Appendix — United Gas Improvement Co. v. Callery Properties, Inc.

Supreme Court brief1965

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_—————— acetate

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IN THE

United States Court of Appeals

For Tae Firrs Crmcvurir

Nos.

20872, 20885, 20890, 20891,

20892, 20967, 20989, 21028

Cattery Properties, Inc.; Toe Superior Om Company;

Canotrine Hunt Sanps anp Loyp B. Sanps; Piacm On.

Company; Marcaret Hunt Huw, Trustee ror Hassiz

Hunt Trust; J. Ray McDermorr & ©o., Inc.; Oczan

Dremuimne & Expioration Company, ino.; J. R. FRANKEL,

ET AL., Petitioners,

Vv.

Frperat Powzr Commission, Respondent.

On Petitions to Review and Set Aside Orders of the

Federal Power Commission

JOINT APPENDIX

Press or Byron S. Avams, Wasxincton, D.C.

=>,

TABLE OF CONTENTS

Gas Sales Contract between J. R.

Frankel, et al., and Transcon-

tinental Gas Pipe Line Cor-

WOUUTIE. Se cicveceessctsoeic

Be gp of J. R. Frankel, et

al., for certificate of public con-

venience and necessity filed

August 30, 1957, Docket No.

GaRee a binds heed dase wseere

Opinion No. 315, issued Septem-

ber Be 1958, Docket No. G-12143,

Cf PRES POR OP eee ee

Order denying applications for

rehearing, Docket No. G-13143,

et al., issued October 31, 1958. .

Gas Purchase Contract between

Superior and Transcontinental

covering Fields 76 and 71 ....

Letter, approved by Commission

October 22, 1958, from the Sec-

retary to Vice President of Su-

perior authorizing sale of gas,

Docket No. G-16380 ..........

Order issuing certificates of pub-

lic convenience and necessity,

etc., Docket Nos. G-16380 and

G-16387, issued August 10, 1959

Gas Purchase Contract dated No-

vember 14, 1958, between J.

Ray McDermott & Co., Inc., et

al., Seller, and Hope Natural

Gas Company, Buyer ........

Application for certificate of pub-

lic convenience and necessity,

received December 24, 1958,

Docket No. G-17337, from J.

Ray McDermott & Co., Inc. ...

Transcript

Pages

A3430-A3447

A7258-A7264

A10342-A10372

A10474-A10479

B164-B188

B284

B331-B335

C2333-C2363

C3955-C3962

Appendix

Pages

2-4

5-11

12-30

31-39

39-48

49-50

50-57

57-81

Application for certificate of pub-

he convenience and necessity

from Callery Properties, Inc.,

Docket No. G-17340, received

December 24, 1958 ...........

Application for certificate of pub-

le convenience and necessity

from Callery Properties, Inc.,

Docket No. G-17341, received

December 24, 1958

Notice of Applications and Con-

solidation of Proceedings, is.

sued February 9, 1959, Docket

Nos. G-17335, et al.

Order Denying Rehearing, Dock-

et Nos. G-17335, et al., issued

WRI S, TAR os Gi ks es

Opinion and Order Issuing Cer-

tificates of Public Convenience

and Necessity, Docket Nos.

G-17335, et al., issued August

10, 1959

Petition for Rehearing and Re-

consideration of Opinion No.

327, Docket Nos. G-17335, et al.,

received September 8, 1959

from The Public Service Com-

mission of the State of New

York =

eoeereeeoe eee eee eesene

Application of The Superior Oil

Company for certificate of pub-

lic convenience and necessity,

filed September 23, 1958, Dock-

et No. G-16388 (Exhibit B) ...

Order issuing certificates of pub-

lic convenience and necessity,

etc., Docket No. G-16108, et ai.,

issued August 10, 1959

Contents Continued

Transcript

Pages

C3977-C3985

C3989-C3997

C4264-C4270

C4282-C4283

C4724-C4739

C4747-C4758

D200-D239

Appendix

Pages

97-104

105-113

113-116

116-141

142-152

153-192

193-199

Excerpts from Transcript of

Hearing held June 18-21, 1962,

Placid Oil Co., et al., Docket

Nos. G-13183, et al. ......----

Witnesses:

Dr. J. Rhoads Foster ....

Gaston C. Jones ........

Exhibit X-2: Prepared testimony»

of Robert M. Weddle ........

Exhibit X-6: Placid, 1960 Sum-

mary of Oil & Gas Operations,

Schedules 1, 2,and3........-

Exhibit X-8: Placid, 1960 South

Louisiane Area, Venture Ac-

counting Cost cf Service,

Schedule 1 .........eeeeeees

Exhibit X-13: Testimony of Har-

man Bass, Hassie Hunt Trust

G-14109, Caroline Hunt Sands

G-17398, Placid G-13183-4 ....

Exhibit X-14: Testimony of

Joseph E. Saar ......-------

Exhibit X-15: Hassie Hunt

Trust, 1960 Venture Account-

ing Cost of Service Using Btu

Content Allocations .........

Exhibit X-16: Hassie Hunt

Trust, 1957 Cost of Service

Using Btu Content Allocations

Exhibit X-17: Hassie Hunt

Trust, 1960 Venture Account-

ing Cost of Service Using Res-

ervoir Space and Relative Cost

Allocations .......+-++.++++:

Exhibit X-18: Hassie Hunt

Trust, 1957 Cost of Service

Using Reservoir Space and

Relative Cost Allocations ....

Contents Continued

Transcript

Pages

95-577

216-300

417-433

719-721

801-803

859-897

899-919

930

951

973

255-256

257-259

260-261

262-266

266-267

270

271

Exhibit X-19: Hassie Hunt

Trust, 1960 Venture Account-

ing Cost of Service Using Rela-

tive Cost and Modified Btu Al-

eo ae Mig ee yeaa

Exhibit X-20: Hassie Hunt

Trust, Operator, et al., 1960

Summary of Oil and Gas Pro-

duction wutieme 6.66050...

Exhibit X-22: Hassie Hunt

Trust Comparison of 1957 and

1960 Gas Prices and Cost ....

Exhibit X-24: Caroline Hunt

Sands, 1960 Venture Account-

ing Cost of Service Using Btu

Content Allocations .........

Exhibit X-25: Caroline Hunt

Sands, 1960 Venture Account-

ing Cost of Service Using Res-

ervoir Space and Relative Cost

BT a

Exhibit X-26: Caroline Hunt

Sands, 1960 Venture Account-

ing Cost of Service Using Rela-

tive Cost and Modified Btu Al-

WO. Soro ce Soe ki ve ceecews

Exhibit X-27: Caroline Hunt

Sands, 1960 Summary of Oil

and Gas Production Operations

Exhibit X-29: Caroline Hunt

Sands, Summary of 1960 Cost

of Gas Service ..............

Exhibit X-40: Prepared Testi-

mony of J. Rhoads Foster,

Docket Nos, G-13169, et al. ...

Exhibit X-42: Market Price, Cost

& Related Information. Bear-

ing on the Question of Price

for South Louisiana Supplies,

Docket Nos. G-13169, et al. ...

Contents Continued

Transcript

Pages

1019

1041

1043

1049

1069

1090

1110

1112

1181-1206

1260-1273

Appendix

Pages

272

273

274

275

276

277

279

280

281-285

286-299

Exhibit X-43: Affidavit and Pre-

pared Testimony of J. Phillip

Sherwood, and one-page Ex-

hibit entitled ‘‘United Gas Im-

provement Company, Philadel-

phia Gas Works Division, Fi-

nancial Results of Operations,

1950-191? occ ce cececvinws’s

Exhibit X-61: Synopsis of Ap-

plicants and Certificate

Dockets ....cscccecccesesccs

Exhibit X-62: Callery, Summary

of the Results of Cost of Serv-

ice Studies, ete. .........+---

Exhibit X-66: Callery, Southern

Louisiana Area, Excess (De-

ficiency) of Investment and

Finding Costs Over Present

Value of Estimated Future Net

Revenue and Drilling Results

for Years 1954 to 1959, In-

MG 5 vk ine sdes vane pena ens

Exhibit X-67: That portion of

Witness Gaston C. Jones’ Tes-

timony described by the Pre-

siding Examiner on page R-414

Exhibit X-68: That portion of

Witness Gaston C. Jones’ Tes-

timony described by the Pre-

siding Examiner on page R-415

Exhibit X-70: Prepared Testi-

mony of M. Paul LeBlanc, Jr.,

together with attached exhibits

Exhibit X-72: Prepared Testi-

mony of Armand F. Quere, to-

gether with attached exhibit ..

Exhibit X-73: Prepared Testi-

mony of Jack W. McNutt, to-

gether with attached exhibit ..

Contents Continued

Transcript

Pages

1277-1296

2114

2115

2131-2132

2133-2138

2139-2152

2175-2228

2306-2310

2339-2343

Appendix

300-319

320

321

322-323

325-330

330-343

343-351

352-355

356-360

vi Contents Continued

Exhibit X-75: Prepared Testi-

mony of W. E. Strain, together

with attached exhibit ........

Exhibit X-76: Prepared Testi-

mony of C. A. Noble, together

with attached exhibit .........

Exhibit X-77: Prepared Testi-

mony of Don W. Prescott, to-

gether with attached exhibits. .

Exhibit X-79: Prepared Testi-

mony of James L. Norman, to-

gether with attached exhibits. .

Exhibit X-80: Prepared Testi-

mony of Pat F. Timmons, to-

gether with attached exhibits. .

Exhibit X-81: Prepared Testi-

mony of Robert L. Conkling,

together with attached exhibits

United Gas Affidavit that facili-

ties authorized have been com-

pleted, G-16556, received No-

vember 30, 1959 .............

Callery Properties, Inc. Motion

to amend certificate of public

convenience and necessity,

at received April 11,

Order Amending Certificates of

Public Convenience and Neces-

mf etc., issued January 13,

Callery Motion to amend certifi-

cate of public convenience and

necessity, G-17340, received

pg Se Se errr

CA9 Decree in UGI v. FPC, No.

16692 filed October 31, 1960 ...

Transcript

Pages

2352-2373

2381-2390

2397-2417

2487-2496

2500-2513

2518-2557

2662-2663

3000-3001

362-363

363

364-365

365-366

366-367

370-371

371

372-374

374-375

375

Order Instituting Rate Proceed-

ing for the Southern Louisiana

Area, etc., Docket Nos. AR61-2,

et al., issued May 10, 1961 ....

Letter of June 5, 1961 from FPC

to Superior issuing temporary

authorization, etc., Docket No.

GBT ies dike eekbb ic Cheers

Telegram dated July 10, 1961,

from FPC to Superior stating

deliveries should be resumed,

etc., Docket No. G-16380 ......

Telegram dated and received

July 11, 1961, from Superior to

FPC, Docket No. G-16380, stat-

ing deliveries will be resumed,

CA5 Judgment and Opinion in

UGI v. FPC, No. 18113, dated

February 22, 1961 ...........

FPC Letter dated August 2,

1961, to Superior, Docket No.

G-16380, authorizing contin-

uance of sale, etc. ............

Superior letter dated August 4,

1961, to FPC regarding au-

thorizations as to Blocks 71 and

4 etc., received August 7,

WOME We snic sc teesccueie

FPC letter dated August 16,

to Superior, Docket No.

G-16380, in response to letter

SG TG seco cei Nedeen ces

Berkshire Motion to Amend Ap-

plications for and Certificates

of public convenience and ne-

cessity, Docket Nos. G-4011, et

al., received September 6, 1961

Contents Continued

Transcript

Pages

3047-3052

3376

3640A

3640B

3640C

3641-3643

376-384

384-385

385-386

389-390

390-391

392-394

Viii Contents Continued

Order Denying Motions, Dis-

missing Petitioner, and Issuing

Notice of Refund Obligations,

Docket Nos, G-13169, et al., is-

sued January 10, 1962 ........

Callery Petition to amend cer-

tificate of public convenience

and necessity, G-17340, re-

ceived February 5, 1962 ......

. Order Denying Rehearing, Sever-

“ing and Consclidutine Pro-

~ ceedings, and Providing Fur-

ther Procedures, Docket Nos.

G-13169, et al., issued March 7,

1962, together with Errata No-

tice issued March 16, 1962 ....

Notice of Extension of Time and

Postponement of Hearing,

Docket Nos. G-13169, et al., is-

sued March 27, 1962 .........

Order Convening Settlement

Conference, Docket No. G-

Lg et al., issued April 13,

Notice of further extension of

time and denial of postpone-

ment of hearing, Docket Nos.

G-13169, et al., issued April 30,

pA Scere eee pe reren

Chief Hearing Examiner’s Rul-

ing on Procedural Suggestions,

Docket Nos. G-13169, et al.,

filed May 14, 1962 ............

Continental Motion for contin-

uance of hearing, G-13758, et

al., received May 15, 1962 .

Notice of Severance, ‘Getenhinn

of Time and Postponement of

Hearing, Docket Nos. ep

et al., issued May 16, 1962 .

Transcript

Pages

3742-3749

3848-3850

4311-4329

4601-4603

4695

4733-4734

4737-4738

4792

Appendix

Pages

395-405

409-422

423-424

424-426

427-428

428-430

430-432

433-434

Notice of Severance, Extension

of Time and Postponement of

Hearing, Docket Nos. G-13169,

et al., issued May 17, 1962 ....

Notice of Denial of Requests for

Further Extension of Time,

Docket Nos. G-13169, et al.,

issued May 17, 1962 .........

Notice of Severance, Extension

of Time and Postponement of

Hearing, Docket No. G-17336,

issued May 18, 1962 ..........

Staff Memorandum of Position,

G-13169, et al., filed May 18,

SOU CUMMIUNED Coch siscccasese

Sunray DX Oil Co. Motion for

Severance or in the Alterna-

tive, for a Continuance and

Postponement of Hearing

Date, G-13169, et al., received

ge rt re

Notice of Severance, Extension

of Time, and Postponement of

Hearing, Docket No. G-14753,

issued May 22, 1962 .........

Motion for Continuance, Docket

G-13183 et al. ....... teats é

Notice Setting Forth Consoli-

dated Dockets; New Lead Doc-

ket Number of Consolidated

Proceedings, etc., Docket Nos.

es et al., issued May 24,

Notice of Postponement of Hear-

ing and Extension of Time to

File Data, Docket Nos. G-13183,

et al., issued May 25, 1962 ....

Contents Continued

Transcript

Pages

4798

4799

4810

5047-5050

5121-5124

5134

5135

5136-5138

5149

435-436

437-438

439-441

422-444

445

447-451

x Contents Continued

Berkshire Motion for Severance,

Docket Nos. G-13169, et al.,

received May 25, 1962 .......

Notice of Severance, Extension

of Time and Postponement of

Hearing, Docket Nos. G-13183,

et al., issued June 4, 1962 ....

Staff Answer in Opposition to

Motion for Severance ........

Presiding Examiner’s Notice

with respect to procedure for

June 18 session, Docket Nos.

ae et al., issued June 8,

Presiding Examiner’s Supple-

mental Notice, Docket Nos.

ar et al., issued June 11,

WO a5 oes eos os ents hee

Notice of Severance and Post-

ponement of Hearing, Docket

Nos. G-13183, et al., issued

Be. EE ee

Notice of Severance and Post-

ponement of Hearing, Docket

Nos. G-13183, et al, issued

Fame 16, TOG vkvicdscccccccess

Notice of Severance and Post-

ponement of Hearing, Docket

Nos. G-13183, et al., issued

SUE BO, LID koe ccecsccdieres

Superior Answer to petition of

un for issuance of order ap-

proving offer of settlement

and reissuance of certificates,

G-13183, et al., received Sep-

tember 26, 1962 .............

Transcript

Pages

5208

5211

§213-5214

5222

5269

5272-373

5277

5314-5315

Appendix

459-460

461

462

463-464

466-467

Mississippi River Petition for

order reissuing permanent cer-

tificate of public cenvenience

and necessity in accordane with

application as modified by set-

tlement offer, and request for

shortened procedures, G-17413,

received October 1, 1962 ......

Sun Amended Offer of Settle-

ment, G-13710, et al., received

October 15, 1962 ....<:........

Order Approving Offer of Settle-

ment, ate Be Proceedings

and Conditionally reissuing

permanent certificates of public

convenience and necessity, Doc-

ket Nos. G-13183, et al., issued

November 14, 1962 ...........

Order Approving Offer of Settle-

ment, Severing Proceedings

and Conditionally reissuing

permanent certificate, etc., Doc-

ket Nos. G-13183, et al., issued

November 30, 1962 ..........

Order Severing Proceeding and

Conditionally Reissuing Per-

manent Certificate of Public

Convenience and Necessity,

G-13183, et al., issued Decem-

go SPeer ee ere rere

Decision Upon Applications for

Certificates of Public Conven-

ience and Necessity, Docket

Nos. G-13183, et al. issued

December 7, 1962 ...........

Notice of Extension of Time,

G-13183 et al., issued December

Contents Continued

Transcript

Pages

5333-5343

5365-5374

5386-5389

5426-5429

5430-5432

Appendix

468-472

472-476

477-481

482-486

487-490

491-540

541-542

J. R. Frankel, et al., Motion for

Substitution of Parties, Docket

No. 13197, received January

Rai POOR ossca ie bic cere.

Order Conditionally Approving

Offers of Settlement and re-

issuing certificates of public

convenience and necessity, Doc-

ket Nos. G-17560 and G-17399,

issued March 13, 1963 ........

Opinion No. 398, Opinion and

Order Issuing Certificates of

Public Convenience and Neces-

sity, Docket Nos, G-13185, et

al., issued July 17, 1963 .....

Callery Properties, Inc., et al.,

FPC Gas Rate Schedule No. 2

‘Callery Properties, Inc., -et al.,

FPC Gas Rate Schedule No. 9

Superior Petition for rehearing

and motion for stay of order-

ing paragraphs of Opinion 398,

13183, et al., received August

Te, FM ois ccc cba ns whee’

Ocean Drilling Application for

Rehearing, G-17342 and

ga received August 13,

Opinion No. 398-A, Memorandum

Opinion and Order Clarifing

Opinion and Order, Denying

Applications for Rehearing

and Motion to Reopen for

Additional Evidence, and

Granting Stay, Docket Nos.

G-13183, et al., issued Sep-

tember 11, 1963 .............

Contents Continued

Transcript

Pages

5623-5626

5875-5877

5895-5923

6107-6123

6189-6205

6356-6370

6378-6391

6617-6625

542-544

545-549

549-593

593-598

598-602

603-606

606-617

Proceedings in the United States Court of Appeals for the

WeNOOUNS. 6 SG 53 5k. Ss Le nn Sedu e den dnn 619 619

CO, ME, Cried a advacuibcankbednadaddvenanndoe 619 620

PO is bdite 4 eRe tebe Cn dbhecscwecasaces 651 643

Clerk’s certificate (omitted in printing)...............--.-- iii 644

Orders extending time to file petitions for writs of cer-

thowast tm Dios. 7i4 aad T60. oon cn cenneses cues

IN THE

United States Court of Appeals

For THE Firrs Cracuir

Nos.

20872, 20885, 20890, 20891,

20892, 20967, 20989, 21028

Cattery Properties, Inc.; Toe Superior Om Company;

Carotine Hunt Sanps anp Loyp B. Sanps; Piaci Om

Company; Marcaret Hunt Huw, TrusTee ror Hasse

Houwt Trust; J. Ray McDermorr & Co., Inc.; Oczan

Danuiine & Expiroration Company, Inc.; J. R. FRANKEL,

ET AL., Petitioners,

FeprraL Power Commission, Respondent.

On Petitions to Review and Set Aside Orders of the

Federal Power Commission

JOINT APPENDIX

A3430

Contract No. 2479

Strate or Louisiana

Parisu or LarourcHE

This agreement entered into the 12th day of August,

1957, between J. R. Frankel and R. R. Frankel, as ‘‘Seller’’

and Transcontinental Gas Pipe Line Corporation, as

‘*Buyer’’.

WITNESSETH:

* “PHaT wHereas, under authority of Federal Power Com-

mission Certificates of Public Convenience and Necessity,

Buyer owns and operates a natural gas transmission pipe

line system and now proposes, upon receipt of acveptable

certification from said Federal Power Commission, to con-

struct and operate additional facilities to such pipe line

system (hereinafter called ‘‘new facilities’’) for the pur-

pose of purchasing and receiving gas produced from fields

in South Louisiana; and

Wuenras, Seller has natural gas producing acreage in

the North Thibodeaux Field, Lafourche Parish, Louisiana,

described in Exhibit ‘‘A” and outlined on plat marked

Exhibit ‘‘A-1’’, both hereto attached and made a part

hereof for all intents and purposes, and desires to produce

therefrom and sell to Buyer natural gas in the quantities

and upon the terms and conditions hereinafter set forth:

A3431

Now, THEREFORE, in consideration of the premises and

the mutual covenants herein contained, Seller and Buyer

agree:

® eS

(A3446)

A3445

Argtiote X

Price

1. Subject to the other provisions of this agreement,

for quantities of gas delivered during the periods below

established, or if available and not taken as herein re-

quired, Buyer shall pay Seller the following prices per

Mef. gh

(a) From date of first delivery to July 1, 1962,

twenty-one and one-half cents (21.5¢) ;

(b) From July 1, 1962 to July 1, 1966, twenty-three

and one-half cents (23.5¢) ;

and one-half cents (25.5¢) ;

(d) From July 1, 1970 to July 1, 1974, twenty-

seven and one-half cents (27.5¢) ;

(e) From July 1, 1974 and thereafter during the

term hereof, twenty-nine and one-half cents (29.5¢) ;

all on the measurement basis set forth in Article IT of

Exhibit ‘‘B’’ hereof. » we)

A3446

2. Buyer shall reimburse Seller for its payment of the

gas gathering tax, and severance tax, at the rate presently

established by the laws of the State of Louisiana or any

tax or taxes assessed in lieu thereof, provided the total

one hundred per cent (100%) reimbursement for such gas

gathering tax, severance tax and any tax or taxes assessed

in lieu thereof shall not exceed the total of the rates pres-

ently established by the laws of the State of Louisiana,

and agrees that if at any time during the term of this

(A3446)

agreement any new or additional] occupation, production,

severance, gathering, compression, or sales tax or taxes

of similar nature or equivalent in effect, in excess of the

rate prevailing as of the date hereof, shall be validly im-

posed by any lawful authority on the gas delivered to

Buyer pursuant to this agreement, or on the production,

severance, gathering, or sale thereof, so that Seller shall

be required to pay such increase either directly or through

reimbursing others, Buyer shall, subject to the conditions

hereinafter set forth, reimburse Seller in the amount of

three-fourths (%4ths) of any such increase in taxes or

three-fourths (34ths) of such new taxes, provided, how-

ever, that in computing such increases in taxes there shall

not be included increases in income taxes, capital stock

taxes, franchise taxes, general property taxes, or such

other taxes of like nature as may hereafter be imposed.

In case any such reimbursement for taxes is to be made,

Seller shall notify Buyer immediately

A3447

setting forth the basis of such increase in taxes to be paid

by Seller on gas delivered, and Buyer shall reimburse

Seller monthly for three-fourths (34ths) of the increase

in the amount of taxes paid or to be paid on gas delivered

by Seller during the preceding calendar month.

e * ° « © * es *

A7258

Received August 30, 1957

UNITED STATES OF AMERICA:

BEFORE THE

FEDERAL POWER COMMISSION

Docket No. G13197

In the Matter of

J. R. Frawxe, anp R. R, Franxet

Application for Certificate of Public Convenience

and Necessity

Comes now J. R. Frankel and R. R. Frankel (herein-

after collectively referred to as ‘‘Applicants’’) and hereby

make application, pursuant to and in accordance with the

provisions of Order No. 174-A issued by the Federal

Power Commission on August 6, 1954, in Docket No. R-

138, as amended, and Section 7 of the Natural Gas Act, as

amended, for a Certificate of Public’ Convenience and

Necessity covering the proposed sale of natural gas as

hereinafter particularly described.

Applicants specifically reserve the right to pursue any

and all remedies which they may have relating to the ~

asserted jurisdiction by the Federal Power Commission

and this application is filed without prejudice to such

rights.

In support of their application Applicants respectfully

show as follows:

A7259

Description of Applicants

(Section 157.24 (a) (1) and (2))

The exact legal name of Applicants herein are (a) J. R.

Frankel, an individual, having his principal place of busi-

ness at 940 Mellie Esperson Buildizg, Houston, Texas,

and (b) R. R. Frankel, an individual having his principal

place of business at 940 Mellie Esperson Building, Hous-

ton, Texas. Each of the Applicants conducts his business

in Louisiana from an officer at 222 Shell Building, New

Orleans, Louisiana. Hach of the Applicants has been do-

ing business continuously in Louisiana as an individual

since prior to the year 1940. The contemplated sale is

new and is to be performed wholly within the Parish of

Lafourche, State of Louisiana.

II.

Persons on Whom Papers Are To Be Served

(Section 157.23(3))

The name, title and post office address of the persons

to whom correspondence or communications in regard to

this application are to be addressed are:

Harry A. Poth, Jr.

910. 17th St., N.W.

Washington, D. C.

and

H. H. Hillyer, Jr.

1122 Whitney Building

New Orleans, Louisiana

(A7260)

A7260

III.

Service To Be Certificated

(Sections 157.24 (a) (4))

Applicants propose to sell natural gas to Transcon-

tinental Gas Pipe Line Corporation (‘*Transcontinental’’)

at a delivery point located on one of leases of J. R. Frankel

in the North Thibodaux Field, Township 14, South, Range

16 East, Lafourche Parish, Louisiana, commencing not

later than March 1, 1958, pursuant to a contract which is

attached hereto as Exhibit ‘‘B”. Applicants are informed

and, therefore, allege that Transcontinental is engaged in

the transportation and sale of natural gas in interstate

commerce and is a natural gas company within the mean-

ing of the Natural Gas Act, as amended.

IV.

Sources of Gas

(Section 157.24(a)(4) (i))

All of the gas sold and delivered to Transcontinental

will be produced by Applicants from acreage under lease

to and controlled by Applicants in the North Thibodaux

Field, which is located in Lafourche Parish, Louisiana.

None of the gas involved will be purchased by Applicants

from third parties. At the present time Applicant J. R.

Frankel alone has gas available for delivery to Trans-

continental, no wells having been drilled by R. R. Frankel.

However, R. R. Frankel joins in this application inasmuch

as, by the contract annexed as Exhibit ‘‘B’’, his leases in

said area have been dedicated to the performance of said

contract.

(A7261)

A7261

The location of the North Thibodaux Field and the wells

therein are shown on Exhibit ‘‘A’’ attached hereto. The

leases owned and controlled by Applicants in the North

Thibodaux Field from which the gas proposed to be sold

is to be produced, are likewise shown on Exhibit ‘‘A’’.

The gas is to be delivered at a central delivery point in

Section 110 or Section 11, T. 14 S., R. 16 E.

Vv.

Routes of Pipeline

(Section 157.24(a)(4) (ii))

Applicant, J. R. Frankel, will construct such gathering

lines as may be necessary to transport the gas in question

from the well or wells to the central delivery point above

mentioned. The route of the pipeline by means of which

the gas sold by Applicants will be transported by Trans-

continental will be shown by the exhibits annexed to the

application of Transcontinental for a certificate authoriz-

ing the construction thereof.

VI.

Communities Served

(Section 157.23(a)(4) (iii))

Applicants were not serving natural gas on June 7, 1954,

to any communities either at wholesale or at retail nor

do Applicants propose any such service in this Applica-

tion. The new service now proposed is solely the sale of

natural gas produced by Applicant, J. R. Frankel, to

Transcontinental.

A7262

Vil.

Main Line Industrial Customers

(Section 157.24(4) (iv))

Applicants were not selling gas to ‘‘main line industrial

customers’’ on June 7, 1954, and do not propose to make

any such sales under this Application.

VI.

Major Appurtenances

(Section 157.24(a)(4 )(v))

Applicants do not propose to construct or use any major

appurtenant properties and facilities in connection with

the proposed sale to Transcontinental.

IX.

Other Authorizations Required

(Section 157.23(b) )

In an application filed concurrently herewith, Trans-

continental is seeking authorization to construct and op-

erate facilities to enable it to take the gas to be delivered

by Applicant, J. R. Frankel. In addition, applicants are

informed that other independent producers will concur-

rently file certificate applications seeking authorization to

sell gas to Transcontinental in connection with this project.

Other Information

(Section 157.27)

In anticipation that the Commission might desire other

information as to Applicant’s production, Applicants show

(A7262)

that the acreage under lease to and controlled by Appli-

cants in the North

A7263

Thibodaux Area amount to approximately 3,400 acres; that

the estimated gas reserve in place under Applicant’s acre-

age amounts to approximately 55,000,000 Mcf.

XI.

Exhibits

(Section 157.25)

Exhibit A—Location of Facilities.

There is attached hereto as Exhibit ‘‘A’’ a map showing:

(a) The location of the gas field from which gas is to

be produced by Applicants and sold; and

(b) Not showing, however, the location of any pipe

lines of the Applicant, J. R. Frankel, since said Applicant

proposes only to construct small gathering lines from

the wells to the point of delivery; and

the facilities or pipe line systems of other companies ex-

cept insofar as the sale to Transcontinental herein re-

ferred to is shown and, accordingly, the only such point

of connection with Transcontinental will be at a point

located in Section 110 or in Section 111, T. 14 S., R. 16 E.;

and

(d) There will be no delivery to Applicants’ facilities

since Applicants merely propose a sale of gas produced

by Applicants; and

(e) No communities are proposed to be served by this

Application; and

age te ee

(A7264)

(f) No main line industrial customers are proposed to

be served by this Application.

Exhibit B—Service Contract

There is attached hereto as Exhibit ‘‘B’’ a true and

correct

A7264

copy of the contract between Applicants and Transcon-

tinental under which Applicants propose to sell the gas

produced by Applicants in the North Thibodaux Field.

Wuenerore, J. R. Frankel and R. R. Frankel (each for

his own interest and not for the interest of the other)

respectfully request:

(1) That the Commission issue to J. R. Frankel a Cer-

tificate of Public Convenience and Necessity authorizing

him to render the service and make the sale described in

this Application; and

(2) That this Application be disposed of in accordance

with the shortened procedure provided for in Rule 1.32 of

the Commission’s Rules of Practice and Procedure, and

in this connection, Applicants request that the intermediate

decision procedure be omitted and waive oral hearings and

opportunity for filing exceptions to the decision of the

Commission; and

(3) Such other and further relief as may appear war-

ranted in the premises. .

Respectfully submitted,

J. R. FRANKEL

R. BR. Franken

A10342

UNITED STATES OF AMERICA

FEDERAL POWER COMMISSION

Before Commissioners: Jerome K. Kuykendall, Chairman,

William R. Connole and John B. Hussey

Docket Nos. G-13143, G-13590 and G-13745

Docket No. G-13793

Docket Nos. G-13169, e¢ al.

In the Matters of

TRANSCONTINENTAL Gas Pirre Line Corporation

New York State Natrurat Gas Corporation

Texas Eastern TRANSMISSION CORPORATION

TRAN\CONTINENTAL Gas Pree Line CorpPoraTION

Texaco Srasoarp Ino., e¢ al. (successor to

Seaboard Oil Company)

1 As set forth in a motion and an amended application filed herein June

6, 1958, all of Seaboard Oil Company’s oil and gas producing properties and

contracts have been acquired by ‘‘Texaco Seaboard Inc.’’ which requests

that it be substituted for Seaboard as applicant herein, waiving such of the

Commission’s Rules as may be necessary to this end. No objections having

been received, it is appropriate that the request be granted and our order

shall so provide. For convenience we shall refer to this party as Seaboard

and to the producer proceedings as the Seaboard proceedings.

Opinion No. 315

Opinion and Order Granting Certificates of Public Conveni-

ence and Necessity Under Section 7(e) of the Act, Sever-

ing Issues and Deferring Decision Thereon, and Modifying

and Affirming Initial Decisions of the Presiding Examiner

A10344

Tue Commission’s DETERMINATIONS

The applications of the producers in the

Seaboard Dockets, Nos. G-13169, et al.

As indicated above, the presiding examiner in his Sea-

board decision in Docket Nos. G-13169, et al., held that

certificates of public convenience and necessity should

issue in 38 of the 39 dockets wherein independent pro-

ducers seek certificates authorizing the sale of their gas

to Transco. The sales in question involve approximately

two trillion cubic feet (2,000,000,000 Mcf) of natural gas

to be produced in southern Louisiana and off-shore adja-

cent areas, and constitute the supply necessary for Trans-

co’s proposed system expansion. The prices for the sales

provided for in the gas purchase contracts between the

producers and Transco range from 22.4 cents to 23.3 cents

per Mcf.

The examiner concluded that the elements properly to

be considered in determining public convenience and neces-

sity, as contained in the Act and as applied in Commission

and judicial decisions, were satisfied. Applying our order

issued March 31, 1958, in Matter of Hope Natural Gas

4One producer, Arkansas Fuel Oil Corporation, filed notice of withdrawal

of its application on April 24, 1958, and its application may be deemed with-

drawn under the Commission’s Rules of Practice and Procedure.

(A10345)

A10345

Company, Docket Nos. G-12571, et al.,5 he found that there

is a market for the producers’ sales at the prices proposed

and that their proposed projects are economically feasible

at the prices proposed; and he held that a prima facie

showing had been made justifying the issuance of cer-

tificates to the producers.

The examiner further concluded that under our opinion

No. 309 and accompanying order issued March 31, 1958,

in Matters of Seaboard Oil Company, Docket Nos. G-

11970, e¢ al., no sufficient evidence had been adduced to

rebut the producers’ prima facie showing or justify the

imposition of a rate condition reducing their proposed ini-

tial prices. He pointed out that no evidence was adduced

to show that the producers’ initial rates were unreason-

able; and held that the fact that the prices were higher

than those being paid by Transco for other gas, which was

the character of the evidence adduced by staff, did not

make them unreasonable per se. He noted further that

although the prices proposed by the producers were higher

than ‘previous purchases by Transco, they did not estab-

lish a new price plateau in the southern Louisiana area.

Likewise, as the examiner observed, even assuming that

the proposed prices could ‘‘trigger’’ existing prices with

claimed resulting annual increases in prices for gas to

Transco of some $5,000,000, no such increases could ma-

terialize absent Commission approval of filings for pro-

posed increases.

5 We held there that (mimeo., p. 3):

‘*We are of the view that if the [independent producer] applicant proves

there is a market for the gas at the proposed price and that the project is

economically feasible at the proposed price (both market and economic feasi-

bility being factors which we consider in determining public convenience and

necessity) that it has sustained its burden of going forward with the evi-

dence, and in the absence of evidence showing that the proposed price or

rate adversely affect the public convenience and necessity, the applicant has

mode out a prima facie case, and a certificate should issue to it.’’

(A10346)

For these and other reasons the examiner was of the

view that there was no substantial evidence of an adverse

effect on the public or the consumer from the producers’

proposed rates. Accordingly, he concluded that the sales

by the producers to Transco should be certificated at the

prices proposed, and refused to attach initial rate condi-

tions reducing the initial prices to 17 cents per Mcf from

a proposed range of 22.4-23.3 cents per Mcf, as advocated

by staff and some of the representatives of consumer in-

terests.

The public convenience and necessity—We are of the

opinion that the presiding examiner reached the correct

result and that his basic conclusions summarized above

are sound, although we are unable to agree

A10346

with certain of the qualifying language contained in his

decision hereinafter discussed. We agree with the exam-

iner that certificates should be issued to the producers

authorizing their sales of natural gas to Transco at the

initial rates provided for im their respective sales con-

tracts without any rate conditions...

It must be kept in mind in considering all these certifi-

cate cases that the ‘‘public convenience and necessity,’’

the prevalent standard in determining whether a requested

authorization should be granted under Section 7(e), is not

a rigid absolute of unchanging content, to be mechanically

applied regardless of the wide diversity of facts pre-

sented by different cases. This criterion, a ‘‘supple in-

strument for the expert body which Congress has charged

to carry out its legislature policy,’’ is and can only be as

‘‘concrete as the complicated factors for judgment in

such a field of delegated authority permit,’’ F.C.C. v.

Pottsville Broadcasting Co., 309 U.S. 134, 138. These fac-

(A10346)

tors are diverse and they change * so that ‘‘ ‘The require-

ment is to be interpreted by its context’’’—by the nature

of the business regulated, by the ‘‘ ‘scope, character and

quality of services,’’’ to mention only some of the per-

tinent circumstances.’

In a word, public convenience and necessity is a ‘‘com-

plex’’* encompassing numerous elements which in diver-

sity and importance vary with the circumstances of par-

ticular cases; and in determining whether a certificate

should issue, we must weigh the relative importance of

the several factors involved, as well as balance the fav-

orable against the unfavorable, if any. Furthermore, in

evaluating the circumstances of a particular case it may

well be that, in the judgment of the agency to which deci-

sion is entrusted, an aspect of a proposal not wholly

desirable standing alone should be accepted where offset-

ting favorable features exist which would in sum total

yield a greater public good, so long as all minimal require-

ments are satisfied.’

¢The language of the Supreme Court in the Pottsville case, respecting the

similar language, ‘‘public convenience, interest, or necessity’’ applicable by

the Communications Act has equal force here with respect to the natural-

gas industry (309 U.S. at 138):

«¢, . . Underlying the whole law is recognition of the rapidly fluctuating

factors characteristic of the evolution of the ... [natural-gas industry]

and of the corresponding requirement that the administrative process

possesses sufficient flexibility to adjust itself to these factors.’’

? The language of the Supreme Court in National Broadcasting Co. v. U. 8.,

819 U.S. 190, 216 (1943), quoting its earlier decision in Federal Radio

Comm’n v. Nelson Bros. Co., 289 U.S. 266, 285.

8 National Coal Ass’n v. F.P.C., 191 F. 24 462, 467 (CADO, 1951).

®Cf., Soripps Howard Radio v. F.C.C., 189 F. 2d 677 (CADC, 1951), cert.

den., 324 U.S. 380.

(A10347)

A10347

This is the law as we have understood and applied it

for many years. And the courts have rather uniformly

agreed with this interpretation.

Price is an element in determining public convenience

and necessity in a producer certificate case. But price is

only one factor. And in circumstances such as those which

exist in this case, the importance of price in relation to

the other elements involved may be materially lessened.”

Nor do we view the price question as ‘‘latent,’’ in the

words of the examiner. The issue is presently before us.

The state of this record, however, permits of but one con-

clusion—that no basis exists either for denying the pro-

ducer certificates requested on the ground of price or for

attaching to them rate conditions reducing the initial rates

below the levels proposed in the producer contracts.

The presiding examiner’s findings on the price issue are

fully supported by the facts, which sufficiently satisfy the

minimum standards of law applicable in a case of this

kind. There is no evidence in this record to show that the

producer prices proposed are unreasonable and it is im-

practicable within the confines of a certificate proceeding

to apply a cost-of-service formula under Sections 4 and

5 of the Act to determine just and reasonable rates for

initial sales of producers. Likewise, the producer prices

% Indeed, our experience discloses that in the context of a producer certifi-

cate proceeding, many of the elements of public convenience and necessity

we ordinarily consult in pipeline proceedings take on a different connotation

or lose much of their pertinency. For example, the engineering aspects of

a proposed pipeline project traversing rugged and inaccessible mountains or

squestered population centers is important in pipeline certificate cases. Not

so in producer certificate cases where often the only facilities involved are

short connecting lines to the points of delivery, plus the necessary appur-

tenant meters, valves, etc., respecting which problems of design and construc-

tion are practically non-existent. And in varying degrees the same is to be

said of markets and economic feasibility and the like.

(A10347)

proposed do not set a new price level, since other pipe-

lines are buying gas in the general area in the same price

range. Nor is there evidence from which it can be found

that the ultimate consumers of gas will be materially ad-

versely affected by reason of the prices Transco will pay.

In relation to all the facts, the prospective price increase

to Transco’s customers as a result of these producer prices

does not establish an adverse effect justifying rate con-

ditions. Indeed, according to Transco, during the time

the company, acutely aware of the increasing demands on

its system, was negotiating for these supplies, it apprised

its principal

A10348

customers of what prices it would have to pay and what

reserves it could acquire at those prices. Possessed of

this information, these customers did not hesitate to com-

mit with Transco for the purchase of these new supplies

of gas. In fact, to avoid the restrictive effects of the Mem-

phis case, Memphis Light, Gas & Water Div. v. F.P.C.,

250 F. 2d 402, the distributing companies have agreed

with Transco to pay up to two cents more to Transco to

meet possible increased costs to Transco for gas involved

in this case, reserving of course their rights to contest

any increase.

And the reason for this is obvious. A whole expansion

program, the largest proposed by Transco since the pipe-

line commenced operations, is involved in these proceed-

ings—a program of which the distributing companies are

the chief beneficiaries. The record shows the urgent need

for the supplies of gas this program would make available

to meet Transco’s resale gas system requirements com-

mencing with the coming winter. Transco states that to

limit it to paying 17 cents for gas would prevent the com-

pany’s acquiring any new gas, would prevent its further

expansion and would remove hope of meeting the increased

(A10348)

demands of its customers and their consumers for natural

gas. Without this gas, Transco will experience a peak

day deficiency next winter of 117,000 Mcf in meeting such

requirements which will increase to 171,000 Mcf by 1961.

Without these supplies, most likely these customers would

at best find it necessary to purchase gas at higher prices

elsewhere. In our judgment, a consideration of all the

factors giving to each its appropriate weight can read

only to the conclusion that public convenience and neces-

sity requires the certification of the producer sales at

the initial prices proposed, a conclusion further fortified

by the additional considerations discussed in connection

with the parties’ exceptions, infra, pp. 9-11.

Furthermore, if a rate condition is to be imposed, there

must be some evidential showing to establish what the

new rate should be. It is not sufficient to select arbitrarily

or at random some price a few cents lower than that pro-

posed by the producer. The new price must be arrived at

on the basis of facts, in the application of some rational

criterion, if the condition imposing it is to be found ‘‘rea-

sonable’? as Section 7(e) requires. No such facts or cri-

terion are present in this case. One intervener suggested

that the Commission fix an initial rate of 9.79 cents per

Mef, said to be the only rate which Transco is paying in

the southern Louisiana area the reasonableness of which

is not challenged. Others and staff picked out 17 cents,

based on a list of contracts, many of them older ones not

shown to be even remotely comparable to those in this

ease. The very disparity in these prices suggests their

inconclusive character. The price evidence in this record

does not, in our judgment, provide any reasonable basis

for a condition reducing a proposed producer rate.

(A10349)

A10349

Parenthetically, it seems that recent judicial decisions

in the Supreme Court’s Mobile decision*® and the Tenth

Cireuit’s decision in Phillips Petroleum Company v.

F.P.C™ draw into question the extent of our power to

alter or vary the terms of initial contracts between pro-

ducers and purchasers. Although neither involved re-

ducing by the imposition of a condition the r» in a pro-

ducer contract, both involved the generic question pre-

sented in such a case, namely, Commission authority to

require changes in the price provisions in the contract be-

tween a seller and a purchaser.

In the Mobile case, the Supreme Court denied our au-

thority, stating that the Act ‘‘evinces no purpose to abro-

gate private rate contracts as such,’’ but that it expressly

recognizes that ‘‘rates to particular customers may be set

by individual contracts’’ (id., p. 338), and that under the

Act, ‘‘the rate-making powers of natural-gas companies

were to be no different from those they would possess in

the absence of the Act: To establish ex parte, and change

at will, the rates offered to prospective customers; or to

fix by contract, and change only by mutual agreement,

the rate agreement, the rate agreed upon with a particu-

lar customer’’ (id., p. 343). And in the Tenth Circuit

Phillips case, the court was equally explicit, saying that

(mimeo. ed., p. 17), ‘‘Under the Natural Gas Act the rate

to be charged for natural gas is initially fixed by contract

between the seller and the purchaser’’ (citing Mobile),

‘¢... but the Commission has no initia] rate-making powers

and an initial rate fixed by contract remains in effect un-

10 United Gas Pipe Line Co. v. Mobile Gas Service Corp., et al., 350 U.S.

332.

11 Phillips Petrolewm Co. v. F.P.C., No. 5695, filed July 23, 1958.

(A10350)

less and until it is changed in a proceeding under § 5(a) of

the Natural Gas Act.’’

The full implications of these cases are not clearly ap-

parent, but they suggest that the practical difficulties

which we have encountered in finding a rational and work-

able basis for imposing rate conditions may reflect and

result from what, in contrast to Signal Oil and Gas Co.

v. F.P.C., 238 F. 2d 771, these decisions evidently view

as an underlying absence of legal authority in the premises.

Accordingly, we conclude that the producers’ certificates

should not carry any initial rate conditions. We reach

this conclusion not on any technical consideration of who

has the burden of proof or of going forward with the evi-

dence. Nor do we minimize the importance of price which,

A10350

the contrary, we recognize as a central issue in the case.

We do, however, decline to substitute any desideratum of

our own, laudable though it may be, for the findings called

for by the facts and the statute. In the exercise of our

judgment we reach this conclusion on a fundamental con-

sideration of the evidence in the record before us, includ-

ing price data as well as evidence of the claimed adverse

effects on the public of the proposed rates for the sales,

illumed by the law as found by the courts and applied by

this Commission. These are the factors on which we base

our conclusion that certificates should issue to the pro-

ducers and that no sufficient basis exists for attaching to

them any conditions reducing the proposed initial rates

for the sales.

To this we may add, however, although our decision

herein is not grounded on this fact, that in our considered

opinion an approach by this Commission advocated by

some, by which it would act as a kind of peace-time OPA

(A10350)

for the natural-gas producing industry and under the nar-

row ‘‘conditions’’ provision of the certificate section of

the Act and outside the rate provisions thereof, under-

take to prevent all price increases and force back the price

level for all initial producer sales on the basis of a price-

ceiling type of regulation would, assuming its legality, dis-

regard the historical and economic factors which presently

enter into determining the price for each particular sale,

would be fundamentally inconsistent with the character

of and conditions prevailing in the gas producing indus-

try, would give rise to profound dislocations in the rela-

tionships of price, supply and demand, and whatever short-

range price benefits it might produce, would on a long term

‘basis be antithetical to the interests of the public and

the consumer.

Exceptions of consumer interests —Of the many dis-

tributing companies and other customers of Transco which

would ultimately receive and pay for this gas, only two—

The United Gas Improvement Company (UGI) and the

Philadelphia Electric Company, which are joined by the

New York Public Service Commission—have any quarrel

with the examiner’s certification of the producers’ sales.

By and large, in substance their objections have been

sufficiently dealt with in the preceding discussion, to

which little need be added.

A10351

The Philadelphia Electric Company in its exceptions

briefly states that the Commission should either limit the

producer prices to 17 cents per Mef or provide for a rate

proceeding under Sections 4 or 5 of the Act to test the

contract rates. The rates of the producers are subject to

our continuing supervision and control and if after further

study the need becomes apparent we shall institute a Sec-

tion 5 proceeding. Of course, initial rates are not sub-

(A10351)

ject to suspension under Section 4 and proposed increases

must be considered on their own merits.

The exceptions of UGI and the New York Commission

are more extensive. Treating them together to simplify

and avoid repetition, both parties object to the examiner’s

refusal to impose a 17-cent initial rate condition. They

argue, first, that the examiner’s reliance of our Hope order

reduces the test of public convenience and necessity to a

nullity and gives no regard to whether the sale is in the

public intreest. However, under the explicit terms of that

order the effects on the public interest of the sale—whether

or not its certification at the price proposed will adversely

affect the public—is a central issue in the case. In so pro-

viding, that order gives proper recognition to the fact that

in producer and pipeline cases the other requirements of

public convenience and necessity also differ in important

particulars and relegates requirements of lesser impor-

tance to a subordinate place.

Second, UGI and the New York Commission contend

that on the facts the examiner erred in concluding that

there was no substantial evidence of harm to the public

from the certification of these producers’ sales at the

prices proposed. They argue that triggering would increase

the price of gas purchased by Transco and ultimately the

consumer by as much as $5,000,000 a year. The fact is,

however, that before any such ‘‘triggered’’ increases could

be passed along, filings for increased rates would have to

be made by the producers and these would be subject to

our scrutiny and control under the rate suspension pro-

visions of Section 4 of the Act.

In connection with the question of effects on the public,

we have referred to some of these sales’ beneficial effects

in meeting the urgent need of Transco’s customers for

gas at an acceptable price, a matter further considered in

(A10351)

our discussion of Transco’s proposals."* The reserves

proposed to be committed to Transco’s service in this

proceeding are among the largest ever to be involved in

a single project of this kind. The demands on Transco’s

system are enormous and increasing.

A10352

In these days, substantial blocks of gas are no longer

available at bargain prices. In such a context, other fac-

tors such as the extent of reserves and the assurance of

a continued and reliable supply reasonably assume greater

importance. Although without evidentiary value, the fact

that the great majority of distributing companies and rep-

resentatives of consumer interests have filed no objection

to the certification of these producers’ sales at the price

approved by the examiner suggests that their judgment

of where, as between price and supply their best inter-

ests lie, is not greatly at variance with the presiding ex-

aminer’s and our own.

Third, UGI and the New York Commission contend that

the examiner did not correctly apply the Commission’s

decision in the Seaboard Oil Company opinion No. 309,

op. cit., and the Signal opinion No. 288.% They argue that

the Seaboard opinion involves different facts and should

mot be applied here, but that Signal should be applied in

order to ‘‘hold the line’’ on prices.

In Seaboard we discusséd why a certificate proceeding

is not an appropriate place to try rate matters. Generally,

that discussion is pertinent here. We pointed out, how-

118 Transco’s proposals and the contentions of the New York Commission

them and the ‘‘Catco’’ decision of the Court of Appeals for the

Third Circuit in P.S.C. of New York v. F.P.C., No. 12,401, June 30, 1958,

are discussed infra,

12 Opinion No. 288 issued November 28, 1955, in Matters of Cities Service

Gas Company, et al., Docket Nos. G-2569, et al., affirmed, Signal Ow and Gas

Co. v. F.P.C., 238 F. 24 771, cert. den., 353 U.S. 923.

(A10364)

ever, that we would consider evidence showing that the

producer’s proposed price or rate adversely affects the

public convenience and necessity, a holding we herein-

above reaffirm. In Signal we made it clear that the par-

ticular circumstances presented in each case are of deci-

sive importance in determining whether a condition like

that imposed there should be attached to the issuance of

a certificate of a prod» »r.* These cireumstances include

whether a showing has peen made that as a result of the

price proposed, the prices for other sales in the area in

question will be increased, keeping in mind such relevant

factors as the kind and quality of gas involved, competi-

tion present in the area, and similarity between the ques-

tioned contract and the other contracts.

A10364

Exceptions of the New York Commission.—Exceptions

were also filed to the examiner’s decision in the Transco

proceedings by the Public Service Commission of New

York which in general advances the same objections it

makes to the examiner’s decision on the producers’ appli-

cations. The New York Commission argues that certifi-

cates should not be issued in these proceedings unless and

until the Commission reverses the decision of the examiner

in the Seaboard cases and attaches initial rate conditions

to the certificates of the producers, contending that absent

such conditions there can be no legally supportable basis

for the indispensable finding that gas supplies at appro-

priate prices are available to support the pipeline project.

Also, the New York Commission argues that no proof

13 We stated in Signal that ‘‘the facts of this case’’ require the imposition

of a condition and that ‘‘clearly the basis for decision in this proceeding is

not necessarily controlling in any future proceeding involving the rates of

Signal or any other independent producer.’’

(A10364)

was adduced to support the contract price for the pro-

ducers’ gas, only the ‘‘familiar threats to terminate their

contracts and reject certificates conditioned as to price’’

(exceptions, p. 2). It says that the evidence does not sus-

tain a finding that the sales at the contract prices are re-

quired by public convenience and necessity. It calls atten-

tion to the recent decision of the Third Circuit in the Catco

case (P.S.C. of New York v. F.P.C., No. 12401, et al., June

30, 1958), which it says precludes the Commission from

considering threats to terminate contracts or withhold

gas from market, in passing on the public convenience and

necessity

By and large, what we have alrcady said on the pro-

ducer aspect of this case disposes of these arguments. The

price to the producer of itself is not invariably the deter-

minative factor in a pipeline certificate case the New York

Commission evidently supposes. It is but one element

to be considered with many. Certainly in the present con-

text such factors as the assurance of supply in meeting

urgent and extensive demands on Transco’s system can

reasonably be found to outweigh such undesirable aspects

of the prices proposed by the producers as may exist in

this case, where, as here, the price is reasonably justified

and there is no substantial showing of adverse effects from

such prices on the public. Respecting the Transco authori-

zations, none of Transco’s customers have excepted to

the certification of the preject on the ground that the pro-

ducers’ prices are out of line or would have harmful ef-

fects on the public.” These companies are aware

A10365

of their service obligations and their livelihood depends

on receiving this service from Transco at reasonable prices.

17 As previously discussed, two utilities excepted to the examiner’s decision

in the producer cases in Docket Nos. G-13167, et al.

(A10365)

Here as in the producer dockets their judgment evidently

coincides with the presiding examiner’s and our own as

to the propriety of the prices proposed.

As to claimed producer threats, there are no such threats

in this case. Various producers have reserved the right

to terminate their contracts of sale with Transco if the

seller does not obtain a satisfactory certificate. We do not

consider such reservations to be any limitation upon our

right of inquiry into proposed rates set forth in the sev-

eral producer contracts. It must be recognized, however,

that this Commission cannot force a producer to accept

a certificate if it does not desire to, any more than we can

force New York Natural to accept a certificate and trans-

fer the properties involved in the proposed storage project

previously discussed. Despite this, we do not here nor

have we ever foregone consideration of price in the formu-

lation of our judgment of where the public convenience

and necessity lies. Where the possibility of the non-accept-

ance of a certificate exists, we think the proper course is

the same followed in every certificate case—to consider

the competing factors, evaluate the alternatives, and de-

cide as the public convenience and necessity requires.

The Commission further finds:

(1) Each of the independent producers enumerated in

the initial decision of the presiding examiner issued June

17, 1958, in Docket Nos. G-13169, et al., with the excep-

tion of Arkansas Fuel Oil Corporation, is or upon initia-

tion of the proposed sales to Transcontinental Gas Pipe

Line Corporation will be engaged in the sale of natural

gas in interstate commerce for resale for ultimate public

consumption, subject to the jurisdiction of the Commis-

sion, and will therefore be a ‘‘natural-gas company’’

within the meaning of the Natural Gas Act.

(A10365)

(2) The sales of natural gas proposed by each of the

producer applicants, as more fully described in the pre-

siding examiner’s decision and the applications, are sub-

ject to the Commission’s jurisdiction under the Act; and

such sales, together with the construction and operation

of any facilities used for such sales subject to the juris-

diction of the Commission, are required by the public con-

venience and necessity under Section 7(e) of the Act, and

a certificate therefor should be issued as hereinafter or-

dered, on the terms and conditions of our order.

(3) Subject to the requirements prescribed in our order

hereto, each of the producer applicants is able and willing

to do the acts and perform the service proposed and to

conform to the provisions of the Act and the requirements,

rules and regulations of the Commission thereunder.

(4) Transcontinental Gas Pipe Line Corporation, a Del-

aware corporation having its principal place of business in

Houston, Texas, is a ‘‘natural-gas company’’ within the

meaning of the Act, as the Commission has heretofore

found.

A10367

The Commission orders:

(A) Certificates of public convenience and necessity are

hereby issued to the parties in each of the proceedings re-

ferred to in paragraph (1) above, authorizing the sales

by the applicants to Transco of natural gas in interstate

commerce for resale, together with the construction and

operation of any facilities subject to the jurisdiction of

the Commission used for such sales, as more fully de-

scribed in the presiding examiner’s decision and the ap-

plications and exhibits in these proceedings.

(A10368)

(B) All producers which intend to accept the certificates

issued in these proceedings shall file acceptances within

ten days of the date of issuance of this order.

in any manner and shall be effective only so long as appli-

_ eants continue the operations authorized by this order in

‘accordance with the provisions of the Act and the rules,

regulations and orders of the Commission.

(D) As a further condition attached to the certificates

issued the producer applicants herein and to the exercise

of the rights thereunder, each such applicant shall prompt-

ly refund to Transco that portion of the initial rate and

charge constituting the reimbursement for the additional

tax of one cent per Mcf provided for by the State of

Louisiana under its Act No. 8 of 1958 (House Bill No.

303), as approved on June 16, 1958, amending Title 47

of the Lousiana Revised Statutes of 1950, paid by Transco,

should such Tax be held invalid and refunded by the State

of Louisiana; and to file appropriate rate changes reflect-

ing such invalidation. These producers shall also refund

to Transco any interest paid by the State of Louisiana.

Each applicant shall also bear all costs of any such re.

funding and keep accurate accounts of the amount of such

tax reimbursement hereunder. The Commission may re-

quire that such reimbursement be made at such times, in

such manner and on such terms as in its judgment is rea-

sonable and appropriate.

A10368

(E) The grant of the certificates to the producers herein

shall not be construed as a waiver of the requirements

of Section 4 of the Act, or of Section 154 of the Commis-

sion’s Regulations thereunder requiring the filing of rate

schedules for the service herein authorized; and is with-

(A10368)

out prejudice to any findings or orders which have been

or may hereafter be made by the Commission in any pro-

ceeding now pending or hereafter instituted by or against

the applicants. Further, our action in this proceeding

shall not foreclose nor prejudice any future proceedings or

objection relating to the operation of any price or related

provision in the gas purchase contracts herein involved.

(F) With the exception of the matters set forth in para-

graph (N) hereof, certificates of public convenience and

necessity are hereby issued authorizing Transcontinental

Gas Pipe Line Corporation to construct and operate the

facilities described in the presiding examiner’s decision,

the amended applications and in the evidence of record,

for the transportation and sale of natural gas as hereafter

set forth.

° * * * * * * * * *

A10372

(Q) The initial decisions of the presiding examiner

issued in Matters of Transcontinental Gas Pipe Line

Corporation, Docket Nos. G-13143, ef al., and Matters of

Texaco Seaboard Inc., et al., Docket Nos. G-13169, et al.,

are modified as hereinabove set forth and as so modified

are, consistent with this opinion, adopted with this opinion

as the decision of the Commission in these proceedings.

Exenpt to the limited extent granted hereinabove, the ex-

ceptions to the presiding examiner’s decisions are hereby

denied.

By the Commission. Chairman Kuykendall concurs in

the result, adhering to the views expressed in his statement

issued with Opinion No. 309, In the Matter of Seaboard

Oil Company, Operator, et al., Docket Nos. G-11970, et al.

Commissioner Connole dissenting.

JosepH H. Gureme,

Secretary.

(A10474)

A10474

UNITED STATES OF AMERICA

FEDERAL POWER COMMISSION

Before Commissioners Jerome K. Kuykendall, Chairman;

Frederick Stueck, William R. Connole, Arthur Kline and

John Hussey.

In the Matters of

Docket Nos. G-13143, G-13590 and G-13745

Transcontinental Gas Pipe Line Corporation

Docket No. G-13793

New York State Natural Gas Corporation

Texas Eastern Transmission Corporation

Transcontinental Gas Pipe Line Corporation

Docket Nos. G-13169, et al.

Texaco Seaboard, Inc., et al. (successor to

Seaboard Oil Company)

Order Denying Applications for Rehearing

(Issued October 31, 1958)

Applications for rehearing of the Commission’s Opinion

No. 315 and accompanying order issued September 4, 1958,

in the above-entitled proceedings, were filed (1) by the

Philadelphia Electric Company (Philadelphia Electric) on

October 6, 1958; (2) by Philadelphia Gas Works Division

of the United Gas Improvement Company (UGI) on Octo-

. ber 3, 1958; and (3) by the Public Service Commission of

the State of New York on October 6, 1958." In Opinion No.

315, we authorized a $167,000,000 expansion by Transcon-

tinental Gas Pipe Line Corporation (Transco) to serve 27

1 Hereinafter collectively referred to as ‘‘Petitioners’’.

(A10474)

existing customers principally in the middle Atlantic states

an additional total of 173,634 Mcf daily of contract demand

and general service gas. We also authorized Transco to

render storage service of 191,000 Mef of gas per day to 10

existing customers. In addition, we authorized 26 inde-

pendent producers of gas in southern Louisiana and off-

shore fields to sell to Transco the volumes necessary for

this service.

Rehearing is requested solely on the ground that we im-

properly refused to attach conditions to the producers’ cer-

tificates reducing the prices for their sales of gas to Trans-

co from a range of 22.4-23.3 cents to 17 cents per Mcf. In

support of this position the petitioners advance four prin-

cipal contentions.

First, Philadelphia Electric and UGI contend that Opin-

ion No. 315 is unlawful since the producers’ prices have not

been shown to be “just and reasonable’’ under Sections 4

and 5 of the Act. UGI in particular

A10475

argues at length that under the Supreme Court’s Phillips

decision, Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672,

and Third Circuit’s Signal decision (Signal Oil & Gas Co. v.

F.P.C., 238 F. 2d 771, certiorari denied, 353 U.S. 923), the

language of Section 4(a) that ‘‘All rates and charges made

... Shall be just and reasonable’’ applies to the prices pro-

posed in applications for certificates of public convenience

and necessity under Section 7(e) ; and that since there has

been no showing in this case that the producers’ prices are

reasonable, the applications must either be denied or condi-

tioned. However, neither of the cases cited impose any such

requirement. It has long been judicially recognized that the

Commission has authority to impose a rate condition in

issuing a certificate of public convenience and necessity

(Arkansas-Louisiana Gas Co. v. F.P.C., 113 F. 2d 281 (CA5,

antl

(A10475)

1940)). The question is, when is a rate condition appro-

priate?

Contrary to the assertion by UGI that the Commission

may not be able to employ exactly the same standards for

determining a ‘‘just and reasonable rate’’ as it would use in

rate proceedings under Section 4, the fact is that if we are

to determine in a certificate proceeding under Section

7 what initial rates are just and reasonable, the same

standards would have to be applied as in similar rate deter-

minations under Sections 4 or 5. Actually, however, no

definitive tests have as yet been evolved for fixing the just

and reasonable rates of independent producers, although

rate proceedings to this end are in progress.

In acting on the application of 26 producers in this pro-

ceeding the Commission would not, as in the Signal case,’

be able to confine its consideration to the narrow question

of raising a general rate level, but these petitioners would

have the Commission make findings concerning the justness

and reasonableness of these proposed rates. This epito-

mizes the administrative impracticability of a requirement

along the lines suggested by these two petitioners.

Second, UGI and the New York Commission contend that

the Commission in Opinion No. 315 has applied new and

improper standards in passing on certificates of public con-

venience and necessity, standards which reduce the require-

ments of public convenience and necessity to a nullity and

which depart from the holdings in the Signal case.

One of the tasks which has confronted the Commission

since the Supreme Court’s decision in Philips, has been

that of applying the certificate provisions of Section 7 to

independent producers. The difficult process of developing

2 The Commission’s opinion appears as Cities Service Gas Co., et al., Opinion

No. 288, issued November 28, 1955 (14 F.P.C. ...), affirmed in the Signal

case referred to in footnote 1.

(A10475)

regulatory standards applicable to this new segment of

the natural-gas industry has advanced along several

A10476

avenues. After failing to find any reasonable formula of

general applicability in our rule-making proceeding, Docket

No. R-142, terminated on December 1, 1955, we have pro-

ceeded on a case-by-case basis in the light of the particular

facts presented in concrete cases. The standard of ‘‘ public

convenience and necessity’? embraces not only rate condi-

tions in certificate cases, as in the Signal case, but other ele-

ments of concern to consumers. First, we have settled many

questions of jurisdiction over types of producers and the

facilities of producers, so as to give the controls held appli-

cable to producers full play. Next we have been sustained in

applying rate filings and suspension rules to producers.

Other factors have also had a place.*

In applying this standard to pipelines we early set forth

certain factors which in our judgment a pipeline proposal

could reasonably be measured against. Cf. Kansas Pipe

Line & Gas Company, et al., 2 F.P.C. 29. Those factors we

have applied and adapted over the years to meet the needs

of particular cases. See e.g., Opinion No. 301 issued De-

cember 28, 1956, in Houston Texas Gas and Oil Corp., 16

F.P.C. 118. But it is clear beyond the shadow of a doubt

that the criteria which we have evolved and applied in

pipeline cases do not and cannot apply in their entirety

and to full extent to the producer segment of the industry.

3 See, ¢.g., Opinion Nos. 287 and 287-A, issued January 20, 1956, in

Anthony J. Tamborello, et al., 15 F.P.C. 4; Opinion No. 299, issued Decem-

ber 4, 1956, in Natural Gas Pipeline Company of America, 16 F.P.C. 80;

Opinion No. 309, issued March 31, 1958, in Seaboard Oil Company, 19 F.P.C.

416; order issued April 7, 1958, in Columbian Fuel Corporation, 19 F.P.C.

479; order issued May 9, 1958, in The Superior Oil Comrany, et al., Docket

No. G-12121, et al., 19 F.P.C. ...; order issued March 31, 1958, in Hope

Natural Gas Co., et al., 19 F.P.C. 405.

—

——S

Oe ee SS a

ee a

(A10477)

UGI admits as much in its application.* We must ascer-

tain, as the Supreme Court has indicated we should do in

applying a broad criterion of the statute, what are the par-

ticular factors which should be applied and what weight

should be given them in this new context.

Our Hope order cited above describes some of the pri-

marily administrative considerations which have a bearing

on this problem. Thus we found in that case (19 F.P.C.

at 408):

The Commission has consistently held abridved hear-

ings in independent producer certificate cases ever

since regulation of independent producers was under-

taken in 1954. We have issued thousands of such cer-

tificates under such a procedure without a dissent

(footnote omitted). If as is now contended we must

require positive proof that the sale is required at the

proposed price we must abandon this procedure and

set each case for formal hearing as to this issue.

A10477

And we pointed out that such a change in procedure would

bring to a virtual halt the granting of certificate applica-

tions both to independent producers and pipelines whose

applications are dependent on the certification of such

sales.

Even in the Kansas Pipe Line case cited above, which

involved a pipeline company and not a producer, we held

that firm contracts for the sale of the gas were not neces-

sary to a showing of markets but that it is sufficient that

the applicants show there are reasonable grounds for antici-

pating customers will be attached to the proposed facilities.

4 Thus, at page 2 of its application UGI admits in a footnote that in

producer certificate cases, ordinarily no financing is required. This is true

and the same is to be said of various of the other elements present in pipe-

line cases, as discussed in Opinion No. 315.

(A10477)

“This approach,” we stated at 2 F.P.C. 45, ‘‘ has regard

for the practical experience of the natural-gas industry

and does not jeopardize the public interest.’’ An approach

equally realistic is called for if the problems which attend

the regulation of producers are ever to be solved.°

In Opinion No. 315, here challenged by petitioners, with-

out attempting any final or definitive holding for all time

or all cases, we certificated the producers’ sales in ques-

tion. We did so, as we there stated, “not on any technical

consideration of who has the burden of proof or of going

forward with the evidence.’’ We did so without minimiz-

ing the importance of price which, on the contrary, we

stated that we recognized as a ‘‘central issue in the case.”’

We did so because in our judgment, ‘‘on a fundamental

consideration of the evidence in the record before us,

including price data as well as evidence of the claimed

adverse effects on the public of the proposed rates,’’ no

sufficient basis exists in this record for attaching to the

producers’ certificates any conditions reducing the pro-

posed initial rates for the sales. In so doing we were re-

quired to consider what was unavoidably in issue in the

case, namely, what standards were properly to be applied

in a producer certificate case. But the thing of practical

importance in this case to the public and all the parties

is not whether the criteria employed were sufficiently com-

prehensive or refined to encompass all future cases—for

obviously at this stage in their development they cannot be

—but whether they are adequate in law and on the

5In the Kansas Pipe Line case we deferred consideration of rates. In this

regard, we pointed out that as enacted in 1938, Section 7 (c) contained a

direction that the Commission consider the applicant’s ability to render

service at rates lower than those prevailing in the territory to be served, ‘‘it

being the intention of Congress that natural gas shall be sold ... at the

lowest possible reasonable rate consistent with the maintenance of adequate

service in the public interest.’’

When this section was amended in 1942, this provision was deleted.

(A10478)

competing circumstances before us to justify the certifica-

tion of the sales of the 26 producers and give Transco

the gas it needs for its expansion to serve its customers.

In our judgment they are.

Nor is it a fair statement to say that the Commission

has departed from its Signal Opinion No. 288, cited above.

For in that opinion, recognizing the dangers of broad-

side generalization in a new and uncertain area, we quali-

fied our decision te point out that the imposition of a

A10478

condition there was designedly an interim measure (mimeo.

ed., p. 24), ‘until time and experience have given us the

opportunity to develop more comprehensive criteria gov-

erning determination of rates of independent producers,’’

and that ‘‘A proceeding of this nature cannot and is not

intended to take the place of a proceeding under Sections

4 or 5 of the Act.’’ Furthermore, even on such an interim

basis we subsequently went on to recognize in Opinion

No. 299 in Natural Gas Pipeline Company of America,

16 F.P.C. 80 at 92, that to justify a condition such as that

imposed in Signal, the showing made must be based on a

consideration of such relevant factors as “the kind and

quantity of the gas sold, the degree of competition present

in the area, and the extent to which the producer contract

in question resembles the other gas sales contracts in

the area.’’ This holding, too, the court affirmed in the

Oklahoma Natural case, 257 F. 2d 634, 641.

Finally, UGI and the New York Commission contend that

the primary purpose of the Act is to protect the consumer

from excessive rates charged by natural-gas companies,

and this requires the imposition of a rate condition. With

this statement of the Act’s general purpose no one would

disagree. However, the Natural Gas Act is a statute and

its terms are specific. Sections 4 and 5 deal with rates

___ SSE Sane men an aCSan ERASE

(A10478)

and Section 7 with certificates. As the court said in the

Oklahoma Natural case, 257 F. 2d at 634, “The Commis-

sion cannot be required to convert every certificate pro-

ceeding into a rate proceeding.’’ Furthermore, we think

that important public interests are served by a particular

and exact observance of the terms of the statute as en-

acted by Congress.* As we said in Opinion No. 309, issued

March 31, 1958, in Seaboard Oil Company, et al., 19 F.P.C.

416 at 423-424:

. .. Section 7 of the Act is distinctively the certificate

section of the statute and is designed to serve pur-

poses fundamentally different from those of the rate

provisions of Sections 4 and 5 of the Act. The proper

administration of the Act demands a close adherence

to the intended scheme of the statute and the several

objectives of the Act can best be achieved by following

the channels specifically designed for the attainment

of each.

A10479

The Commission further finds:

The assignments of error and grounds for rehearing

set forth in the applications for rehearing filed by the

Philadelphia Electric Company, the Philadelphia Gas

Works Division of the United Gas Improvement Company,

and by the Public Service Commission of the State of

New York set forth no new facts or principles of law

6 We said in Opinion No. 292 and accompanying order issued June 30, 1956,

in Panhandle Eastern Pipe Line Co., et al., 15 F.P.C. 47 at p. 57, in refusing

to impose a condition under Section 7 (e) in a pipeline case which would

have had the effect of enlarging our authority beyond that limited in Section

5, that ‘‘Familiar rules of law and... a proper observance of the limita-

tions which Congress and the courts have placed upon our authority both

restrain us from pursuing such a course.’’ Affirmed, Central West Utilities

Co. v. F.P.C., 247 F. 2d 306.

(B164)

which were not fully considered by the Commission when

it adopted its Opinion No. 315 and accompanying order

issued herein September 4, 1958, or which having now been

considered warrant any change or modification in said

opinion and order.

The Commission orders:

The applications for rehearing of Opinion No. 315 and

accompanying order filed herein (1) by the Philadelphia

Electric Company on October 6, 1958, (2) by Philadelphia

Gas Works Division of the United Gas Improvement Com-

pany on October 3, 1958, and (3) by the Public Service

Commission of the State of New York on October 6, 1958,

are hereby denied.

By the Commission. Commissioner Connole dissenting.

Josep H. Gutrwe,

Secretary.

B164

Contract No. 03297

9-12-58

State of Texas

County of Harris

Transcontinental Gas Pipe Line Corporation

Re: Docket G-16,387

Exhibit 6

Conformed Copy

Filed with Exrs. Certification dated 2-19-59

This Agreement, entered into the 17th day of September,

1958, between The Superior Oil Company, as ‘‘Seller’’, and

Transcontinental Gas Pipe Line Corporation, as ‘‘Buyer’’.

(B164)

WITNESSETH :

THat Wuereas, under authority of Federal Power Com-

mission Certificates of Public Convenience and Necessity,

Buyer owns and operates a natural gas transmission pipe

line system and now proposes, upon receipt of acceptable

certification from said Federal Power Commission, to con-

struct and operate additional facilities to such pipe line

system (hereinafter called ‘‘new facilities’’) for the pur-

pose of purchasing and receiving gas produced from off-

shore fields in the area of Southwest Louisiana; and

Wuesreas, Seller has natural gas producing acreage off-

shore of Vermilion Parish, Louisiana, outside the bound-

aries of said State, described in Exhibit ‘‘A’’ and outlined

in plat marked Exhibit ‘‘A-1’’, both hereto attached and

made a part hereof for all intents and purposes, and de-

sires to produce therefrom and sell to Buyer natural gas

in the quantities and upon the terms and conditions here-

inafter set forth;

Now, THEREFORE, in consideration of the premises and

the mutual convenants herein contained, Seller and Buyer

agree:

B165

Articte I

Definitions

1. The following words and terms, wherever and when-

ever used or appearing in this agreement shall have the

following scope or meaning:

(a) The word ‘‘day’’ shall mean a period of twenty-

four (24) consecutive hours beginning and ending at 7:00

o’clock A.M. Central Standard Time.

(b) The words ‘‘calendar month’’ shall mean a period

beginning at 7:00 o’clock A.M. on the first day of a calendar

(B166)

month and ending at 7:00 o’clock A.M. on the first day of

the next succeeding calendar month.

twelve (12) months beginning at 7:00 o’clock A.M. Jan-

uary 1, and ending at 7:00 o’clock A.M. on the following

January 1.

(d) The term ‘‘Buyer’s facilities’’ shall mean the new

facilities, as above described, which Buyer proposes to

build.

(e) The term ‘‘Seller’s facilities’? shall mean such fa-

cilities as are required for Seller to gather, dehydrate and

deliver to Buyer at the delivery points established under

Article X hereof at the required delivery pressure, gas

of the quality and in the quantities herein established.

(f) The term ‘‘Mcf’’ shal] mean one thousand (1,000)

cubic feet of natural gas as determined on the measure-

ment basis set forth in Article VIII hereof.

B166

(g) The term ‘‘date of first delivery’’ shall be that date

following the construction, testing and completion of both

Buyer’s facilities and Seller’s facilities on which natural

gas is first delivered by Seller to Buyer’s facilities.

(h} Commencing two (2) years from the date of first

delivery, the ‘‘daily contract minimum”’ shall be that mini-

mum daily quantity of gas which Seller is obligated to

produce and deliver hereunder and which, averaged over

each calendar year during the term hereof, Buyer is obli-

gated to take, or to pay for if not taken, if available; and

the ‘‘daily contract maximum’’ shall be that maximum daily

quantity of gas which Buyer is entitled hereunder to pur-

chase and receive, and which Seller shall have available

for delivery to Buyer upon Buyer’s request. The daily

(B166)

contract minimum and the daily contract maximum shall

be determined, both initially and subsequently, by the

parties hereto in accordance with the provisions of Article

XVII hereof.

(i) The term ‘‘BTU”’ shall mean British Termal Unit.

(j) The term ‘‘gas’’ or ‘‘natural gas’’ shall include

casinghead gas produced with crude oil, natural gas from

gas wells, and residue gas resulting from processing either

casinghead gas, gas well gas or both.

Articte II

Conditions

1. The performance of this agreement is conditioned up-

on the issuance of Certificates of Public Convenience and

Necessity by the Federal Power Commission satisfactory

to the

B167

Seller, in Seller’s sole judgment, authorizing Seller to sell

the gas as provided hereunder and satisfactory to the

Buyer, in Buyer’s sole judgment, authorizing Buyer to

construct and operate its new facilities as provided here-

under. Each party agrees to use due diligence to obtain the

necessary governmental] authorizations and in the event

either party fails to obtain a Certificate of Public Con-

venience and Necessity, satisfactory to the party applying

for same, from the Federal Power Commission within a

period of nine (9) months following the date of filing of the

last application for such certification, then either Buyer or

Seller may, at its option, thereafter and prior to the issu-

ance of such Certificates, terminate this agreement by

written notice to the other party.

eT Ww ee ee

(B174)

Aztictz IIT

Construction of Facilities

1. Following acceptance of Certificates of Public Con-

venience and Necessity by both Buyer and Seller, each

party agrees to use due diligence to construct, test. and

complete its facilities as herein defined.

* * *- * * * * * * *

B174

Argticte VI

Quantity of Gas

1. Subject to the terms and provisions of this agree-

ment, Buyer agrees to purchase and receive at the points

of delivery designated in Article X hereof, if available for

delivery, the following quantities of Seller’s gas.

(a) Commencing with the date of first delivery and for

a period of one (1) year thereafter, Buyer arrees to take

or to pay for if available and not taken, either au average

daily minimum quantity of twenty-five million (25,000,000)

cubic feet of gas from the Block 76 Field and an average

daily minimum quantity of five million (5,000,000) cubic

feet of gas from the Block 71 Field or a quantity of gas

from each field which will be ratable, based on recoverable

gas reserves, with purchases by Buyer from other sellers

in each field, whichever quantity is greater; provided, how-

ever, that such quantity of gas Buyer is obligated to take

from each field, or to pay for if available and not taken,

shall be not greater than eighty per cent (80%) of the daily

quantity of gas Seller is able to deliver from such field

into Buyer’s facilities.

(b) Commencing one (1) year from the date of first de-

livery and for a period of one (1) year thereafter, Buyer

agrees to take or to pay for if available and not taken,

(B174)

either an average daily minimum quantity of thirty-five

million (35,000,000) cubic feet of gas from the Block 76

Field and an average daily minimum quantity of seven

million (7,000,000)

B175

cubic feet of gas from the Block 71 Field or a quantity of

gas from each field which will be ratable, based on re-

coverable gas reserves, with purchases by Buyer from

other Sellers in each field, whichever quantity is greater;

provided, however, that such quantity of gas Buyer is

obligated to take from each field, or to pay for if avail-

able and not taken, shall be not greater than eighty per

cent (80%) of the daily quantity of gas Seller is able to

deliver from such field into Buyer’s facilities.

livery, the daily contract minimum and the daily contract

maximum quantities shall be established as a result of a

joint determination of the then committed recoverable gas

reserves which shall be made at least sixty (60) days prior

to such commencement date in accordance with the pro-

visions of Article XVII hereof.

2. Buyer, consistent with the operation of its pipe line

system, shall take gas as nearly as practicable at uniform

hourly rates of flow, and at uniform daily deliveries but it

is understood that if during any one calendar year Buyer

fails to take the total minimum which it is required to take

or pay for during said year, Buyer shal] have the right

during the two (2) subsequent calendar years to take and

receive an additional quantity of gas equal to the quantity

paid for but not received during the previous year or years.

If the volume of gas paid for but not taken during any

year is made up during the next

(B177)

B176

succeeding calendar year, Buyer shall have the right to

receive such gas without further payment; however, if the

period of make up extends beyond the next succeeding

calendar year, then, for the volume of make up gas re-

ceived subsequent to that year, Buyer shall pay any dif-

ferential in price between that upon which payments were

made and that applicable at the time of taking. The vol-

umes of gas so made up during any subsequent calendar

year or years shall not be considered a part of the minimum

gas which Buyer is obligated to take or pay for during the

current year.

3. Commencing two (2) years from the date of first de-

livery, if Seller fails on request of Buyer to deliver for

any period of ninety (90) consecutive days, unless excused

by force majeure, the daily volume requested by Buyer,

not exceeding the daily contract maximum, Buyer may,

by written notice to Seller given within thirty (30) days

after the expiration of said ninety (90) day period, reduce

the daily contract minimum to seventy-two per cent (72%)

of the average daily quantity which Seller did deliver dur-

ing such ninety (90) day period, and such average daily

quantity delivered by Seller during such ninety (90) day pe-

riod shall become the new daily contract maximum. In the

event any such reduction is made in the daily contract mini-

mum and Seller shall restore or increase its ability to de-

liver, Seller shall have the right, at any time during the

period in which such reduced quantities are in effect, to so

notify Buyer in writing, and to request tests of Seller’s

wells,

B177

in cooperation with Buyer, to determine such increased de-

liverability. If such tests establish Seller’s increased ability

(B177)

to deliver, then, and in that event, commencing ninety (90)

days following the date of such determination, the daily

contract minimum shall be increased to seventy-two per

cent (72%) of the total daily quantity available for de-

livery to Buyer which shall be the lesser of (a) the maxi-

mum quantity Seller is able to deliver into Buyer’s facili-

ties as determined by actual deliverability test or tests, or

(b) the maximum quantity which Seller may legally de-

liver hereunder, and such total daily quantity available for

delivery to Buyer shall become the then effective daily

contract maximum; provided, however, that any such new

daily contract minimum and maximum shall in no event

exceed the daily contract minimum and maximum estab-

lished as the result of the last prior determination of re-

serves. Any reduced or increased daily contract minimum

and maximum, as determined under this Paragraph 3, shall

remain in force and effect until readjusted under the pro-

visions of this Paragraph 3 or under the provisions of

Article XVII hereof.

4. If withdrawals by others from a reservoir or common

source of supply containing reserves committed hereunder

cause drainage of Seller’s reserves, Buyer shall be obli-

gated to increase, within the limits of its line capacity, its

receipts of gas therefrom to the extent necessary to equalize

withdrawals and prevent drainage of Seller’s said re-

serves, notwithstanding that Buyer may be thereby required

to purchase in excess of the _

B178

daily minimum or maximum volumes above provided for.

Buyer shall not be obligated to purchase and receive in

excess of such maximum or minimum rates, respectively,

if Seller, without jeopardizing its leasehold thereon or

reserves thereunder, is able to decrease its withdrawals

from other reserves and to increase its withdrawals from

- FOOD Pe a

een a a ee,

(B187)

such reserve or common souree of supply to the extent

necessary to prevent such drainage. If limitations of

Buyer’s line capacity prevents Buyer from so increasing

its purchases to prevent drainage of Seller’s reserves then

as long as such condition persists Seller shall have the

right to sell to others such gas as is necessary to equalize

withdrawals and prevent drainage of Seller’s reserves. If

Buyer purchases from others gas produced from a reservoir

or common source of supply containing any of the reserves

of gas committed to the performance of this agreement,

Buyer agrees to equalize withdrawals ratably so as to pro-

tect any of Seller’s said reserves from drainage by its

withdrawals from others.

B187

Articytz XII

Price

1. Subject to the other provisions of this agreement for

quantities of gas delivered hereunder, or if available and

not taken as herein required, Buyer shall pay Seller the

following prices per Mcf:

(a) For gas delivered prior to July 1, 1962, twenty-one

and four-tenths cents (21.4¢) ;

(b) From July 1, 1962 to July 1, 1966, twenty-three and

four-tenths cents (23.4¢) ;

four-tenths cents (25.4¢) ;

(d) From July 1, 1970 to July 1, 1974, twenty-seven and

four-tenths cents (27.4¢) ;

(e) From July 1, 1974 and thereafter during the term

hereof, twenty-nine and four-tenths cents (29.4¢) ;

(B188)

all on the measurement basis set forth in Article VIII

hereof.

2. Buyer agrees that if at any time during the term of

this agreement any occupation, production, severance,

gathering, compression, or sales tax or taxes of similar

nature or equivalent in effect shall hereafter be validly im-

posed by any lawful authority on the gas delivered to Buyer

pursuant to this agreement, or on the production, severance,

gathering, or sale thereof, or any such existing tax is in-

creased, so that Seller shall be required to pay such new

tax or such increase either directly or through reimbursing

others, Buyer shall, subject to the conditions hereinafter

set forth reimburse Seller in the amount of three-fourths

(34ths) of any such new taxes or three-fourths (34ths) of

such increase in taxes, provided, however, that in com-

puting such new taxes or increases in taxes there shall

not be included income taxes, capital stock taxes, franchise

taxes, general property taxes, or such other taxes of like

nature as may hereafter be imposed or increased. In case

any such reimbursement for taxes is to be made, Seller

shall notify Buyer immediately setting forth the basis of

such new tax or increase in taxes to be paid by Seller on

gas delivered, and Buyer shall reimburse Seller monthly

for three-fourths (34ths) of the new taxes or increase in

the amount of taxes paid or to be paid on gas delivered

by Seller during the preceding calendar month.

Aan Oa

B284

I. P. Memorandum No. 1887

Docketed Oct. 22, 1958

Docket No. G-16380

The Superior Oil Company

ATRMATL

F. P. Jones, Jr., Vice President

The Superior Oil Company

400 Oil and Gas Building

Houston 2, Texas

Dear Mr. Jones:

The Superior Oil Company is hereby authorized to sell

natural gas in interstate commerce to Transcontinental

Gas Pipe Line Corporation as proposed in Docket No.

G-16380.

Your contract dated September 17, 1958, as amended,

with Transcontinental Gas Pipe Line Corporation has been

accepted for filing to be effective on the date of initial

delivery subject. to the provisions of Sections 154.94 and

154.101 of the Commission’s regulations under the Natural

Gas Act. This filing is designated as follows:

Description Designation

Contract 9-17-08 The Superior Oil Company

FPC Gas Rate Schedule No. 78

Letter 9-17-58 Supplement No. 1 thereto

Please advise the Commission of the date of commence-

ment of deliveries under such rate schedule, making ref-

erence in your communication to the rate schedule as

designated by this Commission, namely, The Superior Oil

Company FPC Gas Rate Schedule No. 78 and Supplement

No. 1 thereto.

(B284)

This authorization and the acceptance of the above rate

schedule are without prejudice to such final disposition of

the application for certificate as the record may require

and, furthermore, once service is commenced under this

authorization it may not be discontinued without permis-

sion of the Commission pursuant to the provisions of the

Natural Gas Act.

Very truly yours,

J. H. Gutride

Secretary

Approved by the Commission 10/22/58.

(Initials) M. B. K.

Secretary’s Office

RGC

HFS/am

10-6-58

B331

UNITED STATES OF AMERICA, FEDERAL POWER COMMISSION

Before Commissioners: Jerome K. Kuykendall, Chairman ;

Frederick Stueck, Arthur Kline and John B. Hussey.

Docket Nos. G-16380, G-16387

In the Matters of

Superior Oil Company

Transcontinental Gas Pipe Line Corporation

Order Certificates of Public Convenience and Neces-

sity and and Adopting Initial Decision of Pre-

siding

(Issued August 10, 1959)

On February 19, 1959, the presiding examiner issued an

initia] decision in the above-entitled proceedings by which

he would grant a certificate of public convenience and

(B332)

necessity to The Superior Oil Company (Superior) au-

thorizing it to render sales of natural gas to Transconti-

nental Gas Pipe Line Company (Transco). Superior would

produce the gas from leases which are in the area offshore

from Vermilion Parish in the State of Louisiana. The

initial price for the proposed sale is 21.4 cents per Mef,

without tax reimbursements. The examiner would also au-

thorize Transco to construct and operate facilities estimated

to cost $2,135,000, to receive the gas purchased from

Superior.*

Exceptions to the examiner’s decision were filed only

by United Gas Improvement Company (UGI), a distribut-

ing company customer of Transco, which sells gas in Phila-

delphia and vicinity. UGI requests that final action on the

applications in this case be withheld until decision is

reached by the Supreme Court in Atlantic Refining Co. v.

Public Service Commission of the State of New York (the

Catco case), and by the Court of Appeals for the Third

Circuit in United Gas Improvement Co. v. F.P.C., taking

the position that here as there the facts do not support the

initial price proposed, and that Superior’s sales proposed

herein should be treated in the same manner that the sales

in the Court cases cited are required or permitted to be

treated.

B332

Decisions have now been handed down in the Catco case,

79 Sup Ct. 1246 (June 22, 1959), and the United Gas Im-

provement Company case, Nos. 12797 and 12805 (CA 3,

August 4, 1959), —— F. 2d ——.

1 Subsequent to the examiner’s decision, on June 22, 1959, Superior filed

with the Commission a motion requesting that final decision be reached

in this case as expeditiously as reasonably possible, since unless construction

of offshore underwater pipelines is commenced in the near future, inclement

weather would probably prevent the accomplishment thereof until next sum-

mer, resulting in a delay in making this gas available to Transco and its

customers and in the denial of income therefrom to Superior for a year.

(B332)

We conclude, as more fully appears below, that with cer-

tain modifications the presiding examiner’s initial decision

should be adopted and the exceptions thereto denied.

Our understanding of the requirements of the Supreme

Court’s Catco opinion we stated in our Opinion No. 325 and

accompanying order issued August 7, 1959, in Matters of

South Georgia Natural Gas Company, Docket Nos. G-9892,

et al. See also our opinions in the Texas Gas Transmission

Corporation case, G-17335, et al., and the Transwestern

Pipeline Company case, G-14871, et al. Summarizing briefly,

under the Catco case the producer’s proposed initial price

must be supported by substantial evidence establishing that

the price is required by the public convenience and neces-

sity and is in the public interest; and that although the

Commission should consider all the factors, price is an ele-

ment of prime importance which the Commission should

scrutinize closely with a view to protecting the consumer.

The Court further indicated what evidence might or should

appropriately be adduced to support the proposed price,

and what circumstances justified the attachment of an

initial price condition. Such evidence includes evidence

of whether the proposed price is ‘‘out of line’’; whether it

would result in triggering of general price rises or an

increase in the applicant’s existing rates by reason of

‘favored nation’ clauses or otherwise; evidence of com-

parisons with the existing cost of gas to the purchaser;

evidence of whether the proposed producer price would

lead to an increase in the rates of the purchaser; evidence

of a public need for the gas; and evidence respecting the

other matters discussed by the Court in its opinion.

In addition, it appears from the Court’s opinion that

producer certificate proceedings need not necessarily as-

sume the character of rate proceedings under Section 4 or

5 of the Act, the Court stating at 79 Sup. Ct., p. 1255, that

‘*Section 7 procedures in such situations [involving the

attachment of price conditions] thus act to hold the line

(B333)

awaiting adjudication of a just and reasonable rate.’’

Finally, it seems clear from the opinion that if a record

sustaining the proposed initial price is not made, the cer-

tificate must be denied or conditioned, as the facts require,

and that therefore it is the applicant which at least runs

the risk of failing to substantiate the proposed price.

In applying the Catco opinion, the Third Cireuit Court

of Appeals in the United Gas Improvement Company case

cited above upheld our opinion certificating producer sales

without price conditions, concluding that on the facts there

before it, the Commission did not err in the balancing of

the weight it accorded the various factors of public con-

venience and necessity.

Turning to the facts of this record, we conclude that the

requirement laid down by the Supreme Court in its Catco

opinion have been met in this case. In our opinion, the

evidence in the record before us substantially establishes

that the proposed initial price for Superior’s sale is in the

public interest, and the proposed sales required by the

public convenience and necessity. To us, it is clear that

there is no warrant or justification for the attachment of

any initial price condition in this case.

Considering whether the price is ‘‘out of line’? under

Catco, the facts support the conclusion that Superior’s pro-

posed price is not out of line on a comparative basis. The

price Transco is to pay for this gas is the same as that

it is obligated to pay adjoining offshore operators, Also,

the proposed price is less than Transco is now paying other

suppliers for gas from onshore fields a short distance away

in southern Louisiana.’ In addition, the proposed price is

2 An earlier proposal made by Transco involving a lesser price was not

accepted. Also, Transco was requested to insert in the contract a favored

nation and price redetermination clause but refused.

(B333)

less than other pipelines such as Trunkline Gas Company

in an offshore purchase, and United Fuel Company and

Southern Natural Gas Company in southern Louisiana, are

paying.

As to the possibility of triggering referred to in Catco,

this price will not trigger any favored-nation clause in

Transco’s south Louisiana contracts since it is not within

the geographic area specified by such clauses; and it will

not affect in any way Transco’s existing contracts any-

where. Of course, this price will not result in other pipe-

liens paying higher prices for gas when they are already

paying either the same price or more.

As to the effect of this price on Transco’s rates, as indi-

cated in the examiner’s decision, Transco has already

acquired under Commission authorizations over two-thirds

of the gas in the two offshore fields in issue here at the

same initial price proposed herein. This price has already

been found to be required by the public convenience and

necessity, a conclusion found reasonable by the Court in

the United Gas Improvement case. In our judgment the

effects of such increase in Transco’s rates as may result

from the authorization of the sale proposed herein is out-

weighed by the benefits of these sales,

Among those benefits is the gas supply which would be

added to Transco’s system, the extent of which is fully

described in the examiner’s decision. The bulk of Su-

perior’s reserves are located in the Block 76 field, and Su-

perior owns approximately 30 percent of the dedicated

reserves in that field. By its acquisition of the reserves in

the Block 76 field, Transco has been able to acquire what

in the opinion of the company is probably the largest single

reserve ever contracted by Transco since it commenced

operations. Testimony was that Transco was fortunate to

get

EI Rte tay aE Se

(B334)

B334

it, since Superior’s reserve alone was large enough to

attract other purchasers, one of which was offering a

higher price.

Further in this connection, the record establishes that

Transco needs the gas and that the public will benefit from

the company’s acquisition of this additional supply. This

gas would be included as a part of Transco’s overall supply,

and will help meet the continuing demands on its system.

The facts disclose that southern Louisiana is the only area

in which Transco has been able to acquire substantial vol-

umes of uncommitted reserves during the past two years.

It has sought unsuccessfully to acquire additional reserves

at an initial price of 17 cents, and is obliged, if it is to

continue to meet the customer requirements it has under-

taken to meet, to pay producers in southern Louisiana a

price which will induce them to sell the gas.

The demands of Transco’s customers and of the markets

it serves also support the authorization of this sale. The

gas reserves involved in this case will be used to assist

Transco to meet its market obligations during the 1959-

1960 winter heating season as well as the increased require-

ments of next winter. The public convenience and necessity

obviously will be served by making this gas available to

help supply the allocations of natural gas which the Com-

mission has already authorized Transco to serve. Looking

at the: matter from another point of view, Transco cur-

rently uses approximately one-half trillion cubic feet of

natural gas per year. The Superior reserves will meet

Transco’s system supply for about sixth months, thereby

assisting the company to maintain the iriventory of its sys-

tem gas supply in the face of heavy annual depletion and

ever-increasing annual demands by Transco’s customers.

Transco is mindful of the importance of continuing to

secure supplies of gas, as this record shows. Transco’s

(B334)

witness testified that whenever it was possible for his com-

pany to augment its general gas supply by such a large

reserve in an area where it was already certificated and on

terms substantially identical with the supply contracts of

previous certifications, it was to the benefit of the company

to do so. Our knowledge of Transco’s system and the large

and growing demands of its customers convinces us that

this is so.*

In addition, the facts disclose that the gas sales contract

between Superior and Transco was consummated only after

arm’s-length negotiation, and there is no affiliation or cor-

porate control between the two, although this fact of itself

is not sufficient to sustain the proposed price.

We conclude that the producer sale proposed herein is

substantially supported by the evidence of record and

should be certificated at the price proposed, without the

attachment of any price condition. The presiding exam-

iner’s initial decision should be modified to the extent

inconsistent herewith, and as modified should be adopted

by the Commission.

The Commission further finds:

Aljl material exceptions. arguments and objections not

discussed herein have been considered but are without sub-

stantial support in the record or a reasonable basis in

law and should be denied. Except to the extent granted

herein, exceptions of UGI should be denied. The presiding

examiner’s initial decision issued hereii: on February 19,

8 This opinion may be shared by others most directly affected by the pro-

posal and in a position to judge where their interests lie, namely, Transco’s

customers. This case started out as an uncontested proceeding under the

Commiasion’s Regulations and UGI is the only customer company which ex-

cepted to the examiner’s decision.

Staff counsel did not file a brief or exceptions to the examiner’s decision.

(C2333)

1959, should, except to the extent modfied by this order,

be adopted by the Commission as of the date of issuance

of this order, to constitute with this order its decision in

these proceedings.

The Commission orders:

(A) The initia] decision of the presiding examiner issued

herein on February 19, 1959, except to the extent modified

by this order, is hereby adopted by the Commission as of

the date of issuance of this order, to constitute with this

order its decision in these proceec ings.

(B) The exceptions filed by UGi ‘o the aforesaid initial

decision are, except to the extent granted by this order,

hereby denied.

By the Commission.

J. H. Gurrwse

Joseph H. Gutride,

Secretary.

C2333

Gas Purchase Contract

This Contract, made and entered into as of the 14th day

of November, 1958, by and between Hope Natural Gas

Company, a West Virginia corporation, herein referred

to as ‘‘Buyer’’, and J. Ray McDermott & Co., Inc., a Dela-

ware corporation, Kerr-McGee Oil Industies, Inc., a Dela-

ware corporation, and Phillips Petroleum Company, a Dela-

ware corporation, herein referred to collectively and in the

singular as ‘‘Seller”’;

WItNESSETH :

Wuerzas, Seller represents that it owns and/or controls

certain valid interests in subsisting oil and gas leases in

the West Cameron Area (Offshore), Louisiana, which are

(C2333)

productive of natural gas and which lands and leases are

more fully described in Exhibit ‘‘A’’ attached hereto and

made a part hereof ; and,

Waengas, Buyer desires to acquire a supply of natural

gas for use in its Appalachian markets; and

Wuenezas, Seller desires to sell natural gas to Buyer in

the amounts and upon the terms and conditions herein

set forth and, subject to the terms and conditions hereof,

represents that Seller can and will so deliver natural gas

to Buyer;

Now, THEREFORE, in consideration of the premises and

C2334

mutual covenants herein contained, the parties hereto do

covenant and agree as follows:

Arriotz I

Definitions

The following terms shall respectively have the meaning

set forth below:

(a) The term ‘‘Seller’’ and the term ‘‘Buyer’’ shall have

the meaning set forth above ;

(b) The term ‘‘Transporter’’ shall mean the pipeline

company or companies which transport the gas to be de-

livered to Buyer under this contract from the points of

delivery described in Article VII hereof to Buyer’s or

Buyer’s affiliates’ pipeline system ;

from wells classified as gas wells, associated gas wells, gas-

condensate wells, and/or oil wells by the Department of

Conservation of the State of Louisiana, and the residue gas

resulting from processing such gas.

(C2335)

(d) The term ‘‘Contract Year’’ shall mean each period

of twelve (12) consecutive calendar months during the

term hereof, the first contract year commencing with the

first day of the calendar month following that in which

first deliveries of gas are made to Buyer or Transporter

at any point of delivery hereunder or commencing with the

C2335

first day of the calendar month for which payments for

gas are made under Article IV, whichever is earlier;

(e) The term ‘‘Contract Quantity’’ shall mean a daily

quantity of gas determined as provided in Section 4 of

Article IV;

(f) The term ‘‘Annual Minimum Quantity’’ shall mean

a quantity of gas in each Contract Year equal to seventy

percent (70%) of the Contract Quantity multiplied by the

number of days in such year;

(g) The term ‘‘cubic foot’’, when used in relation to a

quantity of gas shall refer to a volume determined in

accordance with the provisions of Exhibit ‘‘B’’ attached

hereto and made a part hereof, and the term ‘‘Mcf”’’ shall

refer to one thousand (1000) cubic feet;

(h) The term ‘‘reserves’’ shall mean the economically

recoverable gas reserves determined or redetermined by

the parties hereto as hereinafter provided to be recover-

able from those sands or horizons dedicated hereto which

are productive of gas as indicated by well completions,

conventional cores with analysis, or satisfactory drill stem

tests.

Artiotz IT

Dedication of Gas

1. Subject to the other provisions hereof, Seller hereby

dedicates to the performance of this contract all its interest

(C2335)

and leasehold estate in all gas located in all producing

horizons in, under, and

C2336

produced from the lands and leasehold estates which are

now or may hereafter be owned and under the control of

Seller and which may, during the term of this agreement,

be discovered, developed purchased or otherwise obtained

by Seller underlying the lease or leases described in Ex-

hibit ‘‘A’’, excluding, however:

(a) those sands or horizons or portions thereof which

underlie such leases at depths less than 10,000 feet below

sea level, and,

(b) those sands or horizons which underlie such leases

aud which are situated stratigraphically below the base of

the sand, the top of which is identified at 14,552 feet on

the electric log of Seller’s B-1 well in the Block 33 Field,

West Cameron Area (Offshore), Louisiana, and

side of the major fault (excluding any radial faults to the

south), which serves as a limiting boundary to the north

of the reserves proven in Seller’s A-1 and B-1 wells, block

33 Field, West Cameron Area, Louisiana. Seller agrees to

promptly inform Buyer as to any changes in the productive

status or ownership thereof which are material to this

contract.

2. Any other provision of this contract to the contrary

notwithstanding, Seller hereby expressly reserves unto

Seller, and Seller’s successors and assigns, the following

rights, together with sufficient gas to satisfy such rights:

(a) To deliver to lessors of any of the leases included

(C2335)

C2337

in the lands and leaseholds described in Exhibit ‘‘A” suf-

ficient gas to meet the requirements of lessee’s obligations

under such leases to furnish gas to such lessors.

(b) To use from said lands and leasehold estates all such

gas as Seller may need or require for development and

operation of Seller’s leases described on Exhibit ‘‘A’’

hereof, including but not limited to the use of gas for fuel,

drilling, developing and operating said leases for the pro-

duction of oil, gas or other minerals.

drill on adjoining leases which are owned or controlled by

Seller but only until the first commercial gas completion

is made on such adjoining leases.

(d) To operate the properties covered by this contract

free from any and all control by Buyer, in such manner

as the Seller in its sole discretion, deems advisable, includ-

ing without limitation the right to drill new wells, to repair

or rework old wells, to renew in whole or in part, the lands

and leaseholds covered by this contract and to abandon any

well or surrender, release or terminate any lease in whole

or in part not deemed by Seller capable under normal

methods of operation of producing gas in commercial

quantities.

(e) To unitize any of Seller’s leases with other properties

C2338

of Seller and of others in the same field, in which event

this contract shall extend and apply to the interest of Seller

in the newly formed unit to the extent that such interest is

derived from the existing leases described in Exhibit ‘‘A’’.

(f) To process, or to cause the processing of, all gas

covered hereby prior to its delivery hereunder for the

(C2338)

extraction of ethane, propane, butanes, pentanes and

heavier hydrocarbons (together with so much methane as

is necessarily removed in the employment of customary

processes for the extraction of all such components), re-

serving to Seller and to those claiming under Seller other-

wise than through this agreement all right, title and in-

terest to all snch components free of any claim by Buyer

hereunder; Seller agrees, however, that the determined

total heating value of the gas delivered hereunder shall not

be reduced by such processing to 1ess than one thousand

(1000) British thermal units per cubic foot; that such gas

shall not be subjected to any treatment in such extraction

process which will change the chemical composition of

the methane delivered hereunder nor shall such extraction

process permit or cause the admission of oxygen, or dilute

the gas, or render the gas incapable of meeting the quality

specifications set forth in Exhibit ‘‘B”. Seller shall have

the right to use such gas as it may require for fuel and

shrinkage in the performance of such processing.

C2339

Artiote IIT

Construction of Facilities

1. (a) Subject to the provisions of Article IX hereof,

Buyer agrees to proceed with due diligence to construct or

cause to be constructed such pipeline, measurement, and

appurtenant facilities as may be required to enable Buyer

to receive, at the point or points of delivery hereinafter

referred to, the gas contemplated by this contract, and to

have such facilities tested and ready for operation not

later than September 1, 1959.

(b) Subject to the provisions of Article IX hereof, Seller

agrees to proceed with due diligence to construct or cause

to be constructed, or arrange for the use of, such gas

(C2340)

gathering and treating facilities as may be required to

enable Seller to deliver, at the point or points of delivery

hereinafter referred to, the gas contemplated by this con-

tract and to have such facilities tested and ready for opera-

tion at the time Buyer’s facilities are completed and tested

as specified in Section 1(a) above, but not later than

September 1, 1959.

Argtiotz IV

Quantity of Gas

1. Subject to the other provisions hereof, Seller agrees,

upon each day of the termihereof, to sell and deliver to

Buyer such quantity of gas as Buyer shall request; pro-

vided, however, that the amount so delivered shall not

exceed on any such day (i) the quantity

C2340

of gas which Seller may legally produce in conformity with

the proration rules and regulations of the Department of

Conservation of the State of Louisiana or of any other

governmental authority which may in the future have

jurisdiction in the premises, or (ii) one hundred twenty-

five percent (125%) of the Contract Quantity; provided,

however, that Seller shall never be required to produce

any well or wells in excess of the maximum volume of

gas that can be produced hereunder from the wells or

reservoirs in a manner that constitutes good operating

practice and, in Seller’s opinion, will neither cause waste

of oil and/or gas nor cause physical damage to such wells

or reservoirs.

2. Buyer agrees to make appropriate nominations of

sufficient volume to cover the quantities of gas to be pur-

chased in accordance with the provisions hereof.

3. Subject to the other provisions hereof, Buyer agrees

to purchase and receive from Seller, on as nearly a uni-

(C2340)

form daily and hourly basis as the operation of Buyer’s

pipeline system will permit, a quantity of gas on each

day which will average in each Contract Year not less than

the Annual Minimum Quantity. Should Buyer fail in any

Contract Year to receive the Annual Minimum Quantity,

Buyer shall, within sixty (60) days after the close of the

Contract Year, pay to Seller the aggregate amount which

Seller would have received had such deficiency in Annual

Minimum Quantity been purchased at the price in effect

for such Contract Year (which shall be the weighted aver-

age price, if a price change occurs during such Contract

Year), provided, however, that if, on one or more days

during such Contract Year, Seller

C2341

shall have failed, whether or not by reason of force majeure,

to deliver to Buyer the full Contract Quantity upon the

request of Buyer, then the aggregate amount of such de-

ficiencies in Seller’s deliveries shall be applied in reduction

of the deficiency for which Buyer shall be obligated to pay

under the foregoing provision. Such payment having been

made, Buyer shall have the right, exercisable only during

the next succeeding Contract Year, to take ‘‘make-up gas”’

upon the terms and conditions set forth in Section 8 of

this Article IV.

4. The Contract Quantity shall be a daily quantity of gas

equal to the quotient of the reserves estimated as of Sep-

tember 1, 1959, (such determination to be concluded within

sixty (60) days thereafter and shall be based upon all

applicable data available as of September 1, 1959), divided

by five thousand, one hundred fifty (5150) subject to ad-

justment as provided for in this Article IV, provided, how-

ever, that such Contract Quantity shall not exceed eighty

million (80,000,000) cubic feet per day unless Buyer shall

specifically agree thereto.

(C2342)

If, at any determination or redetermination, the reserves

shall be determined to exceed that volume of gas necessary

to support a Contract Quantity of eighty million (80,000,-

000) cubic feet per day in accordance with the formula pro-

vided in Section 5 of this Article IV, then the excess

volume will be considered ‘‘Excess Reserves’’ which will

be subject to the conditions hereinafter set forth. With

respect to such

C2342

Excess Reserves, Buyer shall have a period of twelve (12)

calendar months following the reserve determination or

redetermination within which to increase the Contract

Quantity to the quantity determined in accordance with

Section 5 of this Article IV or release such Excess Reserves

from the terms of this contract. During such period Buyer

will endeavor, with due diligence, to take such steps as are

necessary to enable it to increase the Contract Quantity or

will give written notice to Seller of its intention to release

such Excess Reserves as soon as possible after such deter-

mination or redetermination has been made but not later

than six (6) months following the date of such determina-

tion. If Buyer elects to release the Excess Reserves herein-

above described, Seller may sell to others or otherwise

dispose of such Excess Reserves or any portion thereof.

However, for the purpose of taking gas during the first

five (5) contract years, the Contract Quantity shall be a

daily quantity of gas equal to the quotient of the reserves,

as determined or redetermined, divided by forty-five hun-

dred and fifty (4550) subject to adjustment as provided

for in this Article IV.

5. After commencement of delivery of gas hereunder,

either Buyer or Seller may, by written request made not

more often than once each calendar year, cause a redeter-

mination to be made within sixty (60) days after such

(C2342)

request, of the reserves available for delivery under this

contract, as of the date of such redetermination.

C2343

Upon each redetermination, the reserves subject to this

contract shall be the sum of (i) the reserves redetermined

in accordance with the preceding paragraph in this Sec-

tion 5, and (ii) the quantity of gas delivered hereunder

from the date of first delivery until such redetermination

date; and the Contract Quantity shall be adjusted, as of

such redetermination date, to an amount equal to 1/5150th

(except during the first five (5) years when the factor will

be 1/4550th) of the reserve figure developed under the

foregoing provision of each such redetermination and the

Annual Minimum Quantity shall be adjusted as of such

redetermination date as provided herein.

6. Should the then existing wells on the lands and lease-

holds described in Exhibit ‘‘A” be incapable, under normal

methods of operation, of producing from the dedicated

reserves upon request of Buyer during any Contract Year,

the Contract Quantity of gas which Seller is obligated to

deliver hereunder, then the Contract Quantity which Seller

is obligated to deliver may upon six (6) months’ written

notice to Seller by Buyer be reduced to the quantity of gas

which such wells are capable of producing from the dedi-

cated reserves under normal methods of operation, and the

Annual Minimum Quantity which Buyer is obligated to

purchase and receive hereunder shall be reduced accord-

ingly, provided, however, that Seller may nullify said

notice, by completing during the six (6) months’ period

following notice by Buyer, corrective measures to increase

the deliverability of the wells or completing new wells so

that Seller can deliver the

(C2345)

C2344

Contract Quantity stipulated in this contract. In the event

Seller does not complete corrective measures to increase

the deliverability within the six (6) month period follow-

ing notice by Buyer, as provided in this Section, then the

Contract Quantity and Annual Minimum Quantity will be

reduced as provided in this Section 6.

7. Buyer shall during each full calendar month take and

pay for a volume of gas equal to thirty-five percent (35%)

multiplied by the number of days in the applicable calendar

month, further multiplied by the then effective Contract

Quantity.

8. If Buyer shall fail to take delivery during any Con-

tract Year of the Annual Minimum Quantity in effect dur-

ing such year, then the payment referred to in Section 3

of this Article IV having been made, all gas delivered

hereunder in each month of the succeeding Contract Year

in excess of the 1/12th of the Annual Minimum Quantity

then in effect, but subject to Section 10 of this Article IV,

shall be treated as ‘‘make-up gas’’, which Buyer shall be

entitled to take free of cost and which shall be excluded

in determining the quantity of gas taken by Buyer in

fulfillment of its obligation hereunder for such succeeding

Contract Year, until the volume of all ‘‘make-up gas’’ so

delivered during such succeeding Contract Year shall have

aggregated the full volume paid for by Buyer under Sec-

tion 3 of this Article IV; provided, however, during any

month when any part of such ‘‘make-up gas’’ is taken,

Buyer

C2345

shall pay to Seller the differential, if any, in price between

that at which payment was made for a deficiency in takes

and that in effect at the time such ‘‘make-up gas” is taken.

(C2345)

9. Subject to the provisions of Article TX hereof, force

majeure notwithstanding, if Seller is ready and able to

deliver to Buyer the Contract Quantity of gas by Sep-

tember 1, 1959, then if Buyer fails to commence, on or

before September 1, 1959, the receipt of gas, Buyer will

pay each month until deliveries commence hereunder for

a minimum amount of gas equal to 1/12th of the Annual

Minimum Quantity, provided that Buyer shall be entitled

to make up such quantities so paid for in accordance with

Section 8 of this Article. Notwithstanding anything herein

to the contrary, Seller may terminate this contract if

deliveries have not commenced on or before January 1,

1960 by giving written notice to Buyer on or before Febru-

ary 1, 1960.

10. On any one or more days during the term of this

contract, Seller shall, upon Buyer’s request, deliver to

Buyer volumes of gas up to one hundred twenty-five per-

cent (125%) of the Contract Quantity, if such volumes in

Seller’s opinion are available for delivery from the dedi-

eated properties; provided, however, that volumes of gas

taken in excess of the Contract Quantity on such day or

days shall not be treated as make-up gas.

C2346

11. Seller agrees to furnish Buyer, upon request, after

release to the public, all surface maps, well logs, flow and

pressure tests, casing programs, gas analyses, and other

pertinent, information respecting gas reserves, gas quality

and well deliverability of the dedicated lands and lease-

holds. Seller agrees, upon request of Buyer, but not more

often than once each calendar year, to test its wells at the

surface to determine potentials and pressures.

12. All determinations and redeterminations of the quan-

tity of reserves for the purpose of this agreement shall

be made by the agreement of Buyer and Seller, or in the

(C2347)

absence of such agreement, by arbitration under the pro-

visions of Exhibit ‘‘B’’.

13. Subject to the ability of Seller’s wells to produce

such quantities, Buyer agrees to take hereunder a sufficient

volume of gas to enable Seller to maintain withdrawals

from Seller’s reserves, in each separate reservoir, ratably

with withdrawals being made and delivered to Buyer from

reserves owned by others in such rservoir.

Notwithstanding the provisions of this Article IV, if at

any time during the term hereof, the quantities of gas

purchased and received by Buyer hereunder are insufficient

to protect Seller’s reserves from inequitable withdrawals

caused by others producing gas from common reservoirs

from which deliveries are then being made hereunder,

Buyer agrees, upon receipt of notice from Seller that such

situation exists,

C2347

to cooperate with Seller by using all available remedies

to thereafter insure the equitable withdrawals of gas from

Seller’s reserves. The provisions of this paragraph shall

not be construed, however, as reducing Buyer’s purchase

obligation hereunder.

14. In the event the daily quantity of gas deliverable

hereunder by Seller to Buyer is two million (2,000,000)

cubic feet, or less, Buyer shall have the right to notify

Seller of such fact, and Seller shall have a period of ninety

(90) days within which to increase the daily quantity of

gas deliverable hereunder. If Seller fails to increase the

volume of gas deliverable hereunder within said period,

then Buyer shall have the right to terminate this contract

on thirty (30) days’ written notice to Seller to be given

within ten (10) days after the expiration of such ninety

(90) day period.

ARTICLE V

Pressure

The gas to be delivered hereunder shall be delivered by

Seller at the points of delivery at the pressure which

Buyer shall from time to time specify which shall noi be

a pressure in excess of one thousand two hundred (1200)

pounds per square inch gauge. If the natural pressure of

any of Seller’s wells shall become insufficient to deliver

gas hereunder at the pressure which Buyer shall from

time to time specify, either Seller or Buyer shall have the

right, but shall be under no obligation,

C2348

at its own expense to compress or make arrangements to

compress such gas to the pressure specified from time to

time. In the event that neither elects to compress such gas

within ninety (90) days from the time the pressure thereof

has become insufficient, the gas not so compressed shall be

released from the dedication under this contract on thirty

(30) days’ written notice from either party.

Articte VI

Term of Contract

This agreement shall be effective from the date hereof

and shall continue and remain in full force and effect for a

primary term of twenty (20) years from the first day of the

first month following the date upon which Seller commences

the delivery of gas to Buyer hereunder and shall continue

from year to year thereafter. Either party may terminate

this contract at the expiration of the primary term or at the

end of any Cotnract Year thereafter by giving the other

party six (6) months’ advance written notice.

;

Azgtictze VII

Points of Delivery

1. The points of delivery for all gas delivered hereunder

shall be at each of Seller’s production platforms on the

leases hereunder.

2. Seller, to the extent it may lawfully do so under the

terms

C2349

of its lease or leases, hereby agrees to grant to Buyer rea-

sonable space on each of its platforms to install the neces-

sary measuring equipment, regulating equipment, and other

necessary facilities contemplated hereby to accept delivery

of gas hereunder, and further agrees to grant to Seller

necessary easements, together with rights of ingress and

egress to and from said facilities, to construct, operate,

maintain, repair, and remove said facilities.

3. As between the parties hereto, Seller shall be in con-

trol and possession of the gas deliverable hereunder and

responsible for any damage or injury caused thereby until

the same shall have been delivered to Buyer at the points

of delivery hereunder, after which delivery Buyer shall be

deemed to be in exclusive control and possession thereof

and responsible for any injury or damage caused thereby.

Azgtictz VIII

Prices

1. The price to be paid by Buyer to Seller for gas de-

livered by Seller to Buyer hereunder, or for which Buyer

is obligated to pay for, whether taken or not, shall be as

follows:

(C2349)

A. For the four (4) year period from the date of first

delivery hereunder or from September 1, 1959, which-

OVEF fITSt OCCUTS........csserereeeererereesees 21.5¢ per 1000 cu. ft.

B. For the next four (4) year period 22.5¢ per 1000 cu. ft.

C2350

D. For the rext four (4) year period 24.5¢ per 1000 cu. ft.

E. For all gas purchased thereafter 25.5¢ per 1000 cu. ft.

2. (a) Any sales, traneaction, occupation, service, pro-

duction, severance, gathering, transmission, export or ex-

cise tax, assessment or fee hereafter levied, assessed or

fixed by the United States or any state or other govern-

mental authority and taxes of a similar nature or equiv-

alent in effect (not including income, excess profits, capital

stock, franchise, or general property taxes) in respect of

or applicable to the gas to be sold by Selier to Buyer here-

under and which Seller may be liable for during any month,

either directly or indirectly through any obligation to reim-

burse others, are hereinafter collectively referred to as

‘*Seller’s tax.’’

(b) Buyer agrees to pay or reimburse Seller for ‘‘Sell-

er’s tax’’ up to and including the sum of two and five hun-

dredths cents (2.05¢) per Mcf at the pressure base at which

such tax may be computed.

three-tenths cents (2.3¢) per Mef, Buyer shall pay to Seller

each month, so long as such tax shall be in effect, an

amount, in addition to that provided for in paragraph 2(b)

of this Article VIII, sufficient to reimburse Seller for: (i)

Three-fourths (34) of ‘‘Seller’s tax’’ which is in excess of

two and three-tenths (2.3¢) per Mef but is less than four

eae ae

(C2351)

and three-tenths cents (4.3¢) per Mef, and (ii) one-half

(14) of Seller’s tax which is in

C2351

excess of four and three-tenths cents (4.3¢) per Mef.

(d) Tn the event all or any part of such liability of Seller

is not determined or determinable by the end of any month,

then such additional amount per Mcf required in respect

to such liability not determined or determinable shall be

set forth for all such months in any calendar year in a

statement to be rendered by Seller to Buyer by April 1

of the following year, and Buyer shall pay the amount due

pursuant to such statement on or before May 1 of such

following year.

(e) Provided that, in the event any tax or additional tax

or any part thereof, which Buyer has paid or contributed

to, pursuant to the provisions of Section 2 of this Article

VIII, shall be declared to be unconstitutional, and if such

tax or additional tax is recovered by the Seller, then Seller

shall refund to Buyer its pro rata share of the amount

thereof theretofore so paid or reimbursed to Seller by

Buyer.

(f) Buyer shall also reimburse Seller, on the same basis

as set forth in this Section 2, for any payments made by

Seller subsequent to the date hereof of any sums due the

Federal Government on the gas delivered to Buyer pur-

suant to this agreement as additional royalty, or as other-

wise denominated, under Section 6(a)(9) of the Outer

Continental Shelf Lands Act, 67 Stat. 462 et al, or other

valid Federal law, in lieu of any of the taxes specified in

this Section 2.

3. Seller may request a price determination for each of

the

(C2352)

periods designated as Sections 1 C, 1 D and 1 E in this

Article VIII by giving written notice to Buyer not less

than nine (9) months nor more than twelve (12) months

prior to the beginning of the period for which redetermina-

tion is to be made and concluded by the parties not less

than three (3) months prior to the beginning of such

period, or, if they are unable to agree, by a board of arbi-

trators as hereinafter provided. Upon such request, the

parties, or the arbitrators, shall determine the three (3)

highest contract prices agreed under such contracts to be

paid at the beginning of such period by any three (3)

different operating interstate purchasers of natural gas

(not excluding Buyer) for gas produced in Cameron Par-

ish, Louisiana, and in that portion of East and West Cam-

eron Areas Offshore, Louisiana, North of 29° Latitude,

under contracts with producers, under which deliveries of

gas are being made at the time of agreement or arbitration,

providing for deliveries of gas for an initial term of not

less than twenty (20) years, and upon substantially similar

terms of measurement, quantity, quality and delivery pro-

vided herein, and the price to be paid during such period

shall be the average of such three (3) highest prices per

Mef, provided, however, that in no event shall the price per

Mef hereunder be less, during the respective periods, than

the price shown in Sections 1 and 2 of Article VIII for

such periods. For the purposes of this Section, ‘‘price”’

shall be deemed to include tax reimbursement.

(C2353)

C2353

Articte IX

Conditions, Governmental Authorizations

and Regulatory Bodies

1. Within sixty (60) days after the date hereof, cach

party hereto shall file with the Federal Power Commission

(herein called the ‘‘Commission’’) appropriate applica-

tions for certificates of public convenience and necessity

(herein called “certificates’’) necessary to the commence-

ment of the deliveries contemplated by this contract and

thereafter will use due diligence and prosecute such appli-

cations to final decision, order or approval, including with-

out limitation at each party’s discretion prosecution by

way of court appeal, to obtain the necessary governmental

authorizations to sell and purchase the gas deliverable

hereunder in accordance with the provisions hereof.

2. Notwithstanding the provisions of Article IV of Ex-

hibit ‘‘B’’ hereof, in the event either party does not obtain

a final and non-appealable certificate from the Commission

on or before April 1, 1959, which is satisfactory to the

party applying for same, then either party may, at its op-

tion, thereafter and prior to the obtaining of such final

and non-appealable certificate or certificates, terminate

this contract by written notice to the other party.

3. Within thirty (30) days after the issuance of a cer-

tificate to either party, such party shall notify the other

party in writing

C2354

whether the terms and conditions of the certificate or cer-

tificates issued to it are satisfactory. If either Buyer or

Seller shall so notify the other party that such terms and

(C2354)

conditions are not satisfactory, either party may ierminate

this_contraet by giving written notice to the other party.

4. Each party hereto shall submit copies of its filings or

amendment to such filings made with the Commission to

the other party and shall keep the other party advised of

any action taken by the Commission with respect thereto,

and shail further afford the other party such reasonable

assistance in the prosecution of its applications as the

other may request.

5. If this contract is terminated under the provisions of

this Article [X, neither party shall be under any obligation

or liable for any damages to the other party by reason

hereof, and the respective obligations of the parties to sell

and purchase gas hereunder shall be of no force and effect

from and after the date of such termination.

6. This contract shall be subject to all valid applicable

state and federal laws, rules and regulations. All such

laws, rules and regulations shall be presumed by both

parties to be valid unless and until such laws, rules or reg-

ulations shall be declared invalid by final judgment in a

court of competent jurisdiction.

7. Buyer and Seller agree that Seller may make any

necessary application or filing with any federal or state

regulatory body to

C2355

receive the applicable prices specified to be paid by Buyer

to Seller in Article VIII hereof, and, in that connection,

Buyer hereby consents te any application or filing which

Seller may be required to make with any federal or state

regulatory body in order to establish the applicable prices

set forth in Article VIII hereof as the effective price

hereunder.

ARTICLE X

Miscellaneous

1. No waiver by either party of any one or more defaults

by the other party in the performance of this contract shall

operate or be construed as a waiver of any future default

or defaults, whether of a like or a different character.

2. (a) Any payment, notice, request, demand, statement

or bill provided for in this contract shall be in writing and

shall be directed to the post office address of each of the

parties hereto, as the case may be, as follows:

Buyer: \

Hope Natural Gas Company

P. O. Box 1951

Clarksburg, West Virginia

Seller:

J. Ray McDermott & Co., ‘Inc.

14th Floor, Houston Club Building

Houston, Texas

Phillips Petroleum Company

Attention: Natural Gas Department

Bartlesville, Oklahoma

Kerr-McGee Oil Industries, Inc.

Kerr-McGee Building

Oklahoma City 2, Oklahoma

C2356

or at such other address as either party shall from time to

time designate for the purpose by a registered or certified

letter addressed to the other party.

(b) Notwithstanding any other actual or constructive

knowledge of or notice to Buyer, no change or division in

(C2356)

ownership in this contract by Seller shall be binding upon

Buyer for any purpose until Buyer receives, at the place

specified above, certified copies of the instrument or instru-

ments, or other legally authenticated written evidence, con-

stituting or accomplishing the change in ownership from

the party acquiring the interest or right in this contract

or from Seller.

McDermott & Co. Inc. to serve as their representative here-

under for giving and receiving notices and requests, per-

taining to matters hereinafter mentioned in this paragraph

2(c), necessary for making and witnessing tests, dispatch-

ing of gas, delivering the quantities of gas deliverable, and

receiving payments therefor, allocating, prorating, and

distributing such payments among the various parties sell-

er and, further, Buyer may act, and shall be fully pro-

tected in acting, in reliance upon the above described acts

and things done or performed by such representative in

behalf of the parties seller as fully and effectively as

though each had done, performed or made the same. Each

of the parties seller may change its representative and

designate one of their number as the new representative

from time to time by delivery of written notice of change

and

C2357

designation to Buyer. It is understood and agreed that

each party Seller executing or ratifying this contract is

selling its gas severally, and not jointly with other sellers,

to Buyer, that the parties Seller are not acting as partners,

joint adventurers or otherwise jointly in this transaction

and that nothing herein contained or provided for shall

operate to, or be construed as, creating any such relation-

ship.

(C2358)

3. This contract shall not be assigned, in whole or in

part, by Buyer without, in each instance, the prior written

permissicn of Seller, except that Buyer may, without first

obtaining such written consent of Seller, pledge or mort-

gage its interests in this contract, or assign the same as

security for any loan to it, and Buyer may assign its inter-

ests in this contract at any time to any other affiliated com-

pany.

All the terms, covenants, and agreements hereof shall

run in favor of and be binding upon the parties hereto, and

their successors, sublessees and assigns. If any of the

leases shown on Exhibit “A’’ are transferred, assigned or

subleased by Seller, such transfer, assignment or sublease

shall contain provisions making same especially subject

to the provisions of this gas purchase contract.

4, The references to Transporter herein shall not be con-

strued as relieving Buyer of any obligation imposed upon

Buyer hereunder; and, as between Seller and Buyer, Trans-

porter shall be the agent for Buyer for gas measurement

tests and dispatching.

C2358

5. This agreement may be executed in a number of coun-

terparts, each of which shall be considered an original.

6. There is attached hereto Exhibit ‘‘B’’ which is hereby

made a part of this contract and contains certain provisions

entitled as follows:

I. Quality of Gas

II. Measurements

III. Billing and Payment

IV. Force Majeure

V. Waranty of Title

(C2358)

WITNESUES :

Albert W. Davis

Hayward Rapp

M. L. Siagletary

Mary A. Hillman

WITNESSES :

John T. Fisher

W. C. Savage

Pat Cook

VI. Arbitration

In Witness Whereof, this instrument is executed as of

the date first above written.

Hore Naturat Gas Company

By J. J. Schmidt

Vice President

ATTEST :

John M. Byrnside

Assistant Secretary

J. Ray McDermott & Co., Inc.

By T. P. Hull, Jr.

Vice President

ATTEST:

M. P. Graham

C2359

Kerr-McGee Or Inpustriss, Inc.

By F. C. Love

Executive Vice President

ATTEST :

H. H. Raborn

Assistant Secretary

(C2363)

PHILLIPS PrrroLeuM CoMPANY

By C. O. Stark

Vice President

ATTEST:

J. F. Kinslow

Assistant Secretary

John Horn

Babe Lea Addington

Signature page to gas purchase contract between Hope

Natural Gas Company, as Buyer, and J. Ray McDermott &

Co., Inc., et al, as Seller, dated November 14th, 1958.

C2363

EXHIBIT ‘‘A”’

State Lease No. 1123

FeperaL Lease No.: OCS-0265

Datep: July 18, 1947

Lessor: State Mineral Board for the State of Louisiana

LessEE: Kerr-McGee Oil Indusries, ne.

Coverinc: Lands in Cameron Parish, Louisiana, de-

scribed as follows:

Tract 2450 (Block 33), Gulf of Mexico, State of Louisiana,

Beginning at a point in the Gulf of Mexico, off the shore of

the State of Louisiana, 9,845.868 feet south of and 556.255

feet west of U.S.G.S. Triangulation Station ‘‘Berry”;

Thence: south 14,758.048 feet;

Thence: west 14,758.048 feet;

Thence: north 14,758.048 feet;

Thence: east 14,758.048 feet to the point of beginning, con-

taining 5,000 acres or less. All bearings based on Louisiana

(Lambert) Coordinate System and as shown on plat on

file in State Land Office as Block 33.

C3955

BEFORE THE

FEDERAL POWER COMMISSION

Doocket No. G-17337

In the Matter of

J. Ray McDermort & Co., Inc.

Application for a Certificate of Public Convenience

and Necessity

Comes now J. Ray McDermott & Co., Inc. (hereinafter

referred to as ‘‘Applicant’’?) and hereby makes applica-

tion, pursuant to and in accordance with the Regulations

of the Federal Power Commission and Section 7 of the

Natural Gas Act for a certificate of public convenience and

necessity covering the sale of natural gas as hereinafter

described.

By this application, Applicant does not admit that it

is a natural gas company or that the sale of gas for which

a certificate is here sought is subject to the jurisdiction

of the Commission; on the contrary, Applicant contends

that it is not a natural gas company and that the sale

herein described is not subject to the jurisdiction of the

Commission, but Applicant makes this application solely

for the purpose of complying with said Regulations of

the Commission in order to avoid any penalty which

might be incurred by a failure to comply with the provi-

sions thereof or of the Natural Gas Act.

C3956

Applicant specifically reserves the right to pursue any

and all remedies which it may have relating to the as-

(C3957)

serted jurisdiction by the Federal Power Commission,

and this application is filed without prejudice to such

rights.

In support of its application, Applicant respectfully

shows as follows:

Description of Applicant

Section 157.24 (a) (1)

The exact legal name of Applicant herein is J. Ray

McDermott & Co., Inc., a corporation organized under the

laws of the State of Delaware, having its principal place

of business in Houston, Texas.

Applicant is authorized to do business in the States of

Alabama, Arkansas, California, Colorado, Florida, Illinois,

Indiana, Kansas, Kentucky, Louisiana, Mississippi, Mon-

tana, Nebraska, North Dakota, South Dakcta, Texas, New

Mexico, Pennsylvania, Wyoming, Oklahoma, Nevada, Utah

and Delaware.

Persons on Whom Papers Are to be Served

Section 157.24 (3)

The name, title, and post office address of the person

to whom correspondence or communications in regard to

this application are to be addressed is:

C3957

T. P. Hull, Jr., Vice President

J. Ray McDermott & Co., Inc.

14th Floor, Eouston Club Building

Houston 2, Texas

(C3957)

Service to be Certificated

Section 157.24 (4)

Applicant proposes to sell natural gas produced by Ap-

' plictnt and others from acreage in the Block 33 Field,

West Cameron Area (Offshore), Louisiana. The pur-

chaser of such gas will be the Hope Natural Gas Company.

A copy of Applicant’s contract with Hope Natural Gas

Company is attached hereto as Exhibit A. Applicant has

been informed and, therefore, alleges that Hope Natural

Gas Company is a natural gas company.

. IV

Sources of Gas

Section 157.24 (4) (i)

Gas utilized to render the service proposed herein will

be produced from acreage in the Block 33 Field, West

Cameron Area (Offshore), Louisiana. None of the gas in-

volved will be purchased from third parties.

The location of the acreage involved herein and the point

of delivery to Hope Natural Gas Company are shown on

Exhibit B, attached hereto.

C3958

Routes of Pipelines

Section 157.24 (4) (ii)

The sale proposed herein does not involve the use of

pipelines of Applicant.

(C3959)

Cammunities Served

Section 157.24 (4) (iii)

Applicant proposes to serve no communities, either at

wholesale or at retail.

VII

Main Line Industrial Customers

Section 157.24 (4) (iv)

Applicant proposes no sale to main line industrial cus-

tomers.

Vil

Major Appurtenances

Section 157.24 (4)(v)

The sale proposed herein does not involve the use of

any major appurtenance of Applicant subject to the juris-

diction of the Commission.

Exhibits

Section 157.25

Exhibit A—There is attached hereto as Exhibit A a gas

purchase contract dated November 14, 1958, covering the

purchase by Hope Natural Gas Company from

C3959

J. Ray McDermott & Co., Inc., et al., of natural gas in

the Block 33 Field, West Cameron Area (Offshore), Louisi-

ana.

Exhibit B—There is attached hereto as Exhibit B a map

showing:

(a) the location of the acreage from which gas is

produced to render the service proposed herein;

(C3959)

(b) paragraph not applicable, since Applicant pro-

poses no pipelines;

Company;

(d) paragraph not applicable, since no gas is de-

livered to Applicant ;

(e) paragraph not applicable, since no communities

are served, either wholesale or retail; and

(f) paragraph not applicable, since no deliveries to

main line industrial custo:ners are proposed.

Other Information

Section 157.27

Pursuant to the Commission’s Order No. 190, Appli-

cant states that it is the Operator of the property described

herein and that ownership of such property is as follows:

J. Ray McDermott & Co., Inc. 50%

Phillips Petroleum Company 25%

Kerr-McGee Oil Industries, Inc. 25%

Wuererorz, J. Ray McDermott & Co., Inc., Applicant

herein, respectfully requests:

(1) that the Commission issue to it a certifi-

C3960

cate of public convenience and necessity authorizing it to

render the service described in this application and to

operate those facilities required to render such service

which are subject to the jurisdiction of the Commission;

(2) that this application be disposed of in accordance

with the shortened procedure provided for in Rule 1.32

of the Commission’s Rules of Practice and Procedure, and,

in that connection, Applicant requests that the intermedi-

(C3960)

ate decision procedure be omitted and waives oral hear-

ing and the opportunity for filing exceptions to the deci-

sion of the Commission; and

(3) such other and further relief as appear warranted

in the premises. :

Respectfully submitted,

J. RAY McDERMOTT & CO., INC.

By T. ?. Hut, Jr.

Vice President

Dated: December 23, 1958

Kerr -Mc Gee , Fhillips , MeDermot?

POINTS OF DELIVERY

Stlse//23 OCS. 0265

AREA

CAMERON ~

CAMERON

WEST

EAST

EX BIT B

WEST CAMERON a (ron LOUISIANA

(C3977)

C3977

BEFORE THE

FEDERAL POWER COMMISSION

Docket No. G-17340

In the Matter of

Cattery Propertiss, Inc., et al.

Application for Certificate of Public Convenience

and Necessity

Comes now Callery Properties, Inc. (‘‘Applicant’’) and

hereby makes application, pursuant to and in accordance

with the Federal Power Commission Regulations under

the Natural Gas Act and Section 7 of the Natural Gas

Act, as amended, for a Certificate of Public Convenience

and Necessity covering the sale of natural gas as herein-

after particularly described.

Applicant specifically reserves the right to pursue any

and all remedies which it may have relating to the asserted

jurisdiction by the Federal Power Commission and this

application is filed without prejudice to such rights.

In support of its application, Applicant respectfully

shows as follows:

Description of Applicant

The exact legal name of Applicant herein is Callery

Properties, Inc., a corporation organized under the laws

of the State of Delaware, having its principal place of

business in Houston, Texas.

(C3977)

Applicant is authorized to do business in the States of

Delaware, Texas, and Louisiana.

C3978

Persons on Whom Papers Are to be Served

The name, title and post office address of the person to

whom correspondence or communications in regard to this

application are to be addressed are:

John W. Martin, Vice-President

Callery Properties, Inc.

400 Bank of the Southwest Building

Houston, Texas

and

May, Shannon & Morley

1700 K Street, N.W.

Washington 6, D. C.

Til

Service to be Certificated

Applicant proposes to sell natural gas to Hope Natural

Gas Company (Hope), pursuant to that certain contract

between Callery Properties, Inc., et al, as Seller, and

Hope Natural Gas Company, as Buyer, dated as of Decem-

ber 13, 1958. Applicant is advised and, therefore, alleges

that such gas will be transported in interstate commerce,

for the account of Hope, through pipelines owned and

operated by Texas Gas Transmission Corporation and

Texas Eastern Transmission Corporation for delivery into

the facilities of, and for resale by, Hope or Hope’s affili-

ates. Applicant is further advised that Texas Gas and

Texas Eastern are filing applications concurrently here-

with seeking authority to render such transportation

service.

C3979

Sources of Gas

All of the gas sold and delivered to Hope Natural Gas

Company will be produced from acreage controlled by

Applicant in the Bayou Pigeon Field, which is located in

Iberia Parish, Louisiana. None of the gas invelved will be

purchased by Applicant from third parties.

The location of the Bayou Pigeon Field and the point of

delivery to Hope Natural Gas Company are shown on Ex-

hibit A, attached hereto.

Routes of Pipelines

There are no pipelines of the Applicant subject to the

jurisdiction of the Commission over which the sale of nat-

ural gas to Hope Natural Gas Company will be accom-

plished.

Communities Served

Applicant proposes to serve no communities either at

wholesale or at retail.

VII

Main Line Industrial Customers

Applicant proposes no sales to ‘‘Main Line Industrial

Customers’’,

C3980

Vill

Major Appurtenances

Applicant will not own and operate any major appur-

tenances in rendering service to Hope Natural Gas Com-

pany as described hereinabove.

Ownership

F. A. Callery, Inc. is the Operator of the Property de-

scribed herein. The ownership of the property under this

contract is as follows:

Percentum of Ownership

Before After

Name Payout * Payout *

Jacob Aron 2.00000 1.33333

Edward B. Benjamin 5.00000 3.33334

Norborne Berkeley 2.50000 1.66667

Francis A. Callery 04984 07532

George L. Callery — .75000

Callery & Jones 2.34171 12.69441

Lammot du Pont Copeland 5.00000 3.33334

Culldale Associates, II 2.00000 1.33333

William D. Dana 3.00000 2.00000

Frederick L. Ehrman 1.24766 1.88562

Estate of John Hancock 1.24766 1.88561

John Fell 1.42373 = 1.72938

William S. Glazier 1.01272 1.53055

Samuel Goldwyn 5.00000 3.33334

Charles B. Grace 2.00000 1.33333

E. G. Grace 3.00000 2.00000

Monroe Gutman 1.84624 1.73444

William J. Hammerslough .94687 1.43102

John Hertz 2.53395 2.14030

(C3981)

Percentum of Ownership

Before After

Name Payout * Payout *

Philip Isles 89525 1.35302

Herman H. Kahn .67990 1.02754

Arthur Keating 2.50000 1.66666

Edwin L, Kennedy 40046 .60523

C3981

Mrs. Miles Kimball 1.00000 .66667

Joseph M. Larkin 1.50000 1.00000

Herbert Lehman 2.00000 1.33333

Robert Lehman 25.34148 26.17396

Marvin Levy .50000 33333

Ted Leyhe 1.00000 .66667

Grace R. McMath 1.50000 1.00000

Robert E. McMath 1.50000 1.00000

Frank J. Manheim 49475 74779

Paul E. Manheim .98781 1.49289

Paul M. Mazur 1.54489 2.33483

Morris Natelson 59446 89842

A. J. Ostheimer, 3rd 2.25000 1.50000

Courtlandt Otis 1.50000 1.00000

James Sachs 2.25000 1.50000

I. Sack, Personal — .50000

Louis J. Sneed, Jr. 5.50000 3.66666

Harold J. Szold .77423 1.17010

Joseph Thomas 1.88635 2.00624

Edwin L. Weisl 1.25000 83333

TOTAL 100.00000 100.00000

* The co-owners who provided funds for payment of all property, drilling

and completion costs through the first well are entitled to recover such costs

out of the net revenues from the produ

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