Appendix — Grounds v. Northern Natural Gas Co.

Supreme Court brief1971

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United States. The United States concurs in this position.

In the course ot our preparation of Findings of Fact and

Conclusions of Law we have reviewed and disposed of the

motions to which the parties have taken exception in the

light of the evidence before us.

THE PARTIES

Identification of the parties to these actions and state-

ment of their positions will clarify our views. The parties

in the interpleader suits, KC-1945, KC-1946, KC-1947,

KC-1948, KC-1969, and KC-1980 all claim ownership of

or an interest in the interpleader fund in the particular case.

KC-1945.

Cities Service Gas Company was the original inter-

pleading plaintiff in Cases KC-1945, KC-1948. It was sub-

sequently joined, however, by Cities Service Helex, Inc.,

and Cities Service Cryogenics, Inc. (formerly Cities Service

H~"ium, Inc.) both wholly owned subsidiaries of Cities Ser-

~ vice Company, which holds, also, upwards of 79 per cent of

the stock of Cities Service Gas Company. These plaintiff cor-

porations are organized under the laws of the State of Dela-

ware and have principal places of business in Oklahoma.

It is necessary to state the contractual relationships be-

tween the three parties plaintiff. In brief, Cities Service

Gas Company conveyed to Cities Service Helium by con-

tract executed August 17, 1961, ‘for and in consideration

of the sum of Ten Doiiars ($10.00) and other good

and valuable considerations” the right to all helium ccn-

tained in gas purchased by it and gathered to a central

point adjacent to its Grant County, Kansas compressor

station, together with the right to extract such helium.’

Cities Service Helium in turn, by contract dated the fol-

lowing day, August 18, 1961, conveyed these helium rights

to Cities Service Helex, Inc., which agreed to pay therefor

1.25 cents for each thousand cubic feet (Mcf) of gas de-

livered to Cities Service Helex for helium processing.*

Shortly thereafter, on August 22, 1961, Cities Service Helex

contracted to «'l helium to the United States.?

Cities Service Helex contracted with the Cities Service

Gas Company, on September 11, 1961, for the purchase

of gas required for operation of its helium extractior plant,

and agreed to sell to the Cities Service Oil Company the

crude liquid hydrocarbons recovered in the helium extrac-

tion process.® Cities Service Gas Company is referred to

as “Cities.”

Tne named defendant individuals, O. W. Heger, Almeta

Redfield, et al., appear individually and as representatives

of a landowner class consisting of

“the persons, firms and corporations owning a mineral in-

te.est in land from which helium has been, is being or will

be severed from the ground in connection with or because

of »roduction under oil and gas teases, which helium has

been, is being or will be taken into the possession by the

United States of America in Grant County, Kansas, at the

delivery puine described in that certain contract between

3LPX 150.

4LPX 151.

SLPX 106.

6 LPX 152; LOX 508.

the United States of America and plaintiff in interpleader

Cities Service Helex, Inc., dated August 22, 1961.”7

The named defendant lessee-producer is Mobil Oil Cor-

poration (formerly Socony Mobil Oil Company), a corpora-

tion organized under the laws of the State of New York,

with its principal place of business there. Mobil appears both

individually and as representative of a lessee-producer class,

which

“*... consists of the persons, firms and corporations denom-

inated ‘lessee-producers,’ who are the owners of leasehold

interests in ... oil and gas leases [described in the foregoing

paragraph] ..., and who deliver, have delivered or will de-

liver helium contained in gaseous streams directly or indi-

rectly to Cities Service Gas Company, which helium has

been, is being, and will be removed and delivered by plain-

tiff in interpleader, Cities Service Helex, Inc., into the

possession of the United States of America at the delivery

point described in that certain contract between the United

States of America and Cities Service Helex, Inc., dated

August 22, 1961.78

Cities purchases gas from Mobil pursuant to at least four

contracts which are filed as rate schedules of Mobil with the

Federal Power Commission.? Whether gas delivered under

all of these contracts is processed for helium does not clearly

appear.!° Representative lease forms under which Mobil

produces gas for sale to Cities are in evidence.!!

7Dkt. 1135, KC-1969. In the documentation of the finding ““Dkt. ...... 7

followed by case nurnber refers to the docket sheet prepared by the Clerk

of the Court for each case; however, after consolidation most pleadings

were filed in KC-1969, as the Consolidated file.

8 Ibid.

9 Mobil Exs. 11, 12, 13 and 14, being FPC Schedule No. 3, 89, 261 and 262.

19 Tr. 34: 3482-83.

11 Mobil Ex. 1; Dkt. att, eee.

KC-1946.

The plaintiffs are identical with those in the preceding

case. The named individual defendants, Vivian W. Schuett,

R. J. Stuckey, et al., appear both individually and as repre-

sentatives of the class of landowners and owners of mineral

interests as defined in the preceding case. The named defen-

dant lessee-producer is the Ashland Oil and Gas Company, a

corporation organized and existing under the laws of the

Commonwealth of Kentucky, with its principal place of

business in that state. Ashland appears both individually

and as representative of the same class of leaseho!d interest

owners as defined in the preceding case, KC-1945.

Ashland produces gas from a block of 119 wells located

principally in Grant and Haskell counties, Kansas, and de-

livers it through an approximately 150-mile gathering sys-

tem to Cities at a point near the helium extraction plant

operated by Cities Service Helex, Inc., in Grant County,

Kansas. Representative forms of these leases under which

gas is produced for this sale are compiled in Ashland Exhibit

1. These leases were acquired by Ashland on March 1, 1963,

from the United Carbon Company, parent of United Pro-

ducing Company, a previous owner thereof.!2

The contract under which Ashland delivers gas to Cities

was executed originaliy on March 12, 1948, by United Pro-

ducing Company, which agreed therein to deliver natural

gas to Cities so long as it could be produced from the subject

leaseholds in commercial quantities.!* On October 1, 1965,

this contract was filed with the Federal Power Commission

12 Ashland Ex. 18-20.

13 Ashland Ex. 5.

bis: ear BSP RE

as United’s FPC Rate Schedule No. 111, and upon acquisi-

tion of the leaseholds by Ashland, and FPC approval of the

transfer, it became Ashland’s FPC Rate Schedule No. 111.

Ashland also succeeded to a second gas purchase contract

with Cities executed August, 1953, by United now being

Ashland’s FPC Rate Schedule No. 112. Gas delivered under

this contract is not processed for the separation of helium,

however.14

KC-1947.

The plaintiffs are identical with those in each of the pre-

ceding cases. The named defendant individuals, Katherine

R. Adams, J. H. McMorran, et al., appear individually and

as representatives of the class of landowners and owners of

mineral interests as defined in the first case, KC-1945. The

named lessee-producer is Columbian Fuel Corporation or.

ganized under the laws of the State of Delaware, with

its principal place of business in the State of New York.

Columbian appears individually and as representative of

the class of leasehold interest owners defined in the first

case, KC-1945.

Columbian sells natural gas to Cities Service Gas under

two contracts, executed November 18, 1949, and June 16,

1949.1> These contracts are filed with the Federal Power

Commission, and are included in Columbian’s FPC Rate

Schedule Nos. 7 and 37. Columbian delivers gas to Cities

under a third contract, its FPC Rate Schedule No. 10, but

gas delivered thereunder apparently is not processed for

14 Tr, 34:3461.

15 Columbian Exs. 8,9.

helium extraction.!© Columbian delivers gas to Cities at the

tailgate of Mobil’s Hickock Plant in Grant County, Kansas.

KC-1948.

The plaintiffs are identical with those in each of the pre-

ceding cases. The named defendant individuals, Bloyd Bur-

gess, John J. Cecil, et al., appear individually and as repre-

sentatives of the class of landowners and owners of mineral

interests as defined in the first case, KC-1945. The named

defendant lessee-producer is the Pan American Petroleum

Corporation, organized under the laws of the State of Dela-

ware, with its principal place of business in the State of

Oklahoma. Pan American appears individually and as repre-

sentative of the class of leasehold interest holders as defined

for the first case, KC-1945.

Pan American sells gas to Cities under a single contract

executed June 23, 1950, by Stanolind Oil and Gas Com-

pany, Pan American’s predecessor, the contract covering gas

produced from approximately 400,000 to 600,000 acres in

Kansas Hugoton Field so long as it can be had in commer-

cial quantities. This contract as amended is included in Pan

American’s FPC Rate Schedule No. 84.!/ Copies of repre-

sentatives lease forms under which this gas is produced are

in evidence.!8 .

Since execution of this contract in 1950, Pan American

has executed approximately 168 “farmout” agreements, by

which it agreed to assign various leases covering areas dedi-

cated under that contract, these agreements providing specifi-

16 Columbian Ex. 10.

17 Pan American Ex. 4.

18 Pan American Ex. 1.

ea we se

cally that any production therefrom is subject to the Pan

American—Cities contract. Under the standard farmout

agreement, the farmout operator drills at his own expense,

and upon completion of a commercial well, he becomes

owner of the working interest and usually operates the well

or arrang.s for its operation, the assignor retaining a royalty.

These operators are independent producers who were re-

quire to obtain certificates of public convenience and neces-

sity covering their sales to the Cities Service Gas Company.

None of these operators was made a party to this action. By

court order they fall within the class of owners of leasehold

interests represented by Pan Americar as a lessee-producer.!?

KC-1969.

Plaintiffs in this interpleader action are Northern Natural

Gas Company (Northern), an interstate pipeline company,

and two wholly-owned subsidiaries, Northern Helex Cor-

poration (formerly Helex, Inc.) and Northern Natural Gas

Products Company, all corporations organized under the

laws of the State of Delaware, with their principal places of

business in the State of Nebraska.

The named defendant individuals, Ralph Grounds, Henry

Hitch, and approximately five hundred other named indivi-

duals, appear individually and as representatives of a class

defined by the court as comprising

“*.. . the persons, firms and corporations owning a mineral

interest in land from which helium has been, is being or will

be severed from the ground in connection with or because

of production under oil and gas leases, which helium, is be-

ing or will be taken into the possession by the United States

of America in Ellsworth County, Kansas at the delivery

19 Page 13, infra.

point described in that certain contract between the United

States of America and plaintiff in interpleader Northern

Helex, Inc. (formerly Helex Company), dated August 15,

1961,.”20

Eight named lessee-producer companies are defendants

in this action.

Ashland delivers natural gas to Northern under two

contracts, executed August 25, 1943, and June 28, 1954,

these are included in Ashland’s FPC Rate Schedule Nos.

116 and 122, respectively.?!

Cities Service Oil, a Delaware corporation with its prin-

cipal place of business in the State of Oklahoma, delivers

natural gas to Northern under eleven contracts, these being

Cities Service Oil FPC Rate Schedule Nos. 53, 70, 89,

166-171, 190, and 191.22

Gulf Oil Corporation, a Pennsylvania corporation with

its principal place of business there, delivers natural gas to

Northern under a single contract, found in Gulf’s FPC Rate

Schedule No. 117.23 Representative forms of leases under

which this gas is produced are in evidence.”4

Helmerich & Payne, Inc., is an Oklahoma corporation

with its principa] place of business in that state. It delivers

natural gas to Northern under eight contracts, these being

its FPC Rate Schedule Nos. 1, 2, 4-8.2? Representative

20 Dkt. 1135, KC-1969.

21 Ashland Exs. 7, 10.

22 Cities Service Oil Exs. 7-16. Representative forms of leases under which

gas is produced for delivery to both Northern and Panhandle Eastern

Pipeline Company, a party to KC-1980, are assembled in Cities Service

Oil Co. Ex. 17.

23 Gulf Ex. 3.

24 Gulf Exs. 1, 2; Dkt. 166, 920, KC-1969.

25 Helmerich & Payne Exs. 3-9.

PT eT Tee T OY TENE Ley eon OMT TNT RE TREN NETS vs TAT OT I TT ASO

forms of leases under which gas is produced for delivery

thereunder are also in evidence.26

Mapco Production Company, a Delaware corporation

with its principal place of business in Oklahoma, delivers

gas to Northern under one contract, dated September, 1949,

and is Mapco FPC Rate Schedule No. 1, formerly Hugoton

Plains FPC Schedule No. 1. Representative forms of leases

under which gas is produced for delivery under this contract

are in evidence.2/

Mobil delivers gas to Northern under nine contracts, in-

cluded in its FPC Rate Schedule Nos. 32, 71, 85, 158, 179,

281, 232, 284, and 326.28 Representative forms of leases

are in evidence.2?

Texaco, a Delaware corporation with its principal place

of business in states other than Kansas and Nebraska, de-

livers gas to Northern under fourteen contracts, these are

included in Texaco FPC Rate Schedule Nos. 10, 11, 12, 71,

106-112, 129, 147 and 317. Representative lease forms

under which gas is produced for these sales are in evidence.?°

These named lessee-producers appear individually and

as representatives of a class defined by the court as con-

sisting of:

**.,. the persons, firms and corporations denominated ‘lessee-

producers’ who are the owners of leasehold interests in the

oil and gas leases. . [from which gas is produced for de-

livery to Northern Natural Gas Company] and who de-

26 Helmerich & Payne Exs. 1, 2; Dkt. 250, 1232, 1235, KC-1969.

27 Mapco Ex. 1; Dkt. 255, KC-1969.

28 Mobil Exs. 2-9.

29 Mobil Exs. 1, 1A.

30 Texaco Exs. 1, 2; Dkt. 199, 1231, KC-1969 (T.eases); Texaco Exs. 3-14,

17 and 33.

liver, have delivered or will deliver helium contained in

gaseous streams directly or indirectly to Northern Natural

Gas Company, which helium has been, is béing or will be

removed and delivered by plaintiff in interpleader [ North-

ern Helex, Inc.], into the possession of the United States of

America at the delivery point described in that certain con-

tract between the United States and [Northern Helex,

Inc. ] \ aaasceiedl Helex Company), dated : aan 15,

1961.31

Phillips Petroleum Company, a Delaware corporation

with its principal place of business in the State of Delaware,

was named as an original defendant lessee-producer of gas.

Phillips, however, makes no claim to the interpleaded fund,

and urges that having disclaimed any interest in the subject

matter of the action upon which the court’s jurisdiction

depends, it should be dismissed therefrom.

Counsel for landowners and Phillips disagree whether

the landowners assert cross-claims against Phillips in KC-

1969. After examination of the pleadings and pre-trial

order, we find that landowners have asserted two cross-

claims against Phillips; first, a denial that Phillips has any

interest in the fund ( which Phillips concedes) and secondly,

on the premise that leases do cover helium, landowners seek

damages from Phillips on the ground that as a lessee-pro-

ducer, it has failed to market the helium portion of natural

gas with reasonable diligence.

KC-1980.

The plaintiff in this interpleader action is National

Helium Corporation, organized and existing under the laws

of the State of Delaware, with its principa! place of business

in the State of Kansas.

31 Dkt. 1135, KC-1969.

7 ne owe in a: Seana Oo ERS mr

The Panhandle Eastern Pipe Line Company, a Delaware

corporation with its principal place of business in the State

of Missouri, was made a party defendant by National

Helium. Panhandle owns fifty per cent of the stock of

National Helium, with National Chemical and Distillers

Company owning the remaining fifty per cent.

No lessee-producer was named as an original defendant

in this case. Eight named lessee-producers were first intro-

duced into this case by a third-party complaint filed by defen-

dant Panhandle,>? wherein Panhandle sought judgment

against the named third-party defendants “for all sums that

may be adjudged against Panhandle in favor of National

Helium or the landowners with respect to gas purchased by

Panhandle from, and delivered to Panhandle by such third-

party defendants . . .” Prior to that time, landowners had

filed counterclaims and crossclaims against National Helium

and Panhandle respectively, seeking judgment for alleged

conversion of helium. National Helium had never asserted

any liability against Panhandle, however, so as to authorize

a third-party complaint under Rule 14, F.R.Civ.P., which

provides that a “defending party, as a third-party plaini:ff,

may cause a summons and complaint to be served upon a

person not a party to the action who is or may be liable to

him for all or part of the plaintiff's claim against him.”

[Emphasis supplied. ]

The lessee-producers answered without objecting to im-

proper joinder under Rule 14. They have tendered precisely

the same issues for decision in KC-1980 as in the other

interpleader cases where they were properly joined, and they

32 Dkt. 54, KC-1980.

have taken precisely the same positions in each of the inter-

pleader cases. Had lessee-producers not asserted their claims

to the fund in KC-1980, notwithstanding their third-party

status, it would have been incumbent upon the court to join

them as defendants under Rule 19, F.R.Civ.P. which pro-

vides, in pertinent part, that

“A person who is subject to service of process and whose

joinder will not deprive the court of jurisdiction over the

subject matter of the action shall be joined as a party in the

action if... (2) he claims an interest relating to the subject

of the action and is so situated that the disposition of the

action in his absence may ... (ii) leave any of the persons

already parties subject to a substantial risk of incurring

double, multiple, or otherwise inconsistent obligations by

reason of his claimed interest. If he has not been so joined,

the court shall order that he be made a party.”

It is clear that as a group, their presence was necessary to

a full and complete adjudication of rights to the inte’ pleaded

fund. Failure to join them would have left a critical gap in

the group of claimants necessary to a complete determina-

tion of the ownership of helium, and the right to participate

in the fund consisting of the proceeds from its sale. We hold

that the lessee-producers named in the third-party complaint

are properly defendants, individually and as representatives

of the class, and we deem them to have been joined under

Rule 19. The named lessee-producer defendants are twelve

in number.

Ashland delivers gas to Panhandle under eleven con-

tracts, included in Ashland’s FPC Rate Schedule Nos. 108,

109, 120, 121, 125, 135, 141, 142, 145, 148 and 177.33

Cabot Corporation, a Delaware corporation with its prin-

33 Ashland Exs. 3, 4, 8, 9, 11-17.

PTR

oF ted

cipal place of businzss in Massachusetts, delivers natural gas

to Panhandle under eleven contr2ets, included in its FPC

Rate Schedule Nos. 28, 35, 47, 69, 71, 41, 62, 75, 89, 33,

and 66.74

Columbian delivers gas to Panhandle under seven con-

tracts, these included in Columbian’s FPC Rate Schedule

Nos. 2, 31, 33, 36, 40, 75, and 136.75

The Shamrock Oil and Gas Corporation, since the com-

mencement of this litigation, has become, as result of a

merger, the Diamond Shamrock Corporation, and has been

substituted therefor. It is a Delaware Corporation, with its

principal place of business in the State of Ohio. It delivers

gas to Panhandle under four contracts, these included in

Shamrock’s FPC Rate Schedule Nos. 4, 24, 30 and 32.36

The Dorchester Gas Producing Company, a Delaware

corporation with its principal place of business in the State

of Texas, delivers gas to Panhandle under three agreements,

two of which are gas exchange agreements, included in Dor-

chester’s FPC Rate Schedule Nos. 4, 1 and 2.37

Gulf delivers gas to Panhandle under eight contracts,

being Gulf’s FPC Rate Schedule Nos. 51, 68, 100, 167,

171, 200. 237, and 293.8

Helmerich & Payne, Inc. delivers gas to Panhandle under

two gas purchase contracts, being Helmerich & Payne’s

FPC Rate Schedule Nos. 28 and 29.3?

34 Cabot Exs. 2-10, 13, 14.

35 Cities Service Oil Exs. 1-6.

36 Columbian Exs. 1-7.

37 Dorchester Exs. 4, 5, 6.

38 Gulf Exs. 15-22.

39 Helmerich & Payne Ex 10.

Mobil delivers gas to Panhandle under eleven contracts,

being its FPC Rate Schedule Nos. 246, 223, 248, 299, 303,

11, 54, 385, 369, 301,“and 245.4

Pan American delivers gas to Panhandle under eight con-

tracts, being its FPC Rate Schedule Nos. 134, 194, 196,

221, 223, 276, 365, and 425.41 ©

Texaco, Inc., delivers gas to P:.nhandle under twenty-two

contracts, being its FPC Rate Schedule Nos. 142, 136, 152,

164, 171-173, 224, 230, 242, 244, 256, 289, 303, 304,

309, 315, 318, 344, 352, 353, atid 367.42

Superior Oil Company is a Nevada corporation with its

principal place of business in the State of Texas. Superior

delivers gas to Panhandle under three contracts, included

in its FDC Rate Schedule Nos. 110, 1, and 43.43

These named lessee-producer defendants appear indivi-

dually and as representatives of a class defined by the court

as comprising

**. ,. the persons, firms and corporations der:ominated ‘lessee-

producers,’ who are the owners of leasehold interests in the

oil and gas leases [from which gas is produced for delivery

to Panhandle Eastern Pipe Line Company] and who de-

liver, have delivered or will deliver helium contained in

gaseous streams directly or indirectly to Panhandle East-

ern Pipe Line Company, which helium has been, is being or

will be removed and delivered by plaintiff in interpleader

National Helium Corporation into the possession of the

United States of America at the delivery point described

in that certain contract between the United States and

National Helium Corporation dated October 13, 1961.44

40 Mobil Exs. 15-25.

41 Pan American Exs. 5-12.

42 Texaco Exs. 15, 16, 18-32, 34-38.

43 Superior Exs. 2, 3, 4.

4 Dkt. 1135, KC-1969.

The named defendant individuais, Ralph Grounds, Henry

Hitch, and approximately five hundred other individuals

appear individually and as representatives of a class defined

as comprising

**. .. the persons, firms and corporations owning [a] min-

eral interest in land from which helium has been, or is be-

ing, or will be severed from the ground in connection with

or because of production under oil and gas leases, which

helium has been, is being or will be taken into possession by

the United States of America in Seward County, Kansas

at the delivery point described in that certain contract be- .

tween the United States of America and plaintiff in inter-

pleader National Helium Corporation dated October 13,

1961.45

Phillips was introduced into this case as a third party

defendant by landowners, alleging underpayment of royal-

ties on gas produced in Moore and Hansford Counties,

Texas.*© This claim has been withdrawn. The remaining

counts of that third-party complaint were never addressed

to Phillips, and it may not be required to respond to those

claims for the first time after trial. Philiips’ request for find-

ings of fact and conclusions cf law demonstrating the lack

of independent jurisdictional grounds for the claim is there-

fore moot.

We conclude in KC-1980 that lessee-producers are proper

parties both individually and as representatives of a class;

that Phillips must be dismissed on the ground that no claim

is asserted against it.

W-3009.

The original plaintiffs in this case are Oliver S. Brown,

45 Ibid.

4% Dkt. 163, KC-1980,

Harry Lightcap, T. A. Dudley, Dan C. Sullivan, Jr., L. F.

Roderick, Stanley Julian, the E. W. Campbell Estate, Ruth

C. Rice, Executrix, Herbert and Norma Foster, Fred Shore

and Hazel Shore, Gerald G. Finley, A. W. Klassen, John

Alford, Robert Larrabee, Robert Larrabee as Executor of the

Estate of Ler Larrabee, Deceased, Emil Schnellbacker, Wylie

R. Gore, George H. Anderson, Ora V. Martin and Lela Z.

Martin, and Gene Cyr. The intervening plaintiffs are Alfred

Akers (Akin) , Chester C. Clark, Dorothy M. Cox, Della M.

Drake, John R. Jones, Bertha E. Kells, C. A. Kells, a/k/a

Chester A. Kells, W. L. Lacey, L.G. Moore, Warden L. Noe,

Bernard J. Nordling, Homer Leroy Parshall, Leone L. Par-

shall, Lillie Snare (Snarl), June Stegman as Guardian of

Patricia A. Stegman, June Stegman as Guardian of Victor J.

Stegman, and Edith Thompsen. These parties appear indi-

vidually and as representatives of a class defined by the

court as consisting of:

“. .. the persons, firms and corporations owning mineral in-

terests in land from which helium has been, or is being

severed from the ground in connection with or because of

production under oil and gas leases, which helium has been,

or is being taken into the possession of the defendant

United States of America at points in Seward, Ellsworth

or Grant Counties, Kansas, or Hansford or Moore Counties,

Texas, described in the four following contracts:

(a) Contract between United States of America and

Helex Company, now Northern Helex Company,

dated August 15, 1961.

(b) Contract between United States of America and

Cities Helex dated August 22, 1961.

National Helium dated October 13, 1961.

(d) Contract between United States of America and

Phillips dated Noveinber 13, 1961.”47

The United States is the sole defendant in this case. It has

joined as third party defendants National Helium, Cities

Service Helex, Inc., Northern Helex Company (formerly

Helex Company) and Phillips, the parties to the four con-

tracts recited in the foregoing paragraph.

W-3159.

The named original plaintiffs in this action are Ralph

Grounds and Henry Hitch, Jr. Intervening plaintiffs are

Robert Adams, C. Dale Duer, Hubert R. Elrod, Ruth F.

Fischer, Zuba D. Jefferis, Alonzo C. Robinson, the John A.

Spohn Estate, W. D. Ross and Herb Williams. These parties

appear individually and as representatives of the class of

plaintiff as defined in the preceding case, W/-3009. Again,

the United States is the sole defendant, and it has impleaded

as third-pa:ty defendants the same four corporations im-

pleaded in the preceding case, W-3009.

CLASS ACTIONS

The Court has, in the light of the evidence and recent de-

cisious, reconsidered its rulings designating certain named

representatives of described classes for the prosecution and

defense of certain claims in each of the consolidated cases.

The basic prerequisites for maintenance of a class action

are stated in Rule 23(a), F.R.Civ.P.:

““(a) Prerequisites to a Class Action. One or more mem-

bers of a class may sue or be sued as representative parties

on behalf of all only if (1) the class is so numerous that

joinder of all members is impracticable, (2) there are

question of law or fact common to the class, (3) the claims

47 Dkt. 1135, KC-1969.

or defenses of the representative parties are typical of the

claims or defenses of the class, and (4) the representative

parties will fairly, and adequately protect the interests of

the class.”

In addition, the action must satisfy one or more of four pre-

requisites stated in Rule 23(b).

By order filed January 16, 1947,4° the Court defined the

classes of landowners and lessee-producers in each inter-

pleader case as set out supra under the heading, ‘‘Parties.” In

addition, we defined the class of plaintiff landowners in

W-3009 and W-3159. As to each class, we found that the

class was so numerous that joinder of all members was im-

practicable, that there were questions of law or fact common

to each class, that the claims and defenses of the representa-

tive parties in each class were typical of the claims and de-

fenses of the class, that the representative parties would

fairly and adequately protect the interests of the class.

We found further as to each class that the further pre-

requisites of Rule 23(b) (1) (A) and (B) were met, in

that prosecution of separate actions by or against individual

members of the class would create a risk of:

‘“*(A) inconsistent or varying adjudications with respect to

individual members of the class which would establish in-

compatible standards of conduct tor the party opposing,

the class, [and]

‘*(B) adjudications with respect to individual members of

the class which would as a practical matter be dispositive of

the interests of the other members not parties tc the adjud-

ications or substantially impair or impede their ability to

protect their interests; ....”

A separate finding was made as to the class of lessee-

producers in KC-1980, on the ground that claims by and

48 Dkt. 1135, KC-1969.

against members of that class met the prerequisite of Rule

23(b) (3), in that “questions of law or fact common to the

members of the class predominate over any questions affect-

ing only individual members, and a class action is superior to

other available methods for the fair and efficient adjudication

of the controversy.”49 We adopt these findings herein.

In our view, these actions are eminently suited to class pro-

ceedings. There are estimated to be approximately 30,000

persons who receive income from the production of helium-

bearing natural gas from which helium is extracted, by virtue

of ownership of land, mineral interest, and/or royalty or

other interests. These cases have required lengthy, extensive

and costly discovery proceedings, the expenditure of many

hours in legal research, assembly and preparation of exhibits,

numerous pretrial appearances, in addition to the conduct of

a forty-three day trial. [Counsel for landowners state that

their expenditures to date exceed $90,000.] To require

thousands of individual landowners to present their claims

to the fund individually would encumber these interpleader

actions with procedural and other complexities of perhaps

unmanageable proportions. Likewise, in cases W-3009 and

W-3159, the class proceeding permits the economical and

expeditious resolution of many claims in one proceeding.

As stated in Eisen v. Carlisle & Jacqueliv. 391 F.2d 555

(2nd Cir. 1968) : ~

“Class actions serve an important function in our judicial

system. By establishing a technique whereby the claims of

many individuals can be resolved at the same time, the

class suit beth eliminates the possibility of repetitious liti-

gation and provides small claimants with a method of ob-

49 Dkt. 66, KC-1980.

taining redress for claims which would otherwise be too

small to warrant individual litigation.” 391 F.2d at 560.

Likewise, the lessee-producers are very numerous. Each inter-

pleading pipeline it is estimated has several hundred gas

purchase contracts in the area. Joinder of vendors under all

these contracts would be impracticable and unnecessary.

Cities takes the position that the landowner representa-

tives cannot adequately represent the entire class of land-

owners, because of alleged conflicting and antagonistic

interests between two subgroups of the class, those whose

recovery depends entirely upon a determination that helium

is ‘‘gas” within the terms of mineral conveyances, oil and gas

leases, unitization agreements and like documents, and those

whose recovery would be enhanced by a determination that

helium is zot “gas” within the terms of such documents.

Certain lessee-producers argue that the landowner class

cannot sue or be sued as a class unless they are divided into

seven sub-classes as authorized by Rule 23(c) (4).

Of the recited sub-classes, five claim in common that

leases do not cover helium. Within those five sub-classes,

there is no antagonism or conflict of interest between those

who may claim all or only a proportionate share of helium

or the proceeds from its sale. Lessee-producers envision two

sub-classes as claiming that leases do cover helium, and

claiming in addition that lessee-producer gas purchase con-

tracts provide no payment for helium contained in natural

gas delivered thereunder. We would point out that these two

sub-classes would also recover if leases were found mot to

cover helium. We fail to perceive any antagonism or conflict

50 See, e.g, Dkt. 1047, KC-1969.

= ~~~ . ~~. -—

of interest among the sub-classes with respect to the issues

here involved.

Landowners in pleading and presenting their case have

sought recovery on alternative propositions: One, that the

leases do not convey helium; the other, that they do, but that

landowners have not been paid therefor. The Court remains

convinced that there is no occasion to create seven sub-classes

among landowners to present separately, two alternative and

mutually exclusive theories, which have both been most ably

investigated, pleaded and tried by counsel in behalf of the

landowner class.

In Cases W-3009 and W-3159, the United States denies

that ‘‘all owners of lands or mineral interests from which

helium-bearing natural gas is produced which is the subject

matter of this action comprise a class which can be represent-

ed by the named plaintiffs (Landowners) in this action.”?!

The United States does not specify in what particular zespects

the representive parties, or their counsel, fail to represent

adequately the absent members of the class, or in what re-

spect their claims and defenses are not typical of those absent

persons. For the reasons stated supra in this section, we re-

main of the view that the claims of representative landown-

ers are typical of those of absent members, that they raise

questions of fact and law common to the class, and that the

representative parties have fully represented and protected

the interests of the entire class.

Lessee-producers have renewed objections to orders of the

court, all entered prior to July 1, 1966, finding that land-

owners constituted a ‘‘true” class in each of the interpleader

51 Pre-Trial Order, W-3009, W-3159, p. 13, {] 2 of each case.

cases.>* Rule 23 as amended became effective July 1, 1966,

and was applied to all Sending cases in subsequent class

rulings. However, the order of January 16, 1967, in which

the classes were defined, provided that “‘classes previously

defined by the court in regard to claims of . . . Northern

Natural Gas Company and Northern Helex Company in

KC-1969 and claims of third-party plaintiff Panhandle

Eastern Pipe Line Company in KC-1980 are not affected by

this order.” The class of landowner defendants in KC-1980

was previously denominated a “true” class.?? This categori-

. zation was important under the old rule principally for iden-

tifying persons bound by the judgment, and helping in turn

to determine the res judicata effect of the judgment if ques-

tioned in a later action. See Notes of Advisory Committee

on Rule 23. We determine tnat the extent of the judgment

in this case is to be governed under Rule 23 as amended.

These objections are thus mooted. |

Lessee-producers object to the court’s order that Pari-

handle’s third-party complaint in KC-1980 be maintained

against them both individually and as representatives of a

class of approximately 540 producers who sell natural gas

to Panhandle which is processed for helium extraction. Main-

tenance of this complaint against the third-party defendants

as a class was ordered under Rule 23 (b) (3), for which the

court made the requisite finding that “‘questions of law or

fact common to the members of the class predominate over

any questions affecting only individual members, :and a class

action is superior to other available methods for the fair and

52 Dkt. Nos. 535-538, 649, KC-1969.

53 Dkt. 649, KC-1969.

efficient adjudication of the controversy.”?4 Accordingly, the

court directed notice be given to absent members of the class.

Rule 23 (b) (3) recites four “non-exhaustive factors” to

be considered in authorizing a class proceeding under that

subsection:

*“(A) the interest of members of the class in individually

controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning

the controversy already commenced by or against mem-

bers of the class; (C) the desirability or undesirability of

concentrating the litigation of the claims in the particular

forum; (D) the difficulties likely to be encountered in the

management of a class action.”

At no time prior to trial did it appear that any individual

meinber of the class had any interest in exercising separate

control over the prosecution or defense of any claim, that

any prior litigation existed between Panhandle and any

member of the lessee-producer class respecting the issues

raised in the third-party complaint, that it was not desirable

and in the interest of expedition and economy of litigation

to concentrate litigation of Panhandle’s claims against all its

gas vendors in one particular forum, or that a class proceed-

ing would occasion any special difficulties. Moreover, it was

clear that questions of law and fact common to members of

that class predominated over questions affecting only indi-

vidual members, and that permitting maintenance of the

claims of Panhandle’s gas vendors to the fund in the inter-

pleader action was superior to any other available method for

the fair and efficient adjudication of the lessee-producers’

claims to that fund in KC-1980. After trial, with the benefit

54 Dkt. 66, KC-1980; See Motion, Dkt. 58, KC-1980.

of hindsight, the court remains convinced of the correctness

of the order regarding the class of lessee-preducers in KC-

1980, and we decline to disturb it.

We find that the representation of the interests of both

classes is fully adequate, on at least two grounds. First the

representation by counsel for both the landowner and lessee-

producer classes has been of the highest quality. Their pre-

sentation reflected diligent, careful, and incisive attention to

the interests of the class. In addition to the most careful

investigation by deposition, interrogatories ‘and other dis-

covery of facts, they have explored fully, in evidence, briefs

and arguments, v-hat must surely be every conceivable theory

which the facts could possibly support.

Secondly, the very number of representative parties is

substantial. There are over 200 named landowner claimants

in KC-1945; seven in KC-1946; six in KC-1947; 45 in

KC-1948; over 500 in KC-1969; and over 300 in KC-

1980, in addition to those named in W-3009 and W-3159,

some of whom appear in the interpleader cases, also. Thus,

in toto, Over one thousand landowners advanced claims in

their own behalf and that of others similiarly situated in

all these consolidated cases.

Lastly, we turn to the question of notice to the members

of the landowners and lessee-producer classes to whom the

court has not yet directed notice to be given, which includes

all except the lessee-producer class in KC-1980. In our order

filed January 16, 1967,>? the court found that the claims of

all the classes met the requirements of Rule 23 (b) (1)

55 Dkt. 1135, KC-1969.

(A) and (B), and that accordingly notice to absent mem-

bers of those classes was not required at that stage of the

case, prior to trial on the issues of liability alone. This hold-

ing was based on the view that notice to absent members was

required only when the class proceeding was founded upon

Rule 23 (b) (3).

Subsection (c) (2) provides as follows:

“In any class actic . maintained under subdivision (b) (3),

the court shall direct to the members of the class the best

notice practicable under the circumstances, including in-

dividual notice to all members who can be identified

through reasonable effort. The notice shall advise each

member that (A) the court will exclude him from the

class if he so requests by a specified date; (B) the judg-

ment, whether favorable or not, will include all members

who do not request exclusion; and (C) any member who

does not request exclusion may, if he desires, enter an ap-

pearance through his counsel.”

Absent requirement of notice in class proceedings under

Rule 23(b) (1) and (2), we regarded notice as mandatory

only for class proceedings under 23(b) (3). The Court of

Appeals for the Second Circuit in May, 1968, addressed

itself to this point, thus:

“We must also note that plaintiff’s effort to qualify the

action under 23(b)(1) and -23(b) (2) was induced by

his erroneous theory that notice is not ‘mandatory’ under

these sections. This theory is based on the assumption that

23(c) (2) provides the only ‘mandatory’ notice required

by the new rule. Since this particular section refers exclus-

sively to actions brought under 23(b) (3), other suits

cognizable under either 23(b) (1) or 23(b) (2) would

only be subject to ‘discretionary’ notice under 23(d) (2).

Nevertheless, we hold that notice is required as a matter of

due process in all representative actions, and 23(c) (2)

merely requires a particularized form of notice in 23 (b)

(3) actions. .. .” Eisen v. Carlisle & Jacquelin, 391 F.2d

S5§ at 564-565 (2nd Cir. 1968) [Footnotes and citations

omitted. ]

We think that the essential requisite of due process as to

absent members of the class is not notice, but the adequacy

of representation of their interests by named parties. As

stated in Dolgow v. Anderson, 43 F.R.D. 472 (E.D.N.Y.

1968):

“The Supreme Court has indicated that ad. quacy of repre-

sentation, not torm of notice, is the crucial consideration.

See Hansberry v. Lee, 311 U.S. 32, 42, 61 S.Ct. 115, 118,

85 L.Ed. 22 (1940) (‘this Court is justified in saying that

there has been a failure of due process only in those cases

where it cannot be said that the procedure adopted, fairly

insures the protection of the interests of absent parties who

are to be bound by it.’)” [Emphasis by the court.] 43

F.R.D. at 500.

We cannot, of course, determine the res judicata effect of the

judgment entered herein, but we deem in the public interest

that the extent of the judgment be as broad as constitution-

ally permissible. We think this interest will be best served

by directing that “the best notice practicable under the cir-

cumstances”’ be given ali members of the class of landowners

and lessee-producers, prior to entry of judgment, ayprising

them of the extent of the proposed judgment and providing

any member thereof adequate time to signify his dissatisfac-

tion with the adequacy of representation of his interest, and

to advance any new claim to the interpleader fund, or against

the United States which arises out of his status as a member

of the described class and which has not been adjudicated

herein.

The present view of the Court is that the best notice prac-

ticable includes individual notice to all members of each

bee a tal ag ;

class, and that this can be accomplished with “reasonable

effort.”

JURISDICTION

The basic jurisdiction of the Court is premised upon 28

U.S.C. Section 1335; 1397 and 2361.

Jurisdiction of the six interpleader cases is founded upon

28 U.S.C. Section 1335, which provides as follows:

(a) The district courts shal! have original jurisdiction of

any civil action of interpleader or in the nature of inter-

pleader filed by any person, firm, or corporation . . . hav-

ing in... its custody or possession money or property of

the value of $500 or more, . . . or being under any obliga-

tion written or unwritten to the amount of $500 or more,

(1) Two or more adverse claimants, of diverse citizen-

ship as defined in Section 1332 of this title, are claiming

or may claim to be entitled to such money or property,

or to any one or more of the benefits arising by virtue of

any note, bond, certificate, policy or other instrument, or

arising by virtue of any such obligation; and if (2) the

plaintiff has deposited such money or property or has paid

the amount of or the loan or other value of such instrument

or the amount due under such obligation into the registry

of the court, there to abide the judgment of the court, or

has given bond payable to the clerk of the court in such

amount and with such surety as the court or judge may

deem proper, conditioned upon the compliance by the

plaintiff with the future order or judgment of the court

with respect to the subject matter of the controversy.

(b) Such an action may be entertained although the titles

or claims of the conflicting claimants do not have a com-

mon origin, or are not identical, but are adverse to and in-

dependent of one another.”

In State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 18

L.Ed.2d 270, 87 S.Ct. 1199 (1967), the Court established

the principle that in interpleader actions under § 1335, only

“minimal diversity” is required, that is, diversity of citizen-

ship between any to adverse claimants. Such diversity exists

in these cases.

By the terms of the above statute, jurisdiction is depen-

dent upon deposit of the money or property in court by the

interpleading party, or else the giving of bond “with such

surety as the ccurt or judge may deem proper.” Farmers

Elevator Mutual Insurance Company v. Jewett, 394 F.2d

896 (10th Cir. 1968).

In KC-1945, Cities Service Gas has given bond in the

sum of $16,000, with proper surety,** and Cities Service

Helex gave like bond upon entry into the case.>” Cities Ser-

vice Helium (now Cryogenics), joined as an involuntary

plaintiff, filed no bond, so far as appears. In KC-1946,

-1947, -1948, Cities Service Gas and Cities Service Helex

each filed the following respective bonds: $15,000;58

$12,000;7? $32,000. In KC-1969, Northern Natural Gas

and Northern Helex jointly filed a bond, with surety, of

$100,000.°! In KC-1980, National Helium filed bond with

surety of $100,000. Ashland Oil & Refining Company

moved December 15, 1966, to enlarge the bonds in case

KC-1947,-1969, and -1980, to not less than $75,000,000,

$75,000,000, and $110,000,000, respectively,2 these

sums based on movant’s estimates that during a period of six

years projected to elapse from the commencement of helium

56 Dkt. 5, KC-1945.

57 Dkt. 48, KC-1945.

58 Dkts. 5, 37, KC-1946.

59 Dkts. 5, 39, KC-1947.

61 Dkt. 5, KC-1969.

62 Dkt. 1095, KC-1969.

extraction operations and sales by the interpleading plain-.

tiffs in those cases until judgment herein, proceeds by

the plaintiffs would total approximately $64,000,000,

$67,000,000, and $107,000,000, respectively. After argu-

ment, the motion was withdrawn.® Shortly thereafter, coun-

sel for Cities Service Gas Company filed an order reciting a

statement and agreement made in open court that “Cities

Service Gas Company would be responsible for and would

pay and satisfy any final money judgment against Cities

Service Helex, Inc. or Cities Service Cryogenics, Inc., in this

action which is not otherwise paid or satisfied,” the cap-

tioned case being KC-1946 only.

The Interpleaded Funds

It has been generally agreed since the commencement of

these cases that the funds involved consisted of the proceeds

from the sale of helium. The interpleading plaintiffs have

been and presently are making sales of helium only to the

United States.

The Court finds that in cases KC-1945 through KC-

1948, the fund consists of all proceeds received and to be

received by Cities Service Helex, Inc., from the United States

as payment for helium contained in a helium-gas mixture

delivered to the United States pursuant to that contract be-

tween the United States and Cities Service Helex, Inc.,

executed August 22, 1961. Stated otherwise, the subject

matter of these four cases consists of the obligation of Cities

Service Felex, Inc., to pay the proceeds received by it from

the sale of helium to the United States or to any other pur-

63 Dkt. 1137, KC-1969.

64 Dkt. 1139, KC-1969.

chaser, to any person found to be the owner of such helium,

or to be otherwise entitled to participate in such proceeds.

The Court further finds that the fund interpleaded in

KC-1969 consists of all proceeds received or to be received

by Northern Helex, Inc. (formerly Helex, Inc.) as payment

for helium contained in a helium-gas mixture delivered to

the United States under that contract between the United

States and Helex, Inc., dated August 15, 1961. Stated other-

wise, the subject matter of the action consists of the obliga-

tion of Northern Helex, Inc., to pay the proceeds received

by it from the sale of helium to the United States, or to any

other purchaser, to any person found to be the owner of such

helium, or to be otherwise entitled to participate in such

preceeds.

The Court further finds that the fund interpleaded in

KC-1980 consists of all proceeds received and to be received

by National Helium Corporation from the United States as

payment for helium contained in a helium-gas mixture

delivered to the United States under a contract executed

October 18, 1961. Again, stated more broadly, the subject

matter of the action consists of the obligation of National

Helium to pay the proceeds received by it as payment for

helium sold to the United States or to any other purchaser,

to any person found to be the owner of such helium, or to

be otherwise entitled to share in the proceeds of its sale.

The foregoing funds were not those initially interpleaded

by plaintiffs in the Cities cases and in KC-1980. The land-

Owners moved to dismiss all six interpleader actions for want

of jurisdiction, arguing, inter alia, that the funds before the

Court did not include the amounts received by the inter-

States. The Court overruled this motion, stating that the

“subject matter in controversy as contemplated by the in-

terpleader statute is the claim of ownership under the min-

eral leases of the helium produced and marketed.” This

ruling was affirmed in Grounds v. Northern Natural Gas

Co., 327 F.2d 1003 (10th Cir. 1964) (per curiam).

Subsequent to this ruling, the subject fund was more

precisely defined and enlarged. By order filed January 10,

1967, the fund in the Cities cases (KC-1945, -1948) was

defined thus:

| pleading plaintiffs from the sale of helium to the United

| “Counsel for plaintiffs [the Cities group] states that the in-

| terpleaded fund involved in such four law suits, is the pro-

il ceeds from the sale of all the helium which has been or is

| being extracted by Cities Service Helex, Inc.’’65

| In KC-1980, plaintiff National Helium interpleaded at

| the outset only its obligation to pay to Panhandle $2.06

| | per Mcf for helium extracted from the gas stream belonging

| | to Panhandle. It did not interplead the monies received for

| its sale to the United States. In the commencement of that

il action, however, National Helium sought and obtained an

1 injunction against further prosecution of a declaratory judg-

il ment action in an Oklahoma state court, in which plaintiffs

sought a determination that they were the owners of and

entitled to the net value of all helium sold by National

1 Helium to the United States, thus putting in issue in that

state court case the right to entire payments for helium re-

ceived by National Helium for helium sales to the United

States. The discrepancy between the scope of the two cases

- 65 Dkt. 1114, KC-1969.

was raised at a hearing April 20, 1964, after the Tenth Cir-

cuit ruling supra. Counsel for National Helium then stated

that “if the pleading (in KC-1980) is not as broad as the

pleading in the State Court so that the issues are not the

same, that we will make them the same.”’ Counsel stated

further at that hearing:

“Your Honor, what I have been trying to say was that in

the National Helium case, at least, we look upon the liability

of National Helium as the value of the helium, whatever

it may be, more or less. I mean it might be more than eleven

dollars. It might be less. We acecpt the liability of National

Helium for the value of the helium and that ought to clear

the air as far as National Helium goes.”’66

Although examination of the files discloses no amendment

of the pleadings, we cannot but conclude from the forego-

ing that the interpleaded fund in KC-1980 is as we have

determined it to be.

Jurisdiction of Landowners’ Cross-Claims.

The landowners’ claim to the fund rests on one of two

theories; first, that oil and gas leases in which they hold

interests and under which natural gas is produced do not

convey helium as a constituent of the “gas” leased there-

under, and secondly, that the Helex companies are unjustly

enriched by monies received by them from the sale of helium.

In addition to their claims against the fund, however,

landowners have asserted cross-claims against the lessee-

producers, the assertion of which is contingent upon a find-

ing that landowners have no interest in the interpleaded

funds themselves. Landowners urge that if the leases do

cover helium, first that they have not been paid the proper

6 Tr. 10:780-781.

royalties therefor under the fractional royalty provisions

of the leases, and are entitled to recover royalties based upon

the fair and reasonable value of helium as attained by reason

of its severance from the stream and subsequent marketing;

alternatively, landowners urge that the lessee-producers have

failed to market helium produced under such leases with

reasonable diligence, and seek cancellation of the leases as to

the helium portion of the gas stream.

Rule 13(g) F.R.Civ.P. provides thus:

“A pleading may state as a cross-claim any claim by one

party against a co-party arising out of the transaction or

occurrence that is the subject matter either of the original

action or of a counterclaim therein or relating to any prop-

erty that is the subject matter of the original action. Such

cross-claim may include a claim that the party against

whom it is asserted is or may be liable to the cross-claimant

for all or part of a claim asserted in the action against the

cross-claimant.”

Lessee-producers urge that these cross-claims do not relate

to the ‘property that is the subject matter of the action,” the

proceeds received by the plaintiffs from the sale of helium,

that these claims are not ancillary to the interpleader subject

matter, that in fact, they are alternative claims not against

the fund nor the holders thereof, but against co-claimants

founded upon independent contracts, the leases, recovery

upon which claims would leave the interpleaded funds

intact, and would further require, the granting of in person-

am judgments against the lessee-producers, which is beyond

the jurisdiction of the cuurt in statutory interpleader actions.

In Knoll v. Socony Mobil Oil Company, 369 F.2d 425

(10th Cir. 1966), cert. denied, 386 U.S. 977, 18 L.Ed.2d

138, 87 S.Ct. 1173 (1967), the Court stated thus:

“A related jurisdictional issue is whether the tria! court

erred in enjoining appellants from asserting any title in or

to the ‘above described property’ in any manner incon-

sistent with the terms of its order and judgment. This was

an in personam exercise of jurisdiction. In an interpleader

action, however, in personam jurisdiction extends only to

the fund deposited with the court. Since the trial court was

limited to disposition of the res, we must Lold that the

court lacked jurisdiction to enter this order.” 369 F.2d at

429.

The fund before the Court in that case was the money held

by Mobil and owing to the true owners of certain property

and lease-hold rights therein, from which it had produced

oil. The injunction extended beyond the res, precluding

claimants from asserting any title in the realty itself.

In Erie Bank v. United States Disrtcit Court for the Dis-

trict of Colorado, 362 F.2d 539 (10th Cir. 1966), the

Court held that in an interpleader action in which the plain-

tiff asserted no claim to the deposited fund, it lacked juris-

diction over a counterclaim by a claimant against the dis-

interested stakeholder on the ground that the latter was not

an “opposing party” within Rule 13. It would appear to

follow tiiat when the stakeholder was himself an interested

party, a counterclaim would be not only permissible. under

Rule 13, but compulsory thereunder, and the Court would

be empowered to enter judgment on such counterclaim.

As to landowners’ cross-claims, however, for additional

royalties on helium or on the value of natural gas as allegedly

enhanced by the presence of helium, and for cancellation of

leases as to helium for failure to market same, we must

agree with the lessee-producers that those claims do not

relate to the subject matter of the action. It is true that land-

owners’ claims are founded upon the identical leases upon

which lessee-producers base, in important part, their claims

to the fund. In interpleader actions, however, the “subject

matter of the action” is not a set of facts, a transaction or

other occurrence which gives rise to litigation, but a specific

identified fund or property. Claims must not only “relate’’

to that property, but be asserted against it, as we view the

present law of this Circuit.

This is a type of case of which the Supreme Court spoke

in State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 18

L.Ed.2d 270, 87 S.Ct. 1199 (1967), “where a stakeholder,

faced with rival claims to the fund uself, acknowledges—

or denies—his liability to one or the other of the claimants.

In this situation, the fund itself is the target of the claimants.

It marks the outer limits of the controversy.” 386 US. at

534, 18 L.Ed.2d at 277. [Emphasis supplied.] [Footnote

omitted.] We therefore lack jurisdiction over the land-

owners’ cross-claims against their lessee-producers.

Jurisdiction of Pipeline Counterclaims.

The lessee- roducers claim the fund on the ground that

helium, a non-combustible and non-hydrocarbon component

of the gas stream, did not pass to the pipeline companies

under the gas purchase contracts between the parties. Ac-

cordingly, the pipeline companies, Cities Service Gas,

Northern Natural and Panhandle have asserted counter-

claims against the lessee-producers on their warranties of

title in contracts with pipeline companies contingent upon

the recovery by the producers of the funds.

These claims are twofold: First, it is asserted that war-

ranties of title in the parties’ gas purchase contracts extend

2, | -

to the full gas stream, and that if onlv the hydrocarbon

portion passed thereunder, the lessee-producers must respond

to the purchasers for breach of warranty respecting the bal-

ance of the stream. Alternatively, pipeline companies seek

recovery from each of the lessee-producers of that percentage

of all payments made under the gas purchase contracts which

the volume of non-combustible constituents including he-

lium bears to the volume of the total stream.

These counterclaims are founded upon the identical gas

purchase contracts under which the lessee-producers claim

the fund. They arise out of the “transaction . . . that is the

subject matter of the opposing party’s claim,” or they relate

to property that is the subject matter of the original action.

We conclude that these counterclaims are permissible under

Rule 13, insofar as they affect the rights of the parties to

participate ir the fund.

Jurisdiction of Claims Asserted A gainst the "/nited States.

An additional jurisdictional problem is raised in the ac-

tions by landowners against the United States. The United

States denies first that the landowners constitute a class, a

question we have heretofore disposed of,67 and contends

further that the United States is not subject to suit by a class.

In each of these cases, the landowners assert two separate

claims against the government. First, they asscct owner-

ship of the helium being delivered to the United States by

each of the helium extracting companies, and urge that the

United States has appropriated and converted helium so

delivered to its own use, and must respond to plaintiffs for

67 Page 21, supra (Class Actions).

the fair, just and reasonable value of same. Jurisdiction for

this claim under the Tort Claims Act is asserted under 28

U.S.C. § 1346(b), which confers upon the district courts

exclusive jurisdiction of:

“civil actions on claims against the United States, for money

damages, ... for injury or loss of property, or ~ersonal in-

jury or death caused by the negligent or wrougful act or

omission of any employee of the Government while acting

within the scope of his office or employment, under cir-

cumstances where the United States, if a private person,

would be liable to the claimant in accordance with the law

of the place where the act or omission occurred.”

Plaintiffs’ second claim commingles theories of third-

party beneficiary rights and reverse condemnation. It is

alleged that the United States has acquired possession of the

helium-gas mixture received from its vendors by the exercise

of its power of eminent domain, and further that the con-

tracts under which the United States purchases helium pro-

vide for payment therefor to the owners thereof, and that as

such owners, the plaintiffs are third-party beneficiaries there-

of. Jurisdiction for this second claim under the Tucker Act

is asserted under 28 U.S.C. ‘ 1346(a) (2), which confers

upon the district courts, concurrent with the Court of Claims,

jurisdiction over the following cases:

(2) Any other civil action [other than enumerated tax-

related actions] or claim against the United States, not ex-

ceeding $10,000 in amount, founded either upon the Con-

stitution, or any Act of Congress, or any regulation of an

executive department, or upon any express or implied con-

tract with the United States, or for liquidated or unliqui-

dated damages in cases not sounding in te:t.”

Although landowners alleged that no individual claim may

exceed $10,000, they have stipulated that claims of some

individuals exceed that sum.®8

The defendant United States asserts that the United States

is not liable to suit by a class without its consent, that since

neither § 1346(b) or § 1346(a) (2) makes express provi-

sion for suit by a class, no such consent has been given. The

government invokes the principle that statutory waivers of

sovereign immunity are strictly construed, that waivers are

not lightly implied, and that no justification exists for imply-

ing such a waiver in favor of a class of plaintiffs, most of

whom are not identified.

It is further argued that under the Tucker Act,68* and its

predecessor statutes dating back to 1855, no court has grant-

ed relief in a class action against the government, and that

neither the Tucker Act nor the Tort Claims Act adopted in

1946 has been amended by Congress to provide for such

proceedings. Defendant further complains of the burden

falling upon the government by the difficulties of payment

of judgments in favor of a large class of plaintiffs, many of

whom are not now identified. Payment of persons holding

judgments against the United States rendered in the district

courts is authorized in 28 U.S.C. § 2414, payments to be

made on settlements by the General Accounting Office upon

certification by the Attorney General‘that the judgment is

final, that is, that no appeal will be taken therefrom or that

no further review will be sought of a decision affirming the

same. This burden does not seem substantial. Rule 23 re-

quires that “[t]he judgment in an action maintained as a

—— -—--

68 Dkt. 527, KC-1969; See Government’s Brief, Dkt. 892, KC-1969; Dkt.

No. 59, W-3009.

68a Act of March 3, 1887, c. 359, 24 Stat. 505.

class action under subdivision (b)(1) or (b) (2), [the

instant case] whether or not favorable to the class, shall

include and describe those whom the court finds to be mem-

bers of the class.”

Notwithstanding that Rule 1, F.R.Civ.P., provides that

“[t]hese rules govern the procedure in the United States

district courts in a// suits of a civil nature . . . with the excep-

tions stated in Rule 81,” (none of which apply) [emphasis

suppled] it is argued that absent an express consent to suit

by a class, no jurisdiction exists, and that under Rule 82, the

rules “shall not be construed to extend . . . the jurisdiction of

the United States district courts.” In United States v. Sher-

wood, 312 U.S. 584, 61 S.Ct. 767, 85 L.Ed. 1058 (1941),

the Court stated:

“The jurisdiction thus limited [by the Tucker Act] is un-

affected by the Rules of Civil Procedure which prescribe

the methods by which the jurisdiction of the federal courts

is to be exercised, but do not enlarge the jurisdiction.” 312

USS. at 591, 85 L.Ed at 1064.

The Court stated further that the Tucker Act “must be

interpreted in the light of its function in giving consent of

the Government to be sued, which consent, since it is a

relinquishment of a sovereign immunity, must be strictly

interpreted.” 312 U.S. at 590, 85 L.Ed. at 1063.

The Court again addressed itself to the canon of strict con-

struction in United States v. Yellow Cab Co., 340 USS. 543,

95 L.Ed. 523,71 S.Ct. 399 (1951), where it stated, quoting

United States v. Aetna Cas. & Surety Co., 338 U.S. 366, 383,

94 L.Ed. 171, 186, 70 S.Ct. 207, 12 A.L.R. 2d 444

(1949):

“In argument before a number of District Courts and

£ NEOUS IRE RS nee

Courts of Apyeals, the Government relied upon the doc-

trine that statutes waiving sovereign immunity must be

strictly construed. We think that the congressio.al attitude

in passing the Tort Claims Act is more accurately reflected

by Judge Cardozo’s statement in Anderson v. Hayes Con-

struction Co., 243 N.Y. 140, 147, 153 N.E. 28, 29-30:

“The exemption of the sovereign from suit involved hard-

ship enough where consent has been withheld. We are not

to add to its rigor by refinement of construction where

consent has been announced.” ’ ” 340 U.S. at 55 4, 95 L.Ed.

at 532.

In Capital Transit Co. v. United States, companion case to

and decided with Yellow Cab, supra, the defendant sought

to implead the United States as a third-party defendant, as a

joint tort-feasor obligated to contribute to any judgment

ultimately won by the plaintiff. The lower court dismissed

the third-party complaint, holding it barred on the ground

that no consent to such suit had been given. The Court re-_

versed, holding that, having decided in the companion case

that the government could be sued for contribution in an

independent action, such right could be enforced by way of

third-party complaint, and that the third-party practice pro-

vided for by Rule 14 was applicable to suits against the

United States. In United States v. Muniz, 374 U.S. 150, 166,

10 L.Ed.2d 805, 817, 83 S.Ct. 1850 (1963), the Court

reaffirmed its holding in Rayonier, Inc. v. United States,

352 U.S. 315, 1 L-Ed.2d 354, 77 S.Ct. 374, that “ ‘[t]here

is no justification .. . to read exemptions into the Act beyond

those provided by Congress. If the Act is to be altered that is

a function for the same body that adopted it.’” The rule of

strict construction is not one of narrow construction. The

prevailing trend of decision is canvassed in City of Pittsburgh

v. United States, 359 F.2d 564 (3d Cir. 1966):

“Although at one time the doctrine of sovereign immunity

had such vitality that a waiver of it was strictly construed

(See United States v. Sherwocd, 312 U.S. 584, 590, 61 S.Ct.

767, 85 L.Ed. 1058 (1941) ), the purpose of the Federal

Tort Claims Act to permit those injured by the negligence

ot employees of the United States to recover damages to

the same extent as if the United States were a private per-

son expresses so strong a public policy that the statute has

been deemed to be highly remedial and has received a lib-

eral construction. [Citations omitted.] This overriding

purpose, expressed in the statute, has provided the guide

to the interpretation of the Act, and it has been applied in

some circumstances where its literal language might have

resulted in a restricted meaning. .. . [T]he view has ulti-

mately prevailed that the United States may be sued by a

subrogee of the injured party, by an.indemnitee who has

paid the injured party’s claim, and that it may be joined

originally with other defendants as a joint tort-feasor, and

may also be impleaded as a third-party defendant to en-

force contribution against it as a joint tort-feasor.” 359

F.2d at 567 [Footnotes omitted. ]

Strictly speaking, the permissibility of a class action under

the Tort Claims Act does not require construction of the

language of the Act, for it is silent on the question. In sub-

stance, the government asks the Court not to cunstrue the

Act strictly or narrowly, but to create a judicial exemption

from it. Neither the plaintiff nor defendant have pointed to

any real increased procedural burden upon the government

resulting from the defense of a class action.

Given the remedial purpose of the Tort Claims Act, and

indeed of the Tucker Act, the application of Rule 23 to

actions thercunder against the United States seems particu-

larly appropriate. As stated in Eisen v. Carlisle G Jacquelin,

391 F.2d 555 (2nd Cir. 1968):

“Class actions serve an important function in our judicial

system. By establishing a technique whereby the claims of :

many individuals can be resolved at the same time, the class ;

suit both eliminates the possibility of repetitious litigation

and provides small claimants with a method of obtaining ‘

redress for claims which would otherwis> be too small to é

warrant individual litigation.” 391 F.2d ac 560.

Quoting academic commentary on the device, the court in

Dolgow v. Anderson, 43 F.R.D. 472 at 484 (EDN.Y.

1968 ), noted that the class action is “ particularly appropri-

ate where those who have allegedly been injured ‘are in a

poor position to seek legal redress, either because they do

not know enough or because such redress is disproportionate-

ly exp-znsive.’”” The instant cases are excellent examples,

where only an exceptionally circumstanced landowner could

afford the lengthy, extensive and costly preparation and

litigation involved.

Given the silence of either the Tucker Act or the Tort

Claims Act on the propriety of class proceedings, the absence

of any apparent substantial burdens sustained by the govern-

ment in defending such actions, the economy of litigation

achieved thereby, and the enhanced access of small claimants

to legal redress against the government, we hold that juris-

diction does not fail under 28 U.S.C. § 1346(a) (2) and

(b) because plaintiffs have sued as a class.

One question remains concerning jurisdiction under the

Tucker Act, which confers jurisdiction over a “‘civil action or

claim against the United States, not exceeding $10,000 in

amount, .. .” If the stated jurisdictional limit for actions

against the United States in the district courts under the

Tucker Act applies to the entire sum sought to be recovered

from the government in the action, then jurisdiction for

plaintiffs’ claim under the Tucker Act lies only in the Court

of Claims. If the jurisdictional monetary limit applies on!y

to the claim of each individual plaintiff, we have jurisdiction

of all claims not exceeding $10,000. No authority is cited

on this issue, and independent research discloses none. We

hold for the reasons set forth above that the jurisdictional

monetary limit zpplies to the claim of each member of the

class and w< therefore have jurisdiction over the claims not

exceeding $10,000 asserted under the Tucker Act.

As indicated, supra, piaintiffs have commingled two

theories in their clain. under the Tucker Act, claiming stand-

ing thereunder first as third-party beneficiaries of the con-

tracts of the United States with each of the helium extraction

companies, and secondly, as owners of property acquired by

the government by exercise of its powers of eminent domain

without paying just compensation therefor.

Each of the contracts upon which plaintiffs rely provides

that if the vendor of helium is required to make payments to

other persons for helium extracted by them and sold to the

United States, or for the acquisition of helium in natural gas,

the United Staies will reimburse each for such amounts,

with the companies themselves bearing approximately the

first $3.00 per Mcf of the costs of such reimbursement. The

obligation of the United States runs only to its contractors,

and sayménts are réquired to be made only to such com-

panies in the amounts those companies themselves have

paid, less approximately $3.00 per Mcf. Payments by the

United States io any one of its contractors under these reim-

bursement provisions is triggered, as it were by first, a deter-

_— ee see

mination of the company’s liability to persons found to be

entitled to such compensation for the helium, and secondly,

by actual payment therefor. The need for adjudication of

liability may be waived by the United States, by consenting

to such payments. Once thse conditions are met, the obli-

gation of the United States runs onlyc its contractors. The

entire scheme of the contracts precludes the direct action

against the United States.

A mere promise to indemnify against damages does not

constitute a contract for the benefit of third persons which 2

party claiming damages may enforce directly against the

indemnitor, “Here the promisor’s liability does not arise

until the promisee has suffered loss or expense. Until then

the promisee has no right of action, and consequently one

claiming damages can assert no derivative right against the

promisor, much less a direct right.” 2 Williston on Contracts

8 403 (3rd ed.) “An incidental beneficiary acquires by

virtue of the promise no right against the promisor or the

promisee.” Restatement of Contracts, § 147.

; We conclude that plaintiff landowners are but incidental

: third-party beneficiaries, and as such lack standing to niain-

tain their Tucker Act claim on this ground.

The balance of their claim thereunder must be founded

“upon the Constitution, or any Act of Congress, or any regu-

i lation of an executive department . . .” Plaintiffs allege that

the government's acquisition of helium constitutes an exer-

cise of its powers of eminent domain. “When the United

States takes property for public use and without just compen-

sation as required by the Fifth Amendment, the owner may

sue under the Tucker Act.” United States v. Wald, 330 F.2d

PPAR IRE BI actscsees eis sae Rina cicabDena sain

871 at 872 (10th Cir. 1964). An actual taking must be

established. Once found, the suit becomes in effect a con-

demnation action in reverse. Landowners must establish such

a taking, as a jurisdictional prerequisite to maintenance of

their Tucker Act claim, or the same must be dismissed for

want of jurisdiction.

THE GEOGRAPHICAL AREA

The helium giving rise to the funds in these interpleader

cases and the suits against the United States is contained in

natural gas produced from an area denominated the Hugoton

Gas Area, which lies in parts of three states, T2xas, Kansas,

and Oklahoma.®°? The area covers approximately 210 miles

from north to south, 160 miles from east to west, and covers

approximately 33,000 square miles and over 21 million

acres. The area comprises six principal gas fields. The Kansas

Hugoton Field lies in eleven Kansas counties in the south-

western part of the state: Hamilton, Kearney, Finney, Gray,

Haskell, Grant, Stanton, Morton, Stevens, Seward and

Meade. The Guymon Hugoton Field lies in Texas, Beaver,

and Cimarron counties in Oklahoma. The Texas Hugoton

and East and West Panhandle Fields lie almost wholly in

the northernmost three tiers of counties, twelve in all, of the

Texas Panhandle.’°

Fields within this geographical area from which natural

gas is produced but not processed for helium extraction by

interpleading plaintiffs, include, among others, the Cliffside

69 There is some contention that parts of Colorado comprise the Hugoton

Area or Field. If so, we have no indication of Colorado gas wells being

involved in these prox

7 LOX 791; Helex Ex. % (See Maps).

GSES, Bi MER AR AD Briletlioe jenciieoi heb tines nt a Lak

Field in Texas, the Keyes Field in Oklahoma, and the Green-

wood Field in Kansas.

The gas underlying the geographical area outlined above

contains approximately fifteen per cent of the known natural

gas reserves of the United States. It is, according to some

testimony, the largest single pressure-connected gas reservoir

in the world. It serves approximately fifteen million domes-

tic and industrial consumers. Most important for this 11tiga-

tion, these fields were estimated, as of the mid-1950’s to

contain ninety-nine per cent of the economically recoverable

helium in the United States, totalling approximately 119

billion cubic feet of nelium from estimated resources of a

total of 36.4 trillion cubic feet of gas.7!

Commercial gas production of natural gas from the Hugo-

ton fields began a half century ago with the completion of

the first well, located in the Texas Panhandle, in 1918.72

The first gas well in Kansas Hugoton was completed in

1922, near Liberal, and the discovery well of the Guymon

Hugoton (Oklahoma) was completed in 1922. The gener-

ally-regarded discovery well of the Kansas Hugoton was

completed in 1927.73 Development of the fields in terms of

wells completed was relatively slow until the late 1920's

and early 1930’s, when pipelines were first extended into

the area, thus making accessible widespread industrial and

consumer markets.’+ Development accelerated after World

War II, with the further expansion of pipelines through the

71 LPX 53, p. 1; LPX 56, p. 10.

72 Gensch Tr. 2:128.

73 Gensch Tr. 2:130.

74 Helex Ex. 37.

area, to transport gas to more widespread fuel markets. The

geographical productive limits of the fields expanded gradu-

ally until in 1941, the Kansas Corporation Commission first

defined the limits of the Kansas Hugoton Field.’? The Guy-

mon Hugoton field was first defined by the Oklahoma Cor-

poration Commission in 1945.7° The Texas Panhandle

Fields, East and West, developed earlier, and not until 1945

did the number of wells in the Hugoton Fields of Texas,

Oklahoma and Kansas equal those in the Panhandle Field.”’

From the completion of the first well in 1918 through 1965,

more than 15.000 gas wells were drilled in this area.

The development of these fields is reflected in the inci-

dence of leasing activity, which show that over 85 per cent of

the leases outstanding in Kansas were taken since 1940; that

over 75 per cent of the Oklahoma leases were taken after

1940; and that in Texas, where drilling and leasing activity

commenced earlier, 65 per cent of the outstanding leases

canvassed were taken in 1941 and thereafter.’® Wells were

drilling in the Hugoton gas area as follows:

75 LOX 791; Gensch Tr. 2:151-152.

76 Gensch Tr. 2:151-153.

77 Tr. 46:4484.

78 LOX 794; Tr. 6:428 et seq.

= rie

Cumulative Total Wells

Panhandle Field Hugoton

Kan. Okl. ‘Texas

1924 29 1 — —

1929 444 8 3 4

1934 856 142 8 4

1939 1435 282 28 6

19441763 | 403 172 16

1949 2338 | 1848 760 367

1954 3010 5317 1339 838

1959 3841 3891 81378 893279

HELIUM AND NATURAL GAS

The presence of helium in natural gas was first discovered

in 1905, by two University of Kansas professors, Cady and

McFarland, who analyzed a sample from a gas well at

Dexter, Kansas, drilled and completed in 1903, and dis-

covered it to contain 1.84 per cent helium, with minute

quantities of two other inert gases, neon and argon. This

gas had a relatively low British thermal unit (Btu)®° con-

tent, under 500 Btu, and was a relatively inefficent fuel gas.

Helium is contained, in either measureable or detectable

quantities, in gas found in the majority of natural gas fields

in the United States. In 1918, the Bureau of Mines com-

menced a program of gas analyses of samples collected from

fields over the nation. The first report of analyses collected

thereunder was published in 1921; that report discloses the

79 Helex Ex. 37.

‘ 80 The amount of heat required to raise the temperature of one pound of

water one degree Fahrenheit at 39.2°F.

presence of helium in either trace or measureable quantities,

in virtually all of 183 samples collected from Texas, Okla-

homa, and Kansas.®! Since that time, approximately 5800

gas samples have been analyzed and reported in Bureau of

Mines information bulletins and circulars, representing

3,008 gas fields in 33 states in this country from which com

mercial gas production has been obtained. Over 95 per cent

of these samples contained helium in trace or measureable

quantities.82 Of an additional 947 sampies subsequently

reported, only two contained no helium.’* Thus, the pres-

ence of helium has been detected or measured in natural

underground gas reservoirs throughout the greater part of

the United States.*4

The presence of helium in natural gas has not been a secret

tc which the Bureau of Mines has been the only privy party.

Reports of gas analyses conducted by it were furnished the

well owners, producers, and other persons providing sam-

ples, and commencing in 1928, helium was reported as a

separate constituent in those analyses, although prior to that

time it had been reported as part of the nitrogen content of

gas. As indicated above, the first publication of gas analyses

showing the presence of helium was dated 1921, a profes-

sional paper numbered 121, titled “Helium-Bearing Natural

Gas,” by G. Sherburne Rogers.®?

There have been other publications in the United States.5¢

81 LOX 6.

82 Helex Ex. 12.

83 Helex Exs. 282-283.

84 Helex Ex. 14.

85 LPX 6.

86 Helex Ex. 12.

AME a Sts leds VIS ollain cules is i tend

The constituents of natural gas found in underground

reservoirs in the Hugoton area include hydrocarbon com-

pounds, ranging from methane, the compound lightest in

molecular weight but lowest in Btu yield, through ethane,

propane, normal butane, iso-butane, normal pentane, iso-

pentane, and various heavier hydrocarbons. Non-hydrocar-

bon constituents include nitrogen, oxygen, argon, helium,

hydrogen sulfide, hydrogen, and carbon dioxide. Gaseous

hydrocarbons comprise by volume approximately 85 per

cent of the natural gas in the Hugoton fields; the non-hydro-

_ carbon constituents enumerated above comprise the remain-

ing 15 per cent. Helium alone comprises, on the average,

about four-tenths of one per cent of Hugoton area gas,

by volume.

The composition of gas from separate wells in the Hugo-

ton area is by no means constant. Methane, e.g., ranges from

a low of 45.9 per cent to a high of 82.6 per cent; nitrogen

from a high of 44.3 per cent to a low of 6.5 per cent. Helium

ranges from a low of .22 per cent to .97 per cent of the total

stream.’ No gas exists in the Hugoton reservoirs which does

not contain non-hydrocarbon constituents.8

The separate constituent components of gas in a given

reservoir, and in the Hugoton area, are found in a state of

random molecular diffusion; that is, separate molecules of

the hydrocarbon compounds and the non-hydrocarbon ele-

ments and compounds are randomly mixed within any given

pressure-connected reservoir. The diffusion may not be per-

fect, so that a given field, or a single well with a field, will

87 Helex Ex. 18.

88 Ibid.

yield a gas stream of constant and unvarying composition.

Helium itself is diffused within the Hugoton area; its rate of

diffusion within a single reservoir may vary among separate

vertical zones, depending upon its rate of diffusion through

horizontal layers of shale separating separate gas zones.89

Although found together within the Hugoton Field, and

in many gas reservoirs gaseous hydrocarbons and helium

originate through separate processes and they may or may

not derive from the same physical source beds. Hydrocarbons

are generally thought to originate from chemical breakdown

and reorganization of organic animal and vegetable materials

deposited on the floor of prehistoric oceans overlying the

Hugoton area. Helium is thought, according to the prevail-

ing theory, to be radiogenic, that is, to have resulted from the

decay or degeneration of uranium into lead, the breakdown

yielding helium atoms during the process. The source beds

of helium and hydrocarbon gases are frequently identical,

although there is no necessary relationsnip between the two.

The presence of helium and gaseous hydrocarbons within

the same reservoir results from their property as gases to

migrate through or into porous and permeable subterranean

formations.”°

Helium has never been produced from a gas well sep-

arately and apart from the total stream of raw material gas

as it emerges from the wellhead. Other than the removal of

liquefiable hydrocarbons through conventional mechanical

or low temperature separators, it is economically impossible

to separate the constituents of the gas stream at the wellhead,

89 Tr. 42:4216 et seq.

% Ibid.

BPM RLS TE. BR BS i SEMA IRI iO 3 A

55.

and no practical or economically feasible means has been 7e-

vised to date for the wellhead separation of helium from the

balance of the gas stream. Thus, the composition of the

natural gas stream as it is produced at the wellhead neces-

sarily reflects the composition of the reservoir gas.9!

The production of natural gas from underground reser-

voirs is accomplished by reservoir pressure, specifically, the

difference between reservoir and wellhead pressure causes

gas to flow through the well bore. The stream must neces-

sarily be produced in its entirety, and with all the gaseous

constituents randomly commingled in the stream as found

in the reservoir.?2

HELIUM EXTRACTION PRIOR TO’ 1960

The only extraction and marketing of helium prior to

1960 except as hereinafter noted was accomplished by the

United States. It acted through its Bureau of Mines in the

Department of the Interior, which has been charged by

statute with helium research and development since 1925.

The first large-volume use for helium was discovered dur-

ing World War I (1917-1918), when it was found useful

for inflation of lighter-than-air craft, particularly dirigibles.

Prior to that War, helium had been extracted from natural

gas in only very small amounts, for laboratory purposes. The

first large volume extraction was done in two plants built

at Fort Worth, Texas, early in 1918, known as Experimental

Plants No. 1 and 2. A third plant, Experimental Plant No.

3, was completed and started in late 1918, at Petrolia, Texas,

approximately 100 miles north of Fort Worth.

Tr. 47:4545.

%Tr. 37:3719.

The next plant, Production Plant No. 1, was constructed

at Fort Worth, Texas. Each of these plants was constructed

by private firms operating under contract with either the

Department of the Navy, the Bureau of Mines, or both.

Natural gas for helium extraction was furnished for these

plants by the Lone Star Gas Company, a producer of gas

from the Petroiia Field and a distributor in Fort Worth.??

The next production plant, Production Plant No. 2, was

designed and built by the Bureau at Fort Worth, Texas. Al-

though World War I concluded before helium produced in

these plants could be used, production continued at Fort

Worth until depletion of the Petrolia Field in 1929.

Faced with approaching depletion of that field, on May

17, 1927, the United States acquired an option for a period

of two years to purchase leasehold rights in the Cliffside

Field in Potter County, Texas, owned by the Amarillo Oil

Company, a producer, pipeline company, and distributor of

natural gas in the Amarillo area. Also on that date, the com-

pany contracted to sell and deliver natural gas to a helium ex-

traction plant the Bureau intended to construct at Amarillo.%4

The United States thereafter undertook to acquire both

leasehold and retained royalty rights in the Cliffside Field in

order to control production therefrom, to avoid pressure to

increase production from royalty owners, to be free to shut

in production when helium demand decreased in order to

avoid the production of any gas not processed for helium

extraction. Accordingly, in 1929, the United States exercised

its option and began the acquisition of Amarillo’s leasehold

93 LPX 200, 201; Helex 23, Part 1.

94 LPX 202.

RPE he per ee NCR. SPT TA OT RAY Myte PRS Oe Ne pe PAR YN ASC RRR ART

ESS IS.

all]

ARIAT OEE NG GPS ELL ARTIS, LB LLL EMR WAIL SEE PTE GE PELE ERA RE TEI BGG

rights in the field,?> acquiring the company’s gas rights in

approximately 26,000 acres of the 50,000 acre field.

Leases held by Amarillo were given by W. H. Bush, the

Fuqua Land & Cattle Company, and Lee Bivins. The United

States acquired the Bush lessor interests by a Gas Grant

dated July 19, 1930; the Fuqua Land & Cattle Company

interests by contract of sale dated April 17, 1930;97 the

Bivins interests by condemnation proceedings in the United

States District Court for the District of ‘Fexas, covering ‘‘re-

tained gas royalty rights” held by the Bivins heirs.98 One heir

of the Bivins estate claimed that the Bivins gas lease did not

convey helium. This claim was rejected by the Commerce

Department, and the condemnation of “gas rights” was com-

pleted, without mention of helium as a separate constituent

of the gas.

_ By purchase or condemn: : ion, the United States obtained

lessors’ retained gas in the balance of the field, gas rights to

lands not under lease, and fee title to other property in the

field, so that by 1933, the United States owned all gas rights

in the Cliffside Field. Representative copies of oil and gas

leases covering the field contain typical grants of “oil and

gas” or “oil and gas, casinghead gas, casinghead gasoline.”99

Helium as such is not mentioned in any of the leases.

The only private firm to extract and market helium as a

separate commodity prior to enactment of the Helium Act

Amendments of 1960 was the Girdler Corporation. It oper-

9% LPX 203.

% LPX 11.

97 LPX 10.

% LPX 15.

9 LPX 216(b).

ated two extraction plants, one at Dexter, Kansas, and one at

Thatcher, Colorado (Model Dome). It operated these inter-

mittently between 1927 and 1934. Gas for processing in

these plants was supplied by production under leases in the

plant vicinity held by Girdler itself.1°° The gas processed at

Thatcher was almost wholly non-combustible, containing 85

per cent Nitrogen, seven per cent Helium, and seven per cent

Carbon Dioxide. By amendment in 1937, Ch. 895, 50 Stat.

885, to the Helium Act of 1925, Ch. 426, 43 Stat. 1110, the

Secretary of the Interior was directed to purchase, if possible,

all properties developed or constructed by private parties for

helium production prior to passage of the amendment, Sep-

tember 1, 1937. The Girdler plants comprised the only

private helium extraction operation in the country at that

time, and were purchased by the United States in 1938. They

were not at that time in operation, and had not been for ap-

proximately four years. The 1937 amendment did not forbid

subsequent commercial helium extraction and marketing by

private companies. No private firm or corporation under-

tcok these ventures, however, until after the Helium Act

Amendments of 1960. |

At the commencement of World War II, thus, all helium

extraction facilities were owned by the United States, and

consisted solely of the Amarillo Plant. It constructed four

plants during World War II, to meet the greatly increased

helium demand for military requirements. The first was

constructed at Exell, Texas, in 1943. Gas for both plant fuel

and for helium processing, was supplied from the Channing

area of the West Panhandle Field under a contract of the |

100 LPX 216(c)(d).

United States with the Canadian River Gas Company

(merged in 1951 into the Colorado Interstate Gas Com-

pany).!°! Wells supplying this production were drilled

under a single lease granted by Lee Bivins dated May 1,

1923 covering “Oil & gas” in a 200,060-acre area.102

. Later in 1943, the United States completed a second plant,

at Otis, Kansas. Natural gas was furnished this plant, for

both fuel and helium extraction, from several small area

fields under contracts with the Producers Gas Company and

Northern Natural Gas Company.! Additional supplies of

gas were furnished by the Kansas-Nebraska Gas Company

under a 1952 contract, supplying gas produced in Barton

and Rush Counties, Kansas.!°4 The third plant to be con-

structed was near Cunningham, Kansas, completed in 1944,

gas again for both fuel and for helium extraction being sup-

plied by the Skelly Oil Company from the Lyons Field.195

Again, this gas was produced under typical leases of oil

and gas, 106

The last plant built by the United States to meet wartime

needs was at Shiprock, New Mexico, known as the Navajo

Plant, completed in March, 1944. Helium-bearing natural

gas was first furnished this plant from a well named Rattle-

snake 1-G, drilled by the Continental Oil Company under a

1923 lease granted by the Navajo Tribe. »:hich conveyed to

their original grantor “‘oil and gas deposits” in the described

101 PPX 207.

1022 LPX 216(e).

103 LPX 208, Helex 27; LPX 209, Helex 26.

104], PX 211; Helex 28.

105 LPX 210; Helex 29.

16 LPX 216(g).

property and formations. Through a series of agreements, !©7

the United States subsequently acquired the lessees’ interest

as to certain formations under that lease, and became itself a

lessee-producer of helium-bearing natural gas under the

1923 lease. This lease was construed in Navajo Tribe of In-

dians v. United States, 364 F.2d 320 (Ct. Cl. 1966) .19

This gas contained 7.6 per cent helium, and was non-com-

bustible due to a high nitrogen content.

The Navajo Plant was operated initially for only 18-19

days. Later, operations indicated the Rattlesnake supply was

inadequate, and the United States entered into a number of

later contracts for helium-beariag gas for processing. By

1955, the Rattlesnake Field having become depleted, the

United States contracted with the Stanolind Oil & Gas Com-

pany (now Pan American Petroleum Corporation) for gas

produced from what is identified as the Hogback Field in

San Juan County, New Mexico.! It executed the next con-

tract in 1959 with the Pan American Petroleum Corpora-

tion covering gas produced from the Navajo C-1 well.!1° It

executed a gas supply contract for the Navajo Plant in 1962

with the Continental Oil Company, covering gas produced

from the Table Mesa Field.!!!

The production of helium reached a wartime high of over

137 million cubic feet in 1944.!12 Immediately after the

war, production dropped to approximately 63 million

107 LPX 27.

108 See our discussion infra, page 77.

109 LPX 212; Helex 30.

110 Helex 31; LPX 214.

111 LPX 215; Helex 230.

N2LPX 112.

cubic feet in 1946, and later dropped still further to 54

million cubic feet. Accordingly, after the war, all govern-

ment plants were closed except that at Exell, Texas. Ex-ess

production of helium: from Exell was first stored in 1945 in

the government-owned Cliffside reservoir. The Cunning-

ham Plant was dismantled, and the remainder were placed

on standby status.

Helium demand again commenced to increase in 195 0,

and the government plants at Amarillo, Otis, and Shiprock

were placed back in operation in 195 0, 1951, and 1953 re-

spectively. By 1952, government production reached and

exceeded the previous high of 1944. In 195 7, to meet the

rising demand, the capacity of the Exell Plant was enlarged

from 60 to 240 million cubic feet, and the government

tiereafter undertook the constructicn of the last government-

owned helium plant, at Keyes, Oklahoma. It was placed in

operation in 1959. Gas for this plant was supplied by the

Colorado Interstate Gas Comyany under a contract executed

‘April 4, 1958.113 It was to be produced from the Keyes

Field in Oklahoma.

The contracts recited above comprise all of the gas pur-

chase contracts in this country under which natural gas was

purchased by the United States with the express contempla-

tion that helium would be removed from it. No portion of

the price to be paid for natural gas was separately and ex-

pressly attributed to its helium content until the 1958 Keyes

contract. The prices in all contracts prior to i958 were the

prevailing market prices for natural gas for fuel markets at

the time of their execution. The Lone Star contracts supply-

113 L PX 213; Helex 32.

ing Experimental Plant No. 3 and Production Plant No. 1 at

Fort Worth, Texas provided identical prices, though stated

separately, for shrinkage resulting from the removal of

helium, and shrinkage resulting from the use of gas for fuel,

fifteen veins per Mcf. Contracts executed to supply the war-

time plants at Exell, Texas, and at Otis and Cunningham,

Kansas, all provided for payment of either seven or eight

cents per Mcf for all gas processed and not returned after the

extraction of helium. This total shrinkage was composed of

not only the helium removed, but gas used for the generation

of power and heat, i.e., fuel, hydrogen sulphide removed in

the extraction process, anid all other gas lost withia the plant.

Three of the four contracts supplying these plants recited the

following respecting the extraction of helium:

“WHEREAS, the processing of gas for helium extraction

tends to improv: its composition for use as fuel, because

such rrocessing not only removes the greater part of the

helium, which has no fuel value, but also removes some

portions of other inert gases contained in the helium-bear-

ing gas... .”114

The 1955 Stanclind contract supplying the Navajo Plant,

covering gas from the Hogback Field containing 7.5 per cent

helium by volume, provided for payment of twelve cents per

Mcf plus a three cent delivery charge. This gas was not ef-

ficient fuel gas, and contained about 450 Btu’s.

It was in the 1958 Keyes contract, with Colorado Inter-

state Gas, that the United States agreed for the first time to

a payment for helium-bearing gas on a basis other than solely

for the volume of gross shrinkage in the plant.!*? The price

114 LPX 208 (Example).

1S LPX 213; Helex 32.

sorta

“up lal

STS Ae

hr ecto ee = Oe a emere

CSF Si Glen ROLE NS ate oS

meses

was divided into two parts, a payment of 26 cents per Mcf

for “all gas consumed in the plant as fuel and for all shrink.

age resulting from processing in the plant,” and in addition

a four cent per Mcf fee denominated a “Processing Fee:”

6.2 Processing Fee — As compensation to ti.e company for

gas processing and helium extraction rights, and for pro-

viding gas deliveries at «itable press're, volume, and he-

lium content, and for .we helium extracted, the United

States shall pay the Company a gas processing fee on the

total volume of gas delivered to the helium plant and pro-

cessed for helium extraction. Said processing fee shall be

4 cents per thousand cubic feet for gas having a weighted

average helium content of 2.0 per cent during the billing

period. .. .” [Emphasis supplied. ]116

The contract provides further that “[I]f the weighted aver-

age helium content for the billing period is greater or less

than 2.0 per cent, the processing fee shall be increased or

decreased in accordance with the table attached hereto . . .”

The average helium content of Keyes gas is two per cent by

volume. This processing fee applies only to gas coming into

the plant which is processed for helium removal, and is not

paid when gas entering the plant is not so processed and is

used merely for power.

At the time this contract was executed, Colorado Inter-

state purchased gas in the F eyes Field from some twenty-six

companies or individuals, at a wellhead price approved by

the Federal Power Commission (FPC) of fifteen cents per

Mcf, which was adjusted due to low Btu content to twelve

cents per Mcf, upon which royalties were paid.!17 In addi-

tion, Colorado Oil and Gas Company, a wholly-owned sub-

116 Thid.

117 LOX 60.

sidiary of Colorado Interstate, owned approximately one-

half of the leasehoid interests in the field, and Colorado In-

terstate paid this subsidiary the 12 cents adjusted price. Thus,

for gas sold to the United States and used by it, Colorado

Interstate paid, at the time the contract was executed, 12

cents per Mcf at the wellhead, and received 26 cents per Mcf

for the gas used by the United States.

It is disputed whether the additional four-cent “processing

fee” constitutes a payment for helium. Dr. Seibel, then with

the Bureau of Mines, stated that the processing fee covered a

“number of iterns which the government felt were quite

valuable,” including a guarantee of ownership of helium, a

limitation on daily gas withdrawals from the field, obliga-

tions of the seller to minimize dilution of the helium contenz

of the gas, an agreement to maintain fixed aelivery pressure

at the plant inlet regardless of variations in field pressure,

and the exclusive right to process all Keyes gas for helium

extraction.!18 Mr. Henry Wheeler of the Bureau of Mines

characterized this fee thus:

“In effect, this four cent processing fee assigns a market

value of $2.00 a thousand cubic feet. Whether it was in-

tended to do that or not that is initially what we got for

the four cent processing fee, helium at $2.00 a thousand

cubic feet.”219

The two-dollar figure mentioned above does not appear in

the Keyes contract. It may, however, be calculated therefrom.

The Keyes gas constitutes two per cent helium by volume.

To obtain one thousand cubic feet of helium, thus, it is neces-

118 Tr, 63:6038-6039.

119 Tr. 66 6510.

sary to process 50,000 Mcf of gas. The processing fee for

that quantity, at four cents per thousand cubic feet, equals

two dollars. In other words, the contract requires that the

United States pay the company $2.00 for the right to process

sufficient gas to yield one thousand cubic feet of helium.

The next contract following the Keyes agreement was

executed by the United States with Pan American on June

12, 1959, supplying natural gas with about 5.6 per cent

helium by volume, to the Navajo Plant.120 Jt provided for

payment as follows:

“10.1 The price of gas delivered and sold by Company to

the United States during the terms and under the condi-

tions of this agreement, shall be nineteen (19) cents per

one thousand (1,000) cubic feet, which price is made up

of the following:

Helium 11.6 cents

Hydrocarbons 1.8 cents

Delivery 5.6 cents

19.0 cents”

Mr. Wheeler of the Bureau testified that this attribution

of 11.6 cents to the helium content of the gas was based

upon the “formula” established in the Keyes Plant: that the

value of two cents per one per cent of helium content was

applied to a gas containing 5.8 per cent helium, resulting in

a price of 11.6 cents per Mcf.

The two dollar figure referred as the: “Keyes formula”

has been considered in the United States contracts with the

Helex companies. The formula is discussed in connection

with our analysis of such contracts.

120 LPX 214; Helex Ex. 31.

HELIUM CONSERVATION

Helium produced prior to 1960 was used primarily to

meet current demands of both governmental and civilian

users. These demands had risen sharply during the 1950’s.

From 1948 until 1956, helium sales increased five-fold.!2!

This increase was due to the rapidly multiplying uses

being developed for helium.

Its first large-voiume use was as a lifting gas for lighter-

than-air craft, commencing immediately after World War I.

Prior to World War II, smail but important quantities were

also used in diving and submarine operations, and for medi-

cal purposes. During World War II, it became important in

atomic energy and as a shield in arc-welding of such metals

as Magnesium, aluminum, and stainless steel. It is essential

for much nuclear and cryogenic research, and its industrial

applications are more numerous than ever before.

The conservation of helium was particularly a matter of

federal concern. In 1955, 70 per cent of ail helium produced

by the Bureau was used directly by federal agencies, particu-

larly the Department of Defense and the Atomic Energy

Commission. At that time, projects involving over $6,000,-

000 were estimated to depend upon continued helium sup-

plies. Over half of the remaining 30 per cent was used by

private purchasers in work under government defense and

atomic energy contracts.

As increasing helium demands threatened to outstrip the

production capacity of the Bureau, concern arose that sudden

121 LPX 43, Report prepared in 1956 by Dr. C. W. Seibel, then Asst. Direc-

tor of the Bureau of Mines, in charge of helium, titled “Helium—Uses—

Requirements—Production—Conservation—Costs,” p. 2.

defense mobilization requirements could not be met, and

attention turned to both providing increased production

capacity and the use of other helium sources, including the

Hugoton and Panhandle Fields. A 1953 report of the Office

of Defense Mobilization reported that in 1952, “more than

seven million cubic feet of helium a day was going out of

the western part of the Texas Panhandle Field in nine pipe-

lines . . .”!*2 Further,!23 a report prepared in 1954 for the

Bureau of Mines by a private engineering firm, called the

Stone & Webster Report, was concerned primarily with

developing adequate reserves and production Capacity to

meet any sudden military demand.!24 By 1955, the concern

for helium was twofold, both to meet mobilization needs

and to conserve an increasingly valuable and wasting natural

resource.

Helium carried in natural gas to fuel markets does not

burn, of course, and simply passes into the atmosphere at

the burner tips. It constitutes approximately 1/200,000th

part of the atmosphere and no economical method has been

developed for its recovery from the air. Carried in the natural

£as, it produces no heat. Moreover, it reduces the Btu yield

of a gas stream by absorbing heat itself, sufficient to raise

its temperature to that of the burner. The 1954 Stone &

Webster Report stated that under then current natural gas

production schedules, approximately two-thirds of the he-

lium supplies would be dissipated within the next twenty

years.

122 LOX 40, p. 12.

123 LOX 42.

124 LOX 42; See also a 1955 Bureau of Mines Report, “Helium—a report

for the Secretary of the Interior.”” LOX 47.

In 1957, a helium policy “working group,” headed by

ther Undersecretary of Interior O. Hatfield Chilson, was

constituted to determine how a national preservation policy

should be implemented, and its cost. In its report in 1958,

referred to as the Chilson Report, that group concluded that

the “only practical method of conserving the large volumes

of helium c’rrently wasted to the atmosphere is to construct

and operate helium plants to extract the helium from helium-

bearing natural gas before it is transmit‘.:d to fuel markets

. .”125 The basic plan of conservation was stated thus:

“Ninety-nine per cent of the known helium-bearing nat-

ural gas resources in the United States is concentrated in

four fields: (1) the Hugoton field of Texas, Oklahoma,

and Kansas; (2) the Panhandle field of Texas; (3) the

Keyes field of Oklahoma; and (4) the Greenwood field

of Kansas. All of these fields have been deveioped by private

companies to supply natural gas to fuel markets, and they

are presently being produced for that purpose. So far as

the gas companies are concerned, the helium is a minor

impurity, and no effort is made to remove it. Consequent-

ly, the helium is transmitted to fuel markets along with

the rest of the gas, and it eventually passes through the

gas burners into the atmosphere without serving any use-

ful purpose.

“The Hugoton, Panhandle, Keyes, and Grzenwood fields

contain approximately 119 billion cubic feet of potentially

recoverable helium. About 60 per cent of this helium could

be recovered in 13 helium plants located at strategic points

on pipelines leading from the fields. . . .”.126

The report also suggested helium thus recovered could be

stored at Cliffside until withdrawn and refined to meet cur-

rent demands of the United States and private companies.

125 LPX 56, p. 10.

126 LPX 56, pp. 10-11.

CTT GN SY IR NLT Se AS ER ‘

The role of private industry in any helium program to be

undertaken was considered as early as 1954, in the Stone &

Webster Report, in which it was discouraged as inconsistent

with the United States’ paramount interest in helium. Again

in 1957, Dr. Seibel wrote that “[pJrivate industry partici-

pation in the direct production of helium at this time will

jeopardize future supplies of the important strategic com-

modity—helium, cost the taxpayers many millions of dollars

annually, require the establishment of a Government com-

mission to regulate the industry and involve heavy sub-

sidies.1*”7 In 1958, however, the Chilson report recom-

mended that private industry be given an opportunity to

participate in the helium conservation program, but that a

“completely private helium industry,” resulting in promo-

tion and sale of helium without regard to beneficial end uses,

be avoided. Accordingly, it recommended that “the most

satisfactory form of private participation would involve the

purchase by the Government of all of the helium produced

privately.”!128 The Chilson Report was submitted to Presi-

dent Eisenhower and approved. The President thereupon

promulgated a National Helium Conservation Policy, an-

nounced by the Secretary of the Interior on May 1, 1958.129

In this press release, the Department stated: “Recovery of

the helium from gas going to fuel markets will be accom-

plished in up to 12 plants, . . . to be constructed in or near

the fields that produce the gas.”

Thereafter in 1958, the Interior Department proposed

127 LPX 45.

128 LPX 56, p. 15.

129 LOX 81.

legislation to Congress for the implementation of this con-

servation policy. This was not acted upon, and redrafted

proposals were submitted again in 1959. With certain altera-

tions, on September 13, 1960, the Helium Act Amendments

were enacted, amending and replacing the Helium Act

of 1925.

The 1925 Helium Act, Ch. 426, 43 Stat. 1110, was not

itself a conservation act. It authorized the Secretary of the

Interior ‘for the purpose of producing helium with which

to supply the needs of the Army and Navy and other

branches of the Federal Government . . . to acquire [helium-

bearing] land ox interest in land . . . where necessary, when

heliurn can not be purchased from private parties at less cost

... The Act provided that all branches of the federal gov-

ernment could fill their helium requirements by purchases

from the Bureau at “actual cost of said helium to the United

States, including all expenses connected therewith . . .” The

leasing of surplus helium to private parties was authorized.

An amendment in 1927, Ch. 355, 44 Stat. 1387, authorized

the sale or leasing of a maximum of 5,000 cubic feet of non-

surplus helium annually to aid scientific and commercial

development. In 1930, the Comptroller General issued a

ruling requiring the Navy Depasiment and perhaps all other

federal branches, to meet their helium needs by purchases

from the Bureau. By Act of September 1, 1937, Ch. 895,

50 Stat. 885, amending the 1925 Helium Act the Secretary

of the Interior was directed “if possible under the terms

hereof” to acquire all properties developed or constructed by

private parties prior to that time for helium production. It

was pursuant to this authority as we said that the Girdler

Corporation plants were purchased by the United States.

The 1937 amendments also authorized for sale of helium

for medical, scientific, and commercial purposes which was

not needed for government use, such sales to be at “‘reason-

able prices . . . based upon the cost of acquiring, develop-

ing, maintaining, and operating the Government proper-

ties. .”130

The 1960 Helium Act Amendments, 74 ‘Stat. 918, 50

US. CA. $§ 167 et seq., authorized the Secretary of the In-

terior to enter into long-term contracts for the acquisition,

processing, transportation or conservation of helium, not ex-

ceeding twenty-five years. In addition, he was given the

power to acquire, by eminent domain, helium contained in

helium-bearing natural gas ‘and so much of such gas as is

necessarily removed in the extraction process, if he were

unable to acquire helium otherwise upon reasonable terms

and at the fair market value. The Amendments provided a

new basis for establishing the price of helium sold by the

Bureau. Whereas under the 1937 amendment, the price was

to be based on the actual cost of helium to the United States,

including all expenses connected with its production, the

new price under the amendment was to be adequate to re-

cover, within twenty-five years, all funds expended in the

entire conservation program. This price was subsequently

set by the Secretary at $35.00 per Mcf, the price at which

helium is sold to both federal and non-federal users. The

Amendments requ:zed that all contracts made by the Secre-

tary for the purchase of helium from private plants contain

130 See LPX 32, Fig. 4, for graph outlining charges for helium to both fed-

eral and non-federal users.

EE .e

provisions forbidding the sale of helium to any purchaser

other than the United States at a price lower than the lowest

price paid by the United States for helium produced from

any private plant. The Amendments required further that

all agencies of the federal gove:nment purchase their major

requirements of helium from the Secretary, to the extent that

supplies were readily available.

UNITED STATES HELIUM CONTRACTS

In 1960, directly after enactment of the Helium Act,

the Bureau of Mines began to solicit the interest of private

industry.

The number of parties who were in positions which per-

mitted them to participate in the conservation who had the

financial ability to perform a large government contract, was

necessarily iimited. Participation required that the contractor

have in his control or access to, large volumes of gas with

sufficient helium content to permit economical extraction,

and in addition, ownership of such helium-bearing gas

streams, or at least the right to extract helium therefrom.

On October 11, 1960, the Bureau sent identical letters to

377 persons and firms who had indicated interest in the

program.!3! On October 25, 1960, the Department promul-

gated guidelines by which proposals were to be evaluated.144

The Bureau judged proposals on four critcria: how much

helium conservation could the proposal assure, how soon

would it be accomplished, the probable cost of such con-

131 Helex 170; Tr. 66:6347.

132 LOX 120; Helex 171.

iil PAPEL ee ee ks

AN Scot AneSits REN

BERS SO Py

WoW SI Ae

Sib

“he

servation, and the ability of the company to perform as

proposed.133

Of fourteen proposals received by the government, twelve

proposed to build and operate helium extraction plants.

After exploratory interviews with each of these twelve

firms conducted by a five-man board constituted to evaluate

and select companies for actual contract negotiations, four

companies were selected on March 6, 1961, three being

parties to these cases, Cities, Northern, and Panhandle.

Negotiations with these firms led ultimately to execution

of contracts with their respective helium extraction subsidi-

aries: with Helex, Inc. (iow Northern Helex, Inc.) on

August 15, 1961; with Cities Service Helex on August 22, -

1961; with National Helium on October 13, 1961. On

August 21, 1961, the Bureau renewed its request for pro-

posals from private industry to be submitted by September

15. Phillips thereupon submitted a new or altered proposal,

which led to contract executed November 13, 1961.

From the announcement of the prograin in May, 1958,

through execution of the last contract implementing it, the

Bureau of Mines and Interior Department issued a total of

11 press releases, announcing every faajor step toward im-

plementation of the program.134

At no time during the formulation, promotion, or imple-

mentation of the conservation program did either the Bureau

or the Department seek to discourage participation by any

member or segment of the petroleum industry, including

both pipeline companies and producing companies.

133 LPX 91, App. 21.

134 Helex Ex. 59, 161, 166; LOX 117, 119, 120, 122, 127.

Lessee-producers allege that representatives of the Bureau

of Mines commenced preliminary discussion and negotia-

tions with Northern, Cities, and Panhandle and others con-

trolling large volumes of helium-bearing gas, as early as

1958, long before enactment of the Amendments in 1960.

The evidence introduced to establish these negotia-

tions!4? simply does not do so. Representatives of Northern

and Cities consulted with the Bureau concerning the possi-

bility of their participation.!3° No negotiation of contracts

was conducted by the Bureau with any company prior to

1961, following public solicitation of proposals from pri-

vate companies.

Lessee-producers complain of alleged pre-selection of sites

for helium extraction plants. Commencing in 1956, discus-

sions of alternative approaches to helium conservation with-

in the Bureau contain repeated references to a projected

twelve or thirteen plants, which could recover 60 percent of

the helium transported from the Hugoton area in natural gas

carried to and wasted in the market. These sites were but

recommendations, and no site selection was imposed upon

any party seeking to participate in the program.!37

Copies of a May 1, 1958, press release were sent to Cities

Service Gas and Panhandle on May G after its issuance accom-

panying requests for gas samples and data regarding gas

flows, pressures and seasonal variations in lines owned or

controlled by these companies. The evidence discloses no

135 LPX 57, 73, 80, 117, 118, 127, 128, 129, 145, 146 and 173; LOX 84;

Tr. 79:7571.

136 LPX 80, 117, 118.

137 Tr. 67:6376.

Ay eter AR, Cah UNG eRe a Rcd

OPA

MEL br LeE eT)

EEE eee ae Ba EE

preferential treatment given these or any other companies in

announcement of conservation plans.

Helium which the United States purchases from each of

the four extraction contractors is contained in a crude helium-

gas mixture, which the contracts define «s “the gaseous

product resulting from the helium extraction operation . . .

[and] comprised of helium predominantly together with

other constituents of the natural gas.” In actual operations,

the delivered gas mixture consists of about 7( per cent he-

lium and 30 per cent nitrogen. This gas mixture is trans-

ported throug!. a small diameter pipeline to Texas, where it

is stored in the Cliffside underground reservoir. When

needed, it is withdrawn and refined, prior to sale to about

99.99 per cent purity.

The prices stated in the contracts apply only to the vol-

umes of helium contained in the helium-gas mixture, and

not to the mixture itseif.

The contract with Helex, Inc., provided for an initial unit

price of $11.24 per Mcf for helium contained in the crude

helium gas mixture delivered to the United States. Northern

Helex produces this helium mixture in a plant at Bushton,

Kansas. on pipelines cf Northera Natvral leading from

the Hugoton area, commencing operations in December,

1962.138

The Cities Service Helex contract provided an initial price

of $11.74 per Mcf which price has risen, pursuant to adjust-

ment provisions in the contract, to approximately $12.23 at

the time of trial. This helium is extracted at a plant construc-

ted in Grant County, Kansas, on pipelines of Cities Service

1388 LPX 105

Gas, leading from the Hugoton area, operations commenc-

ing in June, 1963.13?

Under the National Helium contract, the United States

agreed to a price of $11.78 per Mcf of contained helium,

which had risen to approximately $12.35 at the time of

trial.!4° This helium is extracted at a plant at Liberal, Kansas,

located on pipelines of Panhandle leading from the area,

commencing operations in July, 1963.

The contract with Phillips provided a price of $10.30,

which, like the other contracts, is subject to escalation, al-

though the present price is not disclosed. Helium sold there-

under is extracted in two plants, one in Sherman County,

Texas and the other at Dumas, Texas, these commencing op-

erations in December, 1962 and April, 1963, respectively.

Under each of these contracts, the United States is obli-

gated to purchase the total helium production of each com-

pany for a period of twenty-two years, this obligation subject

to the limitation that the United States’ purchases are not

required to exceed specified annual dollar maxima: $9,500,-

000 in the Helex contract; $9,100,000 in the Cities Service

Helex contract; $15,200,000 in the National Helium con-

tract; and $13,700,000 under the Phillips contract.

The United States negotiated the above unit prices in each

contract on the basis of costs comparable to those it would

incur in a government-owned plant located at the same

place and in the same circumstances, adding thereto those

costs of doing business applicable only to private industry,

139 Tr. 74:7070; LPX 106.

14 Tr. 71:6789.

the cost of taxes, insurance, and a return on private capital.

As one of the costs of operating a government-owned plant,

the United States included in its cost build-up a payment of

$2.00 for helium contained in natural gas delivered at the

extraction plant for processing.!41 This separation of two

dollars of the unit price as applicable to the cost of helium

contained in natural gas to be processed for its extraction

does not appear in any contract itself. It appears only in

evidence which reflects the manner in which the United

States reached its own cost estimates to form a basis for

actual contract negotiation. The figure reflects no more than

the estimate of the Bureau of Mines of the cost it would

probably incur, in the operation of its own extraction plant,

to acquire helium extraction rights from a natural gas stream.

The contract unit price in each case is stated in two parts,

Part One representing the cost of natural gas to the extrac-

tion company. [E.g., in the Cities Service Helex contract, it

represents the “cost in the field of shrinkage and fuel gas,”

these being the “shrinkage in the volume of natural gas

occurring as a result of the helium extraction process . . . and

any such natural gas consumed as fuel... .” A similar pro-

vision is contained in the National Helium contract. ]

Part Two, the greater part of the price, represents the

balance of the unit price. Respecting the total unit price, the

contracts provide:

. “Payment for the helium-gas mixture sold and purchased

hereunder shall be calculated and made on the basis of the

contained helium therein. The unit price specified herein

represents only the value of the contained helium and is

applicable only to such contained helium. For the purposes

\41 See, e.g., LPX 91, App. 33.

of this contract, no value has been ascribed to gaseous prod-

ucts other than helium in the helium-gas mixture sold

and purchased hereunder. Notwithstanding the foregoing,

it is expressly understood and agreed by both parties hereto

that payment in accordance with this article shali con-

stitute full and complete payment for helium, nitrogen,

methane, and any and all other constituents of the helium-

gas mixture.”142

The two parts are based on separate adjustment scales,

Part One on the basis of the extraction companies’ cost of

gas, and Part Two according to the wholesale price index,

exclusive of food and farm products.

The question of title to helium arose during negotiations.

In each contract, the seller warranted title to the helium-gas

mixture, or agreed to indemnify and hold harmless the

United States for all claims of ownership by third parties to

said mixture. The ultimate cost each seller might have to

bear as a result of failure of title is linsited, however, by pro-

visions that the seller be reimbursed by the United States for

all payments made in satisfaction or settlement of owner-

ship claims to helium, to the extent that such payments ex-

ceed approximately $3.00 per Mcf of helium.

The contracts provide, in addition, that should seller's

title to helium fail and seller cannot perfect it, that the

United States is entitled to terminate the contract and to

purchase the extraction plant itself.

Two contracts are in evidence under which gas is acquired

for the extraction of helium therefrom, in which the two-

dollar figure derived from the Keyes formula actually ap-

pears as payment for helium, both executed in 1965. Under

142 E.g., LPX 107, p.9.

bien it OE CSA AR ANTE han Bir IS OM wk NARS Te ak Yr STE aie BENE oe einai IT A Cy)

a “Gas Exchange Agreement” between Phillips and Pioneer

Production Company, Pioneer delivered to Phillips certain

volumes of raw natural gas produced from the West Pan-

handle Field, Pioneer granting to Phillips the right to pro-

cess the gas for helium extraction in the following language:

“Section 1. Subject to the other provisions hereof, Phillips

is granted the right to process all gas delivered to Phillips

. .. and to remove any constituents therefrom so long as

the gas which Phillips redelivers at Delivery Point ‘B’ com-

plies with the specifications set forth in Section 2... .”

“Section 2. As total consideration for such processing rights

Phillips agrees to pay Pioneer a price of two dollars ($2.00)

per Mcf for the Helium contained in the raw gas at-

tributable to the residue gas Phillips delivers at Delivery

Point ‘B.’ 143

So far as appears, this helium is subject to sale to the United

States under Phillips’ contract.

Likewise, under a gas sales agreement executed April

1, 1965, between Colorado Interstate Gas Company and

Alamo Chemical Company, a wholly-owned subsidiary of

Phillips, Colorado Interstate granted to Alamo the right to

extract helium and liquefiable hydrocarbons, from gas pro-

duced principally from the Greenwood and Sparks Fields in

Kansas. Alamo agreed to pay Colorado Interstate “Two

Dollars ($2.00) per Mcf for the contained helium extracted

and saved at the Greenwood Plant, as determined under

Article VII hereof.’’144

The foregoing history and development of helium extrac-

tion from natural gas constitute basic facts which we must

143 Helex Ex. 112, p. 4.

144 Helex Ex. 113, p. 26.

consider in determining landowners and lessee-producer

contentions of their rights to the fund and landowners claims

against the United States.

We turn to the Leases.

THE LEASES

As indicated at the outset of the memorandum, both land-

owners and lessee-producers argue that the extraction com-

panies have no right, title or interest in the helium contained

in the helium-gas mixtures delivered to the United States, or

in any other non-hydrocarbon portion of that mixture. The

landowners claim that helium did not pass to their lessees

under the oil and gas leases by virtue of which natural gas

has been and is being produced from their properties. The

lessee-producers oppose this position, and urge that helium

did in fact pass under those leases, but that it passed no

further, i.e., that it did not pass to the pipeline companies

under the gas purchase contracts by which they acquire

natural gas from which helium is extracted.

We turn first to the arguments of the landowners, most of

which are based primarily upon the granting language of the

leases. Prior to trial, Ashland moved for summary judgment

on the issue that oil and gas leases convey helium as a matter

of law. This motion was overruled, in order that the court

. might consider evidence bearing upon the intention of the

parties. In Whitebird v. Eagle-Picher Company, 390 F.2d

831 (10th Cir. 1968), the Court stated thus:

“The vital and primary issue . . . turns upon the interpreta-

tion of the language of the leases. It has been observed that

today’s leases are generally both a conveyance and a con-

Sete Ret ok Agia te el

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BO Se Pie

tract and therefore, that it is ‘more likely that a written

lease is intended to be a complete and operative integra-

tion of agreement.’ [Footnote omitted.] 3 Corbin, Con-

tracts § 587, at 508 (1960): ‘Even when a contract has

been fully “integrated” in the form of written words, those

words never have a single, necessary, legally imposed mean-

ing, unaffected by the other words and acts of the parties

whether antecedent or subsequent. Those other acts and

words are admissible in evidence, to discover both the

meaning that one party intended and the meaning that

the other party received.’ Id. § 538, at 71. Therefore, al-

though evidence which will vary, alter or contradict the

express written provisions of the written leases cannot be

considered, American Crystal Sugar Co. v. Nicholas, 124

F.2d 477 (10th Cir. 1941), evidence which aids in the

interpretation of the leases’ language and indicates the

meaning the parties intended and received may be con-

sidered. [Citations omitted.]” 390 F.2d at 834.

Accordingly, the court has received and considered much

evidence of the development of gas production in the Hugo-

ton gas area, leasing and production practices, and of the

composition of natural gas, rnuch of which has been con-

sidered in foregoing sections. Such matters are properly

considered under the Restatement of Contracts, ‘ 230,

which provides as follows:

“The standard of interpretation of an integration, except

where it produces an ambiguous result,.or is excluued by a

rule of law establishing a definite meaning, is the meaning

that would be attached to the integration by a reasonably

intelligent person acquainted with all operative usages and

knowing all the circumstances prior to and contem pora-

neous with the making of the integration, other than oral

statements by the parties of what they intended it to

mean.” [Emphasis supplied. ]

See Southwest Kansas Oil & Gas Co. v. Argus Pipe Line Co.,

Ne > SACS OF

fe.

141 Kan. 287, 291, 39 P.2d 906, 909 (1935). We turn

to the language of the leases themselves.

Representative forms under which each named lessee-

producer produces helium-bearing natural gas have been

compiled with tabulations of acreages covered thereunder.

The parties have stipulated that these compilations and tabu-

lations are correct as to the named lessee-producers.!4?

Many thousands of leases are involved herein, with over

150 different printed forms. Over seventy-five per cent of

the leases have been executed since 1940. Leases held by

named lessee-producers contain a total of fifty different

granting clauses.!4° Six of these clauses are found in leases

covering over ninety per cent of the acreage involved: !47

145 “The number of leases on each lease form and the number of acres cov-

ered by each form are correctly stated and shown in the forms and state-

ments filed in this action or related actions by named party lessee-

producers. The unit designations, gas unitization agreements, pooling

orders (or equivalent), gas division orders and_ stipulations of royalty

ownership and the like attached to said statements are representative of

the forms used by the respective parties submitting the same. Such forms

and statements may be received in evidence in lieu of the introduction of

each original instrument.” (Pretrial Order, p. 11).

14% LOX 838; see also LPX 237.

147 LOX 838, Schedules II and III.

KANSAS AND OKLAHOMA LEASES

3 Percentage

of Acreage

“oil and gas, casinghead gas and

casinghead gasoline” 69.688

“oil, gas, casinghead gas, casinghead gasoline

and all other gases and their respective

constituent vapors” 10.132

“oil and gas” 7.144

“oil, distillate, gas, casinghead gas, casinghead

gasoline and all other gases and their

respective constituent vapors” eT 8 |

90.275

TEXAS LEASES

“oil and gas” 39.860

“oil, gas and all other minerals” 25.517

“oil, and gas, casinghead gas and casinghead

gasoline” 14.545

“oil, gas, and all other minerals” 14.168

94.090

Leases covering 99.99 per cent of the acreage involved here-

in contain the words “oil” and “gas.” This conjunction of

terms forms the heart of landowners’ argument.

Of the fifty different granting clauses, landowners regard

only five as conveying helium as part of the gas granted

therein:

“(21) oil, gas, sulphur and all other minerals (whether or

not similar to those mentioned) .”

**(72) oil, gas, distillate, condensate, uranium, the cium,

salt, sulphur and all other minerals, whether similar or dis-

similar to those mentioned.”

“*(44) oil and gas, including casinghead gas, cosinghead gas-

oline, condensate, and alli related hydrocarbons and includ-

ing all products produced therewith.”

**(48) oil or gas, or both, including, but rot as a limitation,

casinghead gas, casinghead gasoline, gas-condensate (dis-

tillate), and any substance, whether similar or dissimilar,

produced in a gaseous state.”

(50) oil, gas, gas condensate, gas distillate, casinghead gas,

casinghead gasoline. and all other gases and their constit-

uent parts and other minerals produced in connection with

oil and gas operations hereunder.” 148

Their interpretation of these five clauses rests upon language

therein which specifically covers all gaseous substances

without regard to their similarity or dissimilarity to “gas”

in the phrase, “‘oil and gas.”

The word, ‘‘gas,” has two different meanings with which

we are concerned. As a general term used in a physicist’s

sense to describe a state of matter, it is defined typically as

an “‘aenform fluid having neither independent shape nor

volume but tending to expand indefinitely.”14? It is also

used to describe natural gas, which is defined typically in

mining and petroleum industry glossaries as ‘“‘a mixture of

gaseous hydrocarbons found in nature . . .”150

Nothing in the history of the word “gas” itself supports

the argument that it defines only gaseous hydrocarbons. The

word ‘‘gas” was coined in the early 17th century by a Dutch

chemist, J. B. Von Helmont, from the Greek word “chaos”

148 LOX 838, Schedule I.

149 LPX 241.

150 Tid.

to signify a “spirit not capable of being coagulated.” It later

came to mean an “aeriform fluid” used synonymously with

air, and was subsequently restricted to permanently elastic

fluids such as oxygen and hydrogen, as opposed to vapors,

such as steam. In the 19th century, it became parlance for a

mixture of carbureted hydrogen used to give heat and light,

i.e., artificial gas. Gas as used to define natural gas, did not

appear as a dictionary entry until 1914, after which time

natural gas was commonly described as combustible gas

formed in and issuing from the earth’s ‘crust. The term,

“natural,” became affixed to gas to differentiate its superior

fuel and illuminating qualit’ss from artificial gas.15!

Landowners’ arguments that the term, “gas,” as it appears

in the leases is limited to gaseous hydrocarbons are fiv-fold.

We treat each separaiely.

First, landowners argue that the Kansas Supreme Court

has ruled, albeit by way of dicta, that helium is not conveyed

by mere grant of “gas” and that this Court is bound thereby.

In Gilmore v. Superior Oil Co., 192 Kan. 388, 388 P.2d

602 (1964), the Court stated:

“Construction of oil and gas leases containing ambiguities

shall be in favor of the lessor and against the lessee. (2 Sum-

merson Oil and Gas, perm. ed., § 372, p. 485; Stady v. The

Texas Company, 150 Kan. 420 Syl. § 2, 94 P.2d 322.) It

is puzzling to understand why the above textwriter had

such difficulty with this rule for the reason that the lessee

of any oil and gas lease usuaily provides the lease form or

dictates the terms thereof, and if such lessee is desirous of

a more complete coverage of the marketing of oil, gas,

liquid nydrocarbons, or even helium gas, which has re-

cently been found to exist in the minerals underlying the

51 Tr, 12:1092 et seq.

vast Hugoton field, the lessee has the opportunity to pro-

tect itself by the manner in which it draws the lease. Much

more could be said on this point but extension of the dis-

cussion would be pure dictum and of no benefit to the

bench, the bar, or the oil and gas industry.” 192 Kan. at

* ae

Conceding the foregoing is Dut dicta, landowners assert that

this constitutes a clear and intentional statement by the

Supreme Court of Kansas that an oil and gas lease does not

convey helium unless it expressly so provides, citing Curtis

Publishing Company v. Cassel, 302 F.2d 132 at 135 (10th

Cir. 1962); Whitaker v. Texaco, Inc., 283 F.2d 169 at 174

(10th Cir. 1960); Jess Edwards, Inc. v. Goergen, 256 F.2d

542 (10th Cir. 1958).

In each cf the cited cases, the court held that federal

courts, in diversity cases, must follow a ‘‘clear and unequivo-

cal exposition of the law”’ in state court decisions, and that

the force of statements could not be disregarded merely be-

cause they were dicta, and not necessary to the decision,

following Hawks v. Hamill, 288 U.S. 52, 53 S.Ct. 240,

77 L.Ed. 610 (1933). We do not, of course, question the

rule. We cannot concede its applicability here. The cited

statement from the Gi/more case is in no way a clear and un-

equivocal statement that the meaning of “gas” in an oil and

gas lease is armbiguous as to the coverage of any gaseous

constituent in the reservoir.

Failing this, landowners argue that nonetheless, the word

“gas” is ambiguous, and that such ambiguity must be re-

solved against tiie lessee. The alternative meanings alleged

to constitute this ambiguity, are the so-called “physicist’s

meaning,” descriptive of a state of matter, and an alleged

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industry usage of the term “gas” to mean a mixture of gas-

eous hydrocarbons. Evidence offered to establish this usage

simply failed to do so. Virtually no naturally-occurring gas

in underground reservoirs exists in the entire Hugoton and

Panhandle fields which conforms to this alleged usaze. It

was stipulated that in all instances, the gas which comes out

of the wells is a continuous uninterrupted stream of gas

emanating from the wellhead and remains such during its

transmission to the helium extraction plants of each plaintiff

extraction company.!?2 No natural gas company, pipeline

or producer, in the Hugoton area handles any unprocessed

natural gas which is a physically and chemically pure hydro-

carbon mixture. We cannot accept, as an industry usage,

a definition which is so remote from. the realities of that

industry.

We must find, therefore, that the word “gas” as it appears

in oil and gas leases is not ambiguous by reason of the

alternative meanings recited above. We would note that

did such usage exist, there would be no reason to apply it to

oil and gas leases. By landowners’ own evidence, from a

random sampling of 984 leases, it appeared that 65 per cent

of the sample was taken by independent lease brokers, and

not by representatives of the producing industry. 13

Thirdly, landowners rely upon the rule of einsdem

generis, whereby a general term in a series may be given

a limited meaning by other specific words therein. Oil, it is

argued, is synonymous with petroleum, which means liquid

hydrocarbons; it is followed in 99.99% of the leases by

152 Dkt. 59, W-3009.

153 LOX 794; Tr. 4:284 et seq.

gas, a term which, in its most general application, signifies

any substance existing in a gaseous state regardless of com-

position. Being conjoined with oil, it cannot be held to

have been used generally, but specifically, to convey only

those gases similar to oil, i.e. those hydrocarbon compounds

in a gaseous phase.

This argument was raised and rejected in Navajo Trihe

of Indians v. United States, 364 F.2d 20 (Ct. Cl. 1966),

wherein the court states:

“Plaintiff argues that, under the rule of ejusdem generis,

the term ‘gas’ in the granting clause is limited to hydro-

carbons, i.e., gases associated with oii. We see no reason to

apply ejusdem generis to a phrase such as ‘oil and gas,’ and

plaintiff cites no authority for doing so.” 364 F.2d at 327.

We likewise think the argument is without merit. The word

“oil” used in its ordinary, common, general and popular

sense in oil and gas leases refers to crude oil as it is produced

from the mouth of the well. See Hammett Oil Co. v. Gypsy

Oil Co., 95 Okla. 235, 218 Pac. 501 (1921). There is no

evidence that crude oil is a physically and chemically pure

mixture of hydrocarbon compounds. That oil, in the sense

of petroleum, for which landowners contend, is a mixture

of hydrocarbons and other substances is a fact of which the

court may take judicial notice. Petroleum is defined in

Webster’s Third New International Dictionary as follows:

“1. An oily flammable bituminous liquid that in the crude

state often has a very disagreeable odor and may vary

from almost colorless to black but is usu. of a dark brown

or greenish hue and sometimes fluorescent. that occurs in

many places in the upper strata of the earth either in seep-

ages or in reservoir formations from which it is obtained

by drilling and pumping if necessary, that is essentially a

complex mixture of hydrocarbons of different types with

small amounts of other substances (as oxygen compounds,

sulfur componuds, nitrogen compounds, resinous and as-

Phaltic components, and metallic compounds), that is

sometimes classed as paraffin-base, asphalt-base or naph-

thene-base, or mixed base... .

2. any of various substances (as natural gas or shale oil)

similar in composition to petroleum.”

We must conclude, first, that resort to the rule of

eqjusdem generis is neither appropriate nor justified to de-

termine the meaning of the word “gas,” and secondly, were

it properly applicable, the term “‘oil’ provides no limitation

upon the kinds of gases conveyed under the leases.

Moreover, the rule of ejusdem generis is but “merely a

phase of the more general rule that the contract must be

interpreted as a whole,” and “frequently must yield to other

more pressing considerations.” 3 Corbin on Contracts, \

952. Literal application of the rule was sought I re Estate

of Trester, 172 Kan. 478, 241 P.2d 475 (1952), to

include clay with a grant of “oil, gas and other minerals.”

The Co-rt rejected this argument:

“Tt is true that in classifying things as animal, vegetable and

mineral, everything that goes to make up the earth comes

within the general classification of minerals. But this gen-

eral classification cannot be used for the interpretation of

instruments granting specific rights. With respect to that

matter the term ‘mineral’ is not a definite one capable of

universal application. It is suceptible to limitations accord-

ing to the intention of the Parties using it, and in deter-

mining its meaning in a specific instrument not only the

language of the instrument in which it occurs but also

the relative positions of the Parties interested and the sub-

stance of the transaction which the instrument embodies

must be taken into account.” 172 Kan. at 482-483,

“(T]he rule of adjusdem generis [sic] is not properly ap-

plicable where the result would be contrary to the plain and

clear intention of the parties.” Cronkhite v. Falkenstein,

Okla., 352 P.2d 396 (1960).

The landowners introduced much testimony to show

precisely that landowners had zo intention whatever re-

specting helium, and moreover that ‘‘gas” or “natural gas”

would evoke no association with helium. Dr. Bergen Evans,

a noted professor of English, etymologist and lexicographer,

canvassed a compilation of 270 dictionary and encyclopedia

entries concerning “gas” and “natural gas’’!>4 and noted the

relative infrequency with which helicm is mentioned in

relation to either term. He concluded thus:

* . I conclude as a lexicographer, not as a geologist or an

oil man or a signer of leases, simply as one who has exam-

ined the words, on the basis of the 270 dictionary and en-

cyclopedia entries concerning ‘gas’ and ‘natural gas’. . . the

said entries appearing over a period of more than fifty

years, that the ordinary man could not be reasonably

expected to connect ‘helium’ with ‘natural gas.’ 155

He also examined a series of newspaper searches, one

covering certain Kansas newspaners, particularly in Liberal

and Hutchinson,!*6 and another covering newspapers pub-

lished in Guymon, Okiahoma,!>’ between 1920 and 1960.

In the Kansas newspapers, helium was mentioned in 163

items over this forty year period, and in 36 items in the

Oklahoma newspapers.!*® By extrapolation tc demonstrate

154 Helex 128, Parts 1-3.

155 Tr. 13:1160.

156 LOX 776 thru 786.

1857 LOX $9788.

1588 Tr, 11:904; 12:1040.

the lack of association between the two words, he found

that the word “gas” appeared singly or in the phrase

“natural gas” approximately 213,302 times, and helium,

1,010 times. He concluded, thus, that “the word ‘helium’

was a very rare word; that the word ‘gas’ was an exceedingly

common word with the implicati 1 that ‘gas’ was very

much in the thought of the people in this area at that time,

that ‘helium’ rarely was.”’19

Again, from an examination of a collection of 1,042

articles or excerpted items from 28 daily newspapers and

22 periodicals in which the word “helium” appeared,16°

he again concluded that “the association of ‘helium’ with

‘natural gas’ or the word ‘gas’ in the sense of ‘natural gas’

has over the last 65 years been exceedingly rare.”16!

Dr. Evans’ opinion that the word “gas” did not connote

helium to the average lessor or landowner in Southwestern

Kansas, Western Oklahoma or Northern Texas, between

1916 and 1960, is based upon the statistical incidence of

the two words and the relative frequency of their association

in dictionaries, encyclopedias, area newspapers and selected

magazine articles.

The evidence seems clear that gas did not connote he-

lium specifically to the average lessor, and that no land-

owner specifical! ly contemplated helium in granting rights

to produce “‘gas.” Similarly, however, there is no evidence

that any landowner regarded oil as a paysically pure mix-

ture of liquid hydrocarbons, or regarded “gas” as composed

159 LOX 789; Tr. 13:1148.

160 Helex 131.

161 Tr, 13:1181.

solely of hydrocarbons. It would be the sheerest fiction,

in our view, to apply the rule of ejusdem generis to deter-

mine that the average lessor intended zot to convey helium,

when other evidence establishes that he had no intention

whatever respecting it.

This question of intention, however, leads to the land-

owners’ fourth argument, which may fairly be summarized

as follows. The value of natural gas lies primarily in its

suitability for use as a combustible fuel; however, helium

is valueless as a constituent of the fuel stream, and the

average landowner or lessor could not have intended to

convey helium as a part of the gas stream.

The end uses of natural gas produced in the Hugoton

and Panhandle fields, however, are not limited to fuel alone,

and the economic value of natural gas does not lie in its

combustible or hydrocarbon properties alone. The principal

use of gas has been and is, of course, for fuel. The second

most important use of gas is as a feed stock for petro-

chemical operations.!®* The manufacture of carbon black,

by the incomplete combustion of natural gas with oxygen,

162 Tr, 72:6850-6851; Tr. 52:5009. [Helex 103 shows the actual and theo-

retical chemical compounds which are or may be derived from the con-

stituents of natural gas. Hydrocarbon compounds are separated by the

process of fractionation, and are put to diverse end uses: e.g., nc-mal

butane is used as a propellant in aerosol containers, as a feed stock in the

ma~ufacture of synthetic rubber and acetate rayon; both nitrogen and

hydrogen are used in the manufacture of ammonia; normal hexane is used

as a solvent in food processing. Non-hydrocarbon components of natural

gas are also widely used. Phillips, e.g., markets elementary sulphur ex-

tracted from hydrogen sulphide, itself combustible though not a hydro-

carbon compound. Mercaptans, hydrogen and sulphide compounds, are

manufactured from hydrogen sulphide and marketed to stench or odorize

natural gas and liquefied petroleum gas. Carbon dioxide is produced and

marketed as a separate commodity from natural gas. ]

has long been a major use of natural gas. Until 1942, the

gteater part of the gas produced from the Panhandle field

was used in carbon black manufacture and gasoline extrac-

tion, and not to serve pipeline consumer and industrial fuel

markets. Natural gas is also used as a pressuring agent in

oil production, in fireflood, secondary recovery programs,

as a purge for pipelines, and as a cushion gas in underground

gas storage reservoirs.

Certainly, it was the common understanding among land-

owners in the area that the marketability of gas underlying

one’s property depended upon its being at least moderately

combustible, sufficient to justify connection of the well

to a pipeline, a town or city distribution system. On the

other hand, no lessor ever limited the commercial end use

of any gas produced under a lease granted by him, and there

is no evidence that any lessor ever intended not to sell any

and all gas produced thereunder for whatever market ex-

isted. In the only instance before a court where the market-

ability of a gas depended upon its helium content and fitness

for helium extraction, the lessor made no claim that helium

did not pass under the lease. On the contrary, when the

helium plant closed for want of a market for helium, and

production from the well was stopped, the lessor claimed

abandonment of the lease. (See the factual situation in

Hoff v. Girdler, 104 Colo. 56, 88 P.2d 100 (1939), in-

volving a well serving the Thatcher, Colorado helium plant

operated by the Girdler Corporation, referred to earlier

herein. )

At least six witnesses who had either taken leases them-

selves or supervised leasing activities testified that neithe:

Shaina

per

they, nor to their knowledge any other landman or lease

negotiator, had ever discussed the gas stream sought to be

leased in terms of its constituents. The only lease in evidence

making specific provision for helium is a lease to the

Shamrock Oil & Gas Corp., dated April 13, 1965,!®3 long

after the commencement of this litigation, where although

the conventional granting language of “oil, gas and all

other minerals” was unchanged, a special royalty provision

for helium was inserted.

In our view, this argument is but an attempt to convert

an uninformed popular notion respecting the commercial

uses of natural gas into an intention by the lessor to convey

only those discrete constituents of the gas stream, the uses

of which conformed to that notion. In Usilities Productio»

Corp. v. Carter Oil Co., 72 F.2d 655 (10th Cir. 1934),

the Court stated:

“But the argument that the parties contemplated the use of

gas only for such methods of operation and development

as were known to the industry the day the leases were

signed, is specious. It imputes to the parties an intention

to encase themselves, during the terms of the leases, in a

strait-jacket. The oil business, then and nov, is one in

which changes come with lightning-like rapidity. A review

of the patent causes in the courts discloses the frequent

and radical changes made in the methods of oil operations

and development. The argument leads to the conclusion

that residue gas could not be used even for drilling if the

lessee used any improvement in drills or casing-shoes which

was invented after the lease was made. Such a foreshort-

ened intent cannot be imputed to the parties, for they

knew that improvements would come about during the

terms of the leases, and must have contemplated the use

of such improved methods...” 72 F.2d at 659.

163 Shamrock Ex. 1, No. 103/ 4530.

Sete

We cannot import into a plain grant of “oil and gas” an

intention on behalf of either the lessor to convey, or the

lessee to receive, only those gaseous constituents of the

stream the end uses of which conform to a subjective notion

of the commercial end uses of the gas stream at the time of

lease execution. This argument is without merit.

Landowners’ fifth argument rests upon language found

in granting clauses of nearly all the leases herein, which

describe the lessee’s rights upon the premises. Typically,

this language provides that the lease is granted for the

“sole and only purpose of mining and operating for oil and

gas, and laying pipe lines, and building tanks, power stations

and structures thereon to produce, save and take care of

said products or substances... .” [Emphasis supplied. ]

Landowners argue simply that “[r]Jeference to things leased,

including gas, as products or substances seems wholly in-

compatible with reference to a state of matter. [Land-

owners’ Post-Trial Reply Brief, p. 19.] This reference is

irrelevant, in our view, to construction or interpretation of

the word “gas.”

No case cited by landowners supports any of their argu-

ments that gas conveyed by oil and gas leases is limited to

gaseous hydrocarbons only. |

Landowners rely in part upon a group of cases known

as the Oklahoma “casinghead gas” cases. In Hammz-tt Qj!

Co. v. Gypsy Oil Co., 95 Okla. 235, 218 Pac. 501 (1921),

plaintiff owned two-thirds of a 40 per cent interest in >i]

production which had been retained by an original lessee

who had sub-leased part interest to defendant. Defendant

contracted with the original lessors to manufacture gasoline

from casinghead gas produced f-om oil wells. Plaintiff as-

serted that gasoline manufactured from casinghead gas

from an oil well was oil, and entitled to royalty thereon.

The court stated the familiar standard of interpretation:

“In our judgment the question is not whether gasoline

manufactured from casinghead gas is oil in a technical

sense, but whether it is oil in its ordinary and popular

sense, and was so understood by the parties to the oil and

gas lease....” 218 Pac. 502.

The court Snail that oil, in its ordinary and popular sense

as used in the lease referred to crude oil in its natural state

court held that casinghead gas did not constitute oil upon

which a royalty was payable.

A different result was reached in Twin Hills Gasolive

Co. v. Bradford Oil Corp., 264 F. 440 (E.D. Okla. 1919),

wherein the lease provided separately for royalty on oil and

a yearly payment of $200 on each gas-producing well. It

provided further that the lessee would have the right to use

casinghead gas from the wells of the lease for their opera-

tion. It appears that plaintiff sought $200 for each well

from which casinghead gas was produced and sold, not-

withstanding an oil royalty was being paid on production

therefrom. The court held that casinghead gas was oil,

reasoning thus:

“In determining what the intent of the parties was, we look

to the surroundings, the location, and the conditions of the

oil business at that time. The evidence discloses that casing

head gas is a component part of oil, that casing head gas

is not made from dry gas, and that it is not a product of

164 By necessary implication it does not mean a chemically pure mixture of

liquid hydrocarbons.

dry gas, but that it is a product of wet gas, and that wet

gas exists only with oil. Therefore, casing head eas is a

component of cil.” 264 F. at 441.

In George v. Curtain, 108 Okla. 281, 236 Pac. 876

(1925), the court held specifically that casinghead gas was

neither oil nor gas under an oil and gas lease which pro-

vided a royalty on oil from an oil well, and on gas from a

gas well, but not for gas produced from an oil well:

“[{W]here the lease contract... was made prior to the

time when casing-head gasoline was known to be of

commercial value, and no mention made of the casing-

head gas to be taken from oil wells, we are forced to the

conclusion that that subject was not within the contem-

plation of the parties when the lease contract was entered

into, and is therefore not covere’ or controlled by said

lease contract.” 226 Pac. at 877.

The basis for this rule is staed in Broswood Oil Co. v. Sand

Springs Home, 178 Okla. 550, 62 P.2d 1004 (1936):

“Common usage of the terms ‘oil’ and ‘natural gas’ is the

basic principle upon which the foregoing holding is based.

A lease executed for the sole and only purpose of mining

for oil and gas, reserving to the lessor a royalty on oil and

on gas, means oil in its ordinary acceptation and gas from a

gas well as the same is ordinarily understood ... and in the

absence of a contrary intention of che parties the courts

will so construe the lease contract. Sections 9467, 9468,

O.S. 1931.” 62 P.2d at 1006 [Emphasis supplied. ]

In Navajo Tribe of Indians v. United States, supra, the court

suggested that the “Oklahoma courts were motivated by a

desire to insure adequate compensation for the lessors.” 364

F.2d at 326. It may equally be argued, however, that the

Oklaho

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