Superior Oil Co. v. Pioneer Corp., CA 3-80-1160-C.

• Decision Date: 16 February 1982
• Docket Number: No. CA 3-80-1160-C.,CA 3-80-1160-C.
• Citation: 532 F. Supp. 731
• Parties: The SUPERIOR OIL COMPANY v. PIONEER CORPORATION.
• Court: U.S. District Court — Northern District of Texas

532 F. Supp. 731

The SUPERIOR OIL COMPANY v. PIONEER CORPORATION.

No. CA 3-80-1160-C.

United States District Court, N. D. Texas, Dallas Division.

February 16, 1982.

B. J. Zimmerman, Pat F. Timmons and Jeff Allder, The Superior Oil Company, Houston, Tex., Leo J. Hoffman and David Kitner, Strasburger & Price, Dallas, Tex., for plaintiff.

John L. Estes and Nathan L. Hecht, Locke, Purnell, Boren, Laney & Neely, Dallas, Tex., for defendant.

OPINION

WILLIAM M. TAYLOR, District Judge.

On November 1, 1954, Plaintiff, The Superior Oil Corporation, agreed to sell to Defendant, Pioneer Corporation, gas produced by Plaintiff from the West Seminole Field in Gaines County, Texas. That contract was denoted a Gas Sales Agreement. It provided for a primary term of 25 years. Also, in that contract Plaintiff granted to Defendant an option to extend the term of the contract

"For an additional period equivalent to the period gas is used for injection purposes in the West Seminole Field, or in the period which is necessary to enable Buyer to receive the quantity of gas not made available to it because of such injection operations, whichever is the shorter."

In a letter dated October 17, 1979, Defendant availed itself of the extended term option.

The Parties dispute the price that Defendant should be paying to Plaintiff for the gas bought and sold since November 1, 1979. The price payable is determined by the National Gas Policy Act of 1978 (15 U.S.C. § 3301 et seq.)¹

The essential determination to be made is whether the option renewed contract is a "rollover contract," an "existing contract" or a "successor contract."

The difference in monetary terms as of November 1977 between a "rollover" contract and an "existing" or "successor" contract was $1.30 per MMBTU versus $2.214 per MMBTU. This, of course, is quite a substantial difference.

Plaintiff contends that the present contract is an "existing" contract which is defined in 15 U.S.C. § 3301, at (13), as:

(13) Existing contract. — The term "existing contract" means any contract for the first sale of natural gas in effect on November 8, 1978.

Defendant contends that the present contract is a "rollover" contract which is defined in 15 U.S.C. § 3301, at (12), as:

(12) Rollover contract. — The term "rollover contract" means any contract, entered into on or after November 9, 1978, for the first sale of natural gas that was previously subject to an existing contract which expired at the end of a fixed term (not including any extension thereof taking effect on or after November 9, 1978) specified by the provisions of such existing contract, as such contract was in effect on November 9, 1978, whether or not there is an identity of parties or terms with those of such existing contract.

A "successor" contract is defined at (14) of 15 U.S.C. § 3301 to be:

(14) Successor to an existing contract. — The term "successor to an existing contract" means any contract, other than a rollover contract, entered into on or after November 9, 1978, for the first sale of natural gas which was previously subject to an existing contract, whether or not there is an identity of parties or terms with those of such existing contract.

Our first question is whether or not a contract was entered into after November 9, 1978. If so, then Plaintiff and Defendant's contract cannot be an "existing" contract as defined by the statute.

The normal rule of law is that when a party exercises an option, a new contract is formed at that time.² The Court sees no reason not to apply the usual rule. So Plaintiff and Defendant are operating under either a "rollover" or a "successor" contract.

What is the difference between the definition of a "rollover" contract and a "successor" contract? Simply that the predecessor to a "rollover" contract must have expired at the end of a fixed term.

The statutory definition, above, of "rollover" contract does seem to confuse matters. But the legislative history³ and the interpretation of the statute by the Federal Energy Regulatory Commission, Department of Energy⁴ (F.E.R.C.) are enlightening.

The legislative history gives the following examples of a "rollover" contract and a "successor" contract under the heading Rollover Contract:

An existing contract which expires at the end of a fixed term qualifies as a rollover contract. An existing contract may have a specified term of five years which will be extended by operation of the contract for one or more years unless the producer gives notice of his intention to terminate the contract within a specified period of time in advance. Such a contract will qualify as a rollover contract at the end of the fixed five year term without regard to the extensions occurring after the date of enactment.

An existing contract may also have a specified term of five years unless the price of natural gas subject to it is deregulated during that given period whereupon the price to be paid under the terms of the contract will be renegotiated by the parties to the contract. Such a contract will not qualify as a rollover

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