Stephens Prod. Co. v. Larsen

• Decision Date: 09 May 2017
• Docket Number: Case Number: 111489
• Citation: 394 P.3d 1262
• Parties: STEPHENS PRODUCTION COMPANY, A DIVISION OF SF HOLDING CORP., Plaintiff/Appellee, v. Royce LARSEN, Defendant/Appellant, and Nellie Allen, et al., Defendants.
• Court: Oklahoma Supreme Court

394 P.3d 1262

STEPHENS PRODUCTION COMPANY, A DIVISION OF SF HOLDING CORP., Plaintiff/Appellee,

v. Royce LARSEN, Defendant/Appellant,andNellie Allen, et al., Defendants.

Case Number: 111489

Supreme Court of Oklahoma.

Decided: May 9, 2017

Stratton Taylor, Toney D. Foster, Mark Ramsey, Clint Russell, Taylor, Foster, Mallett, Downs, Ramsey & Russell, Claremore, Oklahoma, for Plaintiff/Appellee.

William H. Huffman & Terence P. Brennan, Levinson, Smith & Huffman, P.C., Tulsa, Oklahoma, for Plaintiff/Appellee.

Dan Biersdorf, Biersdorf & Associates, P.A., Minneapolis, Minnesota, for Defendant/Appellant.

GURICH, V.C.J.

¶ 1 Stephens Production Company filed a Petition to exercise eminent domain power pursuant to the Underground Storage of Gas statutes¹ to condemn underground natural gas storage easements and surface easements to complete an underground natural gas storage facility on and underneath approximately 900 acres of mostly rural property in Haskell County. Approximately 140 Defendants were named in the Petition. Stephens Production had previously offered such Defendants "just market value" for their respective interests, but the Defendants refused the offers. The trial court appointed three commissioners to value just compensation due for each Defendant listed in the Petition. Upon submission of the Commissioners report, all Defendants except one, Royce Larsen, the Appellant herein, settled with Stephens Production .

¶ 2 Mr. Larsen owns an 80-acre parcel within the 900 acres. The Commissioners valued Mr. Larsen's property taken and the damage to the remainder at $12,400.00. Mr. Larsen objected to this amount, and his case proceeded to trial. Mr. Larsen's expert testified the just compensation value was approximately $419,000.00. Stephens Production's expert valued the just compensation at $9,000.00. Following a non-jury trial,² the trial court determined that just compensation for Mr. Larsen's property was $9,000.00.

¶ 3 Mr. Larsen appealed, and the case was assigned to the Court of Civil Appeals. COCA affirmed the decision of the trial court in an unpublished 2-1 decision, with one judge writing in dissent. Mr. Larsen timely petitioned this Court for certiorari review, and we granted certiorari on September 19, 2016, to address an issue of first impression. For the reasons set forth below, we affirm the decision of the trial court.

Underground Storage of Gas

¶ 4 The Legislature has determined that "[t]he underground storage of natural gas which promotes conservation thereof, which permits the building of reserves for orderly withdrawal in periods of peak demand, which makes more readily available our natural gas resources to the domestic, commercial and industrial consumers of this state, and which provides a better year-round market to the various gas fields, promotes the public interest and welfare of this state ." 52 O.S. 2011 36.2 (emphasis added). Under the Underground Storage of Gas statutes, "[a]ny public utility may condemn for its use for the underground storage of natural gas any subsurface stratum or formation in any land which the Commission shall have found to be suitable and in the public interest for the underground storage of natural gas...." 52 O.S. 2011 36.3. Landowners whose property interests are being condemned for the underground storage of gas are entitled just compensation. SeeArk. La. Gas Co. v. Latham , 1982 OK 50, ¶3, 650 P.2d 49, 49-50 ; 52 O.S. 2011 36.5.

Hunton Formation

¶ 5 The Hunton Formation (Reservoir) lies underneath approximately 900 acres of mostly rural property in Haskell County. The record reflects the Reservoir is a "well-defined porous limestone of an oval shape" with well-defined boundaries approximately 6,000 feet below ground.³ The Reservoir is "bounded to the north by a fault and is an active water drive," and the "down structure wells have watered out and are depleted."⁴ Stephens Production "drilled a well on the top of the structure," and that "well was wet and watered out."⁵ No economically recoverable gas or oil remains in the Reservoir. The Reservoir contains 459.9 reservoir acres of which Mr. Larsen owns 68.4 reservoir acres or 14.87% of the total.

Oklahoma Corporation Commission Proceeding

¶ 6 Pursuant to the Underground Storage of Gas statutes, Stephens Production filed an Application with the Oklahoma Corporation Commission on September 24, 2008, seeking approval from the Commission to condemn certain property for the underground storage of natural gas in the Hunton Formation. The Commission held a hearing on December 11, 2008, wherein Stephens Production presented evidence in support of its Application. Three of the approximately twenty to twenty-five surface landowners, including Mr. Larsen, whose property would be subject to condemnation, submitted written statements in opposition of the Application.

¶ 7 On January 16, 2009, the Commission issued an Order approving Stephens Production's Application. The Commission found the Reservoir was suitable for the underground storage of natural gas, with its use for such purpose being in the public interest; that there was no economically recoverable oil or natural gas within the Reservoir underlying the property; and that such lands had a "greater value in utility as a gas storage reservoir for the purpose of ensuring an adequate supply of natural gas for an end user of natural gas and for the conservation of natural gas than for the production of the relatively small volumes of natural gas which remain there."⁶ No party appealed the Order of the Commission, and it is final.

The Project

¶ 8 Prior to the Order of the Commission issued January 16, 2009, two companies, Arkansas Oklahoma Gas (AOG) and Spiro Storage, had previously purchased underground gas storage easements from approximately seven landowners in preparation to begin the Hunton Formation Project. AOG and Spiro Storage paid anywhere from $27.00 per acre to $100.00 per acre for the easements. AOG completed a "Phase One Reservoir Study" and selected this particular Reservoir because of its close proximity to an AOG pipeline and two other major pipelines, which carry gas to the east, including to Ft. Smith, Arkansas, and the surrounding areas.⁷

¶ 9 AOG contracted with an engineering firm to begin the Phase Two study when AOG determined it could no longer pursue the Project. Stephens Production, which is owned by the same family that owns both AOG and Spiro Storage, then obtained the easements already negotiated by AOG and Spiro Storage so as to continue the Project. Testimony from a Stephens Production engineer indicates that when the Project is complete, Stephens Production will fill the Reservoir with gas and sell it to AOG, which will then provide the gas to Ft. Smith and the surrounding areas during cold, demand months. Construction has not yet begun on the Project, but once Stephens Production secures the remainder of the easements through this eminent domain proceeding, Stephens Production will drill six wells on approximately eighty acres in the northwest corner of the 900-acre parcel. The Mann Property and the Chanthaseny Property, are included in such eighty acres, and the eighty acres are to the north of Mr. Larsen's property at the "top of the structure."⁸ Roads will be made across the Mann Property and the Chanthaseny Property to get to the wells. Pipelines will be laid under the Mann Property. Completing the Project will cost approximately $50 million dollars. As of the date of the trial in December 2012, Stephens Production's engineer testified the company intended to complete the Project.

¶ 10 Mr. Larsen's property is an 80-acre parcel located on the eastern side of the 900-acre parcel. The Larsen Property is located in a rural area four miles east of Keota, Oklahoma, and three and one half miles south of Highway 9, in Haskell County. The property is vacant and is primarily wooded and slopes steeply from north to south. The property is forested and is minimally accessible by a gravel road on the west side of the property. There is no home on the Larsen Property. Mr. Larsen lives in Idaho. According to Stephens Production's engineer, the Larsen Property would be on the side of the underground structure in a "down dip" from the top of the structure, and as such, would not be a suitable site to inject or withdraw gas from the Reservoir.

Taking

¶ 11 The taking at issue in this appeal is an underground gas storage easement in that portion of the Reservoir lying underneath Mr. Larsen's property and a surface easement upon, over, and across that portion of Mr. Larsen's property necessary to conduct such gas storage operations. Pursuant to the surface easement, Mr. Larsen will maintain the right to make use of any such lands included within the easement so long as such use is not inconsistent with or dangerous to the construction, operation, maintenance, or reconstruction of the underground gas storage facility. Testimony from Stephens Production's engineer indicates that no roads, pipelines, wells, or facilities will be on Mr. Larsen's property when the Project is completed. The Oklahoma Corporation Commission has already determined the Project is for a proper public purpose. Thus, the only issue is the amount of just compensation owed Mr. Larsen for the taking of the underground gas storage easement and the surface easement.

Standard of Review

¶ 12 "In a non-jury trial the court's findings are entitled to the same weight and consideration that would be given to a jury's verdict." Soldan v. Stone Video , 1999 OK 66, ¶6, 988 P.2d 1268, 1270. Because the trial court is in the best position to evaluate the demeanor of the witnesses and to gauge the credibility of the evidence, we will defer to the trial court as to the conclusions it reaches concerning those witnesses and that evidence. Mueggenborg v. Walling , 1992 OK 121, ¶7, 836 P.2d 112, 114. On appeal, the trial court's findings will not be disturbed if there is any competent evidence to support them. Soldan ,...