## Facts

- Northern Natural Gas Co. operated a FERC-certificated underground natural gas storage field in Kansas and received additional FERC certificates in 2008 and 2010 expanding the certificated area northward (the “2010 Extension Area”).
- Northern determined that injected storage gas was migrating beyond the original boundaries and alleged nearby producers’ wells north of the field were capturing that migrating storage gas.
- Northern filed a federal condemnation action under the Natural Gas Act (NGA) to acquire subsurface storage-related property interests over approximately 9,200 acres, including acreage in the 2010 Extension Area.
- The district court appointed a commission to determine just compensation, and the parties agreed the date of taking was March 30, 2012.
- The commission’s recommended award (adopted by the district court) included (i) the value of gas in and under the condemned lands as of the taking date and (ii) damages for “lost future production” associated with that gas, payable to producers and landowners.
- Northern appealed, arguing the award improperly required it to pay for storage gas it already owned and improperly included future production-based damages; producers and landowners cross-appealed on related compensation and legal rulings.

## Issues

1. Whether just compensation in an NGA condemnation may include the value of injected storage gas located beneath condemned lands on the date of taking when that gas is owned by the storage operator.
2. Whether just compensation may include damages for “lost future production” (anticipated future extraction/profits) from gas associated with the condemned interests.
3. How the characterization of the condemned estate (storage rights versus mineral/production interests) affects valuation of the interests taken.

## Decision

- The Tenth Circuit reversed the compensation award to the extent it treated operator-owned injected storage gas as property of producers/landowners and awarded its value to them.
- The court reversed the award of “lost future production” as a component of just compensation.
- The court remanded for recalculation of compensation based on the value of the property interests taken, excluding the value of storage gas owned by Northern and excluding speculative future production elements.

## Legal Principles

- Just compensation is measured by the fair market value of the property interest taken as of the date of taking, not by requiring the condemnor to pay for property it already owns.
- Injected storage gas remains the personal property of the storage operator despite subsurface migration; condemnation to secure storage operations concerns rights in subsurface storage space and related interests, not transfer of title to the injected gas.
- Anticipated future production or profits are generally not separately compensable in federal takings valuation; compensation focuses on present value of the condemned interest rather than prospective business returns.
- In NGA condemnations, state property concepts may inform what interests exist, but federal eminent-domain standards govern the measure of compensation and can limit recovery to the value of the interests actually taken.

## Conclusion

The court required a new compensation calculation because the prior award improperly valued injected storage gas already owned by the condemnor and improperly added damages for future production; compensation must reflect only the market value of the condemned property interests as of the taking date.


Northern Natural Gas Co. v. L.D. Drilling, Inc., 862 F.3d 1221 (10th Cir. 2017)