C. C. Small, Jr., Austin, Tex., Thomas O. Moxcey, Denver, Colo., William Tucker, Denver, Colo., Small, Small, & Craig, Austin, Tex., for appellant.
Cecil E. Munn, Cantey, Hanger, gooch, Cravens & Scarborough, Fort Worth, Tex., for appellees.
Before RIVES, BROWN and MOORE, Circuit Judges.
JOHN R. BROWN, Circuit Judge.
As with another case this day decided, this one, thought by the parties to be a private controversy, turns out to have transcendent public interest issues. In each, besides deciding the private law questions, we direct a reference to the Federal Power Commission for it to determine under the doctrine of primary jurisdiction the jurisdiction of the FPC over rates to be paid for gas royalty. Post argument consideration led the Court to the view that in the ultimate resolution of private law issues, there were problems of great public interest. The Court by memoranda to counsel in this and Weymouth (see note 1, supra) called for, and we have received, extensive helpful briefs.
I.
The Market Price Royalty Clause
The basic private legal question presented is whether under the terms of the oil and gas lease from Lessors to Lessee-Producer the amount payable as royalty is to be fixed by the stated percentage (1/4th) of (a) the price received by the Lessee from its Pipeline Purchaser or (b) the market price for like gas in the field. This turns on the construction of the lease terms in the light of all pertinent factors.
It sharpens the relevance of facts and the significance of the trial Court's actions to bear in mind that the royalty clause in question prescribed (a) a fixed price for a ten-year period and thereafter for the period in controversy (b) the market price of such gas, but not lees than the specified minimum. The Lessors contend that it is the market price without limitation to the actual proceeds while the Lessee-Producer urges that the value is fixed by the proceeds receive by it from its Pipeline Purchaser.
It likewise steamlines our task to emphasize what the quarrel is not about. Contrary to the sometime colorful charges of the Lessor, the Lessee-Producer does not undertake to say that this clause (note 4, supra) is a 'proceeds' rather than a 'market price' standard. The Lessee-Producer gears royalty payments to the proceeds from the Pipeline-Purchaser, not because it is a 'proceeds' clause, but, rather, because contemporaneous actions and other agreements limit 'the market' to that afforded under the Northern Gas contract. The Lessee-Producer refuses, therefore, to get drawn into the academic debate pressed so hard by the Lessors that a market price clause is quite different from a proceeds clause. Indeed, rather than disputing this recognized distinction, the Lessee-Producer asserts that because of other circumstances later discussed the terms 'market price' and 'market value' were not intended consensually to be used in their usual and ordinary sense. That sense is stated to be the 'price at which willing buyers at or about the time of deliveries of gas produced from the leases were agreeing to pay willing sellers for comparable gas.' This contention is a paraphrase of issues No. 2 and 3 out of the four stipulated to be tried by the District Judge and which he answered adversely to Lessee-Producer.
In attacking the findings that it is the 'market price' in the traditional legal sense, not the equivalent of the proceeds received from the Pipeline-Purchaser, the Lessee-Producer capsulates it in three steps: (1) this gas has a specific market, i.e., the Northern contract; (2) the market price of such gas is the amount received for the gas delivered to this specific market; (3) the Lessors, because of affirmative participation in the commitment of the gas to this specific market cannot claim there is a market other than the Northern contract. Elaborating, the contention runs, this is not an argument as to the difference in legal concept of 'market price' and 'proceeds received' clauses. Rather, the question for decision is whether, under the particulars of this case, the Northern Contract market is the market from which the market price is to be taken.
The circumstances surrounding the affirmative participation of the Lessors in the commitment of the gas to this particular market as reflected by the stipulation record may be briefly summarized. In early 1936 Lessee-Producer was negotiating with the Lessors for a lease on approximately 6,120 acres of unleased land overlying the Panhandle Gas Field of Texas, some of the land being in the sweet gas area and some of the land in the sour gas area of that Field. During such negotiations, Lessee-Producer was advised by the Lessors that, as a condition precedent to the making of such lease and as a part of the consideration for such lease, Lessee-Producer must have a positive contract with a pipeline company to take the production from the unleased area after it might be developed.
In order to meet this condition precedent and to establish a positive contract with a pipeline company, Lessee-Producer, on April 21, 1936, entered into the Northern contract with Northern Gas, an interstate pipeline company, even though at that time Lessee-Producer had no lease and no binding agreement to obtain one from Lessors. On June 2, 1936, 42 days after the Northern Gas Contract was arranged, the Lessors delivered the 'R-Lease to Lessee-Producer.
Two provisions of the R-Lease are particularly stressed, the first being the gas royalty clause (note 4, supra) and Sec. IX which referred to the preexisting Northern contract demanded as a condition precedent to the lease. Subsequent contractual agreements between these parties also referred specifically to the Northern contract.
Considering the fixed royalty of 4cents for the first 10-year period expiring June 2, 1946 (note 4, supra), it is significant that under the Northern contract Lessee-Producer was to receive only 3 1/2cents per MCF until December 26, 1945, and from December 27, 1945, 4cents for the remainder of the term of the contract (defined to be life of the leases to which it applied). In 1961 the contract price was renegotiated to 11cents MCF and after FPC approval, this price was received. During the first 10-year period, the fixed royalty of 4cents was paid, and no dispute exists as to it. Thereafter until 1961 Lessee-Producer paid royalty at 4cents and after the 1961 increase on the basis of 11cents.
Against this background, the Lessee-Producer contends that these affirmative contractual actions permanently channeling the gas into the Northern contract bound the Lessor to accept the Northern contract as the sole and exclusive market. As such, these actions constitute as a matter of law, first, an express adoption of the contract, second, a ratification of it, and third, an estoppel to assert that the gas has any other market as between the parties.
In passing upon the stipulated issues 2 and 3 (see note 7, supra), the trial Court made categorical findings of fact that the Lessors, in executing, and the Lessee-Producer in accepting the R-Lease (and two others) intended to use the terms 'market price' and 'market value' in their usual and ordinary sense and not as synonymous with or identical to proceeds received under the Northern contract.
When we bear in mind that in construing the contract, the Court is to put itself in the position of the parties and that the construction put on the contract by responsible action of the parties is frequently the best revelation of its purpose, we think there were ample evidential facts to justify the Judge concluding that the literal terms, generally so well recognized in oil and gas law, should be given their literal meaning. There was, first, the fact that this lease was the product of extended negotiations conducted under the skilled eyes and hands of highly competent oil and gas lawyers. Realizing as they had to, that the earlier and rejected draft of February 19, 1936, had an express 'net proceeds derived from the sale of gas' royalty clause which was in effect replaced by the 'market price' clause (note 4, supra) the Lessee-Producer's reported declarations made through its general counsel-- a voice not only of management, but with an articulate awareness of the significance of legal terms-- clearly put its construction of a market, not a proceeds, basis on this royalty clause. There were similar representations made to the FPC that under its gas leases 'it is obligated to pay royalty based on the market price at the wellhead.'
We do not minimize the beguiling appeal of Lessee-Producer's theory. Without a doubt, with the Lessors' full approval, this committed until the exhaustion of the reserves all of the gas to this contract and hence to this 'market.' But the 'market' as the descriptive of the buyer or the outlet for the sale is not synonymous with its larger meaning in fixing price or value. For in that situation the law looks not to the particular transaction but the theoretical one between the supposed free seller vis-a-vis the contemporary free buyer dealing freely at arm's length supposedly in relation to property which neither will ever own, buy or sell. It was not, as this theory would make it read, an agreement to pay 1/4th of the price received form the market on which this gas is sold. Rather, it was to pay 1/4th of the 'market price' or 'market value' as the case might be. The demand that the Lessee-Producer have a firm commitment for the sale of the gas if and when produced-- standing alone or in conjunction with the Northern contract-- was not inconsistent with the expectation that in the great unknown-- the future down to exhaustion of the reserves-- the Lessors wanted payment for royalty on the current value of the gas being delivered. So too was it consistent with a desire to have any and all increases without a ceiling while prescribing always the fixed minimum as the floor. Teh condition precedent demand served another vital purpose. It protected the Lessors against the possibility of producing gas wells being shut in from lack of a commercial outlet, a situation presenting some vexing legal problems. More important than serving attractive grist for the lawyers' mill, and fees, a shut-in is economic frustration for an indeterminate time, certainly until the Lessor can take on another formidable lawsuit to establish breach of the covenants adequately to develop and market.
With this analysis falls also the claim based on estoppel. With little more we reject also the claim that the division orders of December 27, 1945, committed the Lessors for the life of the lease to this construction of the royalty clause. (See Issue No. 4, note 7, supra). Coincident with the contractual price increase effective December 27, 1945, new division orders were prepared and executed. The Lessors accepted royalty settlements under the division orders for approximately a year and thereafter attempted a unilateral revocation on January 30, 1947.
We think two replies of the Lessors suffice. The first is that as of the moment of execution, December 27, 1945, the royalty clause (note 4, supra) by its terms prescribed the 4cents royalty for another six months down to June 2, 1946. More important, unless as in Union Producing Co. v. Driskell, 5 Cir., 1941,
117 F.2d 229, in which positions were significantly changed in reliance on the division order, such division orders have limited effectiveness. They do, of course, constitute a precise and definite basis for payments so that payments made in accordance with them are final and binding. Cf. Pan American Petroleum Corp. v. Long, 5 Cir., 1964,
340 F.2d 211, 222. But they may nonetheless be withdrawn as to the future. Phillips Petroleum Co. v. Williams, 5 Cir., 1947,
158 F.2d 723, 727; Chicago Corporation v. Wall, 1956, 156 Tex. 217 293 S.W.2d 844, 847.
In thus approving the action of the trial Judge on stipulated issues 2, 3 and 4 (note 7, supra) the question left open and yet to be tried under the agreed procedural course is the 'market price' of the gas run since June 2, 1946. It is the Lessors' theory that the market price during all or a part of this time has been 23cents per MCF rather than the 4cents or 11cents as paid. Since this claim if sustained, nets a recovery in the neighborhood of $306,530.98 both as a matter of principal and principle, there is a serious question whehter a Court, state or federal, either initially or ultimately, may allow any amounts fixed by jury, court, or both as increased royalty payments without express prior approval of the Federal Power Commission if, as would these, the price thus fixed would exceed levels prescribed by the FPC.
II.
The District Judge as to stipulated Issue No. 1 (see note 7, supra) held that the FPC had no jurisdiction over the amount to be paid royalty owners for the so-called royalty gas. This is the position taken by Lessors who vigorously oppose the contrary contention of Lessee-Producer.
In this and the other case this Court was of the view that the public interest in this question loomed so large, that the Court should have at least the tentative views of the FPC. Accordingly, this Court requested that agency to file a brief amicus. Reflecting the seriousness of the problem, the Commission, after a series of extensions of time, filed a formal memorandum brief signed by its General Counsel and Solicitor. From its structure, it is apparent that it is not simply the views of its legal spokesman. It is a considered, although properly hesitant, communication by the Commission itself of its tentative views. All this is demonstrated by the fact that Commissioner O'Connor filed a special statement which reflects the thorough, though ex parte, consideration given within the chambers of the Commission. Following this, the Court expressly invited unlimited comments, replies and rejoinders from all parties in both cases.
Not unnaturally, no party seems to have been moved by these advocative arguments found in not less than 14 memorandum briefs. True, the Lessee-Producer welcomes the FPC as a somewhat strange, but nonetheless formidable, ally. But the positions remain substantially the same. The Lessors deny either jurisdiction of the FPC or the appropriateness of the exercise of any power over royalty payments and contend without reservation that this is just a typical question for court resolution on the record made at a trial. Lessee-Producer asserts that the FPC has primary jurisdiction at least to pass initially on the royalty rates which will, or might, exceed relevant FPC ceilings. The principal difference between Lessee-Producer and FPC is that the Lessee-Producer insists that this is a pure question of law to be decided by this Court whereas the FPC urges that since it is arguable that the matter is within its jurisdiction both the question of jurisdiction and, if it exists, the appropriateness of the exercise of such power, are matters for primary jurisdiction referral to the FPC for initial decision.
We find ourselves in substantial agreement with the FPC. This means that the dual questions are left open. We emphasize that here, as we do at the close, lest anyone-- party, reader, the FPC, reviewing Court, or Trial or Appellate Court after reference-- conclude we are declaring any conclusions other than those in Part I as to the legal effect of the gas lease and particularly the Royalth Clause (see note 4, supra) and the decision that it is appropriate that the FPC, rather than this Court, initially determine the jurisdiction of the FPC over royalty payments. Except in those two limited respects, what-- and all-- we say is to set forth the respective contentions of the protagonists and illumine the problem by factors, pro and con, which might, or might not, have some relevance.
At the outset we recognize that this is a new application of the doctrine of primary jurisdiction. But considering the broad aim of this device and the consequent flexibility of it there is really nothing startling about submitting to an agency for initial decision the question of its own jurisdiction. That this ultimately is a question of law, probably one of statutory construction, is not fatal. This Court with the express approval of the Supreme Court has ordered primary jurisdiction reference of a pure question of law-- the legal validity of exculpatory tariffs. More recently, we have ordered reference of far-reaching legal questions of the Transportation Act and the Agricultural Marketing Act and the interplay of each, just as we have done in having an initial administrative determination of the validity of a tariff as justification for action claimed to violate the antitrust laws.
That that question of law happens to be one of jurisdiction does not force a different result. To the contrary, justification for judicial deferral of the jurisdictional question for initial resolution by an agency is even stronger than for a non-jurisdictional question. This is demonstrated by the many cases upholding the jurisdiction of administrative agencies to determine the coverage of their respective statutes and barring all attempts through judicial proceedings to avoid such determination. Of even more direct pertinence to our problem are the recent cases under the National Labor Relations Act in which the Supreme Court has held that if the record indicates that a labor dispute is 'arguably' subject to the jurisdiction of the NLRB, then Courts are not free to determine the question of whether the labor dispute is beyond the power of the Board.
We think powerful arguments can be marshalled for and against FPC jurisdiction over royalty payments. A consideration of the various factors demonstrates at least two things. The first is that in the setting of its contemporary construction from the fallout of Phillips I it is at least 'arguable' that jurisdiction exists. The second is that the factors arguing against jurisdiction are of an intensely practical nature. This is especially so in terms of administrative problems from assuming jurisdiction. Consequently in divining legislative purpose, these matters should be evaluated by the agency having responsibility for operating the statutory machinery. These factors might bear directly upon the question of jurisdiction, as such, and would most certainly bear heavily upon the extent to which the FPC, either by general policy declaration, decision or rule-making, might determine the extent to which the exercise of any such power would be appropriate.
Of course the whole problem centers around whether the dealings with respect to royalty constitute a 'sale in interstate commerce for resale' under 1(b), 15 U.S.C.A. 717(b). The Act is very specific. But Phillips I in broad terms recognized FPC jurisdiction 'over the rates of all wholesales of natural gas in interstate commerce, whether by a pipeline company or not and whether occurring before, during or after transmission by an interstate pipeline company.' 347 U.S. 672, 682, 74 S.Ct. 794, 799.
The FPC looks upon it as another means of achieving a comprehensive effective regulatory scheme.
'* * * When Congress enacted the Natural Gas Act, it was motivated by a desire 'to protect consumers against exploitation at the hands of natural gas companies.' Sunray Mid-Continent Oil Co. v. Federal Power Commission, 364 U.S. 137, 147 (80 S.Ct. 1392, 4 L.Ed.2d 1623). To that end, Congress 'meant to create a comprehensive and effective regulatory scheme.' Panhandle Eastern Pipe Line Co. v. Public Service Commission, 332 U.S. 507, 520 (68 S.Ct. 190, 92 L.Ed. 128). See Public Utilities Commission of Ohio v. United Fuel Gas Co., 317 U.S. 456, 467 (63 S.Ct. 369, 87 L.Ed. 396).'
At this point Lessors make a most formidable attack. It is the very simple, yet profound, contention that there can be no 'sale' of gas by royalty owners since they have no gas to sell. And this seems to be true as a matter of oil and gas law, whether based on the ownership-in-place concept followed by Texas and others or on non-ownership theories of other jurisdictions. For all agree that as the gas leaves the wellmouth, the entire ownership of the gas is in the lessee, none being reserved in the lessor. Thus, they urge, merely a simple debtor-creditor relationship exists between Lessee-Producer and Lessors.
But this is hardly a decisive answer any more. Ever since the decision in Rayne Field the Supreme Court has made it clear that neither the form of the transaction nor the peculiarities of state law are controlling in determining whether there is a jurisdictional sale of gas under the Act. 'A regulatory statute such as the Natural Gas Act would be hamstrung if it were tied down to technical concepts of local law.' 381 U.S. 392, 400, 85 S.Ct. 1517, 1522, 14 L.Ed.2d 466, 472. That case involved a sale of leasehold interests in a substantially proven and developed gas field. Such lease-sale transaction was consummated while the gas was in the ground and before a cubic foot thereof had moved in interstate commerce. Consideration for such sale of leases was measured by a lump sum price as distinguished from a price per MCF payable on production. By oil and gas business and legal tests, this was a sale of gas reserves in place. Nevertheless the Supreme Court had no difficulty in dtermining that it was a 'sale' under the Act. 'The sales of leases here involved were, in most respects, equivalent to conventional sales of natural gas which unquestionably would be subject to Commission jurisdiction under Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672 (74 S.Ct. 794, 98 L.Ed. 1035).' 381 U.S. 392, at 401, 85 S.Ct. 1517, at 1522. The Court finding great similarity to Gray v. Powell measured the transaction in practical terms. Sales of leases became sales of gas for resale because this 'accomplished the transfer of large amounts of natural gas to an interstate pipeline company for resale in other States.' Stressing its importance, the Court went on, 'that is the significant and determinative economic fact * * *' and '* * * because of it the Commission * * * acted properly in treating these sales of leasehold interests as sales of natural gas within the meaning of the * * * Act.' 381 U.S. 392, 401, 85 S.Ct. 1517, 1523. See also Reople of State of California v. Lo-Vaca Gathering Co., 1965, 379 U.S. 366, 85 S.Ct. 486, 13 L.Ed.2d 357.
As a corollary to the State-law-no-title-hence-no-sales-concept, the Lessors also argue that the royalty is unrelated to gas produced and is, rather, simply one part of the consideration given and received for the transfer of the gas reserves and the grant of the development privileges under the lease. Although the consideration received by the lessor frequently follows a common pattern this is not necessarily so as the R-Lease in question here demonstrates. Two principal additional factors were the obligation to drill eleven wells plus the securing of an outlet through the Northern sales contract. And, with or without added unusual considerations, even royalty may be complex. Should it be proceeds, market value, market price, a minimum-maximum combination thereof? If a fractional interest, then what fraction-- 1/8th, 3/16ths, 1/4th, 5/8ths, or what? All of these variables lead Lessors to argue that if the FPC has jurisdiction over royalties, then presumably it has jurisdiction over all other types of consideration given. Once that is established, and especially if the pattern of 4 and 5 of the Act is pursued, it means that the FPC is squarely in the middle in determining, or at least approving as a 7 condition precedent to the grant of a certificate, the terms and provisions of an initial lease between a landowner and a lessee. This would, so the argument continues, run headon into the 1(b) production or gathering proviso (see note 27, supra) and would, in any event, be concerned with transactions so remote in point of time and operation from the sale for resale as to be outside the scope of the Act.
But there are several possible answers which might ultimately be found to have merit. To hold that at some stage, the FPC has the power to review, approve or disapprove the amounts payable as royalty if in excess of FPC established ceilings, does not necessarily forecast a holding of universal jurisdiction over the making of the initial lease or the appraisal, assessment, approval or disapproval of the various elements going to make up the total consideration for the trade. There is, first, of course, the requirement that the transaction constitute a 'sale for resale' or interstate transportation. This seldom occurs at this initial stage.
But jumping that hurdle there may be supportable reasons why royalty, for the purposes of the Act is to be distinguished from other kinds of legal considerations. Although in legal concept it is a deferred payment for the initial grant, it bears a direct relation to current production. None is due until there is production. What is due depends directly on the amount of production. As each cubic foot of gas flows through the well-mouth orifice, it is known, therefore, that some specific (or ascertainable) sum is due for that fraction of production prescribed in the royalty clause (1/8th, 3/16th, 1/4th, etc.).
And this practical consequence becomes more acute in the context of a regulated activity. Whatever may be the legal theory of title in the gas reserves, the cost of the gas to the Lessee-Producer is in two main categories. There is, first, the actual costs for exploration, development and production of all of the gas, both the working interest (e.g., 7/8ths) and the royalty (e .g., 1/8th). The second is the amount paid as royalty for the fraction prescribed as royalty. This second element is directly attributable to actual gas delivered through the well-mouth and is ordinarily measured directly thereby.
The direct, immediate imporance of royalty payments and the position of royalty owners in the regulatory scheme of the Act has been recognized by the FPC in both a general and specific way in the area rate proceedings, which many hope, will afford a workable solution. In the Permian Basin area rate decision, No. AR 61-1, opinion 468, 33 FPC * * * (now pending on review in the 10th Circuit), a forerunner of other area rate proceedings including the Hougoton-Anadarko area, No. AR 64-1, 30 FPC 1354, covering the gas fields involved here, it was treated as one of the significant costs. Although apparently not discussing it in terms of cost attributable to royalty payments, the Commission recognizes generally that particular producers might be able to justify above-ceiling prices where costs exceed the area average and revenues.
Its dynamic significance is dramatically illustrated by contemplating the dollar and cents impact of full success by the Lessors. Still unproved and obviously subject factually to much downward adjustment depending on proof of factors on market value, the Lessors complaint demanded 23cents MCF. This is in sharp contrast to the FPC ceiling of 11cents MCF and far exceeds the FPC anti-triggering guideline of 19cents. This poses a substantial threat to Northern, the Pipeline Purchaser, depending upon the extent to which the FPC would allow the increase in Lessee-Producer's cost of service to be passed on or, if forbidden by Mobile contract terms the extent to which the FPC would grant 5 relief if the lower contractual maximum (11cents) was held to be not fair and reasonable.
Even assuming FPC rejection of Lessee-Producer's requested price increases from Northern, the other possible relief to avoid confiscation-- abandonment-- jeopardizes the interest of Northern, its immediate customers, its ultimate customers at the burner tips and the public interest generally in the withdrawal of these huge reserves from the interstate market.
The prospect affords little comfort to the Lessee-Producer here. Invoking contractual provisions which purported to release the parties in the event the subject matter came under regulation of state or federal agencies, its unilateral discontinuance of service was rejected by the Commission and the Third Circuit. J. M. Huber Corp. v. FPC, 3 Cir., 1956,
236 F.2d 550, cert. denied, 352 U.S. 971, 77 S.Ct. 363, 1 L.Ed.2d 324 (approved Continental Oil Co. v. FPC, 5 Cir., 1959, 266 F.2d 208).
To the Lessors, another telling blow against even the likelihood of FPC jurisdiction is the 'historical' fact that the FPC has not yet asserted this power. Indeed, the contention runs, its own administrative regulations and practices provide no machinery for passing on the level of payments of royalty made by a Lessee-Producer to a Lessor.
Amplifying its more cryptic telegraphic advices to Lessee-Producer, the FPC's memorandum brief is a candid statement that it has not undertaken so far to regulate royalth rates. According to the FPC's memorandum brief which we either repeat or slightly paraphrase, the FPC historically has regulated jurisdictional sales of independent producers by requiring either the operator of the producing properties or signatory working interest owners to make the certificate and rate filings required under the Natural Gas Act. It is made for all of the gas involved in the particular sales contract regardless of the number of individuals or entities who may own separate interest therein. Following Phillips I the FPC issued its order No. 174 series in which it set forth the filing requirements applicable to independent producers. Those orders provided that independent producers should file certificate applications and rate schedules, but did not undertake to distinguish between an operator and an owner of some other interest except that, in order to relieve large numbers of parties from the filing requirements, order No. 174-B, 13 FPC at 1577-1579, provided that if the operator made a filing, other interested parties were not required to file. At that time there were no provisions prohibiting a filing by a non-signatory interest owner. Nevertheless, in two decisions, the FPC ruled that a nonsignatory interest owner was not entitled to file under the regulations then in effect. Subsequently the Commission amended 154.91 to codify the action taken by it in the Humble and Midstates cases. As the regulations now stand (barring waiver for good cause) only the signatory operator or signatory interest to a jurisdictional gas sales contract may file. The signatory operator is required to file under 154.91(b). Under 154.91(c) other signatory interest owners may file, but are not required to do so unless the operator is not a signatory party. Under 154.91(d) a nonsignatory interest owner is not permitted to file.
The upshot of it is that the FPC regulations do not presently provide for separate filings by landowner royalty interests or overriding royalty interests who are not themselves signatory parties to the gas sales contract. Nor are operators required generally to provide information with respect to royalty interests in filing their applications for certificates to make jurisdictional sales.
But Lessee-Pipeline (and the FPC memorandum brief) counter with a good deal of force that this nonaction proves little-- certainly not in the light of Phillips I which put an end to 26 years of administrative inaction. The reach of power and the scope of regulation are not necessarily synonymous. The FPC, as any other administrative agency, has considerable discretion in determining the extent to which admitted power is to be employed, especially in terms of detailed administrative regulations. And certainly this would be true if, as the FPC's memorandum brief asserts as a fact, there have been no occasions until the inquiry by this Court for the FPC either to pass upon royalty payments or its power to do so. For that matter, if the FPC finds the statutory power to exist and this is affirmed by the reviewing court, there is still a great likelihood that few of the transactions vis-a-vis Lessor-- Lessee-Producer will have to come under FPC scrutiny as such. Thus, a 'proceeds' royalty transaction presents no problem. The price collected by Lessee-Producer will at all times be subject to FPC regulation, within FPC established ceilings or collected subject to refund upon determination of the fair, just and reasonable rate. 4, 5. Likewise, increases in the amounts payable for royalty, whether arising automatically by escalation, favored nation clauses, or the like, or through the forces of supply and demand in fixing the market price under a market price clause need not be reviewed if the increased price to be paid is still within the relevant FPC ceilings.
It might turn out, therefore, that the FPC, assuming the existence of the power to regulate the price paid for royalty for gas admittedly sold for resale and transported in interstate commerce, will be confined to two principal objectives. First, would be suitable regulations requiring the signatory working interest owner at the time of certification to report fully on the status and nature of the royalty obligations with subsequent or periodic reports as to changes thereon and the level of payments being made therefor. The second would be a requirement that before an amount in excess of the relevant FPC ceilings could be payable, either as a result of unilateral action by negotiation, compromise, or by court judgment, an application would first have to be filed for approval, rejection, or modification by the FPC. That hardly signals the chaos to which Lessors with much feeling prophesy. And chaos or not, it must be remembered that if-- and so far the if is a big one-- the amounts paid for royalty constitute a 'rate', 4, 5, then primary jurisdiction is not only a matter of initial determination by the administrative agency. Rather it then becomes the exclusive role of the agency. State of Georgia v. Pennsylvania R.R., 1945, 324 U.S. 439, 65 S.Ct. 716, 89 L.Ed. 1051; Northern Natural Gas Co. v. State Corporation Commission of Kansas, 1963, 372 U.S. 84, 83 S.Ct. 646, 9 L.Ed.2d 601; Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 1951, 341 U.S. 246, 251, 252, 71 S.Ct. 692, 95 L.Ed. 912; Socony Mobil Oil Co. v. Brooklyn Union Gas Co., 5 Cir., 1962,
299 F.2d 692, cert. denied, 371 U.S. 887, 83 S.Ct. 182, 9 L.Ed.2d 121, following the stay of this Court issued in Magnolia Petroleum Co. v. Federal Power Commission, 5 Cir., 1956,
236 F.2d 785, cert. denied, 352 U.S. 968, 77 S.Ct. 356, 1 L.Ed.2d 322.
Thus we end, as we began, a consideration of these factors pro and con demonstrate that there is at least an arguable basis for FPC jurisdiction. Moreover, these factors ought first to be evaluated by the FPC in the resolution of the question of statutory power and, if that is found to exist, the necessary implementation of that in terms of the extent to which the exercise of that power is or will be appropriate. Lest we be misunderstood, we emphasize again that this analysis is merely to indicate why we conclude primary jurisdiction reference should be made, the Court all the while disclaims any purpose by what it has said or left unsaid, by its comments, express or implied, of declaring or intimating what its views are on the questions referred for initial decision by the FPC and the arguments pro and con.
III.
We therefore affirm the District Court on issues Nos. 2, 3, and 4 (Note 7, supra), but vacate the holding as to issue No. 1 and remand the cause to the District Court for further consistent proceedings. Specifically, the District Court should defer further action including fixing of the actual 'market price' pending invocation by the parties of a ruling by the FPC: (1)(a) as to the jurisdiction of the FPC over payment for royalties for gas sold for resale and transported in interstate commerce, (b) the status of a royalty interest owner's transaction as a sale under the Act where incident to a sale for resale and transportation in interstate commerce, (c) the status of the royalty interest owner's transaction in this case as a sale under the Act; (2) if it should be determined that the FPC has jurisdiction and that at some stage or time the royalty transaction for payment therefor constitutes a sale under the Act(a) the filing requirements, if any, for certification and if required by whom and when, (b) the extent, if any, to which prior application to and approval by the FPC is required as to (i) the type, kind or nature of the royalty clause, (proceeds, market price, etc.), the percentage thereof (e.g., 1/8th, 1/4th, etc.), (ii) monetary payments which do not exceed relevant FPC ceilings, (iii) monetary parments which are or will likely be in excess of relevant FPC ceilings.
For obvious reasons we do not undertake to blueprint the proceedings before the Commission. Nor, in specifying the specific subjects of inquiry and report, do we mean to foreclose other relevant, specific inquiries or variations thereof which might be developed in the proceeding and which will or might have a significant bearing upon the substantial public issue questions of great importance. Rather, the test should be: when the FPC rules and the reviewing Court enforces, will the decision likely supply the answers needed by the trial Court in determining precisely and to what extent matters are or are not for FPC determination and those reserved for court determination?
Affirmed in part.
Reversed and remanded in part.
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