Opinion ID: 543116
Heading Depth: 4
Heading Rank: 2

Heading: Effect of Deregulation on Market Value.

Text: 78 The record, though, shows that five of the nine wells involved in the instant litigation were drilled or re-drilled after February 19, 1977, and were deeper than 15,000 feet. As such, section 107 (15 U.S.C. Sec. 3317), as well as section 105, of the NGPA governed them. Gas from these dually classified wells is then entitled, under 15 U.S.C. Sec. 3311(b)(5), to be valued at the higher of the two prices, in this case the section 107 deregulated prices. 15 Thus, the royalty owners may be entitled to some damages based upon inadequate royalty payments on gas from the Garrett, Spengler, Clark, Edge, and Stevens wells. 16 79 The district court agreed that gas produced from these [the dually classified] wells could collect the 'deregulated' Section 107 prices. However, the court denied any damages to which the royalty owners might have been entitled as a result of a higher market value for gas from the section 107 wells. The court's only explanation was, Relative to that quantity of gas sold under Section 107, plaintiffs have produced no evidence as to those proportional sales as opposed to the sales under Section 105. 80 However, plaintiff's exhibit P-155 appears to set forth a well-by-well, month-by-month listing of Shell's sales proceeds, from which a calculation of damages could be made should it be found that market value for the gas delivered from the section 107 wells was indeed greater than the actual proceeds received by Shell under its contract. Therefore, we must vacate and remand. Should the district have some other reason not expressed in its opinion for discounting exhibit P-155, the same may be explained on remand. 81 Furthermore, because the contract Shell made with Transco on November 23, 1982, contained an indefinite escalator clause, and further because on December 31, 1984, gas was priced at above $1.00 per mcf under that contract, all gas sold under that contract was released, effective January 1, 1985, from any NGPA restrictions limiting prices to those specified under section 105(b)(1). See Sec. 105(b)(3). Therefore, pursuant to section 105(b)(3), beginning on January 1, 1985, the maximum lawful price for any gas sold to Transco under the contract from any of the four wells not classified as section 107 wells was limited only by adjusted section 102 ceilings rather than by section 105(b)(1). See Sec. 105(b)(3). 82 Hence, if Shell received from its sales to Transco after December 31, 1984, less than the market value of the gas sold, where market value is limited by section 105(b)(3) maximum prices (and not by the old contract price as under section 105(b)(1)), the royalty owners are entitled to damages compensating them for not receiving their proper share of the true market value. On remand, the district court may make the appropriate determination as to whether any such damages are due. 83 As the 1982 amendment to the Shell-MisCoa contract is not found in the record on appeal, we are unable to determine whether the Shell-MisCoa contract contained an indefinite escalator clause that established the December 31, 1984, price under that contract. Hence, we cannot say whether gas sold to MCC after December 31, 1984, from the four wells not classified under section 107 would be limited to the low Shell-MisCoa contract price or whether, instead, the maximum lawful price for such gas was the higher adjusted section 102 price. Damages will be due to the royalty owners should the district court find on remand that the market value of the gas, limited by the applicable regulatory price ceiling, was greater than the actual proceeds received by Shell for the gas. We intimate no view as to what the district court's determination should be in this regard. 84 Any damages for the royalty owners from the section 107 wells and for the other wells after 1985 are still contingent upon whether the actual proceeds received by Shell from these wells during the time of regulation were less than market value (where market value is limited by regulatory price ceilings where applicable 17 ). Because for the years after 1978, the district court did not make any specific examination and findings to determine whether the royalty owners' evidence established a market value for gas higher than the prices under Shell's contract, we remand so that the district court may conduct, just as it did for the years 1972-1978, a weighing of the probative value of the comparable sales evidence presented by the royalty owners' experts. 85 We express no opinion as to the correct finding or result on such a remand. We note only that because we have vacated the district court's finding that damages could not be calculated for payments associated with gas from section 107 wells, and because in the later years some higher-volume sales occurred and nationwide gas prices increased, on the present state of the record we cannot affirm the finding of no damages for the years after 1978 where that affirmance is based only upon the court's review of the royalty owners' evidence for 1972-1978. 86