Migrating Gas Subject to Rule of Capture Under Property Not Adjoining Storage Field

Under the rule of capture, a landowner is entitled to produce and use natural resources, such as gas or water that can be severed from their own land. Once severed, the resource becomes the personal property of the landowner regardless of whether the natural resource had migrated to the place upon which it was captured.

The plaintiff in a recent case is a company that operates an underground natural gas storage field. The company received state and federal certification in the 1970s and again in 1996 to inject and store natural gas in two separate geological stratum underlying a storage field. In 2008, the company was permitted to expand its field to address gas migration problems, but it was not permitted to inject additional gas into the expansion area.

The defendants are companies that operate oil and gas wells within two to six miles from the plaintiff’s certified boundary. Additional defendants purchased gas produced by these wells. The plaintiff originally filed suit in federal court alleging the defendants caused the storage gas to migrate from its field by creating “pressure sinks.” The sinks were done by pumping atypical quantities of groundwater at the wells creating artificial pressure and causing the gas to migrate toward the wells. The plaintiff alleged the defendants were producing and selling the plaintiff’s previously injected storage gas.

In a parallel state suit, the plaintiff brought claims against the defendants purchasing the gas from the defendants producing the gas. In response these purchasing defendants admitted purchasing gas from the other defendants and brought third-party indemnity claims against the producers for any liability for which they may be held. The producer defendants asserted third-party claims against the plaintiff alleging tortious interference with a business relationship.

The producer defendants filed summary judgment motions on the indemnification claims for conversion of plaintiff’s gas. They relied on K.S.A. 55-1210(c) that states that injectors of natural gas do not lose title to gas that has migrated to anadjoining property which has not been condemned or purchased. The producers alleged that because their wells were on property that was not adjoining the plaintiff’s field, the common law rule of capture applied, which gave them title to any gas produced in their wells. Because the plaintiff did not own the gas produced and sold by the defendants, the plaintiff’s conversion claim failed along with the indemnification claims.

The district court granted summary judgment to the producer defendants on the basis that, under the statute, the plaintiff lost title to any storage gas that migrated beyond property adjoining its certified boundaries, and the rule of capture gave the producers title to the migrating gas. After the plaintiff filed a notice of appeal of the state district court opinion, the plaintiff was permitted by FERC Order to expand its storage field. As a result, all but two of the producers’ wells were no longer within the expansion area or within one mile. Based on the ruling expanding the area, the plaintiff sought relief from judgment in the state case and moved for condemnation of the area in federal court.

The state district court declined to modify its previous order, and that ruling to not include the FERC expansion became part of the plaintiff’s appeal as well. The primary issue on appeal, however, was the interpretation of K.S.A. 55-1210(c) and whether the statute eliminated the rule of capture for migrating gas in the state. In order to ascertain the meaning of the statute, the court reviewed the history of the law and the previous cases interpreting it.

The Court first looked at a 2009 case, Northern Natural Gas Co. v. Martin, Pringle, 217 P.3d 966 (Kan. 2009), in which the court reviewed the legislature’s 1993 change in the law regarding underground storage of natural gas. In the Martin, Pringlecase, the court stated that before the 1993 passage of K.S.A. 55-1210, landowners adjacent to an underground storage area were legally entitled to produce and keep gas that had migrated onto their property under the common law rule of capture. After the statute was enacted, however, that right was limited because the statute permitted migrating gas to trespass onto adjoining land. The Court had previously defined adjoining land under the statute in the case Williams Natural Gas Co. v. Supra Energy, 931 P.2d 7 (Kan. 1997), as land that was contiguous or touching.

In reviewing the facts of the current controversy, the Court concluded that the wells at issue, which were two to six miles from the boundary of the plaintiff’s storage field, were not located on adjoining property. Because the gas had migrated beyond the adjoining property, the gas remained subject to the rule of capture, and the defendants were entitled to produce the gas. The Court rejected the plaintiff’s theory that it was entitled to the injected gas even if the gas had migrated to the “ends of the earth.” The Court emphasized that the statute clearly protects plaintiff’s title to the previously injected storage gas within its stated field and adjoining properties, but did not apply to the gas that had migrated beyond this area.

The Court also rejected the plaintiff’s argument that because it never intended to abandon the gas that migrated, it should not lose title to the property. The Court restated the well-established principle that until gas is severed from the real estate it is not personal property, and the rule of capture applied to inject storage gas that had migrated was decided regardless of the injector’s intention to abandon the migrating gas.

Because there were no statutory protections for title to storage gas that migrated beyond the adjoining property of the storage field, the Court affirmed the district court’s grant of summary judgment to the defendants. Because the issues changed after the plaintiff’s storage field was expanded, the matter was remanded to the district court for consideration of how that affected the issues. Northern Natural Gas Co. v. ONEOK Field Services Co., No. 104,279, 296 P.3d 1106 (Kan. Sup. Ct. Mar. 15, 2013).