Native Gas And Storage Gas: Who Owns It?

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Northern National Gas Company vs. Approximately 9117 Acres in Pratt, Camden and Reno Counties, Kansas shows the relationship between Kansas oil and gas law and the Kansas Underground Storage Act (KSA §55-1201 et seq).

The result: Obtaining authority to condemn a subsurface reservoir works no instantaneous change of ownership in storage gas under Kansas law. Ownership rights are determined by KSA § 55-1210. Under that statute, an injector’s right to retain title to injected storage gas is limited to the certified area where it has already obtained the necessary storage rights and the “adjoining property”.

This case is a good history of not only Northern’s bad fortune, but also the evolution of the relationship between the Storage Act and Kansas oil and gas law and Northern’s misfortune in its litigation on this issue.

Northern’s Predicament

The Cunningham Storage Field is an underground natural gas storage facility in south central Kansas that was substantially depleted after decades of native gas production. Northern had three FERC certificates allowing it to acquire and store gas, first in an underground area covering more than 26,000 acres, second an additional 1,760 acres, and third, in 2010, an additional 12,320 acres. The latter two extension acres were after Northern litigated (and lost) several lawsuits in which it sued nearby operators for producing gas that had migrated from the storage field.

Storage gas had migrated into the 2010 extension area as of the “date of taking” of that area by Northern. The question was Did Northern had to compensate for taking storage gas that migrated into the 2010 extension area, or did the Storage Act require Northern to pay only for native gas?

The Effect of Kansas Oil and Gas Law

Under the “ownership in place” theory, landowners own a present estate in oil and gas in the ground, but when oil and gas escape into other lands or come under another’s control, title in the former owner is lost. That interest is a defeasible interest and under the rule of capture, migrating gas becomes the personal property of the first person to produce it.

Under the Storage Act, when a public utility condemns property it must determine the amount of recoverable native gas and award damages to the owner of the subsurface formations. The result under Natural Gas Act is the same.

Under earlier cases, the rule of capture applied where an entity injects captured gas into a common reservoir underlying its own property and neighboring property, but has no permission to use the neighboring property. When a producer from the neighboring property produced the gas the original injecting entity lost it. That applied when the injector has no condemnation authority from the Kansas Conservation Commission.

When an injecting (see *5) party is a public utility, an exception to the rule of capture is created. At that point the rule is no longer recognized and title to the injecting party’s gas remains with that party.

In 1993, the Storage Act was amended to provide that all natural gas previously reduced to possession and injected into underground storage field or reservoir shall all times be the property of the injector. Thus, only the value of native gas is to be considered when determining compensation.

Jessie WinchesterRIP.  From Bossier City, Louisiana, by way of  Williams College.

Topics:  Energy, Natural Resources, Oil & Gas, Storage Tanks

Published In: Energy & Utilities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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