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Cities Serv. Gas Co. v. Peerless Oil & Gas Co.

Supreme Court of the United States

November 9-10, 1950, Argued ; December 11, 1950, Decided

No. 153

Opinion

 [*180]   [**217]   [***199]  MR. JUSTICE CLARK delivered the opinion of the Court.

The issue in this case is the power of a state to fix prices at the wellhead on natural gas produced within its borders and sold interstate. It originates from proceedings before the Oklahoma Corporation Commission which terminated with  [****4]  the promulgation of two orders.  The first order set a minimum wellhead price on all gas taken from the Guymon-Hugoton Field, located in Texas County, Oklahoma. The second directed Cities Service, a producer in this field and operator of an interstate gas pipe-line system, to take gas ratably from Peerless, another producer in the same field, at the price incorporated in the first order. The Supreme Court of Oklahoma  [*181]  upheld both orders against contentions that they contravened the constitution and statutes of Oklahoma and the Fourteenth Amendment and Commerce Clause of the Constitution of the United States.  203 Okla. 35, 220 P. 2d 279 (1950). From this judgment Cities Service appealed to this Court. A substantial federal claim having been duly raised and necessarily denied by the highest state court, we noted probable jurisdiction. 28 U. S. C. § 1257 (2).

The case may be summarized as follows. The Hugoton Gas Field, 120 miles long and 40 miles wide, lies in the States of Texas, Oklahoma and Kansas. The Oklahoma portion, known as the Guymon-Hugoton Field, has approximately 1,062,000 proven acres with some 300 wells, of which 240 are producing. About 90 percent  [****5]  of Guymon-Hugoton's production is ultimately consumed outside the State. Cities Service, operator of a pipe line connected with the field, owns about 300,000 acres and 123 wells. In addition, it has 94 wells dedicated to it by lease for the life of the field and some 19 wells under term lease, giving it control over 236 of the 300 wells. Aside from the holdings of a few small tract owners and the acreages held in trust by the Oklahoma Land Office -- some 49,600 acres -- the only reserves in the field not owned by or affiliated with a pipe line are those of Harrington-Marsh with some 75,000 acres and Peerless with about 100,000 acres. Under prevailing market conditions, wellhead prices range from 3.6 to 5 cents per thousand cubic feet, varying prices being paid to different producers at the same time. In contrast, there is evidence that the "commercial heat value" of natural gas, in terms of competitive fuel equivalents, is in excess of 10 cents per thousand cubic feet at the wellhead.

 [*182]  While the Guymon-Hugoton Field has three principal production horizons, they are so interconnected as to make in effect one large reservoir of gas. Cities' wells are located in an area  [****6]  in which the gas pressure is considerably lower than that found beneath the wells of Peerless. As a result, production from Cities' wells was causing drainage from the Peerless section of the field, and Peerless was losing gas even though its wells were not producing.

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340 U.S. 179 *; 71 S. Ct. 215 **; 95 L. Ed. 190 ***; 1950 U.S. LEXIS 2475 ****

CITIES SERVICE GAS CO. v. PEERLESS OIL & GAS CO. ET AL.

Prior History: APPEAL FROM THE SUPREME COURT OF OKLAHOMA.

Two orders of the Oklahoma Corporation Commission,  [****3]  challenged as violative of the Federal Constitution, were sustained by the State Supreme Court. 203 Okla. 35, 220 P. 2d 279. On appeal to this Court, affirmed, p. 189.

Disposition:  203 Okla. 35, 220 P. 2d 279, affirmed.

CORE TERMS

producer, natural gas, orders, regulation, prices, interstate commerce, price-fixing, ratably, national interest, consumers, wellhead, common source, conservation, discriminate, proceedings, acres, terms

Energy & Utilities Law, Pooling & Unitization, Correlative Rights, Governments, State & Territorial Governments, Legislatures, Natural Gas Industry, Distribution & Sale, Oil, Gas & Mineral Interests, General Overview, Waste Prevention, Environmental Law, Federal Versus State Law, Federal Preemption, Constitutional Law, Equal Protection, Nature & Scope of Protection, Substantive Due Process, Scope, Commerce Clause, Interstate Commerce, Transportation Law, Carrier Duties & Liabilities, Embargos, Congressional Duties & Powers, Federal Powers, Relations With Governments