Amoco Production Co. v. First Baptist Church Of Pyote

579 S.W.2d 280 (1970)

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Nature of the Case

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Facts

The dispute concerns eighteen leases covering small tracts of land. D owns oil and gas leases covering these tracts, each of which provides that on gas sold at the wells, the royalty shall be 1/8th of the amount realized from such sale. There is no dispute in this case concerning the fact that the gas is sold at the well. The several owners of the oil and gas leasehold estates pooled the same to form the Caprito 100 Unit, containing 640 acres of land. D's leases, as pooled, cover 17.14240 percent of the unit. In 1973, the working interest owners drilled a well on this Section, and it was completed as a dual producer from both the Devonian and Ellenberger Formations. The working interest owners have been selling gas to one of four different purchasers, each of whom has its own gas pipeline connected to the well. The total production from the well is sold approximately fifty-three percent to Lone Star Gas Company, twenty percent to Pioneer Natural Gas Company, fourteen percent to Delhi Gas Pipeline Corporation, and thirteen percent to Natural Gas Pipeline Company. All gas production attributable to the various interests of Ps has been sold to Pioneer Natural Gas Company and Odessa Natural Gasoline Company, who has acquired its rights under Pioneer. Natural Gas Pipeline Company transports its gas interstate and the price paid under its contracts are subject to Federal Power Commission regulations, including price regulations. Both Lone Star and Delhi have contracts with their working interest owners which provide for an annual price redetermination provision to reflect current prices of gas each year. Pioneer's price was significantly lower because it was based on a preexisting long-term gas purchase contract. P sued D for a breach of the implied duty to market. The trial Court determined that D breached no duty with respect to the payment of royalty under the six leases where the gas was dedicated to the Pioneer contract under the 1970 amendment. The Court further held that D breached its legal duty with respect to the lessors under the twelve leases where gas was dedicated to the Pioneer contract by the 1975 supplement, and further that those parties were entitled to be paid the difference between the amounts which they were paid and the amounts which Lone Star was paying for gas purchased from this well during corresponding periods. The Court ordered that future payments shall be based upon the price paid by Lone Star Gas Company for gas produced from this particular well. D appealed.