Williamson v. Elf Aquitaine, Inc.

925 F. Supp. 1163, 1996 U.S. Dist. LEXIS 6984, 1996 WL 271906
CourtDistrict Court, N.D. Mississippi
DecidedMay 20, 1996
Docket1:93CV255-S-D
StatusPublished
Cited by9 cases

This text of 925 F. Supp. 1163 (Williamson v. Elf Aquitaine, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Mississippi primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Williamson v. Elf Aquitaine, Inc., 925 F. Supp. 1163, 1996 U.S. Dist. LEXIS 6984, 1996 WL 271906 (N.D. Miss. 1996).

Opinion

OPINION

SENTER, Chief Judge.

The instant case is presently before the court upon the parties’ cross-motions for summary judgment, motions to strike certain affidavits, and plaintiffs’ motion for continuance of motion for summary judgment. Although there are numerous questions involved, the focal issue presented to the court is narrow: whether lessors of a mineral interest in gas are entitled to royalties stemming from the nonrecoupable cash settlement of a take-or-pay contract dispute between a pipeline and a producer. As all parties have stipulated that there are no genuine issues of material fact, the case at bar is appropriately postured for a judgment as a matter of law. See Fed.R.Civ.P. 56(c).

I. INDUSTRY BACKGROUND 1

Historically, pipelines in the natural gas industry were merchants, as opposed to mere transporters of gas. Pipelines would buy the gas from the producer under long term gas purchase contracts, then sell their supply to an end user. Typically these long term contracts between the pipeline and the producer contained take-or-pay provisions that committed the pipeline to pay, regardless of whether it physically took the gas. 2 Such a *1166 provision was mutually beneficial, as it guaranteed a consistent income for the producer while providing the pipeline a reliable source of gas.

Throughout the 1960s and the early 1970s, prices were relatively low and there was little incentive to explore for gas and develop new reserves. However, the energy shortages of the mid 1970s led to increased demand and renewed exploration due to the attractiveness of natural gas as a domestically produced fuel source. In the 1980s, in a further effort to promote the development of natural gas reserves, the federal government reduced regulations and encouraged competition. Concurrently, Congress promoted the use of alternative fuels. These conflicting forces increased the gas supply, yet decreased demand, thereby leading to a sharp decline in sales and market price. Thus, pursuant to their long term take-or-pay contracts, pipelines were required to buy gas at a cost significantly above the market price at which they could later sell it. Confronted with the prospect of bankruptcy, many pipelines refused to either take or pay for gas, despite their contractual commitments. Producers recognized that instability among the pipelines would ultimately be detrimental to their own interests by causing massive dislocation within the industry. Resultingly, most pipelines and producers agreed to reform their contracts and settle their disputes.

II. FACTS

The plaintiffs are royalty owners under six separate oil, gas and mineral leases covering land in the Caledonia Field of Lowndes County, Mississippi. Defendant Elf Aquitaine [hereinafter Elf], as lessee, drilled two natural gas wells on land governed by these leases. Elf sold the gas produced from these wells to Tennessee Gas Pipeline Corporation [hereinafter TGP] under separate, long term take-or-pay contracts.

Beginning in the early 1980s, TGP experienced the same demand/supply problems that were affecting the industry as a whole. TGP responded by unilaterally instituting an “Emergency Gas Purchase Policy,” wherein it refused to fulfill its contractual obligations with Elf and its other gas suppliers. Although litigation was an alternative open to Elf, existing case law at the time did not guarantee a producer success on the merits of such a claim. Elf therefore chose to settle its dispute with TGP, and entered into an agreement in 1985 in which TGP paid Elf certain price deficiencies ($379,003.38) and take-or-pay monies ($200,000.00) in return for a reduction in its quantity obligations. This settlement was not disclosed to the royalty owners pursuant to a confidentiality agreement.

Despite the new contract, TGP continued to experience marketing difficulties. Result-ingly, the parties negotiated another settlement in 1987, this time agreeing that TGP would make a single lump sum payment of $6,578,000.00 3 in exchange for ELF’s agreement to waive any past claims it may have had against TGP. Significantly, the parties additionally eliminated TGP’s make-up rights under the take-or-pay clause of the old contract, and decreased the sales price for any future gas purchases made by TGP. This 1987 settlement was also subject to a confidentiality agreement.

In 1992, upon learning of the two settlements entered into by Elf and TGP, plaintiffs filed the instant cause of action.

III. DISCUSSION

Again, the preeminent issue before this court is whether royalty owners are entitled to a share of nonreeoupable cash payments resulting from a gas purchase contract settlement. As the court’s jurisdictional basis is founded upon diversity of citizenship, this court is Erie-bound to apply Mississippi’s state substantive law in resolving the question. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In a case where there is no official pronouncement of state law on an issue *1167 which the district court must decide in order to conclude the case, the district court must make an Erie guess as to how the courts of that state would rule on the issue. Munn v. Algee, 730 F.Supp. 21, 26 (N.D.Miss.1990). Under Mississippi law, the court’s preeminent guidepost is the principle that in the absence of any ambiguities, the lease must be enforced as written, giving effect to the plain language that was agreed to and signed by the parties. Superior Oil Co. v. Beery, 216 Miss. 664, 63 So.2d 115, 118 (1953). Accordingly, a determination as to whether or not the lessors in this action are entitled to royalties from the settlement must stem from the explicit lease provisions.

A. The Plain Language of the Lease

Five of the six leases in the instant case are standard form leases and utilize identical language in setting forth Elfs royalty obligation. These leases provide:

As royalty, lessee covenants and agrees: ... (b) To pay lessor on gas and casing-head gas produced from said land (1) when sold by lessee, one-eighth of the amount realized by lessee, computed at the mouth of the well, or (2) when used by lessee of said land or in the manufacture of gasoline or other products, the market value, at the mouth of the well, of one-eighth of such gas and casinghead gas....

The sixth lease is of an older form, and in regard to royalties, states:

Royalties to be paid by lessee are: ... (b) on gas, including casinghead gas or other gaseous substances, produced from said land and sold or used, the market value at the well of one-eighth (]é) of the gas so sold or used, provided that on gas sold at the well the royalty shall be one-eighth flé) of the amount realized from such sale....

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Related

Williamson v. Elf Aquitaine, Inc.
138 F.3d 546 (Fifth Circuit, 1998)
Condra v. Quinoco Petroleum, Inc.
954 S.W.2d 68 (Court of Appeals of Texas, 1997)
Alameda Corp. v. Transamerican Natural Gas Corp.
950 S.W.2d 93 (Court of Appeals of Texas, 1997)
Yates Company v. Powell
98 F.3d 1222 (Tenth Circuit, 1996)
Harvey E. Yates Co. v. Powell
98 F.3d 1222 (Tenth Circuit, 1996)
Transamerican Natural Gas Corp. v. Finkelstein
933 S.W.2d 591 (Court of Appeals of Texas, 1996)

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Bluebook (online)
925 F. Supp. 1163, 1996 U.S. Dist. LEXIS 6984, 1996 WL 271906, Counsel Stack Legal Research, https://law.counselstack.com/opinion/williamson-v-elf-aquitaine-inc-msnd-1996.