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Court Rejects Producer Challenge of Order Approving Dominion Storage Expansion

Court Rejects Producer Challenge of Order Approving Dominion Storage Expansion

A federal appeals court in Washington, DC, rejected a small producer's petition for review of a FERC order that permitted a neighboring natural gas pipeline operator to expand its underground storage facility onto the producer's property, effectively taking away its interest in the land.

B&J Oil and Gas challenged a December 2001 order that gave Dominion Transmission the go-ahead to expand its underground storage facility in central West Virginia -- the Fink-Kennedy/Lost Creek storage reservoir, which is considered one of the largest gas storage facilities in the nation. In seeking the expansion, Dominion said that third-party wells located just outside the reservoir boundary were siphoning off gas from its storage field.

B&J operates 10 oil and gas wells within the Gantz Formation, which includes the Fink Reservoir. FERC, in its decision, found that the Gantz Formation was larger than the Fink Reservoir's originally certificated boundary and that Dominion storage gas "was in fact migrating toward B&J's wells." The agency further held that preventing the gas migration outweighed B&J's property interests because the producer would be compensated for the loss of its oil and gas wells through eminent domain proceedings.

The U.S. Court of Appeals for the District of Columbia on Tuesday rejected FERC's and Dominion's arguments that B&J Oil and Gas was not "aggrieved" by the agency's action, noting that the producer will be forced to either sell its land to Dominion or allow the pipe to take it through eminent domain. But it disagreed with the producer's contention that the Commission acted "arbitrarily and capriciously" in allowing the Dominion storage area to be expanded by more than 3,000 acres.

B&J Oil and Gas said FERC failed to make a critical distinction in the case -- that "Dominion's facility stores natural gas in a non-depleted oil field (a field that still contains producible oil) rather than in the more typical, depleted natural gas field (a field emptied of producible natural gas)." The three-judge panel said it was "unconvinced" by the producer's argument.

"In deciding to grant Dominion's application, FERC followed established precedent. Specifically, when the Commission evaluates an application to enlarge a storage field boundary, it considers whether expansion is necessary to preserve the integrity of the storage field, and its 'material consideration is whether the storage reservoir has expanded and whether the company's estimations of the reservoir and protective boundaries are reasonable,'" the court said in its 11-page opinion.

"B&J cites no authority to support its claim that FERC could not apply this precedent here simply because Dominion's storage reservoir is housed in an active oil field and not a depleted gas field."

Moreover, "despite B&J's claims to the contrary, FERC did consider the effect of Dominion's application on domestic oil production -- it simply rejected B&J's position that oil supply in the area justified rejecting Dominion's application...The Commission concluded that B&J's projections of crude oil recovery were 'overstated' and that B&J currently produces only 50 barrels of oil per day from its Gantz Formation. In light of the limited oil deposits, we find nothing unreasonable about FERC's conclusion that 'the benefits of maintaining the operational integrity of the storage field...outweighed any adverse effect to B&J's interests,'" the appellate court said.

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