Court Opinion

ID: 2808164
Source: CourtListenerOpinion
Date Created: 2015-06-15 07:11:11.329652+00
Date Added: 2024-06-11T12:45:48.226260
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                                  444444444444
                                                     NO . 13-0596
                                                  444444444444

                        KACHINA PIPELINE COMPANY, INC., PETITIONER,
                                                            v.

                                   MICHAEL D. LILLIS, RESPONDENT

             4444444444444444444444444444444444444444444444444444
                                 ON PETITION FOR REVIEW FROM THE
                          COURT OF APPEALS FOR THE THIRD DISTRICT OF TEXAS
             4444444444444444444444444444444444444444444444444444

        CHIEF JUSTICE HECHT , joined by JUSTICE GREEN and JUSTICE DEVINE , concurring in part and
dissenting in part.

         Lillis delivers gas from seven wells to Kachina at two nearby metering facilities. Kachina’s

gathering system collects gas from Lillis and nine other producers at about 25 delivery points.

Kachina transports the gas about a mile to the Barker Central Compression Station and, from there,

about seven miles to the Davis Gas Processing Plant. Kachina’s gathering system accepts gas from

producers at about 50 psig.1 The average monthly pressure of five of Lillis’s wells is 50 psig and of

         1
            A pound per square inch, abbreviated “psi”, is a unit of pressure resulting from applying a force of one pound
to an area of one square inch. The term, “pound per square inch gauge”, abbreviated “psig”, is used to make clear that
the pressure is measured relative to atmospheric pressure, which is around 14.7 psi at sea level. See generally John M.
Cimbala, Introduction to Pressure in Fluid Mechanics, P EN N S TATE D EPARTM EN T O F M ECH AN IC AL AN D N U CLEAR
E N GIN EERIN G (last visited June 6, 2015), http://www.mne.psu.edu/cimbala/Learning/Fluid/Pressure/pressure_basics.htm.
For example, as more of us have recently been made aware, the official rules of the National Football League require
footballs to be inflated to 12.5–13.5 pounds per square inch, the pressure that a gauge would measure. Official Playing
Rules of the National Football League, Rule 2-1, N ATIO N AL F O O TBALL L EAGU E (October 25, 2013), available at
http://static.nfl.com/static/content/public/image/rulebook/pdfs/5_2013_Ball.pdf. More accurately, the required pressure
is 12.5–13.5 psig.
the other two wells, 85 psig. The suction pressure at the Barker Station is 15 psig; the discharge

pressure is 450–500 psig. Davis pays more for delivery of high-pressure gas than for delivery of

low-pressure gas.

        The parties’ Gas Purchase Agreement (“GPA”) obligates Lillis to pay for compression that

Kachina “installs . . . to effect delivery”. The Court acknowledges that “[c]ompression is clearly

necessary for re-delivery to Davis’s high-pressure intake”.2 The summary judgment evidence

conclusively establishes that Kachina’s compression effects delivery of Lillis’s gas. Kachina’s

president testified that its compression “has been necessary for Lillis to sell his gas.” A consultant

testified that “compression is necessary to effect the delivery of Lillis’ gas.” Lillis’s counsel at oral

argument conceded that if Kachina’s compression were turned off, Lillis’s gas could not enter

Kachina’s pipeline. Lillis himself testified that when he signed the 2005 GPA, he knew he would

be paying compression costs. And while this lawsuit has been pending, Lillis has built his own

pipeline from his wells to the Davis plant and installed his own compressor across the road from

Kachina’s compressor.

            In the face of this record, the Court concludes that compression would not be needed to

effect delivery of Lillis’s gas if Kachina delivered it to Davis’s low-pressure intake. There are two

problems with this argument. First, it is sheer speculation. Nothing in the record suggests that it is

true. It is possible, in the abstract, that Kachina’s gathering system could be built and operated to

effect delivery of Lillis’s gas without compression, but whether that system would accommodate the

        2
            Ante at ___.

                                                   2
other producers at present cannot be determined from the evidence before us. Secondly, the GPA

does not obligate Kachina to build or operate its gathering system in any particular way, or to deliver

gas to a buyer at high pressure or low pressure. The GPA obligates Lillis to pay for compression that

effects delivery to Kachina under whatever gathering system it chooses to operate. As the Court

admits, “[t]he [GPA] does not address [Kachina’s] decisions” to structure its gathering system as it

has.

       Finally, the Court notes that Lillis’s obligation to pay compression costs applies only “if

[Kachina] installs compression”. The Barker Station was built in 2003 and was in operation when

the parties executed the GPA in 2005. The Court thinks “[i]t makes little sense” for the parties to

have intended the requirement to cover preexisting compression, even though Lillis had been paying

for it and testified that he understood he was to keep paying for it. The Court thinks that what the

parties really meant was that Lillis should quit paying for continuing compression but should resume

paying if ever new compression were installed. With respect, that makes no sense, which might

explain why Lillis did not make such an argument in the trial court or court of appeals.

       The Court acknowledges that “downstream centralization of compression is both common

and critical to the efficient transportation of gas to market” and that “producers often contract to

share in such costs.”3 But the Court’s assurance that it has done nothing to disturb industry

expectations offers little more than false hope. Today’s lesson is that producers’ agreements to share

       3
           Ante at ___.

                                                  3
in compression costs are common and critical and will be enforced unless a court can think of a way

to avoid them, regardless of the evidence.

       Lillis testified that, under the 2005 GPA, he expected to keep paying compression costs. And

though Lillis’s expectations do not determine the meaning of the Agreement, as the Court rightfully

notes, they certainly reflect his perspective on the facts: that Kachina’s compression had been and

would be effecting delivery of his gas. I would not reward Lillis’s efforts to avoid his acknowledged

obligation under the GPA. I respectfully dissent.

       I do agree with the Court that Kachina’s exercise of its right of first refusal did not extend

the Agreement for a five-year term.

                                              Nathan L. Hecht
                                              Chief Justice

Opinion delivered: June 12, 2015

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