Northern Natural Gas v. Approximately 9117 Acres, 2017 U.S. App. LEXIS 12392

Background

Northern Natural Gas operated the Cunningham underground gas storage field in Kansas and expanded certified boundaries in 2008 and 2010 (the “Extension Area”).
Disputes arose because injected storage gas migrated beyond original boundaries; Northern obtained leases for ~3,040 acres and FERC/KCC certificates to expand the field before the date of taking (March 30, 2012).
Northern initiated NGA condemnation proceedings and secured a Rule 71.1 three-person commission to value takings; the commission recommended $7,310,427 for various items (in-place gas, storage/buffer value, surface damages, and eight wells).
The district court adopted the commission’s report in full; both sides appealed various valuation and fee rulings.
The Tenth Circuit held Northern owned the gas within certified boundaries on the date of taking, reversed inclusion of in-place storage gas and certain future-production valuation tied to post-certification production, and affirmed valuation of storage/buffer rights, well salvage value, and denial of attorneys’ fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Ownership of in-place storage gas on date of taking	Landowners/Producers: entitled to compensation for storage gas under their land	Northern: it already owned injected gas once certified; no compensation owed	Held: Northern owned gas inside certificated boundaries by the date of taking; commission erred including in-place gas value
Valuation of future production from Extension Area wells	Producers: should receive value for recoverable reserves (including "continuous feed" long-term production theory)	Northern: producers' right to produce ended at certification; limited pre-certification production only	Held: Producers can only recover value for gas they could have produced before certification (June 2, 2010); commission’s long-term future-production valuation reversed to extent inconsistent
Valuation of gas storage and buffer rights for Extension Area tracts	Landowners: higher per-acre payment for storage/buffer value (e.g., $2,000/acre suggested)	Northern: such value is speculative and should be excluded	Held: Affirmed inclusion and valuation ($125/acre) as supported by some market and leasing evidence; not too speculative
Valuation of eight Extension Area wells	Producers: entitled to replacement or full completion value per well	Northern: only salvage value for remaining casing/equipment was taken	Held: Affirmed salvage-value approach ($5,850 per well) because equipment had been removed and market values treated wells as part of reserves, not separately valuable
Attorneys' fees under Kansas statutes	Landowners/Producers: seek fees under Kan. Stat. §55-1210(c)(3) and §66-176	Northern: statutes don't apply to NGA condemnation and facts here	Held: Affirmed denial—neither statutory provision applies to these NGA condemnation proceedings

Key Cases Cited

United States v. Miller, 317 U.S. 369 (establishes valuation as of date of taking)
Anderson v. Beech Aircraft Corp., 699 P.2d 1023 (Kan. 1985) (injector without authority loses title to injected gas under rule of capture)
Union Gas System, Inc. v. Carnahan, 774 P.2d 962 (Kan. 1989) (certificate authority fixes injector’s title prospectively from certification date)
N. Nat. Gas Co. v. Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., 217 P.3d 966 (Kan. 2009) (pre-1993 migrated gas belonged to landowners under ownership-in-place doctrine; §55-1210 altered that rule prospectively)
N. Nat. Gas Co. v. ONEOK Field Servs. Co., 296 P.3d 1106 (Kan. 2013) (§55-1210 abolishes rule of capture for gas migrating within or to adjoining strata inside certificated areas, but preserves it for gas migrating beyond those bounds)
United States v. 179.26 Acres of Land, 644 F.2d 367 (10th Cir. 1981) (standard of review for commission findings in condemnation)
United States v. 2,560.00 Acres of Land, 836 F.2d 498 (10th Cir. 1988) (deference to commission on sharply conflicting evidence)