'Free Gas' Clause Makes Every Kansas Oil and Gas Lessee a Gas Utility

摘要

As the Kansas Hugoton Reservoir enters its twilight years, lessees are finding it necessary to do things to maintain production that may interfere with the form and condition of the gas they provide to lessors under a "free gas" clause. In a case of first impression, the court in Schell v. OXY USA, Inc., No. 07-1258-JTM, 2011 WL 4553091 (D. Kan. Sept. 29, 2011), held that several common variations of a "free gas" clause impose an express contractual obligation on the lessee to provide the lessor with "usable" gas. The court rejected OXY's argument that it was obligated only to provide free gas in the form and condition that the gas emerges from the well. Instead, the court held that if the gas has high levels of hydrogen sulfide, or the use of compression to produce gas impairs the delivery of free gas, OXY nevertheless has the contractual obligation to provide the lessor with gas in "usable" form suitable for domestic uses. The court explained the lessor "sole risk and expense" language by indicating it "comes into play only after the lessee has fulfilled its obligation to provide lessors with free, usable gas for domestic purposes." Id. at *8.