## Facts

- Texas American Energy Corporation succeeded to the assets of Western Kentucky Gas Company, a utility that purchased natural gas in Texas and Louisiana and transported it to Kentucky.
- Western operated multiple underground natural gas storage fields in Kentucky, consisting of sandstone reservoirs surrounded by impervious strata.
- The parties agreed that once gas was injected into the storage formations, it could not migrate outside the designated reservoirs and remained under the owner’s control.
- Texas American entered into a $24,000,000 revolving loan agreement with Citizens Fidelity Bank & Trust Company (lead lender) and other participating banks to finance periodic purchases of natural gas.
- As collateral, the parties agreed the lenders would receive a security interest in Texas American’s gas in storage, documented as a UCC Article 9 security interest rather than a real estate mortgage.
- A dispute arose over whether gas that had been extracted, transported to Kentucky, and reinjected into underground storage was personal property (subject to Article 9) or an interest in real estate (requiring a mortgage).

## Issues

1. Whether previously extracted and owned natural gas, after being injected into controlled underground storage formations, is personal property subject to a UCC Article 9 security interest or real property requiring a real estate mortgage to encumber.

## Decision

- The Kentucky Supreme Court reversed the Court of Appeals and reinstated the trial court’s declaratory judgment.
- The court held that the injected, stored natural gas remained personal property and did not become an interest in real estate merely because it was placed back underground.
- The court concluded that a lien on the stored gas could be created through a UCC Article 9 security interest; a real estate mortgage was not required for a lien on the gas itself.
- The court adopted the trial court’s amended opinion as its own.

## Legal Principles

- Natural gas that has been severed from land and reduced to possession is personal property.
- Reinjection of owned gas into an underground storage reservoir does not, by itself, convert the gas into real property when the gas is confined within the reservoir and remains under the owner’s control.
- The “wild animal” analogy for fugacious minerals does not control where modern storage practices prevent migration and permit continuous control.
- A security interest in stored, owned natural gas may be created and governed under UCC Article 9 as personal property collateral, distinct from any real property interests in the storage formation.

## Conclusion

The court classified reinjected natural gas stored in non-migratory underground formations under the owner’s control as personal property, allowing lenders to take an enforceable Article 9 security interest in the stored gas without using real estate mortgage formalities.


Texas American Energy Corp. v. Citizens Fidelity Bank & Tr. Co., 736 S.W.2d 25 (Ky. 1987)