NORTHERN NATURAL GAS COMPANY, Plaintiff Counter Defendant-Appellant/Cross-Appellee,
L.D. DRILLING DEFENDANTS, VAL ENERGY DEFENDANTS, HUDSON GROUP DEFENDANTS, and HUFF LANDOWNER GROUP, Defendants Counterclaimants-Appellees/Cross-Appellants, and NASH OIL AND GAS DEFENDANTS, PRATT WELL SERVICE DEFENDANTS, and MEIRIES LANDOWNER GROUP, Defendants-Appellees/ Cross-Appellants.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
KANSAS (D.C. NO. 6:10-CV-01232-JTM-DWB)
Richard A. Olmstead, Kutak Rock L.L.P., Wichita, Kansas (Mark
D. Coldiron and Corey A. Neller, Ryan Whaley Coldiron Jantzen
Peters & Webber, P.L.L.C.,
Oklahoma City, Oklahoma, with him on the briefs), for
Plaintiff Counter Defendant-Appellant/Cross-Appellee.
J. Buller, Foulston Siefkin L.L.P., Wichita, Kansas, and Adam
S. Davis, Wagstaff & Cartmell L.L.P., Kansas City, Kansas
(Jim H. Goering, James M. Armstrong, and Timothy B. Mustaine,
Foulston Siefkin L.L.P., Wichita, Kansas, for L.D. Drilling,
and Brian J. Madden, Wagstaff & Cartmell L.L.P., Kansas
City, Kansas, for Nash Oil and Gas, and Jeffrey L.
Carmichael, Morris, Laing, Evans, Brock & Kennedy,
Chartered, Wichita, Kansas, for Val Energy, and Robert R.
Eisenhauer, Johnston Eisenhauer Eisenhauer and Lynch, L.L.C.,
Pratt, Kansas, for Pratt Well Service, with them on the
briefs), for Defendants
Counterclaimants-Appellees/Cross-Appellants L.D. Drilling and
Val Energy, and Defendants-Appellees/Cross-Appellants Nash
Oil and Gas and Pratt Well Service.
Stephen E. Robison, Fleeson, Gooing, Coulson & Kitch,
L.L.C., Wichita, Kansas (Gregory J. Stucky, David G. Seely,
Daniel E. Lawrence, and Ryan K. Meyer, Fleeson, Gooing,
Coulson & Kitch, L.L.C., Wichita, Kansas, and Gordon B.
Stull and John D. Beverlin, Stull, Beverlin, Nicolay &
Haas, L.L.C., Pratt, Kansas, for The Huff Landowner Group,
and Robert R. Eisenhauer, Johnston, Eisenhauer, Eisenhauer
& Lynch, L.L.C., Pratt, Kansas, for The Meireis Landowner
Group, and Jack V. Black and Thomas V. Black, Black's Law
Office, P.A., Pratt, Kansas, for The Hudson Landowner Group,
with him on the briefs) for Defendants
Counterclaimants-Appellees/Cross-Appellants The Hudson Group
and The Huff Landowner Group, and
Defendants-Appellees/Cross-Appellants The Meiries Landowner
TYMKOVICH, Chief Judge, LUCERO, and PHILLIPS, Circuit Judges.
TYMKOVICH, Circuit Judge.
case arises from condemnation proceedings brought under the
Natural Gas Act of 1938 (NGA), 15 U.S.C. § 717 et seq.
Northern Natural Gas Company initiated proceedings against a
number of parties to condemn certain rights relating to the
storage of natural gas in and under more than 9, 000 acres of
land in southeast Kansas, known as the Cunningham Storage
Field. According to Federal Rule of Civil Procedure 71.1, the
district court appointed a three-person commission to
determine an appropriate condemnation award. The district
court adopted the commission's findings and
recommendations in full, and entered final judgment requiring
Northern to pay $7, 310, 427 in principal (the award
recommended by the commission), plus interest, for a
condemnation award totaling over $8.5 million.
sides appealed, asserting various arguments in support of
their positions that the award either over- or
under-compensated the Landowners and Producers. We REVERSE in
part and AFFIRM in part. As we explain, the condemnation
award should not have included either (1) the value of
storage gas in and under the Cunningham Field on the date of
taking, or (2) the lost value of producing such gas after the
date of certification, because certification extinguished any
property interests the Landowners and Producers may have held
in the gas before that date. But we agree with the
award's inclusion of value for Extension Area tracts
based on their potential use for gas storage and buffer
rights, the commission's valuation for the eight
Extension Area wells, and the district court's denial of
owns and operates the Cunningham Field, an underground
natural gas storage facility that is part of the
"Northern System." Before original production
depleted the field's natural resources and Northern
converted it to a storage facility, the property produced
approximately 80 billion cubic feet (BCF) of native natural
gas from an underground dolomitic limestone formation known
as the Viola Formation.
1978, the Federal Energy Regulatory Commission (FERC) and
Kansas Corporation Commission (KCC) first certified the
Cunningham Field for gas storage. At that time, the field
included approximately 25, 000 acres of land. Northern's
certified boundaries expanded over time with the addition of
a 1, 760-acre tract north of the original boundaries on
October 30, 2008 (the 2008 Extension Area) and a 12, 320-acre
area located approximately five or six miles north of the
original boundaries on June 2, 2010 (the 2010 Extension
Area). In February 2009, before it obtained
certificate authority over the entire 2010 Extension Area,
Northern negotiated and obtained storage leases on
approximately 3, 040 acres in the southern part of the 2010
appeal concerns property rights related to the storage of
natural gas in and under approximately 9, 200 acres of land
in the vicinity of the Cunningham Field, including some of
the Extension Area. Valuation is determined from the
"date of taking" for purposes of valuing the
relevant property rights. United States v. Miller,
317 U.S. 369, 374 (1943) ("[V]alue is to be ascertained
as of the date of taking."). For our purposes the
parties agree the date of taking is March 30, 2012, which is
when Northern perfected its right to take physical possession
of the property by posting security and providing notice to
relevant landowners. See App. 1638-72.
the course of its operations, Northern discovered that
volumes of storage gas injected into the Cunningham Field did
not always match volumes withdrawn from the field. This
mismatch indicated that at least some amount of gas was
migrating outside of the field's primary storage area
boundaries. For example, in the early 1990s Northern
discovered that approximately 10 BCF of storage gas had
migrated to a sandstone layer directly beneath the Viola
Formation, known as the Simpson Formation. In 1996, Northern
obtained FERC and KCC approval to include the Simpson
Formation within the Cunningham Field's certified
boundaries. Later, when Northern began producing gas from the
2010 Extension Area, it noticed that injected volumes were
exceeding withdrawn volumes, again indicating gas migration.
subsequently discovered that gas was leaking out of the
Cunningham Field across a lengthy fault originally thought to
form a physical barrier to gas migration across the
field's northern boundaries. In an effort to curb this
migration, Northern engaged in an array of legal and
administrative efforts against companies that were allegedly
producing gas from areas north of the field's boundaries,
which tended to draw the storage gas away. After it obtained
FERC certification for (and the associated power of eminent
domain over) the 2010 Extension Area, Northern initiated
proceedings to condemn the land under the NGA.
of its initial complaint, Northern sought "[a]n
immediate injunction against further exploration, production,
and operation . . . to protect and preserve the [Cunningham
Field] from irreparable harm done by further production of
Northern's storage gas and to comply with the 2010
Certificate Order." See App. 273. Northern
therefore filed a motion asking the district court to order
that the Producers' wells be "shut in" (i.e.,
closed) pending resolution of its claims. It obtained a
preliminary injunction to this effect on December 22, 2010.
See N. Nat. Gas. Co. v. L.D. Drilling, Inc., 759
F.Supp.2d 1282 (D. Kan. 2010); App. 695-96.
the district court exercised its authority under Federal Rule
of Civil Procedure 71.1 and appointed a three-person commission
with the powers of a Rule 53 "master" to determine an
appropriate condemnation award. The commission conducted a
trial and recommended an award totaling $7, 310, 427,
including: (1) $5, 950, 740 for oil and gas in place on the
date of taking; (2) $1, 086, 347 for gas storage and buffer
value of the Extension Area tracts; (3) $226, 540 for surface
takings and damages; and (4) $46, 800 for eight Extension
district court adopted the commission's findings and
recommendations as its own, and entered final judgment
requiring Northern to pay the Landowners and Producers the
award recommended by the commission, plus interest. Both
sides appealed, challenging various aspects of the
parties raise a number of issues relating to the valuation of
the storage gas and the proceedings below.
Northern argues that the value of storage gas in and under
the Extension Area on the date of taking should not have been
included in the condemnation award. This contention also
implicates challenges to the commission's valuation of
future production and the district court's instruction
that, when calculating the value of lost future production,
the commission should ignore the inhibition on production
triggered by the preliminary injunction that shut in the
Northern and the Landowners dispute the valuation of gas
storage and buffer rights for Extension Area tracts, as well
as the inclusion of that value in the condemnation award.
the Producers reject the valuation of the eight Extension
Area wells, which included only a "salvage" value
for casing materials remaining in each wellbore.
the Landowners and Producers argue they are entitled to
additional compensation to cover their attorneys' fees.
address each of these issues in turn, reviewing the district
court's determinations in these condemnation proceedings
to determine "whether proper legal standards were
applied in resolving the issue of just compensation and
whether any supplemental findings of the district court were
clearly erroneous." United States v. 179.26 Acres of
Land, 644 F.2d 367, 368 (10th Cir. 1981) (citations
omitted). We consider a commission's findings "only
to see whether the district court properly accepted and
approved them as not being clearly erroneous."
Id. at 368-69 (citations omitted). A district court
commits reversible error in adopting the commission's
conclusions "only if the commission misapplied the law
or made findings contrary to the clear weight of the
evidence, " and we "will not retry the facts."
United States v. 2, 560.00 Acres of Land, 836 F.2d
498, 501 (10th Cir. 1988) (citations omitted). "[A]
determination by the commission based on sharply conflicting
evidence should be viewed as conclusively binding."
Id. (citations omitted).
following reasons, we reverse in part and affirm in part. We
disagree with the inclusion of the value of storage gas in
and under the Extension Area on the date of taking because we
find that the Landowners and Producers had no right to
produce such gas after the date of certification. We affirm
the remaining ...