Dave Brubeck Quintet We’re All Together Again for the First Time (1973) Featuring “Take Five” (1960) Dave Brubeck, Piano Paul Desmond, Alto Sax Gerry Mulligan, Baritone Sax Alan Dawson, Drums & Jack Six, Bass

LOGISTICS CLASS #25 My Exam Workshops: Tue 10/30 & Thu 12:30-1:50 Room F309 Info Memo #6 Forthcoming Soon; We’ll Go Over Group Assignment #3 Next Class DF Session Today Moved to 2:30 to Accommodate Schimel Exam Workshop Please Pick Up Practice Midterms; Me for Times to Review (Weekend OK) I’ll Adjust Assignment Sheet Saturday am to Reflect Where We Are & Info Memo #6

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) Overview Disputes Most Likely to Occur Among Various Owners of Surface Above Oil & Gas Pools Westmoreland: – Owning surface gives you only right to “hunt” – No permanent claim on unextracted oil & gas – Only way to get permanent claim is actual possession

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) DQ83. Some Alternatives First in Time – First to Extract (Westmoreland) – First to Drill into Pool Gets Whole Pool Rights Proportional to Surface Ownership – Pure Proportional Ownership – Proportional Ownership with Fair “Fee” for Labor State Ownership

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) DQ83. Pros & Cons – Westmoreland (Rule of Capture) v. – Distribution of Profits Proportional to Surface Area (w Reasonable Fee to Drillers for Labor and Risks) Assume Some Large Oil/Gas Fields Under Multiple Surface Lots Think About, e.g., Ease of Operation, Incentives, Effects on Market, etc.

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) DQ83. Pros & Cons: Preliminary Qs Westmoreland & Incentives What are people likely to do when they see that a neighbor is producing oil or gas from a well? What problems might that cause?

Argument By Analogy Westmoreland & Incentives: Wichita Falls, TX

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) DQ83. Pros & Cons: Preliminary Qs Westmoreland & Incentives What are people likely to do when they see that a neighbor is producing oil or gas from a well? What problems might that cause? – Unneeded Wells: Environmental Concerns (Baros) & Increased Cost of Extraction – Decreased Total Production (Loss of Pressure)

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) DQ83. Pros & Cons: Preliminary Qs Proportional Allocation (w Labor Fees) How do you determine where the oil or gas field lies in order to determine proportional interests? In 1889? Today? How do you decide where drilling occurs?

Argument By Analogy Oil & Gas: 1 st Possession (OXYGEN) DQ83. Pros & Cons Westmoreland v. Proportional Allocation (w Labor Fees)

Oil & Gas: “Escape” Starting Point: What Hammonds calls “Escape” the industry calls “Reinsertion”

Oil & Gas: “Escape” Factual Setting of Hammonds & White Gas pool underneath multiple surface lots All usable gas extracted from pool Gas Co. (G) uses empty pool for storage: – G has lawful access from some point on surface – G wants to extract and reinsert at will – G wants not to pay surface Os for right to store gas in the underground parts of their lots

Oil & Gas: “Escape” Factual Setting of Hammonds & White Gas Co. (G) uses empty pool for storage Hammonds = Dispute betw G & Surface O White = Different Problem – Reinserted Gas Leaked into Adjacent Gas Pool – Person with Interest in Adjacent Pool Wants to Pump Out Reinserted Gas Through That Pool

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : FActs & LEGAL CLAIM CKNG has gas extracted from different places. Stores “vast quantities of gas” in depleted underground reservoir, a portion of which is part of H’s land. H sues for trespass. Means what here? Who (allegedly) is trespassing where?

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON DQ84: Cost/Benefit Analysis Material Harm to H if CKNG stored its gas in the part of the reservoir in her land? – Alternate Uses? Very Unlikely (Shoe Storage??) – Danger from Reinsertion: Very unlikely to have leaks or explosions b/c in original reservoir surrounded by non-permeous rock + CKNG knows it’s liable for this kind of harm – Noise/Fumes: Likely no more than from original extraction; 54-acre lot mostly not affected

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON DQ84: Cost/Benefit Analysis Other Harm to H if CKNG stored its gas in the part of the reservoir in her land? – Loss of Rental Value (if she’s entitled to) – More Psychological/Abstract Harm: Unlikely to be aware of presence of gas Maybe Need to Protect All Property Rights (“Just Bugs Me That …”)

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON DQ84: Cost/Benefit Analysis Harm to H = Loss of Property Rts & Rental Value Benefits to society if gas was stored underground rather than aboveground? – Safety (See Sylvester Stallone) – Aesthetics (See New Jersey) – Cost Savings (No Tanks or Surface Space)  Cheaper Fuel Big Social Benefits Outweigh Harms Unless Great Value Given to Abstract Property Rights

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : DQ85 Why parties were not able to bargain to a satisfactory solution in Hammonds? Ordinary Transaction Costs (see Shaw & DQ28) Hammonds has little to lose from holding out CKNG has to worry about similar deals w lots of folks, so unlikely to want to give much

Oil & Gas: “Escape” Cf. Trespass & Airline Overflights Airlines want to use empty space technically owned by surface Os – High value to airline & passengers – Little value to surface Os – Bargaining very expensive (every lot from NY  LA)

Oil & Gas: “Escape” Cf. Trespass & Airline Overflights Airlines want to use empty space technically owned by surface Os Solution is Federal Statute Removing Surface Rights Above X Feet Could Do Something Similar Here – We’ll Do As Alternative to ACs in DQ93-94 – For Practice: Do Factual Comparisons to Airspace

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : Logic of Case p.90 Last Sentence: “The question is whether the gas, having once been reduced to possession and absolute ownership having vested, was restored to its original wild and natural status, by being replaced in a similar reservoir of nature, taking the place of other gas which once occupied that same subterranean chamber....” Why Relevant to Trespass?

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : Logic of Case 1.Natural Gas = Wild Animal 2.Animal Escapes Back to Wild = OO Loses Property Rights 3.THUS: Natural Gas “Escapes” Back to Wild = OO Loses Property Rights 4.OO Loses Property Rights = No Trespass PROBLEMS WITH USE OF ANALOGY?

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : Logic of Case PROBLEMS WITH THIS USE OF ANALOGY Court extends ACs analogy from 1 st possession to escape without any defense. No policy discussion at all (see DQ86) Deliberate use of reservoir while maintaining control doesn’t look like “escape” Even under Escape ACs, G could win

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : Logic of Case Deliberate use of reservoir while maintaining control doesn’t look like “escape” & even under Escape ACs, G could win – “If one capture a fox in a forest and turn it loose in another, or if he catch a fish and put it back in the stream at another point, has he not done … just what the appellee has done with the gas in this case?” – NO. More like letting fox out into walled enclosure or letting fox out having trained it to return when you call.

Hammonds v. C. Ky. Nat’l Gas Co. KRYPTON : DQ86 Upshot of Case After the case is over, what new problem does the gas company have? What is likely to happen next? Is this a good result from society’s perspective?

Hammonds v. C. Ky. Nat’l Gas Co. Miscellaneous Points Ms. Hammonds isn’t very sympathetic plaintiff, so court may be looking for way for her to lose. Note Kentucky SCt in Hail (1854) describing crude oil, then sold as patent medicine, as "a peculiar liquid not necessary nor indeed suitable for the common use of man“ (p.89) Taxation Discussion not crucial for us. I’ll write up in Info Memo for those of you who are curious. Questions on Hammonds?

White v. N.Y. Gas Co.: OVERVIEW P has rights to part of proceeds [Means?] from gas well (O’Donnell Well = OD) operated by Ds OD had not produced much gas for a long time. Ds & others using nearby well for storage of reinsertion gas. Reinsertion gas leaking underground into OD. – OD starts producing again – Ds discover gas now coming from OD is reinsertion gas & curtail production

White v. N.Y. Gas Co.: OVERVIEW Factual Dispute: Was the gas coming out of OD well stored gas or local gas? Findings: – By the time of trial all the local gas was gone – Thus, only stored gas was coming out of OD well.

White v. N.Y. Gas Co.: OVERVIEW Claim by P’tiff: (relying on Hammonds & ACs) Once reinserted underground, gas has “escaped”, so belongs to nobody (Hammonds) Thus, what comes out of OD well belongs to “captors” (owners/beneficiaries of OD including P) Ds have contractual duty to continue pumping OD well for benefit of owners of proceeds of OD White Continued Next Class

Argument By Analogy Oil & Gas: Escape (radium) Today (Below): Overview; DQ92-93 Intro to DQ94 Radiums: Next Class: DQ90-91, 94

Argument By Analogy Oil & Gas: Escape (radium) Gas Companies (G) Reinserting Gas Produces Two Kinds of Disputes: 1.Hammonds: G v. Owners of Lots Containing Part of Reinsertion Pool – Who owns gas? – If G owns gas, does G have to pay for right to use pool? – If G doesn’t own, can other Owners extract reinserted gas? 2.White: G v. Owners of Adjoining Pools: If reinserted gas leaks into reservoir not owned/controlled by G, does G lose property rights to gas?

Argument By Analogy Oil & Gas: Escape (radium) DQ94: POSSIBLE ALTERNATIVES (Pros & Cons Next Class) White Rule: Reinserted Gas = Property of Gas Co. Hammonds Rule: Reinserted Gas = Unowned (Simplified ACs) More Complex ACs (Consider marking, control, etc.) DQ 92. Oklahoma Statute (White fn 2) (See Brlow) DQ 93. “Airspace Solution to Hammonds Problem.” (See Below) Other??

Argument By Analogy Oil & Gas: Escape (radium) DQ92: Oklahoma Statute (p.95: fn2) “All natural gas which has previously been reduced to possession, and which is subsequently injected into underground storage fields, sands, reservoirs and facilities, shall at all times be deemed the property of the injector, his heirs, successors or assigns ….” = Reinserted gas remains property of Gas Co. (G) …

Argument By Analogy Oil & Gas: Escape (radium) DQ92: Oklahoma Statute (p.95: fn2) “ … and in no event shall such gas be subject to the right of the owner of the surface of said lands or of any mineral interest therein, under which said gas storage fields, sands, reservoirs, and facilities lie, or of any person other than the injector, his heirs, successors and assigns, to produce, take, reduce to possession, waste, or otherwise interfere with or exercise any control thereover, …” = … and other owners of pool cannot take reinserted gas or bring trespass action …

Argument By Analogy Oil & Gas: Escape (radium) DQ92: Oklahoma Statute (p.95: fn2) “ … provided that the injector, his heirs, successors and assigns, shall have no right to gas in any stratum, or portion thereof, which has not been condemned under the provisions of this Act, or otherwise purchased.” = … BUT G doesn’t have any rights to gas in portions of the pool that it has not paid to use via negotiated agreement or Eminent Domain.”

Argument By Analogy Oil & Gas: Escape (radium) DQ92: Oklahoma Statute (p.95: fn2) Reinserted gas remains property of Gas Co. (G) and other owners (Os) of pool cannot take reinserted gas or bring trespass action, but G doesn’t have any rights to gas in portions of the pool that it has not paid to use. If G buys rights through negotiation or eminent domain, Os cannot prevent reinsertion or take gas.

Argument By Analogy Oil & Gas: Escape (radium) DQ92: Oklahoma Statute (p.95: fn2) Reinserted gas remains property of Gas Co. (G) and other owners (Os) of pool cannot take reinserted gas or bring trespass action, BUT G doesn’t have any rights to gas in portions of the pool that it has not paid to use. If G doesn’t buy rights from Os, doesn’t own gas in those parts of pool. – Means Os can extract, but not bring trespass action. – Might mean Gs will take risk that small Os can’t afford to extract and not pay them for rights.

Argument By Analogy Oil & Gas: Escape (radium) DQ93: “Airspace Solution to the Hammonds problem.” = State statute or regulation: Reinserted gas stays property of Gas Co.(G) BUT Owners have no right to trespass action even if Gs haven't leased/bought space Like rule about airspace over surface: above certain height, no rights. Here, below certain depth, no rights (if gas extracted). Important to Understand This; We’ll Use as Recurring Hypothetical in Unit Three

Argument By Analogy Oil & Gas: Escape (radium) DQ93: “Airspace Solution to the Hammonds problem.” = State statute or regulation: Reinserted gas stays property of Gas Co.(G) BUT Owners have no right to trespass action even if Gs haven't leased/bought space Like rule about airspace over surface: above certain height, no rights. Here, below certain depth, no rights (once gas extracted)

Argument By Analogy Oil & Gas: Escape (radium) DQ93: “Airspace Solution to the Hammonds problem.” = State statute or regulation: Reinserted gas stays property of Gas Co.(G) BUT Owners have no right to trespass action even if Gs haven't leased/bought space Like rule about airspace over surface: above certain height, no rights. Here, below certain depth, no rights (if gas extracted). Important to Understand This; We’ll Use as Recurring Hypothetical in Unit Three