Opinion ID: 2606626
Heading Depth: 1
Heading Rank: 1

Heading: facts and general authorities

Text: The specific sales status requires factual clarification for legal analysis. The buyer, by the purchase contract, accepted right, title and interest for the metered gas at the wellsite separator. This gas, together with product from other suppliers, is collected for piping to a processing plant, including the processed product disposition facilities and customer sales arrangements. Wellhead quality of the gas was a matter of periodic analysis, and volumetric computations were continuously maintained. Based on the metered gas volume at wellhead, and adjusted by a quality factor, the price was determined on a unit basis by applying a formula to what the processor, Phillips, received upon resale. Succinctly, the purchase-pricing obligation of Phillips was determined by subsequent resale value as determined by the posted field price in Texas and gas sales contracts at the Wyoming plant site. The pricing system is accurately described by appellant Davis Oil: In general, the pricing mechanism is established to allow Phillips to 1) pay each producer a raw gas price calculated as a specified proportion of the tailgate value of the products produced from that producer's gas. Phillips retains the balance of any `tailgate proceeds' to cover its processing costs and profit. [2] It is apparently the fact that the buyer used a percentage of the resale value as a pricing index that accommodates the majority's position that the status of a sale at wellhead is changed when the price is determined by subsequent events. Initially we are concerned whether the general rule now invoked by this court has only a peculiarly specified application to transactions with the State or is intended to reflect general rules and standards intrinsically involved in the law merchant, and more particularly in interpretation of the Wyoming Uniform Commercial Code, § 34-21-101 et seq., W.S. 1977. The product in this case was sold at the well by fact and definition, and we ought to determine whether, as a matter of contractual construction with the State or as a matter of business law, a fiction of nonsale at the well should now be created. Cognitive reasoning and logical result should satisfy fairness obligations to the State and its citizens for operational necessities while also accommodating the sale provisions of the Uniform Commercial Code and general standards of the law of commercial sales.    It is true that in a technical sense, and where a due regard to the intention of the parties using the word `sold' is had, it may mean a transfer of the title of property for a money consideration. Yet, it has other meanings which would include the present transaction, when it is obvious that such was the intent of the party using the phrase. Culver v. Uthe, 133 U.S. 655, 659, 10 S.Ct. 415, 417, 33 L.Ed. 776 (1890). I would find Piney Woods Country Life School v. Shell Oil Company, 726 F.2d 225 (5th Cir.1984), reh. denied 750 F.2d 69, cert. denied 471 U.S. 1005, 105 S.Ct. 1868, 85 L.Ed.2d 161 (1985) neither controlling nor logically persuasive. In Piney Woods, Shell as the producer did not sell at wellhead, whether or not one construes title to have changed at that point for regulatory authority purposes, since Shell retained possession, control and utilization through processing for future tailgate sale of processed gas at its plant. The only delivery of possession and relinquishment of incidents of ownership occurred downstream after processing. The determination that title passed at the wellhead was in itself really fictional, since it was done to determine nonregulatory jurisdiction of a federal agency and not as a bona fide criterion for determining actual sale. In this case, to the contrary, title was transferred, possession delivered, and responsibility assumed at wellhead. The only similarity is pricing, in that Shell in Piney Woods paid an amount based on what it got after processing, while in this case the variable pricing system arranged for purchase as an arm's length transaction between Davis and Phillips, was determined by application of the variable price to the volumetric amount of raw gas. In Piney Woods, Shell agreed to pay its raw gas royalty obligation based on processed revenue to Shell, which was based on inopportune long-term contracts at a time of increasing gas prices. See the excellent discussion on the interpretation of a gas-royalty clause found in First National Bank of Jackson v. Pursue Energy Corporation, 799 F.2d 149 (5th Cir.1986). This case can be factually distinguished from Kingery v. Continental Oil Co., 434 F. Supp. 349 (W.D.Tex. 1977), reversed on other grounds 626 F.2d 1261 (5th Cir.1980), cert. denied sub nom. Brent v. Natural Gas Pipeline Company of America, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 302 (1982), where the producer pooled and delivered gas to the pipeline company buyer approximately three and one-half miles off the lease premises, and from Exxon Corporation v. Middleton, Tex., 613 S.W.2d 240, 10 A.L.R.4th 712 (1981), where a construction of the lease clause determined whether the modifier off the premises applied to both sold and used. The converse of the decision finding used or sold off the leased premises is involved in Skaggs v. Heard, 172 F. Supp. 813 (S.D.Tex. 1959), where the buyer contended unsuccessfully for the off-the-premises construction in order to charge back proportionate repressuring costs. In that case, the court held that the buyer's repressuring equipment system arrangement did not change the site-of-sale fact, since the gas was sold and delivered to the pipeline on the lease. Similarly, in Matzen v. Cities Service Oil Co., 233 Kan. 846, 667 P.2d 337 (1983), cert. dismissed sub nom. Mobil Oil Corp. v. Batchelder, 468 U.S. 1222, 105 S.Ct. 17, 82 L.Ed.2d 912 (1984), the trial court determination of sale off the premises as to Ashland Oil was affirmed based upon the producer maintaining the gathering system with delivery to the buyer at a central delivery point. See also Shamrock Oil & Gas Corporation v. Coffee, 140 F.2d 409 (5th Cir.), cert. denied 323 U.S. 737, 65 S.Ct. 42, 89 L.Ed. 591 (1944). Here, the wellhead price for Davis, as vendor, was determined by value determinative process sales receipts obtained by Phillips at plant tailgate. A more nearly comparable case, although not similar in facts, is Waechter v. Amoco Production Co., 217 Kan. 489, 537 P.2d 228, 546 P.2d 1320 (1975) (see also Waechter v. Amoco Production Co., 219 Kan. 41, 546 P.2d 1320 (1976)), wherein the Kansas Supreme Court found a sale at wellhead. See also Pierce v. Texas Pacific Oil Co., Inc., 547 F.2d 519 (10th Cir.1976) interpreting Oklahoma law; Skaggs v. Heard, supra; and Exxon Corporation v. Middleton, supra. [3]