N. Natural Gas Co. v. Approximately 9117 Acres in Pratt
| Decision Date | 04 February 2015 |
| Docket Number | CIVIL ACTION No. 10-1232-MLB-DWB |
| Parties | NORTHERN NATURAL GAS COMPANY, Plaintiff, v. APPROXIMATELY 9117 ACRES IN PRATT, KINGMAN, AND RENO COUNTIES, KANSAS AND AS FURTHER DESCRIBED HEREIN; TRACT NO. 10 62710 CONTAINING 80.00 ACRES MORE OR LESS, LOCATED IN KINGMAN COUNTY, KANSAS, AND AS FURTHER DESCRIBED HEREIN; ET AL., Defendants. |
| Court | U.S. District Court — District of Kansas |
This action to condemn property was brought by Northern Natural Gas Company under the authority of Natural Gas Act, 15 U.S.C. § 717f(h). The action was prompted by evidence that natural gas injected into Northern's underground storage field near Cunningham, Kansas, was migrating out of the storage area and was being produced by wells to the north of the field. Northern obtained authority from the Federal Energy Regulatory Commission (FERC) to acquire certain property rights in this adjacent "2010 Extension Area."
The property to be condemned includes two underground formations (the Simpson and the Viola) underlying some 9,200 acres in the Extension Area. It also includes some surface rights and several well bores, which Northern has taken to implement a water injection plan to reduce gas migration. The court previously granted Northern'smotion for immediate possession of the property being condemned. Doc. 464. The parties claiming interests in the various tracts taken by Northern include, among others, landowners, mineral interest owners, and oil and gas operators who had producing gas wells in the 2010 Extension Area.
Pursuant to Fed. R. Civ. P. 71.1, the court appointed a commission to determine just compensation for the property taken by Northern.1 Doc. 641. The commission conducted hearings over a six week period with extensive testimony from a number of expert witnesses. Closing arguments were held on June 3-4, 2014, and the commission filed a report of its findings on August 26, 2014. Doc. 888.
The matter is now before the court on the parties' objections to the commission's report and their responses to other parties' objections: Northern (Docs. 918, 929); Nash Oil & Gas (Docs. 915, 928); L.D. Drilling (Docs. 919, 934); VAL group (Docs. 917, 930); Pratt Well Service group (Doc. 920); Huff landowner group (Docs. 916, 931); Meireis landowner group (Docs. 921, 932); Hudson landowner group (Docs. 923, 933); and the Miller trust (Doc. 924).
Some of the briefs merely adopt by reference objections made by other parties. The court will discuss herein only the briefs with the original objections.
I. Summary of the report ................... -4-
II. Standards ......................... -5-
III. Objections ........................ -6-
IV. Conclusion ....................... -52-
I. Summary of the report.
The basic findings of the commission were as follows. The evidence showed there was about 4.55 BCF of gas within the Extension Area on the date of taking. The property taken by Northern should be valued based on that total. The recoverable portion of those reserves should be allocated to the wells which, but for the condemnation, would have produced them with the aid of pressure support from the Cunningham storage field. As a result, the gas reserves have been assigned to the Extension Area tracts with existing Viola wells. Because 80% of the 4.55 BCF of gas was recoverable, 3.64 BCF of gas is allocated to those existing Viola wells. Based on historical levels of production, it would have taken 13.76 months to produce 3.64 BCF of gas. Using historical production figures, the commission determined a net present value (discounted at 10%) of each Viola well in the Extension Area using the 13.76 month production period. The result, which totals about $5.95 million, is set forth in Exhibit 3 attached to the commission's report.
The commission also found that the highest and best use of the Extension Area tracts included use of the Viola and Simpson formations as buffer acreage for a gas storage field. The commission found the storage lease potential of the properties added $125 per acre to their overall fair market value. This results in a finding that Northern owes total compensation of just over $1 million for the buffer acreage value of the Extension Area properties taken in condemnation. Thevalue for each individual tract is listed in Exhibit 3 attached to the report.
For each of the eight Extension Area wells taken by Northern, the commission found Northern owes compensation for the salvage value of the well equipment. It found the salvage value to be $5,850 for each well, for a total of $46,800.
As for surface takings, the commission concluded that total compensation in the amount of $175,540 is owed, in addition to compensation for surface damages in the amount of $51,000. The commission also awarded $278,190 for the taking of buildings or other structures.
The total compensation found by the commission to be owing by Northern for its taking of the defendant property is $7,310,427.
II. Standards.
Action on the commission's report is governed by Rule 53(f). See Fed. R. Civ. P. 71.1(h)(2)(D). In acting on the report, the court must give the parties notice and an opportunity to be heard. Fed. R. Civ. P. 53(f)(1). The court has given all parties an opportunity to file written objections and written responses to objections of other parties. No party has requested an evidentiary hearing or oral argument. That is not surprising given the extensive hearings already conducted by the commission, which consisted of more than a one-month period of evidentiary hearings followed by two days of oral argument. Under the circumstances the court concludes that further hearings are unnecessary and the objections are ripe on the record now before the court.
The court must decide de novo all objections to conclusions of law made or recommended by the commission. Fed. R. Civ. P. 53(f)(4). Objections to the commission's factual findings will likewise be reviewed de novo inasmuch as the parties have not stipulated otherwise. Fed. R. Civ. P. 53(f)(3). Any commission ruling on a procedural matter is reviewed only for abuse of discretion. Fed. R. Civ. P. 53(f)(5).
The court may receive evidence; it may adopt or affirm, modify, wholly or partly reject or reverse, or resubmit the report to the commission with instructions. Fed. R. Civ. P. 53(f)(1).
III. Objections.
Northern Natural Gas Co. objections (Doc. 918).
1. Compensation for gas owned by Northern. Northern contends the Commission improperly required it to pay for storage gas that Northern already owned on the date of taking.
In February of 2009, Northern obtained storage leases on about 3,040 acres in the southern part of the 2010 Extension Area. No producing wells were located on this acreage. On June 2, 2010, Northern obtained a FERC certificate authorizing expansion of the Cunningham Storage Field's buffer zone to include the entirety of the 2010 Extension Area, including the afore-mentioned 3,040 acre portion. The 3,040 acre portion, having already been acquired by Northern, was not included in this condemnation proceeding.
The commission found that a total of 0.935 BCF of gas was located in Northern's 3,040 acres on the date of taking. It assigned the value of the recoverable reserves (i.e. 80% of 0.935 BCF) to condemned tracts with producing wells within the Extension Area. Northerncontends it had title to the gas in the 3,040 acre area and argues the commission's award contradicts Kansas law. According to Northern, Kansas courts have applied the following formula for determining storage gas ownership: "certificate authority + compensation = legally recognized storage area with protected storage gas." Northern argues there is no...
To continue reading
Request your trial