is a 'natural gas company' within the meaning of that term in the Natural Gas Act and as interpreted by the United States Supreme Court in the case of Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, and that therefore such sales are subject to the jurisdiction of and regulation by the Federal Power Commission. The primary point of contention here seems to be, from the standpoint of Superior, not whether the Commission may properly construe gas contracts such as these to determine as a matter of law the prices authorized therein, but whether state courts may construe such contracts in order to determine their meaning and declare the rights of the parties thereto; and from the standpoint of El Paso, whether the state courts have any inherent power to pass upon the matter in controversy, since the same is essentially one of determining and fixing rates to be paid under said contracts for gas sold in interstate commerce for resale--a matter exclusively within the jurisdiction of the F.P.C., subject only to review by the courts.

El Paso contends that Superior recognized the primary exclusive...