BY THE COURT
Kansas Unitization Act, K.S.A. 55-1301 et seq., gives the
Kansas Corporation Commission the jurisdiction to permit the
grouping of oil and gas leases into a single unit.
legislative purpose of the Kansas Unitization Act is to
prevent waste, to further the conservation of oil and gas,
and to protect the correlative rights of persons entitled to
share in the production of oil and gas.
There are four factors which the Kansas Corporation
Commission must consider before it can order unit operations:
(1) The primary production from a pool or a part thereof
sought to be unitized has reached a low economic level and,
without introduction of artificial energy, abandonment of oil
or gas wells is imminent; or (2) the unitized management,
operation, and further development of the pool or the part
thereof sought to be unitized is economically feasible and
reasonably necessary to prevent waste within the reservoir
and thereby increase substantially the ultimate recovery of
oil or gas; (3) that the value of the estimated additional
recovery of oil or gas substantially exceeds the estimated
additional cost incident to conducting such operations; and
(4) that the proposed operation is fair and equitable to all
Waste is defined as both economic and physical waste
resulting from the development and operation separately of
tracts that can best be operated as a unit. K.S.A.
is defined as an underground accumulation of oil and gas in
one or more natural reservoirs in communication so as to
constitute a single pressure system so that production from
one part of the pool affects the pressure throughout its
extent. K.S.A. 55-1302(b).
According to K.S.A. 2018 Supp. 77-621(d), in reviewing the
evidence in light of the record as a whole, a court shall not
reweigh the evidence or engage in de novo review.
from Scott District Court; Ricklin Pierce, judge.
Fellows Cline and Timothy E. McKee, of Triplett Woolf
Garretson LLC, of Wichita, for appellant.
Michael J. Duenes, assistant general counsel, of Kansas
Corporation Commission, for appellee.
Edmiston, of Edmiston Law Office, LLC, of Wichita, for
Hill, P.J., Standridge, J., and Neil B. Foth, District Judge,
case deals with the unitization of oil and gas wells.
Sometimes described as "unit operation,"
unitization means the joint operation of all or some part of
a producing reservoir. Unitization is often desirable in
secondary recovery operations where the location of input
wells, the freedom to flood out parts of the reservoir, and
the sharing of costs are vital to the success of the program.
See 6 Williams & Meyers, Oil and Gas Law, § 901
(2018). In Kansas, unitization is regulated by the Kansas
Commission refused to allow Lario Oil & Gas Company to
unitize several oil and gas leases and operate them as a
single unit. Lario appealed to the district court. The court,
in a thorough and thoughtful opinion, affirmed the
Commission's ruling. The company turns now to this court.
Having examined the three points raised by Lario, we decline
the invitation to reweigh the evidence and because we see no
legal errors by the Commission, we affirm.
the Kansas Judicial Review Act, K.S.A. 77-601 et seq., Lario
makes three claims:
• The Commission misinterpreted the Kansas Unitization
Act by using a too narrow definition of the term
"pool," which improperly increased what it had to
prove in order to show that the leases can be operated as a
• the Commission's orders were unsupported by
substantial competent evidence; and
• the Commission acted unreasonably, arbitrarily, and
controlling statute and some legal definitions provide
in 1967, the Unitization Act, K.S.A. 55-1301 et seq.,
sometimes called the Compulsory Unitization Act, gives the
Commission the jurisdiction to permit the grouping of oil and
gas leases into a single unit. The legislative purpose of the
Act is to prevent waste, to further the conservation of oil
and gas, and to protect the correlative rights of persons
entitled to share in the production of oil and gas. See
are four factors which the Commission must consider before it
can order unit operations. Under K.S.A. 55-1304, the
Commission must look at production, feasibility, costs, and
fairness to all:
"(a)(1) The primary production from a pool or a part
thereof sought to be unitized has reached a low economic
level and, without introduction of artificial energy,
abandonment of oil or gas wells is imminent; or (2) the
unitized management, operation and further development of the
pool or the part thereof sought to be unitized is
economically feasible and reasonably necessary to prevent
waste within the reservoir and thereby increase substantially
the ultimate recovery of oil or gas;
"(b) the value of the estimated additional recovery of
oil or gas substantially exceeds the estimated additional
cost incident to conducting such operations; and
"(c) the proposed operation is fair and equitable to all
one of the purposes of the Act, "waste" is defined
in K.S.A. 55-1302(d) as "both economic and physical
waste resulting from the development and operation separately
of tracts that can best be operated as a unit."
an important term here-"pool"-is defined in K.S.A.
55-1302(b) as "an underground accumulation of oil and
gas in one or more natural reservoirs in communication so as
to constitute a single pressure system so that production
from one part of the pool affects the pressure throughout its
extent." Communication is at the heart of this appeal.
The Commission was unpersuaded that this pool was a single
pressure system and therefore denied the application.
background shows production and planning for the future.
owns and operates the working interests in several wells
producing oil from the Shawnee, Lansing, Kansas City,
Marmaton, Cherokee, Morrow, Basal Penn, and Mississippian
formations in the Feiertag Unit in Scott County. Lario
applied for unitization and unit operations for the Feiertag
Unit "to enhance the ultimate recovery of liquid
application, Lario described the reservoir it sought to
operate as "the interval between the top of the unitized
substances in the Topeka Formation at 3, 570 feet through the
Oread, Lansing-Kansas City, Marmaton, Millrich, Morrow and
St. Louis formations at 4, 700 feet." It also alleged
that the unitized management, operation, and further
development of the Feiertag Unit was "economically
feasible and reasonably necessary to prevent waste within the
reservoir and thereby increasing substantially the ultimate
recovery of oil and gas." It estimated the value of the
additional recovery of oil and gas substantially exceeded the
estimated additional costs of conducting the unitized
operations. Lario noted that the proposed plan had been
approved in writing by 92.64 percent of the working interest
holders and by 95.53 percent of the royalty owners. But not
Production, LLC, an oil and gas exploration and production
company, owned and operated oil-and-gas-producing properties
both within and next to Lario's proposed unit boundary.
Cholla filed a protest to Lario's application and asked
to intervene. Cholla alleged that Lario's proposed plan
would cut through Cholla's contiguous producing acreage
and would take over two of Cholla's wells. It further
asserted that Lario's proposed plan did not meet the
requirements of K.S.A. 55-1304 because
• the plan was flawed geologically;
• the allocations to property owners were unfair and
• the plan would substantially and irreparably harm
Cholla's correlative rights;
• the plan would cause waste in violation of K.S.A.
• the plan would unduly violate Cholla's property
rights contrary to the Kansas and United States
denied those allegations but did not object to Cholla's
intervention. The Commission allowed Cholla to intervene and
scheduled an evidentiary hearing on Lario's application.
Lario claims that the Commission's findings are
unsupported by substantial evidence, we must review extensive
portions of the record on appeal. We note that it is a common
practice in these technical proceedings before the Commission
for the parties to file testimony of some witnesses before
the actual hearing. This case was no exception.
the hearing, the parties submitted prefiled testimony from
Commission Staff witness
Brenten E. Birk
John P. Hastings
William T. Goff
Emily M. Hundley-Goff
begin with Lario's witnesses-Birk and Hastings. Both
spoke in favor of granting the application. Brenten E. Birk,
an operations engineer with Lario, testified that he had been
employed as a petroleum engineer for 11 years after obtaining
a Bachelor of Science degree in mechanical engineering. Birk
testified that Lario's proposed unitization plan would
create a pretax net income of nearly $42 million after the
payout of capital investment; that the proposed operations
were economically feasible and necessary to prevent waste and
protect correlative rights; and that unitization would
substantially increase the ultimate recovery of oil from the
proposed unit. Birk advised that the proposed unit area had
produced 1.4 million barrels of oil under primary production.
Birk believed that the proposed unit could produce another
1.5 million barrels of oil over 37 years that would otherwise
be abandoned if the unit was not approved. Birk stated that
the proposed unit agreements were fair and equitable to all
working interest and royalty interest owners.
testified that the proposed unit would cover the Topeka,
Oread, Lansing-Kansas City, Marmaton, Cherokee, Morrow,
Millrich, and St. Louis intervals. Birk stated that these
formations were in pressure communication and acted as a
single-pressure system or one common pool. That means that
production from one part of the pool affected pressures
throughout. Birk said that the proposed unit would have 15
producing formations, and Lario proposed to waterflood 11 of
the formations. He described a five-stage waterflood process
by which Lario would waterflood two or three formations at
gave his estimates because he wanted to show that the value
of the estimated additional recovery of oil or gas
substantially exceeded the estimated additional cost incident
to conducting the operations. In Birk's opinion, the
total cost for all five stages would be $4.185 million. For
the life of the waterflood, the total cumulative net cash
flow for working interest owners he estimated at $26, 986,
900 and $14, 930, 440 for royalty interest owners. Birk
recommended that the Commission grant Lario's application
for Lario, John P. Hastings, a petroleum geologist, testified
that he had worked as a petroleum geologist for 36 years
after obtaining a Bachelor of Science degree in geology and
math. Hastings stated that Cholla operated two oil wells and
one SWD well, collectively known as the Metzger Lease.
Hastings said that the oil wells were separate and distinct
from each other by proximity to and distance between two
distinct oil accumulations. Hastings testified that the
Metzger 2-16 well was in Lario's proposed Feiertag Unit,
while the Metzger 1-16 oil well was not. Hastings believed
that Lario's application for unitization was economically
feasible and necessary to prevent waste of oil within the
reservoir and to increase the ultimate recovery of oil.
now to the testimony of the Commission staff witness, Jim
Hemmen. He expressed some doubts about the application. He is
a research analyst with the production department of the
conservation division of the Commission. He had worked for
the Commission since 1982. Hemmen stated that he had concerns
about whether Lario's proposed unit constituted a
"pool," or a single-pressure system, as defined in
K.S.A. 55-1302(b). Hemmen did not see any indications of
natural or artificially induced pressure communication, and
stated that he would like to see more evidence from Lario
containing bottom-hole reservoir pressure data from all 11
formations at issue before he would be comfortable affirming
that the formations compromised part of a pool.
testified that he had ...