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Northern Natural Gas Co. v. Approximately 9117 Acres In Pratt Kingman

United States District Court, Tenth Circuit

July 2, 2013

NORTHERN NATURAL GAS COMPANY, Plaintiff,
v.
APPROXIMATELY 9117 ACRES IN PRATT, KINGMAN, AND RENO COUNTIES, KANSAS, AND AS FURTHER DESCRIBED HEREIN; TRACT NO. 1062710 CONTAINING 80.00 ACRES MORE OR LESS, LOCATED IN KINGMAN COUNTY, KANSAS, AND AS FURTHER DESCRIBED HEREIN; ET AL., Defendants.

MEMORANDUM AND ORDER

MONTI L. BELOT, District Judge.

This condemnation matter is before the court on Northern's Motion for Partial Summary Judgment (Doc. 532). The motion seeks a determination of the "date of taking" of the defendant property. The defendants have filed a number of responses and other briefs addressing the issue. (Docs. 529, 530, 534, 535, 536, 548, 579, 580, 581). Northern has filed a reply. (Doc. 590).

I. Background

Northern's motion argues that the date of taking was - with one exception - March 30, 2012, when Northern perfected a right to take physical possession of the defendant property by posting security and providing notice to landowners. (Doc. 532 at 1).[1]

Some of the defendants argue any determination of a date of taking is premature or is otherwise inappropriate for summary judgment. Alternatively, they suggest a multitude of possible dates, including:

- the date Northern actually took possession of surface property and, for property not yet actually possessed, the date title will pass to Northern (Mereis group - Doc. 529);

- the date producing wells were shut in (Dec. 15, 2010) as a result of the injunction obtained by Northern in Case No. 08-1405 (Pratt Well Service group - Doc. 530);

- the date the complaint was filed in this action (July 16, 2010) (Five Star - Doc. 535);

- for producing Viola leases, the last date of production before the wells were shut in, and for other properties the date "as of which Northern's action reduced the value of those properties or, if the value has not been reduced, the date of Northern's possession or the first day of trial." (L.D. group Producer-Defendants - Docs. 536, 580);[2]

- for property Northern has not yet entered, the date of trial, and for property Northern has already entered or used, the date of Northern's actual entry onto the land or its use of the subsurface (Huff Group - Docs. 534 & 579); and

- for productive leases, the date wells were shut in by order of the court; for surface interests being used by Northern, the date of the court order allowing Northern a right of entry; for subsurface formations used by Northern the date Northern penetrated those formations; and for non-productive leases or surface property not yet used by Northern, the date of the June 2, 2010 FERC Order (Hudson Group - Doc. 548).

II. Uncontroverted Facts

Northern operates the Cunningham Storage Field, an underground natural gas facility within the meaning of the Natural Gas Act, 15 U.S.C. § 717a. The storage field was constructed and is operated pursuant to one or more Certificates of Public Convenience and Necessity granted by the Federal Energy Regulatory Commission (FERC). As of March 16, 2007, the field was certificated to occupy a total of 26, 240 acres, or 41 square miles.

In 2004, Northern filed the first of several lawsuits against the present producer-defendants. In that case, Northern sued for conversion based on a claim that Nash Oil & Gas's first two Viola wells in the area were producing storage gas. The district court granted summary judgment to Nash on statute of limitations grounds and, alternatively, on collateral estoppel grounds. The Tenth Circuit affirmed based on the statute of limitations without reaching the collateral estoppel issue. Northern Nat. Gas Co. v. Nash Oil & Gas, Inc. , 526 F.3d 626 (10th Cir. 2008).

In March of 2007, Northern asked FERC to expand the storage field boundaries by 4, 800 acres, citing storage gas migration. FERC allowed Northern to expand the field by 1, 780 acres in October 2008.

In December of 2008, Northern filed a complaint against oil and gas producers operating wells in the general vicinity (i.e., within 2-6 miles) of the storage field. In that "damage case" ( Northern Nat. Gas Co. v. L.D. Drilling, Inc., et al ., 08-1405 ( U.S. Dist. Ct., D. Kan.)), Northern claimed three defendant producers (Nash Oil & Gas, VAL Energy, and L.D. Drilling) were causing storage gas to migrate from the storage field and were converting it. Northern also claimed unjust enrichment, nuisance, and civil conspiracy, among other things. (Case 08-1405, Doc. 1). The defendants counterclaimed against Northern. The defendant producers continued to operate and produce gas after the complaint was filed.

In December of 2009, Northern filed an action in Pratt County (Kansas) District Court against two gas purchasers - ONEOK and Lumen - claiming they were indirectly converting Northern storage gas by purchasing it from Nash, VAL, and L.D. Drilling. Some of the producers were brought in to the case as third-party defendants. On April 15, 2010, Judge Schmisseur of the Pratt County District Court granted summary judgment for the producers, finding that Northern lost title to its migrating storage gas once it went beyond the "adjoining property." The ruling was based on K.S.A. § 55-1210, which provides in part that if storage gas migrates from an underground storage field to adjoining property that has not been condemned or otherwise purchased, the injector shall not lose title if it can prove the gas was originally injected into the storage field. The court concluded that the statute, by implication, retains the common law rule of capture if storage gas migrates beyond the adjoining property, with that term construed by the Kansas courts to mean a one-mile section of land next to any section containing a storage field.[3] Because the producers' wells were two or more miles from the then-certified boundaries of the Cunningham storage field, the court concluded Northern lost title to any storage gas produced by the defendants and hence there was no conversion.

On June 2, 2010, FERC granted Northern's application for an additional Certificate of Public Convenience and Necessity. This certificate authorized Northern to expand the buffer zone of the storage field by 12, 320 acres, via condemnation, to include the area where the defendant producers were operating. On July 16, 2010, Northern initiated the instant case by filing a complaint for condemnation of the property. (Doc. 1). The interests to be taken pertain primarily to the Viola and Simpson formations underlying the identified property.

Meanwhile, after Northern obtained the FERC certificate, it asked the Pratt County district judge to reconsider his summary judgment ruling. He declined to do so, although he said the circumstances could be different with respect to storage gas migrating after June 2, 2010, the date of the FERC certificate. But because the producers' gas proceeds were being held in suspense as a result of the litigation, he found Northern would not be harmed while the matter was appealed. Northern appealed the summary judgment ruling and the case was transferred to the Kansas Supreme Court.

In December of 2010, U.S. District Judge Wesley Brown granted a preliminary injunction in the 2008 damage case. (08-1405, Doc. 420). He found Northern was likely to prevail on its nuisance claim, which alleged that production from defendants' wells in the expansion area constituted an unreasonable interference with Northern's use and enjoyment of the storage field. The preliminary injunction, which took effect on February 24, 2011, required the defendant producers to cease further production of natural gas from 25 specified Viola wells in the expansion area. (08-1405, Doc. 420 at 28-39). The three producers involved in the damage case (Nash, VAL, and L.D. Drilling) shut in their subject wells on or before the required date. Nash had already shut in its wells in July 2010 because it was not receiving any revenue from them. The gas proceeds had been held in suspense since October 2010 as a result of the Pratt County litigation. Some of the producers appealed Judge Brown's ruling and the Tenth Circuit subsequently upheld the issuance of the preliminary injunction. Northern Nat. Gas Co. v. L.D. Drilling, Inc. , 697 F.3d 1259 (10th Cir. 2012).

On March 15, 2011, Judge Brown entered an order in this case confirming Northern's authority to condemn the property listed in the complaint. (Doc. 183). Northern amended its complaint on June 15, 2011, adding certain interests to be taken to implement a water injection program. It then filed a supplemental motion to confirm its condemnation authority. It also moved for an order granting "immediate possession of the Interests To Be Taken and the Interests To Be Taken to Implement Water Injection Program" and for preliminary access to the property to be taken. (Doc. 203).

On March 13, 2012, the undersigned judge adopted Judge Bostwick's Report and Recommendation to grant the foregoing motions. The court's order provided that upon the posting of appropriate security and notice, Northern was granted the right of immediate possession of the interests to be taken and immediate access to the property to be taken. (Doc. 464). Northern posted the required security on March 26, 2012, (Doc. 470), and gave notice to interest owners on March 30, 2012.

In September of 2011, while Northern's motion for immediate access was pending, L.D. Drilling gave notice of its intent to recomplete the Zink 1A well uphole in the Lansing-Kansas City formation and to plug off the Viola and Simpson formations. (Doc. 340). Northern immediately sought a temporary restraining order to prevent the recompletion. (Doc. 341). Finding no showing of irreparable harm, Judge Brown denied the motion for TRO and, shortly thereafter, L.D. Drilling completed the Zink 1A in the Kansas City Lansing (Swope Layer). (Doc. 353). Oil was produced and first sold from the recompleted well on October 3, 2011. L.D. Drilling has continued to produce oil from the Swope Layer and as of June 6, 2013, has produced a cumulative total of 2, 677 barrels of oil from the Zink 1A. (Doc. 675-1). After this well was recompleted, Northern withdrew its request for immediate possession of the Zink 1A well.

On March 15, 2013, the Kansas Supreme Court affirmed Judge Schmisseur's ruling that there was no conversion of the storage gas and remanded for further proceedings to resolve any issues relating to the period after the June 2, 2010 FERC certificate. Northern ...


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