A recent unanimous Kansas Supreme Court decision brought some Pratt County gas producers and landowners a major step closer to resolving a law suit between them and Northern Natural Gas concerning the ownership of escaped gas.
It could also mean a financial boost to Pratt County tax revenues.
In the litigation with NNG, the Kansas Supreme ruled in favor of Nash Oil & Gas and L.D. Drilling.
The March 15 decision upheld an earlier District Court decision that the gas in question had escaped from the NNG gas containment field in Pratt and Kingman Counties.
The ruling said the escaped gas had traveled beyond the one-mile buffer zone around the containment filed allowing it to revert to "native gas" and making it lawful for any producer beyond that one-mile buffer zone to produce that gas under the "rule of capture," said retired District Court Judge Bob Schmisseur who handed down the earlier ruling in April 2010.
Northern maintains the gas is theirs and that Nash and L.D. were responsible for the gas migrating because their drilling practices.
Northern has the right to appeal to the U.S. Supreme Court about the ruling but the Supreme Court only handles about 100 cases a year and Schmisseur doubts it will get to them.
On June 2, 2010 the Federal Energy Regulatory Commission approved expansion of the NNG containment field. That expansion added 12,320 acres and put all but two wells operated by Nash and L.D. either within the expanded area or within one mile of the area.
Operation of those wells has been suspended until litigation has been resolved.
All the wells at issue in the latest Supreme Court ruling are approximately two to six miles beyond the one mile buffer zone around the gas storage filed prior to the June 2, 2010 expansion.
Although litigation continues in this matter, if it resolves in favor of producers Nash Oil & Gas and L.D., the financial return to the producers and landowners will be substantial, Schmisseur said.
Payments concerning the migrating gas have been suspended pending the outcome of this litigation. The Supreme Court ruling does not resolve that issue but it will help move the litigation along.
"The decision is not the end all but it clarifies the rules," Schmisseur said.
The amount of payments in suspension runs into the tens of millions of dollars so resolving the litigation could mean a big pay day for producers, investors and landowners. Since those payments are taxable, it would also mean a substantial return to the county coffers in property tax from land owners.
"This (ruling) is a significant matter," Schmisseur said. "It's good news for folks that own land in that area."
Page 2 of 2 - Mike Loeffler, NNG spokesperson, said the ruling didn't change Northern's stance and claim against Nash and L.D. concerning illegal gas production.
"The Friday ruling had no impact on Northern's claim that third parties knowingly caused migration from the Cunningham field and wrongfully took and produced that gas," Loeffler said.
After the Supreme Court decision was handed down, NNG attorneys began evaluating the ruling and planning their next course of action. It is very early in that process and no decisions on that action have been made.
"We're still examining all our legal options at this time," Loeffler said.
The Supreme Court decision doesn't negate any FERC ruling for NNG.
Other litigation between NNG and the producers includes condemnation of the wells within the expanded containment field area in Pratt and Reno Counties. The new ruling will help move this litigation along, said Gordon Stull, attorney for some land owners in this litigation.
More legal issues have to be resolved before this matter is finally closed so this most recent ruling is another step to a conclusion.
"There will be many more rounds of legal fighting," Schmisseur said.
In the original litigation, NNG claimed that ONEOK and Lumen wrongly converted gas purchased from Nash and L.D. Lumen and ONEOK filed a suit for compensation from Nash and L.D. then Nash and L.D. filed various claims against NNG, ONEOK and Lumen.
The district court ruling dismissed ONEOK's and Lumen's case against Nash and L.D. and ruled in favor of Nash and L.D. concerning the gas from NNG's containment field. The March 15 judgment upholds that decision.