Opinion ID: 1789736
Heading Depth: 2
Heading Rank: 1

Heading: Unaccounted-For Gas Claim

Text: Whether a contract is ambiguous is a legal question for the court. [10] A contract is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation. [11] We give contract terms their plain and ordinary meaning unless the instrument indicates the parties intended a different meaning. [12] A contract is not ambiguous simply because the parties disagree over its meaning. [13] The court construes an unambiguous contract as a matter of law. [14] Many contracts involving the transportation of goods apportion the risk of loss during transport. The Uniform Commercial Code, for example, provides that parties may allocate this risk as they please by express agreement, [15] and also has provisions for allocating risk of loss in the absence of an express agreement. [16] Indeed, some of the gas contracts here make reference to Versado's obligation as buyer to pay Apache a percentage of the net proceeds f.o.b. the Plant tailgate. Generally, the Uniform Commercial Code recognizes that when parties specify F.O.B. the place of destination, the risk of loss during transport is on the seller. [17] Under these contracts, Versado sold gas that reached the tailgate after processing, and Apache received a percentage of the net proceeds derived from the sale of that gas. Both parties suffered from losses occurring during the transportation of gas from the wellhead to the plant tailgate. The contracts did not expressly require Versado to meet specified efficiency targets with respect to leakage, flaring, or Versado's use of gas as fuel. Nor did the contracts require Versado to pay Apache for losses that exceeded specified thresholds or losses that could not be categorized. The parties were free to apportion the risk of pipeline losses or other losses as they wished. Here, the contracts unambiguously provided that title to the gas was conveyed to Versado at the wellhead and Apache's payment for the gas it sold Versado was limited to a percentage of the proceeds from actual sales of residue gas at the tailgate. [18] Apache points to no proof that Versado intentionally converted gas and sold it to third parties without accounting to Apache for such sales, [19] or evidence that Versado committed an accounting error or mathematical miscalculation. There was no evidence at trial that Versado ever sold unaccounted-for gas, or that Versado failed to pay Apache its share of the proceeds received from any sales of residue gas. An Apache audit manager conceded at trial that there is no evidence to support that anything happened to this gas, the gas that you're describing as unaccounted for except that it was either flared or used as fuel or lost. He further agreed that there's no evidence that any unaccounted for gas went out the tailgate and that Apache was paid for every molecule of gas that went out the tailgate. The volume of gas sold at the tailgate was measured by pay meters owned by third parties, and Apache has never challenged the meters' accuracy. Apache sought recovery for sales that never occurred, but the agreements did not require Versado to pay Apache for gas unless it reached the tailgate and was sold to third parties. There is no provision in these contracts for unaccounted-for gas. Nor did they impose liability on Versado for gas that was lost and indisputably unavailable for sale at the tailgate, but for which Versado could not establish the precise reason for the loss. Under these contracts, Versado was not contractually liable for lost gas whenever it could not definitively explain a metering discrepancy between the wellhead and the tailgate. Moreover, while the court of appeals described the gas contracts as unambiguous as a matter of law, [20] it then relied in part on expert testimony regarding the standard practice in the industry for paying sellers under gas-purchase agreements. [21] According to Apache's expert, industry practice requires that unaccountable gas losses not exceed two percent, a percentage exceeded in this case. [22] Experts have a proper (if confined) role in litigation, but it is not to supply parol evidence to vary or contradict the terms of unambiguous contracts. [23] The parties could have agreed that Versado would pay Apache for losses exceeding a contractually specified threshold, but as noted above, the contracts do not contain such terms. The court of appeals also mentioned Versado's internally generated documents that made reference to unaccounted-for gas. [24] This evidence might be relevant to show mathematical miscalculations or other accounting errors, but again, there was no proof that these losses were anything other than gas that leaked, was flared, or was used as fuel. This extrinsic evidence cannot alter the meaning of an unambiguous contract that based payment on one criterion only: actual sales of residue gas at the tailgate. Because the contracts unambiguously do not impose an obligation on Versado to compensate Apache for unaccounted-for gas that was not sold at the plant tailgate, contract damages [25] for gas lost between the wellhead and the tailgate are not recoverable. Apache's breach-of-contract claim fails as a matter of law.