Court Opinion

ID: 11706
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:07:12+00
Date Added: 2024-06-11T08:36:36.347055
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT

                           No. 95-60632

     THE PINEY WOODS COUNTRY LIFE SCHOOL;
     RIDGEWAY MANAGEMENT, INC.; D’LO ROYALTIES, INC.;
     JAMES H. STEWART, JR.; RUBINETTE STEWART; DIANA
     WHITEHEAD STEWART; MILTON MONROE STEWART, SR.;
     WILLARD STEWART MITCHELL; VIRGINIA HANSELL STEWART,
     Individually and as trustee for the benefit of Mrs.
     Carol Stewart Scott, Milton Stewart, Jr. and Thomas
     Hansell Stewart; MAGGIE FAIRLEY SPENGLER; THOMAS L.
     SPENGLER; JAMES V. FAIRLEY, Estate of, Albert L. Fairley
     and Elenor McWane Fairley, Co-Executors of the Estate,
     Individually, and all others similarly situated;
     AMSOUTH BANK, Bank of Alabama, A Co-Trustee of two
     trusts created by the last will and testament of James V.
     Fairley; ALBERT L. FAIRLEY, JR.,

                                           Plaintiffs-Appellants-
                                           Cross-Appellees,

          versus

     SHELL OIL COMPANY,

                                           Defendant-Appellee-
                                           Cross-Appellant.

      Appeal from the United States District Court for the
                Southern District of Mississippi
                          (3:74CV307WS)

                          April 21, 1997

Before GARWOOD, DAVIS and STEWART, Circuit Judges.*

*
     Pursuant to Local Rule 47.5, the Court has determined that
this opinion should not be published and is not precedent except
PER CURIAM:

      In this diversity case, which has twice previously been before

us, defendant Shell Oil Company (Shell), lessee in certain oil and

gas leases on property in Rankin County, Mississippi, challenges

the district    court’s   determination       that    it    is   liable   to   the

plaintiffs, lessors in those leases, for underpayment of gas

royalty for the years 1979 through 1982.              Plaintiffs complain of

the district court’s ruling that gas royalties were not underpaid

in the years 1985 and 1986.     Plaintiffs also complain of the denial

of prejudgment interest with respect to the 1979-1982 underpayment.

We   decline   to   consider   the    prejudgment     interest     matter,     and

otherwise reject all the mentioned challenges to the district

court’s rulings.

                      Facts and Proceedings Below

      The   subject   matter   of    this   lawsuit    is   royalty   from     gas

produced in Rankin County, Mississippi.           The gas from the Rankin

County fields is “sour,” that is, it contains more than trace

amounts of hydrogen sulfide and other contaminants.                 Before this

gas can be sold on the market, it must be transported to an

appropriate facility and processed into “sweet” gas. Shell, lessee

in oil and gas leases in which plaintiffs are (or hold under) the

lessors, treats the sour gas itself on site at its Thomasville

plant in Rankin County, recovering from the original sour gas both

under the limited circumstances set forth in Local Rule 47.5.4.

                                       2
sweet gas (dry methane) and elemental sulfur.

     In 1970 Shell began efforts to market the gas produced from

these fields.     It sought buyers only in the intrastate market

because it wished to avoid restrictive federal regulations on

interstate sales.     In 1972 Shell entered into a fifteen-year

contract to sell the bulk of its production, 40,000 Mcf per day, to

MisCoa.1   Shell also entered into a similar long-term contract

arrangement with Mississippi Power & Light (MP&L), which agreed to

take the excess volume produced by Shell’s Thomasville facility.

Although these contracts were the best available at the time,

subsequent developments in the international fuels market quickly

resulted in the fixed rates specified in those contracts being far

below sweet gas prices available on the open market.

Piney Woods I

     On December 27, 1974, landowners in Rankin County filed this

lawsuit against Shell, their mineral lessee, over royalty allegedly

due them from natural gas produced under these leases and processed

at Shell’s Thomasville plant. The lawsuit was certified as a class

action in 1978.    The plaintiffs claimed that Shell’s practice of

computing royalty from the long-term fixed rate contract proceeds

was, given the post-1972 gas price inflation, in derogation of

their contractual right to be paid “the market value” of the gas

1
     An Mcf is 1000 cubic feet. MisCoa is a partnership of two
Mississippi corporations, Mississippi Chemical Corporation and
Coastal Chemical Corporation.

                                 3
“at the well.”     In 1982 the district court held a bench trial and

found for Shell on almost all claims.         Piney Woods Country Life

School v. Shell Oil Co., 539 F. Supp. 957 (S.D.Miss. 1982) (Piney

Woods I).

Piney Woods II

     That decision was certified for interlocutory appeal under

Fed. R. Civ. P. Rule 54(b) to this Court, which, after an extensive

discussion of the leases at issue, concluded by affirming in part,

reversing in part, and remanding the case back to the district

court for further proceedings.     Piney Woods Country Life School v.

Shell Oil Co., 726 F.2d 225 (5th Cir. 1984) (Piney Woods II), cert.

denied, 105 S. Ct. 1868 (1985).      The Piney Woods II panel made a

number of determinations which inform the issues presently before

this Court.

     First,   we    concluded   that,   for   purposes   of   leases that

distinguished between gas “sold at the well,” for which royalty was

based on “the amount realized from sale,” and other gas sold, for

which the royalty was based on “market value at the well,” the gas

in question was not “sold at the well,” and hence its royalty was

to be based on “market value at the well.”         Piney Woods II, 726
F.2d at 230-233.    We thus rejected Shell’s contention that the gas

at issue from these leases was “sold at the well” so that its

royalty would be based on “the amount realized from sale” rather

                                   4
than “market value at the well.”2       Second, this Court held that the

lease term “market value” means “current market value at the time

of production,” not, as Shell had argued, at the time it entered

into the MisCoa contract.    Piney Woods II, 726 F.2d at 238.    Third,

this Court found that because the pertinent leases provided for the

“market value at the well,” the lessors were only “entitled to

royalty based on the value or price of unprocessed, untransported

[i.e., sour,] gas.”   Id. at 240.       Fourth, we recognized that while

“the best means of determining the market value at the well ...

would be to examine comparable sales of sour gas at other wells in

the area,” in the absence of such evidence “[t]he next-best method

is to examine sales of sweet gas and sulfur, to determine the

market value of the products resulting from processing at the

Thomasville plant.    Processing costs may then be deducted as an

indirect means of determining what a buyer would have paid for sour

gas at the wellhead.”       Id.   If the plaintiffs were unable to

proffer sufficiently comparable sales of sweet gas to demonstrate

such a market value, a third means of showing market value, Shell’s

system based upon the amount actually realized from the sale of

2
     This holding applied to the great majority of the leases then
at issue, and to all the leases now remaining in dispute. However,
at the time of Piney Woods II, there was also at issue gas from at
least one lease (a “Producers 88 (9/70)” form) which provided that
the royalty on all gas sold by lease (not just that “sold at the
well”) was to be based on the “amount realized by lessee, computed
at the mouth of the well.” Id. at 230 & n.6. See also id. at 240-
41.

                                    5
Thomasville gas-less-processing costs, could be utilized, although

this was the “least desirable method of determining market value.”

Id. at 239 (citation omitted).

       Finally, we held that Shell could, as had been its practice,

deduct processing costs in computing royalty, because, although the

royalties were to be based on market value at the well, there were

apparently no comparable sales of sour gas, and thus “[p]rocessing

costs may then be deducted as an indirect means of determining what

a buyer would have paid for the sour gas at the wellhead.”         Id. at

240.    “The function of processing costs in determining royalties

based on ‘market value at the well’ is to adjust for imperfect

comparisons.”       Id.    “The [market] value . . . of the [plant]

residue sweet gas reflects Shell’s processing costs. . . .”        Id. at

241.    “To determine the correct basis for royalty, processing . .

. costs may be deducted from values . . . established for processed

. . . gas.”   Id. at 242.    However, only reasonable processing costs

could be so deducted.        Id. at 241.      We noted that although the

district    court    had    not   made   an   express   finding   on   the

reasonableness of the processing costs deducted by Shell, “[t]he

record would support a finding of reasonability”; and we left that

issue “open for further consideration by the district court.”          Id.3

3
     With respect to gas from the lease (or the few leases) on the
“Producers 88 (9/70)” form which provided that on all gas sold by
lessee (not just that “sold at the well”) the royalty was based on
the “amount realized by lessee, computed at the mouth of the well”
(see note 2, supra), we likewise held that Shell could deduct

                                     6
Piney Woods III

      After remand the district court held another evidentiary

hearing. The plaintiffs renewed their attempts to produce evidence

of comparable sales of processed sweet gas from which a derivative

market value for Thomasville processed gas could be established.4

The evidence adduced showed that the Shell-MP&L “excess volume”

contract had been terminated in 1981 and that in 1982 the Shell-

MisCoa   contract   had   been    modified,     reducing    Shell’s   MisCoa

obligation to 21,000 Mcf per day.        This in turn had freed up gas

for   the   newly   deregulated    interstate     market,    which    Shell’s

Thomasville facility entered by means of a new “excess volume”

contract with Transcontinental Gas Pipe Line (Transco) in November

1982.    During this entire period, Shell continued to compute its

royalty payments based upon the net proceeds obtained from these

processing costs, because such a deduction was necessary to
determine that portion of the price actually received for processed
gas at the plant tailgate which was allocable to, and represented
the price received for, the unprocessed gas at the mouth of the
well. “The . . . sale price of the residue sweet gas reflects
Shell’s processing costs.” Id. at 241. Again, only reasonable
costs could be so deducted. Id.
4
     During this second hearing, Shell offered evidence of an
alternative means of determining market value. Shell’s model was
purportedly based upon the viewpoint of a willing buyer of the
Rankin County sour gas and consisted of evidence, culled from its
worldwide drilling and processing operations, showing what it would
cost to build a facility to process that gas into marketable sweet
gas. Shell’s model involved not only the price tag for capital
expended in the construction and operation of the phantom plant(s),
but also introduced variables to account for inflation and the
hypothetical willing buyer’s assumption of investment risk and
profit motive.

                                     7
contracts, i.e., actual sales less processing costs.

     In 1989 the district court rendered a judgment on the merits,

finding that the plaintiffs had failed to establish that the market

rate for Thomasville processed gas was at any time greater than

Shell’s long-term contract rate.5        Piney Woods Country Life School

v. Shell Oil Co., No. J74-0307 (W) (S.D. Miss., April 24, 1989)

(Piney Woods III). Although the plaintiffs’ evidence of assertedly

comparable   sweet   gas   sales   for   the   years   1979-1986   was   not

subjected to nearly the same scrutiny by the district court as was

their related evidence bearing on the market in 1972-1978, the

district court as to the years 1979-1986 relied in part upon

federal regulatory ceilings to support its ultimate view that

Shell’s accounting and payment practice was consonant with the

“market value at the well” lease royalty provisions during that

period.

Piney Woods IV

     The plaintiffs pursued a direct appeal from this judgment,

bringing the case before this Court for a second time.        Piney Woods

Country Life School v. Shell Oil Co., 905 F.2d 840 (5th Cir. 1990)

(Piney Woods IV).     In Piney Woods IV, this Court discussed the

“deregulation” which had made Shell’s entry into the interstate gas

5
     The district court also rejected Shell’s alternative market
value model, finding it “rooted in too much pecuniary speculation
and hypothetical supposition.” Piney Woods III, unpub. op. at p.
9.

                                    8
market by way of the Transco contract feasible.          The Natural Gas

Policy   Act   (NGPA),   which   took   effect   on   November   9,   1978,

segregated gas wells, including those in Rankin County, into two

distinct regulatory regimes.6     15 U.S.C. § 3315 (section 105 of the

NGPA) provided that the maximum lawful price which could be charged

for gas produced at wells within its demesne was “the price under

the terms of the existing contract, to which such natural gas was

subject on November 9, 1978.”     Accordingly, this Court found that,

after section 105 became law in 1978, for gas produced from Rankin

section 105 wells “the actual price Shell was receiving became the

maximum lawful price that it could receive.”          Piney Woods IV, 905
F.2d at 851.

     A different result, however, obtained for those wells falling

under 15 U.S.C. § 3317 (section 107 of the NGPA).         Under the NGPA,

gas from section 107 wells could be sold on the interstate market

at the going “market value.”7      Section 107 gas, unlike that from

section 105 wells, was thus not legally locked into a maximum price

determination based upon Shell’s pre-existing contract, but rather

6
     The distinction between these two regimes was based upon
specified physical characteristics. The only one that is relevant
in this case is drilling depth; those wells over 15,000 feet deep
were treated under section 107, rather than section 105, of the
NGPA.
7
     The statute provides that section 107 gas may be sold on the
interstate market at the adjusted price calculated from the complex
formula set forth in 15 U.S.C. § 3312 (section 102), establishing
a ceiling for the “interstate market value” at issue in this case.

                                    9
was technically eligible for the higher prices available in the

interstate marketplace.

      As noted, the district court in Piney Woods III had found that

the plaintiffs’ proof of market value for processed Thomasville gas

failed as a matter of fact for the years 1972-1986.             This Court in

Piney Woods IV affirmed that finding as to the years prior to the

NGPA’s enactment (1972-1978), holding that the district court did

not clearly err in concluding that the plaintiffs’ evidence of

comparable sweet gas sales did not show sufficient similarity to

the Thomasville processed gas sales.          We noted that many of the

comparable sales relied on did not reflect relevant nonprice

information, such as whether contract terms included variable take

or assured take provisions, the length of any commitment, the

volumes and quality of the gas, and whether the sale was interstate

or   intrastate.     Other   sales   relied   on   were   of    questionable

comparability because they either involved casinghead gas (with BTU

values   of   an   unspecified   level    higher   than   the    Thomasville

processed gas), or involved smaller quantities or were for very

short terms “which may have reflected one buyer’s particular urgent

needs.” Id. at 848. Additionally, we observed that “[e]ven 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

                                     10
the sweet gas.”   Id. at 848.   Hence, “it was not clear error for

the district court to find that what was paid for other sweet gas

in smaller amounts . . . was not an accurate reflection of what the

market value of gas from the Thomasville plant would have been,”

and “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.”   Id.8

     This Court, however, vacated the district court’s judgment as

to the gas produced by section 107 wells after November 1978, and

as to all wells after January 1, 1985.       We observed that the

district court did not give “the same intensity of examination” to

plaintiffs’ allegedly comparable sweet gas sales for the 1979-1986

period as it had for the 1972-1978 period, and further that “as the

nation’s and Mississippi’s gas prices were far higher during 1979-

1982 than in the earlier years, the disparities in comparable

markets may not be of sufficient moment during the latter period to

explain the discrepancy between prices received by Shell for

Thomasville gas and prices received in other Mississippi sales.”

However, we noted that the district court had also “relied upon

regulatory price ceilings as an additional ground to support its

8
     In Piney Woods IV, we also observed that the district court
(in Piney Woods III) “found that Shell’s ‘plant processing’ charges
were reasonable,” Piney Woods IV, 905 F.2d at 843, and we did not
disturb that finding.

                                11
finding . . . for the years after 1978.”        Piney Woods IV, 905 F.2d

at 850-51.    We then turned to a consideration of the effect of the

price ceilings during the years after 1978.

       Rejecting the district court’s contrary ruling, this Court

found that evidence of record, in particular plaintiff’s exhibit P-

155,   a   well-by-well,   month-by-month    listing   of   Shell’s   sales

proceeds, enabled the district court to differentiate between the

origins of section 105 and section 107 gas and thus determine which

landowners were possibly entitled to damages.            In addition, we

determined that particular aspects of the Shell-Transco contract

triggered section 105(b)(3) of the NGPA and placed the section 105

gas being sold to Transco under the same pricing scheme as section

107 gas as of January 1, 1985.

       Based upon these findings, the Piney Woods IV Court remanded

the case for a determination of whether Shell owed the owners of

property with    section 107    wells9   damages   for   underpayment    of

royalties in the years 1979-1986.10         We also instructed that the

same inquiry be made for the owners of section 105 wells in the

years 1985-1986.    In so doing we observed that “if Shell received

from its sales to Transco after December 31, 1984, less than the

9
     These were specified as the Garrett, Spengler, Clark, Edge,
and Stevens wells. Piney Woods IV, 905 F.2d at 853.
10
     Although we characterize the affected period as commencing in
1979, we recognize that the last two months of 1978 are included
within the relevant time frame.

                                   12
market value of the gas sold . . . the royalty owners are entitled

to damages compensating them for not receiving their proper share

of the true market value” and that “[d]amages 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.”   Piney Woods IV, 905 F.2d at 853-54.11

Piney Woods V

     Following remand, the district court, without holding any

further evidentiary hearing, reconsidered the evidence of record

and prepared a memorandum opinion and order addressing the merits

of the plaintiffs’ claims.     The court released a draft of this

opinion to the parties in December 1994.       Both parties filed

objections, and the district court heard oral argument on these

objections in February 1995.   The opinion and order were filed by

the district court, with the inclusion of a section rebutting the

parties’ objections, on June 6, 1995.     Piney Woods Country Life

School v. Shell Oil Co., No. 3:74-cv-307WS (S.D. Miss., June 6,

1995) (Piney Woods V).

11
     In Piney Woods IV, we also held that, although royalty was
payable on gas used as plant fuel, Shell owed nothing in this
respect notwithstanding Shell’s having simply ignored this item in
their cost accounting, “because the plant fuel materially enhances
the value of the gas (giving the royalty owners more than the at-
the-well value for which they bargained), the cost of plant fuel
must be borne by the royalty owners in proportion to their royalty
share.” Id. at 857.

                                 13
     In Piney Woods V, the district court found that for section

107 wells after 1978 and for all wells after 1984 “the market value

for deregulated Thomasville residue was the interstate market

price,   notwithstanding   that     it    continued   to   be   sold    in    the

intrastate market pursuant to Shell’s long-term contract.”                   Piney

Woods V, unpub. op. at 21.        The district court made findings of

fact as to which wells qualified for section 105 and section 107

status   at   particular   times,    the    amounts    available       for    the

interstate market, and the value on that market, which the court

determined by looking at comparable sales of record.

     To determine Shell’s liability for the years 1979-1986, the

district court took the prevailing interstate market price for

sweet gas and compared it to Shell’s actual sales over those years.

Based upon this analysis, the district court found Shell liable for

underpayment of royalties during a period spanning November 1978,

when the section 107 wells were “deregulated,” until November 1982,

when Shell entered into its “excess volume” contract with Transco

and sold all of its section 107 gas on the interstate market.                 The

royalties owed were to those owners of        section 107 wells producing

during this time period, with care taken after November 1982 not to

include any amount sold at market price to Transco.             The district

court concluded that Shell had no liability for the period 1983

(December 1992)-1984 because during this time all section 107 well

production was sold at the prevailing interstate market rate to

                                     14
Transco.      The district court also found that, due to record

evidence indicating that a downturn in the interstate market after

1982 left no prospective buyers in that market willing to contract

for Thomasville gas, the royalty owners were not entitled to any

damages for the years 1985-1986.12        Based upon these findings, the

district court ordered the parties to re-calculate damages.

     In his rebuttal to the parties’ objections, the district court

rejected Shell’s contention that the opinion’s approach to valuing

the Thomasville gas was invalid because it did not properly focus

on the value of the gas “at the wellhead,” i.e., as sour gas.          The

district court noted that Shell itself had used the value of sweet

gas under its long-term contract to compute royalties, that prior

opinions of this Court blessed the sweet gas market value less

processing costs analysis utilized,           and that “many years of

litigation have never once revealed what the market value of sour

gas at the well might be.”      Piney Woods V, unpub. op. at 33.     Shell

also objected to the district court’s finding that an interstate

market was available during the years 1979-1982, an assertion which

the district court found belied by the fact that all of the

Thomasville plant’s section 107 production, freed from commitment

to long-term contractual obligations in 1982, was sold on that

market   to   Transco   in   1983-1984.     Addressing   the   plaintiffs’

12
     The district court observed that the interstate market price
fell steadily during this period.

                                    15
objections to the finding of no underpayment in the years 1985-

1986, the district court found the plaintiffs’ assertion that

Transco would have been willing to buy up all of the MisCoa

contract gas had it been available “speculative” at best and

therefore insufficient to meet their burden of proving market

value.

Present appeals taken

     On September 28, 1995, the district court filed an order

expressly granting plaintiffs’ motion for partial final judgment in

accordance with Federal Rule of Civil Procedure 54(b), denying

plaintiffs’ motion for prejudgment interest, and denying Shell’s

motion for reconsideration of the “wellhead value” issue.       On

September 29, 1995, the district court entered a “Rule 54(b)

judgment” to reflect the disposition of the June 6 order.       On

October 3, 1995, the plaintiffs filed a notice of appeal from this

“Rule 54(b)” judgment, docketed in this Court under cause No. 95-

60632. Shell also filed a notice of appeal and cross-appeal which,

like the plaintiffs’ appeal, was also docketed under No. 95-60632.

     On December 18, 1995, the district court, on consideration of

a motion filed by Shell in the district court and plaintiff’s

response thereto, signed and filed an order certifying the June 6

and September 28 orders for interlocutory appeal pursuant to 28

U.S.C. § 1292(b); that order was entered on the docket December 19,

                                16
1995.   On December 20, 1995, the plaintiffs filed a notice of

appeal referencing the orders of June 6, September 28, and December

18 (and attaching a copy of the latter).       The plaintiffs’ appeal

was docketed in this Court as cause No. 95-60813.     On December 28,

1995, Shell filed with this Court a petition for permission to

pursue an interlocutory appeal from the June 6 order under section

1292(b), which was docketed as our cause No. 95-00282.       To this

point, we have neither granted nor denied leave to appeal under

section 1292(b).   On January 16, 1996, Shell also filed a notice of

appeal and cross-appeal in response to the December 18 order. This

cross-appeal was docketed, like the plaintiffs’ appeal, under our

No. 95-60813.

     On February 8, 1996, this Court consolidated cause Nos. 95-

00282 and 95-60632.    On April 26, 1996, this Court consolidated

cause Nos. 95-60632 (consolidated) and 95-60813 for purposes of

oral argument and final disposition.       Both parties have opted to

submit one brief as to all consolidated appeals.

                              Discussion

I.   Appellate Jurisdiction

     So far as the district court held plaintiffs were entitled to

recovery for the years 1979 through 1982, its ruling does not

dispose of the entirety of plaintiffs’ claim——even assuming those

years can be treated as a separate claim——because it does not award

damages, and hence is not appealable under Rule 54(b).         United

                                  17
States v. Menendez, 48 F.3d 1401 (5th Cir. 1995); Pemberton v.

State Farm Mutual, 996 F.2d 789 (5th Cir. 1993); Goodman v. Lee,

988 F.2d 619 (5th Cir. 1993).13   However, the district court by its

December 18, 1995, order, certified its June 6, 1995, order for

interlocutory appeal under section 1292(b), and on December 28,

1995, Shell filed in this Court its Fed. R. App. P. 5 petition for

permission to appeal the June 6, 1995, order.    We now grant Shell

leave to appeal that order.

     The situation as to the plaintiffs is somewhat different.

Arguably the June 6, 1995, order was certifiable and certified

under Rule 54(b) so far as it denied plaintiffs any recovery for

years after 1982.14   Two questions present themselves, however.

13
     In its June 6, 1995, order, the district court, although
making findings regarding the interstate market price and Shell’s
resultant liability, made no apportionment of gas quantities
between particular section 107 and section 105 wells and also
failed to specify the quantities of section 107 gas redirected to
Transco’s pipeline at market rates in the latter part of 1982.
Accordingly, and due to the complex nature of the case and the
ongoing factual disputes and discrepancies concerning royalties
owed and the ownership interests involved, the anticipated
determination of the amount of damages cannot possibly be
characterized as merely “ministerial.”
14
     And, if this is so, then plaintiffs’ October 1995 notice of
appeal properly brings before us the district court’s denial of
recovery for years after 1982.
     Plaintiffs’ October 1995 notice of appeal does not, however,
bring forward the denial, by the district court’s September 28,
1995, order, of plaintiffs’ claims for prejudgment interest as to
the years 1979-1982, because, as explained in the text above, no
district court order has been entered disposing of the entirety of
any of plaintiffs’ claims respecting any of those years in that the
right to recovery has been established but not the amount of
damages. As we ultimately affirm the district court’s holding that

                                  18
First, it is not entirely clear that the years after 1982 represent

an entire claim (or claims), as opposed to being merely part of a

single claim for royalty for the entire period after November 1978.

If the latter, Rule 54(b) certification is not available.    We are

inclined to view the years after 1982 as presenting a separate

claim, not as being merely part of a larger, single indivisible

claim.   Second, the district court’s actual Rule 54(b) judgment of

September 29, 1995, states that the court “hereby enters judgment

in favor of the plaintiffs pursuant to” the June 6, 1995, opinion.

Arguably, the district court meant to certify under Rule 54(b) only

the grant of relief for the years 1979-1982, not its denial for the

years after 1982.     We reject this contention.      We read the

September 29, 1995, order as certifying the June 6, 1995, order,

just as if it had read “enters judgment in favor of the plaintiffs

to the extent, but only to the extent, provided in the June 6,

1995, order.”   To read the September 29 order as certifying under

Rule 54(b) only the granting of relief (without fixing damages) for

1979-1982, but not the denial of relief for years after 1982, would

be to read the order as intending to certify under Rule 54(b) only

that which could not be so certified without intending to certify

that which could be certified.   Moreover, the September 29 order,

as well as that of September 28, reflects that the court    granted

plaintiffs’ motion for certification under Rule 54(b).     Although

plaintiffs are entitled to no recovery for years after 1982, the
question of prejudgment interest as to those years does not arise.

                                 19
that motion is not in the record, we assume it was to certify the

only thing plaintiffs would have standing to appeal, namely the

denial of relief.      Accordingly, we have jurisdiction under Rule

54(b) of plaintiffs’ challenge to the district court’s denial of

relief for the years following 1982.

     The same jurisdictional result can perhaps also be justified

under section 1292(b).         See Demelo v. Woolsey Marine Industries,

Inc., 672 F.2d 1030 (5th Cir. 1982).            Plaintiffs argue, and Shell

agrees, that we can review the entire June 6, 1995, order as it is

all before us by virtue of Shell’s December 28, 1995, petition for

permission to appeal under Fed. R. App. P. 5 and the doctrine that

under section 1292(b) “appellate jurisdiction applies to the order

certified   to   the   court    of   appeals,    and   is   not   tied    to   the

particular question formulated by the district court.”                     Yamaha

Motor Corp. USA v. Calhoun, 116 S. Ct. 619, 622 (1996).                   See also

Ducre v. Executive Officers of Halter Marine, Inc., 752 F.2d 976,

983 n.16 (5th Cir. 1985).15          This principle has been applied to

15
     Plaintiffs also argue (but Shell disputes) that this same
principle brings up the September 28, 1995, order denying their
claim for prejudgment interest, because that order, as well as the
order of June 6, 1995, was certified under section 1292(b) by the
district court’s December 18, 1995, order. We disagree because
Shell’s December 28 petition for permission to appeal sought to
appeal only the June 6 order. A section 1292(b) appeal does not
extend to any orders other than that which is both properly
certified and as to which a timely petition for permission to
appeal is filed. See United States v. Stanley, 107 S. Ct. 3054,
3060 (1987); Adkinson v. International Harvester Co., 975 F.2d 208,
211 n.4 (5th Cir. 1992); FDIC v. Dye, 642 F.2d 833, 837 & n.6 (5th
Cir. 1981).

                                      20
allow a party who did not seek permission to appeal to defend the

order certified under section 1292(b) on a basis other than the

controlling issue specified in the district court’s certification

order, just as an appellee in an ordinary appeal under 28 U.S.C. §

1291 may, without taking a cross-appeal, defend the judgment below

on a ground not relied on by the district court.             See Armstrong v.

Bush,    924 F.2d 282,   296   n.13    (D.C.   Cir.   1991);   Consolidated

Express, Inc. v. N.Y. Shipping Ass’n, 602 F.2d 494, 501-502 (3d

Cir. 1979).     However, the general rule, like that in section 1291

appeals, Speaks v. Trikora Lloyd, 839 F.2d 1436, 1439 (5th Cir.

1988); Shipp v. General Motors, 750 F.2d 418, 428 (5th Cir. 1985),

is that a party cannot procure a modification favorable to it of an

order certified under section 1292(b) absent that party’s having

timely applied for permission to appeal, even though the opposite

party did so timely apply and permission was granted.               See, e.g.,

Tranello v. Frey, 962 F.2d 244, 248 (2d Cir. 1992); Luria Steel &

Trading Corp. v. Ogden Corp., 484 F.2d 1016, 1019, 1023-24 (3d Cir.

1973).    See also Rodriguez v. Banco Central, 917 F.2d 664, 668-669

(1st Cir. 1990).       But see Armstrong v. Executive Office, 1 F.3d
1274, 1290 (D.C. Cir. 1993) (apparently contra, but unclear).              So,

the question of section 1292(b) jurisdiction over plaintiffs’

challenge to the district court’s denial of relief for years after

1982 would seem to turn on whether plaintiffs timely requested

permission to appeal.         The district court’s December 18, 1995,

                                          21
order was entered December 19, 1995; plaintiffs’ notice of appeal

was filed in the district court on December 20, 1995, was received

in this Court on December 28, 1995, and was docketed here on

December 29, 1995, and was thus before this Court “within ten days

of the entry of the order” of December 18 as section 1292(b)

requires for an application for permission to appeal.              An ordinary

notice   of   appeal   under   section      1291   does   not   constitute   an

application    for   permission   to    appeal     as   required   by   section

1292(b). Aucoin v. Matador Services, Inc., 749 F.2d 1180 (5th Cir.

1985); Aparicio v. Swan Lake, 643 F.2d 1109, 1111 (5th Cir. 1981).

However, this December 20, 1995, notice of appeal is not an

ordinary section 1291 notice, as it not only specifically mentions

section 1292(b), but also, by attaching and referring to a copy of

the district court’s December 18 order, identifies the issues and

the need for immediate appeal.          In Aucoin, we observed that the

notice of appeal there lacked “a statement of the basis for a

discretionary appeal” and stated “we do not rest on form for its

esthetics; rather, we look to function.”           Id. at 1181.    Aucoin also

points to the desirability of the appellate court’s being called on

to assess whether to allow an appeal at a time relatively close to

the trial court’s certification.             Id.    In neither Aucoin nor

Aparicio had any party ever filed with this Court an application

for permission to appeal under section 1292(b).                    Plaintiffs’

December 20 notice of appeal contains the important information

                                       22
called for by Fed. R. App. P. 5(b), and its only substantive

deficiency is that it does not specifically ask us to issue an

order granting permission to appeal; yet such a request was timely

before us as to the June 6, 1995, order by Shell’s December 28 Fed.

R. App. P. 5 application.   Applying the Aucoin standard, under all

these circumstances it is not too much of a stretch to treat

plaintiffs’ notice of appeal as minimally meeting the requisites of

a Fed. R. App. P. 5 application to “cross appeal.”16   Accordingly,

to resolve any doubts which might arise as to the efficacy of

plaintiffs’ Rule 54(b) appeal from so much of the June 6, 1995,

order as denied them any recovery for the years after 1982, we

treat plaintiffs’ notice of appeal received in this Court on

December 28, 1995, as an application for permission to appeal under

section 1292(b) and we grant the application so far only as it

relates to the June 6, 1995, order.

     However, assuming arguendo that plaintiffs’ December 1995

notice of appeal could properly be treated by us as a section

1292(b) application for permission to appeal the district court’s

16
     We note that in Cobb v. Lewis, 488 F.2d 41, 53 (5th Cir.
1974), we treated an application for permission to appeal under
section 1292(b) as a section 1291 notice of appeal. In Tranello,
the Second Circuit was careful to point out that nothing by the
putative “cross-appellant” was filed in the court of appeals within
the section 1292(b) ten-day period; in Luria Steel & Trading Co.,
there was never an attempted “cross-appeal” of any kind; and in
Rodriguez, the court pointed out that the “cross-appellant’s”
notice of appeal, though filed in the district court within ten
days of the entry of the section 1292(b) order, was not received in
the court of appeals until well after the ten-day period had run.

                                 23
September 28, 1995, denial of prejudgment interest respecting the

years   1979-1982,    we     deny   leave     to   appeal   that   matter.      The

September 28, 1995, order denying prejudgment interest as to those

years is plainly not appealable under section 1291 and Rule 54(b),

and we have at no relevant time been requested to grant leave to

appeal that order.       The June 6 order does not address prejudgment

interest. Shell has reasonably taken the position that prejudgment

interest is not properly before us.                 Moreover, resolving that

question    would   do   little     to   materially      advance   the    ultimate

termination of the litigation, as, if there is any right to recover

actual damages, those must still be ascertained and quantified in

any event, and the additional calculation for prejudgment interest,

if any, would then become an essentially ministerial or mechanical

task.    Ruling now on prejudgment interest does not hold much

potential    for    saving    significant      further      proceedings    in   the

district court.

     The upshot of all this is that plaintiffs’ entitlement to

prejudgment interest is not properly before us.                What is properly

before us is Shell’s complaint that the district court erred in

holding it had underpaid royalty for the years 1979-1982, and the

district court’s holding that Shell had not underpaid for the years

after 1982.    As to the latter, however, we consider only the years

1985 and 1986, as those are all plaintiffs complain of in their

brief (their complaints as to the years 1983 and 1984 are hence

waived).

                                         24
       We turn at last to the merits.

II.    The District Court’s June 6 Order Determining Liability

       A.    Standard of Review

       The case below was tried before the district court.                           We

therefore      review    all   factual       findings      for     clear   error    and

conclusions of law de novo. Peaches Entertainment v. Entertainment

Repertoire, 62 F.3d 690, 693 (5th Cir. 1995).

       Both parties challenge, at different junctures, the district

court’s      findings    regarding     the       prevailing   “market      value”   for

Thomasville gas, findings which bear upon both Shell’s contractual

liability and the amount of any damages that might be owed.                       Market

value is “what a willing seller and a willing buyer in a business

which       subjects    them   and    the      commodity      to   restriction      and

regulation, including a commitment for a long period of time, would

agree to take and pay with a reasonable expectation that the [FERC]

would approve the price (and price changes) and other terms and

then issue the necessary certificate of public convenience and

necessity.”      Piney Woods IV, 905 F.2d at 852 (internal ellipses and

brackets omitted), quoting Weymouth v. Colorado Interstate Gas Co.,

367 F.2d 84, 90 (5th Cir. 1966).                 “Market value is a question of

fact, and it is up to the fact finder to determine the probative

strength of relevant evidence.”              Piney Woods II, 726 F.2d at 238.

We    review    the    district      court’s      findings    mindful      that   under

Mississippi law “the royalty owners, as plaintiffs, bear the burden

                                            25
of going forward with sufficient evidence to prove their damages by

a preponderance of the evidence.”        Piney Woods IV, 905 F.2d at 845

(citation omitted) (internal quotation marks and brackets omitted).

Finally, although Mississippi law requires that the existence of

damages     be   reasonably   certain    and   susceptible   to   pecuniary

valuation before relief can be granted, the plaintiffs will not be

denied recovery merely because some measure of speculation and

conjecture is required in determining the amount of damages.          Id.,

905 F.2d at 945-946 (citations omitted).

     B.    Shell’s Liability for 1979-1982

     We are here concerned only with gas from the section 107 wells

(see note 9, supra, and accompanying text).

     In Piney Woods II, this Court approved three methods of

determining market value in this case.             The preferred method,

comparable sales of sour gas, did not exist and according to the

district court continued to elude evidentiary substantiation in

1995.     “The next-best method is to examine sales of sweet gas and

sulfur, to determine the market value of the products resulting

from processing at the Thomasville plant,” whereupon “[p]rocessing

costs may . . . be deducted as an indirect means of determining

what a buyer would have paid for the sour gas at the wellhead.”

Piney Woods II, 726 F.2d at 240.         This was the method utilized by

the district court in the instant case.

     In Piney Woods IV, this Court affirmed the district court’s

                                    26
ruling rejecting the plaintiffs’ proof for the years 1972-1978 on

the ground that the proffered proof of comparable sweet gas sales

was flawed.   Now, however, the district court, relying upon four

long-term contracts involving the sale of sweet gas processed from

sour gas from Mississippi fields, has derived a mean rate scale

demonstrative of the “interstate market value” for processed sour

gas.    This index of market value, when juxtaposed to the actual

prices paid under the Shell-MisCoa long-term contract, illustrates

Shell’s liability and provides the basis for a calculation of

damages.

       We affirm the district court’s use of these sales and the

“interstate market value” derived therefrom. These sales contracts

exhibit    geographical,   market    output,   and   gas   quality

characteristics markedly similar (and in one case identical) to

those of the Thomasville facility,17 overcoming the inadequacies in

the plaintiffs’ showing for the years 1972-1978 which we remarked

17
     The Shell-MisCoa contract, made in 1972, had a term of 13
years, with provisions for extension, and involved the sale of
section 105 and section 107 pipeline quality sweet gas processed
from sour gas, with a daily deliverability quota of 40,000 Mcf.
The “interstate market value” found by the district court is based
upon four comparable sales contracts: Amerada Hess-Transco (P-
136), Pursue-Southern Natural (P-137), Shell-Transco (P-138), and
Tomlinson-Transco (P-139). All of these contracts concern only
section 107 pipeline quality gas. The Pursue, Shell, and Tomlinson
contracts concern sour gas produced in Rankin County and processed
on site into sweet gas. The Amerada Hess, Shell, and Tomlinson
contracts have terms of fifteen years and were entered into between
1978 and 1982, while the Pursue contract extends for the life of
the field. All of the contracts set daily deliverability quotas at
different levels: Amerada Hess (50,000 Mcf), Pursue (180,000 Mcf),
Shell (54,000 Mcf), Tomlinson (33,500 Mcf).

                                27
upon in Piney Woods IV.    These sales contracts further demonstrate

both the existence of willing buyers on the interstate market

between 1979-1982 and reveal a discernible market price for sweet

gas processed from section 107 sour gas wells producing during this

time period, i.e., the Spengler, Garrett, Stevens, and Clark wells.

The district court did not clearly err in its determination of the

market value of processed gas.

      However, the determination of the market value of processed

gas is only part of the equation for determining the “market value”

of the Thomasville gas “at the well,” the value on which Shell

should have computed royalty.    “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.”   Piney Woods IV, 905 F.2d at 848.       We have previously

observed that this formula of sweet gas value-minus-processing

costs serves as a proxy, “an indirect means of determining what a

buyer would have paid for the sour gas at the wellhead.”           Piney

Woods II, 726 F.2d at 240.     Accordingly, we have emphasized that

any   consideration   of   Shell’s     processing   costs——which   under

Mississippi law as applied to both “amount realized by lessee,

computed at the mouth of the well” and “market value at the well”

                                  28
lease provisions are not deductible as such——is necessitated by the

absence of comparable sales of sour gas establishing a market (or

actual sales) price for the gas prior to processing.          Id.

       In addition, this Court in Piney Woods II held that only

reasonable processing costs could be considered for such purpose,

noted that although the district court had not made an express

finding as to the reasonableness of the processing costs deducted

by Shell, the record would support such a finding, and left that

issue “open for further consideration by the district court.” Id.,

726 F.2d at 241.   Following our Piney Woods II remand, the district

court (in Piney Woods III), as we noted in Piney Woods IV, “found

that Shell’s ‘plant processing’ charges were reasonable.”              Piney

Woods III, 905 F.2d at 843.      Piney Woods IV did not disturb that

finding.

       Shell’s central argument on appeal challenges the district

court’s use of Shell’s actual processing costs in determining the

wellhead value of the gas. Shell argues that this approach ignores

variables like capital investment, risk, and profit motive, factors

which any willing buyer of Rankin County sour gas would have to

take into consideration before entering into a long-term contract

to process, market, and transport that gas.         Shell also points out

that   inflationary   factors   have    increased   the   costs   of   plant

construction beyond that of the Thomasville facility, built in the

early 1970s, and posits that insofar as inflation is a factor in

                                   29
increased market prices during the relevant time frame a variable

should be introduced to account for an extrapolated increase in

costs.

      Insofar as Shell claims that “processing costs” are something

other than its actual costs, any proper consideration of that

argument must begin with our foundational opinion in Piney Woods

II.   There we addressed plaintiffs’ challenge to Shell’s practice

of deducting its actual processing costs from its actual tailgate

sales    proceeds   to   determine   royalty   due.   We   rejected   this

challenge, and sided with Shell, both as to leases (such as the

“Producers 88 (9170)”, see notes 2 & 3 supra) providing for royalty

to be based on the “amount realized by lessee, computed at the

mouth of the well” and as to leases providing for royalty based on

“market value at the well.”      We stated:

      “Expenses incurred after production may be charged
      against royalty computed ‘at the well’. 3 H. Williams,
      Oil and Gas Law § 645 (1981). Accordingly, the costs of
      processing and transportation maybe deducted.

           . . . ‘at the well’ refers not only to the place of
      sale but also to the condition of the gas when sold. ‘At
      the well’ means that the gas has not been increased in
      value by processing or transportation.       It has this
      meaning in conjunction with ‘value’ or ‘amount realized’
      as well as with ‘sold’. The lessors under these leases
      are therefore entitled to royalty based on the value or
      price of unprocessed, untransported gas. [citation]. On
      royalties ‘at the well,’ therefore, the lessors may be
      charged with processing costs, by which we mean all
      expenses, subsequent to production, relating to the
      processing, transportation, and marketing of gas and
      sulphur.

            We emphasize, however, that processing costs are

                                     30
     chargeable only because, under these leases, the
     royalties are based on value or price at the well.
     Processing costs may be deducted only from valuations or
     proceeds that reflect the value added by processing.”
     Id. at 240 (emphasis added).

We went on to say:

     “The lessors are entitled to gas royalty at the well.
     This means royalty based on the value or price of the
     sour gas before it is separated into marketable
     constituents. The value or sale price of the residue
     sweet gas reflects Shell’s processing costs.

          We agree with the plaintiffs that the processing
     costs,under both the “market value” and “amount realized”
     provisions, must be reasonable.” Id. at 241 (emphasis
     added)

And, we concluded “[t]o determine the correct basis for royalty,

processing and transportation costs may be deducted from values or

prices established for processed and transported gas.” Id. at 242.

     Nothing in our discussion of “processing costs” indicates that

the “expenses” to which we referred were hypothetical or derivative

in nature; rather, given the nature of the plaintiffs’ challenge,

we were plainly addressing the processing, transportation, and

marketing expenses actually incurred by Shell (and actually passed

on to the royalty owners)——”Shell’s processing costs.” Furthermore,

this was applicable to both the “market value” and the “amount

realized”   lease   provisions.   This   view   is   reinforced   by   our

reliance in the above Piney Woods II passage on the general rule

that where the lease calls for royalty to be “computed ‘at the

well’” the “[e]xpenses incurred after production” are deducted.

Obviously, this refers to the lessee’s actual expenses (to the

                                  31
extent reasonable), as reflected by the treatise we cited in

support of that proposition.         See Williams & Meyers (Martin &

Kramer), Oil & Gas Law, § 645.2 (1996 Ed).

     Contrary to the manifest implication of the above referenced

Piney Woods II passages, however, Shell seizes upon one passage

from Piney Woods II as a foundation upon which to construct its

argument. Our initial observation is that the passage Shell seizes

upon occurs in Part VIII of that opinion, in which we addressed

Shell’s practice      of   disregarding   gas   used   for   plant   fuel   in

computing royalty, and not Part VII of the opinion, our discussion

of the propriety of Shell’s deduction of processing costs in

computing royalty.         The passage upon which Shell relies, which

follows   a   brief   discussion    of    the   accounting     methodologies

applicable to the plant fuel question, states:

     “Finally, processing costs are not per se chargeable to
     market value royalty. They must be reasonable costs, and
     the market value of sour gas may be more or less in a
     given time period than the value of the finished products
     less processing expenses.” Piney Woods II, 726 F.2d at
     241.

     Shell contends that this statement implies the existence of

a “value added” component which is not reflected by the simple

formula of processed gas market value minus actual costs. But such

is not necessarily the meaning of that passage.              The limitation,

which we emphasized, that the costs must be “reasonable” suggests

otherwise.     Further, it is not clear that “the value of the

finished products” refers to their market value, as opposed to

                                     32
their   sales    proceeds;     if   the     latter,     the   statement   merely

recognizes that if the “market value” of the gas at the wellhead is

determined either by using comparable sales of sour gas or through

the proxy of comparable sales of sweet gas-less-processing costs

the result may well differ from the method utilized by Shell in

computing royalties, i.e., the actual sales price of processed

Thomasville     gas,    “the   value   of   the    finished    products,”   less

processing costs.       Moreover, Shell had never actually accounted to

the lessors for any royalty on gas used as plant fuel, it had

merely assumed it was “a wash”.           Id. at 241.    We were at that point

unwilling to simply make that assumption, and remanded that matter

to the trial court.       Ultimately, in Piney Woods IV we sustained the

district court’s ruling for Shell on remand in this respect (Piney

Woods III), and we accepted Shell’s contention “that it owes the

royalty owners nothing [respecting gas used for plant fuel], as the

royalty payments on plant fuel that would have been due to them are

exactly balanced by the share of the processing costs that are to

be borne by the royalty owners.”                  Id. 905 F.2d at 856.        We

concluded “because we find that plant fuel is a processing cost, we

read our Piney Woods II decision as merely ratifying as correct the

existing course of performance [as to plant fuel] on the royalty

contract . . .”        Id. 905 F.2d at 857.

     In sum, the two brief above quoted sentences from the part

“VIII. Plant Fuel” portion of our Piney Woods II opinion, which

                                       33
Shell relies on, do not suffice to overcome the clear thrust of

that opinion as a whole, namely:         that in the absence of comparable

sales of sour gas, the best method of determining market value at

the well was to determine the market value of the sweet gas sold by

Shell at the Thomasville plant, by examining comparable sweet gas

sales, and then deduct Shell’s actual processing and transportation

costs applicable to its Thomasville gas, so far as those costs were

reasonable.      Moreover, this is plainly what in Piney Woods IV we

contemplated the district court would do if, following our remand

there, it found comparable sales of sweet gas sufficient to reflect

market value of the Thomasville sweet gas in years after 1982.

     We further determine that Shell’s evidence presented following

our Piney Woods II remand——no further evidence having been presented

following our Piney Woods IV remand——does not compel a different

conclusion.

     Shell presented the testimony of two expert witnesses who

attempted   to    postulate    the    construction    and    investment   costs

inherent in the processing, transportation, and marketing of sour

gas by considering the construction of a hypothetical on-site

processing facility analogous to Shell’s Thomasville facility.

Shell’s point was that a willing buyer of the sour gas produced at

the plaintiffs’ wells would have to construct such facilities in

order to market the gas because no market for unprocessed gas

exists.     The   figures     Shell   used   were    based   upon   a   database

                                       34
containing information gathered from its worldwide operations and

comparable information describing other firms’ ventures. The price

tag determined under the Shell model took into account the costs of

investment, construction, and inflation, as well as the profit

motive of a prospective willing buyer, on a recurring annual basis.

     The district court concluded that Shell’s model was fraught

with supposition and built upon unsubstantiated conjecture.     We

are unable to say that this finding is   clearly erroneous.18

     In sum, nothing in Shell’s “value added” argument convinces us

that the district court erred in law, or was clearly erroneous, in

concluding that Shell’s approach would not produce a determination

of the section 107 gas’s market value at the wellhead more precise

than that made by the district court.      Shell’s recourse to an

increasingly recondite panoply of databases, charts, and indexes

reeks of the abstruse and arcane, could properly be found to be

susceptible to manipulation due to its amorphous quality, to resist

empirical validation, and to offer the prospect of interminably

prolonging this twenty-three-year-old case.

     We again reiterate that in Piney Woods II we held that where

comparable sales of sour gas were not available, the next best

18
     Shell’s actual costs of capital investment (as well as its
actual operating costs) appear to have been passed on to the
royalty owners as processing costs. See Piney Woods II, 726 F.2d
at 240. What is at stake in this litigation is not compensation
for Shell’s investment (and actual operating costs) in the
Thomasville facility, but rather the distribution of hypothetical
profits above and beyond those costs.

                                35
method of determining market value at the well was to first

determine the market value of the Thomasville plant processed gas,

if this could be done by evidence of comparable sweet gas sales,

and then deduct Shell’s actual plant operations and transportation

costs, to the extent those were not unreasonable.            Nothing in Piney

Woods IV changed that.    And, that is what the district court did.

Moreover, we pointed out in Piney Woods II that “[m]arket value is

a question of fact, and it is up to the factfinder to determine the

probative strength of relevant evidence.”            Id.     726 F.2d at 238.

And, we further stated that “ . . . if, on remand, the search for

better measures of market value at the well proves unsuccessful or

inordinately burdensome, we think its the duty of the district

court to decide the question as best it can on the basis of the

evidence that it presented.”         Id. at 239.    Again, that is what the

district court has done.         Its determinations are not clearly

erroneous or infected by legal error.             Shell’s hypothetical cost

contentions present no basis for reversal.

     Shell raises two other arguments against the district court’s

imposition of liability. Shell first posits that in Piney Woods IV

we held it was under no duty to renegotiate its contracts to enter

the interstate market and thus now cannot be held liable for

failing to perfect sales contracts commensurate with that market

rate.   Piney   Woods   IV, 905 F.2d   at   854-855.     In    a   related

contention,   Shell   argues    that    although     its   section       107   gas

                                      36
theoretically could have been sold on the interstate market for

greater than its section 105/long-term contract prices, it was

under no obligation to transfer section 107 gas from the intrastate

to the interstate market.         In regard to this latter submission,

Shell notes that the regulatory regimes which govern the intrastate

and interstate markets are significantly different and argues that

such a difference in “legal quality” militates against the district

court’s ruling.

     Regarding Shell’s first point, the Piney Woods IV language

relied upon by Shell dealt solely with the plaintiffs’ claim that

Shell was obligated to renegotiate its long-term contract to obtain

rates more in accord with those prevailing on the interstate

market.    In rejecting that contention, we made it clear that we

were addressing only section 105 gas, for which Shell’s long-term

contract price as of        November 1978, was also the maximum lawful

price Shell could charge.        Piney Woods IV, 905 F.2d at 851.          In

other words, we found that section 105 effectively limited the

market    for   section    105   gas    to     Shell’s   long-term   contract,

vindicating     Shell’s     actual     sales    price-less-processing-costs

royalty basis as to gas governed by section 105.              Shell’s present

argument completely ignores our reasoning in vacating and remanding

the district court’s decision as to 1979-1986, namely the fact that

Thomasville section 107 gas was eligible for sale on the burgeoning

interstate market.        Shell’s failure to renegotiate its long-term

                                       37
contract is essentially irrelevant to a determination of what the

proper “market value” of that section 107 gas was.         Shell’s

submission is without merit.

     Shell’s second argument revolves around language excerpted

from our discussion in Piney Woods IV concerning Shell’s lack of a

duty to redrill its wells:19

     “In Piney Woods II, id. at 239 n. 17, we quoted from
     [Exxon v. Middleton, 613 S.W.2d 240, 246-247 (Tex.
     1981)], which stated that comparable sales are those made
     in the same category of a regulated market. Under this
     method of assessing market value, Shell as lessee must
     pay royalties on the market price of gas under the
     existing regulatory scheme governing each well but is not
     necessarily required to act to change the regulatory
     scheme to achieve higher prices.” Piney Woods IV, 905
F.2d at 855.

Shell’s argument in essence adopts the Piney Woods IV principle

that there is no duty to change the relevant regulatory scheme and

applies it to section 107 gas by attempting to bifurcate the

section 107 regulatory regime we recognized in Piney Woods IV into

intrastate and interstate components.    The gas we are concerned

with in this portion of the opinion, however, falls within the

regulatory regime of section 107; unlike section 105 gas, Shell’s

long-term “intrastate” contract price does not define the upper

reaches of the market for this gas, a fact reflected by the 1982

Shell-Transco contract.   Indeed, Shell has cited no statute or

19
     Redrilling the section 105 wells to over 15,000 feet in depth
would have resulted in those wells being reclassified as section
107 wells. See note 6, supra.

                                38
regulation, federal or state, which erected any legal barrier to

the sale of section 107 gas on the interstate market.         This

argument is at its core only another of Shell’s persistent attempts

to define the available market in terms of its long-term contract

rather than by reference to existing comparable contracts, in

derogation of our holding in Piney Woods II.       Accordingly, we

reject it.

     We affirm the judgment of the district court holding that

Shell is liable for underpayment of royalty for the years 1979-

1982.

     B.   1983-1984

     The district court found that during this period, beginning in

November of 1982, all available section 107 gas was sold to Transco

at an interstate market price.    Thus, Shell’s actual sales price

for this period reflects the market rate. Neither party challenges

this holding, and we discern no error in it.      Accordingly, the

district court’s judgment absolving Shell of liability for the

years 1983-1984 is affirmed.

     C.   1985-1986

     Plaintiffs contend that the district court clearly erred by

finding that there was no competitive interstate market during this

time period for section 105 gas deregulated as of January 1, 1985.

Plaintiffs base this contention on the Shell-Transco contract,

                                 39
which obligated Transco to take up to 54,000 Mcf per day, which was

more than the Thomasville plant’s 40,000 Mcf per day delivery

capacity.    The plaintiffs, noting that the district court accepted

the Transco contract price as the interstate market price during

1983-1984 but abandoned this analysis thereafter, argue that the

admitted downturn in the interstate market can be tracked by the

“market out” options Transco utilized to reduce its contract price

throughout this period.

     The    record   reveals   that   due   to   the   interstate   market’s

downturn after 1982, numerous interstate pipeline corporations,

like Transco, were refusing to take delivery or pay for gas under

existing contracts.      Transco in particular markedly reduced its

takes during this time.        Furthermore, the Shell-Transco contract

was an “excess volume” contract subject to the preexisting MisCoa

contract and therefore presupposed the limitation on available gas

resulting from the MisCoa contract.

     The district court’s finding that no additional buyers were

present on the rapidly fading interstate market after 1982 is

supported by the record.       The record suggests further that Transco

was the only viable buyer in that market for the relevant time

period.    We agree with Shell that the nature of the Shell-Transco

contractual relationship is an adequate basis on which the fact

finder may properly reject, as unduly speculative, any suggestion

that plaintiffs had shown Transco would have purchased section 105

gas which was freed of the Shell-MisCoa contract. Furthermore, the

                                      40
fact finder could properly take into account that there was no

showing that had Transco been forced to take all of Thomasville’s

40,000 Mcf output it would not have exercised its “market-out”

option to further reduce the contract price to one nearly identical

to the MisCoa contract rate.         The burden of proving market value

includes proof of buyers willing to accept available deliveries,

and the district court was not clearly erroneous in concluding that

plaintiffs had failed to carry that burden.                 Finding no clear

error, we affirm this portion of the district court’s order as

well.

III.    Other Matter

       Shell   argues   that   due   to   the   post-1982   downturn   in   the

interstate market the MisCoa contract price for the years 1982-1986

actually exceeded the interstate market price and therefore Shell

is entitled to equitable recoupment of overages on royalties paid

to the plaintiffs during those years.            Shell bases this argument

upon the proposition that the prices paid by Transco pursuant to a

contract entered into in 1982 cannot represent the market value in

1983-1986. Shell posits that because the plaintiffs could identify

no new buyers on the interstate market, the market was practically

valueless and therefore offered rates far below the MisCoa long-

term fixed rate contract price.

       Assuming arguendo that Mississippi law allows for equitable

recoupment, see Glantz Contracting Co. v. General Electric Co., 379

                                      41
So. 2d 912 (Miss. 1980), no pleading of record evidences Shell’s

intention to pursue an equitable recoupment theory.           See Fed. R.

Civ. Pro. 8(c); Davis v. Odeco Inc., 18 F.3d 1237, 1246 (5th Cir.),

cert. denied, 115 S. Ct. 78 (1994); Chicago Great Western Ry. Co. v.

Peeler, 140 F.2d 865, 868 (8th Cir. 1944); J.V. Edeskuty & Assoc.

v. Jacksonville Kraft Paper, 702 F. Supp. 741, 749 (D. Minn. 1988).

Nor does it appear that this theory was proffered in the trial

court prior to the district court’s December 1994 issuance of the

preliminary draft of the June 6 order.        Furthermore, we note that

Shell’s claim is improperly based essentially upon a dearth in the

plaintiffs’ proof.      In Piney Woods II we set out a hierarchy of

three   modes   of   analysis   in   determining   what   constitutes   the

relevant “market value” in this case; given our affirmance of the

district court’s finding that the plaintiffs’ proof of comparable

processed sweet gas sales for this post-1982 period fails, the

applicable analysis is by default that of Shell’s actual sales-

minus-processing-costs system.        Had Shell properly counterclaimed

or pleaded recoupment in its answer to plaintiffs’ claim, it could

conceivably have offered evidence of a relevant market where prices

were less than what Shell actually charged.           No such pleadings

exist, however, and even if they did Shell has not met its

postulated burden of proving up the existence and parameters of

such a hypothetical marketplace.          Shell’s claim for equitable

recoupment fails.

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     Finally, Shell has briefed the issue of whether, due to the

district court’s rulings, it will be necessary and proper on remand

to send notices to those prospective plaintiffs whose claims have

exceeded the jurisdictional amount since the class was originally

certified.   This question has not yet been ruled on in the district

court and is not materially related to any issue presented by the

June 6, 1995 order we review today.         We therefore have no occasion

to reach the class notice issue at this time.

                                 Conclusion

     We affirm the district court’s June 6, 1995 order, and hold

that plaintiffs are entitled to recover from Shell for underpayment

of royalty for the period November 1978 through            November 1982 with

respect to the section 107 wells.         We approve the comparable sales

evidence   utilized   by   the   district     court   in    determining   the

interstate market value for processed gas and the propriety of

subtracting from that market value Shell’s actual processing costs

to determine the market value of the gas “at the well.”              Damages

shall be calculated accordingly, without recoupment or set-off for

any asserted post-1982 overpayment by Shell. We do not have before

us, and do not reach, either the issue of plaintiffs entitlement to

prejudgment interest or the question of whether further notice to

class members is required.       As to periods after November 1982, we

affirm the district court’s determination that Shell has not

                                     43
underpaid royalty and is not liable to plaintiffs.

     The district court’s June 6, 1995 order is AFFIRMED, and the

cause is REMANDED for further proceedings consistent herewith.

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