California v. Southland Royalty Company - Oral Reargument - April 17, 1978

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

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

Warren E. Burger:

Hear arguments next in California against Southland Royalty, and the related cases.

Mr. Barnett, you may proceed whenever you are ready.

Stephen R. Barnett:

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

As the Court will recall, we are dealing here with an oil and gas lease, Actually two of them but I think they can be reduced to one for purposes of the argument.

A lease running for a term of 50 years to the Mineral estate underlying the Waddell Ranch in West Texas, where the lessee, Gulf was selling the gas from the reserves under the Waddell Ranch in interstate commerce pursuant to Certificate of Public Convenience and Necessity granted by the Commission.

The question presented is whether when the 50 year lease expires, Section 7(b) of the Natural Gas Act, requires the lessors, Southland Royalty and others, that is the holders of the reversionary interest in the mineral estate to obtain Abandonment Authority from the Commission before they may stop that service of interstate, may stop that service of supplying gas to interstate commerce and divert that flow of gas instead to the intrastate market.

Now, first I would like to explain why we take the position that what is dedicated to interstate commerce here and hence cannot be abandoned without the Commission’s approval under Section 7(b), is the service of supplying gas to the interstate market from these reserves underlying the Waddell Ranch, the reserves from which the gas was continuing to flow to the interstate market, at the moment that the lease expired.

Now, respondents brief throughout their brief and my colleague Mr. Attwell spoke throughout his argument last time, as though what was involved here was two distinct bodies of gas, two physically distinct bodies of gas, Gulf’s gas and Southland’s gas, as they put it.

Thus in respondent’s brief at page 13 it is stated, the Commission held that Southland Royalty’s gas was dedicated to interstate service because Gulf had made an interstate sale of Gulf’s leasehold gas.

Whether Gulf thus dedicated Southland Royalty’s gas, is the issue before this Court; that is the respondent’s view of it.

In pursuit of this theory, the respondents analogized the case to the situation of vertical or horizontal limitations on interstate sales.

The case where, where a producer limits vertically to a certain distance below the ground, the gas that is being sold interstate or where a producer limited horizontally, say to 500 acres of a thousand acre track, or respondents analogized the case to that of a split stream where certain producers owning shares in a producing property, make interstate sales of their gas while other producers make intrastate sales of their shares.

And respondents say that this case is in their terms, simply the case of a severance in time rather than a severance in space.

Quote, from their brief at page 12, “the severance between a fixed term lease hold interest and a mineral fee interest is a severance in time rather than a horizontal or a vertical severance in space”.

And to respondents, they are both the same and this case should be analogized to the others, as Mr. Attwell said last time, it is just as if Gulf owned Black Acre and Southland owned White Acre, the parcels are that separate and so the Court of Appeals held here, applying Texas Law.

Well, there are several reasons why we think this analogy is no good, why we think a severance in time, that is the severance created here between the leasehold and the reversionary estate is quite different for purposes of the Natural Gas Act from the spatial severances to which respondents would analogize it.

First of all, the argument ignores the certificates that were granted to Gulf here.

The certificates granted to Gulf here were not limited in time.

Now in this case, we know that it is clearly as we ever could because the very certificates that were granted to Gulf for this particular, for the reserves under the Waddell Ranch, were before this Court, in the Sun Oil case and were expressly held there not to be limited in time.

That is the first thing we find wrong with the argument.

But more important, the attempt to analogize the severance, the so called severance in time here, with these limitations of space is quite inconsistent with the language and purposes of the Natural Gas Act.

There is first of all a physical difference.

In the case of the vertical or horizontal limitation on the interstate sale, the stream never flows in interstate commerce.

In the first place, there is simply a limitation on the amount of gas that flows in interstate commerce in the first place.

There is no stream flowing in interstate commerce that would be shut off and diverted to intrastate commerce as would happen here, if respondents prevail.

That is the heart of this case, respondents here claim that by virtue of their state is there is a certain kind of property owner under Texas Law, they may cut off a stream of gas from given reserves, that is flowing to interstate commerce at the end of this lease and diverted physically to the intrastate market instead without having to get the Commissions Abandonment Authority under Section 7 (b).

Now, the distinction here is crucial with respect to the purpose of Section B and indeed of the entire Act.

That purpose as this Court emphasized in Sunray among other cases is to protect the continuity of service to the interstate market.

The stability of natural gas prices and supply.

Well, in the case of the vertical or horizontal limitation on the sale, the interstate market never comes to rely on that sale because the gas is never flowing to the interstate market in the first place.