*3 (1) оn gas upon based of the 1/8 KING, PARKER, Before SMITH and wells; gas market value of the residue Judges. Circuit gas volumes used in manu- gasoline facture of plant products or other PARKER, M. Judge: ROBERT Circuit upon gas based of the market value of the 1/8 Plaintiffs-appellants plain- and intervenor processing. at the well before The McGills (“the McGills”) tiffs-appellants appeal from were not entitled to receive grant the district court’s of two sum- upon processed plant prod- mary judgments subsequent, and a final ucts. take-nothing judgment thereon in favor of royalty provisions The aрpellee, Corporation. Additionally, Exxon Processing Agreement supersede royalty the McGills contend that the district court provisions of the McGill leases to the extent refusing compel abused its discretion in that the two in are conflict. The produce Exxon to certain documents and also provides separate royalty terms for denying in supple- McGills leave to file a and residue In determining complaint. mental For following rea- royalty paid agree- on residue sons, we affirm. provides: Background I. History and Procedural price рer The Mcf at which the shall be valued in each instance shall be the The McGills are interest owners price per Mcf during applica- received under two oil and executed accounting period ble for sold at the Oil). (formerly Exxon Humble The oil and discharge plant. side In the event gas leases include a 1935 lease discharge is not sold at the side of 30,000 covering lease more than acres land but instead is taken into Hum- Brooks, in Hidalgo, Hogg, Jim and Starr ble’s transmission facilities for market- Counties, (hereinafter Texas “the McGill ing side, in an area removed from the leases”). Until un- McGill leases shall be valued at the fair questionably governed royalties paid (3)27 added). (emphasis value. 20, 1960, however, the McGills. On June royalty pro- McGills and Exxon amended the Fair market value is greater defined as the visions of require pay- the McGill leases to price of Exxon’s field specified royalties ment of on residue Exxon major purchasers, sells plant products pro- extracted from weighted average price paid and the in Texas gas processing plant cessed at a then under Railroad Commission District 4. construction, Gas Processing Agreement (hereinafter “the Processing royalty provisions amended of the McGill Agreement”). period twenty year leases for a of at least a royalty provisions of the two McGill gave term right leases are provide pertinent identical and receive based on of the value of part: processed plant products. The term of (b) royalties paid by the lessee are ... began on the date the
on gas, including casinghead gas placed operation or other Ranch Plant was against The McGills filed suit until termination thereafter continued underpayment royalties. 1985 for Termination could vided in court, but originally suit was filed state party the end of by any after triggered to federal court based diver- notice removed year by giving written the nineteenth December, 1986, sity citizenship. In intent to terminate. party of the the other compel production a motion to as to the McGills filed effective became The termination Granberry, a reviewed R.C. of documents year after notice. party one terminating preparation employee, former Exxоn Furthermore, right to “limit Exxon had the deposition. May In his curtail, entirely, its or recommence cease compel. motion to (or court denied the In any portion of operations interim, Granberry Mr. had died. operations).” such parties filed a Joint January processed until From 1960 *4 containing parties agree- Pretrial Order prod- liquid plant gas, fractionated ments, In stipulations. No- admissions and ucts, gas liquid the residue and sold vember, 1991, Exxon two motions for filed Plant. King Ranch Gas products at the plant summary judgment on the two main partial gas from years, five the residue For these urging the court to hold: issues in case higher was sold the McGill leases the market value clauses of that under market. intrastate unregulated priced leases, the market value the McGill however, 29, 1965, Exxon en- January On in- regulated residue was limited to contract an interstate sales tered into sold; in which the terstate market (“Trunkline”).1 Company Trunkline Gas with Processing King Ranch obligated Exxon Trunkline The contract applicable to and controlled j. from the McGill’s all induced to deliver plant prod- liquid payments In twenty years. period a property for produced on from the ucts manufactured commingling of sold prevent the order to Weakley and as to the McGillleases markets, and interstate in the intrastate January Enyart 1977 to December 1981 from gas produced all which would all plaintiffs for times and as to other all controls, pricing Plant to federal King Ranch 1992, September action. relevant to this separate gas processing a Exxon constructed summary for filed cross-motions McGills Plant, process gas from Kelsey facility, the issues.” judgment identical “on Kelsey Plant properties. The the McGill after the on the McGill lease was constructed 1994, 10, On March lease and granted Exxon a surface summary partial motion for granted Exxon’s pipeline. for right-of-way a Trunkline ruling that the “market value judgment, 1988, April 1966 until September From the McGill leases was limited the well” under Kelsey gas was sold at the residue McGill’s calculating royalties prices when commerce, in interstate Plant for distribution 11, 1995, April the dis- On on residue transported liquids were extracted and the second motion Exxon’s granted trict court Plant where by pipeline to ruling judgment, that the summary prod- into liquids fractionated Agreement, and Processing times, liquid relevant ucts. At all roy- payment of governed the McGill only at sold were fractionated and plant products. liquid on alties or were King Ranch tailgate 1995, sought 27, leave the McGills Kelsey June On Exxon. Since taken used complaint. The dis- 1988, supplemental to file a gas produced on the Plant closed 29, leave on December court denied transported to the trict been leases has no other issues finding that disposi- 1995. After Plant for King Ranch final remained, court rendered plant liquids. gas and tion of the residue both dedicated to rеmained Act. The Natural Gas and Trunk- the contract between Exxon 1. After Energy the Federal 1965, until interstate commerce from the McGill line in permanent granted Regulatory Commission dedicated to interstate commerce became 1, 1987. of December abandonment as under the subject to federal limitations 340 6,
judgment July (5th favor of on Pipeline 1997. Gas F.2d 789 1157 Cir.1986) appeal Stine, This (citing followed. Lone Star Gas v.Co. (Tex.
41
App.1931)).
S.W.2d
Comm’n
Therefore,
II. The March
contends the
Partial
Processing Agreement controls the
Summary Judgment
calcula
tion of
liquid plant products.
pоint
appeal
The McGills’ first
is
agree
contentions,
We
with Exxon’s
and thus
that the
in granting
district court erred
Exx
hold that
liquids
the fractionation of
is
partial summary
on’s first
judg
motion
of “gas processing operations” within the
holding
ment and
that the
Ranch Pro
meaning of
cessing Agreement governed
payment
dispute
simplified
plant products.
We re
one of
interpretation
contract
view a trial court’s
granting
order
—does
agreement permit
the sale of
judgment
Landry
de novo. See
Kelsey
Int’l,
Plant and the
fractionation of
Air Line Pilots Ass’n
F.2d
(5th
Cir.1990).
products at
Ranch Plant.
Summary judgment
is
“Whethеr a written agreement
ambiguous
appropriate
genuine
where there is no
issue
clearly
or whether it
demonstrates the intent
any
as to
material fact
moving party
and the
parties
question
is a
of law.” Shelton
judgment
is entitled to
as a matter of law.
Corp.,
v. Exxon
Cir.
56(c).
See Fed.R.Civ.P.
*5
1991).
agreement
This
unambiguous
is
—it
argue
The McGills
royalty
applies
any gas produced
from the McGill
leases,
of the McGill
not
provisions
King
and
may
leases which
be processed
King
at the
Processing Agreement,
Ranch
should have Ranch Plant.
If a
unambiguous,
contract is
royalties
been used to calculate
gas pro
construction of the
question
contract is a
of
duced from McGill land. The King Ranch
law for the court to
Browning
decide. See
v.
Agreement
applicable
it is
any gas
states
“to
Navarro,
1069,
(5th Cir.1984);
743 F.2d
1080
produced
may
[from
leases]
McGill
Payne,
102,
Brown v.
142 Tex.
176 S.W.2d
processed in
[King
plant.”
Ranch]
(Tex.1943).
primary
Our
concern is
during
contend that
the rele
give
effect to the true intentions of the
period, gas
vant
from the McGill leaseholds
parties
expressed
in the
agree
written
being processed only
Kelsey
at the
Plant ment.
Corp.
See Deauville
v. Federated De
liquids,
and
the fractionation of
and not
partment Stores, Inc.,
1183,
756 F.2d
processing
occurring
at the
(5th Cir.1985); Lenape
Corp.
Resources
v.
King Ranch Plant.
stopped
Exxon
Once
Pipeline
Tennessee Gas
925 S.W.2d
shipping any of
types
the three
listed
(Tex.1996).
ambiguity,
Absent
the writ
King
in Article III
Processing
of the
Ranch
ing alone will be
express
deemed to
Agreement from the McGill
leases
parties,
objective
intention of the
intent
Plant,
King Ranch
argue
the McGills
that the
subjective
rather than
intent controls. See
King Ranch Processing Agreement ceased to
(Del.)
Sun
Madeley,
Oil Co.
626 S.W.2d
payment
thus,
royalties,
(Tex.1981).
point
The McGills
ato
royalty
terms
reverted
those
“smoking gun”
so-called
memorandum
Exxon, however,
McGill leases.2
argues that
by
O’Neal,
written
B.D.
engineer,
an Exxon
“gas processing” continued at
King
Barton,
to H.B.
gas opera
head Exxon
Ranch Plant
because fractionation
tions,
as evidence that Exxon knew
King
of the
processing procedure, and
Agreement
Ranch
was void.
the memo
law, “gas”
under Texas
randum,
includes all constitu
opines
O’Neal
that when Exxon
elements, including liquid hydrocarbons
ent
ceased
at the
Plant,
recovered therefrom.
Sowell v.
See
Natural
Ranch
agreement
be-
2. Article
Processing Agree-
III of the
plant
of which will be
into the
taken
without
provides,
pertinent
ment
part:
(2)
separation;
non-associated
or associat-
separa-
It is
ed
tion;
understood that there will or
taken into
after lease
be three
types
gas entering
plant:
casinghead gas
gas produced
non-associ-
ated
or associated
the full well stream
with oil.
April
1995 Partial
III. The
may-
the memorandum
While
came void.
Judgment
Summary
part of
understanding on the
an
evidence
the status
management of
senior
,
point
appeal
Exxon
is wheth-
next
The McGills’
the con-
after
Agreement
Exx-
granting
court erred
er the district
Plant,
Kelsey
summary judgment
the memo
partial
of the
struction
on’s motion
royalties
of the
holding that the
residue
with construction
the court
assist
market
the fair
should be determined
The memorandum would
interstate market.
sold on
agreement
construing the
helpful in
only be
of a district
the order
Again, we review
the face of
ambiguity on
if there was
judgment
novo.
de
granting
enforce
We must therefore
document.
Landry,
at
901-F.2d
See
as written.
agreement
Processing Agree-
King Ranch
Under
express terms
Because
ment,
gas processed
royalties on residue
that its
state
be “valued
King Ranch Plant would
earlier
supersede
visions will
value,”
by three
determined
the fair
on all resi-
royalties
governs the
agreement
agreement.3
different formulas
products processed
liquid
gas and
due
applies,
that if the
argue
McGills
II, the
In Article
Plant.
King Ranch
agree-
have used the
Exxon should
then
King Ranch
that-the
states
their residue
to calculate
from the McGill
gather gas
was built
royal-
McGills
рaid
While
Railroad Com-
other leases
leases
products
liquid
ties on
process and market
and to
Agreement,
mission District
Processing
King Ranch
liquefiable
and the
on residue
paid
II
terms
Article
therefrom.
“market value
well”
recovered
under the
“in its
based on
discretion
provides that Exxon
of the McGill
further
*6
that-if
contend
curtail,
entirely,
gas.
recom-
prices
or
may limit or
cease
the
(or
uniformly applied
any Exxon had
operations
gas processing
mence its
liq-
Processing Agreement
to both
Ranch
agree-
This
operations).”
such
portion оf
residue,
would
gas,
then Exxon
uids and
Exxon the flexi-
grants
unambiguously
the
pay the McGills
required to
have been
por-
cease,
any
recommence
limit or
bility to
gas.
price for
residue
higher intrastate
the
operations at
gas
tion of its
royalty provisions
the
counters that
Exxon
necessarily
This would
Plant.
King Ranch
payment
of the McGill
processing of
ability to
cease
include
on the
gas based
royalties on
residue
Plant. There-
gas at the
Ranch
residue
processed nor
gas
neither
was
fact that .the
pro-
to
fore,
made the decision
when
Plant.
King sold аt
Plant,
Kelsey
gas at
the residue
cess
with
at the
rather than
Process
King Ranch
Article V the
merely taking
was
gas components, it
other
agreement
that the
provides
ing Agreement
express provision in
advantage
only
of an
...
supersede
leases]
the [McGill
“shall
Likewise,
Exxon main-
extent,
provisions
[the
because
that
to the
portion
at least
provisions
at all times
tained
are in conflict
leases]
Plant,
Therefore,
not
we
King Ranch
do
matters
agreement.”
duction at
royal-
that
to be
will
McGills’contention
revert
agree
by
with the
covered
to the
by
back
McGill leases.
governed
terms had reverted
ty payment
ing
ap
expressly
provisions
Consequently,
agreement’s
McGill leases.
processed
judg-
that are
products
by granting
ply
not err
court did
Plant. Because
King Ranch
sold at
holding
that
ment and
and sold
processed
gas was
residue
liquid plant McGill’s
governed royalties
entered
even
and never
Kelsey Plant
Plant.
King Ranch
processed
price paid
chasers,
average
weighted
or the
value
provides
fair market
III
3. Article
District
greater of Exxon’s field
as the
Railroad Commission
defined
the Texas
would be
price
pur-
major
price to
gas,
Exxon's sales
Plant,
(5th
it
fall
Cir.1980).
would
outside F.2d
As this court
the terms of the
would
held in
Phillips
Bowers
Petroleum
governed
by
original
instead
McGill leas- market
royalty purposes
value for
cannot
es.
exceed the maximum ceiling price imposed
gas
particular
within that
federally
By
gas royalty provisions
virtue of the
regulated
category.
692 F.2d
the governing McGill
Cir.1982). Consequently, the “market value
royalties will
by
be determined
the market
provision
the well”
in the McGill leases
value at the well. The McGills contend that
would be
comparable
determined
inter
if Exxon
obligated
pay royalties
state
sales because the
that Exxon sold
provision
the market value
of the McGill
to Trunkline became dedicated to the feder
leases, then the intrastate market value of
ally regulated interstate market.
should have been
because an
used
intrastate market
always
was
available in
attempt
to distinguish Weath-
which to sell the
it
Because
dedi-
Middleton
arguing that alter-
erford
market,
cated to the interstate
Exxon argues
native markets were available at the time
that the fair market
cannot Exxon dedicated
to the interstate
federally
exceed
regulated
its
price. The market. Nothing in
or Middle-
Weatherford
ton,
held that
court
became
any
dedi-
nor
of the other
suggest
cases
cated to interstate
commerce and
the results
any
would have been
different
federal
ceilings
because the
had an alternative intrastate market been
Exxon sold to Trunkline was sold in inter-
producer
available to the
time the
review,
state commerce.
In our
we must was
committed
an interstate
contract.
address the McGills’
availability
contention
the fair The
of an intrastate market
intrastate,
market value of
and not inter- which
plaintiffs’
to sell the
gas relates to
state, gas should be used
an
because
intra- whether Exxon imprudently marketed the
state
market which
to sell
the residue
and does not affect the McGills’claim of
always
available to Exxon.
improper determination of market value.4
Therefore, because the existence of an alter-
agree
We
with the district court’s
native intrastate market
change
does not
analysis of
law,
this issue. Under Texas
result that interstate
compara-
sales are not
determine the market
value of
ble to intrastate
sales when determining
should be valued as though it is free and
value,
we hold that
trial
available for sale. See
Corp.
v. Mid
*7
was correct in granting
par-
Exxon’s second
dleton,
240,
(Tex.1981).
613 S.W.2d
246
Mar
tial summary judgment.
ket
may
be
using
calculated
compara
sales,
ble
which are those
of
which
sales
IV.
Compel
Motion to
Plaintiffs
comparable
time,
are
in
quantity,
quality,
The McGills next assert that the dis
availability
marketing
of
outlets. See id.
trict court
failing
produc
еrred
to order
Comparable
quality
physical
includes both
tion of documents that a former Exxon em
legal
characteristics. See id. To deter
ployee used to refresh his recollection in
legal
mine
quality, the court must consider
preparation for
deposition.
his
We review a
whether the
regulated
is sold in a
or
district court’s
overruling
order
a motion to
market,
unregulated
or in
particular
one
cat
compel for abuse of discretion. See Scott v.
egory
regulated
of a
market. See id. “In
Co.,
(5th
786,
Monsanto
868 F.2d
793
Cir.
trastate
and interstate
prices are not
1989).
comparable
[legal] quality.”
248;
Id. at
see also First Nat’l. Bank in
v.
The McGills contend that
Granberry,
R.C.
Weatherford
Corp.,
(Tex.
80,
622 S.W.2d
81-82
Exxon,
a witness for
used certain documents
1981); Kingery
Co.,
v. Continental Oil
626 to refresh his recollection in preparation for
4.
595,
(5th
McGills have made
Cir.1991);
no
that
claim
com-
602
Danciger
v.
Powell
Oil &
market,
mitting
to the
Refining
493,
(Tex.Civ.
134 S.W.2d
499
implied duty
Worth,
breached its
prudently
rev’d,
App.
1939),
137 Tex.
—Fort
Corp.,
See Shelton
(Tex.1941).
v. Exxon
921 F.2d
seems to it. SMITH, JERRY E. Judge, Circuit The leases at issue in specifically Sowell concurring part dissenting and part: provided royalties on “sulfur-free I respectfully part dissent from II produced of the Sowell, its'natural state." See majority opinion. That added). the affirms at (emphasis There- gas, of sorts different treating the system for roy- claim not could fore, royalty owners the prod not address system that does liquid of value separate upon the based alties scheme upon overall the Finally, uct. downstream that condensed hydrocarbons treat better gives Agreement of lease. Under located meters from —which liquid contain more that products trig- that production “it is agreement, that say that this difficult hydrocarbons аs Id. royalty obligation.” gers —it hy liquid of purely which consists product, state” —included its “natural produced —in unfavorably in form, drocarbons, be treated should so gaseous hydrocarbons those only on done. way has- compensated royalty owners form. Sowell gaseous of basis of the treatment to shoehorn tries always includes “gas” hold that not did that agreement into an hydrocarbons liquid by the limited it was rather products; all not, by its structure by its terms that stating at issue the lease of provisions Agree- cannot, substances. those cover natu- “in its on be based would fractionаtion ment cannot ral state.” major- While hydrocarbons. these specifically contem- Here, Agreement ease for logical fair and a ity has fashioned hydro- manifestations insuffi- has, given the various has plated I it it believe ruling as levels compensation set provisions I molecules carbon contract cient attention plant royalties on provided that, It on this accordingly. Concluding have discussed. value- otherwise, other propane, issue, products butane, should the result specific — were ex- Those but con- products. issue addеd that respectfully dissent I state in plicitly opinion. based' of the in the remainder cur Thus, plant. arrived gas deliv- from are “extracted products that separation prior plant without ered on 100% be based shall from
liquids products plant of the plant of the hand, other On the gas.” to such allocated arrived that has been' delivery to the “prior to that lease,” the separator1 through a run America, STATES UNITED a upon only third be based royalty would Plaintiff-Appellee, actually produced of the less gas. that from CORPORA AMERICAN CHROMALLOY specifically contem- Thus, Agreement as Wool formerly doing business TION, stream, containing all well the full that plated Sequa Manufacturing ley & Tool than more valuable much liquids, Defendants-Appellants. Corporation, liquids some plant with arrived Sowell, missing. Unlike No. 97-50818. “gas” treat here did Appeals, Court States United full component parts including all Circuit. Fifth stream. well impor more Furthermore, perhaps 4, 1998. Nov. unambiguous specific and is the tantly, there must we to which Agreement language to cov purports Agreement
give effect. types do types specific three
er More here. at issue product
not include two-tier establishes
over, completely re- plant that fide,processing a bona liquids from some separator removes A1. all that so liquids from moved incompletely. The does so but head stream well was residue was left a'separator, merely but Kelsey plant was not