Exxon Mobil Corp. v. Wyo. Oil & Gas Conservation Comm'n

• Decision Date: 15 March 2013
• Docket Number: No. S–12–0140.,S–12–0140.
• Parties: EXXON MOBIL CORPORATION, Appellant (Petitioner), v. WYOMING OIL AND GAS CONSERVATION COMMISSION and Denbury Onshore, LLC, Appellees (Respondents).
• Court: Wyoming Supreme Court

297 P.3d 782

EXXON MOBIL CORPORATION, Appellant (Petitioner),

v.WYOMING OIL AND GAS CONSERVATION COMMISSION and Denbury Onshore, LLC, Appellees (Respondents).

No. S–12–0140.

Supreme Court of Wyoming.

March 15, 2013.

Representing Appellant: Walter F. Eggers, III, P.C., and Patrick R. Day, P.C., of Holland & Hart LLP, Cheyenne, Wyoming. Argument by Mr. Eggers, III.

Representing Appellee Wyoming Oil and Gas Conservation Commission: No appearance.

Representing Appellee Denbury Onshore, LLC: John A. Masterson and Alaina M. Stedillie of Rothgerber Johnson & Lyons LLP, Casper, Wyoming. Argument by Mr. Masterson.

Before KITE, C.J., and HILL, VOIGT, BURKE, and DAVIS, JJ.

DAVIS, Justice.

[¶ 1] The Wyoming Oil and Gas Conservation Commission approved Cimarex Energy Company's plan to reinject waste carbon dioxide and hydrogen sulfide into a producing natural gas formation in southwest Wyoming, over the objection of Appellant Exxon Mobil Corporation. Exxon unsuccessfully sought to overturn the Commission's decision in the District Court for the Seventh Judicial District, and now appeals the district court's order affirming that decision to this Court.¹

[¶ 2] The parties present a number of issues in their comprehensive briefs, but review of the complete record and oral argument allow us to distill the issues which we must decide down to two, which we restate below. As to the second issue, we will affirm. As to the first, we reverse and remand to the district court with directions that this case be remanded to the Commission for the purpose of making appropriate findings.

ISSUES

[¶ 3] 1. Did the Commission provide adequate findings of fact as to whether Cimarex's plan to reinject carbon dioxide and hydrogen sulfide would result in waste of natural gas and improperly interfere with Exxon's correlative rights?

2. Should the Commission have granted Exxon's petition for a rehearing due to Denbury Onshore's acquisition of Cimarex's interests in the production unit where the proposed injection well would be located and its announcement of a plan to eventually sell carbon dioxide produced on that unit?

FACTS

[¶ 4] Cimarex and Exxon hold mineral interests which permit them to produce gas on the Moxa Arch, a large anticline located in the Green River basin of southwest Wyoming. Since 1986, Exxon has produced natural gas from the Madison strata underlying its Lake Ridge and Fogarty Creek units, which are to the south of Cimarex's much smaller Riley Ridge unit. The Madison strata, which are 15,880 feet to 16,778 feet below wellhead in this field, consist primarily of porous and permeable dolomite and limestone and have historically yielded Exxon an average gas stream composed of 21% methane, 7.4% nitrogen, 0.6% helium, 66% carbon dioxide, and 5% hydrogen sulfide.

[¶ 5] The “methane cut” or percentage of methane in the gas stream available to Cimarex is four to five percent lower than that available to Exxon because Exxon's Lake Ridge and Fogarty Creek units sit atop the crest of the Moxa Arch while Cimarex's Riley Ridge unit is located on the downslope of the anticline. This geologic feature and the effect of gravity cause higher concentrations of heavier carbon dioxide under Riley Ridge than are found under the higher Exxon Lake Ridge and Fogarty units, where lighter methane gas has been more concentrated.

[¶ 6] Riley Ridge methane has been siphoned up the anticline to Exxon's wells as a result of a pressure gradient created by twenty-five years of production by Exxon and no production by the leaseholders of Riley Ridge. Due to Exxon's production, bottom-of-the-well pressure throughout the Madison strata has been reduced by three to fifteen percent of its original level, with the greatest decreases on the crest of the Moxa Arch.

[¶ 7] While Exxon produced and processed methane gas at its Shute Creek sour gas plant some forty miles to the south of the units discussed above, Cimarex's predecessors and eventual partners in interest, including Wold Oil Properties, had to acquire and consolidate numerous Riley Ridge working and overriding royalty interests over time in order to own interests sufficient to make production on that unit economically viable. Once the required acquisition and consolidation were achieved, the Riley Ridge interests had to find a way to transport and process any methane and carbon dioxide they might produce. They tried to negotiate with Exxon to have the Riley Ridge gas processed and moved through Exxon's system, but Exxon rejected those proposals, responding that it had more than enough of its own gas to process, and that it saw no advantage to working with the Riley Ridge owners.

[¶ 8] Cimarex eventually developed a plan to remove the final obstacle to production. The plan involved building an innovative gas processing plant on the Riley Ridge unit and reinjecting the separated carbon dioxide and hydrogen sulfide into the Madison formation until a market which would allow it to sell stored carbon dioxide for use in enhanced oil recovery operations developed. In 2010, Cimarex applied to the Commission for a permit to use its Riley Ridge No. 20–14 well, which was located near the new processing facility, to reinject those “waste” gases back into the Madison formation at a point close to the southern boundary of the Riley Ridge unit.

[¶ 9] Exxon objected to the Cimarex plan, claiming that it would cause waste and compromise Exxon's correlative rights. “Correlative rights” means “the opportunity afforded the owner of each property in a pool to produce, as far as it is reasonably practicable to do so without waste, his just and equitable share of the oil or gas, or both, in the pool.” Wyo. Stat. Ann. § 30–5–101(a)(ix) (LexisNexis 2011). A pool is “an underground reservoircontaining a common accumulation of oil or gas, or both.” § 30–5–101(a)(iii). There is no dispute that the gas described above lies in a pool as the statute defines that term. Waste is defined as pertinent to this case as follows:

(i) The term “waste” means and includes:

(A) Physical waste, as that term is generally understood in the oil and gas industry;

(B) The inefficient, excessive or improper use, or the unnecessary dissipation of, reservoir energy;

(C) The inefficient storing of oil or gas;

(D) The locating, drilling, equipping, operating, or producing of any oil or gas well in a manner that causes, or tends to cause, reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations, or that causes or tends to cause unnecessary or excessive surface loss or destruction of oil or gas;

(E) The production of oil or gas in excess of (I) transportation or storage facilities; (II) the amount reasonably required to be produced in the proper drilling, completing, or testing of the well from which it is produced, or oil or gas otherwise usefully utilized: except gas produced from an oil well pending the time when with reasonable diligence the gas can be sold or otherwise usefully utilized on terms and conditions that are just and reasonable;

(F) Underground or aboveground waste in the production or storage of oil, gas, or condensate, however caused, and whether or not defined in other subdivisions hereof;

...

§ 30–5–101(a)(i). Waste of oil and gas is statutorily prohibited, and the Commission is charged with preventing waste and protecting correlative rights. § 30–5–102; § 30–5–104(d)(iv).

[¶ 10] Exxon did not object to Cimarex reinjecting carbon dioxide and hydrogen sulfide into the Madison strata in general, but only to its plan to inject them at the No. 20–14 well into a particular stratum of that formation. Exxon contended that the injected carbon dioxide plume would dilute the concentration of valuable methane gas it was currently producing from its Lake Ridge and Fogarty Creek wells. In other words, the methane would be diluted by hydrogen sulfide and carbon dioxide, requiring the processing of more gas to produce the same net quantity of methane that it was currently producing.

[¶ 11] At a contested case hearing before the Commission, Cimarex introduced evidence that its plan would reduce but not eliminate Exxon's draining of gas from under Riley Ridge, and that it would also reduce the drop in reservoir pressure which would result from Exxon's methane production. It contended that as reservoir pressure dropped without reinjection, operators would be required to expend more energy to produce and process methane and transport it to gas plants. It claimed that reinjection of carbon dioxide would reduce pressure depletion in the pool to one-quarter of what it would be without reinjection and therefore delay the date on which operators would have to use other gases for compression in order to maintain their production by a factor of four.

[¶ 12] Cimarex's experts testified that the current rate of pressure reduction would eventually cause all operators to abandon their wells while hydrocarbon-bearing gas remained in the reservoir. Reinjecting the carbon dioxide, however, would delay that process and push hydrocarbon-bearing gas toward producing wells, so that when the reservoir reached abandonment pressure only carbon dioxide would remain between Cimarex's leaseholds and those belonging to Exxon.

[¶ 13] Exxon's experts agreed that maintaining reservoir pressure would enhance methane production in most cases, and that Cimarex's reinjection of carbon dioxide would help maintain pressure in the Madison formation. They also agreed that the injected carbon dioxide would force methane-bearing gas up the anticline toward Exxon's holdings and that it would also cause it to move “downdip” toward Cimarex's wells. The injected plume would almost entirely displace the hydrocarbon-bearing gas, pushing the latter to producing wells and mixing with it—or diluting it—only gradually at the leading edges of the plume.

[¶ 14] However, Exxon also introduced evidence that Cimarex's plans would affect...