Northwest Central Pipeline Corp. v. State Corp. Commission

699 P.2d 1002, 237 Kan. 248, 86 Oil & Gas Rep. 276, 1985 Kan. LEXIS 369
CourtSupreme Court of Kansas
DecidedMay 10, 1985
Docket56,917
StatusPublished
Cited by7 cases

This text of 699 P.2d 1002 (Northwest Central Pipeline Corp. v. State Corp. Commission) 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
Northwest Central Pipeline Corp. v. State Corp. Commission, 699 P.2d 1002, 237 Kan. 248, 86 Oil & Gas Rep. 276, 1985 Kan. LEXIS 369 (kan 1985).

Opinions

[250]*250The opinion of the court was delivered by

Herd, J.:

This is an appeal from an,order affirming a Kansas Corporation Commission (KCC) order amending paragraph (p) of the basic proration order for the Kansas Hugoton Gas Field.

Cabot Petroleum Corporation, Northern Pump Company, Graham-Michaelis Corporation, and Kansas Petroleum Inc., are independent producers of natural gas from the Kansas Hugoton Field and operate a total of 189 wells connected to various pipeline systems in the field. Colorado Interstate Gas Company and KN Energy, Inc. (KN) are interstate pipeline companies engaged in the transportation and sale for resale of natural gas in interstate commerce. KN is also engaged in the production of natural gas from the Hugoton Field and operates numerous wells which produce gas from that field. Northwest Central Pipeline Corporation (successor to Cities Service) is a pipeline company also operating in the Hugoton Field. Amoco Production Company is also a lessee-producer of natural gas in the Hugoton Field. Each of these companies appeared before the KCC to contest the -amendment to the basic order, and are appellants here. Panhandle Eastern Pipe Line Co. is an interstate pipeline which purchases gas from Hugoton wells. Panhandle participated in the hearings before the KCC and supported the KCC’s position. Panhandle intervened in the appeal before the district court. Mesa Petroleum Company is a producer in the Hugoton Field. Mesa was a party to the proceedings before the KCC and supports the amended order.

The Kansas Hugoton Field is approximately one hundred sixty miles long and forty to seventy-two miles wide. It covers all or major portions of nine Kansas counties and minor portions of two additional counties. The over 4,000 gas wells in the field are connected to pipeline systems of seven major producers and several smaller purchasers.

The basic proration order for the Hugoton Field was adopted on March 21, 1944. The purpose of the order is to prorate the demand for gas, as determined twice a year by the commission, among all the wells in the Hugoton Field. The proration is made by assigning an allowable to each well. From its inception the basic proration order has assigned the allowables on the basis of the relative abilities of the wells to produce gas pursuant to a deliverability formula. The formula balances various factors in an effort to regulate production so that the amount produced over [251]*251time from any well is equal to the amount of gas originally in the developed lease.

Some adjustments in allowables resulting from the deliver-ability formula are caused by pressure differentials in the various gas wells. Gas flows from high pressure areas to low pressure areas. A well’s pressure falls when it is produced. When a well is underproduced in relation to its allowable, and relative to the other wells which are producing their allowables, its pressure becomes higher. If this condition is permitted to continue over a period of time, drainage occurs from the underproduced well with the higher pressure to the low pressure area of the overproduced wells. As pressure is a major component in determining adjusted deliverability, the pressure differences result in a higher adjusted deliverability for the underproduced wells with a resulting increase in the current allowable. When the larger allowable and underage is produced, the well’s pressure drops below the other wells and compensating drainage occurs. After the pressure drop the adjusted deliverability for the well is decreased with a resulting decrease in its allowable. This is the technique utilized in the attempt to keep the wells in balance in the long pull.

Divergent rates of “takes,” as a result of varying market conditions experienced by the purchasers in the field, cause unplanned pressure differences among the producing wells. Every purchaser, because of varying market demands, has gone through cyclical periods of overproduction followed by periods of underproduction causing underages. The different purchasers are not in the same phase of the cycle at the same time. As a result, drainage among the developed leases is constantly taking place. Prior commission practice developed a system designed to ensure that counter or compensating drainage would occur.

The history of the field shows the turnaround in the marketing conditions of the various purchasers from periods of low demand to periods of high demand often takes many years. For example, Amoco’s wells, 97% of which are connected to Northwest Central Pipeline, were underproduced in the late 1960’s and early 1970’s and suffered great volumes of cancelled underage. From May, 1972, through 1981, 66,707,113 million cubic feet (MCF) of cancelled underage were reinstated, of which 60,650,544 MCF were produced. Now, however, due to high allowables assigned by the commission and soft market demand, these wells have [252]*252suffered approximately 73.7 billion cubic feet (BCF) of cancelled underage and the volumes of cancellation are increasing monthly. Cabot, whose wells are also connected to Northwest Central, experienced this same cycle. Cabot suffered essentially no cancelled underage prior to 1967, but during the next six-years had 1,390,905 MCF cancelled, followed by a six-year period in which 1,158,808 MCF were reinstated, of which approximately 87% was produced. During the last three-and-a-half years Cabot again has suffered large volumes of cancelled underage. KN Energy was overproduced in the late 1960’s and early 1970’s, but became underproduced from approximately 1971 through 1977. It has been making up underage since 1978. It predicts it will take nine years to make up all of its underage. The Mesa wells, which are now 2.6 BCF overproduced, were underproduced in 1953 and incurred cancellation of underage with no reinstatement until 1964.

As of September 1,1982, the entire Kansas Hugoton Field had an underage of 204.5 BCF as compared to 144.5 BCF underage September 1, 1981. According to KCC records, there have been 508 BCF of underages cancelled in the Kansas Hugoton Field from January 1, 1967 to August 1, 1982. 194 BCF of those underages were reinstated. It is significant to note that all appellants here are in an underproduced status currently, while Mesa and Panhandle are both in an overproduced status. History indicates market changes sufficient to make up underages have taken six to ten years.

Since it was first issued, various provisions of the basic order, including paragraph (p), have been amended whenever the KCC determined any such provision was not adequately achieving the purpose of the order.

Because of the volume of underproduction, in March, 1982, the KCC began a general investigation into the provisions of the basic pro ration order to determine whether there was a need for revision. Hearings were held where it was determined some producers had accumulated excessively high underage in the Hugoton Field. As a result of the hearings, the commission issued its order on February 16,1983, which amended paragraph (p) of the basic order for the avowed purpose of reducing under-ages.

Prior to this amendment to paragraph (p), the order permitted any well with an adjusted deliverability in excess of 300 MCF to [253]*253accumulate underproduction equal to six times the amount of the current allowable assigned to the well for the preceding January. Any amount in excess of this formula was cancelled.

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Bluebook (online)
699 P.2d 1002, 237 Kan. 248, 86 Oil & Gas Rep. 276, 1985 Kan. LEXIS 369, Counsel Stack Legal Research, https://law.counselstack.com/opinion/northwest-central-pipeline-corp-v-state-corp-commission-kan-1985.