                                                                        F I L E D
                                                                  United States Court of Appeals
                                                                          Tenth Circuit
                    UNITED STATES COURT OF APPEALS
                                                                         JUL 24 2001
                                 TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                              Clerk

 HAGOOD-NEW MEXICO TRUST
 NO. 1,
                                                        No. 00-2155
               Plaintiff - Appellant,
          v.                                      (District of New Mexico)
 PHILLIPS PETROLEUM COMPANY,                     (D.C. No. CIV-97-515-JP)
 a Delaware corporation, individually
 and as managing general partner for
 Phillips San Juan Partners, L.P.,

               Defendant - Appellee.


                            ORDER AND JUDGMENT          *




Before LUCERO , McWILLIAMS , and REAVLEY , ** Circuit Judges.


      The judgment of the district court is affirmed for the following reasons.

      The 1951 and 1953 assignments provided that the overriding royalty would

be paid on the value of the gas “at the wells as produced” (1951) or “at the time



      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

      **
        Honorable Thomas M. Reavley, United States Senior Circuit Judge for the
Fifth Circuit, sitting by designation.
of production” (1953). As is true of royalty usually, the costs of production from

the well are not attributed to the royalty owner. Appellant royalty owner contends

that “the time of production” is when gas is sold at the tailgate of the treatment

plant, and that the costs of the treatment should be borne by the lessee. Whatever

the chances for that contention, looking only at the bare words of the assignment,

they are lost when the circumstances of production and sale in 1953 are

considered. Contracts are construed in the context of the existing facts and

circumstances, and in 1953 the gas from these properties was being produced and

sold to pipelines at the wellhead. Some 30 years later the wells began to produce

only coal seam gas, which had to be processed to remove carbon dioxide and

water before being sold at the tailgate of the treatment plant. It would be

rewriting the assignment to move the “time of production” from wellhead to

tailgate to favor the royalty owner. Appellant’s construction of the 1953

assignment fails.

      We do agree with the district court that the “most favored nation” clause

creates an ambiguity, and the court’s resolution of that question is supported by

the evidence. Appellee clearly states that the royalty paid to appellant has been

and will be computed consistently with that paid to the United States.

      As for appellant’s contention that the federal royalty valuations should be

computed only under the federal regulation in effect at the time of the


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assignments, the government’s leases expressly provide that they are subject to

later reasonable regulation. Appellant stays with the government; and if the

government’s royalty changes, so does appellant’s.

      Appellant objects to tying its rights to the outcome of pending

administrative proceedings between appellee and the government. We see no

problem. The court was correct to avoid ruling on issues pending before the

agency. And the court decided all of appellant’s claims, rendering a final

judgment. That judgment is now

      AFFIRMED.



                                              ENTERED FOR THE COURT

                                              Thomas M. Reavley
                                              Senior Circuit Judge




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