Kenai Landing, Inc. v Cook Inlet Natural Gas Storage, et al.Annotate this Case
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 appealed the resulting compensation award, arguing it retained ownership of the producible gas in place because the oil and gas lease authorized only production, not storage. It also argued it had the right to compensation for gas that was discovered after the date of taking. The landowner also challenged 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. The Alaska Supreme Court concluded 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. Furthermore, the Court concluded the trial court did not clearly err with regard to findings about valuation.