Oil and Gas
Withers, Gough, Pike & Pfaff, LLC is one of the leading oil & gas firms in the State of Kansas. We represent many independent producers, large producers, exploration companies, drillers, landmen, operators of extraction plants, and operators of gathering systems in a wide variety of legal matters involving the oil & gas industry.
Operating Issues, Purchase and Sale of Oil & Gas Interests: We maintain an extensive practice in title examination for drilling, division order, acquisition, and financing. We work from traditional abstracts when available but also travel regularly throughout the state to prepare ‘stand-up’ opinions directly from county records. John Pike was a contributor to the Kansas Bar Association’s Oil & Gas Law Handbook, and has served for several years on the Title Standards committee of the Kansas Bar Association, as a director and member of the Wichita Association of Petroleum Landmen, and as President of the Oil & Gas Mineral Law Section of the Kansas Bar Association in 2005-2006. Steven D. Gough and John G. Pike are members of KIOGA and are frequent lecturers on oil & gas law, litigation, and regulatory proceedings that affect Kansas producers. We assist our clients with the preparation of documents and agreements in daily use in the industry, including oil & gas leases, assignments, deeds, operating agreements, joint venture agreements, seismic permits, purchase and sale agreements, and all manner of title curative instruments, sale agreements and secondary recovery plans.
Regulatory Proceedings: Our attorneys have been involved in virtually every major regulatory hearing before the Kansas Corporation Commission (“KCC”) involving the oil & gas industry since 1985. This includes regulatory proceedings involving the largest gas fields in Kansas, namely the Kansas Hugoton Field and the Panoma Gas Field where our clients operated over 2,000 gas wells. Recent regulatory hearings have involved the issue of who is liable for plugging wells abandoned many years ago and what rules should apply to the development of coalbed methane fields in southeast Kansas. We have represented producers before the KCC in connection with operation of gathering systems, utility regulation and compulsory unitization for secondary recovery. We have worked out remediation plans that were approved by the KCC to clean-up oil and salt water spills, and have represented producers in connection with enforcement proceedings by the Kansas Department of Health and Environment. We have appeared on behalf of various producers before the Federal Energy Regulatory Commission (“FERC”) on a variety of matters. Several of these regulatory proceedings are described in the following reported cases: See, e.g., Southwest Kansas Royalty Owners Association v. Kansas Corporation Commission, 244 Kan. 157, 769 P. 2d 1 (1989); Mobil Exploration & Producing US v. Kansas Corporation Commission, 258 Kan. 796, 908 P. 2d 1276 (1995); United Cities Gas Co. v. Brock Exploration Co., 995 F. Supp. 1284 (D. Kan. 1998); and Plains Petroleum Co., v. First Nat’l Bank of Lamar, 274 Kan 74, 49 P. 3d 432 (2002). We have represented producers to successfully enforce the statewide allowable against operators who choose not to follow the rules. See, e.g., Protest of Abercrombie Energy, LLC against Oxy USA, Inc., KCC Docket No. 14-CONS-135-CEXC (Order filed April 1, 2014). We have also represented producers who successfully opposed unitization involving CO2 tertiary recovery. See, C12 Kansas Oil, LLC Application for the Unitization of the Post Rock Unit in Russell County, Kansas, KCC Docket No. 15-CONS-009-CUNI (Order denying application filed May 7, 2015).
State and Federal Litigation: We have represented producers in both state and federal court in lawsuits involving the right to be compensated for helium extracted by interstate pipelines from the natural gas stream. We have represented major oil companies in defending class action lawsuits filed by royalty owners. See, e.g., Smith v. Amoco Production Company, 272 Kan. 58, 31 P. 3d 255 (2001). We have successfully defended producers against environmental claims, by establishing that producers are not strictly liable for the escape of natural gas from gas wells. Williams v. Amoco Production Company, 241 Kan. 102, 734 P. 2d 1113 (1987). We have defended tool testers and producers in gas explosion cases where serious burn injuries resulted during the drilling of a well. We have represented pipeline companies who have been sued as a result of major oil spills. Wood River Pipeline Company v. Willbros Energy Services Co., 241 Kan. 580, 738 P. 2d 866 (1987). We have represented producers in cases involving disputes over operating agreements, unitization agreements, royalty clause interpretation, express and implied lease covenants, lease cancellation, the Kansas Dormant Minerals Act, quieting title to mineral rights, salt water disposal, surface damage disputes and drainage claims. See, e.g., Smith v. Amoco Production Company, 272 Kan. 58, 31 P. 3d 255 (2001); Kan. City Royalty Co., LLC v. Thoroughbred Associates LLC, 215 F.R.D. 628 (2003); Amoco Production Company v. Wilson, 266 Kan. 1084, 976 P.2d 941 (1999); and Akandas, Inc. v. Klippel, 250 Kan. 458, 827 P. 2d 37 (1992).
Marketability of Natural Gas and Permissible Deductions in Calculating Royalty. Our firm has taken a leading role in defending producers in lawsuits filed by royalty owners against claims that improper deductions were taken in calculating royalty under a variety of legal theories such as: (1) the gas was not marketable at the well; (2) compression was used to “produce” gas rather than transport gas; (3) gas is not marketable until it meets interstate pipeline transportation specifications; and (4) gas is not marketable if any processing of the gas stream is performed to remove inert gases, liquids or water. Vincent Youngren v. Amoco Production Company, Case No. 89 CV 22, District Court, Stevens County, Kansas. We have developed extensive evidence to support the marketability of natural gas at the well in various fields, to demonstrate the role of compression in the transportation of natural gas and to show the wide-ranging local use of natural gas as a fuel in Kansas before the gas is treated, compressed or processed. We have also developed and presented evidence of the market value of natural gas at the well to show that the royalty paid by the producer satisfied the royalty obligation under “market value at the well” leases. We are pleased to report that producers were able to obtain much needed clarification of the legal principles applicable to gas sold at the well. Fawcett v. Oil Producers, Inc. of Kansas, 302 Kan. 350, 352 P.3d 1032 (Opinion filed July 2, 2015). In Fawcett, the Kansas Supreme Court held that a good faith sale to a purchaser at the well satisfies a lessee’s duty to market gas. As a result of this decision, several pending class actions against our producer clients were dismissed.
3-D Seismic and Unitization. We have substantial experience in defending producers in oil & gas exploration cases where an understanding of the technical aspects of 3-D seismic is of critical importance. In 2009 we successfully defended an operator from a royalty owner claim that unitization of acreage resulted in an unfair allocation of production because more reserves were located on the plaintiff’s acreage than on his neighbor’s acreage. Expert witness testimony based on interpretation of 3-D seismic data established that the oil reservoir straddled the two tracts that were unitized and than an allocation of royalty based on a 50-50 basis was fair and reasonable under the prudent operator standard. Frank v. Palomino Petroleum, Inc., et al, Case No. 07-CV-6, District Court, Ness County, Kansas (Memorandum Decision & Order, January 13, 2009).
Ad Valorem Taxes. In South Central Kansas, completions that involve fracking have greatly increased production of oil & gas, along with formation water. The expense related to disposal of high volumes of formation water must be recognized in order for ad valorem tax assessments to be based on the fair market value of the lease. Unfortunately, some appraisers have refused to acknowledge the higher expenses associated with disposal of large volumes of formation water in assessing ad valorem taxes. In the Matter of the Equalization Appeal of Woolsey Operating Company LLC, Court of Tax Appeals Docket Nos. 2009-8890-EQ, et al, (April 24, 2012), COTA reversed the tax assessments on 28 separate leases and lowered the tax to take into account that the higher expenses associated with disposal of formation water on those leases must be recognized even though such expenses exceeded the amount set forth in the PVD Guide for the average well. Barber County, Kansas, did not appeal COTA’s decision. On August 12, 2012, the Wichita Eagle reported that this decision caused Barber County, Kansas, to lose $400,000.00 in ad valorem taxes on an annual basis. In the 2013 Tax Year, the Board of Tax Appeals (“BOTA”) again reversed Barber County on its assessment of ad valorem taxes on eight oil & gas leases. In the Matter of the Equalization Appeals of Woolsey Operating Company, LLC, Docket Nos. 2013-5718-EG through 2013-5725-EG (Order filed September, 2015). A refund is owed in the approximate amount of $350,000, plus interest in this docket. Based on this decision, Barber County agreed to refund ad valorem taxes in the 2014 Tax Year to the same taxpayer in an amount in excess of $300,000. Our experience in working with engineers in the calculation of decline rates and the ultimate recovery of oil & gas reserves has been very helpful in these cases.
Representative Clients: BP America Production Company (formerly Amoco Production Company); Harris Oil & Gas Company; J. Fred Hambright, Inc.; Lario Oil & Gas Co.; Woolsey Operating Company, LLC; EOG Resources, Inc.; Ensign Operating Company; Palomino Petroleum, Inc., Messenger Petroleum, Inc.