Amoco Production Co. v. First Baptist Church of Pyote

First Baptist Church of Pyote and others (plaintiffs) leased gas rights to Amoco Production Co. (Amoco) (defendant). The leases provided that the royalty to the plaintiffs would be 1/8 of the gas sales on the properties. Amoco pooled its interests under these leases with the interests of other working interest owners in the area. The working interest owners sold the pooled gas to one of four companies: Lone Star Gas Company (Lone Star), Delhi Gas Pipeline Corporation (Delhi), Natural Gas Pipeline Company (Natural Gas), or Pioneer Natural Gas Company (Pioneer). The prices Natural Gas paid were regulated by federal law because Natural Gas transported the gas interstate. Lone Star and Delhi had contracts with the working interest owners that provided that the prices they paid would be re-established each year to reflect market prices. Pioneer’s prices were approximately 50 percent lower than those paid by the other three companies due to a preexisting long-term gas purchase contract. All gas attributable to the plaintiffs’ interests was sold to Pioneer. As a result, the plaintiffs were paid significantly less than other lessors for gas coming from the same well. The plaintiffs brought suit, asserting a breach of the implied duty to market. The trial court found in favor of the plaintiffs, awarding them the difference between what they were paid for the gas and what they would have been paid based on Lone Star’s purchase price for gas from the same well during the same time period. Amoco appealed.