Birnbaum v. SWEPI LP

48 S.W.3d 254, 2001 WL 219428
CourtCourt of Appeals of Texas
DecidedApril 24, 2001
Docket04-00-00362-CV
StatusPublished
Cited by41 cases

This text of 48 S.W.3d 254 (Birnbaum v. SWEPI LP) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Birnbaum v. SWEPI LP, 48 S.W.3d 254, 2001 WL 219428 (Tex. Ct. App. 2001).

Opinions

OPINION

PHIL HARDBERGER, Chief Justice.

This case involves the interpretation of an oil and gas lease. Appellants, a group of royalty owners (“Royalty Owners”), sued EOG Resources, Inc. fik/a Enron Oil and Gas Company and its predecessors in interest, SWEPI LP f/k/a Shell Western E & P, Inc. and Shell Oil Company, (collectively the “Lessees”) for breach of an oil and gas lease. The Royalty Owners claimed that the Lessees were required to pay royalties on gas used for compressor and plant fuel. The parties filed cross-motions for summary judgment, and the trial court rendered judgment in favor of the Lessees. The Royalty Owners assert two points of error on appeal contending the trial court erred in: (1) denying their objections to the affidavits of Stephen Li-pari and B.P. Huddleston; and (2) granting summary judgment in favor of the Lessees because the evidence conclusively established that they were entitled to be paid royalties on the plant fuel and compressor fuel.

This case must be resolved based on the language used in the oil and gas lease and the stipulation of fact. Because we will not consider any of the affidavits in reaching our final disposition, we do not address the Royalty Owners’ first point of error. See Tex.R.App.P. 47.1 (court of appeals need only address issues necessary to final disposition of appeal). We conclude that the trial court correctly interpreted the oil and gas lease and affirm the trial court’s judgment.

Background

The oil and gas lease, as amended by a subsequent settlement agreement, provides, in pertinent part:

3(b) On all gas (exclusive of liquid hydrocarbons separated, extracted or manufactured therefrom under Subpara-graphs (c) and (d)) produced from said lands, and used off the premises or sold, including casinghead gas and residue gas sold at the tailgate of any plant through which gas produced from said lands may be processed, one fifth (½) of the “value” (as hereinafter defined) of such gas ...
The “value” of the gas is defined as the volume of gas produced and used off the premises or sold measured in MMBtus multiplied by the “Index Price.” The “Index Price” is defined as the quoted price per MMBtu dry for gas for the month of production published in the first issue of the production month in INSIDE FERC’S GAS MARKET REPORT for delivered spot gas, Houston Ship Channel/Beaumont, Texas, large packages (3,500 Mcf/d and up), maximum of range (high). The MMBtu’s of the gas shall be determined at the field delivery point(s) — which is currently the tailgate of the plant — as the sum of the MMBtu’s of methane and heavier hydrocarbons (exclusive of liquid hydrocarbons separated, extracted or manufactured, if any, pursuant to this paragraph and paragraphs (c) and (d) below) contained in such gas as determined by chromatographic analysis or other accepted method in the industry.

[256]*256The parties entered into a Stipulation of Fact for purposes of the cross-motions for summary judgment. The exhibits attached to the Stipulation of Fact reference volumes of gas produced from the leased premises that were consumed as compressor fuel and plant fuel in order to process the gas prior to delivery for sale at a point downstream from the tailgate of the plant. Those volumes of gas were not included in EOG’s calculation of royalty. The fuel consumed as compressor fuel and plant fuel was consumed at the processing plant location, and the processing plant is not located on the leased premises.

Gas streams from wells located on the leased premises are commingled with raw gas streams from other wells at the inlet of a treating plant. The plant is not owned by the Lessees. Prior to the commingling of the well streams at the inlet of the plant, volumes of gas from low pressure wells are run through separators located at the plant site for the removal of liquids and then compressed, utilizing compressors located on the plant site, in order to deliver gas to the plant at the required pressure. Volumes of gas from high pressure wells, which do not require compression, are run through separators located on the plant site for the removal of liquids and then delivered to the inlet of the plant.

The volume of the gas from all well streams is reduced as a result of the separation of the liquid. The commingled stream is further reduced by the removal of impurities in the plant. The impurities are removed to enable the gas to meet pipeline standards. After the gas is processed through the plant for the removal of impurities, a portion of the remaining volume is retained at the plant site for use as plant fuel and as compressor fuel. The compressor fuel is used to compress gas from the low pressure wells prior to the commingling of the well streams at the plant’s inlet. The volume retained for use as plant fuel and compressor fuel is metered at the plant and tested for Btu content prior to its use.

After the gas is processed for removal of impurities and after the volume to be retained for plant fuel and compressor fuel is removed, the remaining volume is delivered to the purchasers. At the delivery point, the volume is metered, and the amount of the MMBtus is determined. This delivery point to the purchasers is located at a point downstream from the plant site, approximately 200 feet downstream from the tailgate of the plant. The MMBtus measured at the delivery point are allocated proportionately to all of the wells that produced the original raw gas streams, including wells located on the leased premises, and royalties are paid on the allocated MMBtus.

In the Lessees’ motions for summary judgment,1 the Lessees asserted that they are only required to pay royalties on the “value” of the gas as defined in the oil and gas lease. The lease defines “value” as a given price multiplied by the volume of gas measured in MMBtus as determined at the field delivery point. The Lessees asserted that the only field delivery point at which the MMBtus are measured is the point at which the gas is delivered to the purchasers. Since the plant fuel and compressor fuel are removed prior to delivery, that volume is not included in the measurement.

In the Royalty Owners’ motions for summary judgment,2 the Royalty Owners contended that the Lessees are required to [257]*257pay royalty on the plant fuel and compressor fuel retained by the plant because it is gas “sold or used off the premises.” Alternatively, the Royalty Owners argue that the Lessees are required to pay the plant for processing the gas, and, in an effort to reduce this cost, the Lessees provide the plant with free fuel. Because the oil and gas lease does not permit any deductions from the royalty to be paid for the Lessees’ costs, the Lessees should not be permitted to indirectly recover the cost of the plant fuel and compressor fuel by failing to pay the Royalty Owners royalty on that gas.

The trial court granted the Lessees’ motions for summary judgment and denied the Royalty Owners’ motions for summary judgment. The judgment in favor of EOG states:

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Cite This Page — Counsel Stack

Bluebook (online)
48 S.W.3d 254, 2001 WL 219428, Counsel Stack Legal Research, https://law.counselstack.com/opinion/birnbaum-v-swepi-lp-texapp-2001.