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Exxon Mobil Corporation v. Wyoming Oil and Gas

March 15, 2013

EXXON MOBIL CORPORATION, APPELLANT (PETITIONER),
v.
WYOMING OIL AND GAS CONSERVATION COMMISSION AND DENBURY ONSHORE, LLC, APPELLEES (RESPONDENTS).



Appeal from the District Court of Natrona County The Honorable W. Thomas Sullins, Judge

The opinion of the court was delivered by: Davis, Justice.

Before KITE, C.J., and HILL, VOIGT, BURKE, and DAVIS, JJ.

NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be made before final publication in the permanent volume.

[¶1] The Wyoming Oil and Gas Conservation Commission approved Cimarex Energy Company's plan to reinject waste carbon dioxide and hydrogen sulfide into a producing natural gas formation in southwest Wyoming, over the objection of Appellant Exxon Mobil Corporation. Exxon unsuccessfully sought to overturn the Commission's decision in the District Court for the Seventh Judicial District, and now appeals the district court's order affirming that decision to this Court.*fn1

[¶2] The parties present a number of issues in their comprehensive briefs, but review of the complete record and oral argument allow us to distill the issues which we must decide down to two, which we restate below. As to the second issue, we will affirm. As to the first, we reverse and remand to the district court with directions that this case be remanded to the Commission for the purpose of making appropriate findings.

ISSUES

[¶3] 1. Did the Commission provide adequate findings of fact as to whether Cimarex's plan to reinject carbon dioxide and hydrogen sulfide would result in waste of natural gas and improperly interfere with Exxon's correlative rights?

2. Should the Commission have granted Exxon's petition for a rehearing due to Denbury Onshore's acquisition of Cimarex's interests in the production unit where the proposed injection well would be located and its announcement of a plan to eventually sell carbon dioxide produced on that unit?

FACTS

[¶4] Cimarex and Exxon hold mineral interests which permit them to produce gas on the Moxa Arch, a large anticline located in the Green River basin of southwest Wyoming. Since 1986, Exxon has produced natural gas from the Madison strata underlying its Lake Ridge and Fogarty Creek units, which are to the south of Cimarex's much smaller Riley Ridge unit. The Madison strata, which are 15,880 feet to 16,778 feet below wellhead in this field, consist primarily of porous and permeable dolomite and limestone and have historically yielded Exxon an average gas stream composed of 21% methane, 7.4% nitrogen, 0.6% helium, 66% carbon dioxide, and 5% hydrogen sulfide.

[¶5] The "methane cut" or percentage of methane in the gas stream available to Cimarex is four to five percent lower than that available to Exxon because Exxon's Lake Ridge and Fogarty Creek units sit atop the crest of the Moxa Arch while Cimarex's Riley Ridge unit is located on the downslope of the anticline. This geologic feature and the effect of gravity cause higher concentrations of heavier carbon dioxide under Riley Ridge than are found under the higher Exxon Lake Ridge and Fogarty units, where lighter methane gas has been more concentrated.

[¶6] Riley Ridge methane has been siphoned up the anticline to Exxon's wells as a result of a pressure gradient created by twenty-five years of production by Exxon and no production by the leaseholders of Riley Ridge. Due to Exxon's production, bottom-ofthe-well pressure throughout the Madison strata has been reduced by three to fifteen percent of its original level, with the greatest decreases on the crest of the Moxa Arch.

[¶7] While Exxon produced and processed methane gas at its Shute Creek sour gas plant some forty miles to the south of the units discussed above, Cimarex's predecessors and eventual partners in interest, including Wold Oil Properties, had to acquire and consolidate numerous Riley Ridge working and overriding royalty interests over time in order to own interests sufficient to make production on that unit economically viable. Once the required acquisition and consolidation were achieved, the Riley Ridge interests had to find a way to transport and process any methane and carbon dioxide they might produce. They tried to negotiate with Exxon to have the Riley Ridge gas processed and moved through Exxon's system, but Exxon rejected those proposals, responding that it had more than enough of its own gas to process, and that it saw no advantage to working with the Riley Ridge owners.

[¶8] Cimarex eventually developed a plan to remove the final obstacle to production. The plan involved building an innovative gas processing plant on the Riley Ridge unit and reinjecting the separated carbon dioxide and hydrogen sulfide into the Madison formation until a market which would allow it to sell stored carbon dioxide for use in enhanced oil recovery operations developed. In 2010, Cimarex applied to the Commission for a permit to use its Riley Ridge No. 20-14 well, which was located near the new processing facility, to reinject those "waste" gases back into the Madison formation at a point close to the southern boundary of the Riley Ridge unit.

[¶9] Exxon objected to the Cimarex plan, claiming that it would cause waste and compromise Exxon's correlative rights. "Correlative rights" means "the opportunity afforded the owner of each property in a pool to produce, as far as it is reasonably practicable to do so without waste, his just and equitable share of the oil or gas, or both, in the pool." Wyo. Stat. Ann. § 30-5-101(a)(ix) (LexisNexis 2011). A pool is "an underground reservoir containing a common accumulation of oil or gas, or both." § 30-5-101(a)(iii). There is no dispute that the gas described above lies in a pool as the statute defines that term. Waste is defined as pertinent to this case as follows:

(i) The term "waste" means and includes:

(A) Physical waste, as that term is generally understood in the oil and gas industry;

(B) The inefficient, excessive or improper use, or the unnecessary dissipation of, reservoir energy;

(C) The inefficient storing of oil or gas;

(D) The locating, drilling, equipping, operating, or producing of any oil or gas well in a manner that causes, or tends to cause, reduction in the quantity of oil or gas ultimately recoverable from a pool under prudent and proper operations, or that causes or tends to cause unnecessary or excessive surface loss or destruction of oil or gas;

(E) The production of oil or gas in excess of (I) transportation or storage facilities; (II) the amount reasonably required to be produced in the proper drilling, completing, or testing of the well from which it is produced, or oil or gas otherwise usefully utilized: except gas produced from an oil well pending the time when with reasonable diligence the gas can be sold or otherwise usefully utilized on terms and conditions that are just and reasonable;

(F) Underground or aboveground waste in the production or storage of oil, gas, or condensate, however caused, and whether or not ...


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