Opinion ID: 543116
Heading Depth: 5
Heading Rank: 2

Heading: Contractual Take Volumes.

Text: 39 However, the district court identified a myriad of other inadequacies in Bennett's study of comparable sales. Almost all of the district court's reasons (other than that of the casinghead gas entries) for finding the Bennett study speculative and unreliable were related to the uniqueness of the particular transactions among the royalty owners, MCC, and Shell. 40 The Thomasville plant produced 40,000 mcf per day of gas, much more than that of any other field in Mississippi in the 1970's. During these early years of the study, most of the fields used for comparison purposes were delivered no more than 5,000 mcf per day, and many fields 41 produced far less than that. While we have previously observed that higher delivery volumes usually fetch higher prices per mcf, see Piney Woods II, 726 F.2d at 239 n. 17, Shell argued before the district court (and again on appeal) that, because of the peculiar nature of Thomasville's ultrasour gas with its associated risks of non-delivery and explosions, price per mcf would be significantly lower under any contract that would guarantee to take these large quantities of gas than under contracts governing sales in which gas delivery was more certain or the guarantees were less comprehensive. While the royalty owners' experts disagreed with those of Shell on this issue, the district court did not err by adopting Shell's viewpoint. 6 42 We stated in Piney Woods II that examining comparable sales of ultrasour gas similar to that at the Thomasville plant would be preferred but that apparently such sales did not exist. See id. at 238-39. Neither party challenges this conclusion. The royalty owners, though, argue that comparable sales of sweet (processed) gas exist. The method of analysis approved in Piney Woods II for assessing the market value of Thomasville's ultra-sour gas at the wellhead by using comparable sweet gas sales was to take the price established for the sweet gas market, then deduct the processing costs inherent in changing the sour gas to sweet gas, and thus arrive at the price of sour gas at the wellhead. See id. The royalty owners contend this method will allow this court to disregard any arguments made by the district court or by Shell that focus upon the unique nature of the ultrasour gas at the Thomasville plant. 43 However, we find the royalty owners' reasoning flawed. Sales comparable in quality are those of similar physical properties such as sweet, sour, or casinghead gas. Id. at 239 n. 17. In this case, the ultrasour nature of the gas is inextricably tied to any attempt to assess what Thomasville gas would have been worth in the market had Shell not been locked into its long-term contract. Even though the buyer of the Thomasville gas would be buying sweet gas (as Shell did process the Thomasville gas), the delivery of that gas still would be uncertain, as all the problems that can occur with the ultrasour gas would directly affect the downstream delivery of the sweet gas. Thus, it was not clear error for the district court to find that what was paid for other sweet gas 44 produced in smaller amounts and with more certain delivery and perhaps other less adverse logistical factors was not an accurate reflection of what the market value of gas from the Thomasville plant would have been. 45 We do not read our endorsement in Piney Woods II of the comparable-sweet-gas-sales-less-processing-costs method of assessing market value (in the absence of comparable sour gas sales) as necessarily embracing the notion that all sweet gas sales are comparable merely because the sweet gas itself is comparable in quality. Where processed sweet gas sales are being used to assess the market value of wellhead sour gas, the district court was within its discretion to find that the risk inherent in guaranteeing to take large quantities of sweet gas processed from ultrasour gas could not be decoupled from the value of a contract for that sweet gas. As gas is almost always sold pursuant to executory contracts, the court was correct in not attempting to price sweet gas as a commodity divorced from the terms of, and conditions surrounding, the contracts under which the gas is sold. Moreover, many of those sales in the Bennett study that did involve relatively larger volumes, such as those in January 1976 from the Seminary field (about 3,000 mcf per day) and the Bassfield field (possibly as much as 22,000 mcf per day 7 ), were made under short-term contracts, which may have reflected one buyer's particular urgent needs rather than a more widespread market value. 46