Opinion ID: 1789736
Heading Depth: 2
Heading Rank: 3

Heading: Condensate Claim

Text: As described above, the gathering system includes numerous compressor stations. These stations help move gas from the wells to the processing plants. Liquid field condensate drops out of the gas stream because of changes in pressure and temperature, and must be removed from the gathering system to prevent blockage. In 2000, Versado modernized its gathering system to make it more efficient, by consolidating its three Eunice plants into a single processing plant. The North and South Eunice plants were converted to compressor stations, two of about a dozen compressor stations along the gathering system that helped move gas to the three remaining processing plants. After the conversion, the gas at the North and South Eunice compressor stations proceeded to the Middle Eunice plant for processing. The Versado gathering system retained two other processing plants, the Monument and Saunders plants. Versado pays Apache for condensate produced at the three plants. Because field condensate removed from the North and South Eunice stations had for some period been trucked and commingled with condensate produced at the Middle Eunice processing plant, Versado paid Apache for all the commingled condensate. [32] Versado sought a declaratory judgment that it does not have an obligation to pay Apache for field condensate, including condensate that falls out in field compressor stations that used to be gas processing plants. The parties tried this issue to the court, which rendered a declaratory judgment holding that, as to the eleven contracts in issue, Versado must pay Apache its allocated share of all field condensate collected at the North and South Eunice stations. The court of appeals disagreed, reasoning that under the contracts' plain language, Versado had no such obligation. [33] Reading each contract as a whole and harmonizing the various relevant provisions, [34] we agree with the court of appeals. The only plausible construction of the contracts is that Versado is not required to compensate Apache for liquids that fall out of the gas stream at the North and South Eunice compressor stations. According to trial testimony, liquids that condense at compressor stations are not marketable without further processing at a plant because they contain impurities such as water, hydrogen sulfide, and carbon dioxide. Some of the contracts in issue do not define plant, but six of them define the term as a facility where gas is processed. [35] Unlike plants, the compressor stations do not treat the liquids; the liquids merely collect at the station. Plants employ several stages or processes that include refrigeration or huge compressors to deliberately make liquids. The compressor stations are necessary to move gas to a plant, where the gas and liquids can be treated and sold to third parties. Compression at the plant is achieved through multi-stage compression and at higher pressure than compression at the North and South Eunice stations. The contracts cannot be read to require Versado to compensate Apache for liquids that condense at the two compressor stations. First, all the contracts provide that title to the gas transfers to Versado at or near the Apache wellheads. Therefore, absent some more specific provision to the contrary, Versado owns any liquids that condense from the gas stream downstream of the wellheads, at the compressor stations or anywhere else. Second, all of the contracts in issue provide that Versado is only obliged to pay Apache for liquids saved and sold at the plant or, in one contract, to pay Apache for Products defined as liquids extracted through Plant processing. As explained above, the compressor stations are not plants. Further, gas liquids were not saved and sold at the compressor stations. Third, ten of the eleven contracts expressly provide that any liquids exiting the gas stream en route to the final processing plants belong to Versado. [36] These provisions, requiring Versado to keep the gathering system reasonably clear of obstructions, are consistent with trial evidence that liquids leaving the gas stream prior to reaching the final processing plant are, to some extent, a nuisance because they can obstruct gas flow or unduly raise pressure. These provisions are also consistent with the provisions that Versado takes title to all the gas at the wellhead, and the provisions that Versado is only compelled to pay Apache for liquids produced at the processing plants at the other end of Versado's gathering systems. Of the six contracts that define Plant, they all define it as facilities where the gas is processed, as opposed to the gathering system, separately defined in all these contracts as the pipelines and equipment used to deliver gas to the plant. [37] None of these contracts specify that condensate precipitating at compressor stations is treated differently from condensate precipitating at any other point in the gathering system. Apache emphasizes that the North and South Eunice compressor stations used to be processing plants, but this fact does not alter our construction of the contracts. Other plants were converted to compressor stations, and Apache does not argue that they too must be treated as plants. Nor does Apache argue it should be paid for field condensate produced at compressor stations that have always been compressor stations. The North and South Eunice stations compress the gas to the same pressure as other compressor stations. Nothing in the contracts prohibits the conversion of processing plants into compressor stations as part of a gathering-system upgrade that reduced emissions, increased the overall efficiency of the system, and in fact benefitted producers as well as Versado. [38] Apache argues that the contracts expressly state that their purpose is to extract liquid hydrocarbons. For example, five of the contracts state that the gas is being sold for the principle [sic] purpose of extracting therefrom such Liquid Hydrocarbon Products as may be extracted at the Plant. These provisions, however, are unhelpful in determining whether a compressor station is a plant. They do not contradict the contract provisions described above that make clear Versado (1) is only obliged to pay for liquids saved and sold at the plant, (2) owns all the gas after it leaves the wellhead, and (3) owns any liquids that fall out of the gas in the gathering system. These contracts expressly distinguish the Plant from the Gas Gathering System. Further, these contracts only oblige Versado to pay Apache for Liquid Hydrocarbon Products, a defined term that expressly excludes drip, condensate or scrubber oil collected prior to the first stage of compression within the Plant. Hence, unless the liquids are collected within the Plant, as opposed to the gathering system that includes compressor stations necessary to move the gas to the processing plant, Versado is not obliged to pay Apache for the liquids. In sum, construing each contract as a whole and examining the relevant provisions of each, we agree with the court of appeals that none of the contracts required Versado to compensate Apache for field condensate that fell out of the gas stream at the Eunice North and South compressor stations.