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

Filing 941

MEMORANDUM AND ORDER. Signed by District Judge Monti L. Belot on 02/04/2015. (aa)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

NORTHERN NATURAL GAS COMPANY,

)
)
Plaintiff,
)
)
v.
)
)
APPROXIMATELY 9117 ACRES IN PRATT, )
KINGMAN, AND RENO COUNTIES,
)
KANSAS AND AS FURTHER DESCRIBED
)
HEREIN;
)
)
TRACT NO. 1062710
)
CONTAINING 80.00 ACRES MORE OR
)
LESS, LOCATED IN KINGMAN COUNTY,
)
KANSAS, AND AS FURTHER DESCRIBED
)
HEREIN; ET AL.,
)
)
Defendants.
)
)

CIVIL ACTION
No.

10-1232-MLB-DWB

MEMORANDUM AND ORDER
This action to condemn property was brought by Northern Natural
Gas Company under the authority of Natural Gas Act, 15 U.S.C. §
717f(h). The action was prompted by evidence that natural gas injected
into Northern’s underground storage field near Cunningham, Kansas, was
migrating out of the storage area and was being produced by wells to
the north of the field. Northern obtained authority from the Federal
Energy Regulatory Commission (FERC) to acquire certain property rights
in this adjacent “2010 Extension Area.”
The property to be condemned includes two underground formations
(the Simpson and the Viola) underlying some 9,200 acres in the
Extension Area. It also includes some surface rights and several well
bores, which Northern has taken to implement a water injection plan
to reduce gas migration. The court previously granted Northern’s

motion for immediate possession of the property being condemned. Doc.
464. The parties claiming interests in the various tracts taken by
Northern include, among others, landowners, mineral interest owners,
and oil and gas operators who had producing gas wells in the 2010
Extension Area.
Pursuant to Fed. R. Civ. P. 71.1, the court appointed a
commission to determine just compensation for the property taken by
Northern.1 Doc. 641. The commission conducted hearings over a six week
period with extensive testimony from a number of expert witnesses.
Closing arguments were held on June 3-4, 2014, and the commission
filed a report of its findings on August 26, 2014. Doc. 888.
The matter is now before the court on the parties’ objections
to the commission’s report and their responses to other parties’
objections: Northern (Docs. 918, 929); Nash Oil & Gas (Docs. 915,
928);

L.D. Drilling (Docs. 919, 934);

VAL group (Docs. 917, 930);

Pratt Well Service group (Doc. 920); Huff landowner group (Docs. 916,
931); Meireis landowner group (Docs. 921, 932); Hudson landowner group
(Docs. 923, 933); and the Miller trust (Doc. 924).
Some of the briefs merely adopt by reference objections made by
other parties. The court will discuss herein only the briefs with the
original objections.

1

The members of the commission are: Randy B. Miller, PE, a
petroleum reservoir engineer with 38 years’ experience; Michael D.
Herd, an attorney experienced in real estate and oil and gas law;
Dwayne McCune (alternate commissioner), an experienced petroleum
engineer; and the commission chair, John W. Broomes, an attorney with
an undergraduate degree in petroleum engineering who specializes in
oil and gas matters.
-2-

Table of Contents
I. Summary of the report

. . . . . . . . . . . . . . . . . . . -4-

II. Standards . . . . . . . . . . . . . . . . . . . . . . . . . -5III. Objections . . . . . . . . . . . . . . . . . . . . . . . . -6Northern Natural Gas Co. objections (Doc. 918) . . . . . . -61. Compensation for gas owned by Northern . . . . . . -62. Whether the commission deviated from the instructions by
assigning the gas reserves to tracts with wells
. . . . . . . . . . . . . . . . . . . . . . .
-103. Whether the commission failed to consider how the
hydrocarbons impacted fair market value of the tracts
. . . . . . . . . . . . . . . . . . . . . . .
-134. Whether compensation for buffer value is contrary to the
instructions . . . . . . . . . . . . . . . . .
-165. Northern’s ownership of Tract 2312610 . . . . .
-216. Northern’s asserted ownership of gas located on
“adjoining property.” . . . . . . . . . . . .
-22Nash Oil & Gas objections (Doc. 915) . . . . . . . . . .
-241. Whether the commission erred in determining the volume
of gas in the Extension Area on the date of taking
. . . . . . . . . . . . . . . . . . . . . . .
-242. Whether the commission violated the project enhancement
rule by failing to award the producers $1 million per
month in lost gas production . . . . . . . . .
-293. Whether the commission erred in failing to award Vision
Investments of Pratt, LLC, compensation for lost
transportation income . . . . . . . . . . . .
-30L.D. Drilling, Inc. objections (Doc. 919) . . . . . . .
-321. Whether the commission erred in rejecting the continuous
migration theory . . . . . . . . . . . . . . .
-332. Whether the commission erred in excluding the Zink A1
well . . . . . . . . . . . . . . . . . . . . .
-39VAL Energy group objections (Doc. 917) . . . . . . . . .
-411. Whether the commission erred in valuation of eight well
bores taken by Northern . . . . . . . . . . .
-41Pratt Well Service (PWS) group objections (Doc. 920) . .
-431. Whether the commission erred by failing to award
compensation for PWS’s loss on its contract with Lumen
. . . . . . . . . . . . . . . . . . . . . . .
-43Huff group objections (Doc. 916) . . . . . . . . . . . .
-441. Whether the commission erred in considering Northern
storage leases as evidence of fair market value of
buffer acreage . . . . . . . . . . . . . . . .
-442. Whether the commission improperly rejected the Brehm
Field leases . . . . . . . . . . . . . . . . .
-473. Whether the commission erred by finding that all of the
wells were shut in as a result of the impending
condemnation . . . . . . . . . . . . . . . . .
-50Miller Trust objections (Doc. 924) . . . . . . . . . . .
-511. The Miller Trust objects to the valuation of tract
-3-

4012711
IV. Conclusion

. . . . . . . . . . . . . . . . . . .

-51-

. . . . . . . . . . . . . . . . . . . . . . .

-52-

I. Summary of the report.
The basic findings of the commission were as follows. The
evidence showed there was about 4.55 BCF of gas within the Extension
Area on the date of taking. The property taken by Northern should be
valued based on that total. The recoverable portion of those reserves
should be allocated to the wells which, but for the condemnation,
would have produced them with the aid of pressure support from the
Cunningham storage field. As a result, the gas reserves have been
assigned to the Extension Area tracts with existing Viola wells.
Because 80% of the 4.55 BCF of gas was recoverable, 3.64 BCF of gas
is allocated to those existing Viola wells. Based on historical levels
of production, it would have taken 13.76 months to produce 3.64 BCF
of gas. Using historical production figures, the commission determined
a net present value (discounted at 10%) of each Viola well in the
Extension Area using the 13.76 month production period. The result,
which totals about $5.95 million, is set forth in Exhibit 3 attached
to the commission’s report.
The commission also found that the highest and best use of the
Extension Area tracts included use of the Viola and Simpson formations
as buffer acreage for a gas storage field. The commission found the
storage lease potential of the properties added $125 per acre to their
overall fair market value. This results in a finding that Northern
owes total compensation of just over $1 million for the buffer acreage
value of the Extension Area properties taken in condemnation. The

-4-

value for each individual tract is listed in Exhibit 3 attached to the
report.
For each of the eight Extension Area wells taken by Northern, the
commission found Northern owes compensation for the salvage value of
the well equipment. It found the salvage value to be $5,850 for each
well, for a total of $46,800.
As for surface takings, the commission concluded that total
compensation in the amount of $175,540 is owed, in addition to
compensation for surface damages in the amount of $51,000. The
commission also awarded $278,190 for the taking of buildings or other
structures.
The total compensation found by the commission to be owing by
Northern for its taking of the defendant property is $7,310,427.

II. Standards.
Action on the commission’s report is governed by Rule 53(f). See
Fed. R. Civ. P. 71.1(h)(2)(D). In acting on the report, the court must
give the parties notice and an opportunity to be heard. Fed. R. Civ.
P. 53(f)(1). The court has given all parties an opportunity to file
written objections and written responses to objections of other
parties. No party has requested an evidentiary hearing or oral
argument. That is not surprising given the extensive hearings already
conducted by the commission, which consisted of more than a one-month
period of evidentiary hearings followed by two days of oral argument.
Under the circumstances the court concludes that further hearings are
unnecessary and the objections are ripe on the record now before the
court.
-5-

The court must decide de novo all objections to conclusions of
law made or recommended by the commission. Fed. R. Civ. P. 53(f)(4).
Objections to the commission’s factual findings will likewise be
reviewed

de

novo

inasmuch

as

the

parties

have

not

stipulated

otherwise. Fed. R. Civ. P. 53(f)(3). Any commission ruling on a
procedural matter is reviewed only for abuse of discretion. Fed. R.
Civ. P. 53(f)(5).
The court may receive evidence; it may adopt or affirm, modify,
wholly or partly reject or reverse, or resubmit the report to the
commission with instructions. Fed. R. Civ. P. 53(f)(1).
III. Objections.
Northern Natural Gas Co. objections (Doc. 918).
1. Compensation for gas owned by Northern. Northern contends the
Commission improperly required it to pay for storage gas that Northern
already owned on the date of taking.
In February of 2009, Northern obtained storage leases on about
3,040 acres in the southern part of the 2010 Extension Area. No
producing wells were located on this acreage. On June 2, 2010,
Northern obtained a FERC certificate authorizing expansion of the
Cunningham Storage Field’s buffer zone to include the entirety of the
2010 Extension Area, including the afore-mentioned 3,040 acre portion.
The 3,040 acre portion, having already been acquired by Northern, was
not included in this condemnation proceeding.
The commission found that a total of 0.935 BCF of gas was located
in Northern’s 3,040 acres on the date of taking. It assigned the value
of the recoverable reserves (i.e. 80% of 0.935 BCF) to condemned
tracts with producing wells within the Extension Area. Northern
-6-

contends it had title to the gas in the 3,040 acre area and argues the
commission’s award contradicts Kansas law. According to Northern,
Kansas courts have applied the following formula for determining
storage gas ownership: “certificate authority + compensation = legally
recognized storage area with protected storage gas.” Northern argues
there is no distinction between its undisputed title to storage gas
within the original certified boundaries of its storage field and its
ownership of gas in the 3,040 acre portion of the certified Extension
Area. Northern asks the court to resubmit the report to the commission
with directions to exclude this 0.935 BCF of gas from the condemnation
award. (Doc. 918 at 6).
At first glance Northern’s argument has some appeal because it
seems strange that Northern should have to compensate others for
“taking” storage gas located on Northern’s own leases. But this is a
consequence of the rule of capture, as applied in ONEOK, and its
effect upon the fair market value of the nearby gas-producing property
that

was

taken

by

Northern.

Some

of

the

tracts

acquired

in

condemnation had producing wells, and in determining the value of
those tracts the commission necessarily had to consider the productive
potential of the wells -- exactly what a buyer or seller of those
tracts would do. See e.g. United States v. 2,560 Acres of Land, More
or Less, Situated in Washington Co., Okla., 836 F.2d 498, 503 (10th
Cir. 1988). The wells’ potential depended on a number of variables,
including the estimated available reserves, the cost and feasibility
of production, the likelihood of others capturing the reserves, and
the legal obstacles or other risks to continued production. Under the
rule of capture, defendants’ wells could lawfully draw in and produce
-7-

gas from the 3,040 acre area irrespective of Northern’s leases. For
reasons explained by the commission, that gas probably would have been
produced by defendants’ wells were it not for the condemnation. The
gas in Northern’s 3,040 acre leased area was thus properly considered
by the commission as a factor affecting the fair market value of the
tracts taken by Northern.
Northern’s argument against this outcome is basically a legal
one: that the rule of capture ceased to apply on its own acreage once
Northern obtained the FERC certificate. In support Northern cites
K.S.A. § 55-1210(a), which “gives an injector title to gas injected
into its legally recognized storage area.” Northern Nat. Gas Co. v.
ONEOK Field Svcs. Co., 296 Kan. 906, Syl. ¶ 6, 296 P.3d 1106 (2013).
Northern’s theory is that the protection of §55-1210(a) applied to the
tracts leased by Northern once it acquired the FERC certificate, and
(presumably) that the protected area would then grow on a tract-bytract basis if Northern obtained additional storage leases within the
certified Expansion Area. This theory, however, is unsupported by any
statutory

language

or

case

law.

Nor

is

it

a

feasible

way

of

determining title to storage gas.
As the court discussed in a prior ruling, the Kansas Storage Act
was premised on an assumption that the condemnation of an area for
storage would occur prior to commencement of storage operations. Doc.
810 at 13. In a similar vein, Kansas courts seem to construe §551210(a) as protecting an injector’s title to storage gas only after
the injector has obtained storage rights for the certified area. See
Doc. 810 at 24 (discussing development of Kansas law). This is
suggested by ONEOK’s construction of the statute. Section 55-1210(a)
-8-

protects

an

injector’s

title

to

gas

based

upon

the

certified

boundaries of the storage field. The ownership rights applicable to
“adjoining property” under §55-1210(c) are likewise tied to the
field’s

certified

boundaries.

As

a

practical

matter,

then,

the

statutory protection presumes the injector has already obtained
storage rights for the area encompassed by the field’s certified
boundaries. See ONEOK, 296 Kan. at 932 (§55-1210(a) gives injector
title to gas in its legally recognized storage area, but not to gas
that has migrated outside the injector’s certified storage area). The
only way of applying this provision, as far as the court can tell, is
to look to the boundaries of the field after the injector has acquired
all storage rights within the certified area that are required to
operate the field, irrespective of whether the rights were acquired
by lease or condemnation.
Northern’s tract-by-tract alternative is simply not a workable
basis for determining storage gas ownership. As a practical matter the
geographic protection afforded by §55-1210(a) and 55-1210(c) is tied
to the field’s boundaries, and it must be understood as commencing
only after the injector has acquired all of the storage rights needed
to effectively operate the certified area. Northern’s “patchwork”
alternative would make ownership of storage gas nearly impossible to
determine.
Because Northern had storage rights to only about 30% of the
Extension Area, the court concludes that §55-1210(a) did not preclude
the rule of capture in any part of the 2010 Extension Area -including the 3,040 acre southern portion. Northern’s possession of
a FERC certificate did not change that fact. Cf. Northern Nat. Gas Co.
-9-

v. ONEOK, Dist. Ct. Case No. 2009 CV 111, Slip Op. at 26 (30th Jud.
Dist., Aug. 15, 2014) (“Northern had no ownership interest in any
storage gas that was produced from the 2010 buffer zone.”); Doc. 810
at 25 (“the issuance of a regulatory certificate from FERC works no
instantaneous change of ownership in storage gas under Kansas law.”).
And

because

that

gas

was

subject

to

the

rule

of

capture,

the

commission did not contradict Kansas law in considering the value of
it when assessing the fair market value of the Extension Area well
tracts.

2. Whether the commission deviated from the instructions by
assigning the gas reserves to tracts with wells. Northern further
contends the commission contradicted the court’s instructions by
assigning the value of all gas reserves to the tracts with producing
wells.

Northern

contends

the

Commission

must

allocate

all

the

Extension Area Viola reserves to the particular tracts under which
they were located on the date of taking. Doc. 918 at 7-8.
Northern’s argument again falters on the nature of the rule of
capture. It is true that Kansas considers landowners to have a vested
property right in the oil and gas under their land. Mobil Oil Corp.
v.

Kansas

Corp.

Comm’n.,

227

Kan.

594,

608

P.3d

1325

(1980).

“Petroleum and gas, so long as they remain in the ground, are a part
of the realty. They belong to the owner of the land, and are a part
of it, so long as they are on it,...” Lanyon Zinc Co. v. Freeman, 68
Kan. 691, 696, 75 P. 995 (1904).

But surrounding property owners can

capture and produce that gas. Id. at 696 (When [oil and gas] escape,
and go into other lands, ... the title of the former owner is gone.”).
-10-

See also Northern Nat. Gas Co. v. Martin, Pringle, Oliver, Wallace &
Bauer, LLP, 289 Kan. 777, 217 P.2d 966 (2009). Because the gas in the
Extension Area was subject to being captured by others, the market
value of each tract at any given time would reflect the likelihood
that the gas reserves would be recovered on that tract. Part of that
calculation was whether it was economically feasible to drill a well
to capture the reserves. If it was not, then the gas would add nothing
to the fair market value of the land where it was located. But it
would add to the value of a tract with an existing well that could
capture it. See National Fuel Gas Supply Co. v. Cunningham Nat. Gas
Corp., 145 Misc.2d 825, 833, 548 N.Y.S.2d 588 (N.Y. Sup. 1989),
modified in part, 174 A.D.2d 991, N.Y.S.2d 152 (1991) (rejecting
condemnor’s “picket fence argument” that claimant could only recover
for gas in place within the boundaries of the surface parcel).
Northern relies on the ownership-in-place doctrine to argue that
the gas under each tract had little or no value because it would have
been uneconomical for each tract owner to drill a well to capture the
gas under that tract. That may be true as far as it goes.2 But because
the rule of capture allowed wells on other tracts to draw in and
produce the reserves, those reserves could (and would) affect the
market value of property rights appurtenant to those other tracts.
Even though tract owners with wells could not claim a vested interest

2

Aside from a lack of evidence that the drilling of new wells
would have been economical, the commission noted there was no evidence
that any tract owner without a well was preparing to or had any
intention of drilling a well, nor was there evidence that any buyer
was likely to acquire the tracts and operate them as a unit. Doc. 888
at 56.
-11-

in such gas reserves, the fair market value of the well tracts would
factor in the amount of reserves those wells were likely to produce.
See e.g. Doc. 893 at 793 (testimony of Tom Cook noting that oil and
gas leases are sold based on the amount of reserves); National Fuel,
supra; Cal-Bay Corp. v. United States, 169 F.2d 15, 18 (9th Cir. 1948)
(“An oil and gas lease with a proven discovery of gas in paying
quantity but speculative as to its amount ... has its market value
determined by arms length bargaining of buyers and sellers on the
future income contemplated by each.”). Cf. In re EOG Resources, Inc.,
46 Kan.App.2d 821, 826, 265 P.3d 1207 (2013) (for tax valuation
purposes, the goal is to value the reserves that are in the ground by
discounting income over a period of time to reflect the production
capabilities of those reserves).
The commission’s approach was consistent with the instructions.
It recognized that the rule of capture is a central tenet of oil and
gas production. The commission appropriately considered the rule in
gauging fair market value -- i.e., the amount a willing buyer and
willing seller would agree to in an open market -- for the property
rights taken by Northern. The commission valued those rights on the
date of taking, just as a buyer or seller would, while taking into
account the physical realities of production. Northern’s “divide and
conquer”

approach,

by

contrast,

would

artificially

devalue

the

significant gas reserves that it took by ignoring the ability of other
landowners in the Extension Area to capture them. That approach would
deny just compensation for landowners whose wells, but for the
condemnation, would have captured the gas reserves. Cf. Doc. 903 at
-12-

2977 (Northern’s counsel: “What we are taking on the Date of Taking
is the real estate, and the real estate includes the economically
recoverable hydrocarbons that were in the ground on the Date of
Taking. Nothing more, nothing less.”).

3. Whether the commission failed to consider how the hydrocarbons
impacted fair market value of the tracts. (Doc. 918 at 10).
Northern argues the commission contradicted the instructions and
the “unit rule” by assigning separate values to component parts of the
properties and then adding them together to arrive at fair market
value. In particular, Northern objects to the commission’s addition
of 100% of the value of recoverable hydrocarbons to the base land
value of the well tracts. Northern argues at a minimum the commission
should have discounted the value of the reserves by 15%. It says the
uncontroverted opinions of two certified appraisers was that a 15%
discount was appropriate in determining the hydrocarbons’ impact on
fair market value of the properties. It notes the testimony of
appraiser Bernie Shaner that a 15% discount factor must be applied “as
an entrepreneurial incentive reflecting the impact of the hydrocarbon
value on the fair market value of each individual tract as a whole.”
Doc. 918 at 10-11.
The rationale for the 15% entrepreneurial incentive, as explained
by Mr. Shaner, was as follows. “The probable purchaser[] for these
subject properties, because they are agricultural properties, ... is
going to be a farmer or maybe a hunter,” for whom it would be “a
-13-

burden to take on the economically recoverable gas” in terms of
financing the purchase of the property and/or development of it. These
purchasers would probably not know what to do with the gas, what the
market is, or how to get it sold, so “[i]t’s just not something they
want, typically.” They could buy other agricultural property for far
less money without taking on the added burden from the gas, so “you’ve
got to have a little bit of an entrepreneurial incentive” to get them
to buy this type of property. See Doc. 902, Tr. at 2771-75.
Appraiser James Gardner, who was retained by the Huff group,
testified that oil and gas investors would be likely purchasers of the
gas-producing properties. He said at one point that the market would
apply a discount to the value of the gas reserves for the inherent
risks in producing hydrocarbons. Doc. 906, Tr. at 3745-46. Gardner
indicated he would “probably” apply a 15% discount.

Doc. 907, Tr.

at 3788.3
The commission declined to apply a 15% discount. The report
indicates the commission concluded a discount was not warranted
because the properties were already producing gas out of proven
reserves. Moreover, the commission found that the gas reserves added
value only to those tracts that had existing Viola wells and not to
other tracts. That conclusion undermined Mr. Shaner’s stated rationale
for the entrepreneurial incentive, which was that the discount was

3

Gardner was retained late in the case after appraiser Lee Jones
was unable to continue as a witness for the Huff group. Gardner
adopted Jones’ conclusions. Before the commission, Gardner testified
that if he had been performing the appraisal himself he would have
discounted the gas in place and that “I suspect I’d probably look at
about 15 percent.” Doc. 907, Tr. at 3788.
-14-

necessary

because

the

Extension

Area

tracts

would

typically

be

purchased by farmers for agricultural use. But for the relatively few
tracts with producing wells and proven reserves, there would have been
little or no added burden in terms of development or marketing of the
gas. There was in fact a built-in stream of income from gas sales.
Those particular tracts would have been utilized for oil and gas
production as well as agricultural use, and oil and gas investors
would have been among the prospective purchasers. Northern fails to
explain

why

the

entrepreneurial

incentive

was

necessary

for

established gas-producing properties of this type.
As

for

Mr.

Gardner’s

highly

ambiguous

(and

apparently

hypothetical) opinion about a 15% discount, there is no explanation
in the record why a 15% discount for “inherent risk” would be
appropriate for wells with this production history and potential. That
is all the more true here, where the projected period of production
was limited to a 13-month window in which the wells would produce all
of the recoverable reserves that were in the Extension Area on the
date of taking. The commission effectively addressed and rejected a
risk reduction when it characterized the recoverable reserves in the
Extension Area as proved and producing, and determined from market
survey evidence that the impact on fair market value of the tracts was
100% of the unadjusted value of the reserves.4
Under the circumstances the commission’s refusal to apply a 15%

4

The term “100% unadjusted value” is slightly misleading. The
recoverable reserves represented 80% of the total estimated reserves
in the Extension Area. Additionally, the estimated income stream from
future production was discounted to present value.
-15-

entrepreneurial discount was consistent with the evidence before it
and consistent with its overall method of valuing the well tracts.
Cf. U.S. v. 275.81 Acres of Land, More or Less, Situated in Stonycreek
Tp.,

Somerset

County,

Pa.,

2014

WL

1248205,

5

(W.D.Pa.,

2014)

(commission appropriately applied less of a discount to oil and gas
properties than to other properties). There was evidence before the
commission indicating that the market places distinct values on oil
and gas properties that are producing out of proven reserves, and the
unique circumstances of production behind these particular wells
rendered an entrepreneurial discount inapplicable. See e.g., Brush
Exh. 53.042. Cf. United States v. Corbin, 423 F.2d 821, 829 (10th Cir.
1970) (“Considering the distinct and separate approaches required to
ascertain the values which contributed to the overall value of the
property taken, we cannot say the separate report of each value and
ultimate aggregation thereof with the stipulated value [of the land
itself] was error.”).

4. Whether compensation for buffer value is contrary to the
instructions.
Northern argues the commission’s award of $125 per acre for gas
storage or buffer value is contrary to the instructions and the
evidence. It notes the Commission was instructed to value the property
based on a use independent of the condemnor’s use or need for the
property. Northern says no other storage operator had any interest in
acquiring the Extension Area’s Viola formation and, in any event, the
Extension Area could not be used for storage or as a buffer zone
-16-

absent the water flood project undertaken by Northern. It argues the
use of the Extension Area for storage or buffer zone was “unlikely,
speculative and physically impossible on the Date of Taking,” in
addition to being legally unauthorized. Even if the court finds that
the properties had some value as buffer acreage, Northern argues the
Commission’s addition of $125 per acre to the base value of the land
violated the unit rule. Northern argues the court should instruct the
Commission to award only the $50 per acre buffer value assessed by its
appraiser. Doc. 918 at 13-16.
The

project

enhancement

rule

reflects

a

policy

that

the

government (or other condemnor) must pay the fair market of the
property taken but should not be required to pay “the enhanced price
which its demand alone has created.” United States v. Cors, 337 U.S.
325, 333 (1949). The special value or need of the condemnor for the
property, as distinguished from its value to others, has long been
excluded as an element of market value. Cors, 337 U.S. at 332. Thus,
any enhanced value due to the condemnor’s need for the land is
disregarded. An owner “is not permitted to take advantage of the
necessities of the condemning party.” McGovern v. New York, 229 U.S.
363, 371-72 (1913). “It is the owner’s loss, not the taker’s gain,
which is the measure of compensation....” United States ex rel. TVA
v. Powelson, 319 U.S. 266, 281 (1943). See Northwest Pipeline Corp.
v. 95.02 Acres of Land, more or less, in Power Co., Idaho, 2003 WL
25768634 (D. Idaho, Dec. 19, 2003).
There is a fine distinction, however, between enhanced value from
the condemnor’s need for the property and enhanced value from the
-17-

property’s proximity or relation to an existing improvement. That
point was made by the Supreme Court in a case where the condemnation
of land for a reservoir project required that a railroad line be
moved. When nearby land was condemned for the railroad line, the
owners argued they were entitled to compensation for the enhanced
value of property located near a reservoir. The Supreme Court rejected
this argument because the reservoir project, from the beginning,
contemplated condemnation of nearby land for a railroad line:
If a distinct tract is condemned, in whole or in
part, other lands in the neighborhood may
increase in market value due to the proximity of
the public improvement erected on the land taken.
Should the Government, at a later date, determine
to take these other lands, it must pay their
market value as enhanced by this factor of
proximity. If, however, the public project from
the beginning included the taking of certain
tracts but only one of them is taken in the first
instance, the owner of the other tracts should
not be allowed an increased value for his lands
which are ultimately to be taken any more than
the owner of the tract first condemned is
entitled to be allowed an increased market value
because adjacent lands not immediately taken
increased in value due to the projected
improvement.
United States v. Miller, 317 U.S. 369, 376-77 (1943) (emphasis added).
Miller is certainly not identical to this case. But it lends
legal support for the commission’s view that the value of the
Extension Area as a buffer zone “derives from [its] location near the
Cunningham Field[,] separate and apart from this condemnation action.”
Doc. 888 at 61. There is no evidence that condemnation of the
Extension Area was contemplated within the original plans for the
Cunningham storage field. Under the rule of Miller, then, any enhanced
value from proximity to the existing storage field is a legitimate
-18-

component of market value.
Here the value of the Viola formation in the Extension Area
arises not only from its proximity to the storage field but from its
physical connection to the field. (There is a saying that “geography
is destiny,” but for the Extension Area, its geology is destiny.)
Because the Viola forms a single common reservoir throughout the
Extension Area and the Cunningham Storage Field, neither area is
entirely suitable for gas storage without the other. (Hence Northern’s
need to condemn the Extension Area). But this attribute of the
property does not take on value merely because Northern has a need for
it or because Northern has decided to condemn it. Its value arises
because the character and location of the Extension Area make it
useful -- and have always made it useful -- as a buffer zone for a
storage field comprising both of these areas. See United States v.
W.G. Reynolds, 397 U.S. 14, 16-17 (1970) (if land whose value is
enhanced by a neighboring project “is later condemned, whether for an
extension of the existing project or for some other public purpose,
the general rule of just compensation requires that such enhancement
in value be wholly taken into account....”). If Northern had never
established this field, the entire area would still have had some
value as a potential storage area for some other operator. This is
true, moreover, notwithstanding that effective operation of this
particular field may require some remedial measures, such as water
injection wells, to inhibit migration out of the storage area.
Northern points out that no other storage operator has ever
expressed interest in acquiring storage leases in the Extension Area.
-19-

That is not surprising, however, given that the area is useful for
storage only if operated in tandem with the greater storage field long
held

by

Northern.

No

other

operator

could

effectively

use

the

Extension Area without buying the entire field from Northern. And the
absence of any particular offer to purchase the Cunningham Field does
not prove that the Viola properties at issue lack any market value for
buffer area. The evidence unquestionably showed there is an existing
market for acquisition of underground properties for storage areas,
and the Cunningham Field is a large and functional storage area. The
viable storage and buffer area includes the Extension Area. If some
other operator were to purchase the greater Cunningham Field, it would
surely seek to obtain the Extension Area. That property is viable as
part of a storage field and, under the evidence presented, it has some
market value. Given evidence that there is a national market and
demand for underground storage areas, it is reasonable to infer that
another storage operator likely could obtain the area for storage if
Northern decided to sell it or if Northern were out of the picture.
Although there was no evidence that any other operator had expressed
a current interest in the field, it still is “a reasonable possibility
... that another [operator] could acquire all lands or easements
necessary” to operate the area as a storage field. Cf. Olson v. United
States, 292 U.S. 246, 256 (1934). This reasonable prospective future
use was properly considered by the commission in determining the fair
market value of the properties and the value of the property taken by

-20-

Northern.5
The commission extensively reviewed the evidence concerning the
value of storage leases. It noted evidence that prior to condemnation,
Northern had been leasing acreage in the Extension Area for an annual
rental of $22 per acre. A typical lease at that rate would have a net
present value of $200 per acre, which the commission found to be
higher than justified by comparable sales of property in the area.
Doc. 888 at 68-69. At the other end of the spectrum, it rejected
Northern’s asserted value of $50 per acre because that figure was
based on an assumption that the Extension Area was not useful for
buffer acreage, an assumption contrary to the evidence. The commission
settled on a figure of $125 per acre after considering the unit rule
and the wide range of lease values presented. The commission’s
analysis

on

this

point,

which

the

court

finds

to

be

entirely

reasonable and firmly supported by the evidence, plainly refutes
Northern’s argument that the commission violated the unit rule by
including a $125 per acre payment in the overall fair market value of
the property. The commission applied the unit rule and adjusted the
compensation to reflect the limited overall impact of storage lease
potential on the fair market value of the property.
5. Northern’s ownership of Tract 2312610. Northern bought this

5

Although it would be incompatible to simultaneously use the
Extension Area tracts for gas production and buffer acreage, under
these circumstances gas production is appropriately considered an
interim use of short duration, with use as buffer acreage to follow.
This is so because all the gas currently in the storage area could be
produced in a little over one year, and the potential subsequent use
of the property as buffer acreage is sufficiently proximate to add to
the current market value of the property.
-21-

tract on December 6, 2010. At the time of the purchase it was
ostensibly subject to a lease held by VAL Energy. VAL had operated the
McGuire

1-31

(according

to

well

on

the

Northern)

or

lease

but

either

“temporarily

“ceased

interrupted

producing”
production”

(according to VAL) in July of 2010. The Commission determined that
just compensation for the taking of this tract included $119,690 for
economically recoverable hydrocarbons and $5,850 for salvage value of
well equipment. Northern now argues that it had fee title to any
hydrocarbons and that the award for hydrocarbons should be stricken.
Northern’s argument is part of an issue that will be decided by
the court in the next phase of the litigation. After the amount of
just compensation is settled, the court must determine which interest
owners are entitled to the compensation. At that point it may be
necessary to resolve questions relating to oil and gas leases.
Although as a technical matter Northern’s argument does turn on
whether or not there was any “taking” of the right to capture these
hydrocarbons, that issue will effectively be resolved by the court in
the next phase when it determines who is entitled to compensation.
Accordingly the objection is denied without prejudice.
6. Northern’s asserted ownership of gas located on “adjoining
property.”
Northern

argues

that

because

of

the

protection

afforded

“adjoining property” in K.S.A. § 55-1210(c), and because Northern
obtained a FERC certificate and previously leased (or bought) some of
the property within the Extension Area, “any and all gas that migrated
to property adjoining Northern’s leased or owned property in the 2010
-22-

Extension Area was, by virtue of K.S.A. 55-1210(c), gas that Northern
owned.6 Doc. 918 at 18.
The court previously found that Northern’s possession of a FERC
certificate and its lease (or purchase) of a minor portion of the 2010
Extension Area did not trigger any protection under subsections (a)
or (c) of K.S.A. § 55-1210. Supra at p. 6-8. For the same reasons, the
court rejects Northern’s argument that these same facts triggered
additional “adjoining property” protection within the Extension Area.

6

None of the parties requested an instruction on “adjoining
property” under K.S.A. § 55-1210(c). Nor is the court aware of any
evidence presented to the commission dealing specifically with
migration of gas to or from what Northern now argues is adjoining
property.
Any attempt to instruct on adjoining property likely would have
proved disastrous. That issue potentially implicates not only the
current field expansion, but also the 2008 expansion and even the
original boundaries of the field, all as impacted by the 1993
enactment of §55-1210 and any pre-existing property rights on the
various dates of expansion. Cf. Northern Nat. Gas Co. v. Martin,
Pringle, 289 Kan. 777, 217 P.2d 966 (2009).
In addition to multiple changes to the storage field boundaries
(and corresponding changes to the “adjoining property”) in this case,
and in addition to the unsettled question of when the protection of
§ 55-1210 is triggered, the very term “adjoining property” has not
been clarified by the Kansas courts. For example, application of this
term to partial sections of land within the storage field was
apparently not raised by the parties in ONEOK. But both the original
Cunningham Field boundaries and the 2008 boundaries included onequarter, one-half, and three-quarter sections of land within the
field. Cf. Williams Nat. Gas Co. v. Supra Energy, Inc., 261 Kan. 624,
630, 931 P.2d 7 (1997) (adjoining meant any section adjacent to a
storage field, so “any section of land which touched a section
containing a storage field was adjoining.”). It is apparent from
examination of the storage field map that there can be no simple “one
mile rule” for adjoining property as some of the prior briefs suggest.
The court notes Professor Pierce of Washburn Law School has
commented that a surface-boundary rule of adjoining property, as
applied to an underground storage reservoir, is “artificial and
unworkable” and gives the term “a meaning reality cannot sustain.” See
1 Tex. A&M L. Rev. 79, 83-84 (2014).
-23-

Nash Oil & Gas objections (Doc. 915).
1. Whether the commission erred in determining the volume of gas
in the Extension Area on the date of taking.
Nash argues the Commission erred in estimating the amount of gas
in the Extension Area. It contends the Commission erroneously accepted
Randal Brush’s opinions that the Expansion Area was saturated with
water prior to 1978 and that only 1.4 BCF of gas migrated from the
storage field to the 2010 Extension Area during initial fill-up. Among
other things, Nash cites evidence that the Henrichs well in the
Extension Area consistently produced native gas and Northern’s prior
statement to FERC indicating that about 17 BCF of gas migrated
northward during fill up before the field was stabilized in 1984.
Nash’s selective view of the evidence is far less persuasive than
the comprehensive view taken by the commission. For example, the
commission took account of: the numerous dry holes drilled in the
Extension Area and the well logs prior to 1978; drill stem tests
indicative of non-significant amounts of gas; well logs indicative of
water in the Viola formation; the absence of any structures in the
Extension Area that would have acted as a container for gas; gamma-ray
neutron logs showing gas only in the top few feet of the Viola; data
showing production in Extension Area wells “rising and falling in
virtual lock-step with pressure in the storage field”; and evidence
of defendants’ post-1994 production of over 6 million barrels of water
from the Extension Area and its immediate effect on migration from the
field. See Doc. 888 at 27-36.
All of the foregoing evidence, which Nash does not take into
-24-

account, tends in one way or another to support the commission’s
finding that “the Extension Area was saturated with water prior to
1978” and that “no accumulation of native gas of any consequence
existed there.” Doc. 888 at 35. The existence of a small pocket of
native gas around the Henrichs well, as indicated by the evidence,
would not alter that conclusion. See e.g., Doc. 893, Tr. at 659, 66165, 857.7 Moreover, evidence was presented of a number of dry holes in
and around the Extension Area prior to storage operations, indicating
there was not a significant amount of recoverable gas there at the
time. See e.g., Doc. 893, Tr. at 854-55; Doc. 892, Tr. at 467.
The commission was also persuaded by Randal Brush’s estimate that
about 1.4 BCF of gas migrated to the 2010 Extension Area before
defendants commenced production there. As the commission noted, that
opinion was supported by Northern’s inventory analysis, which the
commission

found

represents

“a

sound,

reasonable

approach

to

quantifying the gas migration out of the Viola within the Cunningham
Field.” Doc. 888 at 28. Brush’s approach was based on differences
between the volume of gas injected into the field and volume of gas
withdrawn from the field, at a given pressure, over a period of time.
As recounted in the commission’s report (Doc. 888 at 13-18),
Brush’s analysis showed that from the beginning of storage operations
in 1978 until a stable field inventory volume was reached in 1984,
7

Nash criticizes the commission’s failure to mention the
Henrichs well in its report. (Doc. 915 at 3-4). There is no
requirement, however, that a commission cite every piece of evidence,
even if one of the parties thinks it is important. See United States
v. Merz, 376 U.S. 192, 199 (1964) (“We do not say that every contested
issue raised on the record before the commission must be resolved by
a separate finding of fact.”)
-25-

field inventory went from about 27 BCF to 44 BCF, indicating a loss
of about 17 BCF from the main storage area between the two underground
faults. About 10 BCF of that shift occurred in the first full year of
operation of the field. Doc. 905, Tr. at 1059. A significant portion
of the loss was later attributed to vertical migration within the
storage field to the Simpson formation, which was eventually condemned
by Northern. See Doc. 893, Tr. at 879. Northern’s witnesses testified
that their subsequent analysis showed that this original migration
moved in several directions, including to the south, to the northwest
toward the Park wells, to the north of the northern fault within the
storage field, to the 2008 Extension Area, and on to the 2010
Extension Area. See e.g. Doc. 894, Tr. at 950-59. The field inventory
remained stable for almost ten years thereafter until defendants began
production from the 2010 Extension Area. Starting around 1995, field
inventory began increasing again, indicating additional loss of gas
from the Cunningham Storage Field. The loss increased as defendants’
production of water and gas from the Extension Area increased. Brush’s
calculations showed a total loss of about 20.7 BCF of gas from the
beginning of stable operations in 1995 until the date of taking. The
inventory analysis showed that, had it not been for defendants’
production of water and gas, the Cunningham Storage Field inventory
would have remained stable at about 44 BCF.
In estimating the amount of gas remaining in the 2010 Extension
Area on the date of taking, Brush started with the foregoing 20.7 BCF
of lost gas (i.e, gas that had migrated from the storage area since
stable operations were lost in 1995), and then subtracted 15.2 BCF,
-26-

which represented defendants’ total gas production from the Extension
Area. That left 5.5 BCF of gas unaccounted for. To determine how much
of the 5.5 BCF went to the 2010 Extension Area, Brush looked at
defendants’ production of 6.3 million barrels of water, and calculated
that removal of that amount of water from the Viola would have been
replaced by 3.15 BCF of migrating gas. The commission noted this was
a conservative estimate in the sense that it assumed water was
replaced entirely by migrating gas, rather than by a combination of
gas and water, which was in fact more likely. The 3.15 BCF would have
been in addition to whatever amount of gas was in the 2010 Extension
Area prior to commencement of defendants’ production in 1995.
In determining the amount of gas in the Extension Area prior to
1995, Brush first assumed that no appreciable volumes of gas existed
in

the

Extension

Area

Viola

prior

to

commencement

of

storage

operations. As the commission noted, that assumption was “reasonable
and supported by the evidence based on the multitude of dry holes and
the available well logs from the 2010 Extension Area prior to 1978.”
See Doc. 888 at 17. Cf. Brush Exh. 10, ¶5 (KCC certifying that no
recoverable native gas of any significance remained in the Viola
formation in the Cunningham Storage Field boundaries). Brush then
calculated the volume of gas that would have been necessary to
increase pressure in the Viola from the approximately 500 psig [pounds
per square inch gauge] existing when primary field production ceased
in the 1970’s, to the approximately 1,150 psig average pressure after
the field was repressurized for storage operations. That calculation
yielded an estimate of 1.4 BCF of gas in the 2010 Extension Area.
-27-

Brush’s estimate of total gas in place in the 2010 Extension Area on
the date of taking was thus 3.15 BCF plus 1.4 BCF, or 4.55 BCF.
Brush’s estimate of the volume of gas remaining in the Extension
Area,

which

attempted

to

synthesize

the

relevant

information,

represents the most reasonable and credible estimate in the record.
Cf. United States v. 179.26 Acres of Land in Douglas County, Ks., 644
F.2d 367, 372 (10th Cir. 1981) (“there can be no absolutes in the
speculative area of oil reserves”; “reliance must necessarily be
placed on expert testimony.”) This is true even though it did not, and
probably could not, account for every bit of available information.8
The commission independently found this estimate to be supported by
the evidence and thoroughly explained why defendants’ competing
theories of gas volume were riddled with errors. See Doc. 888 at 2934. Nash cherry picks a few bits of contrary data but makes no attempt
to reconcile the greater weight of the evidence considered by the
commission. For example, Nash does not explain why production in
Extension Area wells was so dramatically impacted by storage field
pressure if they were in fact producing from a large accumulation of
gas in the Extension Area, as Nash claims. Nor does Nash explain its
own expert’s failure to take into account a multitude of evidence,
including evidence of a relatively thin gas thickness layer in the
8

The commission observed that evaluation of underground
migration “is far from an exact science.” It noted that all of the
parties’ theories were likely wrong to one degree or another as they
attempted to explain, with limited data, the movement of fluids
thousands of feet underground and spread out over thousands of acres.
As the commission noted, its role “was to determine which of the
theories was the most accurate based on how well it explained and
comported with all the available evidence.” Doc. 888 at 10.
-28-

Extension

Area,

inescapable

which

led

conclusion

that

an
[the

exasperated
expert’s]

commission
work

began

to

“the

with

the

objective of finding a place to put a large volume (perhaps 10-16 BCF)
of gas in the Extension Areas and then he conducted his analysis to
achieve that result.” Doc. 888 at 34.
The commission’s conclusion is supported by the record and
represents the best available estimate on the evidence presented. It
far surpasses in credibility Nash’s highly speculative claim that the
Extension Area held 7 to 13 BCF of gas in 1994. Doc. 915 at 5. The
court adopts the commission’s volume estimate and rejects Nash’s claim
of error.

2. Whether the commission violated the project enhancement rule
by failing to award the producers $1 million per month in lost gas
production.
Based on historical production, Nash contends the producers would
have produced more than $1 million worth of gas per month had there
been

no

condemnation.

Nash

argues

the

producers

are

now

owed

compensation of at least $12 million, because there was a twelve month
period from when the wells were shut in by the preliminary injunction
(in

Case

08-1405)

to

the

date

of

taking.

Nash

reasons

such

compensation is owed because the court instructed the commission that
the project enhancement rule “prevents an interest owner from being
placed in a ... worse position than he would have enjoyed had there
been no condemnation.” Doc. 915 at 6.
-29-

Nash’s request for compensation “during that [one year] time
period of lost production” is in substance either a claim for damages
caused by the preliminary injunction or a claim that the injunction
amounted to a taking of its property. Insofar as it is a claim for
damages, it cannot be asserted here. The injunction was issued in Case
No. 08-1405, and any remedy for a claim that the injunction was
wrongfully issued belongs in that case, not in condemnation. See Doc.
691 at 32 (“Rule 65(c) ‘creates a cause of action for the ‘costs and
damages’ incurred by the enjoined party should it later be determined
that the party was ‘wrongfully enjoined or restrained’”). Insofar as
Nash is claiming that the preliminary injunction amounted to a taking
of its property, the court already rejected that argument when it
determined the date of taking. See Doc. 691 at 32-33 (“the court
concludes that the taking of defendants’ property did not occur upon
issuance of the preliminary injunction shut in order, but on March 30,
2012, when Northern was granted a right of access to and possession
of the property.”). In either event, Nash shows no basis for altering
the commission’s award of just compensation.

3. Whether the commission erred in failing to award Vision
Investments of Pratt, LLC, compensation for lost transportation
income.

Prior to the taking, Vision transported gas for Nash Oil &

Gas. After the taking, Vision lost this transportation income because
there was no longer any gas to transport. Doc. 915 at 7. Nash argues
the

transportation

income

was

“incident

or

appurtenant

to”

the

leasehold interests in the Viola and that compensation must be awarded
-30-

for it.
A similar claim was rejected in United States v. 677.50 Acres of
Land in Marion County, Kansas, 420 F.2d 1136 (10th Cir.), cert.
denied, 398 U.S. 928 (1970). In that case, Clear Creek was a company
that constructed a pipeline to transport oil from leases in Marion
County.

It

entered

into

division

order

contracts

with

various

operators and royalty owners. The contracts said they were irrevocable
until 4.5 million barrels of oil had been shipped through the line,
which was designed to ensure that Clear Creek would recover its
construction

costs.

Before

Clear

Creek

could

recoup

its

costs,

however, five of the tracts were condemned, which prevented further
use of the pipeline. In the condemnation, Clear Creek claimed its
interest amounted to an equitable servitude on land and it sought
compensation for the taking of that interest. Although a commission
and

the

district

court

granted

compensation,

the

Tenth

Circuit

reversed, stating:
The division order contracts were not ‘taken’ by
the condemnation action. Clear Creek, vis-a-vis
the contracts, had neither an interest nor an
estate in the condemned land; their contracts
concerned only the oil after it was severed from
the realty. Appellee [Clear Creek] could not
compel production, sue for waste or do any of the
things incident to ownership. Their contracts
were merely frustrated and the fact that they
were irrevocable for a period of time does not
elevate their stature to an interest or estate in
the condemned fees.
677.50 Acres of Land, 420 F.2d at 1138. After citing Supreme Court
precedent that consequential damage from the frustration of a contract
does not amount to a “taking,” the court further noted that the United
States was not bound by the contracts and could not enforce them. In
-31-

other words, the contracts “were not ‘taken,’ but ended.” The court
found Clear Creek’s business loss did not amount to a taking of
property and was not compensable. It also said the unit rule precluded
the claim because the United States had already paid market value for
the

oil

located

in

the

properties

taken,

thus

satisfying

its

obligation to pay just compensation.
The foregoing case and others9 show that the commission correctly
declined

to

award

any

compensation

for

Vision’s

asserted

loss.

Vision’s loss of transportation income may have been a consequence of
Northern’s taking, but it did not constitute a taking of property from
Vision or from Nash.
Nash argues in the alternative that the commission erred by
failing

to

credit

it

with

an

amount

representing

the

Vision

transportation charge (30 cents per MCF). That fee was treated at
trial as a Nash operating expense. Nash argues that if Vision is not
allowed to recover the lost fees, Nash should receive a credit for the
charge in its recovery. But the Vision transportation fee was clearly
an expense that Nash would have continued to incur from its production
of gas in the Extension Area. The fact that Vision cannot recover the
fee is not a basis for ignoring an expense that Nash would have
incurred had it continued production.
L.D. Drilling, Inc. objections (Doc. 919)

9

In 677.50 Acres of Land, for example, the Tenth Circuit cited
other cases holding that consequential business losses are not
compensable, including Stipe v. United States, 337 F.2d 818 (10th Cir.
1964), J.A. Tobin Constr. Co. v. United States, 343 F.2d 422 (10th
Cir. 1965), and R.J. Widen Co. v. United States, 357 F.2d 988 (Ct. Cl.
1966).
-32-

1. Whether the commission erred in rejecting the continuous
migration theory. Doc. 919 at 2-15.
In essence, the continuous migration (or continuous feed) theory
postulated that, absent condemnation, defendants’ wells would have
steadily produced gas far into the future because they were being
continuously replenished by migrating gas from the storage field. L.D.
Drilling and other defendants argue the value of the well tracts
should therefore be based on a projected twenty years’ worth of
production,

at

current

production

rates,

which

they

contend

is

necessary to put them in the same economic position they would have
enjoyed but for the condemnation. The net present value of such
production would be around $97 million for the wells in the Extension
Area.
The commission rejected the continuous migration theory on
grounds that it was too speculative, that it failed to take into
account Northern and FERC’s likely response to continued migration,
and that as a practical matter it would frustrate the purpose of
condemning wells around a leaking storage field.
L.D. Drilling argues the commission’s finding is contrary to
Kansas law and must be set aside. Citing ONEOK, 296 Kan. 906 and
Northern Nat. Gas Co. v. ONEOK Field Svcs. Co, LLC, et al., No. 2009
CV 111 (30th Jud. Dist., Aug. 15, 2014). The latter case held that
L.D. Drilling and others did not convert storage gas by producing it
from

the

Extension

Area

even

after

Northern

obtained

a

FERC

certificate. See Doc. 919-1. According to L.D. Drilling, Kansas law
means that “absent the condemnation, all of the migrated gas in the
-33-

extension area -- whether ten years in the past, on the Date of
Taking, or ten years into the future -- is subject to the rule of
capture and that Northern retains title to none of the migrated gas.”
Doc.

919

at

6.

L.D.

Drilling

thus

argues

it

is

entitled

to

compensation for all of the storage gas it could have produced in the
future had there been no condemnation.10 It proceeds to blast the
commission for a conclusion that “flouts binding Kansas law,” for
limiting recovery to 13.76 months’ worth of production (“an arbitrary
figure plucked out of thin air”), for usurping the rights of the
Kansas legislature and judiciary, and for using a “one-sided approach”
that “does not meet even rudimentary tests of fairness.”
The import of L.D. Drilling’s continuous migration theory is that
not only must Northern pay for all the storage gas defendants11 have
heretofore managed to draw out of the storage field, and not only must
it pay them for gas that Northern is currently storing in its own
storage field, but it must also pay them for storage gas that Northern
has not yet acquired but which, absent condemnation, Northern would
have purchased and stored in the field over the next twenty years.
This is so, L.D. Drilling argues, because Northern was unable to stop
gas from migrating out of the field and, under ONEOK, defendants were

10

It is not clear why, except perhaps out of a sense of modesty,
L.D. Drilling has limited its estimate to twenty years’ worth of
future production.
11

At this stage of the case, the court need not distinguish
between the rights of mineral interest owners, on the one hand, and
persons claiming an interest derived from the mineral interest owner
(e.g, a gas well operator), on the other. The court therefore
generically refers to “defendants” to mean any or all of the foregoing
interest holders.
-34-

entitled to produce and lay claim to any and all storage gas they
could possibly draw out of the storage field. It seems doubtful Kansas
law would adopt such logic, but if it would, it would call to mind the
legal analysis of Mr. Bumble, who upon being informed of a presumption
in the law that his wife acted under his direction responded, “If the
law supposes that ... [then] the law is a ass -- a idiot.” See Charles
Dickens, Oliver Twist.
The commission identified valid and persuasive reasons for
rejecting the continuous feed theory, including its highly speculative
nature. It defies logic and common sense to believe that absent
condemnation, Northern would have sat on its hands for twenty years
as defendants pillaged billions of cubic feet of gas from the storage
field, or that FERC would have condoned such losses. L.D. Drilling
suggests that Northern would have done so, notwithstanding defendants’
large and increasing production, because there was no evidence that
defendants’ production made the field unprofitable and “Northern
[could] simply pass any costs through to its customers....” Doc. 919
at 13. L.D. Drilling calls the commission’s rejection of this view
“entirely speculative.” But if anything suffers from speculation, it
is L.D. Drilling’s “parasite theory” -- i.e., that Northern and FERC
would have simply chosen to live with defendants’ siphoning off huge
quantities of gas from the storage field.
The commission reasonably inferred from Northern’s history of
zealous defense of the field that Northern would have undertaken
additional

measures

to

reduce

the

migration

had

it

not

had

condemnation available. Doc. 888 at 52. Although evidence indicated
-35-

that lowering the storage field pressure and adding various production
and water injection wells might not have stopped the migration
entirely, such measures likely would have put a dent in defendants’
production. And given evidence that FERC previously insisted that
Northern come up with a more robust plan for halting migration, it is
highly unlikely that FERC would have allowed the significant migration
of gas to continue unabated. In fact, as the commission pointed out,
FERC’s prior comments can be construed as indicating it probably would
have shut down the field if Northern’s plan to curtail migration
proved unsuccessful.12

Had the field been shut down, all of the

storage gas likely would have been withdrawn and defendants’ source
of production would have dried up. Defendants assign no weight to that
possibility, however, and they ignore the significant legal and
regulatory risks to a practice that some might consider questionable.13
Cf.

Blau

v.

Lehman,

368

U.S.

403,

419

(1962)

(Douglas,

J.,

dissenting)(“‘The goose that lays golden eggs has been considered a

12

In FERC’s June 2, 2010 Order (131 FERC ¶61,209), FERC noted
that one intervenor argued that FERC should investigate whether the
Cunningham Storage Field was no longer viable and whether it should
require Northern to show cause why the field should not be abandoned.
(Doc. 188-2 at 23, ¶65.) FERC agreed that the integrity of the storage
field was substantially at risk, and expressed its concern about
Northern’s successive requests for expansion of the field and whether
this cycle would continue in the future without controlling the
migration of storage gas. (Doc. 188-2 at 27-28, ¶79.)
13

A common law nuisance claim by Northern remains pending in the
related case of Northern Nat. Gas Co. v. L.D. Drilling, Inc., et al.,
No. 08-1405 (D. Kan.). The court notes that in the 08-1405 case, in
proceedings that occurred before the ONEOK ruling, L.D. Drilling
strenuously denied that it was producing storage gas and its owner
conceded that he did not think a well operator should be drawing gas
out of a storage field. See No. 08-1405, Doc. 395 at 77, 82-83.
-36-

most valuable possession. But even more profitable is the privilege
of taking the golden eggs laid by somebody else’s goose.’”) [quoting
L. Brandeis, Other People’s Money and How the Bankers Use It (1913)].
They cite no evidence that purchasers of oil and gas interests ever
have or ever would be willing to pay twenty years’ worth of current
production for a well that was producing large quantities of storage
gas. In sum, the court agrees with the commission that the continuous
migration theory is too speculative to be credited.
L.D. Drilling complains that the commission “flouts” Kansas law,
but it cites no comparable Kansas law involving condemnation and
valuation of a well producing storage gas. The case closest to this
one factually is Union Gas Sys., Inc. v. Carnahan, 245 Kan. 80, 88,
774

P.3d

962,

968

(1989),

which

is

decidedly

contrary

to

the

continuous migration theory.14
On the date of taking, owners of the mineral interests had a
right to produce any gas under their property. Northern took that
right and must pay just compensation. Those owners had no property
right, however, to any storage gas that was still in the storage
field, nor can it be said that Northern took any such property from
them. To the extent mineral owners or well operators expected to

14

This court previously found that Union Gas was no longer valid
insofar as it held that landowners of non-adjoining property had no
rights in storage gas under their property on the date of taking. See
Doc. 810 at 21 (Union Gas “cannot relieve Northern of the obligation
to pay compensation for storage gas in which defendants held a
property interest. ONEOK made clear that ... defendants possessed a
vested ownership interest in all of the gas - both native and storage
- under their property.”). But neither K.S.A. § 55-1210 nor any other
authority gave defendants any prescriptive property right in storage
gas outside of the Extension Area.
-37-

continue pulling gas out of the storage field, that is more properly
characterized as a business expectation than a property right.
As the commission observed: “The Kansas Supreme Court has noted
that, in the context of neighboring wells producing storage gas from
leaking storage fields, ‘all good things must eventually come to and
end,’ and condemnation appears to be that end.” Doc. 888 at 54 (citing
Union Gas Sys., Inc. v. Carnahan, 245 Kan. 80, 88, 774 P.3d 962, 968
(1989)). The court agrees. Whether the reason is because it would be
speculative to award compensation for gas that defendants hoped to be
able to draw out of the storage field in the future, or because Union
Gas means the scope of defendants’ property interest was limited to
gas that was in place in the Extension Area on the date of taking, the
court finds that just compensation for the taking of defendants’
property

must

include

the

value

of

economically

recoverable

hydrocarbons in the Extension Area on the date of taking, but not the
value of storage gas that defendants hoped or expected to draw out of
the storage field in the future.15
As for defendants’ repeated refrain that they must be put in the

15

The commission accurately pointed out that the continuous feed
theory would thwart the very purpose of condemnation. If a condemnor
had to pay up front for all gas that a nearby well operator could
conceivably draw out of a storage field for the next twenty years,
then “anyone who drills wells adjacent to a leaking storage field is
assured of obtaining the long-term benefit of the leaking gas
regardless of whether condemnation occurs or not.” Doc. 888 at 53-54.
Condemnation in that event would be a useless remedy. Well operators,
meanwhile, would receive a bonanza at consumer expense from a legal
rule benefitting those who purposely cause migration from a storage
field, whether by pumping large quantities of water, fracking, or some
other means. Because the court rejects the continuous feed theory, it
need not address whether such a rule as applied here would run afoul
of the Commerce Clause of the U.S. Constitution.
-38-

same economic position as if there had been no condemnation, they
overlook two factors. First, the speculative assumption that they
could have continued to produce storage gas far into the future is not
justified for the reasons discussed previously. And second, the
principle of placing an owner in the same position pecuniarily extends
only to the property taken, and not to the opportunities which the
owner may lose as a result of condemnation. See e.g., United States
v. Sowards, 370 F.2d 87, 89 (10th Cir. 1966). Defendants may have lost
the opportunity to draw more gas out of the storage field, but the
commission’s award represents just compensation for the property that
was taken from them by Northern.
The commission reasonably and properly valued the gas in the
Extension Area on the date of taking. Its projection that defendants
would have produced all of that gas in a period of 13.76 months was
not “an arbitrary figure plucked out of thin air,” as L.D. Drilling
fatuously suggests, but an extrapolation based on the evidence of well
production rates and the commission’s calculation of the volume of gas
in the Extension Area. Doc. 888 at 57-60.
2. Whether the commission erred in excluding the Zink A1 well.
The Zink A1 was an Extension Area Viola well shut in by L.D. Drilling
on February 25, 2011 following the preliminary injunction issued by
Judge Brown in Case No. 08-1405. L.D. Drilling recompleted the well
in the Lansing-Kansas City Swope formation in September 2011 and began
producing oil from that formation. The Zink A1 was originally included
in the condemnation complaint, but it was voluntarily dismissed by
Northern in October 2013. Doc. 733.
-39-

L.D. Drilling points out that the commission was instructed to
give no consideration to the injunction issued by Judge Brown, and
argues L.D. Drilling is therefore entitled to compensation based on
the Zink A1’s previous Viola production. It argues that the Viola
production would have continued but for the injunction.
The commission found insufficient evidence to assign value to any
Viola reserves that might be associated with the Zink A1. It pointed
out there was no evidence in the record of the costs necessary to
restore

Viola

production

in

this

well;

no

showing

of

whether

abandonment of the Swope oil production and recompletion in the Viola
was economically justified; no evidence of how long it would have
taken to recomplete the well; and no evidence as to how the reserves
would be valued by a willing buyer. Doc. 888 at 77.
L.D.

Drilling

does

not

address

any

of

these

evidentiary

shortcomings. Doc. 919 at 16-17. Instead, it argues that recompletion
of the well would have been unnecessary had there been no injunction.
But for the reasons stated by the commission, valuation of the Viola
reserves attributable to Zink A1 production was rendered speculative
by the lack of evidence about recompletion of this well in the Viola.
It is one thing to value the properties as if the preliminary
injunction had not been entered, but it is another to disregard the
fact that on the date of taking L.D. Drilling had dedicated the well
to production in another zone. The cost of recompletion was not a
consequence of the injunction; it was a consequence of L.D. Drilling’s
voluntary decision to recomplete the well in another formation. Under
the circumstances, the evidence failed to give the commission a basis
-40-

for assigning Viola reserves to the Zink A1 well tract.
VAL Energy group objections (Doc. 917)
1. Whether the commission erred in valuation of eight well bores
taken by Northern. VAL contends the commission failed to follow the
court’s instructions in valuing these well bores. Specifically, it
contends the commission ignored evidence of the before and after
valuations of the well bores.
The commission found the existing wells would be valued by the
market as part of the producing reserves associated with the wells,
with no additional value attached to the well bores themselves except
for the salvage value of the casing. The commission separately awarded
compensation for the Viola reserves. It awarded only salvage value for
the wells, which it found to be $5,850 for each well as testified to
by Northern’s expert. The commission rejected what it characterized
as producers’ attempt to obtain the cost of drilling replacement
wells, pointing out there was no evidence of the productive potential
of formations other than the Viola, so if the producers drilled
replacement wells without any rights to the Viola they “would merely
be drilling worthless holes in the ground.” Doc. 888 at 71.
VAL contends it was not seeking the cost of replacement wells.
Instead, it says it presented “evidence of the value of the wells
before taking... [] in the form of the cost to drill the wells, and
what a party would sell a completed well bore for in a producing
formation.” Doc. 917 at 5. VAL cites the testimony of its president,
Todd Allam, who testified that the value of the well bores before
taking was based on the costs associated with drilling, completing and
-41-

equipping those wells.
As the commission accurately pointed out, its valuation of the
Extension Area gas reserves was based on a finding that the tracts
contained proved, producing reserves. That valuation already took into
account the fact that producing well bores were in place on the
Extension Area well tracts. In other words, it took account of VAL’s
asserted evidence of “what a party would sell a completed well bore
for in a producing formation.” It would have been duplicative to grant
an award above salvage value for the well bores. As for Mr. Allam’s
testimony concerning the cost of drilling wells, VAL cites no credible
evidence of an existing market based on drilling costs that is
separate and distinct from the valuation of producing reserves. The
court finds that the commission considered and valued the well bores
-- both before and after the taking -- and appropriately awarded an
amount for salvage value that was supported by the evidence.
VAL’s final contention is that the commission’s award of only
$5,850 per well confers a financial windfall on Northern that “flies
in the face of this Court’s instructions to pay the fair market value
for any property interest taken.” Doc. 917 at 8. As the court
instructed, however, “[t]he fair market value of the interests taken,
rather than the value to Northern ..., is the proper measure of just
compensation.”

Doc.

848

at

14

(Instruction

9).

Although

the

instructions allowed the commission to use a depreciated cost method
of valuation, id. at 10 (Instruction 6), the court is persuaded that
the commission selected the best and most appropriate method of
valuation under the evidence. Cf. Olean-Nowata Oil Co. v. United
-42-

States,

351

F.2d

277,

278

(10th

Cir.

1965)

(“bare

proof

of

expenditures is not generally accepted as proof of fair market
value”). Moreover, VAL’s “windfall” argument completely ignores the
fact that producers’ drilling costs were a necessary expense for
obtaining their past production. Northern is no more required to pay
producers’ past production expenses than it is entitled to share in
their past production. Regardless, the argument shows no error or
infirmity in the commission’s award.

Pratt Well Service (PWS) group objections (Doc. 920)
1. Whether the commission erred by failing to award compensation
for PWS’s loss on its contract with Lumen. This argument is based on
a PWS gas purchase contract with Lumen under which PWS may incur a
penalty for failing to deliver at least 476,300 Mcf of gas from the
Schwertfeger lease. Doc. 920 at 2. Under the contract, PWS dedicated
the gas produced from its Schwertfeger 1-23 well to Lumen. PWS is
unable to meet the delivery requirement because of the condemnation.
Lumen has demanded that PWS pay almost $200,000 under the contract’s
penalty formula.
PWS argues the contract is appurtenant to the land because it is
binding on PWS’s successors. It contends the contract decreases the
market value of the tract, as “no sane person would purchase the
Schwertfeger Lease unless discounted for ... the penalty,” and it
argues that “the Commission’s failure to award just compensation in
relation to said decrease in market value violates the project
enhancement rule.” Doc. 920 at 3-4.
-43-

The court overrules this objection for the same reasons discussed
with respect to the Vision Investments pipeline. PWS’s gas purchase
contract, like the division order contracts in United States v. 677.50
Acres of Land in Marion County, Kansas, 420 F.2d 1136 (10th Cir.
1970), was not “taken” by the condemnation. The gas purchaser, Lumen,
had neither an interest nor an estate in the condemned land; its
contract pertained to gas after it was severed from the realty. What
PWS effectively seeks is to add the contractual penalty to the just
compensation for the property that was taken, the very thing the court
concluded was improper in 677.50 Acres of Land. The commission’s award
already provides just compensation for the recoverable gas taken by
Northern in the Extension Area; PWS is entitled to no additional
compensation for its contractual penalty.
Huff group objections (Doc. 916)
1. Whether the commission erred in considering Northern storage
leases as evidence of fair market value of buffer acreage. In valuing
the Extension Area tracts, the commission considered Northern’s
storage leases in the 2010 Extension Area as evidence of the fair
market value of storage/buffer zone acreage. The Northern leases had
a net present value of $200 per acre. After looking at sales of
comparable fee properties, however, the commission concluded that $200
per acre was higher than what was justified. The commission settled
on an award of $125 per acre for the buffer value of the Extension
Area properties.
Huff argues the Northern leases were not competent evidence of
fair market value because they were not entered into by well informed
-44-

buyers, they were not made in an open and competitive market, and they
involved undue compulsion because they were made under threat of
condemnation

by

Northern.

Doc.

916

at

3;

see

Doc.

848

at

10

(instruction defining fair market value). None of these arguments is
persuasive.
As the commission noted, several landowners on these Northern
leases were represented by attorneys, including Lee Thompson, an
experienced oil and gas lawyer in Wichita. Despite this, Huff argues
the

commission’s

finding

that

such

purchasers

were

likely

well

informed “was legally insufficient and based upon speculation.” Doc.
916 at 6. But it was permissible and reasonable for the commission to
infer that purchasers represented by competent counsel were well
informed as to fair market value. (When contemplating a lease offer,
the fair market value of the lease rights would surely be one of the
first questions a landowner would have for their attorney.) Similarly
unpersuasive is Huff’s contention that it is speculative to assume
that counsel had any knowledge of underground gas storage values.
Underground storage is a recurring feature of Kansas oil and gas law.
An experienced lawyer would likely be familiar with such issues or be
able to obtain appropriate information. See e.g., Beck v. Northern
Nat. Gas Co., 170 F.3d 1018 (10th Cir. 1999) (award based on fair
rental value of underground storage). See also Frederick v. Southern
Star Cent. Gas Pipeline, Inc., 944 F.Supp.2d 1083 (D. Kan. 2013);
Southern Star Cent. Gas Pipeline, Inc. v. 120 Acres Located in Rice
County, Kan., 2012 WL 984271 (D. Kan. 2012); Kent v. Southern Star
Cent. Gas Pipeline, Inc., No. 07-1105-MLB (D. Kan.); Southern Star
-45-

Cent. Gas Pipeline, Inc. v. 832 Mineral and Leasehold Acres of Land
in Anderson County, Kansas, No. 08-1313-MLB (D. Kan.).16

Likewise, it

is not “pure speculation” to infer that a petroleum landman who
entered into one of the leases was a well informed purchaser. Few
people in Kansas would know more about mineral values, including
storage rights, than a landman. Huff is essentially arguing that to
be considered a well informed purchaser, there must be specific
evidence that the buyer had knowledge equivalent to an industry
expert. That has never been the standard -- whether the lease is above
ground or below ground. The commission correctly concluded that the
standard does not require perfect knowledge and that the purchasers
on the Northern leases were likely well informed.
The Huff group also asserts there was no open and competitive
market because only Northern was leasing Extension Area property. It
also claims the Northern leases were made under duress as a result of
Northern’s condemnation authority. But in any potential storage area,
leases are likely to be sought by only a single operator because of
the

exclusive

nature

of

storage

operations.

And

in

Kansas

and

elsewhere such leases are typically obtained by utilities with the
power of eminent domain. Cf. Bison Pipeline, LLC v. 102.84 Acres of
Land in Campbell County, Wyoming, 516 Fed.Appx. 690, 2013 WL 8172006
(10th Cir. 2013) (under Wyoming law the “fact that property is
purchased by one vested with the power of eminent domain does not
preclude admission of evidence regarding the sale, provided the

16

Attorney Lee Thompson represented landowners or other interest
owners in all of the foregoing cases.
-46-

transaction was fair.”). These factors do not preclude consideration
of

the

Northern

leases

as

indicators

of

market

value.

“Some

speculation is inherent in the ascertainment of value of all resource
property, be it mineral, oil, gas or otherwise, and if the quality of
proof of value follows the custom of the industry, is the best
available, and is sufficient to allow the jury or court to make an
informed estimate as to the fact of value, such proof is sufficient
to meet the burden.” United States v. Silver Queen Mining Co., 285
F.2d

506,

510

(10th

Cir.

1960).

Under

the

circumstances,

the

commission did not err in considering the Northern storage leases as
evidence of the market value of Extension Area properties. Cf. Home
Gas Co. v. Miles, 79 Misc.2d 26, 31, 358 N.Y.S.2d 846 (1974) (value
of property for underground storage rental was established by previous
transactions by plaintiff in the field), order modified by 46 A.D.2d
562, 364 N.Y.S.2d 213 (N.Y.A.D. 1975).
2. Whether the commission improperly rejected the Brehm Field
leases. Huff presented evidence of storage leases in the Brehm Storage
Field, located about seven miles from the Cunningham Field. The Brehm
leases provided for an annual rental of $97.67 per acre escalating at
ten

percent

substantially

per

year.

higher

The

than

commission

rentals

on

noted
storage

this

figure

leases

near

was
the

Cunningham Field, and it concluded that the Brehm leases were not
representative of fair market value of buffer acreage in the Extension
Area. The commission found the Brehm leases resulted from a unique set
of circumstances, including that they were renewed shortly after the
storage operator lost a significant amount of storage capacity because
-47-

its Yaggy Field suffered leaks that led to fires and explosions in
Hutchinson, Kansas. Doc. 888 at 67.
The Huff group contends the commission’s rejection of the Brehm
leases was error. It points to an arbitration clause in the Brehm
leases as evidence the commission erred in stating that a failure to
renew the leases would have jeopardized that field. It also contends
the commission engaged in speculation by connecting the amount of the
Brehm rental to the Yaggy Field incident. Finally, Huff contends the
$97.62 per year is the economic equivalent of what the Brehm leases
paid going back to 1981, which it says disproves any suggestion that
the $97.62 figure was anomalous or the result of unique circumstances
at the time of the lease renewal. Huff submits that the Brehm leases
are the best evidence of fair market value of buffer acres in the
Extension

Area

and

argues

the

commission

must

reconsider

this

evidence. Doc. 916 at 12.
Even assuming one or more of the commission’s reasons for
rejecting the Brehm leases as comparable does not withstand scrutiny,
this does not warrant a remand. The issue is before the court on de
novo review, and the court concludes from its review of the record
that the Brehm leases are well in excess of the fair market value for
the Extension Area tracts. For example, Huff’s argument ignores
evidence of comparable sales of fee properties around the Cunningham
Field. As the commission noted, evidence of those sales would not even
support a finding that the fair market value of Extension Area
properties was boosted by a $200 per acre net present value, let alone
the approximately $4,000 per acre net present value of the Brehm
-48-

leases. Under Huff’s theory, fee simple acreage in this area should
have been selling for upwards of $5,000 per acre. The fact that it
sold for nothing like that undercuts Huff group’s position, leaving
it to claim that landowners must have been uninformed about “true”
market values. But comparable sales of fee property in this area say
more about the impact of storage lease rights on the fair market value
of the condemned property than defendants’ extrapolation from the
Brehm Field leases.17
The court notes that the Brehm Field spans only about 640 acres
-- a fraction of the size of the Cunningham Field -- and is used for
local distribution. Other than its location, it bears little or no
similarity to the federally regulated Cunningham Field. The Brehm
leases also included rights to recover all hydrocarbons in all
formations and had a rather incredible 10% escalator, which as
Northern points out, well exceeds any other escalator in Kansas. Also,
there was uncontroverted testimony that the secondary oil recovery
rights covered by the Brehm leases allowed the operator to recover
over $600,000 worth of oil from one formation. These dissimilarities
and others provide substantial and valid reasons for concluding that
the Brehm leases are not the best evidence of the fair market value
of storage rights for the Extension Area tracts. The court concludes
17

Similarly, as the commission recounted, landowners’ expert
William Henry claimed that only government lessors generally had the
knowledge to be considered well informed. His review turned up only
four such leases, none of which were in or close to Kansas. Those
leases had wildly divergent annual payments ranging from $11.58 per
acre per year to $125 per acre per year. Henry simply averaged these
lease values in concluding that the fair market value of the Extension
Area leases was $67.57 per acre per year, or a net present value of
$2,000 per acre. See Doc. 888 at 65.
-49-

that the commission’s finding of a net present value of $125 per acre
for storage lease rights is supported by the evidence and represents
just compensation for the taking of such rights by Northern.
3. Whether the commission erred by finding that all of the wells
were shut in as a result of the impending condemnation. The Huff group
objects to the commission’s finding that the Extension Area wells
“were essentially shut in as a result of the impending taking.” See
Doc. 888 at 47, n.23. Huff’s concern is that this could be construed
as a finding that the wells were shut in as a result of a court order,
which in turn could have a bearing on whether or not the leases
terminated. The latter issue is one the court may have to address when
it apportions just compensation among the parties claiming an interest
in the properties. Huff argues that the commission’s finding was both
contrary to the evidence (at least as to wells shut in during the
summer of 2010) and beyond the scope of the commission’s authority.
Huff acknowledges that the commission was directed to value the
properties as if Judge Brown’s preliminary injunction shutting in the
wells had not been entered. It also concedes that “it may have been
appropriate for the Commission to categorize the wells as ‘producing’
or

‘non-producing’

as

of

the

Date

of

Taking”

for

purposes

of

valuation. Doc. 916 at 13. Not only was this appropriate, it was in
fact required. Under the evidence, gas reserves must be placed into
such categories in order to properly determine their value.
Huff’s objection is conditional: “So long as the Commissioners
were simply making clear that they were not considering Judge Brown’s
shut-in order, such a ‘finding’ would be appropriate. However, if the
-50-

Commissioners were attempting to make a finding about the subsistence
of the leases as of the Date of Taking, which is a task reserved to
the Court, such a finding is clearly inappropriate.” Doc. 916 at 13,
n.4.
The commission’s finding was clearly made only for purposes of
valuation of the gas reserves as of the date of taking. It conformed
to the court’s instruction to value the properties without regard to
Judge Brown’s shut-in order. It is germane only to proper valuation
of the gas reserves and not to any issue relating to subsistence of
the leases or apportionment of just compensation.
Miller Trust objections (Doc. 924)
1. The Miller Trust objects to the valuation of tract 4012711.
The Miller Trust, acting pro se, asserts that “[s]omething is wrong
with the evaluation of [tract] 4012711.” The court gathers the trust
objects to the commission’s determination that a neighboring tract
with a Nash well on it was entitled to compensation of $1.7 million,
while the Miller Trust tract was awarded compensation of only $10,000.
The trust contends the tracts were essentially identical.
These tracts were not identical. The distinction is that the Nash
tract had a producing Viola well on it, which allowed it to capture
the gas reserves underlying both properties. The Miller tract had no
well. Moreover, there was no evidence that the trust planned to or
could put in a well, and no evidence that it could do so in time to
capture any of the reserves that were in the Extension Area on the
date of taking. The gas reserves therefore contributed to the fair
market value of the Nash tract and not to the Miller tract.
-51-

IV. Conclusion.
This court assigned the commission an exceptionally difficult
task. Even a routine condemnation presents difficult issues -- and
this is no ordinary condemnation. Valuation of oil and gas properties
has always caused difficulty in condemnation, and on top of that the
Kansas law granting defendants a right to produce escaping storage
gas, combined with the fact that the wells were in communication with
an established storage field, make this an unprecedented case insofar
as the court can tell.
Faced

with

this

task,

the

commission

proceeded

to

conduct

extensive hearings in an expeditious and fair manner. It then produced
a comprehensive and clear report that addressed a welter of arguments
and issues arising from a complex set of facts. This would have been
impossible without the combined expertise of the commissioners. The
commissioners have not only rendered an important public service by
their efforts; they have done so in exemplary fashion.
That is not to say that all of the parties -- or any of them for
that matter -- are happy with the results. But that is not surprising:
“Condemnation

at

best

is

an

unhappy

event

aggravated

by

the

inexactitude of expert opinion evidence forced into the subjective
(and often unrealistic) beliefs of the parties as to value and
damage.” Phelps Dodge Corp. v. Atchison, T.S.F. Ry. Co., 400 F.2d 20,
24 (10th Cir. 1968).
The commission’s report is fundamentally sound and supported by
the record. The commission thoroughly considered the evidence, the
-52-

instructions, and the parties’ arguments. Its resulting determination
represents a fair resolution that is both supported by the evidence
and

consistent

with

the

constitutional

requirements

of

just

compensation. The court hereby denies the parties’ objections to the
report and adopts the report of the commission in its entirety.
No motions for reconsideration of this order, however styled, may
be filed. In other words, the court will not revisit this Memorandum
and Order for any reason.
IT IS SO ORDERED.
Dated this 4th

day of February 2015, at Wichita, Kansas.

s/Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE

-53-