Northern Natural Gas Company v. Tract No. 1062710 et al

Filing 1100

MEMORANDUM AND ORDER granting 1079 Motion for Summary Judgment; denying 1081 Motion for Ruling; denying 1090 Motion to Amend/Correct. Signed by District Judge J. Thomas Marten on 3/29/2019. (sz)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
NORTHERN NATURAL GAS CO.,
Plaintiff,
v.
APPROXIMATELY 9117.53 ACRES in Pratt,
Kingman, and Reno Counties, Kansas,
as further described herein;

No. 10-1232-JTM

TRACT NO. 1062710, containing 80.00 acres
more or less, located in Kingman County,
Kansas, and as further described herein,
et al.,
Defendants.

MEMORANDUM AND ORDER

This condemnation action is before the court on competing dispositive motions by
plaintiff Northern Natural Gas (Dkt. 1079) and the defendants (Dkt. 1081). After
submitting the matter for consideration by Special Commissioners, the court first
awarded compensation for Northern’s condemnation of oil and gas rights in 2015 (Dkt.
1000, 1014). This award was modified on appeal by the Tenth Circuit, substantially
diminishing the award owing to defendants. (Dkt. 1046).
Following the appeal, this court conducted a January 8, 2018 hearing to determine
the issues remaining in light of the Tenth Circuit’s order. The court rejected the
defendants’ argument that the matter should be deferred pending the resolution of

ongoing state litigation. (Dkt. 1060, at 2). After further argument, the court then issued a
new Order (Dkt. 1076) which comprehensively summarized the status of the litigation.
In the Order, the court again concluded (id. at 4-5) that it was bound by the
conclusions of the Tenth Circuit, and was not free to defer additional rulings in the
possibility that new decisions by the Kansas state courts may alter the legal landscape.
The court further concluded that the calculation of just compensation must exclude the
value of Northern’s storage gas is the 2010 Extension Area on the date of taking, and that
“the amount of the award attributable to that storage gas can be determined with
reasonable accuracy from the existing record and from the factual finding of the
Commission without a retrial of the case.” Id. at 9.
The court identified the following issues remaining in the action: (1) the amount
of just compensation (reducing the value of the award by the amount of storage gas); the
amount, if any, which Northern might set off against that award; and (3) any other
potential adjustments to the award, including the amount of interest. Id. at 10. The court
directed the parties to file dispositive motions on those remaining issues, and they have
done so. The court has reviewed those submissions and the extensive record, and finds
that the record supports an award of compensation as provided herein.
Summary judgment is proper where the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, show there is no
genuine issue as to any material fact, and that the moving party is entitled to judgment
as a matter of law. Fed.R.Civ.P. 56(c). In considering a motion for summary judgment,
2

the court must examine all evidence in a light most favorable to the opposing party.
McKenzie v. Mercy Hospital, 854 F.2d 365, 367 (10th Cir. 1988). The party moving for
summary judgment must demonstrate its entitlement to summary judgment beyond a
reasonable doubt. Ellis v. El Paso Natural Gas Co., 754 F.2d 884, 885 (10th Cir. 1985). The
moving party need not disprove plaintiff's claim; it need only establish that the factual
allegations have no legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812
F.2d 1319, 1323 (10th Cir. 1987).
In resisting a motion for summary judgment, the opposing party may not rely
upon mere allegations or denials contained in its pleadings or briefs.

Rather, the

nonmoving party must come forward with specific facts showing the presence of a
genuine issue of material fact for trial and significant probative evidence supporting the
allegation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Once the moving party
has carried its burden under Rule 56(c), the party opposing summary judgment must do
more than simply show there is some metaphysical doubt as to the material facts. "In the
language of the Rule, the nonmoving party must come forward with 'specific facts
showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)) (emphasis in Matsushita).
One of the principal purposes of the summary judgment rule is to isolate and dispose of
factually unsupported claims or defenses, and the rule should be interpreted in a way
that allows it to accomplish this purpose. Celotex Corp. v. Catrett, 477 U.S. 317 (1986).

3

Having reviewed the extensive record, the court finds that a sufficient basis for
determining just compensation exists. The Commission’s Report makes findings as to the
amount of recoverable gas (both native gas and storage gas) present in the 2010 Extension
Area on the Date of Taking, the amount of recoverable gas in the 3,040 Acres subject to
Northern leases on the Date of Taking, and a methodology for calculating just
compensation. The Report (Dkt. 888) identifies the underlying data used in its
calculations.
Included in the evidence submitted to the Commission was the testimony of Dr.
Paul Boehm. The Commission found Dr. Boehm’s evidence persuasive, particularly with
reference to the amount of native gas in the extension area. (Dkt. 888, at 33 n. 18). This
court and the Tenth Circuit have also relied on Dr. Boehm’s conclusions. See N. Nat. Gas
Co. v. L.D. Drilling, No. 08-1405 (Dkt. 420, at 14-16) (noting that “Defendants have cited
no gas composition evidence to contradict Dr. Boehm’s opinions”); N. Nat. Gas Co. v. L.D.
Drilling,, 697 F.3d 1259, 1267 (10th Cir. 2012) (Dr. Boehm’s report provided “strong and
clear evidence that ... wells even in the northern portion of the expansion area [are]
producing primarily storage gas, even though some of those wells are more than 6 miles
from the underground fault”).
The plaintiff also attaches to its motion an affidavit by its expert Randal Brush,
who advances several conclusions based upon his own expertise, publicly
availableinformation, evidence submitted to the Commission, and the Commission’s
Report to determine the economic value of oil and native gas for the 2010 Extension Area.
4

(Dkt. 1080 Exh. 1, at ¶¶ 7, 13-14). Brush’s methodology takes the same approach as that
used by the Commission in the August 26, 2014 Report to the court, which indicated that
the Extension Area outside the Northern leases contained some 2.89 Bcf of recoverable
gas. (Dkt. 888). The court has carefully reviewed the underlying materials, and finds that
Brush’s calculations present reliable and persuasive portrait of the oil and native gas, and
that his conclusions are further evidence to support the condemnation judgment.
From the total volumes as determined by the Commission and by the court, Brush
subtracted the gas underlying the Northern lease and the escaped storage gas located
under the 2010 Extension Area on the Date of Taking. Using the same methodology
employed by the Commission, Brush calculated the value of the economically
recoverable native gas and oil under the tracts with wells in the 2010 Extension Area.
Having determined the amount of recoverable native gas for producing wells in
the relevant area, Brush determined the amount of cash flow, with allowances for taxes,
operating costs and appropriate discounts, to arrive at a value of economically
recoverable oil and gas for each producing well. These calculations establish that only the
following wells contained native gas in economically recoverable amounts:
Table 1
Tract
4232611
2262611
4242611
1232611
3302610

Well

Value ($)

Meireis 1-23
Young 1 & 1-26
Zink B
Schwertfeger 1-23
Branscom 1

12,720
30,840
11,610
123,630
29,650
5

2312610

McGuire 1-31

76,630

The Producers raise several objections to these conclusions. Primarily, they argue
that, because the court had previously ruled (Dkt. 810) that compensation would be
awarded for both storage and native gas, they “were not afforded the opportunity” to
present evidence before the Commission as to the amount of native gas n the Extension
area. (Dkt. 1086, at 4). The Producers also complain that the issue of native gas as
documented by Dr. Boehm manifests itself in only “[a] single footnote in the
Commissioner’s Report.” (Dkt. 1081, at 4).
The Producers have failed to show that they were prevented from presenting
evidence as to the amount of native gas in the Extension area. All of the citations to the
Commission hearing (Dkt. 1081 at 5-7) are simply instances in which Commissioner
Broomes overruled objections to evidence discussing native gas. Evidence of native gas
was admitted because it was integral to Dr. Boehm’s calculations as to the amount of
native gas. (Tr. Vol. 2 at 317).
Thus, although the instructions issued by the court provided that compensation
was to be based on the total amount of recoverable gas, the native gas in the Extension
area remained essential to the Commission’s methodology and calculations. Producers
had ample motivation to present their own evidence of native gas to counter the
testimony of Dr. Boehm. They did not present evidence before the Commission, and,
indeed, present no Statement of Facts in their Dispositive Motion (Dkt. 1081) and present
6

no new evidentiary materials as to the amount of native gas in their Response (Dkt. 1086)
to Northern’s Statement of Uncontroverted Facts.
The court also rejects the Producers’ argument that these conclusions as to the
paucity of native gas find no substantial grounding in the Commission’s Report.1 The
Commission observed that “the pressure and production data clearly showed that there
simply could not be a large volume of gas in the 2010 Extension Area supporting
production from the wells therein.” (Dkt. 888, at 33). In particular, the court noted exhibits
from Brush revealing “an uncanny relationship between production rates for the 2010
Extension Area wells and the pressure in the Cunningham Field,” including one exhibit
which “showed an extraordinary correlation between field pressure and production rate
from the 2010 Extension Area, with the overall rate of Viola production from the relevant
wells rising and falling in virtual lock-step with pressure in the storage field.” Id.
It is in the course of this discussion that the Commission explicitly references Dr.
Boehm’s conclusions:

Northern also presented evidence of gas compositional analysis performed
by another expert, Dr. Paul Boehm. Dr. Boehm observed that native Viola

The Commission documented the absence of purely native gas in the Extension Area
before the beginning of the Cunningham Storage Field. Citing Dr. Boehm, the
Commission expressly noted a 1985 “gas sample … was almost entirely storage gas,
which would be unexpected if the 2010 Extension Area contained a large volume of native
gas prior to fill-up of the Cunningham Storage Field.” (Dkt. 888, at 18 n. 5). The
Commission characterized as “reasonable and supported by the evidence” Dr. Brush’s
view that the “no appreciable volumes of gas existed within the Viola in the 2010
Extension Area prior to commencement of storage operations in 1978. Id. at 17.
1

7

gas could be analytically distinguished from storage gas based on the fact
that the native gas contained helium, while storage gas did not. By
measuring the helium content of gas samples from wells in the 2010
Extension Area, Dr. Boehm was able to quantify the percentage of native
gas in each sample. His analysis showed that wells located near the center
of Cook’s gas location map rapidly transitioned from producing
measurable amounts of native gas to essentially 100% storage gas, while
wells located near the boundaries of Cook’s gas location map tended to
show a much slower transition from native gas to storage gas. This behavior
was consistent with a small volume of gas accumulating in the 2010
Extension Area, the composition of which was rapidly changing from some
combination of native and storage gas to almost all storage gas as
production in that area increased. A slower transition in wells located on
the flanks of Cook’s gas location map was likewise consistent with native
gas being pushed toward the outer boundaries of the accumulation area as
storage gas continued to migrate up from the south. Conversely, had the
2010 Extension Area contained a large accumulation of native gas prior to
migration, the rate of compositional change in the gas samples would have
been much slower as storage gas diluted the larger volumes of heliumcontaining native gas.
Id. at 33 n. 18 (record citations omitted).
In reaching its conclusions, the Commissioner directly rejected the opinions of
defendant’s expert Rod Andersen, finding his approach “riddled with fatal flaws,” and
that given “the abundance of contradictory evidence” his conclusions were “unworthy
of belief.” Id. at 29, 34. In contrast, the Commission accepted the testimony of Dr. Boehm
(Dkt. 891, 892), and used his analysis (which included calculation as to native gas) in
reaching its compensation award. The court finds no grounds for concluding that the
compensation award for native gas at the time of taking should be other than the amounts
previously indicated.

8

The Producers do put forward alternative calculations (Dkt. 1081, at 9-16) for the
native oil and gas in the Extension area. However, the court finds these do not provide
any reliable basis for determining just compensation. Against accepted industry
methodology, the Producers’ calculations consider separately native oil and gas in the
valuation process, rather than considering the economic viability of each well as a
producing unit. Their estimate of oil values is particularly unreliable because these are
set forth without allowing for the costs of oil production, and rest on an assumption that
such oil would be recovered without reference to reduced gas recovery from Northern
leased tracts. The court finds that defendants have filed to show a reliable basis for
estimating the value of native oil in the Extension area.2
Similar concerns exist as to Producers’ suggestions as to the value of native gas in
the Extension area. Those suggestions rest on calculations which deviate from the
methodology approved by the Commission. “Recognizing the physical reality that the
2010 Extension Area has always been, and will probably always be, in pressure
communication with the Cunningham Field,” the Commission observed, “the
appropriate way to value the oil and gas reserves therein on the Date of Taking is by
allocating those reserves to the wells from which they would ultimately be produced with
the aid of pressure support from the Cunningham Field.” (Dkt. 888, at 55).

In this respect the court finds persuasive the analysis of Randal Brush. See Aff., at ¶¶ 18-25 Dkt.
1085-2.
2

9

The Producers’ substitute methodology is not reliable, containing errors similar to
those in their estimates of oil values, and further exaggerating recovery by sharing costs
with storage gas which is not subject to compensation.3 In sum, the court finds no reliable
evidence which would undermine the valuations for native gas set forth previously.
The court finds that Northern is entitled to set off for storage gas produced after
the June 2, 2010 FERC certificate. Such a set off is appropriate under Union Gas Sys., Inc.
v. Carnahan, 245 Kan. 80, 88, 774 P.2d 962 (1989). In that case, the court agreed that a set
off may be appropriate for the subsurface migration of minerals after certification but
before condemnation.
The court in Union Gas addressed the contention that the district court had erred
in failing to set off from the compensation award for the value of Union’s migrated gas
taken after certification (on January 13, 1986). The court wrote:

[T]he question remains as to [Union’s] rights to its own gas from January
13, 1986, to April 9, 1987. Since Union established itself as a public utility
and was authorized to store its gas underground by the Commission
certificate issued on January 13, 1986, it thereafter acquired a changed
status. Its operation was given official sanction and its gas was identified.
Thereafter it became an exception to the rule of capture expressed in
Anderson [v. Beech Aircraft Corp., 237 Kan. 336, 699 P.2d 1023 (1985)].
Cross-appellants, relying on the rule of capture, legitimately took
advantage of Union's pressurizing the Squirrel horizon under the DeTar
land without authority and recovered both previously unrecoverable
native gas and Union's injected gas which had migrated onto the DeTars'
property. They then sold the gas to Salem and Scissortail, who in turn sold

3

Brush Aff., at ¶¶ 26-33.

10

it to Williams, who then sold it to Union for reinjection into the North field.
This created a clever circle of purloined production, and a successful one
under the rule of capture as stated in Anderson. But all good things must
eventually come to an end. This scheme ended when Union received its
certificate of authority from the Commission on January 13, 1986. The law
abhors a forfeiture. So, as soon as Union's storage operation became
authorized and its gas identifiable, the gas was no longer ferae naturae and
subject to the rule of capture. The title to Union's captured gas remained in
Union. Thus, Union did not forfeit its natural gas produced after January 13,
1986, even though it acquired no title to the DeTars' property until the date of
taking, April 9, 1987. Consequently, we hold Union is entitled to a setoff for the
value of its injected gas produced by cross-appellants after January 13, 1986. The
value of its gas is the selling price less its share of the cost of production,
including a reasonable rental for the use of the DeTars' land.
245 Kan. at 88-89 (emphasis added).4 The defendants cite to no authority which would
compel a different result, and the court finds no justification for failing to award a set off
on the principles identified in Union Gas.
Accordingly, what remains is to determine the amount of set off. Under Union Gas,
245 Kan. at 89, this amount is “the selling price less its share of the cost of production,
including a reasonable rental for the use of the [owners’] land.” The court concludes the
set off may be appropriately calculated in this case without reference to rental values.
Such rental values take the form of compensation for migrated gas, and may be correctly
awarded as damages given the counterclaims by the Producer and Landowner
defendants in No. 08-1405-JTM and associated cases, which is currently set for trial later
this year.

See also N. Nat. Gas v. L.D. Drilling, 862 F.3d 1221, 1230 (2017) (citing the set off analysis in Union
Gas).
4

11

This conclusion is consistent with the law of the case. In 2011, Judge Brown
determined in the condemnation action that ”[t]he sole purpose of this action will be the
determination of the appropriate enforcement of the Certificate … and the payment of
just compensation to the owners of any property.” (Dkt. 187, at 8-9). Beyond this, any
defendants’ “claims against Northern for occupation or use of their property for storage
gas migrating onto the property between June 2, 2010, and the date of taking of the
property should be asserted, if at all, in an action separate from this condemnation.” Id.
at 8.
Applying this standard, the court finds that an appropriate set off may be
determined on the basis of the record. Calculated on a per tract basis for each interest
owner, Northern is entitled to set off the following amounts for storage gas produced
after the Certification date:

Table 2
Lease
Brown A-1
Geesling 1
Martin 1
Meireis 1-23
Mezger 1&2
Milton 1 LD
Moore 1-27
Stanton 1
Young 1 & 1-26
Zink 1
Zink A
Zink B
CRC 2

Operator

Tract
1352611
1262611
1362611
4232611
4262611
3252611
1272611
2252611
2262611
1252611
1252611
4242611
2012711

LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
LD Drilling
Nash Oil & Gas
12

Set-off
434,960
169,950
344,810
80,730
420,830
21,830
19,280
263,090
399,550
79,460
21,680
7,320
81,190

Holland 1-26
Trinkle 1
Riffey V1-25

Nash Oil & Gas
Nash Oil & Gas
Val Energy

3262611
2362611
4252611

6,540
4,050
26,370

Northern is not entitled to a set off for any of the other tracts in the action.
As a result, Northern owes a compensation award of $0 as to Tracts 2012711,
1252611, 2252611, 3252611, 1262611, 2262611, 4262611, 1352611, 1362611, as its right of set
off for such tracts exceeds the amount of any award. For the remaining tracts, Northern
shall pay as just compensation the amounts shown in Table 3 (attached), which after set
off as provided herein, reflects an award of $1,143,388.
Northern owes interest on this amount from the date of taking until payment at a
rate of 4.75% compounded annually. While defendants challenge this interest rate, the
amount was explicitly awarded by this court in is prior Order (Dkt. 1000, at 55) and was
not challenged on appeal.
Finally, the court notes that the Estate of L.D. Davis has moved (Dkt. 1090) for
certification of the court’s prior Order (Dkt. 1083) for interlocutory appeal. In that Order,
the court denied the Estate’s argument (Dkt. 1068) that it had been improperly substituted
for L.D. Davis following his 2016 demise. The court first determined that it had no
jurisdiction to grant the relief sought, as the substitution was approved by the Tenth
Circuit on August 29, 2016 while the matter was on appeal. Even if it had jurisdiction, the
court observed, it was unlikely to grant the relief sought as the circumstances of the case
presented a strong argument that the Estate had waived any defense of a lack of personal
service. (Dkt. 1083, at 3-4).
13

The court finds that no certification should issue under 28 U.S.C. § 1292(b). The
statute provides that the court can authorize an immediate appeal as to “a controlling
question of law,” if there is “a substantial ground for difference and appeal” and such
appeal “will materially advance the ultimate termination of the litigation.” None of these
requirements is present.
First, the Estate has failed to show that the court’s conclusion as to a lack of
jurisdiction — the decisive factor in the denial of the defendant’s motion — is in any way
a matter open to substantial doubt. The Estate has supplied no authority for concluding
that this court has the jurisdiction to revisit the issue.
Moreover, the court finds no grounds for concluding that a separate appeal would
advance the early termination of this condemnation action. Rather, as noted elsewhere in
this Order, the issues in the condemnation action have been narrowed in the wake of the
Tenth Circuit’s ruling, and the evidentiary record presents a sufficient basis for
determining just compensation.
Any request for reconsideration of the present Order shall comply with the
standards previously adopted by the court. (Dkt. 1000, at 55). Any response to such
request shall comply with the same standards.
The court also takes note of the process previously employed for the adoption of
a final judgment, including the requirement that plaintiff Northern serve copies the
summary judment Order on all unrepresented parties. (Dkt. 1001). Northern is directed
to provide such notice for this Order. The parties shall also work towards completion of
14

an agreed Final Order of Judgment modeled on that entered September 15, 2015 (Dkt.
1013) which is consistent with the conclusions herein.
IT IS ACCORDINGLY ORDERED this 29th day of March, 2019, that the defendant
Estate of L.D. Davis’s Motion for Certification (Dkt. 1090) is denied, as is defendants’
Dispositive Motion (Dkt. 1081); plaintiff’s Motion for Summary Judgment is granted as
provided herein.

/s/J.Thomas Marten
J. Thomas Marten, Judge

15

Table 3

Just Compensation Owed Per Tract
Tract

Just Compensation ($)

2062710
3062710
1012711
4012711
1022711
2022711
3022711
4022711
5022711
1032711
2032711
4032711
5032711
1042711
2042711
1092711
1102711
3102711
6102711
1222611
2222611
3232611
4232611
5232611
1242611
2242611
3242611
4242611
4252611
3262611
1272611
2272611
3272611
4272611
5272611
3332611

10,125
24,360
32,975
10,000
9,966
17,531
2,375
8,436
1,504
17,380
19,900
12,500
10,000
19,925
20,000
20,000
10,000
10,000
20,000
20,000
20,000
234
13,308
973
20,000
20,000
20,000
27,291
8,509
20,485
3,717
10,004
31,350
33,350
9,998
10,000
16

4332611
1342611
2342611
3342611
4342611
5342611
2352611
3352611
4352611
5352611
2362611
3362611
1302610
2302610
3302610
4302610
1312610
2312610
3312610
1232611
3152711

10,000
20,000
10,000
10,000
20,000
20,000
20,000
10,000
10,000
23,000
30,834
23,000
19,750
18,375
62,654
9,625
19,500
82,484
19,500
157,486
984

17