Plains Unit Files to Block Use of Ferc Price Clause / by Oneok Subsidiary

By L. D. Barney | THE JOURNAL RECORD, December 27, 1985 | Go to article overview
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Plains Unit Files to Block Use of Ferc Price Clause / by Oneok Subsidiary


L. D. Barney, THE JOURNAL RECORD


Pipelines are raising wellhead prices of natural gas slightly under a price redetermination clause in gas purchase contrac ts for the sole purpose of lowering them significantly later, claims J.P. Collins, president of Plains Resources Inc.

Plains, through a subsidiary, has petitioned in district court to block ONG Western Inc., a unit of Tulsa-based Oneok Inc., from involking the clause for gas from a well in Ellis County.

The clause calls for price redetermination if the contracted gas ceases to be subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) or any other governmental agency. It wasincluded in contracts following adoption of the Natural Gas Policy Act (NGPA) of 1978, which placed price controls on all natural gas.

PRI Producing Inc., the Plains subsidiary, contends the clause was included in the contract for the benefit of the seller when prices were regulated and expected to rise during the boom. It seeks to waive its right to a redetermined price.

ONG Western counters that the clause is automatic and was intended for both buyer and seller. A "market out" provision in the clause allows it to propose an alternate or lower price once the clauseis invoked.

Under the contract, signed September 1981 by ONG Western and John A Taylor, the Oneok company pays $4.17 per thousand British thermal units of natural gas. Plains acquired the property from Taylor Companies in 1983.

Natural gas was deregulated by FERC Jan. 1, 1985. Charles F. Hughes, vice president of gas supply for Oklahoma Natural Gas Co., notified PRI Producing by letter late in June that the purchase priceof gas from the well was redetermined the price at $4.26 as of July 1. Another letter from Hughes said that price was unacceptable and that under the market out agreement the highest price ONG would pay for gas sold under the contract was $2.65.

Collins, in a letter to ONG, waived PRI's right to redetermination of its price.

The market out portion of the disputed clause allows ONG Western to set an alternate price, just as the redetermination clause would allow PRI a higher price, the company said.

Deregulation left the contract without an established price, ONG contends.

"Defendant (ONG Western) is attempting to force Plaintiff (PRI Production) to accept a 9 cent per MMBtu price increase," says the Plains filing, "a benefit which Plaintiff has waived, for the sole purpose of enabling Defendant to then lower the price it pays by $1.

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