United Gas Improvement Company v. Continental Oil Company

PETITIONER: United Gas Improvement Company
RESPONDENT: Continental Oil Company
LOCATION: Point of picking up hitchhiker

DOCKET NO.: 644
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 381 US 392 (1965)
ARGUED: Apr 28, 1965
DECIDED: Jun 01, 1965

Facts of the case

Question

Media for United Gas Improvement Company v. Continental Oil Company

Audio Transcription for Oral Argument - April 28, 1965 in United Gas Improvement Company v. Continental Oil Company

Earl Warren:

Number 644, the United Gas Improvement Company petitioner versus Continental Oil Company et al., and Number 693, Federal Power Commission versus M.H. Marr et al.

Mr. Solicitor General.

Archibald Cox:

Mr. Chief Justice, may it please the Court.

This case is here on certiorari to the Court Appeals for the Fifth Circuit to review a decision setting aside an order of the Federal Power Commission made under the Natural Gas Act.

The case is one of great importance because if that decision stands, it opens what we conceive to be a very serious gap in the power of the Commission to regulate prices at which produces sell gas to pipelines under the Phillips Petroleum case.

The essential facts are these, Texas Eastern is an interstate pipeline company with a system running from South Texas up to Northeast through Philadelphia and on to the New York area.

The other respondents in this case are oil and gas producers who held leases in the Rayne Field in Louisiana.

Early in 1957, the respondent producers, agreed to deliver gas in the Rayne Field, Texas Eastern at the initial price of $23.59 per thousand cubic feet over a period of what would probably be about 20 years.

Texas Eastern then applied for certificates to construct the necessary facility.

Under the Phillips Petroleum case, the Federal Power Commission clearly had jurisdiction not only over the construction of the facilities, but also over the agreement to sell the gas in the price at which it was sold.

At this point, the Third Circuit rendered a decision in the Catco case which later came before this Court which made it apparent that the Commission could not approve the sale by these respondent producers to this pipeline company because this sale was at a price a cent-and-a-half higher than the sale which had been sale price that have been disapproved by the Third Circuit in Catco.

The respondents then cancelled their agreement to sell the gas and recast the deal in the form that it is now before the Court.

As in the form that it is now before the Court, the respondent producers conveyed to a newly created subsidiary of Texas Eastern.

Their leasehold rights to gas in the Rayne Field down to a specified depth together with wells and related equipment.

Reserving, it's important to emphasize is the so-called production payment all the condensates that could be extracted from the gas as it came from the ground.

This new subsidiary then assigned its rights under the leases to Texas Eastern.

Texas Eastern retained the respondent Continental which had been operating the field for the benefit of all the producers, under a management agreement to continue to operate the field, extracting the gas from the ground and ultimately delivering it to Texas Eastern.

The consideration for the lease was $134 million about 9% payable in cash and the rest are paid in notes of the subsidiary which fell due periodically through the expected life of the gas field.

Texas Eastern assumed no contractual liability and the subsidiary had no other assets beyond the lease that it assigned.

Texas Eastern then went back to the Federal Power Commission for certification of the construction of the necessary facilities.

At that stage, it was June 1959, the Commission assumed that it had no jurisdiction over this lease transaction and issued the necessary certificates.

The Court of Appeals for the District of Columbia Circuit on review set aside the Commission's order upon the ground that the Commission might either go into the price at which the gas was transferred or the cost of the gas to Texas Eastern, or it might state clearly then entirely but that it had heard and indicating in the course of its opinion that the price or cost was in the public interest without sufficient evidence in the record to support that.

And I should say that in the course of its opinion, the Court of Appeals for the District of Columbia Circuit also assume that the Commission had no jurisdiction over these transactions as such.

Upon remand, the Commission reopened the entire matter.

It then decided contrary to its early assumption and contrary to the assumption of the Circuit Court that the lease sale transaction was itself within the Commission's jurisdiction as a sale in interstate commerce of natural gas for resale and ultimate public consumption.

On review, the Fifth Circuit set aside the Commission's order holding that since the transaction involved a lease of mineral rights, it constituted production and gathering and was not a sale in interstate commerce of natural gas for resale.

We then brought the case here adjoined by one of the distributing companies in Philadelphia area represented by Mr. Coleman and the question very simply is whether the Commission was right in holding that it had jurisdiction or whether the Fifth Circuit was right in holding that it had not.

The case turns on Section 1 (b) of the Natural Gas Act which is printed on pages 2 and 3 of our brief.

It gives the Commission jurisdiction over the transportation of natural gas in interstate commerce and more importantly over the sale in interstate commerce of natural gas for resale for ultimate public consumption.

But it excludes the production and gathering or production or gathering of natural gas.