California v. Southland Royalty Co., 436 U.S. 519 (1978)

California v. Southland Royalty Co.

No. 76-1114

Argued December 7, 1977
Reargued April 17, 1978
Decided May 31, 1978 *
436 U.S. 519

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

In 1925, Gulf Oil Corp. executed a lease under which it paid royalties for the exclusive right to produce and market oil and gas from certain land for 50 years. Thereafter, the lessors sold their mineral fee interest to respondents. In 1951, Gulf contracted to sell casinghead gas from the leased property to petitioner El Paso Natural Gas Co., an interstate pipeline. Subsequently, Gulf obtained from the Federal Power Commission a certificate of public convenience and necessity of unlimited duration authorizing the service to El Paso. When Gulf’s original lease expired in 1975, its interest as lessee in the remaining gas reserves terminated and reverted to respondents. Just before the lease expired, respondents arranged to sell the remaining casinghead gas to an intrastate purchaser. El Paso, in order to preserve one of its sources of supply, petitioned the FPC for a determination that the remaining gas reserves could not be diverted to the intrastate market without abandonment authorization pursuant to § 7(b) of the Natural Gas Act (Act). The FPC agreed, holding that, once gas began to flow in interstate commerce from a field subject to a certificate of unlimited duration, such flow could not be terminated unless the FPC authorized abandonment of service. On respondents’ petition for review, the Court of Appeals reversed, holding that Gulf, as a tenant for a term of years, could not legally dedicate that portion of the gas that respondents might own upon the lease’s expiration.

Held: The FPC acted within its statutory powers in requiring that respondents obtain permission to abandon interstate service. The issuance of the certificate of unlimited duration created a federal obligation to serve the interstate market until abandonment authorization had been obtained, and the FPC reasonably concluded that, under the Act, the obligation to continue service attached to the gas, not as a matter of contract but as a matter of law, and bound all those with dominion and power of sale over the gas, including the lessors to whom it reverted. The service obligation imposed by the FPC survived the expiration of the private agreement that gave rise to the FPC’s jurisdiction. Sunray Mid-Continent Oil Co. v. FPC, 364 U.S. 137. Pp. 523-531.

543 F.2d 1134, reversed and remanded.

WHITE, J., delivered the opinion of the Court, in which BRENNAN, MARSHALL, and BLACKMUN, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BURGER, C.J., and REHNQUIST, J., joined, post, p. 531. STEWART and POWELL, JJ., took no part in the consideration or decision of the cases.