Henderson Co. v. Thompson

Background

The dispute involves the Henderson Company, a Maine firm that runs a casinghead gasoline plant in the Texas Panhandle connected to 21 wells, and the State of Texas acting through its Legislature and Railroad Commission. Texas passed House Bill 266, defining “sweet” and “sour” gas and forbidding the use of sweet gas to make carbon black. The Commission classified fourteen wells as sweet and seven as sour. Henderson had contracts to strip gasoline from its gas and to sell the leftover gas to a carbon black company, but the ban prevents using the fourteen wells’ gas for that purpose. The record shows 29 carbon black plants in the Panhandle use a large share of U.S. carbon black and that sweet gas has other high-value fuel and lighting uses.

Reasoning

The key question was whether Texas reasonably could forbid use of sweet gas for carbon black to prevent waste and conserve resources. The Court reviewed evidence about gas migration, the availability of sour and casinghead gas, costs to purify sour gas, and differences in market value. It found substantial factual support for the Legislature’s classification and the prohibition, rejected the company’s claims of arbitrary discrimination, and held the law did not unlawfully impair contracts because it is a general conservation measure rather than a law aimed at contracts. On that basis the court affirmed the lower court’s dismissal.

Real world impact

The ruling upholds the state’s power to restrict sweet gas use for carbon black in the Panhandle, forcing carbon black plants to rely on sour or casinghead supplies and protecting sweet gas for fuel and light markets. The statutory ban remains in force and company contracts cannot be enforced to defeat it.