Northern Natural Gas Co. v. ONEOK Field Services Co.

296 P.3d 1106, 296 Kan. 906
CourtSupreme Court of Kansas
DecidedMarch 15, 2013
DocketNo. 104,279
StatusPublished
Cited by209 cases

This text of 296 P.3d 1106 (Northern Natural Gas Co. v. ONEOK Field Services Co.) is published on Counsel Stack Legal Research, covering Supreme Court of Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Northern Natural Gas Co. v. ONEOK Field Services Co., 296 P.3d 1106, 296 Kan. 906 (kan 2013).

Opinion

The opinion of tlie court was delivered by

Moritz, J.:

In this conversion action, Northern Natural Gas Company (Northern) claims ONEOK Field Services Company, L.L.C., ONEOK Midstream Gas Supply, L.L.C. (collectively ONEOK), Lumen Energy Corporation, and Lumen Midstream Partnership, LLC (collectively Lumen) wrongfully converted natural gas by purchasing gas from two producers, Nash Oil & Gas, Inc. (Nash) and L.D. Drilling, Inc. (L.D.), which operated wells on land near Northern’s underground natural gas storage field. Northern claims that Nash and L.D. were producing and selling Northern’s previously injected storage gas and that ONEOK and Lumen unlawfully converted such gas when they purchased it from Nash and L.D. ONEOK and Lumen filed third-party indemnification claims against Nash and L.D. In turn, Nash and L.D. asserted various claims against Northern, ONEOK, and Lumen.

[910]*910In granting summary judgment in favor of Nash and L.D. on the third-party indemnification claims, the district court determined that K.S.A. 55-1210(c) preserved the common-law rule of capture as to injected storage gas that migrates horizontally beyond property adjoining the certificated boundaries of a gas storage field. Because the wells at issue here were located beyond property adjoining the certificated boundaries of Northern’s gas storage field, the district court concluded Northern lost title to its migrating storage gas. Thus, die court concluded Nash and L.D. had title to the gas produced by those wells and purchased by ONEOK and Lumen.

After the district court issued its memorandum decision and order granting summaiy judgment in favor of Nash and L.D., but before the court journalized its order, Northern received authorization to expand the certificated boundaries of its storage field, thus bringing the wells at issue within the expansion area or onto property adjoining the expansion area. Northern moved the district court to modify its summary judgment ruling in light of the boundary change. In denying that motion, the district court acknowledged the change in circumstances and effectively limited its summary judgment ruling to matters prior to June 2, 2010. The court certified its Order as a final judgment and ordered ONEOK and Lumen to “hold all runs” pending further order of the court.

In this appeal of that summary judgment ruling, Northern primarily challenges the district court’s interpretation of K.S.A. 55-1210. Focusing on subsections (a) and (b) of the statute, Northern contends the legislature intended to abolish the common-law rule of capture as to all previously injected storage gas, regardless of how far that gas migrates beyond the certificated boundaries of an injector’s gas storage field. But we conclude, as did the district court, that Northern’s reading of K.S.A. 55-1210 renders meaningless subsection (c) of the statute, which preserves title in the injector to “natural gas that has migrated to adjoining property or to a stratum, or portion thereof. . . .” Further, Northern’s interpretation of the statute ignores the caselaw precipitating enactment of the statute as well as subsequent caselaw interpreting the statute.

[911]*911We conclude K.S.A. 55-1210 abolished the rule of capture as to natural gas which migrates horizontally within a stratum to adjoining property or vertically to a different stratum, but preserved that rule as to natural gas which migrates beyond those boundaries. Because the natural gas at issue here allegedly migrated horizontally beyond property adjoining Northern’s certified storage field, Northern lost title to that gas and it became subject to the rule of capture. By application of die rule of capture, Nash and L.D. possessed title to the gas produced from their wells before June 2, 2010. Therefore, we hold the district court properly dismissed ONEOK’s and Lumen’s indemnification claims against Nash and L.D and granted summary judgment in favor of Nash and L.D. regarding any alleged acts of conversion occurring before June 2, 2010. As more fully explained below, we remand this case to the district court for any further proceedings necessary to finally resolve this litigation.

Factual and Procedural Background

Northern owns and operates an underground natural gas storage facility in Pratt and Kingman counties known as the Cunningham Storage Field (the Field). In the late 1970’s, Northern obtained certification from the Kansas Corporation Commission (KCC) and the Federal Energy Regulatory Commission (FERC) to inject and store natural gas in the Viola formation, a geological stratum underlying the Field. In 1996, Northern obtained certification from the KCC and FERC to inject and store natural gas in a second stratum underlying the Field, the Simpson formation.

As of March 2007, the certificated boundaries of the Field encompassed 26,240 acres. In October 2008, FERC authorized Northern to expand the Field by approximately 1,760 acres. FERC specifically indicated its authorization did not permit Northern to inject storage gas in the expansion area; rather, the expansion permitted Northern to address “gas migration problems.”

Nash and L.D., Kansas corporations engaged in mineral exploration and production, both operate several oil and gas wells in Pratt County. All of the wells at issue are located approximately 2 to 6 miles and more than a full section beyond the Field’s northern [912]*912certificated boundary as that boundary existed prior, to June 2, 2010.

Pursuant to purchase agreements executed in 2005 and 2009, ONEOK purchased natural gas produced by Nash from these wells. Similarly, in 2008, Lumen entered into a gas purchase contract with L.D. and began purchasing natural gas produced from L.D.’s wells in this area.

In December 2008, Northern filed suit in federal court against L.D., Nash, and Val Energy, Inc., alleging all three companies had caused Northern’s storage gas to migrate beyond die certificated boundaries of the Field by creating “pressure sinks.” Specifically, Northern argued the companies pumped atypical quantities of groundwater at their wells, thereby creating artificial pressure sinks which caused Northern’s storage gas to migrate away from the Field and toward the wells.

Northern further alleged all three defendant companies were producing and selling Northern’s previously injected storage gas as their own. Northern sought a declaratory judgment as to title and ownership of the migrated storage gas and/or injunctive relief pursuant to K.S.A. 55-1210 and stated claims for conversion, unjust enrichment, nuisance, tortious interference with a business relationship, and civil conspiracy. See Northern Natural Gas Co. v. L.D. Drilling, Inc., No. 08-1405-WEB, 2009 WL 3739735, at *5 (D. Kan. 2009) (parallel federal litigation).

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Bluebook (online)
296 P.3d 1106, 296 Kan. 906, Counsel Stack Legal Research, https://law.counselstack.com/opinion/northern-natural-gas-co-v-oneok-field-services-co-kan-2013.