The 10th Circuit Court of Appeals in Denver has up held a Kansas District Court decision that third party wells in Pratt County were drawing gas from the northern side of a Northern Natural Gas containment field and the wells should be shut down.
The decision underscores the right of NNG to halt the third party production, said Mike Leoffler, NNG spokesperson.
The district court entered a preliminary injunction against the Pratt County defendants to stop production in certain wells because the court concluded it was a substantial likelihood NNG could prove the defendant's production was a nuisance because it disrupted NNGs storage facility and the Circuit Court agreed.
The ruling is the latest in court action that started in December 2007. The action involves stored natural gas escaping from an NNG gas storage field and independent producers allegedly operating in such a manner that they are deliberately and knowingly pulling natural gas out of the NNG storage area, Leoffler said.
The history of the field and the migrating gas issues started in 1932 when natural gas was found in South Central Kansas in the Cunningham field in the Viola Geological formation. The reserves in that field were depleted in 1977 and NNG changed the field to a 26,000-acre underground storage field with gas stored in the Viola and Simpson strata, according to the Court of Appeals opinion statement.
That field was stable from 1985 to 1995. However, a fault on the north end of the field did not seal as expected. An aquifer and the fault combined to form the north seal.
Starting in 1994, other natural gas producers began extracting gas and large amounts of water just north of the field causing pressure sinks that destabilized the field and NNG began migrating beyond the boundary.
In 2005, NNG requested and received permission from the Federal Energy Regulatory Commission to drill two wells to recapture the migrating gas plus two other wells on the north side of the field to determine if the recapture efforts were successful. The recapture wells did not stop the migrating gas.
In an effort to capture their migrating gas, NNG requested a permit from FERC to add a buffer zone of 4,800 cares on the north side of the filed. Only 1,760 acres was granted because NNG failed to prove the gas had migrated further than that, according to the Court of Appeals opinion.
In a further effort to stop the gas migration, NNG sued three natural gas producers, L.D. Drilling, Nash Oil and Gas, and Val Energy in December 2007. The three producers together had 25 wells within four to seven miles north of the field that were producing natural gas from the Viola strata.
The suit alleged the three producers were removing so much natural gas and removing so much water that they were creating pressure sinks that caused gas to migrate faster and faster out of the storage area.
Page 2 of 3 - The suit sought title to that escaping natural gas, relief and damages based on claims of conversion, unjust enrichment, nuisance and civil conspiracy.
The three defendants filed several counter claims against NNG.
The only claim at issue in the current appeal is the NNG nuisance claim.
While this federal litigation was pending, NNG appealed to FERC to expand the Cunningham Field buffer zone to include an area were most of the defendants challenged wells were located. The defendants intervened and objected but in June 2010, FERC issued NNG a certificate of public convenience and necessity allowing them to add another 12,000 acres to the buffer zone.
The certificate was issued after NNG had offered evidence that it's gas was migrating out of the Cunningham Field.
Then FERC agreed to a four-point plan proposed by NNG designed to contain the gas and stop the migration.
The four points: Shut down all third party production north of the northern fault; monitor pressures to see if they drop to pre-1995 levels; if pressure doesn't return to inject water in north end to raise pressure; either use shut-in wells or install offset wells to counter defendant production.
FERC approved the first three steps and ordered NNG to develop a more specific migration control plan within six months of the certificate of public convenience and necessity. The defendants did not appeal FERCs ruling.
Then, after getting the certificate of public convenience and necessity for the expansion area, NNG filed a second lawsuit to exercise eminent domain to condemn the needed property in the expansion area. That litigation is ongoing.
After FERC issued the certificate for the expansion area, NNG got an injunction to prevent the defendants from taking natural gas or water from the wells in the expansion area. L.D. Drilling and Nash Gas and Oil challenged the injunction.
The defendants challenged the courts determination that NNG will likely prevail on its nuisance claim that the defendant's production is causing the gas to leak faster interfering with NNGS use and enjoyment of the field.
To succeed in the nuisance claim, both parties agree that NNG must prove four points: the defendants acted with intent to interfere with NNG use and enjoyment of the storage field; there was some interference although the amount may not have been intended; the resulting interference was substantial; the amount of interference constituted unreasonable interference with the use and enjoyment of the land.
No one disputes that there has been interference and it has been substantial.
There is substantial likelihood NNG can prove the defendants acted with intent. Evidence NNG presented indicated the defendant's wells didn't produce natural gas until after the Cunningham Field was established, the production didn't decline normally and the chemical composition of the gas didn't match gas recovered from the defendant area.
Page 3 of 3 - After weighing all factors, the court determined there was a substantial likelihood NNG will be able to prove the defendants continued production of storage gas amounts to unreasonable interference with NNG use and enjoyment of its storage facility.