Panel sides with Nebraska gas company in lawsuit over compensation for Kansas condemnation

IndustriesAssociated Press

A court-appointed panel of petroleum engineering experts has mostly sided with Omaha-based Northern Natural Gas on what the company should pay for condemning more than 9,200 acres in southern Kansas near its underground storage facility.

U.S. District Judge Monti Belot on Wednesday gave the parties until Sept. 16 to file objections to the recommendations in the panel's 85-page report to the court.

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The three-member commission's unanimous findings, filed Tuesday, stem from 19 days of trial testimony held between April and June. It was charged with determining the "just compensation" for the rights to a geological formation underlying the condemned land owed to gas producers and owners surrounding the company's Cunningham Storage Field.

Northern concluded, and it was undisputed at trial, that gas was leaking out of the storage field across a lengthy fault that was originally thought to form a physical barrier to gas migration across its northern boundary, according to the report.

All told, the panel is recommending the company pay $7.3 million for storage rights and for gas underlying the land, far below the more than $100 million property owners wanted. In addition, it recommended the company pay $5,000 for each of the eight wells in the expansion area, rather than the $400,000 for each one like the producers were demanding.

It is unclear how many owners still have a property interest in the affected parcels, but the company's amended complaint filed in 2011 cited more than 200 parties to the lawsuit. The commission determines the values, but it is up to the judge to then decide how to split the compensation among all of its interest owners.

The long trial was marked by conflicting testimony by experts for the company and experts for affected property owners in Pratt, Kingman and Reno counties. Ultimately, the report shows the panel relied mostly on the figures compiled by the company's experts in reaching its findings — particularly on key items like estimating how much natural gas was present and how much storage gas had migrated under the condemned land. The panel also concluded that so little, if any, natural gas was underlying most of the tracts that it was not economically recoverable.

Northern Gas spokesman Mike Loeffler said Wednesday that the report's findings are critical to the company.

"The award given is the panel's determination of what is appropriate, and in each of these instances the theory of the producers was far above the value awarded," he said.

The panel agreed with the company's longstanding contention that drilling activity near the storage field was changing the geological pressure and essentially siphoning off its stored gas. The report noted that when pressure in Northern's storage field declined, the production rates out of the wells in neighboring fields declined precipitously, even to the point some wells stopped producing altogether.

The difference in the valuations was "enormous," the panel's report said. The property owners' expert witness valued the current gas production rates out for the next 20 years and pegged their worth in excess of $97 million, while the company's competing valuation was for just over $1 million.

The commission ultimately recommended to the court that it value at $5.95 million the gas underlying the land.

In addition, the panel concluded that $124 per acre is just compensation for storage buffer, recommending an award of $1.08 million for the nearly 9,925 acres at issue in the lawsuit.

The legal maneuvering for condemnation comes in the wake of a 2010 decision by the Federal Energy Regulatory Commission that granted Northern the authority to expand its Cunningham Storage Field in Kansas by an additional 12,320 acres. The facility stores gas in two underground formations now spanning about 28,000 acres.