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55-703. Regulation of production of natural gas by commission; considerations in determination of production from common sources of supply; exception for certain cities of second class. (a) Whenever the available production of natural gas from any common source of supply is in excess of the market demands for natural gas from the common source of supply, or whenever the market demands for natural gas from any common source of supply can be fulfilled only by the production of natural gas from the common source of supply under conditions constituting waste, or whenever the commission finds and determines that the orderly development of and production of natural gas from any common source of supply requires the exercise of its jurisdiction, then any person, firm or corporation having the right to produce natural gas from the common source of supply may produce only that portion of all the natural gas that may be currently produced without waste and to satisfy the market demands, as will permit each developed lease to ultimately produce approximately the amount of gas underlying the developed lease and currently produce proportionately with other developed leases in the common source of supply without uncompensated cognizable drainage between separately owned, developed leases or parts thereof.

Except as otherwise provided in subsection (b), the commission shall regulate the taking of natural gas from any and all common sources of supply within this state in order to prevent the inequitable or unfair taking of natural gas from a common source of supply by any person, firm or corporation and to prevent unreasonable discrimination in favor of any one common source of supply as against another and in favor of or against any producer in any common source of supply. In promulgating rules, regulations and formulas, to attain such results the commission shall give equitable consideration to acreage, pressure, open flow, porosity, permeability and thickness of pay, and such other factors, conditions and circumstances as may exist in the common source of supply under consideration at the time, as may be pertinent.

The commission in determining the market demand for gas from a common source of supply shall consider the reasonable current requirements for current consumption and use within and without the state, and such other factors, conditions, or circumstances that would aid in establishing the market demand.

(b) The provisions of this section shall not apply to that portion of a common source of supply which is within the corporate boundaries of a city of the second class and upon which is located a producing natural gas well which is solely owned by such city and the total production from which is consumed by and for the benefit of such city. Such well shall not be allowed to be produced in an amount which exceeds two times the amount authorized by any rule, regulation or formula promulgated by the commission pursuant to subsection (a).

The provisions of this subsection shall expire on July 1, 1988.

History: L. 1935, ch. 213, § 3; L. 1945, ch. 233, § 3; L. 1959, ch. 237, § 1; L. 1981, ch. 222, § 1; L. 1983, ch. 184, § 1; L. 1985, ch. 183, § 1; May 9.

Law Review and Bar Journal References:

Cited in discussion of cases, H. H. Lesar, 6 J.B.A.K. 149, 153 n. 30 (1937).

Amendment of 1959 explained in 1957-59 survey of Kansas law, William R. Scott, 8 K.L.R. 324, 332 (1959).

1959-61 survey of Kansas law, William R. Scott, 10 K.L.R. 271 (1961).

Survey of law, constitutional and administrative, Glenn E. Opie, 12 K.L.R. 143, 165 (1963).

Impact of conservation orders upon oil and gas leases, W. F. Schell, 34 J.B.A.K. 181, 184 (1965).

Constitutionality upheld by court, Edward Larson, 14 K.L.R. 337 (1965).

Compulsory pooling and unitization, James M. Whittier, 15 K.L.R. 307, 314, 315 (1967).

Economic and population growth, 14 W.L.J. 507, 529 (1975).

"Oil and Gas: The Corporation Commission's Role in Evaluating the Prudence of Operations in Statutory Unitization," Richard A. Forster, 24 W.L.J. 191 (1984).

"Developing the Unexplored Deep Horizons Act," Terry Torline, 26 W.L.J. 471, 492 (1987).

"Oil and Gas Law: State Production Regulation Under the Natural Gas Act Revisited [Northwest Central Pipeline Corp. v. State Corporation Commission, 109 S.Ct. 1262 (1989)]," Bradley W. Maudlin, 29 W.L.J. 123, 131 (1989).

"Recent Developments in Kansas Oil and Gas Law (1983-1988)," Phillip E. DeLaTorre, 37 K.L.R. 907, 954 (1989).

"Survey of Kansas Oil and Gas Law (1988-1992)," Phillip E. DeLaTorre, 41 K.L.R. 691, 721 (1993).

"Hugoton Gas Field: The Ongoing Battle Over Allowables, Underage, and Infill Wells," Rachel C. Lipman, 33 W.L.J. 852, 854, 856, 869 (1994).

CASE ANNOTATIONS

1. Gas proration; appeal from commission's order tried on record; evidence; duty of district court. White Eagle Oil Co. v. State Corporation Comm., 168 K. 548, 214 P.2d 337.

2. Commission has broad powers to prevent waste; may fix minimum wellhead price for gas; price fixed held reasonable; common source of supply, relative rights. Kansas-Nebraska Natural Gas Co. v. State Corporation Commission, 169 K. 722, 723, 726, 727, 730, 731, 732, 735, 222 P.2d 704. Rehearing denied: 170 K. 341, 225 P.2d 1054.

3. Production of gas governed by allowables made by corporation commission. Northern Natural Gas Co. v. Republic Natural Gas Co., 172 K. 450, 471, 241 P.2d 708.

4. Commission's order refusing to reinstate canceled underages legal and reasonable. Republic Natural Gas Co. v. State Corporation Commission, 173 K. 172, 173, 178, 179, 181, 244 P.2d 1196.

5. State not federal law applicable; order fixing price at wellhead upheld. Cities Service Gas Co. v. State Corporation Commission, 180 K. 454, 456, 460, 304 P.2d 528.

6. Commission has power hereunder to promulgate regulation requiring all gas purchasing companies to take gas ratably from all wells within the same common source of supply to which each is connected. Northern Natural Gas Co. v. State Corporation Commission, 188 K. 351, 352, 353, 354, 355, 362 P.2d 609.

7. Commission may regulate taking of gas by purchasing company as well as producer. Northern Natural Gas Co. v. State Corporation Commission, 188 K. 355, 359, 360, 362, 365, 366, 367, 369, 362 P.2d 599. Rehearing denied: 188 K. 624, 364 P.2d 668. Reversed, Northern Natural Gas Co. v. State Corp. Com'n of Kansas, 372 U.S. 84, 83 S.Ct. 646, 649, 9 L.Ed 2d 601.

8. Kansas corporation commission's regulation requiring interstate pipeline company to take gas ratably from all wells with which it was connected invaded jurisdiction of Federal Power Commission under Natural Gas Act. Northern Natural Gas Co. v. State Corp. Com'n of Kansas, 372 U.S. 84, 83 S.Ct. 646, 649, 9 L.Ed.2d 601.

9. Commission's basic order did not have effect of unitizing royalty interests. Republic Natural Gas Co. v. Baker, 197 F.2d 647, 648.

10. Provides the conditions under which the commission shall take jurisdiction over production in a gas field. Colorado Interstate Gas Co. v. State Corporation Comm., 192 K. 1, 2, 6, 19, 386 P.2d 266. Certiorari denied: 13 L.Ed. 333.

11. Act is not unconstitutional; 1959 amendment delegated no additional authority to commission. Colorado Interstate Gas Co. v. State Corporation Comm., 192 K. 29, 30, 32, 35, 36, 37, 38, 386 P.2d 288. Certiorari denied: 13 L.Ed.2d 333.

12. Cited in case denying application to amend proration order. Cities Service Oil Co. v. State Corporation Commission, 205 K. 655, 665, 668, 669, 472 P.2d 257.

13. In action for judicial review of an order of state corporation commission, applicant did not prove that basic proration order fails to comply with requirements hereof. Cities Service Oil Co. v. State Corporation Commission, 207 K. 43, 48, 49, 50, 51, 52, 483 P.2d 1048.

14. Cancellation and reinstatement of underages; when additional production needed to protect correlative rights, KCC has authority to create incentives. Northwest Cent. Pipeline Corp. v. Kansas Corp. Comm'n, 237 K. 248, 265, 699 P.2d 1002 (1985).

15. Cited; fracture treatment as consideration in formulating oil and gas proration examined. Zinke & Trumbo, Ltd. v. Kansas Corporation Comm'n, 242 K. 470, 473, 479, 749 P.2d 21 (1988).

16. "Take or pay" contracts do not require production but rather provide for payment in lieu of production. Resources Inv. Corp. v. Enron Corp., 669 F.Supp. 1038, 1041 (D. Colo., 1987).

17. Cited; KCC order amending basic proration order for Kansas Hugoton gas field to allow infill drilling examined. Southwest Kan. Royalty Owners Ass'n v. Kansas Corporation Comm'n, 244 K. 157, 161, 769 P.2d 1 (1989).

18. Regulations adopted governing timing of natural gas production violates neither Supremacy or Commerce clause. N.W. Cent. Pipeline v. State Corp. Com'n of Kansas, 109 S.Ct. 1262, 1268, 1282 (1989).

19. KCC acted within statutory authority by increasing acreage factor of natural gas infill wells. Mobil Exploration & Producing U.S. Inc. v. Kansas Corporation Comm'n, 258 K. 796, 805, 815, 829, 908 P.2d 1276 (1995).


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