CASPER, Wyo. — A Wyoming gas transmission company didn't breach a contract when it stopped buying gas from coalbed methane wells in the Powder River Basin, the Wyoming Supreme Court ruled this summer.
According to a decision filed July 31, the state's highest court affirmed a Converse County District Court ruling that Momentum Energy Group Wyoming Gas Service LLC — a company that has since been bought out — didn't breach an agreement with Bowers Oil and Gas when it terminated a gas purchase contract.
The dispute — which dates back to 2009 — involves at least four companies and one contract transfer.
Bowers first established the gas purchase contract with Kinder Morgan in May 2004. Under terms of the arrangement, Kinder Morgan would transport gas from the wells in the Gillette area to a processing plant near Douglas through its Douglas Gathering System.
Most of Bowers' wells — and the pipeline, then owned by Kinder Morgan — were on lands owned by Antelope Coal Co. The companies shared the land under a deal made in 2003, which included a clause that forced shutting in or abandonment of any well within 500 feet of an Antelope mine or planned expansion.
Kinder Morgan bought Bowers gas until April 2006, when it sold the transmission lines and transferred the purchasing contract to Momentum Energy Group. Bowers continued to deliver gas via the line until July 2006, when Antelope began work to expand its mine.
Bowers shut in the wells later that year, according to court documents, and Antelope began negotiations with Momentum Energy Group to relocate and decommission the pipelines. In late 2006, Antelope paid Momentum Energy Group $10.6 million for relocation of a 16-inch line and $956,000 for removal of two smaller lines.
Because some lines were removed from the area, Momentum Energy Group lost the ability to accept gas from some in the area, including Bowers. Momentum Energy Group Vice President Steve Huckaby testified that his company would have had to spend $2 million to replace the smaller lines. By not rebuilding them, he said, the company stood to lose about $400,000 in profit. He called the company's decision to take the $956,000 and opt out of the rebuild having "a really big bird in the hand," versus taking "economic risk," according to court documents.
Bowers reactivated the wells in early 2007 and demanded that Momentum Energy Group continue transmission. Huckaby testified that he was surprised to hear from the company, having assumed all wells had been shut in and abandoned.
According to court documents, Momentum Energy Group explored options to reconnect to the Bowers wells.
The company was bought in August 2007 buy Denver-based DCP Midstream. The new owners researched a way to reconnect to wells like Bowers' in an "economical" way, according to court documents.
In early 2008, the company suffered a rupture to its main line. Repairs continued into 2009. But in August 2008, Bowers sent a letter to DCP and Kinder Morgan demanding more than $1.7 million in damages for breach of contract. Three months later, DCP terminated its contract with Bowers, saying it would be "uneconomical" to continue purchasing from the wells.
Bowers filed a complaint against the company — and former owner Kinder Morgan — in June 2009. A Converse County District Court Judge ruled in April 2011 that there was no breach of contract, citing a paragraph in Bowers' original contract with Kinder Morgan which allowed for termination under poor economic conditions.
The Supreme Court ruling confirmed the district judge's decision. Justice Michael Golden wrote that in the court's decision it was within the transmission companies' rights to discontinue the contract.
"(Bowers') apparent expectation that (MEG and DCP) would maintain a line and connection to (Bowers) at any cost was unjustified," he wrote. "... the contract contained no guarantees that gas would be produced or purchased ..."
Calls made to DCP and Bowers seeking comment were not returned. A spokesperson for Kinder Morgan declined comment.