Waechter v. Amoco Production Co.

Decision Date14 June 1975
Docket NumberNo. 47474,47474
Citation537 P.2d 228,217 Kan. 489
PartiesLeland C. WAECHTER et al., Appellees, v. AMOCO PRODUCTION COMPNY, formerly Pan American Petroleum Corporation,Appellant.
CourtKansas Supreme Court
Syllabus by the Court

1. A lessee under an oil and gas lease is not a fiduciary to his lessor; his duty is to act honestly and fairly under a contractual relationship.

2. An oil and gas lease which provides that the lessee shall pay lessor monthly as royalty on gas marketed from each well one-eighth of the proceeds if sold at the well, or, if marketed off the leased premises, then one-eighth of the market value at the well, is clear and unambiguous as to gas sold at the wellhead by the lessee in a good faith sale, and lessor is entitled to no more than his proportionate share of the amount actually received by the lessee for the sale of the gas.

3. A statute of limitations does not confer a right of action and its bar cannot be the basis of a claim for affirmative relief.

4. The record on appeal in a declaratory judgment action is examined and it is held: (1) The lessee in certain gas leases was not obligated to account to the lessors for gas taken during the period June 23, 1961, to June 23, 1966, on the basis of 14.5cents per mcf at 14.65 psi instead of on the basis of lower prices paid it by the purchaser; (2) nor, under the particular circumstances and the doctrines either of 'pure defense' or recoupment was the lessee obligated to account for the collection of overpayments of royalty it made to the lessors during the period January 1, 1954, to December 22, 1957.

R. H. Landt, Denver, Colo., and Glenn D. Young, Jr., of Gott, Hope, Gott & Young, P. A., Wichita, argued the cause and were on the briefs for appellant.

Dale M. Stucky of Fleeson, Gooing, Coulson & Kitch, Wichita, argued the cause, and John T. Conlee, Wichita, was with him on the brief for appellees.

HARMAN, Commissioner:

This is a declaratory judgment action commenced July 16, 1964, by Leland C. Waechter and approximately five hundred other named landowner-lessors, representing a class of some 3000 landowner-lessors, all in the Kansas Hugoton gas field, involving two separate claims against Amoco Production Company, formerly Pan American Petroleum Corporation, formerly Stanolind Oil and Gas company, as a result of gas taken by Amoco.

One claim is to determine whether Amoco as lessee under certain gas leases is obligated to account to the plaintiff-landowners for gas taken during the period June 23, 1961, to June 23, 1966, on the basis of 14.5cents per thousand cubic feet at 14.65 pounds per square inch absolute instead of the lower prices actually paid to Amoco by the purchaser of the gas. The other claim is to determine whether Amoco is entitled to be repaid for overpayments of royalty it made to the plaintiff-landowners during the period from January 1, 1954, through December 22, 1957, pursuant to an 11cents minimum price order of the Kansas corporation commission, and whether Amoco is obligated to account to certain plaintiffs who have already made refunds to Amoco. The trial court rendered judgment for plaintiffs upon all issues in the case, procedural and substantive, and defendant Amoco has appealed.

At the heart of this litigation, which has been a protracted three-sided battle over the years (between Amoco and the Cities Service Gas Company, purchaser of the gas, over price of gas on the one hand, and between Amoco and plaintiffs over royalties on the other) are two writings-the gas purchase contract between Amoco and Cities and the royalty clause in Amoco's leases with plaintiffs. Although, as will be seen later, there are actually forth-eight different forms of royalty clauses in the leases, in somewhat similar language, plaintiffs and Amoco are agreed the royalty clause covering most of the approximately 600,000 acres involved and also that upon which all parties will stand or fall, provides as follows:

"Lessee shall pay lessor monthly as royalth on gas marketed from each well one-eighth (1/8) of the proceeds if sold at the well, or, if marketed by lessee off the leased premises, then one-eighth (1/8) of the market value thereof at the well."

The gas purchase contract dated June 23, 1950, under which Amoco sold the gas to Cities, contained these provisos:

"1. Buyer shall pay Seller for all gas purchased by it hereunder the price of 8.4 cents per 1,000 cubic feet until June 23, 1961.

"2. For all natural gas purchased by Buyer from and after June 22, 1961, the price of such gas shall be the fair and reasonable price for each successive five (5) year period thereafter based on and compared with the price for gas then being paid by other purchasers in the field under similar contracts and conditions, but in no event shall the price be less than 12 cents per 1,000 cubic feet."

The entire story of this litigation and the contentions of the parties pertinent to determination of this appeal may best be presented by quoting the trial court's findings of fact and conclusions of law, filed July 3, 1973, as follows:

"1. This suit was brought in the name of Leland C. Waechter and (approximately 500) other Plaintiffs named on Exhibit 'A' (attached to the original and amended petitions) individually on their own behalf, and also as representatives for and on behalf of the other members of the class of landowners similarly situated owning lands (and minerals) subject to oil and gas leases owned and operated (in part) by Defendant, Amoco Production Company, formerly Pan American Petroleum Corporation, formerly Stanolind Oil and Gas Company, gas from which is delivered to Cities Service Gas Company under contract dated June 23, 1950.

"2. Plaintiffs ask for (1) a declaratory judgment decreeing that Amoco, and its successors in interest, account and pay royalty to the Plaintiffs at the rate of 14 1/2 cents per Mcf at 14.65 psia for gas produced after June 23, 1961 to June 23, 1966, from said dedicated leasehold estate; and (2) for judgment decreeing that Defendant has no legally enforceabel claim for a refund of royalties or any portion thereof paid by the Defendant to the Plaintiffs by reason of gas production prior to December 22, 1957, and ask for consequential accounting relief.

"3. Defendant contends that the U.S. Supreme Court has determined that the Federal Power Commission has and has assumed jurisdiction of gas, including the sale price thereof, which is sold and transported in interstate commerce, to the exclusion of all state agencies and courts, and that the prices which the producer, as a natural gas company, under the Natural Gas Act, is permitted to receive unconditionally and not subject to refund obligations or other contingent claim affords the exclusive basis upon which landowners' royalty should be computed.

"4. Defendant further contends that it has at all times relevant paid royalties provided for under the terms of the various leases based upon amounts received unconditionally and without refund obligation or contingent claims by the buyer as to such gas produced and sold to Cities Service which satisfies all contract obligations from the payment of royalties under the various terms set out in the many oil and gas leases dedicated to said gas purchase contract.

"5. On June 23, 1950, the Defendant at that time doing business under the name of Stanolind Oil and Gas Company, a Delaware Corporation, as seller, entered into a 'Gas Purchase Contract' with Cities Service Gas Company, a Delaware Corporation, as buyer conveying the natural gas produced from depths from the surface down to sea level (except certain liquifiable hydrocarbon from certain described leases) from oil and gas leases on approximately 600,000 acres of land located in the Kansas Hugoton Gas Field. Such contract, by its terms, superseded the previously existing contract dated June 13, 1946, between Defendant and Cities Service Gas Company, and under said contract Defendant undertook and agreed to make settlements for all royalties due and all payments to mineral and royalty owners and to make settlements with all persons having any interest in the gas covered by the contract.

"6. Buyer agreed to furnish all gas gathering and gas transportation pipe lines and pay seller 8.4cents per Mcf at 16.4 psia for the gas until June 23, 1961. Then the price was to be the fair and reasonable price for each successive five year period based on and compared with the price for gas being paid by other purchasers in the field under similar contracts and conditions, but in no event shall the price be less than 12cents Mcf.

"7. Stanolind Oil and Gas Company, as seller, dedicated to the fulfillment of said contract the gas to be produced from depths from surface down to sea level from gas leasehold estates located in the Kansas-Hugoton Gas Field which covered lands owned by the Plaintiffs herein, whether designed by name or as a descriptive class. Said contract reserved to Defendant the right to extract liquifiable hydrocarbons under the terms and conditions provided for in a processing agreement of the same date between the same parties. On the same date Defendant also sold to Cities Service Gas Company its gas pipeline gathering system connected to the wells.

"8. On December 2, 1953, the Kansas Corporation Commission issued the following order: 'That all persons, firms, or corporations which take gas or cause gas to be taken from the Hugoton Gas Field in Kansas on and after January 1, 1954, at 12:01 A.M., shall, as a condition precedent to a withdrawal from the common source of supply, pay or attribute to all gas taken except gas for the operation of leases, for all purposes including payments to producers, landowners, lease-owners and royalty owners, the fair and reasonable minimum price of not less than 11cents Mcf (14.65 psia) at the well head until further order or orders of this Commission.' The 11cents minimum price order of the Kansas...

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