Justia Kansas Supreme Court Opinion Summaries

Articles Posted in Energy, Oil & Gas Law
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In this second appeal in a class action case alleging a breach of the implied duty to market gas and underpaid royalties the Supreme Court affirmed the decision of the district court denying a class's motion to amend its petition and granting partial summary judgment for Oil Producers Inc. of Kansas (OPIK) on the class's breach of duty to market gas as it related to the marketable condition rule, holding that there was no error.In the first appeal in this case, the Supreme Court listed the conditions under which a well operator may satisfy its duty to market raw gas production. On remand, the class of royalty owners moved to amend the petition to clarify that its original claim of breach of implied duty to market implicated the implied duty of good faith and fair dealing. The district court denied the motion and granted summary judgment for OPIK. The Supreme Court affirmed, holding (1) the law of the case doctrine precluded thecClass from relitigating its claim that OPIK breached its implied duty of faith and fair dealing as alleged in the motion to amend the petition; (2) the class was not entitled to prejudgment interest; and (3) the lower courts appropriately denied OPIK's statute of limitations defense to the class's conservation fee claim. View "L. Ruth Fawcett Trust v. Oil Producers Inc. of Kansas" on Justia Law

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The Supreme Court affirmed the decision of the Board of Tax Appeals (BOTA) upholding county appraisers' application of the Kansas Oil and Gas Appraisal Guide developed by the Kansas Department of Revenue's Property Valuation Division for valuations given for the 2016 tax year to the working interest of River Rock Energy Co. in 203 gas wells and related equipment, holding that the BOTA did not err.In its dispute, River Rock argued that the Guide produced inflated values for its working gas leases by capping operating expense allowances to arrived at a "working interest minimum lease value." The BOTA upheld the county appraisers' application of the Guide. The court of appeals affirmed in part and reversed in part, holding that the Guide overvalued River Rock's wells. The Supreme Court affirmed in part and reversed in part, holding (1) the county appraisers correctly applied the Guide; and (2) the court of appeals correctly decided that it had jurisdiction to entertain River Rock's challenge to BOTA's order refusing to abate filing fees. View "In re Tax Appeal of River Rock Energy Co." on Justia Law

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The Supreme Court reversed the judgment of the district court granting summary judgment against Northern Natural Gas Company, holding that certification from the Federal Energy Regulatory Commission (FERC) permitting Northern to expand the authorized boundaries of its underground storage field to encompass nearby wells changed the right-to-produce analysis for gas taken before June 2, 2010.Some of the storage gas owned by Northern migrated beneath the earth to nearby wells in areas that Northern did not control through eminent domain or contract. The wells' operators extracted that gas and sold it. In a previous appeal, the Supreme Court applied the common-law rule of capture to rule that the operators lawfully produced and sold Northern's storage gas taken before June 2, 2010, the date when Northern received its certificate from FERC. At issue in this appeal was whether the producers could take Northern's migrated storage gas from wells located within the newly certified boundaries for the storage field after June 2, 2010. The district court ruled on summary judgment that the producers had that right under the common-law rule of capture. The Supreme Court disagreed, holding that once the new boundaries were certified Northern's identifiable storage gas within that designated area was no longer subject to the rule of capture. View "Northern Natural Gas Co. v. ONEOK Field Services Co., LLC" on Justia Law

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In this quiet title action involving the mineral interests in two tracts of real estate, the Supreme Court affirmed the judgment of the district court finding that the grantees' successors in interest obtained ownership of minerals when twenty years expired without production on the property, holding that the common-law rule against perpetuities (the rule) should not be applicable to the circumstances of this case.The tracts at issue were conveyed by deeds in which the grantor excepted the mineral interests for a "period of 20 years or as long thereafter" as minerals may be produced. The grantor's successors in interest claimed full ownership of the mineral interest in both tracts, arguing that the future ownership of the minerals when the grantor's excepted term interest ended violated the rule, thereby voiding those conveyances ab initial and preventing them from devolving to the grantees' successors in interest. The district court concluded that the grantees' heirs obtained ownership of the minerals when twenty years expired without production on the property. The Supreme Court affirmed on different grounds, holding that the rule did not apply under these circumstances. View "Jason Oil Co. v. Littler" on Justia Law

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In 2010, The Kansas Department of Health and Environment (KDHE) issued a prevention of significant deterioration (PSD) construction permit to Sunflower Electric Power Corporation that authorized Sunflower to build a coal-fired electric generating unit at a site where Sunflower already operates a coal-fired station. In Sierra Club I, the Supreme Court held that KDHE had failed to comply with the federal Clean Air Act and remanded the permit to KDHE. On remand, KDHE issued an addendum to the 2010 permit. Sierra Club sought judicial review of that action, arguing, inter alia, that KDHE was required to conduct an entirely new permitting process rather than simply crafting an addendum to the 2010 permit. The Supreme Court affirmed, holding (1) KDHE did not err in adding an addendum to the 2010 permit; and (2) Sierra Club failed to establish any other basis for invalidating Sunflower’s PSD permit. View "Sierra Club v. Mosier" on Justia Law

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The lessee-operator of twenty-five oil and gas leases sold its raw natural gas at the wellhead to third parties, who processed the gas before it entered the interstate pipeline system. The price the operator was paid, and the price upon which royalties were calculated, was based on a formula that starts with the price the third parties received for the processed gas and then deducts certain costs incurred or adjustments made. At issue here was whether the operator may take into account the deductions and adjustments identified in the third-party purchase agreements when calculating royalties. The class of royalty owners in this case argued that post-production, post-sale expenses necessary to transform natural gas into the quality required for interstate pipeline transmission were attributable solely to the operator as part of the operator’s sole responsibility to make the gas marketable. The district court grand summary judgment in favor of the class for an as-yet undetermined amount of unpaid royalties. The court of appeals affirmed. The Supreme Court reversed, holding that the class was not entitled to judgment as a matter of law because the duty to make gas marketable is satisfied when the operator delivers the gas to the purchaser in a condition acceptable to the purchaser in a good faith transaction. View "Fawcett v. Oil Producers, Inc. of Kan." on Justia Law

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In 1969, Grantors and an oil company entered into a continuing oil and gas lease covering Grantors’ property. Less than seven months later, Grantors entered into a mineral deed with Grantee covering the same property. The mineral deed had a primary term of fifteen years. In 2012, Plaintiffs, the sole heirs of Grantors, filed a declaratory judgment seeking a declaration that the royalty interest held by Defendants, the sole heirs of Grantee, had terminated. The district court granted summary judgment for Defendants, concluding that because the mineral deed stated that it was subject to the terms of the continuing oil and gas lease and because Grantor was a party to both the lease and the mineral deed, the parties intended that they be read together. The Supreme Court reversed, holding (1) the “subject to” clause in the mineral deed did not incorporate the provisions of the lease; and (2) therefore, Defendants’ mineral interest did not continue past its fifteen-year term. View "Netahla v. Netahla" on Justia Law

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Prairie Land Electric Cooperative, Inc. (Prairie Land), which purchases wholesale electricity from various suppliers and distributes that electricity to retail customers, entered into temporally overlapping, long-term all-requirements contracts with two different wholesale electricity suppliers, Sunflower Electric Power Corporation (Sunflower) and Kansas Electric Power Cooperative, Inc. (KEPCo). After a dispute arose regarding which supplier had the right to serve a certain pumping station delivery point, Prairie Land filed a petition for declaratory judgment asking the district court to determine which supplier was entitled to serve the new delivery point. The district court ruled in favor of Sunflower, which entered into the first all-requirements contract with Prairie Land. The court of appeals reversed. The Supreme Court reversed the court of appeals’ decision and affirmed the district court’s judgment, holding that under the facts of this case, Prairie Land must meet its obligations under its contract with Sunflower, the first supplier, before it may comply with any obligations under its contract with KEPCo, the second supplier. View "Prairie Land Elec. Coop., Inc. v. Kan. Elec. Power Coop., Inc." on Justia Law

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Thoroughbred Associates drilled a gas well (Well) in Comanche County. Thoroughbred subsequently acquired leases of land near the Well and created a unit called the Thoroughbred-Rietzke Unit (Rietzke Unit). Defendants became successors-in-interest to a lease (OXY Lease) Thoroughbred entered into for oil and gas underlying a tract near the Well. The parties disagreed, however, about whether the Well was draining the Rietzke Unit. Thoroughbred stopped submitting royalty payments to Defendants accruing from the Rietzke Unit. Thoroughbred subsequently filed a complaint for a declaratory judgment that it had been mistaken when it included the OXY Lease in the Rietzke Unit. Defendants counterclaimed. The district court concluded (1) Defendants failed to prove that any drainage of the leased lands occurred; and (2) the Lease was properly included in the Rietzke Unit. The Supreme Court affirmed in part and reversed in part, holding (1) Defendants failed to prove their drainage claim; and (2) the court of appeals erroneously granted summary judgment to Defendants on their claim that the Lease should be included in the Rietzke Unit. View "Thoroughbred Assocs., LLC v. Kansas City Royalty Co., LLC " on Justia Law

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Northern Natural Gas Company (Northern) claimed several gas and energy companies (collectively, ONEOK and Lumen) wrongfully converted natural gas by purchasing gas from two producers (collectively, Nash and L.D.), which operated wells on land near Northern's underground natural gas storage field. ONEOK and Lumen filed third-party identification claims against Nash and L.D. Nash and L.D., in turn, asserted various claims against Northern, ONEOK, and Lumen. The district court granted summary judgment in favor of Nash and L.D. on the third-party identification claims, concluding that Northern lost title to its migrating storage gas, and thus, Nash and L.D. had title to the gas produced by wells located beyond property adjoining the certificated boundaries of Northern's gas storage field and purchased by ONEOK and Lumen. Before the court journalized its order, Northern expanded the certificated boundaries of its storage field, bringing the wells at issue within the expansion area. The district court denied Northern's motion to modify its summary judgment ruling but limited its ruling to matters prior to June 2, 2010. The Supreme Court affirmed, holding that by application of the rule of capture, Nash and L.D. possessed title to the gas produced from their wells before June 2, 2010. View "N. Natural Gas Co. v. ONEOK Field Servs. Co., LLC" on Justia Law