Gas processing plants strip liquid condensate from raw natural gas.
The Fifth Circuit decided a straight-up breach of contract case today. It involved suspicious, and possibly illegal, goings on near the Texas border with Mexico.
Flint Hills Resources signed a contract that obligated it to buy about 1,000 barrels a day of natural gas condensate from JAG Energy in south Texas. Flint Hills heard a rumor that Pemex, the owner of all oil and gas in Mexico, had experienced thefts of condensate and that the thieves may try to sell the contraband in the U.S. Flint Hills asked JAG to prove title to condensate it delivered to Flint Hills, but JAG failed to comply. When Flint Hills withheld payment and cancelled the contract, JAG sued for breach.
After a bench trial, the district court found that Flint Hills did breach the contract and awarded JAG damages.
The Fifth Circuit reversed and rendered. It cited contract language that obligated JAG, upon request, "to furnish evidence of title satisfactory to" Flint Hills and that gave Flint Hills the "right to withhold any payments" in the event JAG "shall default in any payment or other performance under this or any other agreement existing by and between the parties hereto". Because JAG didn't furnish evidence of title, the court concluded, JAG defaulted in its performance; Flint Hills therefore could withhold payment and properly did. Flint Hills Resources LP v. JAG Energy Inc., No. 08-20152 (5th Cir. Feb. 13, 2009).
So there.
