Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Kenai Landing, Inc. v. Cook Inlet Natural Gas Storage Alaska, LLC

Supreme Court of Alaska

May 24, 2019


          Appeal from the Superior Court of the State of No. 3KN-11-00252 CI Alaska, Third Judicial District, Kenai, Carl Bauman, Judge.

          Bruce E. Falconer, Boyd, Chandler & Falconer, LLP, Anchorage, for Appellant.

          Donald W. McClintock, Eva R. Gardner, and Matthew T. Findley, Ashburn & Mason, P.C., Anchorage, for Appellee Cook Inlet Natural Gas Storage Alaska, LLC. No appearance by Appellees Kirkpatrick-Walkowski-Watkins Trust and Chere D. Kaas.

          Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.




         A public utility filed a condemnation action seeking the land use rights necessary to construct a natural gas storage facility in an underground formation of porous rock. The utility held some rights already by assignment from an oil and gas lessee. The superior court held that because of the oil and gas lease, the utility owned the rights to whatever producible gas remained in the underground formation and did not have to compensate the landowner for its use of the gas to help pressurize the storage facility.

         The court held a bench trial to determine the value of the storage space. The landowner appeals the resulting compensation award. It argues that it retained ownership of the producible gas in place because the oil and gas lease authorized only production, not storage. It also argues that it had the right to compensation for gas that was discovered after the date of taking. But we conclude that the superior court did not err in ruling that the landowner's only rights in the gas were reversionary rights that were unaffected by the utility's non-consumptive use of the gas during the pendency of the lease.

         The landowner also challenges several findings related to the court's valuation of the storage rights: that the proper basis of valuation was the storage facility's maximum physical capacity rather than the capacity allowed by its permits; that the valuation should not have included buffer area at the same rate as area used for storage; and that an expert's valuation methodology, which the superior court accepted, was flawed. We conclude that the superior court did not clearly err, and we therefore affirm its judgment.


         A. Facts

         Cook Inlet Natural Gas Storage Alaska, LLC ("CINGSA"), is a private company building a natural gas storage facility on the Kenai Peninsula.[1] The facility stores natural gas collected from other sites by injecting it into a mostly depleted rock formation nearly a mile underground - the Sterling C Reservoir - so that it can be withdrawn in wintertime when the demand for natural gas exceeds what local production can immediately supply.

         To ensure the efficient extraction of gas, the facility must maintain a minimum amount of pressurization, which in turn requires that it retain a minimum amount of gas in storage. This is called "base gas" (or "cushion gas"). In the Sterling C Reservoir, part of the need for base gas was satisfied by gas left in the reservoir at the time CINGSA acquired it; such gas left in the ground is known as "native gas." Any gas in the reservoir in addition to the base gas is called "working gas," since that gas moves in and out of storage according to demand.

         The storage facility's "safety, pressure limitations, and other operational matters" were subject to regulation by the Alaska Oil and Gas Conservation Commission (AOGCC), and its "financial and economic matters and relationships with its customers" were regulated by the Regulatory Commission of Alaska (RCA). The RCA granted CINGSA a certificate of public convenience and necessity in 2011, and CINGSA, as a regulated public utility, proceeded to use the power of eminent domain to acquire the property rights necessary for the storage facility's operation.[2]

         Kenai Landing, Inc. owns a parcel of land overlying the Sterling C Reservoir. Kenai Landing acquired the property subject to an existing oil and gas lease - the "Wards Cove Lease" - entered into in 1978 by C.W.C. Fisheries and Union Oil Company. The Wards Cove Lease, committed to the Cannery Loop Unit, [3] provides that it will not terminate as long as gas is being produced anywhere in the unit. When CINGSA filed its condemnation action, the royalty rights under the Wards Cove Lease were held by Wards Cove and the production rights were held by Marathon Alaska Production Company. CINGSA negotiated separate agreements with both Wards Cove and Marathon, acquiring their rights as lessor and lessee, respectively, under the lease. The Department of Natural Resources (DNR) then agreed to sever the Sterling C Reservoir from the Cannery Loop Unit so that it could be used for storage purposes.

         Sometime after CINGSA commenced its condemnation action, it discovered "a pocket of gas" referred to as the "isolated reservoir." CINGSA's drilling brought this "new gas" into contact with the gas already known to be in the reservoir; the new gas, thus, increased the volume of native gas overall, including that underlying Kenai Landing's property.

         B. Proceedings

         In March 2011 CINGSA filed a complaint against Kenai Landing and others to condemn the rights to the Sterling C Reservoir that it had not been able to acquire through negotiation. It sought to condemn (1) an easement for gas storage, to include the underground formations in the Sterling C Reservoir plus an adjoining geological zone for use as a "buffer"; and (2) an easement in the mineral interests, which would allow CINGSA the use of "all gas, oil, or other minerals . . . located within the Sterling C Pool and the correlative buffer geological formation," including the use of native gas as "base gas for the storage facility."

         CINGSA moved for partial summary judgment, asking for a ruling that Kenai Landing had no right to compensation for any of the native gas in the Sterling C Reservoir because CINGSA owned this gas as assignee of the Wards Cove Lease. Kenai Landing countered that the lease had been terminated, either by the condemnation itself or by DNR's severance of the Sterling C Reservoir from the Cannery Loop Unit, and that ownership of the minerals had therefore reverted to Kenai Landing. The superior court decided that the Wards Cove Lease was still in effect and granted summary judgment on this issue in CINGSA's favor.

         The parties agreed that Kenai Landing had a right to compensation for the use of its property for underground gas storage.[4] A hearing to value these storage rights was held in June 2013 before a master, who determined that Kenai Landing was entitled to $ 125, 000 in compensation. Kenai Landing requested a trial de novo, and the superior court held a bench trial over seven days in May 2016. Each side presented expert testimony by appraisers and petroleum engineers. Finding CINGSA's expert testimony more credible, and declining to defer to the master's determination of value, the superior court concluded that Kenai Landing was entitled to $65, 000 for the gas storage rights. Adding $23, 677 for the stipulated value of the non-producible minerals under Kenai Landing's land, [5] the total compensation award to Kenai Landing was $88, 677. Kenai Landing now appeals.


         We review a decision on summary judgment de novo.[6] "We will affirm a grant of summary judgment if there are no genuine issues of material fact and if the movant is entitled to judgment as a matter of law."[7] Whether the superior court applied the correct legal standard in an eminent domain proceeding is a question of law which we also review de novo.[8]

         The proper amount of compensation to be paid for a taking is a factual question.[9] "We review the factual findings of a trial court for clear error, 'a standard that is met if, after a thorough review of the record, we come to a definite and firm conviction that a mistake has been made.' "[10]


         Kenai Landing raises five issues on appeal. First, it argues that the superior court erred by failing to compensate it for CINGSA's use of the native gas remaining in the Sterling C Reservoir as base gas. Second, it argues that it was also entitled to compensation for its proportionate share of the new gas CINGSA discovered after the taking.

         Kenai Landing's other three claims relate to the superior court's valuation of the gas storage space. It argues that the court erred by failing to consider the "highest and best use" of the land and the "fullest extent" rule; that the court erred by giving equal value to the storage space and the surrounding buffer zone; and, finally, that the court erred by relying on the valuation testimony of one of CINGSA's expert witnesses, who Kenai Landing contends applied the valuation methodology improperly.

         We conclude that none of these issues involves legal error or a clearly erroneous finding of fact, and we therefore affirm the superior court's judgment.

         A. The Superior Court Did Not Err In Deciding That Kenai Landing Was Not Entitled To Compensation For CINGSA's Easement In The Native Gas.

         Kenai Landing argues that the superior court erred when it concluded that Kenai Landing owned at most "a reversionary interest in the native gas in place." Kenai Landing argues that the only interest in native gas that its predecessor-in-interest transferred to Marathon under the Wards Cove Lease was the right to extract it. Kenai Landing argues that the rights transferred under the lease "relate exclusively to production and do not include the right to make use of the native gas as Base Gas," a right which "is instead part of the rights the lessor retained and belong to the property's fee simple owner, [Kenai Landing]." Kenai Landing argues that its perspective is supported by the language of the lease, "which the superior court utterly failed to analyze."

         We do not find the lease language to be as "straightforward" as Kenai Landing characterizes it. The granting clause is broad: "[The] lessor... has ... leased ... exclusively unto the lessee the hereinafter described land... for the purpose of the drilling, mining, and operating for, producing, and saving all of the oil [and] gas A later paragraph provides that "[t]he lessee shall have the right to use, free of cost, gas . . . found on said land for its operations thereon . . . ." The lease specifically contemplates that it will remain in effect even if not producing, as long as it is part of a unit on which some production is occurring and the lessor is being paid royalties on the unit's production.

         Citing cases, Kenai Landing argues that "it would be unusual to interpret a production lease like the Wards Cove Lease to include the right to store non-native gas absent specific language conferring that right upon the lessee."[11] That may be true, but "the right to store non-native gas" is a separate issue; Kenai Landing is being compensated for CINGSA's storage of gas in Kenai Landing's pore space, though it disputes the amount. What concerns us here is the use of the native gas, not the storage of non-native gas. Kenai Landing concedes that both Marathon and CINGSA, as the assignee of Marathon's production rights, had the right to produce all the native ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.