National Fuel Gas Supply Corp. v. Cunningham Natural Gas Corp.

• Decision Date: 06 September 1989
• Citation: 145 Misc.2d 825,548 N.Y.S.2d 588
• Parties: NATIONAL FUEL GAS SUPPLY CORPORATION, Plaintiff, v. CUNNINGHAM NATURAL GAS CORPORATION, Defendant. NATIONAL FUEL GAS SUPPLY CORPORATION, Plaintiff, v. Marion M. SMOLE, Defendant. NATIONAL FUEL GAS SUPPLY CORPORATION, Plaintiff, v. Corinne Johnson LARSEN, Defendant.
• Court: New York Supreme Court

Page 588

548 N.Y.S.2d 588

145 Misc.2d 825

NATIONAL FUEL GAS SUPPLY CORPORATION, Plaintiff, v. CUNNINGHAM NATURAL GAS CORPORATION, Defendant.

NATIONAL FUEL GAS SUPPLY CORPORATION, Plaintiff, v. Marion M. SMOLE, Defendant.

NATIONAL FUEL GAS SUPPLY CORPORATION, Plaintiff, v. Corinne Johnson LARSEN, Defendant.

Supreme Court, Allegany County.

Sept. 6, 1989.

[145 Misc.2d 826] J. Timothy Embser, Cummings, Embser & Woltag, for plaintiff-condemnor, National Fuel Gas Supply Corp.

Joseph C. Dwyer, Dwyer, Dwyer & Sharkey, for defendant-condemnees, Cunningham Natural Gas Corp., Marion M. Smole and Corinne Johnson Larsen.

DECISION

EDWARD M. HOREY, Acting Justice.

INTRODUCTION

For decision is a condemnation proceeding brought under the provisions of the Eminent Domain Procedure Law. In the action the plaintiff, National Fuel Gas Supply Corporation is the condemnor. It seeks by this action to have damages assessed against it for the condemnation of the defendants' interests in that geological formation known generally as the Oriskany Sand formation which underlies certain acreage located in Allegany County known generally as the Beech Hill gas field. The cause for condemnation was the creation by the condemnor of a gas storage pool in the referenced geological formation under the referenced acreage.

The action was tried over a nine-day period in February 1988. It was well prepared by both counsel for plaintiff and defendants. Outstanding expert testimony was adduced. Detailed graphs, charts, maps and other exhibits were prepared totaling seventy in number.

As will be demonstrated the action was a most complex one, presenting extremely novel questions of fact and law for determination.

There were sixteen wells in the Beech Hill gas field in which the well known as Ludden # 1 was located. Excepting from consideration, Ludden # 1, not one of the other 15 wells produced gas for more than five years. In fact, the average time of production of those 15 wells was 24 3/4 months or slightly more than a two-year period. (Testimony, Burkhardt, p. 44).

In marked contrast the Ludden # 1 well produced gas for 469 months (i.e. 39 years and 1 month) and was still producing gas in paying quantities at the time it was taken in condemnation on July 17, 1980.

SOURCE OF COMMERCIALLY RECOVERABLE GAS.

Essential to a determination of the case at bar is a determination of the source of the gas which was produced from the Ludden # 1 well for over 39 years and was continuing to produce in paying quantities when condemned.

It was the unanimous opinion of the condemnees' experts that the source of such gas was from a geological formation or formations lower than the Oriskany formation. Their opinion was that gas from such lower formations followed fault lines upward to the Oriskany formation in the area of Ludden # 1 well and constantly regenerated such well.

The brief period of productive life of the other fifteen wells in the Beech Hill field averaging as they did two years and one month contrasted with the productive life of the well in issue which produced gas in paying quantities in excess of thirty-nine years and was still producing when condemned in 1980 argues strongly for a source other than the Oriskany formation and this court finds such facts to strongly support the contentions of the defendant-condemnee's experts.

Further supportive of the defendant condemnees' contention and of its experts is the fact that when first drilled Ludden # 1 showed evidence of salt water. Further, it was drilled in at a lower elevation than other wells in the immediate area. The significance of those two facts is that wells drilled further from the dome or high point of the Oriskany formation typically have shorter productive life and are the most susceptible to the withdrawal of gas from other wells. Such production lowers the gas pressure and thus more readily permits the intrusion of salt water. For facility of comprehension Oriskany gas wells in New York and Pennsylvania may properly be considered to be drilled on a sandy beach area not distant from the ancient sea. In New York and Pennsylvania salt water is always present in the Oriskany formation and typically it is within a few feet of the productive area of the formation. The natural gas found in the Oriskany formation is pressurized by the salt water. As the gas is withdrawn the water replaces the gas. When the replacement is complete the well ceases production of gas. (Testimony Burkhardt pp. 50-57).

Thus, given the fact that Ludden # 1 well had upon drilling a "show" of salt water and was drilled on a lower and perimeter area of the field, under typical circumstances it not only should have followed the course of the other 15 wells and "gone to water" as they did, but in fact it should have been one of the first to do so. Ludden # 1 did not do so and had not done so for a period of over 39 years when it was taken in condemnation.

The additional support for the defendant-condemnees' contention that Ludden # 1 is the beneficiary of gas migrating from some lower geological formation into Ludden # 1 is the report which was made by a team of geologists in 1967. That report was completed as a study for the North Penn Gas Company concerning the possibility of using the Beach Hill Field as a storage area. The report was prepared after analyzing the independent studies made by the three geologists, viz., W.S. Leeper, R.M. Sexton and C.R. Burkhardt, the latter being one of the geologists testifying in support of the defendant-condemnees. (See Exh. 35 p. 1).

Under topic heading "Possible Migration," this report made in 1967 antedating by thirteen years the condemnation in issue disclosed the following significant information by way of conclusion of the three geologists, viz., "that Beech Hill received an influx of gas from an outside source." (Italics added), Exhibit 35, pp. 5 & 6.

Certainly this report establishes that as of 1967 there was an observed marked excess of production from the Beech Hill Field over that initially estimated and that despite production for 21 months there was an observed increase in field gas pressure. It was these observations that led three geologists working independently to conclude that the reason therefor supported the conclusions of "an influx of gas from an outside source." Predating as it does by some 13 years the condemnation in issue, the bare minimum that can be said is that such report strongly corroborates the theory of the defendants' experts of regeneration of gas in Ludden # 1 from an outside source. Clearly the theory and opinions of the defendants' experts were not conjured up from whole cloth for the purpose of trial. Rather they merely support the tentative conclusions reached by two other geologists thirteen years earlier.

When pressed for his explanation of where the gas was coming from that was being produced by Ludden # 1, Dr. Klins the condemnor's expert, his answers were vacillating, equivocal and uncertain. Initially his precise answer to the source of the gas being produced was "that the blocks themselves constitute the reservoir, that is the only explanation." (See Record p. 245). Implicitly as the record discloses such answer was intended to mean that the gas being produced was only the residual gas left in the reservoir after the other 15 wells had ceased production. Dr. Klins was adamant that only the original estimated amount of gas was available for production. When it was demonstrated that the originally estimated amount of gas had long since been produced and substantially exceeded, the question of source was repeated as follows:

Q. Therefore, certainly on the natural production predicated on the annual flow of the other fifteen wells in that area, it would have exhausted in 1948 as well, but it had not; forty years it continues. It continues to produce gas. Where does that gas come from? You told me that you didn't think that it was coming from lower horizons. Where do you think that production is coming from? What could you theorize?

A. I think it is from lower production or adjacent block, that's all I can tell you." (Italics added.)

This latter answer was consistent with one of Dr. Klins' earlier statements that he had "no disagreement with their (claimant's expert geologists) interpretation that perhaps gas was migrating." In sum, the court finds that unable to supply a comprehensible and reasonable explanation of the source of the gas being produced, Dr. Klins grudgingly admitted the possibility of migrating gas from lower horizons upward along fault lines to the well in issue. This is precisely the theory of the defendants' experts, Burkhardt and Stead.

This court finds as a fact that the source of gas from Ludden # 1 well is from a geological formation or formations lower than the Oriskany formation, the gas from which formations migrated upward along fault lines and continually regenerated such well.

AMOUNT OF COMMERCIALLY RECOVERABLE NATURAL GAS.

The court turns next to a consideration of the amount of native gas in place which is commercially recoverable. In that connection, the court considers the reports and testimony of the expert witnesses, viz., Dr. Klins for the condemnor and Dr. Burkhardt and Mr. Stead for the condemnee.

First the court finds the report of Dr. Klins deficient and confusing in that he never made a calculation of the initial gas in place. What he did was to make a calculation of initial gas in place in 1948. (Italics added). If the calculations are of gas remaining in place as of 1948 it should be properly described as such and not denominated initial gas in place which it was so denominated in paragraph entitled "timing of future gas recovery." The procedure adopted by Dr. Klins led to confusion in evaluating his report especially as to the remaining gas in place and the calculated volume and time of production thereof.

A calculation of initial gas in place is from a relatively...