Case ID: sw2d_41/html/0048-01.html
Source: Caselaw Access Project
Author: {"author": "ORITZ, J. CURETON, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

LONE STAR GAS CO. v. STINE et al.
    No. 1463-5700.
    Commission of Appeals of Texas, Section A.
    July 22, 1931.
    Ben H. Powell, of Austin, Karl F. Griffith and Roy C. Coffee, both of Dallas, and Taylor, Muse & Taylor, of Wichita Falls, for plaintiff in error.
    , Kay & Akin and C. C. McDonald, all of Wichita Falls, and G. B. Smedley, of Fort Worth, for defendants in error.
   ORITZ, J.

During the years 1911 and 1912, the defendants in error, J. H. Stine et al., were the owners of certain land in Clay county, aggregating more than 750 acres. On November 23, 1911, and December 5, 1911, Stine et al. for a cash consideration of $24,738 executed and delivered to -the gas company certain gas deeds conveying to the gas company: “All our rights, title and interest, ownership and claim, both present and prospective, in all natural gas in and under the following tract and parcels of land,” (here follows description of land).

These conveyances were duly acknowledged, delivered, and recorded.

At the same time the above gas deeds were executed and delivered, the parties entered into an “operating agreement.” The pertinent parts of this agreement are set out in the opinion of the Court of Civil Appeals, and in the interest of brevity will not be repeated here.

On the trial of the case in the district court, it was shown that the gas company drilled a number of wells on the land in question, and now have about eight such wells producing gas. Prior to 1916, this gas was conveyed -by the gas company to a compressor near the wells where it was compressed in order to increase the pressure in the mains, and thus facilitate its transportation through the pipe line. The gas was run from the compressor into the pipe line, which conveyed it to where it was sold for fuel purposes. During this time, when the weather was cold, and because of such low temperature and high pressure, gasoline, which was a part of the gas, and was in gaseous form when it came from the wells, would sometimes accumulate in the drips along the line in such quantities that it could be taken and used as motor fuel.

We here quote and adopt the following facts found by the Court of Civil Appeals: “In the year 1916 the appellee built its absorption plant, and after the completion of that plant the gas from the appellants’ land was conveyed from the wells to the compressor station, and from the compressor station to the absorption plant, where it was run through a certain kind of crude oil. This crude oil absorbed from the gas the gasoline which was carried along with the gas in the form of vapor, and the dry gas, after the gasoline had thus been absorbed from it, went Into the main lines of appellee, and was transported to various cities for fuel purposes. One of appellee’s witnesses described the process of extracting the gasoline as being a method by which gas was run through a certain kind of oil so that the oil became saturated with the hydrocarbons that go to make gasoline. The testimony is that this gasoline vapor may be converted into gasoline either by the absorption method used by the appellee, or by compression and cooling. That is, that by compression and lowering of temperature, the gas or vapor will be changed from its vaporous form into liquid, and this is the method which is ordinarily used in changing casinghead gas into gasoline.”

This suit wás instituted in the district .court of Olay county, Tex., by Stine et al. against the gas company for an accounting, and for a one-eighth royalty on all gasoline that was produced by the gas company by the process shown above.

The case was tried in the district court with a jury, but at the close of the testimony the trial judge directed a verdict for the gas company. The verdict was returned as directed, and judgment entered accordingly. On appeal by Stine et al., tbe Court of Civil Appeals reversed tbe judgment of tbe district court and rendered judgment for Stine et al. 23 S.W.(2d) 752. The ease is in tbe Supreme Court 011 writ of error granted" on application of tbe gas company.

As we understand tbe opinion of tbe Court of Civil Appeals, it bolds that as a matter of law tbe gasoline manufactured from tbe natural gas which flowed from tbe gas company’s wells was oil within tbe meaning of tbe deeds and “operating agreement,” supra. We think this bolding is error. Humble Oil & Refining Co. v. Poe (Tex. Com. App.) 29 S. W.(2d) 1019, 1020; Magnolia Petroleum Co. v. Connellee (Tex. Com. App.) 11 S.W.(2d) 158.

A careful reading of tbe gas deeds and “operating agreement” clearly discloses that the “operating agreement” does not and was not intended to in any way subtract from tbe estate conveyed by the gas deeds, but was intended merely to provide a method by which tbe owner of tbe gas estate and tbe owners of tbe oil estate could work together and protect tbe interests of each. We must therefore determine what was conveyed by tbe gas deeds.

At this point, we deem it expedient to quote tbe following from Judge Leddy’s opinion in Humble Oil & Refining Co. v. Poe, supra:

“It is difficult to conceive upon what theory defendant in error was entitled to recover for gasoline which could have been manufactured from gas produced from a gas well, in tbe face of tbe provision in tbe lease that ‘lessee agrees to pay tbe lessor at tbe rate of $250 each year, payable quarterly in advance, for the gas from each well where gas only is found, while tbe same is being used off tbe premises.’ * ⅜ *
“Plaintiff in error acquired the right to use the gas produced from a gas well it might drill on the premises covered by tbe lease by tbe payment of the agreed rental of $250 per annum. Having bought and paid for such gas it owned the same, including all of its constituent elements, and therefore bad the lawful right to make such use of it as it might deem proper. Wilson v. King Smith Refining Co., 119 Okl. 256, 250 P. 90; Shaw v. Fender, 138 Ga. 48, 74 S. E. 792; McRae v. Smith, 164 Ga. 23, 137 S. E. 390; Magnolia Petroleum Co. v. Connellee, supra.

Tbe real questions presented in tbe Poe Case, supra, and tbe questions here presented, are in law tbe same. In tbe Poe Case, tbe oil company bad a lease, while in tbe instant case tbe gas company has a deed to “all natural gas.” In tbe instant case, tbe gas company has tbe right, under its deeds, to “drill for and develop gas and take tbe same free from any charges or royalty.” Tbe gas company paid a large consideration running into thousands of dollars for “all natural gas” in and under these lands. An examination of tbe several instruments clearly discloses that tbe gas conveyed was not limited to any particular kind or character of gas, but tbe conveyance is all-embracing as regards gas, and covers and includes “all natural gas.” Tbe term “all natural gas” would include all tbe substances that come from tbe well as gas, and that regardless of whether such gas be wet or dry. It is undisputed in the evidence that tbe term “natural gas” includes numerous elements or component parts, but the very language of tbe conveyance is such as to include therein all these component parts which were in gaseous form when they came from tbe wells.

It is a fact disclosed by this record that gas and gasoline can be manufactured from coal. Could it be successfully contended that if tbe owner of land should convey all the coal in, on, and under such land, and reserve all oil and gas,- that be could claim as gas and oil tbe gas and gasoline manufactured from tbe coal? We think not; yet, such a claim would be as just and as logical as tbe one here advanced by Stine et al. Furthermore, suppose Stine et al. had taken their oil and manufactured gas therefrom, Could tbe gas company have claimed the same under their gas deed? We think-to state such a question is to demonstrate tbe fallacy of tbe contention here made by Stine et al. In other words, if it is permissible under these gas deeds and “operating agreement” for Stine et al. to take from tbe gas company tbe oil element which formed a constituent gaseous part of tbe gas as it came from tbe well, it would be equally as permissible for tbe gas company to take from Stine et al. tbe various gaseous elements which form component parts of oil.

Tbe evidence in this case conclusively shows that tbe gasoline in controversy here was manufactured from gas which came from tbe wells as gas. This gasoline was separated from tbe gas and became liquid only when it was subjected to tbe manufacturing process shown above. It is true that tbe gasoline element was in tbe gas when it came from tbe well, but it was then in gaseous form, that is, it was a,n element or component part of tbe natural gas, and gas or natural gas was tbe thing conveyed by tbe deeds. Tbe legal effect of tbe deed was to convey “all natural gas,” and by tbe term “natural gas” is meant all tbe constituent elements composing tbe same. Tbe gas company, having become tbe owner of “all natural gas” in or under this land, has tbe right to make such use thereof as it sees fit. It may sell tbe gas in its natural form as it came from tbe earth, or it may split it into its constituent elements and sell such elements, including tbe gasoline.

Tbe Court of Civil Appeals bolds that tbe instant case is ruled by tbe bolding of Section B of tie Commission, speaking through Judge Speer, in Reynolds v. McMan Oil & Gas Co., 11 S.W.(2d) 778. We have carefully examined that opinion in the light of the contract there construed and think that a correct conclusion was reached, as applied to that contract construed in the light of that record. We frankly admit that we have not attempted to harmonize all that was there said with what was said by Judge Leddy in the two other opinions hereinabove cited. We are persuaded, however, that there is nothing said in the Reynolds Case which was necessary to a decision of that case that can be construed as announcing a rule which would operate to give Stine et al. any interest in the gasoline manufactured from the natural gas taken from the wells in' the instant case. In the instant case, the grant to the gas estate is general and all-embracing, and nowhere in the gas deed or in the “operating agreement” is there any language used that can be construed as making any exception to the general grant of “all natural gas” contained in the gas deeds. Stine et al. conveyed to the gas company “all natural gas in and under” this land, and further they expressly granted to the gas company the right, “at all times to enter upon the land, drill for and develop gas and take the same free from charges and royalty,” and they should abide such contract as they made it.

We recommend that the judgment of the Court of Civil Appeals be reversed, and the judgment of the district court affirmed.

CURETON, C. J.

Judgment of the Court of Civil Appeals is reversed, and that of the district court is affirmed, as recommended by the Commission of Appeals.