California v. Southland Royalty Company - Oral Argument - December 07, 1977

California v. Southland Royalty Company

Media for California v. Southland Royalty Company

Audio Transcription for Opinion Announcement - May 31, 1978 in California v. Southland Royalty Company
Audio Transcription for Oral Reargument - April 17, 1978 in California v. Southland Royalty Company

Audio Transcription for Oral Argument - December 07, 1977 in California v. Southland Royalty Company

Warren E. Burger:

We will hear arguments next in 76-1114 in the consolidated cases, California v. Southland Royalty Company.

Mr. Barnett.

Stephen R. Barnett:

Mr. Chief Justice, and may it please the Court.

This cases involve oil and gas leases and the extent of the authority of the Federal Energy Regulatory Commission, formerly the Federal Power Commission under section 7D of the Natural Gas Act.

Section 7D as set out on the Appendix to our brief provides, and I would like to read it in full since I think it is crucial to this case:“No natural gas company shall abandon oil or any portion of its facilities, subject to the jurisdiction of the Commission or any service rendered by means of such facilities.

without the permission and approval of the Commission first had and obtained after due hearing, and the finding by the Commission that the available supply of natural gas is depleted to the extent that the continuance of service is unwarranted or that the present and future public convenience or necessity permits such abandonment.

”In these cases, a gas producer had leased gas producing property under a 50-year lease and had sold gas from that property in interstate commerce, pursuant to a certificate of public convenience and necessity issued by the commission without limit of time.

The question presented in the case is whether, when the 50-year term of the lease expires, the process of supplying gas from that property to interstate commerce may be terminated and the gas produced from those reserves sold in intrastate commerce instead without a requirement that either the lessee or the lessor obtain abandonment authorization from the Commission pursuant to section 7D of the Act.

The facts may be briefly stated.

In 1925, Gulf Oil Corporation obtained an Oil and Gas lease from the owners of the Waddell Ranch in Crane County in West Texas, part of the Permian Basin.

The lease gave Gulf the exclusive right to explore for oil and gas on the Waddell Ranch and to produce and market all the oil and gas it might find there for the fixed term of 50 years.

The lease provided that the owners of the Waddell Ranch, the lessors would receive a royalty from Gulf based on the quantity of natural gas produced and the number of producing wells.

A year later in 1926, the owners of the Waddell Ranch conveyed one half of their mineral fee interest to Southland Royalty Company, one of respondents here.

Other shares in the mineral interest under the Waddell Ranch were subsequently conveyed to a number of other owners.

At present, the record discloses that Southland owns 47 percent, trustees under the will of Warren right own 26 percent, the Exxon Corporation owns 14 percent and there are more than one hundred other owners.

I will refer at times to all those owners collectively as Southland.

In 1951, Gulf entered into a contract with El Paso Natural Gas Company and Interstate Pipeline, whereby Gulf agreed to sell to El Paso surplus residue gas.

That is a portion of the casing head gas which comes from oil wells as distinguished from gas well gas.

Gulf agreed to sell to El Paso’s surplus residue gas from the Waddell lease and from other sources.

In 1954, after this Court’s decision in the Phillips case, Gulf applied to the Federal Power Commission, as it then was, for a Certificate of Public Convenience and Necessity, under section 7E of the Natural Gas Act, authorizing it to make the sale to El Paso and this certificate was granted by the Commission in 1956.

Either the application for the certificate nor the certificate itself provided for any limit of time on the sales or service being authorized.

In 1972, Gulf entered into a second similar contract with El Paso for the sale of gas coming from the Waddell lease and other sources.Gulf again applied for a certificate to the Federal Power Commission and again got it in 1973.

On July 14, 1975, the 50-year term of the Waddell lease came to an end and the lease expired and title to the mineral estate in the Waddell Ranch thus, reverted to the reversionary mineral interest owners - Southland, et all.

Meanwhile, there is also, in this case the Goldsmith lease.

Also in 1925, Gulf entered into a similar 50-year fixed term oil and gas lease with Goldsmith and others on the Goldsmith Ranch in Ector County, Texas, also West Texas.

The owners of the Goldsmith Ranch subsequently conveyed their mineral interest to others including the same Southland Royalty Company, and including Texaco Inc. which now owns one-fourth of the interest.

Gulf sold gas from the Goldsmith lease to Phillips Petroleum Company which processed that gas and sold it to El Paso for resale in interstate commerce, pursuant to certificates that the Commission granted to El Paso.

In 1975, of course, the Goldsmith lease also expired and title to the mineral estate reverted to the reversionary mineral interest owners.

For the purposes of this case, the parties had agreed that the Waddell lease and the Goldsmith lease, the Waddell Ranch and the Goldsmith Ranch, and all the legal ramifications of each have no legal differences.

And thus, I will adapt the practice followed by Southland in its brief and refer at least sometimes to both leases and terms of the Waddell lease.