THE LOUISIANA LAND AND EXPLORATION COMPANY, PETITIONER V. TEXACO,
INC.

   No. 86-1115

   In the Supreme Court of the United States

   October Term, 1986

   On Petition for a Writ of Certiorari to the Supreme Court of
Louisiana

   Brief for the United States and the Federal Energy Regulatory
Commission as Amici Curiae

   This brief is filed in response to the Court's order inviting the
Solicitor General to express the views of the United States.

            TABLE OF CONTENTS
   Question presented
   Statement
   Discussion
   Conclusion

                          QUESTION PRESENTED

   Section 105 of the Natural Gas Policy Act of 1978, 15 U.S.C. 3315,
establishes a maximum lawful price for "any first sale of natural gas,
sold under any existing contract * * *, which was not committed or
dedicated to interstate commerce on November 8, 1978." The question
presented is whether this Section applies to gas sold in intrastate
commerce under a pre-1978 warranty contract, which guaranteed the
delivery of certain quantities of gas, but which did not commit any
specific sources of gas to performance of the contract.

                               STATEMENT

   1. The Natural Gas Policy Act of 1978 (the NGPA or the Act), 15
U.S.C. 3301 et seq., regulates the pricing of "first sales" of natural
gas in both interstate and intrastate commerce.  Title I of the Act
establishes eight categories of natural gas production and specifies
the "maximum lawful price" that may be charged for first sales in each
category.  Under Louisiana law, this "maximum lawful price" in turn
limits the value of the gas for purposes of calculating royalties
payable by producers to landowners under Louisiana leases.  See Shell
Oil Company v. Williams, Inc., 428 So.2d 798 (La. 1983).

   The question here is whether Section 105 or Section 109 of the NGPA
applies in calculating the royalties payable by respondent to
petitioner.  Section 105 defines the maximum lawful price that applies
"to any first sale of natural gas * * *, sold under any existing
contract or any successor to an existing contract, which was not
committed or dedicated to interstate commerce on November 8, 1978" (15
U.S.C. 3315(a)).  This price is the lower of the maximum lawful price
for so-called "new gas" and "the price under the terms of the existing
contract, to which such natural gas was subject on November 9, 1978"
(15 U.S.C. 3315(b)(1)).  Section 109 in turn establishes a ceiling
price for natural gas "which is not covered by any maximum lawful
price under any other section of this part" (15 U.S.C. 3319(a)).
Section 109 applies inter alia to "natural gas which was not committed
or dedicated to interstate commerce on November 8, 1978, and which was
not subject to an existing contract on such day" (15 U.S.C.
3319(a)(3)).

   Respondent Texaco, Inc., leases from petitioner Louisiana Land and
Exploration Company (LL&E) land on which Texaco produces natural gas.
Texaco's leases with LL&E provide that it will pay LL&E a royalty
based on a percentage of the "fair" or "market" value of the gas
produced.  Pet. 4;  see Pet. App. 4a-6a n.1.  Prior to the enactment
of the NGPA, Texaco, in an effort to market its natural gas, entered
into long-term sales arrangements with Louisiana industrial customers
promising future intrastate gas deliveries (Pet. App. 23a).

   Texaco's agreements with its industrial customers were in the form
of "warranty contracts" rather than "dedication contracts." Under a
"dedication contract," a producer agrees to furnish to a particular
customer all gas produced from specified reserves, so that those
reserves are said to be "dedicated" to the customer.  Under a
"warranty contract," by contrast, a producer warrants that he will
deliver certain quantities of gas to the customer;  the source of the
gas is unspecified, and the producer may therefore fulfill his
obligation from any source that he chooses.  Pet. App. 16a-17a.  /1/

   Before the enactment of the NGPA, Texaco had used gas produced from
the LL&E leases to satisfy its obligations under its warranty
contracts with its Louisiana industrial customers (Pet. App. 29a).
Texaco during that period had paid royalties to LL&E based on the
warranty contract price that it received from those customers.  When
the NGPA was enacted in 1978, Texaco took the position that the
"maximum lawful price" of the gas was to be calculated under Section
105 of the Act, and hence that the royalties it paid to LL&E should
continue to be based on the warranty contract price that it received
from its Louisiana customers.  Texaco reasoned that the gas was "sold
under" the warranty contracts (15 U.S.C. 3315(a)), which were in
existence on the date the NGPA was enacted, and hence that the maximum
lawful price of the gas was "the price under the terms of (those)
existing contract(s), to which (the) natural gas was subject on
November 9, 1978" (15 U.S.C. 3315(b)(1)).  Pet. App. 17a.

   2. Almost five years after the NGPA was enacted, on July 29, 1983,
LL&E filed this action against Texaco in the Civil District Court for
the Parish of Orleans, Louisiana (Pet. App. 25a).  In its petition for
damages, LL&E claimed that Texaco had underpaid royalties due LL&E
under its leases (id. at 4a-6a n.1).  LL&E argued that, whether or not
the gas produced from the leased properties could be deemed to have
been "sold under" Texaco's pre-1978 warranty contracts, that gas was
not "subject to" those contracts within the meaning of Sections 105
and 109.  This argument was based on the theory that gas is 'subject
to" a contract only if it is specifically dedicated or committed to
performance of that contract;  since Texaco's pre-1978 warranty
contracts permitted Texaco to satisfy its contractual obligation by
using any gas of its choosing, LL&E argued that none of the gas at
issue was "subject to" those contracts.  LL&E therefore contended that
the "maximum lawful price" for the gas was not the Section 105 price,
but rather was the higher Section 109 price, which applies to
intrastate gas "which was not subject to an existing contract on
(November 8, 1978)" (15 U.S.C. 3319(a)(3)).  Pet. App. 18a.

   On cross-motions for partial summary judgment, the Louisiana
district court rejected a state commissioner's recommendation (Pet.
App. 25a-30a) and ruled in favor of LL&E (id. at 22a-24a).  The trial
court acknowledged that Texaco's gas "was being 'sold under' contracts
existing when the (NGPA) was adopted," but concluded that this fact
alone "does not submit th(e) gas to the Section 105 limitation of
price" (id. 24a).  According to the court, the Section 105 limitation
applies only when gas was "'subject to' * * * an existing contract on
the effective date of the (A)ct" (ibid. (quoting 33 U.S.C. 3315,
3319)).  "Because of the flexibility of (Texaco's) warranty sales
agreements, * * * (which) commit no particular gas to Texaco's
customers," the trial court concluded that the gas at issue "was not
'subject to' any contract" and hence that "Section 109 regulates the
price at which this gas could be sold" (Pet. App. 24a).

   The state court of appeal affirmed, one judge dissenting (Pet. App.
15a-21a).  Like the district court, the court of appeal ruled that
Congress's use of the term "subject to" in Section 105(b), and again
in Section 109, "necessarily qualifies in the more general language
'sold under'" used in Section 105(a) (Pet. App. 19a).  According to
the court of appeal, "(t)he term 'subject to,' in its ordinary sense,
means 'subordinate to' or 'governed or affected by'" (Pet. App. 19a,
quoting Black's Law Dictionary 1278 (5th ed. 1979)).  Based on this
reading of the statute, the court concluded that "the gas in question
was (not) subject to an existing contract at the time of the NGPA's
enactment" and hence that "Section 109 of the NGPA regulates the
ceiling price for the gas" (Pet. App. 20a).

   The state supreme court reversed, three justices dissenting (Pet.
App. 4a-14a).  Relying on a decision by the federal district court in
Amoco Production Company v. Hodel, 627 F. Supp. 1375 (W.D. La. 1986),
vacated on other grounds, No. 86-4168 (5th Cir. Apr. 29, 1987), the
supreme court held that Congress "did not intend to distinguish
between warranty and dedication contracts in establishing the price
ceilings of Section 105" (Pet. App. 9a).  The court reasoned that
LL&e's gas was clearly "sold under" Texaco's pre-1978 warranty
contracts, and it held that the gas was therefore "governed by the
maximum lawful price in Section 105," which the court deemed to
"ha(ve) precedence over Section 109" (Pet. App. 10a).  The court
rejected LL&E's argument that "the term 'subject to' in Section 109 is
* * * synonymous with 'dedicated to,'" concluding that the former term
simply reflected Congress's understanding in 1978 that "all old gas in
production would be the subject of a contract" (id. at 10a & n.12).
The Louisiana Supreme Court accordingly held that Texaco had properly
computed LL&E's royalties by reference to the actual contract prices
that Texaco received from its Louisiana customers.  /2/

                              DISCUSSION

   The decision of the Louisiana Supreme Court concerns a novel issue
of statutory construction -- whether Section 105 of the NGPA applies
to intrastate gas delivered under pre-1978 warranty contracts.  This
question has not previously been addressed by this Court, by any
federal court of appeals, or by any other state supreme court.  The
Federal Energy Regulatory Commission, the federal agency responsible
for implementation and enforcement of the NGPA, has likewise had no
occasion as yet to express its view on this issue.  Under these
circumstances, we believe that review by this Court would be premature
at this time and accordingly suggest that the petition for a writ of
certiorari should be denied.

   1. As petitioner implicitly acknowledges, the decision of the
Louisiana Supreme Court in this case does not conflict with any
decision of this Court, or with any decision of any other court.
Indeed, apart from the Louisiana courts below, the only other court in
the country that has ever addressed the question presented here in the
United States District Court for the Western District of Louisiana in
Amoco Production Co. v. Hodel, 627 F. Supp. 1375 (1986).  /3/ That
decision, however, was recently vacated by the Fifth Circuit on
jurisdictional grounds.  Amoco Production Co. v. Hodel, No. 86-4168
(Apr. 29, 1987).  /4/ As a result, the question presented presented
here is quite literally one of first impression outside of the
Louisiana state court system.

   We think that further review of the question presented is quite
unnecessary at this juncture.  As we have noted, the Amoco Production
case, which raises the Section 105 issue and to which the Secretary of
the Interior is a party, will soon be initiated in the Claims Court,
with appellate venue lying in the Federal Circuit.  /5/ A diversity
action raising the issue between private parties is also pending
within the Fifth Circuit.  See Shelton v. Exxon Corp., No. H-83-1575
(S.D. Tex. filed March 1, 1983).  Finally, although no litigation
raising the Section 105 issue is currently pending in the Texas state
courts, an action between private parties could well be heard by those
courts in the future, creating the possibility of a conflict between
the Texas and Louisiana Supreme Courts.  /6/ This Court has often
remarked upon "the wisdom of allowing difficult issues to mature
through full consideration by the courts of appeals" (E.I. DuPont de
Nemours & Co. v. Train, 430 U.S. 112, 135 n.26 (1977)).  We do not
believe that the question presented here is of such pressing and
exceptional importance as to warrant an exception from that rule.

   2. Petitioner suggests (Pet. 14-15) that immediate review by this
Court is appropriate because of a supposed conflict between the
decision of the Louisiana Supreme Court and "the views of those in the
federal government responsible for administering the Natural Gas
Policy Act." No such conflict in fact exists.  Although the Interior
Department's Board of Land Appeals in the Amoco Production case did
adopt a construction of Section 105 at odds with that of the Louisiana
Supreme Court (see Pet. 15), the Board of Land Appeals is not an
agency responsible for administering the NGPA.  The Federal Energy
Regulatory Commission is the sole federal agency responsible for
administering that statute;  the role of the Interior Department in
this context is confined to its status as the federal agency
responsible for looking after federal property interests in certain
public lands.

   The Federal Energy Regulatory Commission, moreover, has never had
occasion to address the question whether Section 105 of the NGPA
applies to warranty contracts of the sort involved in this case.
Petitioner refers (Pet. 14-15) to a pair of letter opinions drafted by
FERC's General Counsel, /7/ but such letter opinions do not amount to
a formal construction of the statute by the Commission.  Indeed, as
both letter opinions make explicit, the interpretations expressed
therein reflect only the views of the General Counsel at that time.
See Pet. App. 51a ("the views expressed here are mine, as General
Counsel, and do not bind the Commission in any manner");  id. at 58a
(same).  See generally 18 C.F.R. 385.1901(g)(6) ("An interpretation
provided by the General Counsel is given without prejudice to the
Commission's authority to consider the same or like question and to
issue a declaratory order or to take other action which has the effect
of rescinding, revoking, or modifying the interpretation of the
General Counsel.").

   An interpretative rule promulgated by the Commission under the
NGPA, unlike an informal opinion rendered by its General Counsel, has
general applicability and effect, is the product of a rulemaking
proceeding, and requires a vote of the Commissioners.  See 18 C.F.R.
385.1901, 385.1903.  To date, the Commission has not had occasion to
address the question of statutory construction that is implicated by
this case.  The Commission informs us, moreover, that it would be
contrary to its normal practice to address that question when it
arises, as here, in the context of a state-court action to recover
royalties alleged to be due under state law, rather than in a federal
regulatory context over which the Commission has jurisdiction.

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   RICHARD K. Willard

      Assistant Attorney General

   ALBERT G. LAUBER, JR.

      Deputy Solicitor General

   RICHARD J. LAZARUS

      Assistant to the Solicitor General

   ROBERT S. GREENSPAN

   BRUCE G. FORREST

      Attorneys

   CATHERINE C. COOK

      General Counsel

   JEROME M. FEIT

      Solicitor

   JOEL M. COCKRELL

      Attorney Federal Energy Regulatory Commission

   MAY 1987

   /1/ The Department of Energy estimates that about 6% of all "old"
natural gas sold in intrastate markets in 1984 was sold under warranty
contracts of the sort involved here.

   /2/ Three justices dissented, two of whom assigned reasons (Pet.
App. 11a-14a).  Justice Calogero expressed the view that Section 105
did not apply because the gas at issue was not "dedicated" to Texaco's
contracts with its industrial customers and hence that the gas was not
"subject to" those contracts within the meaning of Section 105 and 109
(Pet. App. 11a-14a).  Justice Dennis stated that he "agree(d)
basically with the statutory construction" advanced by the majority,
yet dissented on the ground that summary judgment was inappropriate
(id. at 14a).

   /3/ In Amoco Production, the Secretary of the Interior was in a
position similar to that of LL&E, and the Secretary argued that
Section 105 should not apply to limit royalties payable to the United
States as lessor under pre-1978 warranty contracts involving natural
gas produced from federal lands.  The district court rejected the
Secretary's argument that Section 105 does not apply to natural gas
sold pursuant to warranty contracts (627 F. Supp. at 1378), but
nonetheless ruled against the oil company's claim that it had overpaid
royalties to the United States.  The court reasoned (id. at 1378-1380)
that the government's royalties under the Outer Continental Shelf
Lands Act, 43 U.S.C. 1331 et seq., should not be limited by the price
agreed to by a producer in a warranty contract, notwithstanding
Section 105 of the NGPA.

   /4/ In reversing the district court, the Fifth Circuit agreed with
the Secretary's threshold contention that the oil company's lawsuit
had the primary objective of recovering money damages in excess of
$10,000 from the United States, and hence that exclusive jurisdiction
of the suit lay in the Claims Court under the Tucker Act, 28 U.S.C.
1346(a)(2), 1491(a).  The court of appeals accordingly vacated the
district court's judgment with instructions to transfer the case to
the Claims Court.

   /5/ In the Claims Court litigation, the Secretary of the Interior
will be advancing the contention, contrary to the holding of the
Supreme Court of Louisiana, that Section 105 does not apply to
warranty contracts of the sort involved here.  The Secretary thus
shares petitioner's view that the decision below is incorrect.  The
Secretary's view of the merits, however, does not affect his judgment
that review by this Court would be premature now.

   /6/ The Texas Supreme Court, like the Louisiana Supreme Court, has
adopted the rule that "value" of natural gas, for the purpose of
adjudicating natural gas royalty disputes, as a matter of state law,
may not exceed the maximum lawful price of the gas under the NGPA.
See Exxon Corp. v. Middleton, 613 S.W.2d 240, 246 & n.5 (Tex. 1981).

   /7/ Neither of the two opinion letters, which were prepared in 1982
and 1980 by different individuals, directly concerned the royalty
implications of Section 105.  See Pet. App. 46a-59a.