Escaping gas isn’t enough, it has to be captured.
Yes, a clickbaity title, but this one is about just compensation, so please. You can create your own puns for this case, Northern Natural Gas Co. v. L.D. Drilling Defendants, No. 15-3272 (July 11, 2017), in which the U.S. Court of Appeals for the Tenth Circuit considered things like natural gas injections and escapes, companies that can’t control their gas, and the difference between “migrating,” “injected,” and “native” gas. Yeah, baby.
Northern owned a mostly-depleted underground natural gas field, and when the gas in place ran out, it used the area as a gas storage area. Over time, it noticed that it was pulling out less gas than it was putting in, leading to the conclusion that some of its stored gas was leaking out into nearby fields, owned by others. So it exercised its delegated power of eminent domain to condemn these nearby fields, some of which had active wells to extract the underground gas. After the commissioners determined compensation, affirmed by the District Judge, both sides appealed.
The most interesting argument was Northern Gas’s claim that the just compensation award should not have included payment for the gas which it claimed it already owned (the gas which it stored in its underground facility, but which escaped into the condemnees’ property). The court concluded that under a Kansas statute, gas injected into an underground storage facility remains the property of the injector, subject to certain conditions. Otherwise, it is the property of whomever “captures” it. Here, however,
while the Landowners and Producers may have held certain property rights over the natural gas in and under their land at some point in time before Northern obtained the authority (via private lease agreements and proper regulatory certification) to include the property within the Cunningham Field’s legal boundaries, these rights had been eliminated by the date of taking. On the date of taking, the gas “in place” in and under the Extension Area land was within the Cunningham Field’s certified boundaries as required by Kansas law and, accordingly, was wholly Northern’s property. Because of Northern’s ownership, the gas was not subject to the rule of capture. Thus, the commission erred by including the value of that gas in the condemnation award when the Landowners and Producers had no vested property rights or ownership interests in the gas on the date of taking.
Slip op. at 19.
The court rejected the condemnees’ takings argument, because they couldn’t exercise the right of capture, which “confers only a right to produce the migrated gas. It confers no right to the gas itself.” Because the migrated gas was still in the ground, it had not been “produced.”
To capitalize on their opportunity to “capture” the gas, the Landowners and Producers would have had to actually produce the gas and would then own the produced gas. But here, the Landowners and Producers seek compensation for gas they did not produce but which remained in the ground on the date of taking. Rather than yielding an unconstitutional taking, Kansas law merely prohibits the Landowners and Producers from recovering the value of storage gas that Northern both (1) originally owned and injected, and (2) acquired certificate authority over.
Slip op. at 20.
So here’s your rule of law: you don’t need to pay compensation for escaped gas which you already own. A good one to keep in mind for future reference.
Northern Natural Gas Co. v. L.D. Drilling Defendants, No. 15-3272 (10th Cir. July 11, 2017)