Implications of the Southland Royalty Case

Abstract

This paper discusses the significance and implications of the U.S. Supreme Court decision in the California v. Southland Royalty Co. case. Although the Natural Gas Policy Act of 1978 substantially limited the scope of the Southland decision, the case still has vitality in some limited circumstances. Introduction The subject of this paper is the decision rendered on May 31, 1978, by the U.S. Supreme Court in California v. Southland Royalty Co. This decision is perhaps the most significant Supreme Court decision perhaps the most significant Supreme Court decision concerning the jurisdiction of the Federal Power Commission (FPC) [now the Federal Energy Regulatory Commission (FERC)] since the 1954 decision in Wisconsin v. FPC, which held that the Natural Gas Act, passed in 1938 applied to interstate sales of gas by independent producers and, therefore, such sales were subject to regulation by the commission.Of particular interest is the almost immediate reaction the decision evoked from Congress, which then was considering the Natural Gas Policy Act, which became law Nov. 9, 1978. This pending legislation was amended to include provisions that explicitly limited the effect of the Supreme Court s decision in Southland.Unfortunately, Congress' efforts to solve the problems created by Southland were not enuciated problems created by Southland were not enuciated clearly. At least some of the problems created by the Supreme Court's decision remain, and there unquestionably will be further litigation with respect to the significance and applicability of the statutory provisions aimed at limiting that decision. provisions aimed at limiting that decision. To place things in perspective, this paper will review briefly the history of the Southland case. In 1925, Gulf Oil Corp. took an oil and gas lease in west Texas on the Waddell Ranch, which covered many thousands of acres. This lease did not, however, contain the usual habendum clause providing that the lease would remain in effect as tong as oil and gas were produced in paying quantities. Rather, the lease had a fixed term of 50 years. Needless to say, more than half the lease term had expired when Gulf contracted in 1951 to make an interstate sale of gas from the Waddell Ranch to El Paso Natural Gas Co., operator of a pipeline system extending from Texas to California.Gulf had delivered gas to El Paso Natural Gas for almost 24 years when the lease termination became imminent. A few months before the lease expired, El Paso Natural Gas petitioned what was then the FPC Paso Natural Gas petitioned what was then the FPC for a determination that the gas that belonged to Southland Royalty Co. upon expiration of the Gulf lease was dedicated to El Paso Natural Gas and, therefore, could not be sold in intrastate commerce without abandonment permission from the commission under Sec. 7b of the Natural Gas Act.A few days before the Gulf lease terminated, the FPC, not surprisingly, held that Southland's gas was dedicated to interstate commerce and that it could not make a sale of its gas to the intrastate pipeline with which Southland had contracted. JPT P. 728