Opinion ID: 741837
Heading Depth: 2
Heading Rank: 2

Heading: arco's duty to obtain the highest price available

Text: 39 Lessors argue that ARCO breached the implied covenant to market by failing to obtain the highest price available for Lessors' gas. The district court granted summary judgment to ARCO on this claim because the court found that Lessors could not show that the settlement price of $2.20 per MMbtu was not the highest market price available to ARCO at the time of the 1989 Settlement Agreement. The district court held that because ARCO obtained the best price available, ARCO acted prudently and with due diligence in marketing the gas. 40 Lessors argue on appeal that the district court erred in granting summary judgment to ARCO because the court reached its conclusion by resolving a genuine dispute of material fact. Lessors contend that a genuine factual dispute exists regarding whether ARCO's decision to settle its pricing claim satisfies the implied covenant to market. In particular, Lessors contend that a reasonable jury could find that ARCO breached the implied covenant to market by entering into the settlement agreement and accepting a price for gas lower than the price ARCO should have received under its gas supply contract with Arkla. 41 Under Oklahoma law, a producer such as ARCO has the duty to market the gas produced from a well and to obtain the best price and terms available. Barby v. Cabot Corp., 550 F.Supp. 188, 190 (W.D.Okla.1981) (citing Tara Petroleum Corp. v. Hughey, 630 P.2d 1269, 1273 (Okla.1981)). In marketing the gas and obtaining the best price available, ARCO must exercise that degree of diligence exercised by a prudent operator having regard for the interests of both the lessor and lessee. Fisher v. Grace Petroleum Corp., 830 P.2d 1380, 1391 (Okla.Ct.App.1991). Lessors bear the burden of proving that ARCO violated this duty. Barby, 550 F.Supp. at 190; Tara Petroleum Corp., 630 P.2d at 1274. 42 To prevail on their claim at trial, Lessors initially must show that a higher price was available at the time of the settlement agreement. To survive a motion for summary judgment, therefore, Lessors must set forth specific facts showing that there is a genuine issue for trial regarding whether the $2.20 price was the best available price for their gas. Applied Genetics Int'l v. First Affiliated Sec., Inc.,, 912 F.2d 1238, 1241 (10th Cir.1990). Although not entirely clear from the record, it appears that Arkla may have been obligated to pay the NGPA § 103 price for Lessors' gas. Indeed, this is what ARCO alleged in its lawsuit against Arkla in Oklahoma state court. Under the 1989 Settlement Agreement, however, ARCO agreed to a price below the § 103 price. 43 ARCO asserts that given the actual quality of the gas sold, ARCO could not have charged the § 103 price under the contract. Thus, ARCO maintains that its decision to settle with Arkla for the $2.20 price satisfied its duty to market the gas in a prudent manner. 44 While ARCO's ultimate decision to settle may have been a prudent business decision, we cannot say as a matter of law that ARCO has satisfied the implied covenant to market. Viewing the evidence and drawing all inferences in favor of Lessors as the nonmoving party, we conclude that Lessors have shown facts which support their contention that ARCO was entitled to receive the higher NGPA § 103 price. In particular, Lessors have shown that ARCO's existing contract required Arkla to purchase gas from the Wilburton Field at the § 103 price. ARCO admits that whether Arkla was obligated to pay the higher § 103 price under the purchase contract was a hotly contested issue during the 1989 settlement negotiations. If ARCO was entitled to receive the higher NGPA § 103 price from Arkla (which appears to depend on the quality of the gas), then ARCO's decision to settle for the $2.20 price may have breached its duty to market the gas and obtain the best price available. We therefore reverse the grant of summary judgment to ARCO on this claim and remand to the district court for further proceedings.