Court Opinion

ID: 9446764
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:17:48.342684+00
Date Added: 2024-06-11T17:30:46.291543
License: Public Domain

TUTTLE, Circuit Judge,
Continental Oil Company is a natural gas company within the meaning of the Natural Gas Act, 15 U.S.C.A. § 717 et seq. It sells the gas produced from a single dry gas well in Lea County, New Mexico, to El Paso Natural Gas Company. In its brief, Continental asserts: “Sale of the gas takes place in the well head. Delivery occurs at the point where the facilities owned by Continental end and the facilities owned by El Paso begin; that is, at the point where the gas enters the 4-inch by 2-inch reducing swage [owned by El Paso] where it is screwed inside the 4-inch master valve [owned by Continental].” Before it reaches this critical delivery point the stream of gas has moved up through the casing and through two master valves, either of which has the potentiality to shut off completely the flow of gas, but neither of which is designed or suitable to regulate the flow, i. e., increase or decrease it. The top member of the upper master valve is a threaded 4-inch aperture into which El Paso’s reducing swage is screwed. This is the point of delivery of the gas to the purchaser, as described by petitioner above. The stream thereafter flows through a T and then through pipes, generally horizontally, to El Paso’s meter and valve which controls the flow from the well.
Continental finished drilling the well and constructed part of the “Christmas tree,” that is, the flanges and two master valves, and then, by closing the valves, shut off the stream of gas until after the sales contract was made with El Paso some six months later. Thereupon El Paso inserted the reducing swage and attached the T connection above it; the horizontal pipes were connected; Continental’s master valves were opened and *210the flow began, subject thereafter to be regulated by El Paso by the opening and closing of its valves downstream from the above described equipment.
The question here is whether the Federal Power Commission was authorized to find that any of the “facilities” of Continental were subject to its jurisdiction. The question came up by petitioner’s filing an application under protest for a certificate of public convenience and necessity accompanied by a petition for a declaratory disclaimer of jurisdiction, followed by an order of the Commission issuing the certificate as to the sale of the gas and also a certificate as to “such portions of the ‘Chistmas tree’ that are owned by Continental and serve to contain the gas at the point of delivery,” stating that such facilities “are facilities for effecting the sale of gas in interstate commerce.”
In addition to requiring a certificate authorizing the sale of gas by natural gas companies, the Natural Gas Act requires in Section 7(c) a certificate authorizing the construction or extension, acquisition or operation of “any facilities” for the sale of natural gas, subject to the jurisdiction of the commission.1
Petitioner based its application for disclaimer on the contention that it has no facilities for sale of natural gas, but if it has they are also facilities of production, and that if any facilities for the sale of gas are also facilities used in the “production or gathering” of the gas the commission could not acquire jurisdiction over them because of the specific exemption of Section 1(b)2 which provides that, “The provisions of this act shall * * * not apply to * * * the local distribution of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas.” (Emphasis added.) Although not specifically so providing, the language of this exemption has, as to other types of facilities, been held to cover facilities of production or gathering. See Federal Power Commission v. Panhandle Eastern Pipe Line Company, 337 U.S. 498, 504-505, 69 S.Ct. 1251, 93 L.Ed. 1499. See also Deep South Oil Company of Texas v. Federal Power Commission, 5 Cir., 247 F.2d 882, 889.
The Commission says that there are facilities here utilized by Continental that are not facilities of production and, alternatively, that even though all facilities of Continental are used for production, nevertheless if they are also essential to effect the jurisdictional sales, such facilities are not within the exemption of Section 1(b). Neither gathering nor facilities for gathering are in issue here; only facilities for production.
We think a strong argument can be made under the alternative proposition in light of the holding by the Supreme Court in Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, and the decision of this Court in Deep South Oil Company of Texas v. Federal Power Commission, supra. There it was held that the affirmative grant of jurisdiction in Section 1(b) of the Act over interstate sales was *211not whittled down by the exemption of production and gathering even though it is apparent in those cases that what was there involved was what was considered in the industry to be a part of the gathering operation. It might reasonably be contended that by parallel reasoning the affirmative grant in Section 1(a), coupled with the positive language of Section 7 (c) requiring that a certificate be required as to facilities for the sale of gas can no more be nullified by the exemption of production and gathering (which does not expressly include facilities for production and gathering)3 than can the grant of jurisdiction over the sales themselves be nullified by the exemption of production and gathering where the sales are made before production and gathering are completed.4
We think, however, that we need not place our decision on this alternative ground. We think, notwithstanding the claimed effect of the expert testimony to the contrary, this record discloses that there are facilities for the sale of the gas that are not facilities of production.
It is not only not disputed by petitioner, but is affirmatively argued by it that the sale of gas is completed in the well head and delivery is made at the point where El Paso’s facilities receive it from Continental. It is also undisputed that the gas at the point of sale and delivery is the identical stream of gas that rises in the casing and passes through the first of the two master valves. The lower, or first of the two valves, is designed for the purpose of shutting off the flow unless and until the gas can be utilized. The upper or second valve is mechanically unnecessary to permit this operation. It is part of a normal installation clearly called for by the standard art in the industry to give flexibility in case repairs are needed or there is a failure of the single valve. In the ordinary language of purchase and sale of a product where it is in deliverable form the stream of gas is, in a sense, “produced” at the latest after it has passed through the first master valve. Even including this valve as a facility of production may be argued to be conceptually an anomaly because, physically, production and delivery can be accomplished without any valves at all. We fully recognize that for safety of operation, making adequate provision for repairs, etc., the unbroken custom in the industry is to contain the gas by a complex of two valves and associated equipment. This is, of course, also required by the self interest of the producer not to let the gas waste and also by the conservation and regulatory policies of the state; but this does not change the fact that in the ordinary sense of the terms production of the gas has been completed at or just above the surface of the ground where it is physically deliverable but then is shut in until delivery commences. But under this contract the sale is not completed then, but is completed by delivery to El Paso at the upper threaded orifice or aperture of the second or upper valve which receives the threaded swage of El Paso. Thus, we need not consider whether the first or lower valve is a facility of production, because it is not contended by the Commission that it is also a facility for the jurisdictional sale. It may therefore be conceded that it is, for the purpose of this case, an exempt facility.
Petitioner contends that the only evidence in the record demands the finding *212as of a fact that the upper valve is also a facility of production.5 We think it is fundamental that the construction of the statute cannot be made to depend on such testimony, but rather on the basic facts in the record. These facts, undisputed as they are, we think require the conclusion that, so far as germane to the inquiry here, production, as the term is used in this statute, was complete at or before the passage of the gas through the upper aperture of the upper valve. Our duty here is not to determine what is generally understood in the industry, in the resolution of other relationships, as meant by “production.” It is to determine what Congress meant by the term. In making such determination we are faced primarily with the unambiguous and clear intent as construed by the Supreme Court in the Phillips case to regulate these interstate sales. Since it is in line with ordinary non-technical usage, we must give to the terms the meaning that will effectuate and not the one that would frustrate the purpose of the law.
Petitioner contends that the order of the Commission implies that if delivery were made even further upstream, say at a point at the bottom of the well, the commission would have the power to certificate the facilities thus used to effect delivery. We say that if a producer sought to test out such a theory it might then be necessary to determine whether the commission’s alternative theory discussed above is valid. Here, in any event, the producer could certainly eliminate any uncertainty which it says exists as to what is meant by the Commission’s terminology “such portions of the 'Christmas Tree’ that are owned by Continental and serve to contain the gas at the point of delivery” if it should see fit merely to insert a length of pipe of as much as two or three inches to serve as a connector between its upper valve and the reducing swage owned by El Paso. It is little short of fantastic to consider the possibility that the jurisdiction of the Commission over facilities for sale, in light of the importance of such jurisdiction under the right of a natural gas company to terminate its services under Section 7(b),6 could be made to depend on whether El Paso’s swage screws into the top of the upper valve or into a short length of pipe which is owned by Conti*213mental and which is screwed into the valve.
What we hold here, consistent with the decision of the Courts of Appeals for the 10th Circuit and the 3rd Circuit in Saturn Oil Gas Co. v. F. P. C., 10 Cir., 250 F.2d 61, and J. M. Huber Corp. v. F. P. C., 3 Cir., 236 F.2d 550, is that the petitioner uses facilities for sale of the gas in commerce to El Paso which are not facilities in production of the gas and that the Commission’s order relating to the granting of the certificate must be Affirmed.

. Section 7(c) provides as follows:
“(c) No natural-gas company or person which will be a natural-gas company upon completion of any proposed construction or extension shall engage in the transportation or sale of natural gas, subject to the jurisdiction of the Commission, or undertake the construction or extension of any facilities therefor, or acquire or operate any such facilities or extensions thereof, unless there is in force with respect to such natural-gas company a certificate of public convenience and necessity issued by the Commission authorizing such acts or operations : * *

. This section provides:
“(b) The provisions of this act shall apply to the transportation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, and to natural-gas companies engaged in such transportation or sale, but shall not apply to any other transportation or sale of nautral gas or to the local distribution of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas.”

. As has been pointed out above, in eases not touching on the precise point there in issue, the courts have held that the exemption language comprehends facilities.

. For a discussion of the treatment of a local act, see Hartford Electric Light Co. v. F.P.C., 2 Cir., 131 F.2d 953. In the Deep South case we quoted with approval from Interstate Natural Gas Co. v. F.P.C., 5 Cir., 156 F.2d 949, 951:
“[The act] is very simply and plainly written. After stating what it shall apply to, it then states what it shall not apply to. Under familiar rules of construction, a negation in or exception to a statute will bo construed so as to avoid nullifying or restricting its apparent principal purpose and the positive provisions made to carry them out.”

. The evidence on this point consisted of testimony given on behalf of petitioner by Louis W. Miller as follows:
“Q. Mr. Miller, you state that you have been in the oil and gas business for eight or nine years. Will you state whether or not you are familiar with the meaning of the terms ‘produced’ and ‘production’ as such terms are used in the oil and gas industry? A. Yes, I am.
“Q. Will you state the source of your knowledge of the meaning of such terms? A. I have heard them used many times in the field and in the business, and I have talked with many old-timers who have been in the business for years longer than I have.
“Q. Do you know whether the meaning of these terms as used in the oil and gas industry has changed in the last twenty years? A. From my discussions with the old timers and from the way in which they use such terms, I am certain that the meaning has not changed in that period as such terms are used in the oil and gas industry.
“Q. As such terms are used in the oil and gas industry, will you state when gas has been produced or when the production of gas is competed in an operation similar to that which you have described for the Stevens B-7 Unit No. 1 Well? A. As the terms are used in the industry, the stream certainly is not produced and the production of the stream is not completed until after the stream has passed out of the Christmas tree.”

. The importance of commission jurisdiction of facilities in connection with the right to terminate service, is seen by reference to Section 7 (b) of the Act, which provides as follows:
“(b) No natural-gas company shall abandon all or any portion of its facilities subject to the jurisdiction of the Commission, or any sei-vice rendered by means of such facilities, without the permission an approval of the Commission first had and obtained, after due hearing, and a finding by the Commission that the available supply of natural gas is depleted to the extent that the continuance of service is unwarranted, or that the present or future public convenience or necessity permit such abandonment.”