Wednesday, January 23, 2013

On Gas Storage

Continuing my studies from Texas Law of Oil and Gas, Second Edition, I am currently on the authors' section on Rights in Natural Gas Injected into Underground Reservoirs (This begins on Page 1-21 for those following at home). 

With regard to ownership over escaped oil, the authors note that disputed are more likely to be in the form of disclaimers as opposed to outright title assertions. 

They then note that there is a distinction between oil and natural gas in the matter.  When natural gas is injected underground for storage or other purposes, there can be legal title questions raised.  They then note that there are several relevant factors to consider when title to natural gas is disputed, including among others the reason for injecting, the structure of the underground reservoir, the contents, the ownership of rights to production from the reservoir and the applicability of the Underground Gas Storage and Conservation Act.

It makes sense that natural gas is used more in cold weather for heating, or during severe weather as opposed to fair weather.  In order to ensure a steady supply during periods of peak use, it makes sense that Natural Gas would be stored, and with gas, it also makes sense to make use of natural storage spaces, such as underground, such as from a previously depleted gas unit, or from leaching salt from a salt dome formation.  With regard to the former, there is one challenge - the depleted formation will invariably still have some gas from the original source, which the authors dub "native" gas. 

If we remember from our previous discussions, oil and gas that has been produced becomes Personal Property, as opposed to Real Property.  Being personal property, ownership of natural gas that is stored underground can be abandoned like other property.  If the storage company is unable or unwilling to assert control, such as through negligence, however, the Court in Lone Star Gas Co. v. Murchison, the authors note, held that the company that injected the gas that migrated to a part of the reservoir not subject to the company's storage rights had NOT abandoned the property because the primary tenet in the doctrine of abandonment is the intent to abandon, and the injecting company "unquestionably" planned to withdraw the gas during peak consumption.

Another concept of abandonment comes through the concept of commingling, where personal property which is fungible that belongs to two or more people becomes mixed in such a way that it's impossible to determine whose property belongs to whom.  The Texas Supreme Court has held that commingling is not grounds for abandonment based on commingling in Humble Oil  & Refining Co. v. West, where a reservoir that was still capable of producing (the book does not state whether it was producing, rather that it had not yet ended its productive life), was the target of injection.  The injecting company in that case had to pay royalty on the native-gas portion of the withdrawals, and had the burden of establishing with reasonable certainty the property of injected gas to native gas. 

That's plenty to read for now.  Next time, I'll try to touch on Pressure Maintenance and Cycling Operations.

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