Moncrief v. Williston Basin Interstate Pipeline Co.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
APR 20 1999
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

W. A. MONCRIEF, JR., as independent
executor and personal representative of the
ESTATE OF W. A. MONCRIEF, deceased;
W. A. MONCRIEF, JR., individually, as Trustee
for the LEE WILEY MONCRIEF TRUST, as Nos. 97-8087
Trustee for the TOM O. MONCRIEF 1967 and 97-8088
TRUST, and as Trustee for the WILLIAM
ALVIN MONCRIEF III TRUST; CHARLES B.
MONCRIEF, individually and as independent
executor and personal representative of the
ESTATE OF W. A. MONCRIEF, deceased;
RICHARD W. MONCRIEF, as independent
executor and personal representative of the
ESTATE OF W. A. MONCRIEF, deceased, and
as Trustee for the RWM 1988 Trust;
MICHAEL J. MONCRIEF, individually and as
Trustee for the MICHAEL J. MONCRIEF
GRANTOR’S TRUST; RICHARD BARTO
MONCRIEF, individually, and WADE W.
WILEY, JR., as Trustee for the RICHARD
BARTO MONCRIEF 1988 TRUST;

Plaintiffs-Appellants/
Cross-Appellees,
v.
WILLISTON BASIN INTERSTATE PIPELINE
COMPANY; and MDU RESOURCES GROUP,
INC.,

Defendants-Appellees/
Cross-Appellants.
 APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF WYOMING
(D.C. NO. 93-CV-1045)

William Pannill, Pannill, Moser & Barnes, L.L.P., Houston, Texas (Roy L.
Barnes, Pannill, Moser & Barnes, L.L.P., Houston, Texas, and Craig Newman,
Casper, Wyoming, with him on the briefs) for Appellants/Cross-Appellees.

Daniel S. Kuntz, Zuger, Kirmis & Smith, Bismarck, North Dakota (James S. Hill,
Rebecca S. Thiem, Zuger, Kirmis & Smith, Bismarck, North Dakota, and
Frank D. Neville, Casper, Wyoming, with him on the briefs) for Appellees/Cross-
Appellants.

Before PORFILIO , McWILLIAMS , and ANDERSON , Circuit Judges.

ANDERSON, Circuit Judge.

This is a diversity action alleging breach of a 20-year contract (July 7,

1976 - July 6, 1996) for the purchase of natural gas under leases on properties

located in Converse County, Wyoming. 1
The plaintiffs’ complaint seeks, inter

alia: (1) damages for alleged underpayment for delivered gas and for the

1
The contract was entered into by W.A. Moncrief on his own behalf and
that of his son, W.A. Moncrief, Jr. (“Tex”). W.A. Moncrief died in 1986. The
plaintiffs in this action include Tex Moncrief, individually and as personal
representative of his father’s estate, as well as various trustees and others, all
claiming under interests which originated with W.A. Moncrief under the contract.
For expedience, we refer to the plaintiffs collectively, as such, and to W.A. and
Tex Moncrief together or by individual names where necessary for clarity in
context.

-2-
defendants’ refusal to buy gas after November 1993; (2) a declaratory judgment

that following deregulation of natural gas prices the contract continued to obligate

the defendants to pay for gas at the highest rate prescribed or permitted by

Congress during regulation; and (3) a declaratory judgment that in addition to

“native” gas produced from the plaintiffs’ wells, the defendants were required to

take and pay for “makeup” gas—that is, gas purchased by the sellers from outside

sources, injected into the field to maintain pressure for oil production, and then

extracted from the field along with “native” gas and delivered to the defendants.

The district court held that the defendants breached and wrongfully

repudiated the contract in 1993, that the plaintiffs are entitled to damages from

August 13, 1993, through the end of the contract term on July 6, 1996, and that

the defendants were obligated to purchase makeup and all other gas, up to the

contract limit of twelve million cubic feet per day, delivered by the sellers from

August 1993 to the end of the contract term. However, the district court rejected

the plaintiffs’ theory that the highest rates prescribed or permitted by Congress

during periods of price regulation lived on after deregulation as the applicable

contract price. Instead, the court determined sua sponte that the favored nations

clause issue had been tried by implied consent, and held that the favored nations

clause of the contract applied to set the contract price after August 1993. On its

own motion, the court reopened the case for the introduction at a later date of

-3-
evidence of damages under the favored nations clause. Following the subsequent

reopened trial, the court ruled that the contract price for gas from August 13,

1993, through July 6, 1996, was set by reference to prices charged under two

contracts introduced into evidence by the plaintiffs after the first trial. Applying

those prices to the types and quantities of gas covered by rulings described above,

and after subtracting amounts the plaintiffs actually received, the court awarded

the plaintiffs damages in the amount of $15,551,455.00, plus costs. The court

declined to award prejudgment interest.

On appeal and cross-appeal, the parties, respectively, do not challenge the

district court’s rulings that the plaintiffs are not entitled to damages for any

period prior to August 13, 1993, 2
and that the defendants wrongfully repudiated

the contract in 1993, entitling the plaintiffs to damages for the remaining

approximately two and a half years of the 20-year contract. All the other rulings

are variously contested by one party or the other.

After full consideration of the record, and for the reasons stated below, we

affirm the district court’s rulings that the defendants breached and wrongfully

2
The district court held that the plaintiffs are not entitled to recover any
damages for the period from January 1, 1985, to August 13, 1993, for any one of
four independent reasons: de facto price renegotiation; statute of limitations (to
1989); waiver and estoppel; and laches. Except for disputing the findings
regarding de facto price redetermination, the plaintiffs do not contest these
holdings in their briefs on appeal. Issues not argued in the opening brief on
appeal are deemed waived. See Jordan v. Bowen , 808 F.2d 733, 736 (10th Cir.
1987).

-4-
repudiated the contract in 1993, and that the plaintiffs are entitled to damages

from August 13, 1993, to July 7, 1996. We also affirm the district court’s ruling

that the last, highest prices under government regulation did not survive

deregulation as applicable prices for gas under the contract. We reverse the

district court’s rulings that the favored nations clause of the contract applies and

establishes damages, and that the defendants were obligated to purchase gas not

attributable to lands committed to the contract by the plaintiffs, including

“makeup gas.” Accordingly, we vacate the judgment, and remand the case for a

determination, on evidence in the record prior to the court’s reopening order, of

damages from August 13, 1993, to July 7, 1996. Furthermore, because the district

court’s conclusion that prejudgment interest was not warranted in this case was

premised on its determination that plaintiffs’ damages were to be computed by

reference to the favored nations clause, a determination we hold to be improper,

we vacate the district court’s prejudgment interest determination and remand to

the district court for a determination regarding whether prejudgment interest is

warranted in light of our treatment of the case.

BACKGROUND

The district court thoroughly laid out the facts of this case, and the course

of government regulation of interstate and intrastate natural gas prices under the

-5-
Natural Gas Policy Act (NGPA), 15 U.S.C. §§ 3301-3432 (1982) (§§ 3311-3348

repealed 1989), in its published opinion on the parties’ cross-motions for

summary judgment, Moncrief v. Williston Basin Interstate Pipeline Co. , 880 F.

Supp. 1495 (D. Wyo. 1995), and in its Findings of Fact and Conclusions of Law

issued on August 16, 1996, 3 J.A. 1170. We restate, summarize and add to those

opinions only those facts and references to the NGPA which are necessary to our

decision.

W.A. Moncrief and Tex Moncrief were professional oil and gas

businessmen, based in the Moncrief Building in Fort Worth, Texas, whose joint

ventures in that business began in 1945 and eventually covered at least five states.

In 1974, they joined with Woods Petroleum Co. (“Woods”) to drill 12 wells in the

Powder River Basin in eastern Wyoming. One of those wells discovered an oil

field which was designated as the Powell II Unit. The field was a retrograde gas-

condensate field, that is, oil and gas existed in a gaseous state in the reservoir.

The land overlying the reservoir was owned by other parties, to whom the

Moncriefs and the other working interest owners paid production royalties.

In 1976 the Moncriefs and Woods, which acted as the Moncriefs’ agent,

entered into a 20-year contract with the Montana-Dakota Utilities Company (later

named MDU Resources, Inc.) (hereinafter “MDU”) for the sale of natural gas

produced from the Powell II Unit, with interests in specified sections in

-6-
Townships 39 and 40 North, in Converse County, Wyoming. Interests in

additional lands in Converse County were added to the contract by amendment in

1978 and 1979. MDU later formed Williston Basin Interstate Pipeline Company

(WBIPC) as a wholly-owned subsidiary, and assigned its gas contracts to it in

1985. 3

I. Price

The contract was entered into at a time of supply shortage and, therefore, in

a seller’s market. Also, since intrastate sales of gas were unregulated at the time,

Woods and Moncrief favored contracting with MDU since the sales could be for

the intrastate Wyoming market and could command a higher price than was

available for interstate sales.

The pricing provisions of the contract reflect these circumstances. The

contract provided what, for ease of reference, can be called a base price (¶¶ 7.1

and 7.2); two price escalator provisions—a regulated “area rate” clause (¶ 7.4)

and a “favored nations” clause (¶ 7.6); and a clause providing for the

renegotiation, at the seller’s option, of prices once government regulation of

interstate gas prices ceased (¶ 7.5). Those provisions, in relevant part, are as

follows:

Both are joined as defendants and are referred to jointly unless context
3

requires individual references.

-7-
 ARTICLE VII
Price

Buyer shall pay Seller for the gas delivered hereunder in accordance
with the following schedule:

7.1 For the period commencing on the date of initial
delivery of gas hereunder, until January 1, 1978, a price of $1 per
million Btu.

7.2 The price shall be increased 1.5¢ per million Btu on
January 1, 1978 and on each subsequent January 1 during the term
hereof.
....

7.4 If the Federal Power Commission, or any successor or
other governmental authority having jurisdiction in the premises,
shall at any time hereafter prescribe or permit, for the pricing area in
which the properties are located, a higher just and reasonable area
rate including all adjustments for the same type of gas as committed
hereunder than the price herein provided to be paid, then the price
hereunder shall be increased, effective as of the date such higher
price is prescribed, to equal such higher rate.

7.5 In the event the regulation of the price at which natural
gas is sold in interstate commerce ceases, then Seller shall have the
right to request a redetermination of the prices at which natural gas is
to be sold hereunder. Buyer shall notify Seller of the date of
deregulation in writing and any request for redetermination shall be
made to Buyer in writing and shall in the first instance be made
during the six (6) month period immediately following the effective
date of such deregulation, and subsequently during the six (6) month
period immediately preceding each anniversary of the effective date
of such deregulation. Buyer shall notify Seller thirty (30) days prior
to each anniversary date of deregulation so that Seller may request
redetermination. If Seller shall make any such request,
representatives of Buyer and Seller shall promptly meet and attempt
to determine the fair value of gas deliverable hereunder for the then
remaining term of this Agreement commencing in the first instance
on the date such request is made and subsequently on each

-8-
 anniversary of the effective date of such deregulation, but in no event
shall the value so determined or to be determined pursuant to the
further provisions of this paragraph result in a price which is less
than the price otherwise applicable hereunder. . . .

7.6 In the event a bonifide [sic] utility company or other
pipeline company enters into a gas purchase contract with any Seller
for the purchase of gas of similar quality and quantity from lands
located East of the Continental Divide in the State of Wyoming,
whose terms call for a higher price to be paid from time to time than
the then effective price contained herein, the prices herein contained
shall be adjusted to reflect such higher prices on the date of first
delivery of gas and from time to time thereafter, under the referenced
contract.

8 J.A. 3538-40.

Moncrief was never paid the base price. A short while after the contract

was signed, the Federal Power Commission (FPC) increased its national rate for

new interstate gas to $1.42 per million British thermal units (MMBtu), and MDU

paid that rate when deliveries began. Two years later, Congress enacted the

NGPA, which extended federal regulation to the intrastate natural gas market for

the first time. In so doing, the NGPA divided the intrastate gas market into

several categories, and made a distinction between gas brought into production

after the statute’s passage, which was governed by § 102 of the new statute, and

gas produced pursuant to an intrastate gas contract in existence in 1978, governed

by § 105. Section 105 set a ceiling price for gas delivered under existing

contracts, providing that the maximum lawful price for such gas was the regulated

price set for new gas under § 102. After Woods insisted that it and Moncrief

-9-
were entitled, under the contract, to an amount equal to the § 102 rate for new

gas, MDU began paying the § 102 rate in October 1979 and continued doing so

until January 1985, when most of the NGPA price regulations expired. See 15

U.S.C. § 3331(a) (1982) (repealed 1989). The § 102 rate in December 1984 was

$3.845 per MMBtu, and MDU was paying that amount to Moncrief.

The district court found most of the following facts. Anticipating

deregulation, in June 1984 MDU sent a letter to its natural gas sellers, including

Moncrief, proposing a price of $2.25 per MMBtu for deregulated gas effective

January 1, 1985. Representatives of MDU and WBIPC later met with the sellers,

and during those meetings WBIPC offered to pay $2.25 per MMBtu, inclusive of

production tax reimbursement, for deregulated gas. WBIPC also offered an

additional 50¢ per MMBtu for natural gas produced during 1985 if the seller

agreed to execute a contract amendment releasing MDU/WBIPC from any past

claims under the contract and providing greater flexibility to WBIPC under the

contract. Ronald Tipton of WBIPC met with the Moncriefs on August 8, 1984,

and February 28, 1985, to discuss these proposals with respect to the contracts

WBIPC had with W.A. Moncrief and Tex Moncrief. The Moncriefs did not agree

to amend their contract but stated that they would not sue WBIPC. Starting in

January 1985, the pipeline paid Woods $2.25 per MMBtu for Moncrief’s interest

-10-
in the gas purchased under the contract, and continued to pay that price during

1985 and 1986.

On October 3, 1986, WBIPC sent a letter to Moncrief stating its intention

to reduce the price that it was paying for natural gas effective January 1, 1987.

On March 16, 1987, WBIPC sent another letter to Moncrief setting forth

WBIPC’s proposal to pay $1.75 per MMBtu and requesting that Moncrief sign a

proposed contract amendment that would offer WBIPC greater flexibility under

the contract. WBIPC representatives Ronald Tipton and Dennis Haider met with

Tex Moncrief on April 28, 1987, to discuss WBIPC’s proposal to pay $1.75 per

MMBtu. At this meeting, Tex would not agree to the proposed contract

amendment.

During the 1984, 1985, and 1987 meetings with MDU and WBIPC

representatives, neither W.A. Moncrief nor Tex Moncrief asserted that the

contract price remained at the last regulated price prior to deregulation of natural

gas prices. During these meetings, neither W.A. Moncrief nor Tex Moncrief

stated that the price of the gas was a regulated price under NGPA § 105(b)(3).

WBIPC paid Woods or its successors $1.75 per MMBtu for Moncrief’s gas

produced from January 1, 1987, through October 31, 1993. WBIPC provided

monthly statements to Woods and its successors which showed the prices paid for

the gas. Woods and its successors provided monthly settlement statements to

-11-
Moncrief which showed or allowed Moncrief to determine the price WBIPC was

paying for the gas. Moncrief had employees who reviewed the statements

received from the operator and who were specifically charged with the

responsibility to determine that the prices received for gas sales were correct

under the applicable contracts. In addition, internal summaries of the operator

reports and prices paid were prepared by Moncrief’s employees. These reports

were discussed with and readily available to Tex Moncrief. These payments were

accepted by Woods (or its successors) and Moncrief without reservation or

objection made to WBIPC as to the price paid. WBIPC relied upon Moncrief’s

acceptance of these prices paid by it from 1985 to 1993.

From 1985 to August 1993, the Moncriefs made no claim that any provision

of their contract with MDU mandated prices higher than the $2.25/$1.75 per

MMBtu paid by WBIPC, and WBIPC made no assertion that the price should be

the lower contract base price.

On August 9, 1993, Tex Moncrief sent a letter to WBIPC stating for the

first time his position that the contract price in effect was the December 1984

NGPA § 102 price of $3.845 per MMBtu plus tax reimbursement. He sent a

similar letter on August 12, 1993. Neither Moncrief nor WBIPC construed these

letters as a request for price redetermination under ¶ 7.5 of the contract.

-12-
 On November 11, 1993, Moncrief sent a letter to WBIPC stating that the

contract price after January 1, 1985 was established under ¶ 7.6, the favored

nations clause. Plaintiffs later abandoned that position in litigation and, in their

Second Amended Complaint, they asserted, as alternative arguments, that the

contract price of the gas was either the regulated § 102 price in December 1984

($3.845), or the § 105(b)(3) ceiling price in December 1992 ($6.371).

WBIPC, in turn, asserted that in and after 1985 the contract price was in

actuality the base price which, with annual increases under ¶ 7.2, amounted to

$1.23 per MMBtu in 1993. It also informed Moncrief that effective November 1,

1993, it would no longer purchase gas under its existing contracts. This

eventually resulted in the wrongful repudiation ruling by the district court which

WBIPC does not appeal.

II. Quantity

The district court also found the following facts regarding the issue of

“makeup” gas. In the late 1970s, MDU became aware of the Powell II Unit

owners’ plans to repressure the gas reservoir by reinjecting gas produced from the

unit and from other sources. The reinjection plan called for a 14-year period of

recycling and six to seven years of “blowdown” (production of the injected gas).

-13-
 The parties believed that reinjection would add to the oil and gas reserves

ultimately recoverable from the reservoir. MDU urged the unit owners to buy

natural gas for recycling rather than nitrogen, even though natural gas cost more,

because the nitrogen would have presented a processing problem upon extraction.

After balancing the costs and benefits of purchasing nitrogen, the unit decided to

purchase outside gas for injection.

On September 1, 1983, the Powell II Unit and the adjoining Spearhead

Ranch Unit were terminated with the approval of the Bureau of Land

Management. The lands from the Powell II and Spearhead Ranch Units were

combined with other lands from the surrounding area to form the Powell Pressure

Maintenance Unit (PPMU).

At the same time, the PPMU owners started a repressurization program for

secondary recovery of oil and natural gas liquids from the unit. Natural gas

produced from the unit was processed to remove the liquid hydrocarbons and then

injected or “recycled” back into the unit to maintain the reservoir pressure. As

planned, the unit owners purchased makeup gas from outside the unit, which was

injected into the reservoir to assist in maintaining the desired pressure level.

Over 17.5 billion cubic feet of makeup gas was injected into the unit between

September 1, 1983, and December 1, 1993. Moncrief and the other PPMU owners

-14-
did not pay severance or production taxes or royalties on the makeup gas

withdrawn from the unit.

In 1993, the PPMU owners elected to discontinue repressurization and

begin blowdown of the unit. During blowdown, the operator stops injecting gas

and allows the pressure to decline as gas is withdrawn from the unit. The

operator of the Powell II Unit informed WBIPC of its plans for blowdown of the

reservoir as early as 1991, but the pipeline did not assert that it was not obligated

to take the gas injected from outside the unit until it answered in this lawsuit.

WBIPC believed that the Powell II contract remained in effect and feared

litigation if purchases ceased.

Beginning in 1993, Moncrief tendered blowdown gas of six million cubic

feet per day to WBIPC. WBIPC offered to cancel the contract based on the

representation that the pipeline’s customers (including its parent) had

discontinued purchases under Federal Energy Regulatory Commission (FERC)

Order No. 636. WBIPC also claimed that the pipeline’s take obligation was to

take only Moncrief’s working-interest share of twelve million cubic feet per day.

Moncrief disputed all these claims and demanded adequate assurances, which

WBIPC refused to provide. WBIPC has refused to purchase gas from Moncrief

since November 1, 1993.

-15-
 DISCUSSION

I. Price

A. Did the District Court Properly Address the Merits of the
Favored Nations Clause Claim?

This action was commenced on November 9, 1993. Following extensive

pretrial proceedings, the case was tried in a bench trial from January 10-19, 1996.

In its opinion, issued on August 16, 1996, the district court ruled sua sponte that

Moncrief was entitled to damages under ¶ 7.6 of the contract, the favored nations

clause, despite the fact that Moncrief did not present this theory in his Second

Amended Complaint. The court reopened the case to receive “evidence that the

parties may wish to present on this issue,” because the record did not contain any

evidence which would permit the calculation of damages (if any) under the clause.

3 J.A. 1196. In these rulings the court did not invoke Fed. R. Civ. P. 15(b) nor

did it conduct any analysis justifying the application of that rule. Rather, it

explained the absence of evidence, and the basis for reopening the case, on the

ground (unsupported by any reference to the record) that “the parties thought that

the favored nations clause evidence had been excluded, inadvertently, by the

Court in its summary judgment opinion.” 3 J.A. 1196.

After allowing additional discovery, the court subsequently held further

trial proceedings on April 27, 1997. In an opinion issued on June 26, 1997, it

denied the defendants’ motion for reconsideration, and concluded that the

-16-
plaintiffs’ complaint should be amended to conform to the evidence pursuant to

Fed. R. Civ. P. 15(b), so as to include a claim under the favored nations clause of

the contract. The court determined that the issue was tried by implied consent of

the parties, and that the defendants were not prejudiced since they had been given

ample post-trial discovery and preparation time, and there was an evidentiary

hearing on the merits.

The district court then ruled that a contract between Forest Oil Corporation

and KN Energy, Inc. (the “Forest Contract”) for the purchase of gas at $4.38 per

MMBtu qualified under ¶ 7.6, and established the Forest Contract price as the

Moncrief contract price for the period from August 13, 1993, through September

30, 1993, when the Forest Contract was assigned to a subsidiary. It also ruled

that a contract between Moncrief and ANR Pipeline Company, originating in 1980

and amended in 1989, for the purchase of gas at $3.50 per MMBtu, qualified

under ¶ 7.6 and established the Moncrief contract price for the period from

October 1, 1993, to July 7, 1996.

On appeal, the defendants first argue that this issue is substantive, not

procedural, and is governed by Wyoming law relating to the waiver, abandonment

and release of claims. We disagree. The record relates most directly to the

procedural posture of the case. Therefore we analyze this issue under the Federal

Rules.

-17-
 Rule 15(b) provides in relevant part as follows:

(b) Amendments to Conform to the Evidence.
When issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects as
if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure so to amend does
not affect the result of the trial of these issues.

We review a district court’s decision to amend the pleadings to conform to the

evidence under the abuse of discretion standard. See Rios v. Bigler , 67 F.3d

1543, 1551 (10th Cir. 1995). Here, whether the district court abused its discretion

by sua sponte introducing the favored nations clause claim and allowing further

trial proceedings is best evaluated in the context of how the plaintiffs themselves

proceeded as to that claim.

In its 1995 summary judgment opinion the District Court specifically noted

the changes in the plaintiffs’ claims, including the abandonment of any claim

under the favored nations clause of the contract:

Plaintiff’s theories of recovery have been evolving.
Moncrief’s three different complaints in this action have reflected
three different theories of recovery. Moncrief’s initial complaint
argued that the sellers owed a higher price based on the Section 7.6
“favored nation” clause of the contract. In this initial complaint,
Moncrief also asserted that the natural gas sold under the contract
was deregulated on January 1, 1985, and that, based on the terms of
the contract, the applicable price was the last regulated price of
$3.845 per MMBtu plus tax reimbursement.

-18-
 In the plaintiff’s First Amended Complaint he abandoned the
application of the favored nations clause and concentrated on the last
regulated price and his claim that the contract did not allow the
contract price to decrease. In the First Amended Complaint, Tex
Moncrief argued that deregulation of the contract price had occurred
on January 1, 1985.

Finally, the plaintiff’s Second Amended Complaint, currently
before the Court, proposes that the gas under the contract remained
regulated after all. Moncrief now argues that the governing price
comes from the Natural Gas Policy Act § 105(b)(3) which sets a
ceiling price for “old gas.” According to this contention, the
applicable price under the contract is set by 18 C.F.R. 271.101.

Moncrief v. Williston Basin Interstate Pipeline Co. , 880 F. Supp. 1495, 1504 (D.

Wyo. 1995) (emphasis added). This is an accurate description of the evolution of

the plaintiffs’ claims, culminating with the Second Amended Complaint which

then governed the proceedings. That complaint raises only the issue of, and seeks

relief based on, regulated prices.

The plaintiffs’ abandonment of a favored nations claim followed the

defendants’ discovery requests relating to that claim after the initial complaint

was filed. Plaintiffs’ counsel responded to those requests by telling defendants’

counsel that plaintiffs would drop their claim on that clause. Plaintiffs’ counsel

then responded in writing to the discovery requests, stating that “Moncrief has

chosen not to pursue his claim under the contract’s ‘favored nations’ clause.” 11

J.A. 4981-83. The plaintiffs then filed a motion for leave to amend their

complaint, stating that “Moncrief has also amended his complaint to omit his

-19-
claim under the contract’s ‘favored nations’ clause. . . .” 1 J.A. 37. The motion

to amend was granted by the magistrate judge, and the favored nations clause

claim was absent from the first amended complaint as well as the second amended

complaint.

The absence of any favored nations clause claim by the plaintiffs is

consistent in the plaintiffs’ pretrial memoranda, trial brief, and pretrial proposed

findings of fact and conclusions of law, all of which pursued regulated price

claims. The court’s pretrial conference order does not include any claim under

the favored nations clause, and explicitly provided that the order controls and

would not be amended except with consent of the parties unless “by order of the

court to prevent manifest injustice.” 3 J.A. 1014. In his lengthy opening

statement, plaintiffs’ counsel reconfirmed abandonment, stating that Moncrief

initially made a claim under the favored nations clause “which we later

withdr[ew]. We later abandoned that claim.” 5 J.A. 2049.

It is undisputed that plaintiffs’ counsel made no motion during trial, or at

any time after trial, to amend its pleadings to reassert a claim under the favored

nations clause of the contract. And, there was certainly no explicit consent by

defense counsel that the issue could be reintroduced. As for the court’s reference

to an alleged view by the parties that there was an inadvertency or some confusion

in the ruling on summary judgment, no motion for reconsideration or clarification

-20-
on the subject was filed by the plaintiffs after the ruling, at any time prior to trial

(including contentions in pretrial orders), or after trial. In short, the court’s

ground for reopening the trial—inadvertency or confusion regarding the district

court’s summary judgment ruling—has never been reasserted again, including in

the arguments on appeal.

The district court held that the issue was tried by implied consent because

defense counsel referred to the favored nations clause when examining some

witnesses about the contract, and introduced exhibits D-61, D-63, D-64, D-119,

D-119-A, and D-121 which pertained to that clause. On appeal, plaintiffs’

counsel identifies some of those and other exhibits as well, including D-108, D-

113, and D–118, along with sixteen references to portions of the trial testimony.

In sum, out of literally hundreds of exhibits, the district court and the plaintiffs

have identified about twelve which even mentioned favored nations issues, and a

handful of instances where that subject came up during the examination of

witnesses.

We have reviewed all of these references to the favored nations clause.

Whether viewed individually or collectively, they do not represent anything that

can fairly be characterized as the introduction and trial of a favored nations price

claim. See Hardin v. Manitowoc-Forsythe Corp. , 691 F.2d 449, 457 (10th Cir.

1982) (stating that “[i]mplied consent is found where the parties recognized that

-21-
the issue entered the case at trial and acquiesced in the introduction of evidence

on that issue without objection” ).

Some of these references are innocuous. 4
Some are inextricably intertwined

with historical facts explaining the course of the parties’ dealings, views, and

conduct, both in-house and otherwise, and are entirely appropriate as part of

describing the whole picture. 5
An omitted claim does not require redaction of

history.

The balance of the material in question was obviously employed to

discredit the plaintiffs’ arguments that the Moncriefs and their employees and

experts always regarded the contract price to be the last regulated price, that

regulated prices continued after 1984, and that prices were never supposed to

4
For instance, Exhibits D-108 and D-113, cited by the plaintiffs as favored
nations exhibits, appear to have, at most, only a tangential connection to the
favored nations clause. Exhibit D-108 contains only the barest reference to the
existence of a favored nations clause in the contract, 10 J.A. 4515, and Exhibit
D-113 contains no mention at all of the clause, 10 J.A. 4518.
5
For instance, Exhibits P-5, P-8, and P-9, introduced by the plaintiffs, are
documents dealing with the history of the negotiation of the contract, and which
contain some mention of the existence of a favored nations clause and the reasons
for its inclusion in the contract. 8 J.A. 3516, 3523, 3525. These documents also
contain information regarding other contractual clauses, such as the area rate
clause and the price redetermination clause. Similarly, Exhibit D-118 contains a
reference to plaintiffs’ desire in 1993 to find comparison contracts that would
qualify under the favored nations clause, 10 J.A. 4525, but this document tells the
reader no more than that plaintiffs were considering a favored nations argument,
information readily available from plaintiffs’ original Complaint, 1 J.A. 5-6.

-22-
decrease. 6
Implied consent cannot be based upon the introduction of evidence

that is relevant to an issue already in the case when there is no indication that the

party presenting the evidence intended to raise a new issue. See Southwestern

Stationery and Bank Supply, Inc. v. Harris Corp. , 624 F.2d 168, 171 (10th Cir.

1980); Ellis v. Arkansas Louisiana Gas Co. , 609 F.2d 436, 440 (10th Cir. 1979);

see also 6A Charles Alan Wright et al., Federal Practice and Procedure § 1493, at

32-35 (2d ed. 1990). Indeed, “[w]hen evidence claimed to show trial of an issue

by consent pursuant to Rule 15(b) is relevant to a separate issue already in the

case, it would be unjust to the opposing party to consider a new theory of

recovery after trial is complete.” Cook v. City of Price, Carbon County, Utah ,

566 F.2d 699, 702 (10th Cir. 1977).

Admittedly, the defendants’ attempts to show that the prices they paid

through 1984 reflected favored nations considerations rather than regulation as

such, and that the plaintiffs ignored fluctuations in favored nations prices through

1992, are somewhat problematic. See Exs. D-61, D-63, D-64, D-119, D-119-A;

see also 5 J.A. 2096-2100; 6 J.A. 2700-01. Both arguments necessarily subsume

6
Exhibits D-61, D-63, and D-64 were introduced to point out that the
favored nations clause, rather than the area rate clause, set the contract price
between 1978 and 1985. 10 J.A. 4288, 4292, 4295. Exhibits D-119 and D-119-A
were introduced to refute the plaintiffs’ argument that the contract price could
never decrease, by showing that the plaintiffs themselves, at one point, demanded
that the pipeline pay a contract price, set by the favored nations clause, that
fluctuated up and down over a period of years. 10 J.A. 4526-55.

-23-
the unspoken but inevitable premise that favored nations prices were and

continued to be relevant. But, even an acknowledgment that ¶ 7.6 continued to be

a viable part of the contract (apparently a given) does not resolve anything. It

simply provides, arguendo, the basis for a claim to be proved, not proof of the

claim.

If the claim asserted to have been tried by consent is that the applicable

contract price from August 1993 to July 7, 1996, was set by a contract or

contracts qualifying under ¶ 7.6, it faces an insurmountable obstacle. There is no

evidence proving the claim. This deficiency is highlighted by the fact that the

only competent evidence available to prove up the claim, and which was used by

the court—qualifying comparison contracts and testimony and evidence

concerning the qualifying contracts—was not introduced until the second trial,

after the first trial was completed. Thus, even assuming hypothetically that the

plaintiffs’ first complaint was reinstated at trial, the favored nations claim would

have failed for lack of proof of a qualifying contract and damages, each a sine

qua non of the claim. After both parties rested, at the trial held in January 1996,

the district court would not have been able to fashion a judgment for the plaintiffs

under ¶ 7.6. And, sua sponte reopening the case for a further trial to breathe life

into a failed issue is not the purpose of or sanctioned by Fed. R. Civ. P. 15. That

-24-
rule allows the pleadings to be amended to conform to the evidence already

entertained by the court, not to evidence presented at a further trial. 7

7
The second part of Rule 15(b), which allows amendment of the pleadings
even where there is no implied consent to try a new issue, is not applicable to the
facts of this case. That part of the Rule states that

[i]f evidence is objected to at trial on the ground that it is not within
the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so freely when the presentation of the
merits of the action will be subserved thereby and the objecting party
fails to satisfy the court that the admission of such evidence would
prejudice the party in maintaining the party’s action or defense upon
the merits.

Fed. R. Civ. P. 15(b).

There are two prerequisites to the invocation of this portion of the Rule,
neither of which are satisfied here. First, the opposing party must object, at trial,
to the admission of evidence on the ground that it is not within the issues raised
by the pleadings. No such objection was ever lodged here—the only objection of
any kind to Rule 15(b) amendment was WBIPC’s counsel’s protestations at
closing argument of the January 1996 trial that the favored nations issue was not
tried by consent. WBIPC never objected to the admission of any favored nations
evidence, some of which it actually introduced, because the evidence relating to
the favored nations issue introduced at trial was either innocuous or relevant to
some other issue in the case.

Second, after the objecting party has satisfied the first prerequisite by
objecting to the new evidence, the party seeking amendment of the pleadings must
move, under Rule 15(b), for such amendment. A court may not sua sponte invoke
the second portion of Rule 15(b). We have stated that “Rule 15(b) makes no
provision for automatic amendment when . . . proper objections are made to the
admission of evidence.” Dunn v. Ewell (In re Santa Fe Downs, Inc.) , 611 F.2d
815, 817 (10th Cir. 1980); see also 3 James Wm. Moore et al., Moore’s Federal
Practice § 15.18[3], at 15-77 (1998) (stating that “a court may not amend without
a formal motion if the opposing party has objected to the evidence on the grounds
that it is outside the scope of the pleadings”).

-25-
 For these reasons we conclude that the district court abused its discretion

by holding that a claim under the favored nations clause, ¶ 7.6, was tried by

implied consent, and by sua sponte reopening the case for a further trial on that

subject, resulting in an award of damages.

B. Did Regulated NGPA Prices Continue to Operate as the
Applicable Contract Price After Deregulation?

Throughout this case, the plaintiffs’ central argument as to rates has been

that the contract price continued to be the last and highest NGPA regulated rate

cognizable under ¶ 7.4 of the contract. They assert that the district court erred in

its rulings that the contract is unambiguous, that intrastate natural gas prices were

deregulated on January 1, 1985, and that NGPA rates did not survive deregulation

as the continuing price under the contract. The district court’s holding that the

contract is unambiguous foreclosed consideration of parol evidence of the parties’

intent as to the meaning of the contract provisions in question. 8
Nevertheless,

although the district court stated that it did not consider such evidence in arriving

at its decision, the court did receive parol evidence allegedly relevant to the

parties’ intent as to the meaning of the contract, as well as the parties’ course of

conduct, and that evidence is contained in the appellate record.

The district court made no finding as to whether the contract was fully
8

integrated, a separate ground for barring parol evidence.

-26-
 We review de novo questions of contract ambiguity and legal interpretation,

the meaning and effect of the NGPA, and Wyoming law. See Salve Regina

College v. Russell , 499 U.S. 225, 239 (1991) (stating that “courts of appeals

review the state-law determinations of district courts de novo ”); United States v.

Fillman , 162 F.3d 1055, 1056 (10th Cir. 1998) (stating that “[w]e review de novo

the district court’s interpretation of a federal statute”); City of Wichita v.

Southwestern Bell Tel. Co. , 24 F.3d 1282, 1287 (10th Cir. 1994) (stating that

“[t]he determination of the ambiguity of a contract is a question of law reviewed

de novo”). We review the district court’s findings of fact under the clearly

erroneous standard. See Fed. R. Civ. P. 52(a); Candelaria v. EG & G Energy

Measurements, Inc. , 33 F.3d 1259, 1261 (10th Cir. 1994).

There is a highly contested issue in this case as to whether the

government’s regulation of intrastate gas prices under the NGPA was

discontinued by Congress as of January 1, 1985, or as of January 1, 1993. But

there is no claim that any NGPA regulation of prices cognizable under the

contract existed after 1992. 9
Since the only period at issue in this appeal is

August 1993 through July 6, 1996, the contract’s expiration date, it is largely

See 15 U.S.C. § 3373(a). Plaintiffs have acknowledged in papers filed
9

with both this court and the district court that “regulation continued until the end
of 1992,” Br. for the Appellants at 23, and that “Congress deregulated all gas
sales on January 1, 1993,” Moncrief’s Supp. Memorandum in Support of
Summary Judgment, 2 J.A. 539. See Natural Gas Wellhead Decontrol Act of
1989, Pub. L. No. 101-60, 1989 U.S.C.C.A.N. (103 Stat.) 157.

-27-
immaterial whether deregulation was effective on January 1, 1985, or January 1,

1993, unless the contract requires that regulated prices must continue as the

contract price after deregulation. If, pursuant to this contract, regulated rates

survived deregulation, then the date of deregulation becomes important because

the regulated § 102 rate at the end of 1984 was $3.845 per MMBtu and the

§ 105(b)(3) ceiling rate at the end of 1992 was $6.371 per MMBtu. If relevant

regulated rates did not survive deregulation under this contract, then we need not

address whether deregulation ceased at the end of 1984 or 1992. Accordingly, the

threshold question is whether regulated rates survived deregulation as the contract

price for natural gas under the terms of the parties’ contract. Our inquiry must, of

course, begin with the terms of the contract.

1.

As indicated above, the district court found no ambiguity in the pricing

provisions of the contract and held that regulated prices did not survive

deregulation. It stated:

Plaintiffs have urged that the contract did not provide for a fall in the
contract price following deregulation, and, as a result, that the
contract price remains at the highest regulated price. However, even
if a gas contract does not explicitly provide for a lowering of a
contract price, it is implicit in a price redetermination clause like that
found in Section 7.5. See , Prenalta Corp. v. Colorado Interstate Gas ,
No. C89-1010-B (Brimmer, C.J.), rev’d on other grounds , 944 F.2d
677 (10th Cir. 1991); Questar Pipeline Co. v. Grynburg, et al. , No.

-28-
 92-CV-265-J (Johnson, C.J.) and PG & E Resources Co. v. Questar
Pipeline Co. , No. 93-CV-063-J (Johnson, C.J.). Moreover, courts
have also held that in gas purchase contracts, the escalated base
contract price governs when deregulation occurs and the parties have
failed to redetermine a new contract price. E.g. , Colorado Interstate
Gas v. Martin Exploration Management Corp. , No. 85-CV-0399
(Dist. Ct. El Paso County, Colo. Dec. 15, 1988).

Moncrief , 880 F. Supp. at 1520.

Alternately arguing for interpretations in their favor based on lack of

ambiguity, Br. for the Appellants at 25-30, or ambiguity, Appellants’ Reply Br. at

29, the plaintiffs offer a multitude of reasons why the district court erred in

holding that regulated prices expired for contract purposes when they expired by

statute. Their central thesis is that prices under this contract operated on an

upward ratchet principle—they could only go up, never down. This position, they

argue, is supported by the facts that the contract was made in a sellers’ market

and “[o]ne principal purpose of the contract was to assure Moncrief of the highest

price he could collect for intrastate gas during the life of the contract.” D. Ct.

Findings of Fact and Conclusions of Law, 3 J.A. 1186. They point to the

unambiguous language of the escalator clauses, which refer only to price

increases and upward adjustments to reflect “such higher prices” or “such higher

rate.” 8 J.A. 3538, 3540 (¶¶ 7.4, 7.6). There are no provisions for lowering

prices, and no market-out clause. In addition, plaintiffs assert that the contract

-29-
was all the work of the defendants and should therefore be construed against them.

The upshot of these arguments is that regulated rates purportedly served

merely as a reference point or benchmark. Once that benchmark was established

it took on (or always had) a life of its own as the contract price, unaffected by any

later deregulation of the rate. As support for this benchmark principle, plaintiffs

cite Amoco Prod. Co. v. Stauffer Chem. Co. , 612 P.2d 463 (Wyo. 1980), and this

court’s opinion in Northwest Cent. Pipeline Corp. v. JER Partnership , 943 F.2d

1219 (10th Cir. 1991). Other than these two cases, the plaintiffs cite no authority

purporting to directly support their position. To the contrary, they recognize that

the district court cases cited by the court here are directly against them and they

ask us to “overrule” those cases. Appellants’ Reply Br. at 47. They also attempt

to distinguish the district court cases on the ground that they were interpreting

regulated interstate contracts “which had to accept federal pricing law.” Id.

The plaintiffs’ reliance on JER underscores the point that contract cases

turn on the particular facts of each case. 10
Except for the first month, the contract

10
Similarly, Stauffer is readily distinguishable on its facts, and in any event
provides no support for plaintiffs’ benchmark argument. The issue in Stauffer
was whether the parties intended to incorporate FPC vintaging concepts into the
price terms of their contract. See generally Stauffer , 612 P.2d at 463-68. Neither
party in that case argued that the contract price constituted a benchmark that
could never subsequently decrease, and therefore the Wyoming Supreme Court in
Stauffer simply never addressed that argument. We fail to see how Stauffer
provides any support for plaintiffs’ benchmark argument. Additionally, the
natural gas contract at issue in Stauffer was fundamentally different from the
(continued...)

-30-
involved in the JER case had, essentially, only two ways to determine price: a

regulated rate or, if regulation ceased, then, at the seller’s option, a redetermined

price under a specified formula. The district court in JER held that the contract

was ambiguous as to price upon deregulation, because if regulation ceased, and

the seller did not request a redetermination, there was no provision for a price.

The court therefore resorted to extrinsic evidence to determine the intention of the

parties. We upheld that decision, reasoning—on our way to deciding the case on

extrinsic evidence grounds—that ambiguity exists where two rational but mutually

exclusive choices are available. In this context we stated that

[a] perfectly reasonable interpretation of this language (which the
district court ultimately adopted) is that nothing happens to the
contract price upon deregulation unless the seller requests
redetermination. Otherwise the seller’s redetermination right would
be rendered meaningless.

JER Partnership , 943 F.2d at 1227.

Unlike the contract in JER , the contract in this case does not present an

unavoidable conundrum in the event of deregulation and the seller’s lack of

request for a price redetermination. Both the base price provisions of ¶¶ 7.1 and

10
(...continued)
contract at issue in this case. The Stauffer contract contained base price
provisions and an area rate clause, but, unlike the contract at issue in this case, it
contained no favored nations clause. The court in that case interpreted the area
rate clause as a form of a favored nations clause, but did so only in light of a
“manifested [intention] to apply [the area rate clause] in the manner usual to a
favored nations clause,” and in light of the contractual absence of an actual
favored nations clause. Id. at 468.

-31-
7.2 and the favored nations pricing provision of ¶ 7.6 continue to operate

independently of deregulation and the operation of ¶ 7.4. And the contract does

not state that the price must always stay at the highest regulated rate or other

benchmark, nor does it say that regulated rates survive deregulation. These are

merely argumentative inferences the sellers would have us draw.

On the other hand, the contract does not state that upon deregulation prices

must revert to those set under ¶¶ 7.1, 7.2 or 7.6 if the seller fails to request price

redetermination. So there is some basis for the plaintiffs’ interpretation.

Nevertheless, the rationales here are not equally plausible, as they were in

JER where the provisions created a virtual impasse. Under the favored nations

clause here, the price would adjust favorably to the highest qualifying prices

(applying the plaintiffs’ own definition of “Seller” as any seller), thus satisfying

the Moncriefs’ desire to get the highest applicable price being paid in the

described geographic area. And, if prices fell (plaintiffs assert that in 1975-76

prices were 67¢ per Mcf for interstate gas, and slightly above $1.00 per Mcf for

intrastate free market gas, Br. for Appellants at 6), the escalated base price would

protect them.

Accordingly, fully taking into account the context in which this contract

was negotiated, we agree with the district court that the contract can be

interpreted within its four corners without ambiguity, and that regulated prices

-32-
ceased to apply upon deregulation. However, deciding that the contract is

ambiguous would not change the outcome, as we next discuss.

2.

The plaintiffs alternatively argue that the contract is ambiguous and that the

district court erred in failing to consider extrinsic evidence, inferring that we

should remand for a new trial on the question of regulated pricing under the

contract. Here too, they cite JER , asserting that the case, in addition to declaring

as a matter of law that regulated prices survive deregulation, also stands for the

proposition that contractual ambiguity requires resort to extrinsic evidence, which

they assert to be in their favor.

The district court in JER , unlike the district court in this case, declared the

contract to be ambiguous. It therefore admitted and considered extrinsic evidence

on the meaning of the contract according to the parties. As to that evidence we

stated:

The district court found that, in the absence of a seller request
for redetermination, the parties intended the last regulated price to be
the contract price upon deregulation. Overwhelming evidence
supported this conclusion. Indeed, Williams’s witnesses uniformly
agreed that this was the parties’ intention. We cannot say that this
finding was clearly erroneous .

....

-33-
 [T]he parol evidence was crystal clear : the parties intended the last
regulated price to be the deregulated price unless the seller requested
price redetermination.

JER Partnership , 943 F.2d at 1228-29 (citation and footnote omitted) (emphasis

added).

That is not the situation in this case. The district court admitted extensive

extrinsic evidence regarding contract negotiations and subsequent

communications and conduct of the parties relating to the contract. In fact, the

plaintiffs do not assert that they were prevented from introducing any extrinsic

evidence, or that some specific relevant evidence exists and was proffered, but

was foreclosed by a ruling of the court. Thus, we have the extrinsic facts before

us. From our examination it is apparent that, unlike JER , the evidence is far from

overwhelming or crystal clear in favor of the plaintiffs’ position that the parties

intended regulated rates to survive deregulation.

Indeed, plaintiffs point us to nothing in the record which directly addresses

the parties’ intentions regarding the effect of deregulation on contract prices set

by reference to the area rate clause. One internal communication in 1976 from

Woods to Moncrief stated that MDU was offering an attractive base price and a

good opportunity for price increases in the future. 8 J.A. 3516-18. Another,

commenting on the draft contract, stated that “there are numerous price protection

clauses that will permit us to be on a par with the highest price paid in the Powder

-34-
River Basin by any bona fide purchaser. At the present time, the $1.00 per

MMBtu price is the highest in Wyoming.” 8 J.A. 3525.

Moreover, Claud Pickard, MDU’s gas-supply manager, testified at his

deposition as follows:

Q. [Pl. Exh. 8] says there are numerous price protection
clauses that will permit us to be par with the highest
price paid in the Powder River Basin by any bona fide
purchaser. Would you agree that that was an accurate
statement of the contract?

A. I would think so, uh-huh.

....

Q. Was that the intent of the parties when they entered into
the contract back in ‘76?

A. Well, I don’t think it was the intent of MDU to be the
highest priced , but when you put a favored nations
clause in the contract, that’s the way it works.

5 J.A. 2397-98 (portions of Pickard’s deposition introduced at trial) (emphasis

added). Pickard also testified, at trial, that the main purpose of intrastate

contracts was to obtain higher prices under favored nations clauses , and that

higher prices under the area rate clause or the favored nations clause would

supersede the base price. 5 J.A. 2373-74, 2396.

Apparently this testimony underlies the district court’s finding of fact that

“Moncrief and Woods believed that the price could not decrease from the highest

rate achieved at any time during the contract.” 3 J.A. 1175. But, as the Pickard

-35-
testimony quoted above indicates, it was not the intent of MDU to be the highest

priced. Pickard then went on to state, nevertheless, that the favored nations

clause works that way.

None of this evidence, or any other, directly addresses what the parties

intended to happen to regulated prices upon deregulation. Such evidence as there

is refers consistently to prices paid to bona fide purchasers, a term used in the

favored nations clause. This supports the defendants’, not the plaintiffs’, view.

Neither Tex Moncrief nor Claud Pickard, the only witnesses at trial

involved in negotiating the contract, had any recollection of the parties’ intent or

discussions regarding the operation of the pricing clauses following deregulation.

5 J.A. 2260-62, 2267-70, 2298-2306, 2409-10. Moncrief did not testify that the

price set under the area rate clause could not decrease after deregulation. 5 J.A.

2396. Thus, to reiterate the point, the evidence regarding the parties’ intent at the

time of drafting, unlike the evidence in JER , is hardly overwhelming or crystal

clear regarding prices on deregulation.

The parties’ course of conduct, however, cuts directly against plaintiffs’

argument. The defendants paid amounts equal to the highest applicable regulated

rates until the end of 1984 when they considered such prices to have been

deregulated by Congress. At the time the regulated price was $3.845 per MMBtu.

The defendants then notified the Moncriefs that the price would drop to $2.25.

-36-
The Moncriefs refused to sign any contract amendment to that effect, but stated

they would not sue, and they accepted, without protest, payments based on the

$2.25 rate in 1985 and 1986. After a similar notification, the defendants dropped

the price to $1.75 per MMBtu, which the Moncriefs accepted, without protest,

from 1987 to 1993.

Not once during this time did the Moncriefs claim that the higher price paid

in 1984 was required under the contract to continue. Nor did Woods or the other

working interest owners who had contracts identical to the Moncrief contract

claim that 1984 regulated prices must continue. See 6 J.A. 2966.

In sum, as the district court found, the Moncriefs knowingly received prices

lower than the 1984 regulated price for more than eight-and-a-half years, and

collected approximately $1,244,000 at those rates, 11
without once voicing the

highest price/benchmark interpretation of the contract they now urge. Their

explanation is that Moncrief was simply waiving contract rights month by month,

Appellants’ Reply Br. at 41, 49, or that the defendants “laid low” knowing,

apparently, that Moncrief was making a mistake, id. at 48. These arguments do

not square with the fact that the Moncriefs were and are experienced

professionals in the oil and gas business. 12
When parties on both sides of a

11
See Plaintiffs’ Second Amended Complaint, 1 J.A. 350, at ¶¶ 16-24.
12
Over the years, the Moncriefs have exhibited aggressive attention to their
(continued...)

-37-
contract are knowledgeable, experienced professionals, their course of dealing

under the contract is more likely to show their intent as to the operation of the

contract than to suggest mistake or ignorance. That is especially true here where

the plaintiffs do not seriously advance the latter position, there is no evidence to

support it, and the district court made express findings to the contrary. Thus,

eight and one-half years of payments, knowingly received, essentially defeats the

plaintiffs’ argument.

It is true that the plaintiffs do point to some contrary evidence in the way of

defendants’ filings with the FERC in 1987, in which higher applicable rates are

mentioned. 9 J.A. 3851, 3863. Even crediting this evidence, however, it is

impossible to conclude that the district court erred by rejecting the plaintiffs’

argument that the contract price could never decrease. Even if we assume,

arguendo, that the contract was ambiguous on this point, the extrinsic evidence

contained in the record, especially the parties course of performance over eight-

12
(...continued)
oil and gas contracts and leases, suing to enforce rights under such contracts or
leases at least eight times, including this litigation. See Moncrief v. Martin Oil
Serv., Inc. , 658 F.2d 768 (10th Cir. 1981); Moncrief v. Pasotex Petroleum Co. ,
280 F.2d 235 (10th Cir. 1960); Moncrief v. St. Regis Corp. , No. TCA 85-7023-
WS, 1985 WL 17480 (N.D. Fla. Aug. 13, 1985); Moncrief v. Louisiana Land and
Exploration Co. , 861 P.2d 516 (Wyo. 1993); Moncrief v. Sohio Petroleum Co. ,
775 P.2d 1021 (Wyo. 1989); Andrau v. Michigan Wisconsin Pipe Line Co. , 712
P.2d 372 (Wyo. 1986); 6 J.A. 2442 (testimony of Moncrief employee Kenneth
Wilkes, who stated that he could recall at least one other occasion, involving “El
Paso Natural Gas,” in which the Moncriefs initiated litigation to enforce their
contract rights).

-38-
and-one-half years, is too much against the plaintiffs to support a remand to the

district court for fact findings based on parol evidence.

3.

For the reasons stated above, we hold that, however viewed, the district

court did not err in its conclusion that regulated rates did not continue to set

prices under this contract after those rates were terminated by Congress.

Accordingly, it is unnecessary to address whether deregulation, as it pertains to

this contract, occurred on January 1, 1985, or on January 1, 1993. The only

question we must address here concerns the proper price to be paid for the

contract gas from August 1993 to July 6, 1996.

C. What Price Applies?

Our disposition of the issues above leads us back to the district court’s

conclusion at the end of its summary judgment opinion—that the contract price

after August 1993 should be set by reference to a fair value price. Paragraph 7.4

of the contract does not apply. Paragraph 7.6 was expressly abandoned as a

claim. Paragraphs 7.1 and 7.2 have been set aside by the parties’ course of

conduct just as surely as the plaintiffs’ argument regarding the survival of

regulated rates was set aside by the same course of conduct. Thus, despite the

-39-
district court’s finding that the plaintiffs’ letters in 1993 did not amount to a

request for price redetermination under ¶ 7.5, 13
the posture of the case places the

parties constructively in that position, or simply at “a reasonable price” according

to the open price provision of the Uniform Commercial Code. See Wyo. Stat.

Ann. § 34.1-2-305; see also Koch Hydrocarbon v. MDU Resources Group, Inc. ,

988 F.2d 1529, 1535 (8th Cir. 1993) (stating that if the contract was ambiguous as

to the parties’ intent regarding price after deregulation, the contract price after

deregulation should be set by applying § 2-305 of the Uniform Commercial

Code).

In the district court’s summary judgment opinion, it reserved the question

of damages for trial. At trial both parties presented alternative theories of

damages that included expert testimony on fair value price and market price. 14

We therefore vacate the damage award, and remand the case to the district court

By submitting this case to judicial resolution, the parties have waived any
13

claim to arbitration under ¶ 7.5.

Plaintiffs’ expert witness, B. Pete Huddleston, testified that the fair value
14

price for the parties’ contract gas after August 1993 was $2.01 per MMBtu. 6
J.A. 2709. Defendants’ expert witness, Dennis Haider, testified that the fixed fair
value price was $1.835 per MMBtu, 7 J.A. 3292, but that the parties may have
also used the “monthly price on the CIG index as adjusted,” 7 J.A. 3274, which
would have resulted in monthly fluctuations in the price as reflected in expert
witness R. Dean Graves’ damages exhibits, 11 J.A. 4626. On remand, it will be
the task of the district court to choose from among these numbers, keeping in
mind that the pipeline, through its course of performance, has forfeited its right to
claim any number lower than $1.75 per MMBtu.

-40-
to determine damages based on the testimony presented at the first trial. 15
It goes

almost without saying that any uncertainty in ascertaining exact amounts caused

by the defendants’ repudiation must be resolved against them.

II. Quantity

We now turn to the issues surrounding the quantity of natural gas

defendants were obligated to purchase under the contract. The quantity terms of

the parties’ contract state that “Seller agrees to sell and deliver to Buyer, and

Buyer agrees to purchase, receive and pay for the daily quantity of gas which is

physically available to Buyer at the delivery point on each day of the term

hereof,” up to a maximum of 12 million cubic feet per day. 8 J.A. 3536 (¶¶ 3.1,

3.2). The district court held, based on the language of these provisions, that

defendants were obligated to purchase as much gas as plaintiffs made available at

the delivery point, up to the stated maximum of twelve million cubic feet per day.

Defendants assert that the district court’s holding erroneously obligates them to

purchase two varieties of gas from lands not dedicated to the contract. First,

defendants argue that the district court’s holding obligates them to purchase gas

While the district court must select the applicable contract price from
15

testimony and evidence presented at the first trial, without hearing any additional
evidence, it may, once it has selected the contract price, entertain additional
witness testimony regarding the calculation of damages using the contract price
established by the district court and the quantity of purchase obligations set forth
below.

-41-
attributable to other areas of the PPMU, not originally part of the Powell II Unit

or otherwise dedicated to the contract. Second, defendants contend that the

district court’s holding erroneously obligates them to purchase natural gas

produced on lands outside the entire PPMU and not dedicated to the contract,

purchased by plaintiffs, and injected into the PPMU reservoir for conservation

purposes. We will address each of these assertions in turn. This portion of the

district court’s holding was decided as a matter of law, and therefore our review

here is de novo.

A. Are Defendants Obligated to Purchase Only Gas Produced
From Lands Dedicated to the Contract?

There are generally two types of natural gas purchase contracts. The first is

known as a warranty contract, under which the producer warrants to the purchaser

that it will provide a certain amount of natural gas at the times and places

specified under the contract. A warranty contract does not specify where the gas

is to come from; it simply obligates the producer to come up with the specified

amount of gas from any source and deliver it to the purchaser. See 8 Howard R.

Williams et al., Oil and Gas Law 1162 (1997) (defining “warranty contract” as

“[a] contract for the sale of gas wherein the producer agrees to sell a specific

amount of gas and the gas delivered in satisfaction of this obligation may come

from fields or sources outside the designated fields”); see also Florida Power &

-42-
Light v. FERC , 598 F.2d 370, 375 (5th Cir. 1979) (describing a warranty

contract). The second is known as a dedication contract, wherein the producer

“contracts to furnish the purchaser all the gas produced from specified reserves,

thus ‘dedicating’ those reserves to the customer.” 8 Howard R. Williams et al.,

Oil and Gas Law 253 (1997); see also Louisiana Land & Exploration Co. v.

Texaco, Inc. , 478 So. 2d 926, 927 (La. Ct. App. 1985) (distinguishing a warranty

contract from a dedication contract), rev’d on other grounds , 491 So. 2d 363 (La.

1986). By its own unequivocal terms, the parties’ contract was a dedication

contract. The contract states that it covers certain lands only; these lands are

specifically enumerated in Exhibit B to the contract. Paragraph 1.1 of the

contract states that “Seller hereby commits to the performance of its obligations

under this Agreement, all of Seller’s interest in gas produced from wells

completed on the lands as previously set forth herein, and dedicated to this

contract . . . .” 8 J.A. 3535 (¶ 1.1) (emphasis added).

This conclusion is supported by an examination of the parties’ course of

dealing. See Wyo. Stat. Ann. § 34.1-2-202, comment 1(c) (Michie 1997)

(allowing courts to examine the parties’ course of dealing even where the contract

is unambiguous). When the contract was first signed in 1976, the lands dedicated

to the contract included only plaintiffs’ interest in the Powell II Unit, as well as

two other small parcels. On two occasions, in 1977 and 1978, the parties

-43-
amended the contract to include other parcels. See R. Vol. 12, Supp. App., Tab

303. In 1979, the parties again amended the contract, this time to remove lands

from the contract’s purview. Id. at Tab 304. If the contract were something other

than a dedication contract, such amendments would have been wholly

unnecessary. Under warranty contracts, it is irrelevant where the gas comes from,

as long as the producer delivers it to the specified place on time. Dedication

contracts, however, are intended to cover only gas produced from the specified

parcels. Plaintiffs took great care in the early years of the contract to amend the

contract to include additional production wells. This course of performance

indicates that the parties understood the contract to be a dedication contract which

applied only to gas produced from the lands dedicated thereunder. 16

When the PPMU was created in 1983, it consisted of the Powell II Unit and

several other parcels previously dedicated to the contract, as well as some lands

16
In his opening argument at the first trial, counsel for the Moncriefs, in
describing Exhibit P-38, stated as follows:

In Exhibit 38, [MDU] asks Moncrief to dedicate additional acreage to
it at the Powell II Unit. In all there are four amendments to the
contract which we believe add acreage. There’s controversy about
one of them, whether it adds or deletes acreage, but each of these
amendments . . . will bring more and more lands both in the Powell
Unit and outside the Powell Unit under the commitment to the
contract, which of course means that Moncrief can’t sell the gas from
these lands to other people .

5 J.A. 1943-44 (emphasis added).

-44-
not previously dedicated to the contract. R. Vol. 12, Supp. App., Tab 299.

Plaintiffs argue that the establishment of the PPMU was an “expansion” of the

Powell II Unit, as provided for in Exhibit B of the contract. Appellants’ Reply

Br. at 4-6; 8 J.A. 3556 (stating that the contract covers plaintiffs’ interest in the

Powell II Unit “as said Unit is approved by the United States Geological Survey

and as such Unit is expanded or contracted from time-to-time by the U.S.G.S.”).

We are not persuaded. The creation of the PPMU was a unitization of several

parcels, not an expansion of the Powell II Unit. By creating the PPMU, the

Bureau of Land Management (BLM) terminated both the Powell II Unit and the

adjacent Spearhead Ranch Unit, owned by producers other than plaintiffs, and

combined them into one unit for conservation purposes. Essentially, the BLM

unitized all units in the same reservoir, including the former Powell II Unit, the

former Spearhead Ranch Unit, and others, into one new unit, called the PPMU.

This was not an expansion of the Powell II Unit as encompassed by the language

in Exhibit B. The record demonstrates that even plaintiffs considered the action a

“[u]nitization” rather than an expansion. 8 J.A. 3741 (a letter from Woods to all

working interest owners in the Powell II Unit, and referring to the BLM action as

“unitization”).

Indeed, the unitization brought about by the creation of the PPMU is

covered by another provision of the contract. In Article III (A) of the contract,

-45-
plaintiffs retain certain rights, including the right to “unitize or pool any of

Seller’s lands committed hereunder with other properties of Seller or others in the

same field . . . .” 8 J.A. 3546 (¶ 3.1(e)) (emphasis added). In that event, the

“Agreement will cover Seller’s production attributed to the said lands in the unit

or units so formed.” Id. (emphasis added). Thus, under the unambiguous terms

of the parties’ contract, a unitization such as that effected by the creation of the

PPMU does not incorporate the other lands within the unit into the contract’s

coverage. Rather, the contract provides that in the event of unitization, the

contract will cover only that portion of Seller’s production attributed to the

contract lands within the new unit.

We conclude, therefore, that only the specific lands enumerated in Exhibit

B to the contract, and not the entire PPMU, were dedicated to the contract. Under

the unambiguous terms of the parties’ dedication contract, most notably ¶ 3.1(e)

of Article III (A), plaintiffs were obligated to sell, and defendants obligated to

purchase, only that portion of plaintiffs’ natural gas production attributable to the

previously-dedicated contract lands. To the extent the district court’s holding is

inconsistent with this conclusion, it is reversed.

-46-
B. Are Defendants Obligated to Purchase Injected Gas?

-47-
 Next, we must determine whether defendants are obligated to purchase the

17.5 billion cubic feet of gas purchased from sources outside the lands dedicated

to the contract, and subsequently injected into the PPMU reservoir to maintain

pressure. This issue has had a complicated journey through the district court.

Both parties moved for summary judgment on the issue, with plaintiffs arguing

that the pipeline had to purchase the non-native injected gas, and defendants

asserting that such gas was not covered by the contract. 1 J.A. 62-64, 109-11. In

its summary judgment opinion, the district court ruled in plaintiffs’ favor on the

issue, relying on ¶ 3.1 of the parties’ contract, and stated that “the Plaintiffs’

Motion for Summary Judgment on the issue of make-up gas be, and the same

hereby is, GRANTED and the Defendants’ Motion for Summary Judgment on the

same issue be, and the same hereby is, DENIED.” Moncrief , 880 F. Supp. at

1523, 1524. However, during the ensuing bench trial, the district court and both

parties appeared to treat the issue as one which had not yet been decided. The

district court allowed both parties to argue essentially the same positions that had

already been decided at the summary judgment stage, and to introduce both

documentary evidence and witness testimony on these issues. 17
In its post-trial

17
For instance, plaintiffs’ counsel, during opening argument, stated that
“there’s another argument in this case about whether or not this gas which comes
from outside sources, is injected into the reservoir, should be included under the
contract,” 5 J.A. 1945, and that there was “a question about whether or not the
right of first refusal [granted to Mountain Fuel] destroys the dedication of this
(continued...)

-48-
opinion, the district court spent only one sentence on injected gas issues,

essentially restating its summary judgment conclusions, and stating that “the

language [of the contract] is unconditional, and requires WBIPC to purchase

injected or makeup gas.” 3 J.A. 1198.

17
(...continued)
[injected] gas to the contract,” 5 J.A. 1948. Plaintiffs’ counsel also introduced
exhibits relating to plaintiffs’ argument that the pipeline’s concerns about
nitrogen injection somehow estopped them from arguing that they were not
obligated to purchase non-native injected gas, 5 J.A. 1976-77, and introduced
exhibits relating to the Mountain Fuel right-of-first-refusal argument, 5 J.A.
1980-87. Plaintiffs’ counsel even went so far as to state that “[w]e’re trying to
put in all the evidence relating to all the issues in the case even though there’s
been a prior ruling.” 6 J.A. 2558.

Defendants’ counsel made similar arguments, stating that “[o]ne of the
other issues in this dispute is whether WBI[PC] is obligated to purchase makeup
gas . . . ,” 6 J.A. 2881, asserting that the pipeline was not obligated to purchase
non-native injected gas, and introducing exhibits relating to both the estoppel and
right-of-first-refusal arguments, 5 J.A. 2090-91, 2100-04, 2107-08.

In addition, both parties quizzed witnesses about repressurization programs
generally and the PPMU program specifically. For instance, plaintiffs’ counsel
asked Tex Moncrief about his reasons for wanting to include ¶ 3.1(b) of Article
III (A) in the contract, 5. J.A. 2200-01, and asked Claud Pickard whether MDU
intended “to purchase anything other than what you would have estimated as the
native gas” in the reservoir, 5 J.A. 2416. Plaintiffs also called Dr. Holditch to
testify about the amounts and percentages of non-native gas injected into the
reservoir. 5 J.A. 2340-44. For their part, defendants called a professor of their
own, Patrick Martin, who offered his expert opinion that “there is no obligation
under the contract to purchase the gas that is attributable to outside purchases,”
including injected gas. 6 J.A. 3026, 3027.

-49-
 Thus, we are faced with an issue which was decided on summary judgment

as a matter of unambiguous contractual interpretation, yet about which the district

court took all manner of extrinsic evidence at trial.

1.

Our first task is to determine whether the district court correctly concluded

that the contract was clear and unambiguous with respect to the non-native

injected gas issue. The district court, relying on ¶ 3.1’s “physically available . . .

at the delivery point” language, held as follows:

Defendant is required to purchase the minimum daily amount
available at the delivery point. There is no exception for injected or
make-up gas. The Count [sic] finds that this language is
unambiguous and that it requires the defendants to purchase, subject
to the contractual quantity limitations, the minimum amount of gas
offered at the delivery point, regardless of whether the gas is make-
up gas or not.

Moncrief , 880 F. Supp. at 1523 (footnote omitted). The district court reasoned

that because there was no provision excepting makeup gas from the contract, and

because the parties were experienced natural gas professionals who could have

expressly excepted injected gas from the contract’s purview had they so intended,

non-native injected gas was covered by the parties’ contract.

We see two problems in the district court’s analysis of this issue. First, the

contract is silent on the entire issue of non-native injected gas, and certainly does

-50-
not specify whether such gas is dedicated to the contract or not. The only

contractual provision that even mentions the possibility of injected gas, ¶ 3.1(b)

of Article III (A), demonstrates that the parties at least contemplated that the

Moncriefs might, at some point, be required to use some of the gas produced on

the dedicated lands for reinjection purposes. However, this provision states only

that the plaintiffs would not be required to sell native gas necessary for pressure

maintenance to defendants. Notably, while this provision explicitly addresses

reinjection of native gas, it is wholly silent regarding the issue of non-native

injected gas. The silence of ¶ 3.1(b) on the subject of outside makeup gas could

be evidence that the parties to the contract, contrary to the district court’s

conclusion, did not necessarily contemplate the possibility, at the time of drafting,

that non-native gas may be needed to maintain pressure in the reservoir.

A contract’s silence on a particular issue does not create an ambiguity in

every instance, but silence on a “matter naturally within the scope of the contract”

gives rise to ambiguity. Cheyenne Mountain Sch. Dist. v. Thompson , 861 P.2d

711, 715 (Colo. 1993). 18
Questions regarding which gas is dedicated to the

contract and regarding the pipeline’s obligation to purchase gas are issues

Wyoming courts have not spoken on the issue of whether a contract’s
18

silence creates an ambiguity. We cite Colorado courts’ thinking on the issue
because the Wyoming state courts may find the position of their sister state
persuasive. See , e.g. , State ex rel. Bayou Liquors, Inc. v. City of Casper , 906
P.2d 1046, 1050 (Wyo. 1995) (looking to Colorado case law for guidance on an
issue not yet considered by Wyoming courts).

-51-
naturally within the scope of the contract, and we therefore conclude that the

contract is ambiguous on this issue.

Second, the district court’s analysis on the issue of ambiguity is

additionally flawed, because it overlooked the fact, discussed above, that the

parties’ contract is a dedication contract, which covers only gas attributable to

lands expressly dedicated to the contract. 3 J.A. 1198 (statement of the district

court, in its post-trial conclusions of law, that “[t]he contract says nothing about

limiting WBIPC’s take to a dedication of reserves”). Gas produced from lands

not dedicated to the contract is not covered by the contract. Contrary to the

holding of the district court, the defendants are not obligated to purchase all gas

physically available at the delivery point unless the gas was produced from

dedicated lands.

Indeed, the district court’s analysis could lead to absurd results. If the

parties’ contract really did obligate the pipeline to purchase all gas physically

available at the delivery point, regardless of origin, the contract would become

little more than an arbitrage contract, under which plaintiffs, when the market

price of gas fell, would be able to purchase gas from outside sources, transport it

to the delivery point, and demand that defendants purchase it at the applicable

contract price. Construing this dedication contract in its entirety, we find it

unlikely that the parties intended such a result, and we therefore conclude that, in

-52-
any event, the contract does not unambiguously point to the district court’s

interpretation of the contract’s quantity provisions.

2.

In most such cases, where we conclude that the district court erred in

deciding that a contract is unambiguous, and we reverse a grant of summary

judgment entered as a matter of unambiguous contractual interpretation, we must

remand to the district court for findings regarding the interpretation of the

ambiguous contract. See Republic Resources Corp. v. ISI Petroleum West Caddo

Drilling Program 1981 , 836 F.2d 462, 466 (10th Cir. 1987); see also Moriarty v.

Svec , 164 F.3d 323, 330-32 (7th Cir. 1998). We need not do so, however, where

all the extrinsic evidence is in, and where that evidence so clearly weighs in one

direction that there is no genuine issue of material fact left for the district court to

decide. See Teamsters Indus. Employees Welfare Fund v. Rolls-Royce Motor

Cars, Inc. , 989 F.2d 132, 137 (3d Cir. 1993) (reversing a grant of summary

judgment in favor of the union based on a finding that the agreement was

unambiguous, holding that the contract was actually ambiguous, but refusing to

remand for findings because “[a] rational fact-finder could not conclude

otherwise” than to enter summary judgment for the corporation, and directing the

district court to enter summary judgment for the corporation); cf. Fry v. Airline

-53-
Pilots Ass’n, Int’l , 88 F.3d 831, 843 (10th Cir. 1996) (directing entry of summary

judgment because “it would be a pointless exercise to remand the case for further

consideration on the issue since the outcome is clear”).

Because of the unusual procedural posture of this issue—an issue decided

on summary judgment, yet about which the parties introduced evidence and

testimony at trial—we have before us all of the arguments and evidence relevant

to this issue. The evidence, in addition to the contractual provisions mentioned

above, cited to us and to the district court on this issue is as follows:

a. Negotiation History . The only persons involved in the negotiation of

the parties’ contract who testified at trial were Tex Moncrief and Claud Pickard.

Both witnesses were asked about the injected gas issues. When asked whether it

was MDU’s intent “to purchase anything other than what you would have

estimated as the native gas under those reserves,” Pickard stated, “[n]ot at that

time, no.” 5 J.A. 2416. Tex Moncrief was asked about his reasons for wanting to

include ¶ 3.1(b) of Article III (A), and stated that plaintiffs anticipated quite early

on that they might have to begin a pressure maintenance program in the Powell II

area. 5 J.A. 2200-01. He was, however, not asked anything about the pipeline’s

obligation to purchase non-native injected gas, and his testimony shed no light on

the issue.

-54-
 Notwithstanding the inconclusive nature of Tex Moncrief’s testimony on

this point, and the clear testimony of Pickard that the pipeline did not, at the time

of drafting, intend to purchase non-native gas, plaintiffs argue that we should

infer an intention on the part of the pipeline to purchase all gas, including non-

native injected gas, from the following evidence: (1) the prevailing market

conditions at the time the contract was signed, and (2) the fact that this was a

“deliverability” contract under which the pipeline agreed to purchase all gas

delivered to the delivery point. Appellants’ Reply Br. at 4, 7. However, we will

not draw such an inference from general market evidence when there is specific

testimony, from Pickard, that notwithstanding market conditions, MDU did not

intend to purchase anything other than native gas. And plaintiffs’ argument about

the “deliverability” contract overlooks the fact, discussed above, that this was a

dedication contract, and that the pipeline agreed to purchase all gas plaintiff

tendered at the delivery point, up to a 12 million cubic feet per day ceiling, but

only if that gas was produced from lands dedicated to the contract.

When we examine the negotiation history as a whole, then, the evidence

regarding the parties’ intentions at the time of drafting weighs in favor of the

pipeline.

b. Actions Since Negotiation . The parties point us to at least two basic

post-negotiation events which they assert shed light on this issue. We discuss

-55-
each in turn. First, the defendants direct us to two contracts plaintiffs signed with

Mountain Fuel Supply Company. Under the terms of these contracts, plaintiffs

contracted to purchase outside natural gas for injection into the PPMU reservoir.

Both of these contracts had a significant provision granting Mountain Fuel an

option, known as a “right of first refusal,” to buy back the injected gas at the

commencement of blowdown operations. 10 J.A. 4374, 4427 (stating that “Seller

shall have first option to purchase part or all of the available volumes”). As

discussed above, however, the parties’ contract is a dedication contract, under

which plaintiffs were obligated to sell, and defendants obligated to purchase, gas

produced from lands dedicated to the contract. If plaintiffs had intended that the

gas purchased elsewhere and injected into the reservoir was to become dedicated

to the parties’ contract, they would not, and indeed could not, have granted

Mountain Fuel a right of first refusal. All gas covered by the contract is

dedicated for sale to defendants, and plaintiffs may not sell such gas to other

purchasers. Plaintiffs are obligated to sell dedicated gas to defendants, and

defendants are obligated to purchase such gas. The only possible inference a

rational fact-finder can draw from plaintiffs’ willingness to grant Mountain Fuel a

right of first refusal is that the parties never intended the injected gas to become

dedicated to the contract. 19

19
The fact that Mountain Fuel eventually decided not to exercise its rights
(continued...)

-56-
 The record also demonstrates that defendants shared this understanding.

The government requires interstate pipeline companies, such as defendants, to

annually submit documents detailing the reserves of gas they currently have under

contract. The record reflects that at no time did defendants’ governmental filings

contain any reference to PPMU injected gas. 6 J.A. 2973-74. This suggests that

defendants claimed no contractual right or obligation to purchase the injected gas.

Second, plaintiffs point us to evidence in the record that MDU “urged the

[plaintiffs] to use natural gas” instead of nitrogen for pressure maintenance

purposes, and argue that, therefore, the pipeline “may not now claim [that it] does

not have to buy the gas it urged the [plaintiffs] to inject.” Appellants’ Reply Br.

at 7. However, the record evidence plaintiffs point to in support of this estoppel-

based argument simply does not advance their cause. The record reflects that the

decision to use natural gas rather than nitrogen was made by plaintiffs for the sole

benefit of plaintiffs. It was an economic decision entered into after careful

consideration of the costs and benefits of nitrogen injection. It was the plaintiffs,

not the defendants, who would have been stuck with the costs of nitrogen

19
(...continued)
of first refusal on the non-native injected gas is wholly irrelevant. By granting
the right of first refusal in the first place, plaintiffs demonstrated that they did not
intend to dedicate the injected gas to the contract. Mountain Fuel’s later
unilateral decision to decline to exercise its rights cannot transform the gas from
non-dedicated to dedicated, absent some sort of agreement to that effect between
plaintiffs and WBIPC.

-57-
rejection upon blowdown, and the plaintiffs made an independent economic

decision to use natural gas. See 8 J.A. 3739 (internal pipeline memorandum

stating that plaintiffs told the pipeline that, if the plaintiffs decided to use

nitrogen, “Woods would install a nitrogen rejection plant” and “would balance the

cost of installing that plant and the cost of the nitrogen against the natural gas

cost and make a decision”); see also 5 J.A. 2337-39 (testimony of Dr. Holditch

that plaintiffs obtained a “20 percent rate of return” on the injection investment

using natural gas).

Plaintiffs’ estoppel-based argument is also somewhat illogical. Had

plaintiffs elected to use nitrogen instead of non-native natural gas for pressure

maintenance purposes, it would be untenable for them now to argue that the

contract somehow obligated the pipeline to purchase the nitrogen upon blowdown.

Whether nitrogen, non-native gas, or some other substance, the plaintiffs were

merely using the substance as a tool to maximize native oil and gas extraction.

Plaintiffs’ argument that the pipeline is obligated to purchase plaintiffs’ tools,

employed solely for plaintiffs’ economic benefit, is simply unavailing.

When examined in its entirety, the evidence concerning the parties’ actions

since the contract was signed weighs heavily in favor of the defendants’

interpretation of the contract. Indeed, the evidence is so one-sided on this point

that we consider it a fruitless exercise to remand to the district court for the entry

-58-
of findings on this issue. There simply is not a genuine issue of material fact here

for the district court to decide. Starting with the premise that the parties’ contract

is a dedication contract, and taking into account all relevant extrinsic evidence,

there is no destination at which a rational fact-finder can arrive other than at the

conclusion that the contract does not obligate defendants to purchase non-native

injected gas. This litigation has lasted six years already, and in the interest of

judicial economy, we direct the district court to enter summary judgment for the

pipeline on the injected gas issue.

3.

We are then faced with the issue of determining plaintiffs’ damages, if any.

It is undisputed that defendants are obligated to purchase native gas extracted

from lands dedicated to the contract, even if that gas was subsequently injected

back into the reservoir from whence it came. We hold above that defendants are

not obligated to purchase non-native gas, extracted from lands not dedicated to

the contract, and subsequently injected into the PPMU reservoir. The problem we

face is that once injected into the reservoir, the two types of gas become fungible,

and it is impossible to tell the difference between native and non-native gas.

We are aware that it is common practice in the oil and gas industry, at least

for royalty and taxation purposes, to treat the first gas extracted from the reservoir

-59-
upon blowdown as the non-native injected gas. For instance, in this case, the

PPMU owners agreed that no royalty payments would be made on the first 17.5

billion cubic feet of gas extracted from the reservoir upon blowdown, R. Vol. 12,

Supp. App., Tab 308 at 20, and that the Wyoming Oil and Gas Conservation

Commission exempted the first 17.5 billion cubic feet from state taxation, 10 J.A.

4580.

However, these are only administrative determinations driven by

convenience, and we need not give undue deference to them. In the gas purchase

context, as opposed to the royalty or taxation contexts, we think such

administrative determinations have limited applicability, especially where, as

here, the contract term has expired and all we must do is calculate damages.

Convenient administrative fictions do not alter the fact that defendants are

obligated to purchase all native gas produced from lands dedicated to the contract.

Were we to apply the same methodology used by the Wyoming Oil and Gas

Conservation Commission, defendants would be relieved of their obligation to

purchase a portion of the native gas. This is so for two reasons. First, it is

undisputed that a significant fraction of the gas contained in the PPMU reservoir

will be economically unextractable, and if we were to treat the first 17.5 billion

cubic feet of blowdown gas as makeup gas, we would be ignoring the reality that

not all 17.5 billion cubic feet of injected gas is going to be withdrawn from the

-60-
reservoir, and that some of that designated 17.5 billion cubic feet is actually

native gas which defendants are obligated to purchase. Second, if we were to

treat the first 17.5 billion cubic feet of gas as non-native injected gas, defendants’

obligation to purchase gas would not be triggered until sometime in April 1995, 20

leaving only 15 months until the expiration of the contract.

A more equitable way to apportion damages under the facts of this case is

to require defendants to purchase the aliquot portion of the daily gas extraction

attributable to the lands dedicated to the contract proportionate to the ratio of

native to non-native gas in the reservoir at the commencement of blowdown. 21

That is, if 20 percent of the gas in the reservoir at the beginning of blowdown was

determined to be non-native injected gas, then WBIPC is obligated to purchase 80

percent of each day’s gas output attributable to dedicated lands, beginning on the

date blowdown operations commenced, and terminating on July 6, 1996.

20
This date was calculated by looking to Dr. Holditch’s testimony that it
would take approximately 500 days from the beginning of
blowdown—approximately December 1, 1993—to withdraw 17.5 billion cubic
feet of gas. 5. J.A. 2346.
21
Perhaps a helpful way to look at the problem is to suppose that plaintiffs
had elected to inject nitrogen rather than non-native gas. In that event, the
pipeline would have been obligated to purchase all native gas after the nitrogen
had been separated. The actual situation here is similar, in that we must, when
calculating plaintiffs’ damages, hypothetically separate the non-native gas from
the native gas.

-61-
 The only testimony in the record on this point of which we are aware is the

testimony of Dr. Holditch, and even his testimony is somewhat inconclusive. He

stated that at the start of blowdown, “there was 82 billion cubic feet of total gas

in the reservoir,” and “[a]pproximately 17 billion of that would have been the

purchased gas, the make-up gas, and the difference would be native gas.” 5 J.A.

2340. Using these figures, 21.3% of the gas in the reservoir is non-native

injected gas. However, later in his testimony, Dr. Holditch stated that

approximately 20 percent of the gas in the reservoir is non-native. 5 J.A. 2345.

As far as we are able to tell, defendants did not tender a witness who testified as

to the percentages of gas in the reservoir. Thus, we must remand to the district

court for a determination regarding the percentage of non-native gas in the

reservoir at the start of blowdown.

Accordingly, to the extent that the district court’s conclusions are

inconsistent with our holding that the defendants are not obligated to purchase

non-native injected gas, they are reversed, and we remand to the district court for

entry of summary judgment in favor of the pipeline on the injected gas issue, and

for a determination of the exact percentage of non-native injected gas recoverable

from the reservoir.

-62-
III. Prejudgment Interest

The final issue which we must address is plaintiffs’ contention that the

district court erred in refusing to grant prejudgment interest on plaintiffs’

damages award. Under Wyoming law, which governs this inquiry, see Wyoming

Constr. Co. v. Western Cas. & Sur. Co. , 275 F.2d 97, 105 (10th Cir. 1960),

“prejudgment interest is recoverable . . . on liquidated claims but not on

unliquidated claims, with a liquidated claim being defined as one that is readily

computable by basic mathematical calculation,” Dunn v. Rescon Tech. Corp. , 884

P.2d 965, 968 (Wyo. 1994). The district court held that the claim was

unliquidated, because of the difficulty involved in arriving at the amount of

damages awarded. 4 J.A. 1486 (stating that “the Court’s multifaceted inquiry

demonstrates the difficulty with which the Court reached the amount due and

confirms that the amount due was unliquidated”). Clearly, the district court based

its conclusion that prejudgment interest was not warranted on its determination

that the contract price from August 1993 to July 1996 was governed by the

favored nations clause. As discussed above, we hold that the district court

incorrectly reached the merits of the favored nations issue, and we hold that the

contract price for the relevant time period should be set by reference to a fair

value price for the natural gas covered by the contract.

-63-
 Our reversal of the district court’s decision regarding the applicability of

the favored nations clause changes the calculus of the prejudgment interest issue.

In Wyoming, “[l]iquidated claims [are] those which are certain by computation

from the face of the contract, or which might be made certain by reference to

well-established market values plus computation .” Chandler-Simpson, Inc. v.

Gorrell , 464 P.2d 849, 853 (Wyo. 1970) (internal emphasis omitted and emphasis

added). In this case, the quantity of natural gas defendants were required to

purchase is a matter of “mathematical calculation.” Dunn , 884 P.2d at 968. The

applicable price of that gas, however, is not necessarily so simply computed. If

the price were set by the favored nations clause, which involves a complicated

inquiry indexed to other complex contracts, the claim would almost certainly be

unliquidated, as the district court held. However, as noted above, Wyoming

courts clearly hold that a claim computable by reference to well-established

market values is a liquidated claim. We think the determination regarding

whether the fair value price of natural gas under the parties’ contract is computed

by reference to well-established market prices is a determination best made by the

district court in the first instance. This inquiry will necessarily involve questions

of witness credibility, which district courts are best equipped to handle. See

Johnson v. Hanover Fire Ins. Co. , 137 P.2d 615, 619-21 (Wyo. 1943) (citing Kuhn

v. McKay , 51 P. 205, 206 (Wyo. 1897), and stating that where credible witness

-64-
testimony is in conflict regarding the amount of damages, the claim cannot be

considered liquidated, but where the credible evidence as to amount or market

values is “all to one effect,” the claim is liquidated). If the witness testimony

regarding fair value price is not really in conflict, or only differs by an

insignificant amount, or if one party’s witnesses are much more credible than the

other’s, the amount should be considered liquidated and prejudgment interest

should be awarded. 22

Therefore, we vacate the district court’s determination that prejudgment

interest is not warranted in this case, and remand the case to the district court for

a determination of whether the fair value price of natural gas applicable to the

parties’ contract can be “made certain by reference to well-established market

values plus computation.” Chandler-Simpson , 464 P.2d at 853.

CONCLUSION

22
Because we require, as discussed above, that the district court set a fair
value price based on testimony given at the first trial, without hearing additional
testimony on the issue, we do not anticipate that the related prejudgment interest
inquiry will require additional testimony. When making the determination of the
applicable price, the district court should consider whether that price is
computable by reference to well-established market values and whether the
credible witness testimony at the first trial on that point was in conflict, and
determine based on its evaluation of that testimony whether the claim is
liquidated.

-65-
 Accordingly, we AFFIRM the district court’s conclusions in part,

REVERSE in part, and REMAND for further proceedings, consistent with this

opinion, to determine the exact amount of damages due plaintiffs.

-66-